REAL ESTATE - Red tape is hindering the development of the Hungarian real estate investment market - that's one of the messages to emerge from the European Public Real Estate Association conference in Budapest.

Other topics covered at the event included a delegate survey, understanding tenant needs, leverage, efficient markets and the merits of investing in a downturn.

Companies seeking to buy up Hungary's crumbling assets are faced with "cumbersome and time-consuming bureaucracy," said Lajos Bokros, CEO of the Central European University in Budapest.

The former Hungarian finance minister and World Bank director told IPE that the authorities do not want foreign investor "sharks putting their dirty hands on local property. They don't understand that local savings and capital is not sufficient to maintain the assets - and that there is no investment as a result," he said.

"Large companies can navigate the system, but not the smaller fish. As a result there are islands of excellence, but the market has not taken off."

Other speakers at the conference included Hans Grönloh of KPMG who announced that the IASB and FASB have agreed to a short-term convergence project.

He explained that the two bodies aim to have studied the differences between the two sets of standards and to have agreed a roadmap by 2008.

The FASB will study the feasibility of applying the fair value principle to the valuation of assets, including investment property; at present the US uses the cost principle.

Grönloh also noted that some 25% of EPRA members still use the cost principle due to being uncomfortable with the fair value principle. However he highlighted the fact that most real estate management companies use a profit and loss account that is in accordance with the EPRA fair value principles.

A survey of conference delegates found that they considered development activity the main factor driving the outperformance of property management companies. It scored highest in terms of share of votes, followed by alignment of interests, analyst support and tax issues including transparency, then sector focus and then geographical focus.

It was also stressed that property managers must thoroughly understand the needs of the tenant if they are to outperform the market.

Does leverage enhance return on real estate investments? Tony Ciochetti, chair of the MIT Center for Real Estate challenged this widely held view. He also suggested that, contrary to the view held by many larger asset managers, there is little correlation between size of manager and the length of their track record on the one hand and investment performance on the other, saying that "today's hero is often tomorrow's blockhead."

Piet Eichholtz, professor at the University of Maastricht noted that consistent outperformance by real estate fund managers in public capital markets is difficult because of variations in the efficiency of markets. He also pointed out that private capital markets are less efficient so outperformance may be possible.

Nancy Holland, global head of property at ABN Amro AM, drew attention to the fact that some institutional investors are reluctant to invest during a downturn and the resulting need to educate them that a downturn may well be a good time to invest because prices are low.

Adrian Wyatt, CEO of London-based Quintain Estates and Developments challenged the view that governance is necessarily a good thing. He poured cold water on the idea that a director should be replaced just because of the need to comply with the principles of "good" governance.