John Mackris, MAI, MRICS is an Executive Director within the Valuation & Advisory (V&A) group of Cushman & Wakefield Inc., a full-service worldwide real estate company with over 43,000 employees. Cushman & Wakefield’s V&A group provides advice on real estate equity and debt decisions to clients on a worldwide scale and comprises 1,670 professionals located in more than 130 offices in 30 countries worldwide. The group’s capabilities span valuation and advisory services relating to acquisition, disposition, financing, litigation, and financial reporting, and 18 practice groups deliver real estate strategies and solutions to clients with unique operational, technical and business requirements. Mr. Mackris is also a Midwest Region Leader within C&W’s Retail Industry specialty group.
How would you currently describe the US real estate appraisal industry and what shifts do you expect throughout 2017?
The US real estate industry has been evolving at an accelerating pace over recent years due to advancing technology and better equipped professionals. Access to an extensive level of market information at the appraiser’s finger tips combined with more sophisticated software to analyse this information has resulted in much more credible and supportable valuations. While the number of US-based appraisers has declined by about 2.5 percent per year over the last decade, the number of appraisals has increased, as appraisers have become more efficient. Over the next five to 10 years, this trend of fewer appraisers is anticipated to continue due to retirements, fewer new people entering the appraisal profession, economic factors, and increasing government regulation. The question is whether the rate of appraiser efficiency can continue; if not, expect appraisal fees and turnaround times to rise.
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Specific to 2017, appraisers will need to be cognizant of the Trump administration’s new tax and deregulation policies, and how they will impact various types of real estate in different geographic locations. Most investors are anticipating lower corporate and personal income taxes, but potentially higher border import taxes. The implications of tax policy combined with deregulation will potentially have a varied approach across the US real estate market. Real estate in import-oriented areas might suffer, while areas with heavy manufacturing geared to domestic consumption will benefit. Overall, most economists are anticipating strong economic growth compared to the Obama years, where GDP growth hovered in the 1.0 to 2.0 percent range. If GDP growth reaches the 3.0 to 4.0 percent level, appraisers can anticipate significant changes in almost all property types, with new development and adaptive re-use becoming an increasing part of the assignment log. Strong economic growth, however, will also bring interest rate hikes from the Fed, which would push borrowing costs upwards and change investor purchasing assumptions. The key for appraisers in 2017, and more so than in years past, will be constant market research and understanding the factors that are driving each transaction.
What would you say are the biggest challenges facing real estate appraisal companies in the US?
There are many challenges facing appraisal companies, such as finding and retaining good employees, or staying compliant with an ever-growing barrage of governmental regulations, but these are not new to the industry. What has changed over the last decade is the need to incorporate more technology into the process and balance this against an overreliance on technology. Appraisal has often been described as a combination of science and art, with “art” being a synonym for common sense and experience. While the next generation of appraisers, or “millennials,” bring a strong technical skillset to the field, the key for this generation will be whether they can transition back to the basics of primary research. In laymen terms, this means picking up the phone and talking to market participants rather than simply searching on Google. With an ever-aging base of appraisers, this transition will be critical to good quality valuations in the years to come.
Do you foresee the need for legislative change in the near future, if so why?
Yes, there is a strong need for legislative change in the near future. The appraisal process has become more costly, more complicated, and less productive due to out-dated regulations. The federal regulatory structure for real estate appraisals (FIRREA) has not changed since 1989. As a result, appraisers have to deal with a layering effect of rules and regulations that discourages new people from entering the field, while also decreasing appraiser profitability. As an example, the industry has seen several new, time-consuming regulations pertaining to the role many senior appraisers conduct as a supervisor-appraiser to a trainee-appraiser. In discussing these new regulations with my peers, many have elected to drop plans they had for new hiring as they felt the time, cost, and effort of staying compliant were not worth the benefits afforded by the new hire. The Appraisal Institute is fighting to reduce the number of regulations, but it will take time to reverse the increased regulatory trend over the last decade.
In your opinion, what would be the best approach to modernize the US appraisal regulatory structure?
Often times, appraisers work in multiple states. This is common among appraisers who reside near their state border, and appraisers that specialize in unique property types, in which their expertise is in demand across a wider geographic area. As an appraiser based in Chicago, I often complete assignments in the nearby states of Wisconsin and Indiana. And as a specialist in retail shopping centers, I cover a territory which comprises the entire Midwest region of the US consisting of nine states. Needless to say, completing each state’s licensing regulations can be time consuming. What makes this process frustrating, however, is that these states all have slightly different requirements for education, reporting, application dates, and regulatory fees. While they all share the same goal of ensuring the integrity and professionalism of appraisers within their states, their varied regulations add unnecessary burdens on industry professionals. A simple solution would be if each state could outsource its regulation to a single interagency firm and provide a multi-state license. Or, at a bare minimum, each state should try and synchronize its regulations with the neighbouring states.
In your role, what are the main challenges you encounter and how do you work alongside your clients to overcome these?
An appraisal assignment contains many steps in a process, with the finished product comprising the final appraisal report. The first step is gathering property-specific information, such as rent rolls, leases, operating statements, etc. Gathering this information from the property contact as soon as the assignment is engaged is critical to an on-time delivery, as often times it may take the property contact several days to gather and deliver these items. Once delivered, the appraiser can then commence his or her analysis. The initial receipt of this information can often open up a need for additional items, which can then add pressure to the promised delivery date. Over the years, I have found that effective communication with my clients regarding the nuances of the property and what property-specific information is needed can effectively eliminate the need for deadline extensions. Some clients have realized that they can facilitate the process by informing their borrowers of what items will be needed prior to appraiser engagement, which can eliminate days of waiting.
Looking at the work of your peers, and in your past experience, how would you say the role of a real estate appraiser has changed over the past 20 years?
Surprisingly, the role of appraisers over the past 20 years has stayed the same more than it has changed. The market still looks to appraisers for the insight, expertise, knowledge, and unbiased view of market value. While technology has changed the process of appraising, the appraisers’ role, fortunately, has not changed. If appraisers are true to their mission, they can offer market participants an impartial view a property’s value, and the state of the micro- and macro-market in which it is situated. In an environment often tainted by varied interests, nothing can be more valuable than a real professional’s unbiased opinion.
With real estate markets in a bubble of volatility from year to year, mortgage rates due to rebound, and increasing purchase struggle for first time buyers, it’s about time we looked back through the years and really understood how we’ve arrived where we are today. This month Finance Monthly has heard from Tracie Pearce, Head of Mortgages at HSBC. Tracie gives us a rundown of mortgage history from day 1, and points towards the shifts that are set to further shape how buyers afford their bricks.
I’ve always had misgivings about birthdays. But a 21st industry birthday taking us back to 1996, the year when the British Olympics team won 15 medals in Atlanta, Trainspotting was released and just 16% of households had mobile phones, feels worth a little retrospection. A lot has happened!
In 1996, I was an assistant analyst at specialist lender Sun Bank based in Stevenage, building and maintaining PCs and hardware for mortgage platforms. In that same year, 1996, a handful of lenders formed the Association of Residential Letting Agents (ARLA) marking the beginnings of the buy-to-let market with industry self-regulation in the shape of the Mortgage Code emerging the following year.
Through the 1990s, the building society sector, which did 72% of lending in the mid-80s saw further demutualisation but by 2000, the banks held sway with 70% of gross mortgage lending and mortgage brokers were estimated to be introducing just over half of this business.
The rise of the mortgage adviser
The early naughties saw the rise of the intermediated mortgage market, which brought mortgage choice and mass regulatory compliance ahead of the advice industry’s regulation on M Day, on 31 October 2004.
Disclosure documents including the Key Facts Illustration (KFI) became mandatory and more importantly advisers became Directly Authorised (DA) or Appointed Representatives (AR) to networks to comply with regulation.
The 2000s were arguably a fantastic time for the majority of mortgage consumers with immense mortgage product choice and loss-leading two-year fixed rates. There was easy access to credit fuelled by lender competition and record house price inflation hit 26.5% in January 2003, according to Nationwide.
On the timeline, was when I was lucky enough to be involved in launching The Mortgage Works brand. The market was buoyant, spirits were high and product innovation relatively fast and furious. It was around this time that the market moved from a position of bespoke products and pricing calibrated by risk, to more of a mass market offering and more agile processing timescales. Lenders were investing in automation, including conveyancer and valuation instructions and time to offer shortened to around 10-14 days, not so far from where we are now.
Mortgage Strategy ran a hero and villain of the week column and all the lenders were vying for the hero of the week position but desperate to avoid being called out as the villain. It was just a bit of fun, but certainly showed what was motivating product teams at the time.
The economic crunch
Meanwhile, the downside, of course, was that this perceived ‘magic porridge pot’ of equity also arguably softened the perception of borrowing risk for lenders and customers alike. By 2007, gross mortgage lending had ballooned to hit £360bn – and then, the market imploded as the credit crunch hit.
The bleak economic period and soul searching that followed handed culpability to borrowers, lenders, advisers and the credit reference agencies, alike.
One of my most vivid memories was Thursday 6th November 2008 when the Monetary Policy Committee slashed Bank Base Rate from 4.5% to 3% in one go, a really deep cut! The market was shocked. In the days and weeks that followed, products were withdrawn, lending criteria tightened and lenders retrenched to serving their direct channels first.
The FSA, was abolished on 1st April 2013 and replaced by a twin peak FCA/PRA regulatory system, with a new steely zeal for conduct regulation under the leadership of CEO Martin Wheatley.
The Mortgage Market Review was initially signposted in 2009 but took until 26 April 2014 to finally arrive after full consultation. For a period, lenders struggled to meet consumer demand as they embedded processes and training to give advice (in some channels) for the first time. Brokers leaned in to bridge this capacity gap and the industry (on the whole) gave the regulator credit for an exhaustive, clearly-trailed process.
In October 2014 HSBC entered the intermediary market for the first time, which was one of the single biggest strategic changes the bank has ever made on the mortgage side. As the adviser market’s star rose and the regulatory landscape changed, the bank made a commitment to the intermediary market, which has brought successes for both sides and clear benefit for customers.
We started with a pilot one intermediary partner – Countrywide – and London & Country joined the panel in August 15, over the last 18 months, we have been methodically and systematically expanding our reach and we now have 16 intermediary partner firms, with around 7,000 individual brokers, with more on the immediate horizon.
We are committed to working effectively with our broker partners, ensuring the best products and customer service as well as continuous improvement to deliver a market-leading customer experience.
So, George Osborne’s focus on landlords and the buy-to-let market almost brings us up to date. The Chancellor announced changes to mortgage interest tax relief in 2015 which will gradually be reduced to 20% between 2017 and 2020. The Stamp Duty surcharge of 3% was introduced from April 2016 was the next in a raft of affordability-focused, tweaks, joined the rule changes bringing in tighter underwriting on 1 January.
Inevitably the plethora of rule changes have slowed it down a little but the market is professional and I believe it is resilient. I believe it has the strength to recover, albeit it may be in a slightly different guise. As lenders have adjusted credit criteria, landlords will rethink how they choose to invest.
Looking forward to evolution
The last 21 years have been a whirlwind, and there is no doubt the next 21 years in this industry will bring more change, surprises and evolution than the last.
Mortgage lenders are on the horns of several dilemmas. Lenders understand the value of common sense lending into sectors like later life, interest-only or self-employed mortgages but must be considerate of capital adequacy and conduct.
Speaking more broadly, the demographic imperative is that the UK must build more homes and the buy-to-let market remains key to the overall health of the housing market, so should be left to adjust and recover. Not all customers can or want to own their own homes so it is just as important to help those who want to rent a property. The government has recognised this with its commitment to supporting mixed tenure homes.
What about the adviser?
Advice will remain central to the mortgage process, but I suspect honed and supported by technology. Digitalisation is set to reinvigorate the homebuying and mortgage application journey for consumers. This could mean automated confidential documentation exchanges allowing all parties in the process easy access to the same proofs of identity or even online passports which offer instant authentication.
We are going to see more screen-to-screen technology supporting the customer conversation at the front-end, for example with a tablet or mobile device from the comfort of the customer's living room.
For the adviser, online fact finds will help speed up the advice process and authentication of documents and I see Digital Advice, known more generally as RoboAdvice, working particularly well for an execution-only sale for seasoned remortgage customers who may choose to sidestep or not need face-to-face advice.
I strongly believe that those who work in the mortgage industry are very privileged to work with a product that has such a deep emotional connection for the customer.
Getting your first home, buying a bigger home to start a family in, or somewhere to retreat to if your relationship breaks down are all hugely impactful purchases. It is our pleasure to do everything we can to help people through this process. HSBC aims to empower customers with the right tools and advice to help them become knowledgeable as homebuyers and learn as much as they want to during the process.
The competition commission reporting in the summer will have plenty to say on how we could achieve this and benchmark good practice. But it’s safe to say we’ll have just as much to do and think about over the next 21 years.
Website: https://www.hsbc.co.uk/1/2/
With real estate markets in a bubble of volatility from year to year, mortgage rates due to rebound, and increasing purchase struggle for first time buyers, it’s about time we looked back through the years and really understood how we’ve arrived where we are today. This week Finance Monthly has heard from Tracie Pearce, Head of Mortgages at HSBC. Tracie gives us a rundown of mortgage history from day one, and points towards the shifts that are set to further shape how buyers afford their bricks.
I’ve always had misgivings about birthdays. But a 21st industry birthday taking us back to 1996, the year when the British Olympics team won 15 medals in Atlanta, Trainspotting was released and just 16% of households had mobile phones, feels worth a little retrospection. A lot has happened!
In 1996, I was an assistant analyst at specialist lender Sun Bank based in Stevenage, building and maintaining PCs and hardware for mortgage platforms. In that same year, 1996, a handful of lenders formed the Association of Residential Letting Agents (ARLA) marking the beginnings of the buy-to-let market with industry self-regulation in the shape of the Mortgage Code emerging the following year.
Through the 1990s, the building society sector, which did 72% of lending in the mid-80s saw further demutualisation but by 2000, the banks held sway with 70% of gross mortgage lending and mortgage brokers were estimated to be introducing just over half of this business.
The rise of the mortgage adviser
The early naughties saw the rise of the intermediated mortgage market, which brought mortgage choice and mass regulatory compliance ahead of the advice industry’s regulation on M Day, on 31 October 2004.
Disclosure documents including the Key Facts Illustration (KFI) became mandatory and more importantly advisers became Directly Authorised (DA) or Appointed Representatives (AR) to networks to comply with regulation.
The 2000s were arguably a fantastic time for the majority of mortgage consumers with immense mortgage product choice and loss-leading two-year fixed rates. There was easy access to credit fuelled by lender competition and record house price inflation hit 26.5% in January 2003, according to Nationwide.
On the timeline, was when I was lucky enough to be involved in launching The Mortgage Works brand. The market was buoyant, spirits were high and product innovation relatively fast and furious. It was around this time that the market moved from a position of bespoke products and pricing calibrated by risk, to more of a mass market offering and more agile processing timescales. Lenders were investing in automation, including conveyancer and valuation instructions and time to offer shortened to around 10-14 days, not so far from where we are now.
Mortgage Strategy ran a hero and villain of the week column and all the lenders were vying for the hero of the week position but desperate to avoid being called out as the villain. It was just a bit of fun, but certainly showed what was motivating product teams at the time.
The economic crunch
Meanwhile, the downside, of course, was that this perceived ‘magic porridge pot’ of equity also arguably softened the perception of borrowing risk for lenders and customers alike. By 2007, gross mortgage lending had ballooned to hit £360bn – and then, the market imploded as the credit crunch hit.
The bleak economic period and soul searching that followed handed culpability to borrowers, lenders, advisers and the credit reference agencies, alike.
One of my most vivid memories was Thursday 6th November 2008 when the Monetary Policy Committee slashed Bank Base Rate from 4.5% to 3% in one go, a really deep cut! The market was shocked. In the days and weeks that followed, products were withdrawn, lending criteria tightened and lenders retrenched to serving their direct channels first.
The FSA, was abolished on 1st April 2013 and replaced by a twin peak FCA/PRA regulatory system, with a new steely zeal for conduct regulation under the leadership of CEO Martin Wheatley.
The Mortgage Market Review was initially signposted in 2009 but took until 26 April 2014 to finally arrive after full consultation. For a period, lenders struggled to meet consumer demand as they embedded processes and training to give advice (in some channels) for the first time. Brokers leaned in to bridge this capacity gap and the industry (on the whole) gave the regulator credit for an exhaustive, clearly-trailed process.
In October 2014 HSBC entered the intermediary market for the first time, which was one of the single biggest strategic changes the bank has ever made on the mortgage side. As the adviser market’s star rose and the regulatory landscape changed, the bank made a commitment to the intermediary market, which has brought successes for both sides and clear benefit for customers.
We started with a pilot one intermediary partner – Countrywide – and London & Country joined the panel in August 15, over the last 18 months, we have been methodically and systematically expanding our reach and we now have 16 intermediary partner firms, with around 7,000 individual brokers, with more on the immediate horizon.
We are committed to working effectively with our broker partners, ensuring the best products and customer service as well as continuous improvement to deliver a market-leading customer experience.
So, George Osborne’s focus on landlords and the buy-to-let market almost brings us up to date. The Chancellor announced changes to mortgage interest tax relief in 2015 which will gradually be reduced to 20% between 2017 and 2020. The Stamp Duty surcharge of 3% was introduced from April 2016 was the next in a raft of affordability-focused, tweaks, joined the rule changes bringing in tighter underwriting on 1 January.
Inevitably the plethora of rule changes have slowed it down a little but the market is professional and I believe it is resilient. I believe it has the strength to recover, albeit it may be in a slightly different guise. As lenders have adjusted credit criteria, landlords will rethink how they choose to invest.
Looking forward to evolution
The last 21 years have been a whirlwind, and there is no doubt the next 21 years in this industry will bring more change, surprises and evolution than the last.
Mortgage lenders are on the horns of several dilemmas. Lenders understand the value of common sense lending into sectors like later life, interest-only or self-employed mortgages but must be considerate of capital adequacy and conduct.
Speaking more broadly, the demographic imperative is that the UK must build more homes and the buy-to-let market remains key to the overall health of the housing market, so should be left to adjust and recover. Not all customers can or want to own their own homes so it is just as important to help those who want to rent a property. The government has recognised this with its commitment to supporting mixed tenure homes.
What about the adviser?
Advice will remain central to the mortgage process, but I suspect honed and supported by technology. Digitalisation is set to reinvigorate the homebuying and mortgage application journey for consumers. This could mean automated confidential documentation exchanges allowing all parties in the process easy access to the same proofs of identity or even online passports which offer instant authentication.
We are going to see more screen-to-screen technology supporting the customer conversation at the front-end, for example with a tablet or mobile device from the comfort of the customer's living room.
For the adviser, online fact finds will help speed up the advice process and authentication of documents and I see Digital Advice, known more generally as RoboAdvice, working particularly well for an execution-only sale for seasoned remortgage customers who may choose to sidestep or not need face-to-face advice.
I strongly believe that those who work in the mortgage industry are very privileged to work with a product that has such a deep emotional connection for the customer.
Getting your first home, buying a bigger home to start a family in, or somewhere to retreat to if your relationship breaks down are all hugely impactful purchases. It is our pleasure to do everything we can to help people through this process. HSBC aims to empower customers with the right tools and advice to help them become knowledgeable as homebuyers and learn as much as they want to during the process.
The competition commission reporting in the summer will have plenty to say on how we could achieve this and benchmark good practice. But it’s safe to say we’ll have just as much to do and think about over the next 21 years.
According to UK mortgage lender Halifax, February saw the lowest increase in house price since July 29013, going up just 5.1% YoY. This means that house price inflation has halved over the course of 11 months.
Halifax’s housing economist, Martin Ellis says this is down to a sustained period of house price growth in excess of pay rises making it more and more difficult for many to buy a home. He says that this, alongside a reduced momentum in the job market and less consumer spending will equate to a further slowdown in inflation rise throughout 2017.
This week Finance Monthly has heard from a number of sources in the housing markets sector, to see what their thoughts are on the slowdown, and whether indeed more growth curbing is to occur in the coming months.
Neil Bainbridge, Ashcox & Stone:
Why is it slowing down? The key factor in this is uncertainty and it's slowing in some areas and not others. In Swindon, we were looking at six per cent average growth in 2016 in house sales, this year it's predicted to be around four per cent but we are only in March. So far, we've had a strong start to the year and that shows no signs of slowing down. I suspect we will be between five to six per cent by the end of the year.
We have to remember that our economy's growth is consumer led and consumer confidence is attached to our love of property and if people stop having that confidence, spending will slow, credit will slow and consequently growth will slow. it's a fragile position we are in when our economy's growth relies on the confidence of the average consumer.
Things could start slowing as people take stock and think, "if I don't sell my house or buy a new home this year, what's the market going to be like next year? Am I better off sitting tight?" Will they wait for decisions regarding Brexit, interest rates and a wealth of other economic uncertainties?
As a non-Londoner, it seems to me that that market is still very much an 'anomaly' with outside investors with strong currencies against the pound, being able to buy more for their money. However, uncertainty over Brexit may cause those people to think twice before rushing to buy that investment property if concerns over jobs being relocated overseas are realised.
Less of an impact but still one to watch is the trans-Atlantic effect of the American dollar as they consider a rise in interest rates in the USA and that's likely to have a knock-on effect on economies around the world, including here in the UK. Interest rates in the UK are likely to rise at the end of 2017, beginning of 2018 to counteract the inevitable rise in inflation, caused by the increase in food and fuel prices that we are already beginning to see. These are the sorts of headline costs that most affect consumer confidence.
Another factor to bear in mind is the massive effort by the government to put the brakes on the buy-to-let market which is causing a huge number of potential landlords or investors to avoid investing in the property market. But that's a whole other debate.
Professor Ivan Paya, Lancaster University Management School:
The results of our forecasts suggest that house prices in the national and all regional property markets will grow this year. For the UK national market, the considered forecasting models predict a slowdown in the rate of house price inflation to 3.5% in 2017 (we note that the value of the corresponding statistic in 2016 was 4.4%). Although house prices are expected to grow at a lower rate than last year, the two main factors responsible for the positive forecasted growth in the housing market are (i) the sound domestic economic conditions (mainly a healthy growth rate of consumption), and (ii) the fall in the real mortgage rate (mainly due to the recent rise in inflation rate). At the same time, we note a slight reduction in the number of housing starts in the past year, which can also explain the continued positive trend in the national property prices.
When it comes to the regional housing markets, the predicted patterns of property price behaviour vary across regions. We note that expectation about the future interest rate increases, which is an important determinant of housing dynamics in London but not in the other regional markets, is the key factor that puts a downward pressure on the house price growth in this region. On the other hand, we note a small decrease in the ratio of property prices to personal income in the last quarter for the first time since the early 2013. This measure is an indicator of housing affordability, and it has been gradually deteriorating until the third quarter of 2016, when the ratio of prices to income reached its historical maximum. The improvement in housing affordability together with the fall in the real mortgage rate and the sluggish supply of housing are all factors responsible for continued growth in London property prices. According to the forecasting results, housing inflation in London will slow down in the first quarters of 2017, but the growth in property prices is predicted to build up towards the end of the year. Overall, the forecasts indicate a 3.9% growth in London property prices in the course of 2017.
The forecasts predict a similar pattern of house price behaviour in the regions contiguous to London, including Outer Metropolitan, Outer South East and South West. We note that the property market of East Anglia, which is currently growing faster than any other regional market of the country, is predicted to slow down in 2017, but still remain the market with the highest housing inflation (the forecasts suggest that house prices in this region will grow by 5.7% over the year). We see deterioration in housing affordability in all these regional property markets: the ratios of house prices to households’ disposable income are at or close to their historical maxima.
Charles Fletcher, Head of Analysis, Cogress:
The news is not particularly surprising when you consider the series of unprecedented events over the past twelve months that have rocked the UK economy and property market. From the stamp duty changes, to rising inflation rates squeezing consumer-spending power, and the shocking referendum results in the UK, a house price slowdown amidst such economic uncertainty was effectively inevitable.
With that said, property values are still 5.1% higher than they were at the same time last year. Even though the growth rate is slowing, a shortage in supply of both new homes and existing properties will continue to lift UK house prices. Meanwhile, demand for housing is being supported by an economy that continues to perform well with employment still expanding.
Over the next few months, we expect that the UK’s financial resilience will be reflected in the property market. Although prices and transaction levels in prime central London areas like Chelsea and Kensington may keep dropping, this will be offset by properties valued below £1,000,000, which are still trading well. This trend towards more affordable properties is indicative of mounting consumer caution over major spending decisions and the difference between one’s ‘need’ for property and one’s ‘want’ for property. The large disparity between supply and demand for property across the country means that competition will remain fierce for properties at the more affordable end of the market, even against Brexit’s uncertainty. Which means that cities such as Manchester, Bristol and Leeds will continue to benefit from ongoing tenant demand.
While issues of affordability will remain top-of-mind for many UK consumers and first-time buyers, falling house prices in central London represent an opportunity for foreign buyers. Many central London estate agents have been reporting that a large portion of their applicants are $-based buyers hoping to take advantage of currency fluctuations to invest in valuable long-term property assets.
Despite predictions of a price crash, we expect that house prices will continue to grow at a stable rate over the next few months. This is as a result of the country’s sound economic conditions and a resilient property market that can withstand any potential volatility Brexit brings.
Gavriel Merkado, Founder & CEO, REalyse:
The recent announcement that the UK housing market has slowed to its lowest pace in three and a half years was not a surprise. The UK market has experienced a period of instability, with an imbalance in supply and demand leading to properties becoming overpriced. If you pair this with the low interest rates the UK has been experiencing and the relative ease of access to debt finance, you are left with a market that is unaffordable for the masses.
Over the past year, the government has been instructed that to help solve the housing crisis 300,000 more homes must be built in England alone, year-on-year. Despite this goal, we are still experiencing low levels of housebuilding and development, which have subsequently added to high prices. Therefore, it appears that a key reason for the slowdown is affordability.
It will be interesting to see the impact this shift has on the market over the next few months. We have already endured a period of uncertainty following the Brexit vote, and while the initial shock period is calming, implications are still far reaching. Brexit may well lead to an increase in inflation, with the Bank of England forced into increasing interest rates, which in turn may put pressure on the purchasing market.
There is also the impact of movement of EU migrants to consider, with many of them residing in the UK expecting to return home in the lead-up to Brexit. If this does prove to be the case, we may experience a drop in demand for rental property, which in turn could balance out the demand for buying property.
Investors and developers should monitor the situation closely, as we are already noticing a shift in the patterns of growth and decline. Central areas, such as London and Manchester, that were previously viewed as overpriced, could experience a stabilisation in prices, whilst some regional cities and suburban areas, such as Cambridge, could continue to rise in price. Other socio-economic factors, such as the development of the high-speed rail links may also lead to the increase in value of other regional towns and cities.
We would also love to hear more of Your Thoughts on this, so feel free to comment below and tell us what you think!
Giving up "modern day luxuries" for one year could save you over £5,000 towards a deposit for a house, new research from online estate agent Hatched, has found.
With research suggesting that you need, on average, £33,000 for a deposit on a house in the UK, people are increasingly starting to really crunch the numbers, budget and save the pennies wherever possible.
By focussing on eight "modern day luxuries", the team at Hatched have looked at simple savings that could be made to get a bit of extra cash in the piggy bank, helping people get a foot onto the property ladder through some choice (but relatively easy) lifestyle changes.
The eight "luxuries" include: morning coffee fix; weekly treat meal out; a gym membership; body "maintenance" treatments; summer holiday abroad; nights out on the town with friends; a smartphone contract; and monthly cinema trips.
If you can abstain from all eight examples of these "luxuries" at once, you would save an impressive £5,433.30 in a year. If you can keep this up, in six years you could have saved almost enough for a deposit (£32,599.80), without needing any other savings at all.
If you rely on that first sip of your morning coffee from a branded paper cup in order to start your 9-5, over a one-year period you will have consumed approximately 250 coffees, at a calculated cost of over £680 - so the potential savings to be had by bringing your own (or giving up altogether) are quite the buzz.
If you really can't quit your coffee habit, just think of it like this – after 12,223 coffees you will have spent the equivalent of a deposit on a house.
But, interestingly, this wasn't the biggest potential saving to be had out of all of the examples we reviewed. Calculations suggest that by forgoing fortnightly nights out, you could save an eye-watering £1,403.52 over 12 months, which might be incentive enough to suggest a night-in instead of painting the town red next time you arrange to see your friends.
Other indulgences that can be cut out to help you on to the property ladder include:
- Home workouts rather than costly gym memberships will see you £627 closer a year to that first home
- By cutting out a weekly treat meal out, say at a popular chicken restaurant, you could save around £650 per year – cheeky!
- By resisting the urge to treat yourself to a pamper session, body "maintenance" treatments (such as haircut, hair colour, tanning, hair removal, nail treatments, facials, massage, and so on) can add up to a cool £876 over a year
- Forgoing the annual summer holiday will add £554.50 on average to the property ladder coffers
- The full list of luxuries than can be cut out to save a deposit can be seen here: https://www.hatched.co.uk/blog/134/saving-for-a-deposit-on-a-house-cut-out-these-luxuries
Adam Day, Managing Director at Hatched, commented on the findings: “The formula, in essence, is simple – spend less and save more – but we know this can be easier said than done. By consciously cutting out things that you don't need, you can substantially add to your pot of savings towards a deposit on a new home.
"In isolation, these specific sacrifices won't be enough, and so you'd have to be committed and willing to cut out multiple luxuries to make a real impact. But remember - when it comes to saving for a deposit on a house, making sure to put a chunk from your pay-check into a savings account each month is still as important as it ever was.
"This amount of lifestyle changes that we are suggesting might be difficult for some people to implement in their everyday lives, but it's only a short-term sacrifice in the long run, and if you're looking to buy a property with another person, say a partner, then you can get to your goal twice as quick.
“With our advice, prospective homeowners can sooner be in better financial positions to get themselves onto the property ladder. As they say, 'Look after the pennies, and the pounds will look after themselves'. A mantra to stick by, if you ask us..."
(Source: Hatched)
Here Professor of Urban & Property Economics at Henley Business School, Michael Ball gives his own thoughts on the current real estate market slowdown in the UK, and presents his expectations for the remainder of 2017.
2017 could well be the year when the UK housing market hits one of its periodic turning points after a sustained five-year run of 5 to 10% annual price rises and an up-coming ten-year anniversary since the last crash. Price averages, of course, belie much greater rises in places like London and the South East. Indications of a slowing market abound, particularly with respect to prices and time on the market. Many rightly attribute the slowdown to affordability factors following such strong price growth. Optimistically, that could lead to a less frenetic market with government homeowner initiatives sustaining the expansion in new build. Nonetheless, digging beneath the headlines suggests that many drivers of recent housing market expansion are no longer humming so positively.
Market-wise, Inner London often leads the way and news from there has been bleak for some time and not just at the top of the market. So, Rightmove’s report of a 15% price drop in Kensington and Chelsea for 2016 may indicate lost froth at the top but also raises wider concerns.
The biggest change is the falling away of overseas investment. Uncertainty over the pound plus capital and credit constraints in places like China have all contributed but home-grown factors have played a key part. Though stamp-duty rises are often blamed, some classic bubble features seem to be unwinding, especially in London, related to over-supply and mis-pricing, the super-hyping of neighbourhoods and over-estimates of the long-term demand for small ‘luxury’ accommodation. Chastened investors may take quite some time to return. This is of broader importance because experience following the financial crisis suggests that international activity has wider impacts on the market and sentiment.
Nationally, classic market drivers are turning negative. Earnings have been rising ahead of inflation but forecasts suggest this trend is coming to an end. Moderation in real earnings growth not only dampens house purchase and trading up but it also limits the potential for rent increases, depressing landlord returns.
On the mortgage front, some rise in interest rates is in the offing. Though interest rate rises are likely to be limited in the near future, they may currently have a disproportionate effect on the housing market as affordability is so stretched. Cautious lenders if they fear rising default rates may add higher risk premiums to mortgage rates and restrict lending as well.
Landlords are now major holders and purchasers of homes. They face the prospect of a rising tax burden as relief on some expenses is withdrawn and mortgage interest write-offs gradually limited. Moreover, if the Government’s stated aim of drastically reducing immigration has any effect, landlords will lose a key source of new demand. Poor prospects for rents and tenant demand combined with rising costs and taxes could create a depressing scissors effect on landlord returns, significantly discouraging investment.
Expectations matter and can suddenly switch. That Britain has a housing shortage has clearly been absorbed by home owners and investors alike. But there is a danger of thinking of demand as purely population driven and so always there, whereas it is incomes and affordability that count far more. Variations in them, combined with tight supply, make the UK’s housing market particularly prone to sharp price swings.
Counter to all this gloom is the prospect that an improving global economy may lift the UK and its housing market with it. Nevertheless, the balance of risks is shifting towards the downside. So, forecast-wise, this year may turn out fine but clouds abound and are likely to thicken as the year progresses.
This month’s Executive Insight section looks at the Indian housing finance sector and the work of Jayesh Jain – the Chief Financial Officer of PNB Housing Finance. Jayesh is a fellow member of the Institute of Chartered Accountants in India, and also holds certifications from ISACA, USA on Certified Information System Auditor (CISA) and Certified Information Systems Manager (CISM). With over 17 years of extensive experience in the Housing Finance Sector, prior to joining PNB Housing Finance Ltd, Jayesh worked with GRUH Finance Limited, subsidiary of Housing Development Finance Corporation(HDFC) Limited, in various roles and has been working as Chief Financial Officer ever since January, 2006.
He is a seasoned professional with experience in areas of Strategic Planning, Budgeting & Reporting, Resource Mobilization, Accounting & Auditing, Forensic Accounting, IT Governance, Data Mining & Analytics and Fraud Control & Regulatory Compliance. His current role encompasses a wide range of duties and responsibilities which varies from dovetailing with the business strategy, to chalk out the financial estimates of the Company and overseeing the actual performance in line with the estimates, ensuring proper and accurate Financial Records, managing tax compliances, monitoring the Company’s growth and advice peers to improve operations through analysis of various analytical reports such as Cash Flow, Unit Costing, Ratio Analysis, Yield analysis, Cost of Borrowing Report, Spread Analysis and developing & maintaining policies/process and systems of internal controls/checks. Additionally, he’s also responsible for Treasury, Capital Raise (both debt and equity), Investor Relations and Corporate Planning.
PNB Housing Finance Limited is a public listed housing finance Company headquartered at New Delhi with branches in major cities across India. The Company is the fifth largest housing finance Company by Loan Asset and the second largest by deposits in India, while also being the fastest growing HFC in India with a Hub and Spoke target operating model. PNB Housing, as of 31st December 2016, has an AUM of INR 37,745 crores and Loan Assets of INR 34,330 crores. It has one of the lowest Gross Non-performing assets and Cost of Borrowing of 0.37% and 8.81%, as of 31st December 2016 respectively. The Company also enjoys the benefit of strong parentage of Punjab National Bank, the second largest Public Sector Bank in the Country.
What differentiates PNB Housing finance from its competitors? Where does the Company stand nationally?
PNB Housing Finance is the fifth largest player amongst housing finance companies in India, with 58 branches spread across 35 cities in India.
I’d say that our main advantage, when compared to our competitors is our unique target operating model empowered with a robust technology platform. We have implemented wing-to-wing enterprise system solution, which cuts across all functions and all geographies. Our target operating model brings in efficiency of scale in the system. Further, our people with extensive experience in the mortgage industry and work towards faster and seamless execution, in compliance with the regulation.
Back in 2015, PNB Housing successfully implemented a comprehensive business transformation and reengineering exercise ‘Kshitij’, led by Mr. Sanjaya Gupta, the MD of PNB Housing Finance. The transformation included revamping of our business processes, organisational restructuring, relook at policies and most importantly, creating and implementing a strong and scalable target operating model, which I believe brings in high productivity of our people. Our branches are the primary point of sale/service, focused on origination of loans, various collection processes, sourcing deposits and enhancing customer service, while our processing hubs and zonal offices provide support functions, such as loan processing, credit appraisal and monitoring, and our Central Support Office (CSO) supervises our operations nationally. Our enterprise system solution (“ESS”) integrates all the activities and functions within our organisation under a single technology and data platform, bringing efficiencies to our back-end processes and enabling us to focus our resources on delivering quality services to our customers. Our branches, processing hubs, zonal offices and CSO are supported by our centralised operations (“COPS”) and central processing centre (“CPC”), which provides centralised and standardised backend administrative activities, payments and processing for our business, relying in turn on the ESS. These processes are to date resulting in significant improvement in PNB Housing’s competitive position and scale of operations. All backend process are ISO certified which lends a lot of productivity in our service standards and turnaround time.
Last but not least, I believe that a major strength of ours is our brand. We are promoted by Punjab National Bank –the second largest Indian public sector bank. The public reposes lot of confidence in our brand; which stands for trust, service and fair play.
What would you say are the biggest challenges facing housing finance companies in India?
I think one of the main challenges facing companies such as ours is the irrational pricing and intensified competition. There are many companies that offer products at very competitive prices. Another challenges that puts pressure on our profitability are business origination and high operating costs, coupled with balance transfers due to restriction by regulators on pre-payment charges. Under this kind of environment, it becomes quite challenging to deliver return on assets or return on equity and fulfil the expectations of the investors.
However, we remain positive, believing in the growth trajectory of the business. We continue doing our business efficiently and maintaining cost levels which shall help in our profitability.
What do you see as the biggest game changers for housing finance companies in 2017?
Back in November 2016, the Indian Government decided to ban the old INR 500 and INR 1,000 currency, which resulted in reducing the currency in circulation by more than 85%. I believe that this demonetization exercise undertaken by the Government is a positive step towards bringing transparency in the real estate sector in the long run. As a result, I foresee that valuations and transaction velocity will be more accurate and will gain pace, respectively, over time. The Mortgage to GDP ratio of our country is very low at approximately 9%, especially when compared to other countries such as China (18%), Hong Kong (45%), and the US (62%). Hence, we expect that there is a lot of growth potential to the overall housing finance/real estate industry in India.
Thrust of the Indian Government on the housing sector with the mission of Housing for All by 2022, subsidy on interest payment, under Pradhan Mantri Awas Yojna will most certainly give a boost to the housing finance industry too. Also, the Government’s smart cities mission to develop 100 cities all over the country making them citizen friendly and sustainable will help the industry growth.
What’s in store for PNB Housing Finance in the next year or so?
In the near future PNB Housing is expecting to see an expansion-led growth. As on 31st Dec 2016, we have 58 branches in 35 cities in India and we’re looking forward to increasing this number covering higher number of cities.
With majority of Investments behind us, we expect the operating leverage to play out. We expect that, over medium term, our Cost to Income ratio will be inching towards the Industry average (FY16-17.2%). At PNB Housing we continue to thrive to maintain our GNPA lower than the industry average (31st March 2016-0.87%).
As Chief Financial Officer, what motivates you most about your role?
For me, it’s about the long-term opportunity ahead of us. I’m passionate about what I do and about PNB Housing because I think we’re delivering exceptional service to our customers in respect of their requirements, and doing it in a way that puts both customers and employees first. As the CFO, I get involved in all business functions and I play an active role in developing and defining the overall strategy for the organisation. I act as the face of the Company on all issues related to overall financial performance, which motivates and excites me, while also providing me with a high level of career satisfaction.
How would you evaluate your role and its impact over the last year or so?
As a CFO, my role over the last year was very challenging and also critical from the organisation perspective. Firstly, the Company embarked on raising tier I Capital through Initial Public Offer (IPO) and I spearheaded the overall process. The IPO process involved several critical aspects, including regulatory approvals, appointment of intermediaries, Red Herring Prospectus and agreements to be in place, compliances under SEBI (Stock Exchange Board of India) regulation, Investor Roadshows etc. The IPO turned out to be the largest IPO by a HFC in India and the second largest IPO in 2016, which was oversubscribed by more than 30 times. It also met the largest QIB demand in the last 5 years, with participation from several quality long-only institutional investors, which is something that I am very proud of.
In the past twelve months, I was also, actively, involved in raising funds through securitization at a very critical time, when the gearing of the Company was very high and was close to the upper cap, as per the National Housing Bank (NHB) regulations.
We raised funds, valued at US$150 million from multilateral institution, i.e. ADB (Asian Development Bank). We also became the first HFC to raise funds under Green Bonds from IFC – valued at INR 500 Crores.
As the cost of borrowing is a key parameter for a mortgage company, over the years we also reworked the Borrowing mix, which reduced the cost of borrowing that resulted in improving the profitability of the Company during the year.
Additional assignments that I have been working towards have been improving the profitability and efficiency of our business strategy and providing insight and analysis to various functions.
Turning our attention to real estate appraisal, we interviewed Robert Nord – an expert in appraisal and mortgage loan origination of income-producing properties in Northern and Southern California, the Western United States, and in Canada and Latin America.
Prior to working for his own firm, California True Values, Robert was employed as principal with Arthur & Young in San Francisco Office and Regional Chief Appraiser for First Interstate Mortgage Company, California Federal Savings and New York life in the San Francisco Offices.
As a professional with 30 years’ experience in appraisal - looking at the work of your peers, and in your past experience, how would you say the role of a real estate appraiser has changed over the past decade?
Since 1989, the Appraisal Standards Board adopted the Uniform Standards of Professional
Appraisal Practice (USPAP). Thus, the role of the appraiser has been to standardize in the reporting of their results. But the ultimate results have been the same, to provide the client with answers in a clear and concise reconcilable manner.
Over the past 30 years, what would you say have been the three most impacting turning points for the US’ real estate market?
I think that the most significant turning points happen approximately every ten years or so. These are the supply and demand issues that are coincidental with the capital markets. That is when supply of new space grows and the demand for the space grows as well. Remember when short-term shot up to 13 percent and long-term increased to about 10 percent about 35 years ago, well, the inverse is going to happen shortly. As excess supply, has work itself off the market, interest rates will increase. Long-term government bond yields have trended downward to about 2.5 to 3 percent from over 8.5 percent the last 35 years. And overall capitalization rate will go up from 4.5 to 6.0 percent to 7.5 percent to 9.0 percent over the next 10 years. After all, I can’t imagine a negative return on bond yields, and what it would mean for real estate appraisals? Can you? So, I see rents going higher and capitalization rates both increasing with Donald J. Trump as President over the next four years or so. When were overall capitalization rates at 5 percent? 60-years ago? So, you can see how the cycles have influenced our work from the recessionary 1979-82, 1989-94 and the 2007-10 periods. During the 1980s, 95 percent of my work was for lenders. But it changed to 95 percent non-lenders in the 1990s. So, you can see that cases involving values can grow beyond lending.
Over the years, which would you say have been your most successful and rewarding projects, and why?
In the 1980s, my work included the 30-story 583-unit high rise luxury residential condominium project in Emeryville, California. In the 1990s, it was the Chevron World Headquarters in San Ramon for ad valorem taxation and the 300-acre Lockheed Skunk Works, a EPA super fund site of contaminated soil located in Burbank, California. A bit further north in Saugus was the Rye Canyon facility which had an earthquake fault running through the middle of the site. In 2000, another site included a Class 1 landfill site in Covina. Another site appraised, a gold mine, on the behalf of EPA located in Plumas County with values going back thirty years to 1980. Where do you find land sales? Fortunately, a local assessor in Auburn had a personal printout for 1980. A fortunate occurrence for sure!
More recently, I was involved with a marijuana cultivation facility where I appraised a proposed 170,000-square-foot campus on a 10-acre site in Desert Hot Springs. And to date, no construction has occurred on any such facilities. But there is a plenitude of proposed projects in the open vast desert, which will mushroom from the valley floor. The cannabis will be pampered by air-conditioning and watered in its cultivation area with 13-foot clearance, while the native vegetation sweat to survive in 115-degree plus, summertime heat. This cannabis, which will be grown for human medicinal purposes will contain five times the THC. And since there are no facilities built to date, where are the comparable sale faculties?
Colliers International is an industry-leading global real estate company with more than 16,000 skilled professionals operating in 66 countries. What sets the company apart is not what they do, but how they do it.
The firm’s enterprising culture encourages Colliers people to think differently, share great ideas and create effective solutions that help clients accelerate their success.
Kelvin Chow is Head of Landlord Representation, Office Services Department in Colliers North China. Kelvin has worked in Colliers for 15 years, assisting numerous tenants (i.e. P&G, Oracle, Schneider Electric, Cummins, 3M, Asia Development Bank etc.), as well as landlords (i.e. Poly, China Merchants Shekou Holdings, China Overseas, China MINMETALS Corporation etc.) with dealing with their office leasing related work. Here Kelvin tells us more about Colliers and shares his insights on the real estate sector in China.
How would you describe the current trends in relation to commercial projects in the Chinese real estate market?
In terms of commercial markets or commercial projects, we pay more attention to economy, because the tenants in the office buildings are from various industries. If most industries are prosperous, the economy is strong. China’s economic growth had been decelerating for several years and the current state of the economy is not as strong as it was a few years ago. In the upcoming couple of years, these trends are likely to continue, as the economy transits to service-led growth. The Chinese Government has set 6.5% as the goal of GDP Growth in 2017. Chinese economy is undergoing a period of development and model transformation. Before the new model matures, the economy can’t be prosperous - it needs time. Based on this, commercial projects face more challenges, including tenants’ cost sensitivity, more renewal and less relocation, more downsize and less expansion, trends of moving from high-cost areas and buildings to low-cost areas and buildings which results in decentralization.
One thing must be stressed - commercial markets or projects rely on Tertiary Industry much more than on Secondary Industry and Primary Industry. This is why we could see the market of Tier I cities (Beijing, Shanghai, Guangzhou and Shenzhen) being much more active than that of Tier II and Tier III cities. Simultaneously, the rental of Tier I cities is much higher than that of Tier II and Tier III cities, while Tertiary Industry in Tier I Cities is much more developed than that of Tier II and Tier III cities.
According to the National Bureau of Statistics, out of the Top 15 Cities in Mainland China, in terms of GDP, Shanghai, Beijing, Guangzhou and Shenzhen, which are all Tier I Cities, are in the Top 4 (Shanghai being number 1, followed by Beijing). However, the Tertiary Industry of Beijing contributed close to 80% of GDP, which is much higher than that of Shanghai. It explained why the rental of Beijing Grade A Office Buildings is higher than that of Shanghai and the vacancy rate of Beijing Grade A Office Buildings is also lower. The average vacancy rate of Tier I cities in Mainland China is a little lower than 10%, while the figure of Tier II cities is close to 25%. What a big gap!
We also monitor FDI (Foreign Direct Investment) - the good news is that it remains stable. There are still newly registered foreign-investment enterprises and the total number of existing foreign-investment enterprises still increases, which means that the Chinese market is still attractive to foreign enterprises.
FAI (National Fixed Asset Investment) and REI (Real Estate Investment) is continuously increasing, however the growth decelerates. In 2009, National Fixed Asset Investment increased 23.8%, but in 2016, it was 17.4%. Due to residential markets cools, Real Estate Investment only increased a little (approximately 1%).
To summarise, territorialisation remains the key driver and investment in real estate slowed down. Under such economic and market environment, more and more office buildings landlords take aggressive preference policies, such as more fitting out period, longer rent-free period, lower rental, higher brokerage fee and so on, in order to attract tenants outside the building and retain existing tenants.
In newly developing commercial projects, more landlords invite professional consultancies to get involved at a very early stage, aiming to ensure that the projects are competitive in the long run, as most of the new buildings are located far from the cities’ traditional core areas.
China has seen a boom of co-working spaces in recent years with hundreds of thousands of operators emerging. The concept came from Mainland China in 2015 and grew in 2016 when numerous office spaces were transformed into co-working spaces. There are 3 main reasons for the popularity of the concept:
-Chinese Government encourages entrepreneurship and innovation, which is an important part of China’s Economic Reform.
-As previously mentioned, traditional office space faces more challenges, due to the current state of the market. The vacancy rate is high, especially in Tier II and Tier III cities and these landlords see co-working as a new growth point.
-Co-working space operators learn a lot from WeWork – another successful business model that they have been following.
The most famous operator in Mainland China is Urwork, which was founded in Beijing in 2015. To date, Urwork has entered more than 20 cities in Mainland China. Colliers International was appointed as an Exclusive Leasing Agent by Urwork back in 2015, and has been supporting Urwork with the leasing of its growing number of co-working office spaces.
What shifts do you and the firm expect throughout 2017?
In the current Chinese market, most enterprises return back to Tier I Cities, in order to avoid risk. However, what we expect to do is to enlarge our market from Tier I Cities to Tier II, and even Tier III Cities. We plan on selecting our market cautiously and executing our strategy step by step.
The reason for many enterprises returning back to Tier I cities is that they see a market that is not so active. We see it in a different way. Every market has its own unique gene and what we do is trying to find it and then follow it. In a market that is not so active, landlords need more help and usually are willing to pay more. We convey resources such as experience, clients and talents to help the local markets. We believe that we could contribute a lot to these emerging markets.
Additionally, in Tier I Cities like Beijing, we shift our main market from brand new buildings to repositioning and remould buildings. In core city areas, there’s very limited land supply, but many old buildings need to be reconstructed to meet the market’s needs and improve rental return. New technology creates new industries, which need different types of properties.
Besides hardware upgrading, we also advise landlords to start thinking more innovatively – changing your methods could result in higher rental return.
You assist clients with commercial leasing and sales of commercial projects - what are the three top issues they require assistance with?
Our clients, the developers and the landlords of the commercial projects see tenants’ quality and reputation, rental return and leasing speed as their three main priorities.
What makes yourself and Colliers ideally equipped to help with these issues?
Aiming to exceed the landlord’s expectation, what we do is to confirm the exact client positioning at the very beginning. We know that no single office building could meet all tenants’ requirements and actually, it is not even necessary to do so. So what we need to do first is to define what kind of tenants we should specifically focus on - based on industry activity analysis, office leasing market knowledge and forecast, competitive buildings analysis and comparison with our representing buildings, market leasing transaction data etc. Then we provide clear client portrait –which could guarantee the tenant quality and reputation, as well as rental return and is valuable for the leasing speed. In addition, to make sure that the building could be leased as fast as possible, we approach the target clients directly, not only relying on general agencies, as most companies do.
Last but not least, in 2017, we would pay more attention on domestic companies. The strength of international agencies is to serve MNCs. However the current Chinese economy and market environment, present more opportunities for Chinese companies to be active in relation to office setting up, expansions and relocations.
Commercial real estate industry executives are optimistic about Q1 market conditions while taking a "wait and see" approach to new Administration policies and potential tax reform, according to The Real Estate Roundtable's Q1 2017 Economic Sentiment Index released this week.
"The Trump Administration and a new Congress are aiming to unshackle the economy by focusing on growth-oriented policies," said Roundtable CEO and President Jeffrey D. DeBoer. "As our Q1 Sentiment Index shows, leaders in commercial real estate are cautiously optimistic about what policy changes may bring, yet concerned about any potential unintended consequences that could threaten real estate's vast contributions to the US economy."
The Roundtable's Q1 2017 Sentiment Index registered at 55 — seven points up from the last quarter. [The Overall Index is scored on a scale of 1 to 100 by averaging Current and Future Indices; any score over 50 is viewed as positive.] This quarter's Current-Conditions Index of 55 increased four points from the previous quarter, and rose 1 point compared to the Q1 2016 score of 54. However, this quarter's Future-Conditions Index of 55 rose nine points from the previous quarter and is up 10 points compared to the same time one year ago, when it registered at 45.
The report's Topline Findings include:
- The Q1 Sentiment Index came in at 55, a seven point uptick from pre-election Q4. Reacting to the new administration in Washington, many are optimistic about potential market opportunities and the US economy. Mitigating this optimism is concern around potential tax policy reforms.
- While optimism has been the most common reaction to the new Administration, many responders are employing a 'wait and see' approach. Most expect changes in the real estate industry as a result of the policies of the new Administration.
- Despite previous concerns about asset values nearing peak pricing, many feel that pricing has stabilized. Industrial properties are perceived as well priced while many are reporting a lessening of values for multifamily properties in gateway cities.
- Foreign capital continues to seek real estate investment opportunities in the US market. As a result, access to equity capital is plentiful. Construction lending remains challenging to secure, but for high quality, stabilized assets, financing is available with competitive terms. Asset pricing and debt constraints are concerning, general sentiment about the US market is neutral to positive. Gateway markets have been identified as past peak pricing but many secondary and tertiary markets are intriguing for value-add investors.
Although 36% of survey participants said asset prices increased "somewhat higher" compared to one year ago, 43% of respondents said they expect generally flat valuations a year from now — reflecting the view that many believe pricing has stabilized for certain property types. Some also noted that inflows of private capital currently favor equity to debt, dependent on the quality of the property.
DeBoer added: "The Real Estate Roundtable and its members want to advance policies that will spur job creation and economic growth, always guided first by research, data and reasoned analysis that inform policymakers' understanding of all issues, particularly when making choices that affect real estate. We hope our information will assist the policy discussion as lawmakers continue to charge forward on proposals that could have an enormous impact on our nation's growth, prosperity and national security."
Data for the Q1 survey was gathered in January by Chicago-based FPL Associates on The Roundtable's behalf.
(Source: The Real Estate Roundtable)
The Fannie Mae Home Purchase Sentiment Index® (HPSI) increased by 2% in January to 82.7, ending a five-month decline. Four of the six components that comprise the HPSI were up in January.
The net share of Americans who believe that home prices will go up in the next 12 months rose by 7%, and the net share reporting significantly higher household income in the past 12 months rose by 5%. The net percentage of those who say that it is a good time to sell a house rose by 2%, while the net share of those who say it is a good time to buy a house fell by 3%. On net, consumers demonstrated slightly greater confidence about not losing their jobs, while the net share of those who believe mortgage rates will go down remained unchanged.
"Three months after the presidential election, measures of consumer optimism regarding personal financial prospects and the economy are at or near the highest levels we've seen in the nearly seven-year history of the National Housing Survey," said Doug Duncan, senior vice president and chief economist at Fannie Mae. "However, any significant acceleration in housing activity will depend on whether consumers' favorable expectations are realized in the form of income gains sufficient to offset constrained housing affordability. If consumers' anticipation of further increases in home prices and mortgage rates materialize over the next 12 months, then we may see housing affordability tighten even more."
Home Purchase Sentiment Index – Component Highlights:
Fannie Mae's 2017 Home Purchase Sentiment Index (HPSI) increased in January by 2% to 82.7. The HPSI is up 1.2 percentage points compared with the same time last year.
- The net share of Americans who say it is a good time to buy a house fell by 3 percentage points to 29%, matching the survey low from May and September 2016.
- The net percentage of those who say it is a good time to sell rose by 2 percentage points to 15%.
- The net share of Americans who say that home prices will go up increased by 7 percentage points in January to 42%.
- The net share of those who say mortgage rates will go down over the next 12 months remained constant this month at -55%.
- The net share of Americans who say they are not concerned about losing their job rose 1 percentage point to 69%.
- The net share of Americans who say their household income is significantly higher than it was 12 months ago rose 5 percentage points to 15% in December, reversing the drop in December.
(Source: Fannie Mae)
A majority of real estate industry leaders polled plan to increase their US investments this year, as they expect continued growth in the US real estate market in 2017 and beyond, according to KPMG's 2017 Real Estate Industry Outlook Survey: Real Estate Expansion Lives On.
52% of real estate executives polled believe that improving real estate fundamentals in 2017 will be the biggest driver of their company's revenue growth. 91% of investors are bullish on access to equity capital, with 25% expecting an improvement in 2017 and 66% believing that the positive trend will remain the same. 51% of survey respondents also indicated that foreign investment in US real estate will increase in 2017.
"A growing US economy, coupled with healthy real estate fundamentals and strong access to financing and capital, make real estate leaders optimistic about a continued 'boom' in the US market," said Greg Williams, National Sector Leader, Building, Construction & Real Estate, KPMG LLP. "Although prices of Class A assets in the US are high and yields are lower, the promise of reliable returns leads to sustained interest in the sector overall, especially when compared to other global markets."
2017 Strategic Initiatives for US Real Estate Companies According to the survey, 41% of real estate company executives are planning for a significant investment in organic growth in 2017, including product development, pricing strategies and geographic expansion.
"We anticipate continued growth in the open-ended fund and debt fund spaces, as these vehicles may enable investors to obtain a stable yield, diversification, and, if they invest in an open-ended format, higher levels of liquidity," said Phil Marra, National Real Estate Funds Leader, KPMG LLP. "We also expect to see an influx of new investment in real estate, both from existing investors as well as new entrants."
58% of survey participants also indicated that they are pursuing cost-related strategies to improve bottom-line results, including the implementation of new technology to address inefficiencies and process improvements.
Three Uncertainties Real Estate Executives will face in 2017:
- Regulatory: The new US administration's intent to lower taxes, deregulate business and increase infrastructure expenditures, may lead to job creation and consequently to increases in homebuilding and home sales. The promise to bring companies back to the US may increase demand for office space, manufacturing facilities, data centers and other property types.
- Interest Rates: Higher interest rates may impede first-time home buying, but a healthy economy may lead to sustained job growth and potentially to increasing activity in the multi-family, retail and industrial sectors.
- Cybersecurity: Approximately half of the survey respondents said that their organizations are not adequately prepared to prevent or mitigate a cyber-attack. Cyber threats facing the real estate industry include: Tenants' vulnerability to intrusions through connected technologies such as smart alarms, stealing of tenants' personally identifiable information (PII) maintained by property managers, and targeting of internal systems for their data or even their cash, such as REIT's confidential information on financing deals.
(Source: KPMG)
