MIPIM: Borderless Real Estate Transactions

27. February 2014

The increasing digitisation of transaction processes is leading to a rise in cross-border activities.

All experts are in agreement: the real estate market is booming. According to a recent study conducted by the global real estate brokerage Cushman & Wakefield, the international property market is set to reach a seven-year high in 2014 with an investment volume of more than USD 1,000 billion.

The rapidly increasing volume of cross-border activities is a major contributing factor to this positive development. As a result, Cushman & Wakefield is predicting worldwide growth in this sector. In Asia and North America, for example, the figure is expected to be more than 12 percent. Cross-border activities in the EMEA economic area now also amount to more than 40 percent and continue to rise. The consultancy firm Ernst & Young’s “European Real Estate Assets Investment Trend Indicator 2013” also sees increasing cross-border activities as a key growth driver for the rising number of investments in the real estate market.

More transaction process requirements

The ongoing internationalisation of real estate transactions has led to more requirements for the processes that underpin them. Those currently wishing to make these kinds of transactions are therefore finding themselves confronted with a wide range of challenges, such as:

  • Language and communication barriers
  • Physical distance
  • Increasing legal complexity
  • Difficult access to international investors
  • More complex financing models
  • Cultural differences

Need for structured, software-supported communications processes

In order for an international property business to succeed, all parties involved must have access to all transaction-relevant documents at the same time, regardless of location. International real estate transactions often involve scores of due diligence specialists simultaneously poring over thousands of written documents. This process therefore requires an efficient software and communications solution. Over the last few years, virtual data rooms have increasingly been used for online due diligence processes. According to our study, “Business-critical transactions and virtual data rooms – trends 2013,” more than 35 percent of all business-critical transactions have already involved the use of virtual data rooms, and the number is steadily rising. This development facilitates the increase of cross-border activities during real estate transactions, as this increasing internationalisation of transaction activities would not be possible without the appropriate range of software tools.

An efficient approach to the question-and-answer process

Standardised processes, such as integrated question-and-answer tools, ensure seamless and more efficient operations. Experience shows that answering Q&A enquiries and providing the requested information are enormously time consuming and can delay the finalisation of a transaction by several weeks. However, using a Q&A tool adapted for the project, questions can be quickly and securely sent to the appropriate specialists via an automated process to ensure a swift answer. This works particularly well for complex cross-border projects. The process avoids floods of (unsecured) emails, faxes, calls, and Excel libraries, enabling a streamlined, sustainable flow of communication between the parties involved.

Outlook

Drooms can also confirm the upward trend in cross-border activities as part of real estate transactions. The share of international real estate transactions processed using our data room currently amounts to around 40 percent of all projects.

For those currently planning to launch international projects, we recommend taking the following aspects into consideration:

  • Multilingual software
  • Support in various languages (from native speakers)
  • Multilingual index composition
  • Q&A processes that are individually configurable at multiple levels