Performing a mortgage valuation
The introduction of the commercial property derivatives market in the UK has raised some issues related to the valuation process of appraisers (according to the Royal Institution of Chartered Surveyors (RICS)). A sufficiently liquid market of commercial property derivatives would offer useful information about how the market expects property values to evolve. Appraisers could take this information into account when performing a valuation. However, appraisers may pay little attention to derivatives prices in the early stages of the market development.
When performing a mortgage valuation, appraisers prefer using comparable evidence. However, this approach has a number of shortcomings. First of all, it will always be retrospective by definition. Further, the illiquid nature of the physical commercial property market means that transactions are only rarely observed. Moreover, comparable deals may include covenants, incentives and lease clauses that are undisclosed but clearly price relevant and thus distort the comparability.
A forward price curve implied from derivatives could facilitate valuations and increase valuation accuracy by providing market forecasts for rents, yields and capital values on a daily basis. Such forecasts could be incorporated into the valuation process and would provide a timelier indicator than retrospective transaction data. Some appraisers already use derivative prices on the IPD All Property Index and its subsector indices as a starting point for the valuation process. Note that the valuations in turn are used to calculate the IPD indices. In effect, if appraisers follow more closely the forward curve of property prices, the index could follow the prices of the derivatives on them.
The credit and tax bindweed on the growth
In 2004, the authorities loosened the legal and tax bindweed on the growth of a wider derivatives market. One of the earliest derivatives swap was arranged between Deutsche Bank and Eurohypo in 2005, and brought together a buyer and a seller of UK property risk. The seller exchanged a total property return (based on the IPD Index) for a LIBOR-based return paid by the buyer based on a notional principle. Prudential, the UK life assurer, and British Land also agreed on a commercial property swap at about the same time.
The formal launch of the Property Derivatives Interest Group (PDIG) on 16 September 2005 has set the crucial signal for the property market in the UK, which may serve as a role model for property derivatives trading elsewhere. However, the UK is somewhat fortunate because the available indices that are run by IPD are mature and widely accepted as accurate. That is not (yet) the case in most other countries.
In 2006, the market could build on the growth of the previous year and attracted further investment banks. Several banks started to quote option prices on IPD’s main index. Further, it was hoped that the arrival of sectoral transactions would deliver a further boost to the market. However, after a few trades on sector and even subsector indices in 2006, there were no more such deals in the first half of 2007. In essence, it remained a simple swap and forward market on the All Property Index with a few option trades, before trading volume soared in the wake of the US subprime mortgage crisis. The uncertainty introduced by the crisis attracted a number of new participants in the property derivatives market.
Market participants report loan enquiries
The first French property swap was traded by Merrill Lynch and AXA Real Estate Investment Managers in December 2006. The undisclosed notional amount was linked to the IPD Total Return French Offices Annual Index. By mid 2007, the French market has developed a permanent two-way pricing, i.e. bid and offer prices are constantly quoted. By the end of the fourth quarter of 2007, GB£ 787 million have been transacted in 63 trades. Most trades have been done on the office component of the French IPD index.
Moreover, market participants report enquiries on derivatives relating to the National Institute for Statistics and Economic Studies (INSEE) residential house price index.
The first option on an IPD index outside the UK was traded in January 2007, referenced to the German IPD/DIX Index. Goldman Sachs acted as intermediary for this trade, which was one of the first property derivative transactions in Germany. Subsequently, BNP Paribas offered a capital protected note on a basket consisting of IPD UK All Properties, IPD France Offices and IPD Germany All Properties. IPD publishes official transaction data starting with the second quarter of 2007.
The market picked up quickly, with 44 trades on a total notional value of GB£ 283 million from the second to the fourth quarter of 2007. In May 2007, Deutsche Bank Research expects the German market to reach € 25 billion by 2010. HypoVereinsbank states that a volume of € 150 billion is possible in the long run for Germany and € 300 billion for the European Union.
The numbers represent about 1% of the respective physical property market.
Improve your business and profits with CSS based website
Learn how a CSS and standards compliant website will improve your business and profits.
CSS layouts and web standards have been present on the web for many years, but only recently did they become a commonly applied financial solution for online businesses. Such situation was caused by the fact, that most browsers didn’t support CSS correctly (especially Netscape 4). Today CSS 2.0 is fully supported by almost every browser available.
Is there any reason to convert a thriving financial website that deals with payday loans, real estate etc. from a table-based layout to a CSS layout? The reason is simple, it will give you more money and improve financial stability of your business. Here’s how it works.
Reduced bandwidth costs
Files on business websites that adopted CSS layout are much smaller in size that those used on sites with traditional layout. You can reduce the size of your files as much as 50% if you decide to switch layouts. With smaller files you will be able to reduce your bandwidth costs, which for a high traffic financial site usually indicates huge savings.
The file size is reduced so dramatically because all presentation information is located in an external document, which is downloaded along with the page and then stored in your computer’s cache. With tables all layout data are located inside each web page document, so it has to be downloaded repeatedly with every page.
What is more, you can rely on CSS as an replacement for advertising JavaScript image rollovers, which gives you even more reduction in size.
A higher search engine ranking
A CSS-based financial website will be displayed higher in the search engine rankings when a particular phrase (such as payday loans, real estate, mortgage, etc.) is searched. This is because the code on your site is cleaner and search engines can access it more easily. You are also able to place the most important content at the top of your document and the whole content is more dense in comparison to code.
Obviously, a higher search engine ranking will provide your business with more customers interested in a credit, mortgage or other money service.
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