Sunlight, a wag once remarked while remarking about the need for “curing” tainted transactions, is the best disinfectant. The hotel industry overseas could do with loads of sunshine. The Wall Street Journal has an article on (the lack of) transparency in real estate transactons per a Jones Lang report that ranks countries in order of transparency. While the report is largely upbeat about a host of countries ranging from Japan to Germany and Italy, heretofore, countries that had a less than robust market for foreign firms, it raps (very rightly) the two biggies that are the darlings of private equity groups, particularly in the US, India and China. The two countries rank a dismal 41 and 42 out of a total of 56 countries.
These rankings only validate first hand experience at least with respect to India and to a degree China as well. With an opaque market, no title insurance and deeds that record mortgages and satisfactions going back decades, most investors in India buy commercial real estate with a combination of local savvy and plain wild west bravado. That is a shame as that country truly does have a real real-estate story. There are some tuggings towards a more orderly shelf of transactions but it is a mere drop in the proverbial ocean. India has the added drawback of acres in urban areas taken over by “squatters” who are pandered to by local politicos. China has a whole different set of disincentives not the least of which is the need to take on a local partner with murky deals with local bureaucrats who promise to get just about anything done. As the Jones Lang report knows, virtually no one has done the “round trip” just yet in either country. For now both countries can do worse than take a few leaves out of Hernando de Soto’s seminal tract “The Mystery of Capital” where the Pervian economist speaks of the need to legitimize the black market in real estate and suggests a solution for the squatters – which is to give them title! But for now investing in either country is not for the faint hearted.