Regulation of Real Estate Markets – The Expectation Game

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How does a regulatory framework enhance investor confidence?

What is the right balance of regulatory requirements to connect the goals of both regulator and investor?

How can the private sector help to stimulate investor confidence and appetite?


A clear regulatory framework is crucial to establish initial investor confidence and a consistent application/enforcement of regulations is critical to maintain this confidence.The objective of regulation should be targeted and effective to address market failure/inefficiencies, protect consumers and promote investor confidence.

Active participation by local and regional investors may encourage international investors in a market but the private sector alone can rarely stimulate investor confidence. The absence of clear market regulation will lead to the market suffering long-term credibility issues.

A transparent legal, financial, and entitlement framework is needed to provide relative comfort and confidence for investor entry and exit.

The challenge lies in achieving the right balance between a Government-led regulatory framework and industry/self-regulation to balance the goals and objectives of both regulator and investor.


Why is regulation of real estate markets needed?

Regulation seeks to prevent or address market failure and, in doing so, protect those involved thereby promoting:

  • Efficient markets
  • Protected consumers
  • Competent practitioners
  • Well run businesses
  • Confident investors

Effective regulation increases consumer protection without placing unnecessary burdens on the market, businesses and/or their clients.

Consistent, proportionate and transparent application/enforcement of regulations is critical to maintain such confidence.

Who should regulate – Government or self/industry regulation?

The legislative and regulatory framework should facilitate effective business practice with appropriate customer/consumer protection in a simple, non-bureaucratic way.

However, Governments often find it difficult to do this in a way that reflects the nature of the market, rather than the structure of the Government departments.

Difficulties arise due to a variety of factors including the nature of legislation arising over time, the structure and different policy priorities of Government departments, and limitations on business experience and expertise amongst Government staff.

Government regulation is costly, does not always achieve what is desired and can be inflexible in a rapidly changing world. Government regulation should be a last resort when needed to address and/or mitigate the risk of:

  • Market failure
  • Poor practice
  • Unregulated information
  • Low standards
  • Reputational risk or failure

Government should regulate only:

  • having demonstrated that satisfactory outcomes cannot be achieved by alternative, self-regulatory, or non-regulatory approaches; and
  • where analysis of the costs and benefits demonstrates that the regulatory approach is superior to alternative, self-regulatory or non-regulatory approaches; and
  • if the regulation and the enforcement framework are to be implemented in a fashion which is demonstrably proportionate, accountable, consistent, transparent and targeted.

As businesses better understand the market in which they operate, perhaps it is better for Government to set a framework which establishes a level playing field for industry within which private sector self-regulation can best operate?

How does professional/industry regulation operate?

As an alternative to prescriptive Government regulation, self-regulation by industry/professional regulation can deliver benefits without the increased bureaucracy and burdens that can come from Government-imposed regulation.

The private sector better understands and reflects the structure of the market and can focus on inefficiencies and poor standards, thus protecting the consumer, without the risk of unnecessary bureaucracy and/or unintended consequences.

However, industry-based regulatory schemes such as voluntary, industry codes of practice can sometimes fail to address both problems in the market or improve consumer protection if appropriate incentives or sanctions aren’t also in place to support them or if the code is only adopted by a proportion of a market

Self-regulation can have teeth when delivered by a professional body with an arms-length regulatory structure.

Self-regulation is fundamental to any profession. In addition to technical expertise, in a professional body, ethical standards create the basis for sound regulation in the public interest. Professional ethics distinguish professionals from other practitioners, and provide confidence to clients and investors.

The reputation of professionals and firms and the public interest are likely to be closely aligned. If/when informed, members of the public seek services from members of professional bodies/regulated firms because they know that they will receive good quality services, professional technical and ethical competence. This in turn will incentivise positive behaviour and consumer protection.

Case Study: the RICS (Royal Institution of Chartered Surveyors) model – what does it regulate?

The RICS model provides professional or self-regulation through:

  • Quality assurance of common standards set by professionals with technical expertise
  • Arms-length regulation to ensure independent monitoring of rules of conduct
  • Risk based approach to monitoring
  • One touch wherever possible to ease the burden on businesses i.e. effective and efficient
  • Public protection with independent redress

This model provides quality assurance in a professional environment that will increase confidence of investors, clients and consumers.

As a global professional body, the RICS provides the benefits of self-regulation across the global real estate sector thereby allowing the profession to:

  • Balance the burdens of regulation with the benefits of regulation for the consumer and the profession as a whole
  • Reflect the growing internationalisation of the profession
  • Avoid stifling innovation
  • Keep pace with the speed of developments, in technical areas and in business systems and structures
  • Avoid setting up unnecessary barriers to career opportunities and progression


Regulation can be very costly to business, and the cost can easily be under-estimated, particularly by Government. The objective of regulation should be targeted and effective to address market failure/inefficiencies, protect consumers and promote investor confidence, combined with care to ensure that the scope of regulation is not cast too widely nor applied too bureaucratically.

Over-regulation can make real estate professionals less rather than more competitive in the market place – and their clients/consumers will bear the cost in the long run. Self-regulation can get the balance right – to raise quality, protect clients and consumers while supporting economic growth by minimising burdens on business – because it is designed around the business and client need, not Government structures.

A simple Government regulatory framework is needed to provide a level playing field field for industry within which private sector self-regulation can best operate rather than strict, central control that attempts to second guess how a market can or will operate.

Given the right framework, self-regulation is perhaps better at getting the balance right to achieve investor confidence.

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