In places like Dubai, where real estate accounts for 20% of GDP (compared to an average of 7% in most other countries), governments need to reconsider regulation of the real estate sector. This is necessary in order to ensure that the sector continues to be healthy, transparent, professional and anti-fragile, while keeping the whole economy in balance.
The Great Recession of 2007 has taught us a costly lesson of what it means for a real estate sector to be out of control. There was a financial loss of more than $14 trillion in the United States alone, and more than 20 million jobs were lost worldwide, according to the International Labour Organization. This was a crisis of confidence, when people’s trust in governments and businesses were at an all-time low. Unfortunately, this trend continues until this day. Therefore, governments and businesses need to find a formula to regain people’s confidence, as traditional regulation of real estate has proven ineffective.
Governments need to create and enforce high quality governance practices for the industry, while still leaving room for creativity and innovation. In Dubai, we have developed a code of governance for real estate developers, putting end users and investors at the forefront. However, Dubai still lags behind more than 40 economies worldwide, according to JLL’s Real Estate Transparency Index.
One of the reasons for this is that the real estate market does not have official, and therefore credible, access to performance indices or accurate information on supply, demand, property sales prices, ownership records and other important market variables. These things, of course, reflect on the quality of foreign direct investment (FDI) in the real estate market, as we see more individual investors, rather than high quality institutional investors. In turn, this lack of quality investors affects everything from affordable sales and rent prices to disregard for laws protecting tenants’ rights.
I am honoured to be part of International Ethics Coalition, working on global ethics standards for the real estate industry, as lack of high standards of ethics were one of key issues raised in the crisis. This work is near completion, and will add a layer of transparency to the industry.
As the MENA representative of the UN Global Compact, applying the 10 principles of human rights, labour rights, environmental protection and anti-corruption, we have discovered that, throughout the world, real estate is one of the sectors that least adheres to sustainability and best practices. Real estate, as an industry affecting everyone’s lives, should integrate stakeholders in its vision, strategies and businesses.
The industry must be held accountable, knowing that more than 800 million people do not have adequate housing, and 330 million are financially overstretched. The real estate industry has a social responsibility of solving the widening global housing affordability disaster, while discussing effective implementation of the Sustainable Development Goals. Worldwide, governments themselves have failed miserably at solving the affordability issue, and it is now up to the 5 P’s (Planet, People, Public & Private Partnership) to help find a resolution. This is not to say that governments should be allowed to wash their hands of all responsibility, but that everyone needs to work towards a solution.
The roadmap for the future of the real estate market should be based on:
1. Governments strengthening real estate market transparency, governance and resilience, linking it to the country’s vision and future.
2. Transparency, governance and affordability needs to be looked at from competiveness point of view, given their impact on a country’s competitiveness and FDI attraction capabilities.
3. Housing affordability should be at the centre of each government’s urban policies and economic strategies, in a way that capitalizes on the multiple stakeholders.
4. Continuous monitoring of the real estate market and its cycle is important for an anti-fragile real estate market that avoids crises, and cycles in a way that benefits the economy, and emerges stronger.
As UN Secretary General, Ban Ki-Moon stated: „Our times demand a new definition of leadership – global leadership. They demand a new constellation of international cooperation – governments, civil society and the private sector, working together for a collective global good.“ This very much includes the real estate sector.