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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:

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.

(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:

(Source: KPMG)

Winans Investments has created a history book, ‘Investment Atlas II’, which examines all US presidents since 1849 and how stocks, bonds and housing performed during their terms.

Their research has found compelling comparisons to past presidential elections. In the wake of Trump's victory, the media is focusing on parallels with "Give 'em Hell" Harry Truman's surprise 1948 victory over Thomas Dewey, or the "Hanging Chad" mess of 2000 that required the US Supreme Court to rule in favor of George W. Bush.

However, investors should focus on the Carter-Reagan transition of 1980-81 in which the 9% post-election stock market rally ushered in one of the greatest investment booms in US history!

While today's economic picture is not identical to the 1980's (especially when it comes to the level of interest rates and inflation), there are Reagan/Trump positive similarities that investors need to know:

Lower Business Taxes- Since 1913, US corporate income taxes have ranged between 1% - 53% with the current tax rate at 36%. The Trump plan to reduce business income taxes to 15% would be the largest tax cut for corporate America ever! Bottom-line: lower business taxes suddenly makes US stocks attractively valued versus other global investments.

Reduced Regulations - The regulatory pendulum is swinging away from post-Great Recession punishment towards deregulation in order to spur economic growth. This has caused a large shift in stock market leadership towards financial services, manufacturing and energy shares.

Lower Investor Taxes - In addition to a proposed reduction in individual top tax rates from 40% to 30%, investment related taxes (capital gains, dividends, etc.) are likely going to be substantially reduced. The Trump plan also calls for phasing out the Obamacare investment tax and lowering tax rates for short-term capital gains.

Stronger US Dollar - As economic growth expands, a country's currency should increase in value. Similar to the US dollar's historic rally in 1985, demand for foreign purchases of US stock, bond and real estate investments should boom!

There are other positive economic developments to also consider:

Gradual Interest Rate Increases - It appears that the Federal Reserve will not make the mistakes it made in the late 1930's when it mishandled exiting its Depression Era "0% interest rate" policy and triggered the Roosevelt Recession. Today, inflation pressures are relatively low, and the process of raising the Fed Fund's Rate ¼ point at a time will gradually return the US to a normalized interest rate environment while economic growth accelerates in a healthy manner.

Republican Controlled Congress - Unlike Reagan, who faced challenges from a Democrat controlled Congress through his entire presidency, Trump should have a faster & easier time enacting much of his pro-business agenda over the next two years.

Lots of Fuel For an Extended Bull Market - Since 2008, many investors have kept large amounts of cash in money market accounts and CDs. As the economy expands over the next few years, much of this money could be invested in US stocks. There could also be an investment shift from low yielding municipal and treasury bonds into US equities.

With the Trump administration's ambitious economic agenda, US common stocks should greatly outperform income investments and could achieve annual returns not seen since 1990's average annual returns of 19%!

What Should Investors do?

Investors that do not need investment income and have an average tolerance to financial risk should consider reallocating their portfolios into more US common stocks.

However, any reallocation into more stocks is not without risk. Historically, US common stocks have negative years 27% of the time and serious bear markets 8% of the time (like the 50% corrections suffered in the Dotcom Bust of 2000-02 and 2008-09's Great Recession). Simply put, any decision to increase exposure into more stocks must include a disciplined plan to exit the stock market when key market indicators turn negative in the future.

(Source: Winans Investments)

With news that average UK house prices surged by almost £4,000 in December, specialists from a leading Midlands law firm are questioning whether the so called ‘bank of Mum and Dad’ has started to have an effect on the property market.

“According to the Halifax, house prices rose by 1.7% in December, with the average cost of a property reaching a new high of just over £222,000,” says Neil Stockall, a Partner at Higgs & Sons and head of the Residential Property team.

“This represents the fastest acceleration in property values since the Brexit vote. According to the Office for National Statistics the number of 18-24 year olds living at home is around 3.3m.”

Neil added: “Perhaps the combination of being able to save more, plus some much needed input from parents, has helped some of these young people to take their first step on to the property ladder, thus resulting in this surge.”

Many parents want to help their grown up children in whatever way they can and it is increasingly common for first time buyers to turn to the 'Bank of Mum and Dad' for help in raising the required mortgage deposit.  Often parents use their nest eggs to provide that support – particularly with interest rates on savings being so low at the moment. However, there are several things that parents and their children should bear in mind if they want to avoid future problems.

“A common way for parents to help is to ‘advance their inheritance’ to children. This comes with dangers as, should a parent die within seven years of making such a gift, inheritance tax will be payable if the total gifts within those seven years exceed the parents’ inheritance tax allowance.

“Further, if the child is in a relationship or marriage that later breaks down, then the ‘gift’ from the parents may become part of any financial settlement, with half required to be paid to the child's ex-partner.”

Financial gifts of this nature can, however, be protected.

“It is important that when the new home is bought, the professional advisers involved in the process are made aware that the deposit has been given by a family member. The property title will be noted to reflect this, and an appropriate Declaration of Trust can be prepared.

“An alternative approach is to make any such payment by way of a loan rather than a gift and to have a suitable loan agreement drawn up which can be secured against the property. This approach would need sanctioning by any lender, so full disclosure should be made when applying for a mortgage.

“Any such loan could be interest free and the parent may not even really expect that it would actually be repaid, but in the event of a breakdown in their child’s relationship, they will at least know that that payment will fall outside any dispute.

“When it comes to the possibility of a breakdown in a child’s relationship, nuptial agreements may be extremely helpful. These are being given ever greater weight by the courts, provided they are entered into properly. Such agreements would be subject to various qualifications and it is important that expert advice is sought from a specialist in this area of family law prior to committing.”

(Source: Higgs & Sons)

As the new US President settles in, Zillow finds the value of the White House has appreciated 15% since Barack Obama's inauguration in 2009.

The White House, valued at $397.9 million has appreciated 15% since the Obamas moved in eight years ago. The White House is the most valuable home on Zillow’s valuation list.

President-elect Donald Trump will be the 44th President to move into the 55,000 square-foot home(ii). Unlike some past presidents, luxury living is not new to Trump, who is moving from his three-story penthouse in The Trump Tower to one of the most famous homes in America.

The value of the White House, currently at its peak, is expected to appreciate 3 percent over the next year, in line with home value growth expected throughout Washington, D.C. Home values across the country have appreciated 6.5 percent over the past year and 9 percent since Barack Obama's inauguration in 2009.

"President-elect Trump is moving into one of the most famous homes in the country -- and, according to Zillow, it's also the most valuable home in the country," said Zillow Chief Marketing Officer Jeremy Wacksman. "President Obama's term coincided with a massive recovery of the US housing market, and that's reflected in the updated value of the White House. Home values across the country are growing at their fastest pace since 2006, with many markets setting new records -- one of the reasons why the White House is worth more now than it has ever been."

The White House has 132 rooms, 32 bathrooms and sits on 18 acres. Notable features include basketball and tennis courts, a sun room and a library, all of which influence the home's Zestimate. Were a potential buyer to take out a standard 30-year fixed mortgage on the White House today, the monthly payment would be about $1.6 million(iii), according to Zillow. The monthly rental payment would be just over $2 million per month.

(Source: Zillow)

In March, CPIH will become ONS’s headline measure of inflation. CPIH is more comprehensive than the current CPI measure as it includes the costs associated with owning and maintaining a home, known as owner occupiers’ housing costs (OOH).

The CPIH estimates these costs using a method known as ‘rental equivalence’. ONS has today published an article which looks at other methods for estimating OOH and what impact changing the method for estimating OOH would have on CPIH. The article finds that over the period 2006-2015, changing the method for calculating OOH would change the average annual CPIH inflation rate by a maximum of 0.2 percentage points compared with CPIH using the rental equivalence method. When looking at the period 2012-2015, which is less affected by the economic downturn, the average annual rate only varies by a maximum of 0.1 percentage points.

ONS Deputy National Statistician Jonathan Athow recently published a blog post about the challenges of measuring owner occupier housing costs and why ONS favours using the rental equivalence method for estimating these costs.

Commenting, Jonathan Athow said: “Estimating the costs associated with owning and maintaining your home is one of the most difficult issues in inflation measurement. However, we believe that the rental equivalence method best reflects these important costs.”

(Source: Office for National Statistics)

The next game changer that Finance Monthly spoke with is Pat O’Connor who has been a leader in the real estate data business since 1988. He has expanded the real estate data business from a two-page monthly newsletter on Houston apartment trends into a national database for both commercial and residential real estate.

 

What inspired you to start Enriched Data?

The data quality from existing national data providers simply did not have either the breadth or depth of quality required for us or other real estate professionals we met. A second factor was the existing commercial real estate data sources had either limited or inaccurate contact data for the owners. In many cases, the owner contact data was simply the name of an entity. Many real estate professionals need to be able to contact the owners of real estate to transact business. It is incredibly time consuming to start with the name of an entity and have to research to find the name of the owner. The need for accurate owner contact data is a recurring theme we have heard from real estate professionals. They do not want to spend their time researching phone numbers on the internet; they want to spend their time doing deals.

 

What solutions does Enriched Data provide? 

 Enriched Data helps companies to increase their revenue by 30 to 100% through a focused effort that includes excellent data, intelligent marketing and real estate professionals. Our efforts are currently focused on mortgage bankers and real estate investment sales professionals. We expect our clientele to expand to include real estate leasing and management professionals, as well as vendors to the real estate industry. Our core purpose is to increase our clients’ revenue.

 

How are you accommodating small and large companies?

We serve hundreds of clients, including seven of the ten largest real estate service providers in the USA. We also serve one man companies. Our data is accurate and vast enough to supply the big companies. For those same reasons, we help to make the smaller companies more efficient and able to compete with their larger competitors. Our customer service team is pleased to work with companies regardless of size.

 

What are your biggest pitfalls and how have you overcome them?

Accurate real estate data has been the greatest challenge. We have built proprietary software to facilitate the research process and built in validation criteria to identify anomalies. Training researchers has been a key step in the process. When we started, researchers were only finding email addresses for about 15% of the property owners. They are now finding email addresses, Linked-In accounts and company websites for about 70% of the real estate owners. Quality control is also a vital part of the process. We call the phone numbers to verify their accuracy.

 

What do you see as the most important challenges that Enriched Data faces? What specific strategies are you implementing to overcome them? 

 The most important challenges facing Enriched Data are understanding what specific information clients want and how they want it delivered. While it is helpful to meet with clients and prospective clients to discuss their plans and needs, the extreme pace of change in information technology and marketing generates a dilemma where many people don’t really know what they want. In many cases, real estate professionals are attempting to generate sales, whether in building sales, loans, leasing, or as vendors to buildings. The changes in digital marketing and psychographics have not been inculcated by the leadership of many real estate organizations. Having raw real estate data can move you part way to maximizing sales. However, knowing how to use the data effectively is essential. In many cases we are working with clients to help them develop a marketing and sales strategy, and then introducing them to the marketing professionals who can best use real estate data.

 

How can someone use your data for predictive analytics?

We have a large number of predictive analytics for clients. The simplest for commercial mortgage bankers is providing them with information on maturity dates for loans with large prepayment penalties. Slightly less direct is providing mortgage bankers with information on buildings with construction loans that are prime for long-term debt. The analytics are more complicated for single family. The first step is to understand the target market. The second step is to evaluate people who have used the product, for example, a home equity loan. If the client does not have such clients, it is possible to identify them from the public records. The next step is to use psychographics to identify the types of people who are the most likely to purchase. The next step is to identify a universe of possible borrowers. For example, if the product is home equity loans, you identify property with the requisite amount of equity. The final step is to overlay the psychographics over the universe of possible borrowers to identify those most likely to purchase. Psychographics can often identify people who are four to ten times more likely to purchase.

 

You have been CEO of Enriched Data since March 2015. What have been or are your priorities in your role?

There have been three priorities. The first priority has been meeting with clients to understand their needs, how they use data and their data requirements which are not being met. Second, we have been building a research team and electronic research tools to facilitate research of real estate sales and mortgages. The third priority has been acquiring tax rolls for 97% of the United States and deeds and deeds of trust to cover the same area. The raw base real estate data from tax rolls, deeds and deeds of trust is merged and then enhanced with detailed contact information on the owners, lenders, and borrowers.

 

What have you most enjoyed about operating within the sector over the past decade?

Working with clients to understand their needs and then working to fulfill those needs as information technology is changing, has been fascinating. Being part of the generation that has moved real estate from hard copy books to the Internet has been gratifying. It has also been a pleasure to integrate expertise in IT, real estate data and determining how to locate and integrate multiple sources of data. While the term big data is often used, we are spending more and more time seeking and integrating additional fields of data to enrich the data and provide clients with the data they need.

 

What are the main drivers for the development of the real estate industry in the US in the near future?

There are at least three important trends affecting real estate in the US. Retailers are seeing more and more retail spending moving to the Internet. We will continue to see entire categories of retail businesses, such as movie rentals and book stores that are largely replaced by internet sales. There are trends in office space use however they are not as clear. There are factors tending to reduce the amount of space a company needs, departments working from home. For example, many appraisal firms are sharply shrinking their office space requirements by having team members work from home. The other trend in office is for micro spaces with companies such as WeWork providing office space options from as low as $45 per month. There are a number of competing companies and is likely to be consolidation in the micro-office market. Finally, the number of households living in apartments has been increasing due to: 1) higher home prices, 2) reluctance to commit to a mortgage and a fixed location, and 3) people are waiting longer to get married and have children.

 

What are Enriched Data’s goals moving forward? What does 2017 hold for the company?

Enriched Data’s goal is to have the best quality residential and commercial databases available, merged with the teams and technology to allow clients to effectively use data. We have forty software engineers, which is more than any of our clients to my knowledge. Providing both the data and the information technology and marketing resources to allow clients to effectively use data is our long-term goal. During 2017 we will be working on completing our inventory of accurate contact data for all real estate owners of any commercial property worth over $2 million across the US.

 

2016 has been quite a year for global property markets. China’s slowdown, the impeachment of Brazil’s president, the Brexit referendum in the UK and the US presidential election have all contributed to a rather tumultuous year. Will property markets fare any better in 2017? And where precisely are the hotspots that bear watching as the new year unfolds? Ray Withers, CEO of Property Frontiers reveals all…

UK – era of the staycation

In 2009, during the height of the recession, UK residents made 15.5% fewer overseas trips and 17% more domestic trips. Since then British holidays are still gaining in popularity: the number of domestic trips in 2015 was up by 11% on the previous year. The Brexit referendum’s repercussions may well change how we experience summers to come. This is the new era of the staycation.

While residential rental yields are likely to remain strong (outside of London), with so many unknowns house price changes remain tricky to forecast. For UK property investing in 2017, we believe that holiday homes, coastal cottages, and hotels will be popular with investors looking for a favourable stamp duty environment, high yields and insulation from market uncertainty. To maximise returns, look for regions with natural or cultural appeal, unflagging visitor numbers, and an undersupply on the hospitality market.

UK – the hangman loosens the noose on landlords

Philip Hammond’s 1994 election material slipped in a humdinger: ‘hanging for premeditated murder.’ The question is: when it comes to fiscal policy impacting landlords, will the new Chancellor play the hangman or the handyman?

With rock bottom mortgage rates and rent increases of 19% forecast for the next five years, it is still a good time to be a landlord. The lack of supply on the market could well spell a good opportunity for investors. University towns like Bristol and Cambridge and secondary cities like Liverpool, Manchester and Sheffield should remain on the radar for strong yields next year.

Europe – secondary cities withstand shaky politics

Europe’s fractious politics will have a big year in 2017. For an early indication of how those decisions might affect property markets, look to Italy and Austria in the aftermath of their December 2016 votes. The defeat of Renzi’s constitutional referendum in Italy, for example, could cause problems for struggling banks and infect the wider economy, including impacting mortgage lending.

The victory of the liberal over the far-right candidate in Austria’s presidential election, however, favoured stability and European integration. Given that Vienna is unlikely to end its seven-year streak atop Mercer’s global quality of living ranking and its housing market is just 20% owner occupied, the result may well safeguard the city’s growing reputation as a buy-to-let hotspot.

Other cities we think merit attention for high yields in 2017 include Lisbon (thanks to tech clusters and the historic centre), Utrecht (enjoying the Netherlands’ continent-beating 6.57% yields but without Amsterdam’s bubbly prices), and Barcelona (still down on its peak, with growing business appeal).

Europe – Brexit’s beneficiaries?

When (if?) Britain triggers Article 50 in 2017, will we see bankers transfer en masse from London to Amsterdam and startups relocate from Manchester to Hamburg? While large scale migrations are unlikely, the pressure will be on for British cities to reassert their global appeal if the property market is to bounce along at 8% growth again in 2017.

European cities will be putting up a strong fight, and battling to skim off what talent they can. Frankfurt and Paris will make particularly aggressive bids, but they will need to need to drastically improve their supply of office space if they are to become truly viable alternatives.

We may see a new trend for Brits doubling up their holiday or retirement homes as tickets to visa-free travel. Spain and Portugal could see a steep upswing in applications for their ‘golden visas.’

North America – punching above its weight?

The US rocketed past the UK as the stage for the biggest political upset of 2016 with the election of Donald Trump. The S&P Case-Shiller home price index ends the year at a new record peak and such punchy growth will likely continue into 2017. Even if the market proves to be overheated, more responsible lending means a sub-prime-scale implosion is a very distant possibility.

The other theme of US house price growth, its patchy distribution, may also become more pronounced. New York home values appear comatose in comparison to Portland and Seattle, where prices grew by 12% and 11% respectively in the year to September. Yet lunatic price hikes across the border in Canada, make even those numbers look comparatively demure; Toronto closes out 2016 leading the Teranet and National Bank of Canada index with an insane growth rate of 34.6%.

Further afield

South America may become a less daunting investment prospect in 2017, with Brazil and Argentina poised to shake off the political deadlock of last year and Colombia coming closer to peace. Our pick for an enticing investment target is Peru, where a new business-friendly government could revive the property boom and Lima’s hotel market should benefit from fast-growing visitor numbers, a generous tourist spend, and limited supply coming on to the market.

In Africa and the Middle East, the price of oil has played havoc with economies. Property markets could well see a boost if the price of oil rallies in 2017. This could benefit countries like Ghana and Uganda, where the economies are sufficiently diversified to avoid the pitfalls that accompany surprise discoveries of oil. Land development is already rife in their respective capitals of Accra and Kampala.

Investors have been glued to Iran’s gradual unfurling onto the global stage and will continue to look on in 2017, though caution is advised until President Trump’s official stance makes itself clear.

In Asia, Indonesia and Vietnam are making encouraging moves to attract foreign investors, and boast the economic growth to back it up. 2017 will be crucial for testing how well these new rules work in practice, and early birds who plan appropriately could catch the juiciest worms.

China might decide to employ state intervention for the forces of good to re-jig its land imbalance and loosen the notoriously prohibitive hukou residency permit system. This would allow demand and supply to better align and let some steam out of the Chinese property market’s swelling paper lantern.

Finally, our client database reveals a growing share of Indian investors contending with their Chinese counterparts as the dominant group of family buyers casting a wider net for safe havens overseas. Though the UK has not lost its appeal, we might expect to see them target regions closer to home as traditional Western markets start to feel more volatile.

(For more information please visit Property Frontier)

Turning our attention to office leasing, Finance Monthly interviewed the Managing Director of JLL Czech Republic and CEE Board Member-Tewfik Sabongui who offers a rich insight into the sector and tells us about the strategies that he employs when advising his clients.

JLL was established in the Czech Republic back in 1992, as the first country from the current seven countries in CEE.

 

Can you tell FM a little about the services you provide and the kind of clients you deal with?

Our clients are a mix of global, international and local clients to whom we offer a wide range of services, such as leasing services (office, industrial and retail), valuation, investment, project management, residential, design & fit-out, technical due diligence and research.

 

How do you tailor your services to the needs of each individual client?

It is absolutely critical that we identify and design the scope of our services to the specific client needs and in line with the contemporary trends and requirements of the clients in each market, in order to advise them on how to meet their current and future plans. One of the latest trends in the office sector today for example is "work space" solutions, which are currently important to developers, occupiers and investors alike. Today, a simple design of the office including space plan and work stations solutions or meeting the latest sustainability requirements is no longer enough. We now have to assist with designing an office that will create an environment which will offer ample flexibility, grow productivity and create a "happy" feel, one that will improve internal communication levels, retain employees and attract new talent. On the other hand, each client, depending on his business model, requires dedicated and special attention. Investors will look mainly at yielding and value add assets, ideally in prime locations with blue chip tenant mix, while developers will focus on the right location, the overall size of the project and how much can be build and how to best construct and design it to allow maximum flexibility when dividing the space for multiple tenants. Tenants on the other hand are very similar to the Developers, they look for properties and offices which offer them enough flexible space with a potential for future expansions and growth, an efficient layout, in a good location in terms of amenities and access and developed meeting the latest norms and standards of sustainability.

 

Are there at times particular challenges involved in delivering services? Do you have any examples?

The challenges are our daily bread and butter. These can be very different as every client needs to achieve a specific goal. However, I’d say that the most common types of challenges that we deal with on a daily basis are of technical and commercial nature. IT solutions are also becoming an integrated part of our modern business conduct and hence there is a constant need and strive to be always ahead of the curve.

 

As a thought leader, what specific tactics do you implement when assisting clients with office leasing? What are the complexities that you are faced with in the process of negotiating lease terms?

I would say that there are no special tactics – what is vital is to able to carefully listen to what the client is saying and what their needs are in order to provide the right advice and service and work determinably on achieving it. One of the most common mistakes advisors do is to assume things without having properly understood what their clients’ needs are.

 

What is the process for assisting clients with financial analysis? What are the key considerations that need to be looked at to successfully assist your clients?

It is critical to have a good understanding of both the local market and the global sentiment and requirements, in order to be able to provide quality financial analysis to clients. A proper underwriting of the asset, being able to factor all different types of variables that affect the price calculation, thorough market intelligence and technical due diligence are all imperative for a successful financial analysis, which also need to be supported by solid legal and tax advice, and a targeted marketing plan with well-prepared reports.

 

Do you have a mantra or motto you live by when it comes to helping your clients with office leasing?

The one thing that I constantly remind myself of when advising clients is that I want to treat my clients the very same way I would like to be treated and to always strive to do everything in the best possible way I can. Personal relationships and building a base of trust and  transparency while maintaining an ethical code are absolutely critical to developing and retaining such relationships.

 

A commentary from Rick Nicholls, Managing Director, Bastien Jack Group Ltd, UK property developer.

In short, we have opportunity.

Initial shock at the prospect of leaving the EU sent the markets into decline, but have they not reacted pretty much as anticipated? Never letting a crisis go without opportunity, selling high to force a low, and then buy back? Since then there has been some indication stability is returning to the markets though GBP to USD and Euro are still trading lower. This is a good thing for UK exports, making them more competitive, assisting those companies that rely on export markets to grow. The UK vote for Brexit probably doesn't mean that the housing market in the UK is about collapse either. While some uncertainty in the short term may reduce house price growth, for the longer-term property investor, this could be a good opportunity for investing.

The foreign property investor has a boost in value-for-money

In the 24 hours after the Brexit vote, the value of sterling fell on foreign exchange markets. Not by as much as predicted but by around 6% against the euro and 8% against the dollar. As I'm writing this, the pound is now worth €1.11. This fall means the European property investor has more sterling to spend.

Demand for property, specifically in London from foreign investors is still likely to increase, interest has been high from China and Asia as their currency exchange has automatically allowed them a discount on current prices. This though is likely to bea short window of opportunity as we see markets recover from the initial shock.

Domestic demand will remain strong

Demand from home buyers and renters probably won't collapse either.

There is concern that demand for housing will fall in London and the UK. However, parliamentary research produced for the 2015 Parliament put demand at between 232,000 to 300,000 new housing units per year through to 2020. Demand for new homes is exceeding supply by around 150,000 every year. This demand, fed by the number of new households created each year, is unlikely to fall below the level of supply.

Immigration will probably remain strong

One of the main negotiations the UK and EU will have to discuss is the free movement of people. Despite the ‘Leave' campaign suggesting a limit to immigration, we now understand there needs to be movement but objective negotiations will have take place. This will form a significant part of the negotiations to leave the EU.

Outside the EU, the Prime Minister's current visit to India has the subject of immigration firmly on the agenda for a post Brexit trade deal.

Fundamentals of the UK Property Market

The uncertainty of the exact outcome of Brexit may cause the property investor a little nervousness, but the fundamentals for UK property remain strong.

In terms of capital growth, there are a number of comparable data choices but the Real House price tracker provides more meaningful guide to house prices and has been adjusted for the effects of inflation over the same period. Results confirm the increases in house prices have risen faster than inflation, and includes the last recession where the fall can be seen as a correction when compared to the overall property performance.

There has been widespread comment as to the likely effects on house prices, with falls of between 5% and 10% for areas outside London, though little evidence can be found to support this so far.

The BTL investor has also seen positive movements since 2001 with the size of private renters beginning to grow again.

Annual rent rises too have accelerated in recent years and these are not limited to London. Bristol and Brighton both enjoyed increases, averaging circa 18% in 2015 compared to the previous year. The insurer Homelet reported similar rises in the North (Newcastle upon Tyne and Edinburgh) with around 16% over the previous year. Ultimately the increases are attributable to what's happening in their specific area and will be influenced by strong fundamentals. Perhaps Hull can expect some positive growth when it is crowned City of Culture?

Rents in London have continued to rise with greater pace than other areas in the UK but have slowed since 2014, therefore a narrowing of the rent inflation gap between London and the rest of the UK.

Even with the recent policy change for buy-to-let investors paying additional stamp duty, more people have turned to BTL investments perhaps as an alternative to low interest rates, bolstered with the knowledge the pace of house building has not kept up with demand therefore sustaining their investment. At the time of the referendum result, there was speculation the base rate would reduce from 0.5% to 0.25% which did take place in August. The Bank of England indicated they would consider reducing further if the economy worsened, which so far has not been the case. It was also confirmed at the time, they also would add money to support confidence and restrict banks freezing liquidity, if not this would probably cause a further credit crunch and restrict mortgage finance. The governor of the Bank of England, Mark Carney, confirmed the reserve of £250bn can be made available if required.

Carney further commented the substantial capital held and large liquidity gives banks the flexibility to continue to lend to businesses and individuals even during challenging times. This suggests provision and safeguards are in place to maintain current lending to suit demand.

Since the referendum, the markets have rallied well and only recently fallen as investors are perhaps concerned that central banks around the globe are easing up on the monetary policies given the uncertainty of the US election result.

In the UK, mortgage approvals by the main banks increased in September after a 19-month low in August. They were lower than the year before but speaking with our local agents, they suggest it's down to a lack of supply of new build property rather than purchasing confidence.

There are four main areas for focus as we get to grips with the prospect of the UK outside the EU.

1) Calm - we have some indication this is already with us; the markets do seem to have calmed. This is probably due to all the positions the markets took on ‘Remain' have now well and truly played out. It's not over yet though, the volatility is set to continue until Article 50 has been triggered and a new directional plan from the government for the UK to leave is known.

2) Change - Nothing ever stays the same, what works for today may not be right for tomorrow. A pertinent example is Kodak, they tried to ignore new technology hoping it would go away by itself on the basis of it being too expensive, too slow, too complicated etc. It wasn't and their market changed irreversibly in a relatively short period of time, moving from wet film to digital technology.

3) Opportunity - Leaving the EU does provide opportunity. With price correction, there is opportunity to procure better land deals than prior to the referendum, as there may be fewer developers with available funding. Contractors had full order books and build costs had become very high prior to the referendum. We are aware some development contracts have been cancelled as a result of Brexit. Therefore, there might be more opportunity to reduce build costs as price elasticity plays out. The current volatility will ease. The fact the UK has to build more houses to meet demand won't change.

Bastien Jack Group Ltd has a strong project pipeline and always procures sites which have strong fundamentals and in areas where people want to live. There is a huge amount of due diligence which goes into every site appraisal including courting many local agents and advisors to confirm local demand and Gross Development Values. Speaking with agents in our pipeline areas, they have confirmed confidence is still strong and enthusiastic house viewings are still going ahead. As long as lending is still being offered and liquidity remains within the economy, there remains a great opportunity for us to progress.

(Source: Bastien Jack Ltd)

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