19 minute read
Forward thinking
As rapid technological changes are taking place across the Middle East banking industry, what are your bank’s digital transformation strategies?
At HSBC, we are digitising at pace. We are harnessing technology and data to create exceptional customer experiences and take the hassle out of everyday banking. Our top priority is to generate value for our customers, colleagues and shareholders in a sustainable way. Our customers expect digitally enabled services wherever they are and whenever they need them. Our strategy is to create a “bank-in-your-pocket” for our customers.
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To deliver on this strategy, we are making it easy for customers to manage their money on their mobile in just a few taps. Whether they are sending money around the world, looking to access credit or monitoring their investment portfolio, our customers will have full access to a personalised range services and products in their pocket. The support and expertise of our people will be critical to help customers understand the services available to them.
The world of digitalisation is evolving rapidly, how do you stay current on innovations and trends?
We nurture a collaborative culture of innovation at HSBC. This involves staying close to our technology partners, our regulators, and the wider banking and technology industries. For example, HSBC is digitising speedily, launching innovative products and easing clients pain points. Dan Robinson, Head of Wealth & Personal Banking at HSBC UAE shares their experience as a modernday bank keeping pace with the quickening change environment, while keeping an eye on the horizon for developments to come.
Dan Robinson,
Head of Wealth & Personal Banking at HSBC UAE
through partnerships with global tech companies, we are working to detect and prevent money laundering and financial crime using artificial intelligence and cloud computing power to analyse trillions of dollars of transactions and figure out which of those might be fraudulent in nature. This allows us, as custodians of our customers’ financial records, to provide a more secure banking environment. Technology also enables us to develop our relationships with our customers, deepening our understanding of how their needs are evolving, and ensuring that we are able to meet their expectations with personalized experiences.
How would you describe the evolution of the payments landscape in the region and how has it changed to reflect market demands?
The payments landscape is constantly evolving in the UAE and around the world. The UAE is already a digital first payments and transfers market, which has caught the attention of global and UAE based fintechs who are launching mobile led experiences.
COVID-19 has been a catalyst for people to incorporate digital ecosystems into their day to day lives. At HSBC UAE, mobile banking transaction volumes have increased by 61% in the last year. We are constantly developing new ways of making payments easier for our customers.
Take the Global Money Account which we launched recently as an example. This allows HSBC UAE customers to access the world with one account in just a few taps. It takes only a few seconds to open, manage and send money globally in multiple currencies and in real-time through our mobile banking app.
On the corporate banking side, HSBC UAE recently launched virtual debit cards, which is a first in the Middle East. The card generates single-use virtual card numbers, offering payment flexibility whilst helping with cash-flow forecasting and management.
Customers’ requirements and expectations are central to banks’ digitalisation strategies. How are banks in the region optimising customer feedback to maintain a competitive edge?
Listening to customer feedback is critical to ensuring we create the right personalized experiences to help them achieve their ambitions here in the UAE. We need to understand the many places customers speak to us, and about us, to see what we are getting right but also where we need to do better.
We use direct feedback channels, like our Net Promoter Score (NPS) survey on our mobile banking app, and indirect feedback channels like app store reviews and social media posts help us to prioritise new journeys and optimize the experiences we have.
We developed the “bank in your pocket” strategy after customers told us they wanted to do more banking on the go – and we are delighted with the response so far. We have seen the number of customers logging on to our mobile app increase by 45% since January 2020.
We introduced a digital secure key following customer feedback that “the calculator” (our physical hard token) was a constant pain point. In the five months since its launch, 75% of hard token users have migrated to the new digital secure key. We also introduced a number of new features on our mobile banking app which has increased our app rating on the iOS app store has increased from 1.7* to 4.7* out of 5*.
How can GCC banks leverage digitalisation to explore new avenues of growth or new business models in the coming five years?
We will see an increased focus on emerging technologies such as virtual and augmented reality, 5G, distributed ledger technology (DLT) and early use cases for quantum computing. The financial services industry is actively exploring central bank digital currencies – also known as CBDCs - that are based on DLT technology. The next three to five years will also see an exponential increase in the volume of data generated through a more digitally native demographic and which will require advanced data science capabilities, powered by artificial intelligence, to generate customer insights and interactions, such as the use of bots to provide basic banking services.
It is critical that HSBC is at the forefront. We also see increasing partnerships with global technology players like Google and Amazon, as well as fintechs, to help accelerate solution offerings for our customers. We are already partnering with a number of fintechs to solve key customer pain points such as digital identity validation and authentication services for key experiences like digital account opening.
HSBC works very closely with the global fintech ecosystem to explore the latest technology advances which could help us solve customer pain points and deliver exceptional customer experiences in the future.
BUILDING BACK STRONG
2021 ushers in hope
The double whammy of COVID-19 and low oil prices significantly jolted Middle Eastern economies, prompting comparisons with the 2008 financial crisis, but the increase in property prices has picked up a year after the outbreak of the pandemic. In a report, Irish market intelligence agency Research and Markets said that the global real estate market is expected to expand from $2687.4 billion in 2020 to $2774.5 billion this year at a compound annual growth rate (CAGR) of 3.2%.
The real estate sector has long been a core economic sector and investment of choice in the Middle East region, buoyed by strong demand fundamentals from solid population and GDP growth, as well as excess liquidity from oil. The institute of Chartered Accountants in England and Wales (ICAEW) said that expectations of strengthening activity and soaring demand have lifted economic recovery sentiments while pushing oil prices up to $68 per barrel in late May – (up from a low point of $9 per barrel in April 2020).
In the UAE, the Middle East tourism and business hub, S&P Global projected that a recovery in the residential property sector will be driven by a cutback of new supply by developers such as Damac Properties, low mortgage interest rates that are expected to encourage residents to buy rather than rent property and finally a plunge in property prices that makes investing in the sector attractive. Though the Middle East real estate sector is still in its emerging phase it has been rivalling the world’s leading markets such as London, Hong Kong and New York – with plenty of attention being given to the grandeur of the many pioneering urban developments. When the coronavirus hit the global economy, governments and property developers enacted a broad range of measures to support their respective economies including rent relief for tenants and rent freezes to mitigate the fallout from the pandemic.
Turning the tide
Despite a supply glut that was building up even as demand was faltering, and a double whammy of COVID-19 and low oil prices, the GCC region property market led by Dubai is recovering from a six-year depression as wealthy international investors running away from pandemic-related curbs and HNWIs drive a buying frenzy to record highs while aiding economic recovery.
“With a progressive government implementing policies to make it easier to live, work and potentially retire in Dubai, more professionals and entrepreneurs may consider the city as a base and invest in Dubai property as a result,” said Tim
– Tim Haywood Walton International Group
Haywood, General Manager, Regional Vice President, Walton International Group Ltd.
“Real estate has long been a core economic sector and investment of choice in the Middle East region, buoyed by strong demand fundamentals from solid population and GDP growth, as well as excess liquidity from oil,” said Strategy&.
According to an AFP report, luxury villas are the hottest segment in the market, with European buyers seeking homes on Dubai’s signature man-made island Palm Jumeirah as well as golf course estates. In March, a mansion in the Middle East business and tourism hub sold for AED 111.25 million ($30.3 million) – the highest price reached in years in the luxury, said property listing agency, Luxhabitat Sotheby’s International Realty.
In a research note, Morgan Stanley said that Dubai property prices are rising for the first time in six years amid higher demand from foreign investors and a slowdown of project launches since 2017. “Demand for residential real estate has picked up faster than expected, amidst a wave of government reforms over the past 12 months, attractive mortgage rates, and a shift in demand patterns due to COVID-19,” Morgan Stanley said.
A troubled industry
However, despite a rebound in the Middle East property market, which saw UAE’s Emaar Properties reporting a fifth-month surge in sales, property companies’ profitability will likely remain under pressure amid a property glut and faltering demand that drove prices down by more than a third in December 2020.
Last December, Dubai’s largest listed developer Emaar temporarily halted new projects amid after a construction boom in recent years led to oversupply and together with the coronavirus pandemic it was taking a toll on an already ailing sector. Emaar’s move to halt construction of new projects came on the heels of property moratorium calls by DAMAC Properties’s chairman. In 2019, the Dubai government was also forced to set up a committee to manage supply and MANY ADVANCED ECONOMIES HAVE TAKEN A ‘WHATEVER IT TAKES’ APPROACH TO SUPPORT ECONOMIES, WITH ULTRA-LOW INTEREST RATES AND QUANTITATIVE EASING PROGRAMS. THESE LOW-INTEREST RATES WILL SUPPORT REAL ESTATE INVESTMENT INTO 2021
– Savills
demand as some of the city’s largest developers continued to build.
In March, Emaar Properties said that it plans to buy back a 15% stake in its mall operations unit, Emaar Malls, at a 36% discount to the price it sold in 2014. valuing the business at $6.5 billion. Emirati billionaire Hussain Sajwani also offered to take over the rest of Damac Properties at a discount of nearly 45% to the developer’s local listing in 2015, through his investment vehicle Maple Invest Co Ltd.
According to Bloomberg, “The trend may have repercussions for a market that’s struggling to sustain interest and risks depriving investors of exposure to one of the emirate’s crucial sectors.”
In March, UAE’s Arabtec Holding revealed that it had submitted a bankruptcy petition to the Dubai Court almost six months after its shareholders agreed to liquidate the company. Creditors of Drake & Scull International, another property development firm, voted on its debt restructuring plan in April as the contracting company is on its path to recovery after a net loss of $24 million (AED 87 million) in 2019.
While in Saudi Arabia, the country’s biggest construction company Saudi Binladin Group is now restructuring tens of billions of dollars of debt after the Saudi Arabian government took a 35% stake in the company.
Global commercial real estate services firm, JLL, said that the coronavirus pandemic has accelerated certain trends and impacted many of the underlying demand drivers of the real estate industry.
Global property market
Though vaccination programs are at differing stages around the world and countries are recovering at an uneven pace, property price rises have picked up speed over the last year. JLL projected a stronger second half of the year as pent-up demand starts to filter through the economy.
The demand for home offices for employees who are working remotely since the outbreak of the pandemic is contributing to a surge in prices as unprecedented fiscal and monetary stimulus aimed at propping up economies in wealthier countries such as the US have poured more fuel on the fire.
“Many advanced economies have taken a ‘whatever it takes” approach to support economies, with ultra-low interest rates and quantitative easing programs. These low-interest rates will support real estate investment into 2021,” said Savills.
“An exceptionally strong housing market is likely to continue as low-interest rates and pent-up demand drive prices higher. The medium-term pressure will ease as supply chains recover from coronavirus and builders scale up operations,” said Haywood. The drive-in global office markets remain subdued, with Q1 2021 leasing volumes reportedly down by 31% compared to the same period last year. However, there are now tentative signs of an improving outlook with leasing activity in some parts of the world at pre-pandemic levels as countries are lifting COVID-related restrictions and companies are rearranging their operations as they look to return to offices.
Riding the rebound
Speaking to MEA Finance, Tim Haywood General Manager, Regional Vice President, Walton International Group Ltd. said that the outbreak of the pandemic has accelerated demand in the residential sector, and national home builders have seen a significant jump in home closings and quarterly earnings
Tim Haywood Walton International Group
As the global real estate sector is on the recovery path after last year’s fallout from the COVID19 pandemic, could you break down some of the properties you are working on at the Walton International Group?
We have been fortunate that the pandemic has driven a significant increase in the U.S. housing market with demand, fueled by a historically low-interest rate environment and work from home policies, continuing to outstrip supply. There have also been changes in the home building industry with a focus on ‘just in time inventory’ which has encouraged us to evolve our land investment model to suit both investors and homebuilders and align our interests. As a result, we are working on the acquisition of land assets in high-growth regions of the United States, with signed interest from public homebuilders who are keen to secure future development land inventory in markets where they are already active, to meet the increasing demand from homebuyers.
One of these properties is Pinehill’s Trails located in the Atlanta MSA, Georgia; a 652-acre property currently approved for 1,300 single-family detached homes expected to be developed from 2022 – 2027 by two national homebuilders. One of the homebuilders is already selling homes in a master-planned community adjacent to the property, so it is a natural progression for them to move their activity onto this property. The interest from homebuilders at the time of our acquisition of the asset is important and goes a long way to validating the due diligence conducted by the Walton Group of Companies and our external partners before the asset acquisition. Our due diligence work is shared with the interested homebuilders and is crucial in securing this interest upfront while also helping to mitigate risk for our investment partners who are then able to see a pathway to the sale of the asset.
In reference to Walton International Group’s plans for the next few years, are they set in stone, or are they beholden to which way the wind blows in the real estate market in the United States?
As referenced above, our investment model has evolved in response to the changing U.S. homebuilding industry, and with this being ever-fluid, we will continue to adapt accordingly to different trends and opportunities. Today’s exceptionally strong
housing market is likely to continue as lowinterest rates and pent-up demand drive prices higher. The medium-term pressure will ease as supply chains recover from Covid and builders scale up operations.
Nevertheless, underlying demand is likely to be buoyant for the coming decade as a generation of millennials reach their peak home-buying years and seek more space in the suburbs. In particular, locations with a lower cost of living, employment opportunities, lower taxes, good quality of life and better climates have seen an acceleration in demand since the pandemic. This, paired with our strategy which aligns our investors’ returns with the phased development and home sales activity of the homebuilders, is a model which is sustainable even if there is a slowing of home sales activity in the future. It is also worth noting that, unlike the last housing boom in the leadup to the sub-prime crisis and the real estate crash that followed, the typical warning signs of too much leverage in the market and over-supply do not exist today.
With remote working and homeschooling likely here to stay, how are these trends driving investment in the US property market and do these trends differ from other real estate markets such as Dubai, Hong Kong, or London?
The current US housing boom has been because of several factors, but the Covid pandemic has accelerated demand without question. With more and more of the U.S. population re-considering their options due to homeschooling pressures and work from home policies being adopted far more readily, young, millennial homebuyers are now ready to purchase their first or move-up homes in the suburbs. Their ability to move into good school districts, enjoy more space and not have to commute every day of the week is fueling demand outside of the city center locations where they were previously renting.
Remote working and affordability trends in other cities such as London and to a lesser extent, Dubai, may see similar outcomes, particularly in the case of London where home prices are extremely high. More and more young families may consider a move into outer suburban locations where space and quality of life are available and have become increasingly important. Having lived in Hong Kong for most of my working life prior to my move to Dubai in late 2019, it is a very different market, and the same forces are not necessarily at work due to the constrained land supply and lack of alternative residential options, although of course, price pressure will always drive any population towards relative affordability. In Dubai, the real estate headlines suggest that affordability, and a desire for more indoor and outdoor space, have fueled the market for Villa developments. With a progressive government implementing policies to make it easier to live, work and potentially retire in Dubai, more professionals and entrepreneurs may consider the city as a base and invest in Dubai property as a result.
How much has the United States real estate market changed since the outbreak of the pandemic and where do you see opportunities in the future?
The pandemic has accelerated demand in the residential sector, and as a result, national homebuilders have seen a significant jump in home closings and quarterly earnings throughout 2020 and into this year. Single-family housing starts in 2020 totaled 991,000, an increase of 11.7% from the previous year and in Q1 2021, they were up 19.6% compared to Q1 2020. A longer-term, pre-pandemic trend that provides plenty of opportunities for the future has been the homebuilding industry’s move towards securing development land/lots through Option Agreements, rather than the traditional ‘land banking’ model of the past. This allows national homebuilders to align their land acquisition and home sales activity, thus allowing them to better manage their balance sheet exposure to long-term land assets. Working with these homebuilders, The Walton Group of Companies can provide the land inventory required, allowing the homebuilders to take it down on a phase-by-phase basis, and in turn, provide a cash flow model for our investors who benefit from annual distributions as the lots are delivered to the homebuilder and homes are built and sold.
The Biden administration plans to nearly double capital gains tax for the wealthy, how do you expect this tax proposal to impact real estate investors?
I think it is too early to predict the impact of these proposals. On the one hand, it looks like the tax would be levied on real estate profits of more than $500,000, which is more likely to impact the ‘move up’ and wealthier segment of the market. At the same time, Biden is also looking at bringing in a USD2 Trillion infrastructure spending package which is likely to benefit regions of the U.S. where strong population and employment growth is already taking place, and housing alone could see around USD200 Billion injected into the sector.
There has been an increase in Middle East investors snapping up real estate assets in North America and Europe, in your view what is driving this appetite for investment in these regions?
Middle East investors, like any others, are always looking for opportunities to diversify their investment portfolios, by asset class, sector and geographically, so with the strong real estate market, it makes sense to consider investing in the U.S. The U.S. enjoys a robust legal framework and Title ownership system which makes it an attractive market to invest in real estate opportunities. Depending on the holding structure, the tax treatment upon disposition of long-term U.S. real estate assets (held for more than 12 months) has also been relatively favourable, and not as punitive as many might think. The Walton Group also boasts a Shariah-compliant structure which we can offer to investors seeking Islamic Finance solutions, which is an advantage in this region. Overall, the U.S. is a robust market to consider for savvy investors and is still the land of opportunity.
