The housing and neighborhood location choices of immigrants will have a significant impact on urban growth in the US for decades to come, particularly as more foreign-born residents seek to own homes in suburban communities, according to new research from the Urban Land Institute's Terwilliger Center for Housing. Homebuilders and developers who can deliver the housing options immigrants want and need stand to benefit in the years to come.

Home in America: Immigrants and Housing Demand examines the influence of immigrants in shaping urban growth patterns, particularly those who have entered the US since the Great Recession (since 2010, the number of immigrants from Asia has surpassed those from Latin America). "Immigrants have helped stabilize and strengthen the housing market throughout the recovery," said Terwilliger Center Executive Director Stockton Williams. "Immigrants' housing purchasing power and preferences are significant economic assets for metropolitan regions across the country. This suggests the potential for much more growth attributable to foreign-born residents in the years ahead," he added.

Among the key findings from the report:

• Without growth of the foreign-population, regions with strong housing markets such as San Francisco would not have recovered as quickly following the recession; and markets that continue to struggle in the recession's aftermath such as Buffalo would have experienced even weaker growth.
• Immigrants have strong aspirations for single-family homeownership, and homeownership rates for immigrants rise with their length of time in the US This suggests that immigrants will be a key driver for owner-occupied housing for years to come.
• Immigrants seeking to own homes as well as those renting homes are increasingly drawn to the suburbs in search of employment opportunities, lower-cost housing and a higher quality of life. Suburbs are home to high-income, high-skilled immigrants as well as lower-income, lesser-skilled immigrants.
• While immigrants represent a key source of demand for new housing, a substantial share of immigrant housing demand will be met through purchases of existing homes. Sellers of these homes – many of whom will be baby boomers seeking to downsize – will create a strong market for smaller units.
• Urban areas experiencing significant immigrant population growth should explore how to best accommodate immigrants and leverage the positive effect they have on the housing industry and economy. Investments in housing, retail, recreational and cultural amenities, as well as social assistance and education programs can help forge a strong connection between immigrants, neighborhoods, and the greater community.
• Just as housing demand by immigrants was a key factor in tempering the worst impacts of the housing collapse, this demand is now helping to build housing market momentum. Demand for homeownership and for single-family housing, as well as the continued growth of both urban and suburban communities throughout the country, will depend on the trajectory of US immigration policy.

The findings in Home in America are drawn in part from analyses of the housing and neighborhood preferences of immigrants in five metropolitan areas that represent different types of immigrant gateways:

• San Francisco – a major continuous gateway, with a large and sustained immigrant population throughout the 20^th century and into the 21^st century (other examples are New York City, Chicago, Boston)
• Houston – a post-World War II gateway that has attracted large numbers of immigrants since the mid-20^th century (other examples: Los Angeles, Miami, Washington, D.C.)
• Buffalo -- a former gateway that was a major entry point in the early-to-mid-20^th century due to its strong manufacturing economy (other examples: Cleveland, Detroit, St.  Louis)
• Minneapolis-St. Paul -- a re-emerging gateway marked by a renewal of immigrants at the end of the 20^th century into the 21^st century (other examples: Baltimore, Denver, Seattle); and
• Charlotte – a major emerging gateway that started experiencing a wave of immigrants at the beginning of the 21^st century (other examples: Atlanta, Las Vegas, Orlando)

Home in America notes that foreign-born population growth in most of gateways outpaced overall population growth between 2006 and 2014 (the time period from just prior to the housing market collapse through the housing rally). Emerging gateways, which experienced strong overall population growth, were the only exception. The report also looks at the neighborhood choices of immigrants within the five metro areas, focusing on five categories of suburbs (typologies developed for ULI by RCLCO):

• Economically challenged suburb – characterized by lower home values and little population growth
• Stable middle-income suburb – having a wide range of home values, usually more centrally located
• Established high-end suburb – having high home values, established development patterns, often near employment centers
• Greenfield lifestyle suburb – close to the edge of metro areas, developed mainly in the past 15 years, typically adjacent to established high-end suburbs; and
• Greenfield value suburb -- close to the edge of metro areas, often adjacent to stable or economically challenged suburbs, more affordable than greenfield lifestyle suburbs.

The differences in where immigrants are locating in the five cities is an indicator of how they could influence future growth within these markets, the report says. In San Francisco, immigrants are spread across nearly all types of suburban communities, with the highestpercentage, 35%, living in economically challenged neighborhoods. In Houston, the largest share of immigrants, 39%, live in stable middle-income suburbs, followed by 29% in economically challenged suburbs. In Buffalo, 30% live in established high-end suburbs (a greater share than the native-born population) and 27% live in urban neighborhoods. In Minneapolis, the highestpercentage, 32%, live in economically challenged suburbs, followed by 27% in stable middle-income suburbs. In Charlotte, 27% live in economically challenged suburbs. Nineteen% live in stable-income suburbs and an additional 19% live in established high-end suburbs.

Home in America points out that the presence of immigrants could help boost revitalization in economically challenged suburbs; sustain the success of stable middle-income suburbs; and contribute to the growth and diversity of established high-end suburbs. "If recent shifts in immigration flows continue, an increase in higher-income immigrants – including rising numbers from China and India – could accelerate the demand for homeownership among the foreign-born population," the report says. "Without sustained immigration, the housing market could weaken and in many markets the impact could be dramatic."

(Source: Urban Land Institute)

Home ownership ambitions of millennials in the UK are still very much alive, despite the challenges of assembling a deposit for a house, according to HSBC’s first Beyond the Bricks study.

The study of more than 10,000 people across nine countries found that three-quarters (74%) of UK millennials expect to be property owners within the next five years, however, this is significantly below the global average of 83%.

Slow salary growth and house price inflation mean the British millennial generation face significant challenges compared to its global counterparts when it comes to housing affordability. The average property price in the UK increased by 7.5% in 2016, with official wage growth figures showing just a 1.9% growth.

Global statistics – millennial home ownership:

* China survey sample includes 85% urban, 14% rural and 1% rural respondents

According to Tracie Pearce, HSBC UK’s Head of Mortgages: “This study challenges the myth that the home ownership dream is dead for millennials in the UK. With three in ten already owning their own home, the dream of home ownership for millennials is definitely alive and kicking. In the UK, they face a two-pronged problem of rising house prices and slow salary growth meaning the dream of home ownership is a challenge but not unachievable.”

Financial support from parents can make all the difference when saving for a home, and over a quarter (27%) of millennials who bought their own home turned to the ‘Bank of Mum and Dad’ as a source of funding.

Despite the challenges, many UK millennials are willing to consider making sacrifices to afford their own home.  Almost half (47%) of those intending to buy would consider spending less on leisure and going out, 33% would be prepared to buy smaller than their dream home.

The report also finds that many millennials need to consider their financials when it comes to planning for their home purchase. Of millennial non-owners intending to buy a home in the next two years, more than 1 in 3 (40%) have no overall budget in mind and a further 48% have only set an approximate budget.

Therefore it is not surprising that over half (57%) of millennials who bought a home in the last two years ended up overspending their budget.

*Average national deposit based on current industry figures

HSBC’s research identified four actions that millennials can take to help make their home ownership dream a reality:

1. Plan early and don’t underestimate the deposit

Start planning early to make home ownership a reality sooner. Include saving for the deposit, usually the first payment you will need to make. Find a competitive mortgage to help make borrowing the rest more affordable.

1. Budget beyond the purchase price

Think about the extra things that will make the house you buy the home you want to live in, and make sure to include them in your home purchase budget.

1. Consider what cut backs you can make

Consider cutting back on your day-to-day spending. Think outside the box about what could help you to buy a home, such as buying with a family member or friend.

1. Get a full view of your finances

Think of your mortgage as part of your long-term financial plan, not as a one-off transaction. Different types of home loan suit different needs and situations. Seek professional financial advice if you need help to make the right choice.

[1] International Monetary Fund: Global Housing Watch November 2016   

[2] Korn Ferry Hay Group: 2017 Salary Forecast

(Source: HSBC)

This week Finance Monthly interviewed Tom Carroll, head of EMEA corporate research at JLL, which released its 2017 report on global CRE trends just a few weeks ago. Here Tom delves into the future of automation in the CRE sector and discusses the current impact its having on businesses.

Could you introduce the need for more automation to benefit the business processes and real estate needs for corporates?

Robotics and automation are already being adopted widely across the corporate world. Going forward, they are more likely to lead to job transformation as opposed to wholesale replacement of human labor. This shift will free up time for innovative, creative and strategic work.

Automating repetitive, simple tasks in business processes will help increase speed, precision and cost efficiency. From a real estate perspective, this means that the organisation will be reorganised. The work that companies do and the way they do it is changing. As the more process-driven elements of work fall into artificial intelligence, the use of freelancers, consultants and contingent workers sourced via virtual marketplaces is becoming increasingly common too. This means that the companies of the future will be leaner and more dispersed allowing their employees to focus more narrowly on value creation.

How are overall roles set to change within large companies on the back of automation, and what about SMEs?

The companies of the future will be leaner, with remaining employees more narrowly focused on value creation and other activities delegated to specialist providers or intelligent machines. Competing for talent, however, will continue to be a major challenge due to slowing growth in the global labour pool across the next 15 years.

Therefore, developing talent strategies to attract and retain the right kinds of employee is essential. There are two generations of talent that firms particularly need to get to grips with to successfully navigate the changes taking place: digital natives and digital dependents. These groups have the digital skills and understanding of technology that companies need to transform their businesses.

What has so far been the impact of introducing automation in business operations?

McKinsey analyzed 2,000 work activities across 800 occupations and found that just 5% of occupations are likely to be become fully automated based on currently demonstrated technologies. However, individual activities in almost every job can be partially automated. Adapting current technologies could allow half of all activities that people are paid for to be automated, equal to almost $16 trillion in wages.

Overall, the report estimates that 49 percent of the activities that people are paid to do in the global economy have the potential to be automated by adapting currently demonstrated technology. While less than 5 percent of occupations can be fully automated, about 60 percent have at least 30 percent of activities that can technically be automated.

The good news is that automation could raise productivity growth, which would be a boon at a time when productivity rates have been falling. McKinsey estimates it could boost productivity growth globally by 0.8% to 1.4% annually in 2015-2065. That compares with the 0.3% productivity boost afforded by the creation of the steam engine in the period from 1850 to 1910.

What would you say is the biggest benefit, and are there any downsides?

Enhanced productivity and lower costs could be significant benefits for companies. Another of the biggest benefits of integrating automated processes is the fact that employees and companies can specialise and focus on value creation, innovation and growth.

As the shape of the workforce changes. Real estate portfolios will be consolidated, with a greater share of space located in urban hubs which appeal to top talent. The design of office environments will be guided by user experience as the competition for talent grows more intense.

What are the best examples of automation in large businesses? What might these look like in future?

Intelligent software is already automating many back-office roles in fields like accountancy, finance and law. E-discovery software, for instance, can analyse millions of electronic documents and tease out ones that might be relevant for a legal case, even when specific words or phrases are not present.

At JLL, for instance, we have signed a global agreement with Leverton to automate lease administration. Leverton’s machine and deep learning technology enables the identification, extraction and management of key terms and data from corporate documents, such as leases and contracts, in more than 20 languages. JLL will integrate these systems into its own global technology platforms to transform the way lease documents are reviewed, analysed and managed for its clients. This way, our clients will benefit from optimised data management, more efficient processing of documentation, reduced operational risk and a more robust audit trail.

Chicago-based Narrative Science has developed software capable of taking raw statistics and data and converting it into prose. Originally used to convert sports statistics into news stories, it’s now being used by a leading international bank to summarise stock activity for the firm’s brokers – a task which was formerly undertaken by a team of 20 people.

Cognitive artificial intelligence (AI) programmes that can respond to natural language will see human to machine collaboration become part of everyday working life. Watson, IBM’s natural language processing artificial intelligence system which famously defeated two human contestants on US prime time quiz show ‘Jeopardy!’ is now being used in fields like medicine, banking and customer services. Watson can even act as a ‘c-suite advisor’, scanning documents, listening in on meetings and advising on which companies to invest in. Ross Intelligence – an application powered by IBM Watson – can answer legal questions asked in natural language by shifting through huge databases of legal documents.

In a similar capacity, Kenshoo – a natural language processing system that another major international bank has invested in – provides detailed answers to financial questions that are asked in plain English. Applications like these – that can interact with humans through speech – will be called on to support or enhance the work of people.

How do you expect workplace attitudes to change in respect to automated roles?

Workplace attitudes are already shifting, just as people are becoming more comfortable with smart technology and robotics in the home. Automation has already transformed manufacturing processes and what we are seeing is an extension into new industries and job functions.

User experience will take primacy in the design of office environments as the war for talent grows more intense. To meet the expectations of the next generation and boost the productivity of those using the office, a greater variety of spaces will be available to work in. Activity based working – an approach to creating workplaces that provide users with shared access to spaces for individual and collaborative work – will become commonplace in workplace design. High-quality services, from food and beverages to recreation spaces, gyms and space to support wellbeing, will become standard features in core locations.

What does the real estate or financial services company of the future look like in respect to automation?

By 2030, companies will look very different than they do today. They will have diverse real estate portfolios that balance core space requirements with greater amounts of flexible space. Core locations will be concentrated in fewer, yet more dynamic, strategic, locations. More of them will be in developing markets with strong talent pools. Automation and outsourcing will streamline the workforces of large companies and reduce the number of full-time staff they employ. Employees will also benefit from greater automation of basic process driven activities within their day to day roles and technology may even improve the work life balance of employees.

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 21^st 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 6^th 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 1^st 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 21^st 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 6^th 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 1^st 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 31^st 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 31^st 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 31^st 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 (31^st 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.