Speaking with one voice
Real estate markets are globalising and so are the rules that govern them. Everything, from the regulation of accounting and tax practices to fund management and governance arrangements, is going global, or at least edging in that direction. Even public policy makers are collaborating in purpose-built international networks, such as the International Organisation of Securities Commissions (IOSC) and the International Accounting Standards Board (IASB).
All this means that it makes sense for the representatives of national real estate sectors to think about doing the same.
The traditional challenge for the real estate market was to engage with local policy makers to inject common sense into the political process. The goal was rational regulatory regimes, realistic tax systems and forward-looking planning policies.
Governments are consistently poor policy-makers, especially when dealing with the real estate and capital markets, neither of which they understand.
Only the incurably optimistic can believe bureaucrats will design more efficient regulatory systems simply because they rack up more frequent-flyer points conferring with their international colleagues. It’s more likely that in international environments regulators will become less accountable as they lose touch with their domestic marketplaces.
Another challenge arises where governments contract out rule-making to international bodies, often with perverse results.
The IASB is currently crafting a single set
of accounting rules, a sort of Esperanto of bean-counting that aims to improve international investment flows and encourage market transparency while reducing business overheads.
This is a virtuous project. It’s a shame that the Australian real estate market learned the hard way that rules hatched in pristine policy test tubes are not immaculately conceived.
The IASB’s rules on the accounting treatment of equity and debt in trusts rendered Australian REITs with a net asset value of zero. It’s a sorry situation when so called ‘international harmonisation’ reduces the international comparability of REITs, lifts compliance costs, muddies the transparency of companies and confuses investors. Indeed it’s the dead opposite of the IASB’s reason for existence.
The debacle is now fixed, of course; but no thanks are due to the international rule maker.
Over the past decade, the real estate sector has learned the political ropes. It has resourced its representatives, which are now active in the public policy food chains of many countries. Some even aim to act as the political arms of their real estate industry.
This drive to become a player in public policy-making occurred at a time when the business of real estate became highly politicised.
These days, governments rarely hesitate to intervene in the market. Higher property taxes on a broader number of bases, more intense regulation of building design, mandatory sustainability targets, tough investment rules and affordable housing requirements are familiar features of many advanced real estate markets.
The twin trends of increasing politicisation and greater global integration of real estate markets make international policy-making an important new sphere of political agency.
Several speakers at NAREIT’s recent Chicago conference talked of “financing globally and managing locally”.
NAREIT chief Steve Wechsler spoke of the benefits that would flow from a “similar platform to invest in public real estate around the world”.
He got people thinking about the benefits of forging a global public policy network for the real estate sector. The alternative is to leave the shape of international real estate regulation to bureaucrats and politicians.
Real estate investors aren’t alone in seeking an alternative to the cosy closed shop of international regulators. In 2003, then US Secretary of State Colin Powell remarked that the problems facing a globalised world were too complex for governments to address without help from the private sector and community groups.
He observed that globalisation meant
industry players were developing their own
foreign policies. “Welcome to the club,” he said dryly.
The World Bank and UN are encouraging public policy alliances that include, to use the jargon, “non-governmental actors”. In other words, practical people with lots of experience.
The lessons of global approaches to everything from the Basle accord to fighting crime and drugs,or AIDS and malaria, show that state-based entities achieve more when they work with private sector and community players.
Thus the rise of what World Bank commentator Wolfgang Reinicke has called “the other world wide web – global public policy networks”.
So, what would such a network for the real estate sector look like?
We can junk the idea of a “united nations of real estate”.
A better starting point is Mark Granovetter’s concept of the “strength of weak ties”. In other words, loose alliances where partners try harder and communicate more clearly because they don’t rely on the comfort of strict constitutions, methodologies and conventions.
A real estate alliance could develop proposals for international rule makers and regulators. The goal is to engage them strategically by offering policy solutions rather than gripes.
Potential priorities could include real estate taxes including treaties, withholding taxes, thin capitalisation rules and foreign investment fund rules.
In the accounting arena the alliance could look at governance and reporting conventions and beyond that at voluntary industry standards, terminology and performance measurement and the real estate sector’s brand.
In the public real estate market, NAREIT and EPRA already do very valuable work on real estate reporting formats and are talking to the IASB. There are opportunities to widen the scope of collaboration.
In a global world, we need to modernise our advocacy tools and develop more shrewd networks of international collaboration. The goal remains to define our own destiny as an industry.