SA Property Market in Better Shape than World

Property Prices Falling Worldwide

An article published in the UK’s Independent has drawn attention to the fact that the housing slump is spreading globally, with the adverse effects of the credit crunch on property values taking hold in Europe, the US and the rest of the world.

The current financial turmoil being experienced globally has send the demand for retail and industrial sites almost everywhere into decline, according the Royal Institution of Chartered Surveyors (RICS), which carried out the first global commercial property survey recently. The quantity of transactions has decreased in Eastern Europe and South America, while emerging Asian markets are experiencing stagnation in growth, including China. RICS warned that investors are reassessing their “appetite for risk” and this is having a profound effect on the global property market. Demand from commercial tenants has also decreased, but has not been so badly affected.

The chief economist at RICS, Oliver Gilmartin has said that, “Few markets have escaped the credit malaise which has engulfed commercial property activity since last summer. What started in the developed world has spilt into investment activity across several emerging markets”.

He added that, “In Britain, the outlook for the coming quarter remains subdued, with 23 percent more surveyors expecting rents to fall than rise”. The predictions were released yesterday when Shaftesbury became the latest British property company to report difficulties and blamed a drop in the value of its portfolio.

Shaftesbury owns shops and restaurants in and around London’s Carnaby Street and has reported a net loss of €91.2m for the last six months, its first loss since 1992. The group reported earnings of €212m during the same period just a year ago, with the net value of its assets having fallen by almost 11% this year.

Gilmartin explained that the demand for rental property had fallen worldwide for the first time in 4 years, with a significant drop in capital values in Japan and Australasia. Commercial offices in Japan are expecting the worst rentals, followed closely by retail outlets in North America. RICS has said that while China and other emerging Asian markets acted as a “beacon of resilience” during the last half of last year, “investors are now less sure of the potential higher returns on offer”.

This all translates into the most serious collapse in confidence ever experienced by Western nations. Over half the western European companies contacted by RICS indicated that industrial property prices were down, while the down spiral in the US residential market was likely to have an impact on the shops and malls sector.

Even so, RICS analysts found some parts of the world where commercial property was still flourishing. Values are expected to rise in many parts of Africa and the Middle East.

Taking this information into consideration, the current stagnation in the South African residential property market does not seem quite as bleak as the situation being experienced in the rest of the world. Commercial property is still booming and the steadily increasing interest rates are resulting in a strong rentals market. Perhaps the saying that every cloud has a silver lining rings true here.

The information in this article is courtesy of Sean O’Grady (“Credit crunch sends property prices falling worldwide”, The Independent, 29 May 2008).

If you are interested in buying or selling property in South Africa, please visit www.sahometraders.co.za.

Xenophobia Adds to Negative Sentiment in SA

Xenophobia Affects Property

An article published in Business Day has highlighted the increasing negative factors dampening the residential property market, most recently the wave of xenophobic attacks that have spread from Gauteng to other provinces in the country.

FNB property strategist, John Loos believes that there is light at the end of the tunnel and additional factors, such as the drop in new developments and the strengthening rental market will ultimately support the residential market once interest rates begin to come down.

However, Loos adds that the residential property market is “still deteriorating” and will take “longer to recover than previously thought”. He says that while the current atmosphere of rising interest rates is still “public enemy number one” for the residential market, the list of non-interest rate related negative factors is growing.

There are a number of events that have added to the woes of the residential market, including the electricity supply crisis, the rampant xenophobic attacks and the post-Polokwane jitters amongst minority groups.

According to Loos, “High rates of crime have come to the fore and the xenophobic violence just makes it worse. Then there is the slowing economy driven in part by interest rates and in part by the slow global economy”.

Loos is anticipating a drop of more than 20% in the value of new mortgage loans for 2008. Where actual house prices are concerned, the reality seems to be that “we are heading for some house price deflation” (Loos).

In fact, Loos says, “[B]y late this year or early next year, we could have a spell of year on year price deflation of between 5% and 10% nationally”. He believes that the residential market should start seeing signs of improvement next year.

This is based on the bank’s expectation that after a possible two further interest rate hikes of 50 basis points each, interest rates will begin to level out and gradually start reducing next year (Loos).

Loos added that by 2010, South Africa’s economy would begin to “pick up” on the back of a steadily recovering global economy, as well as a drop in interest rates. He also believes that the “slump in development of new stock” will restore balance to the market and a strong rental market will make buying more attractive in future (Loos).

However, property economist Erwin Rode of Rode & Associates, believes otherwise and says that the stagnant resident market will “be with us until at least 2010”.

The information in this article is courtesy of Nick Wilson (“South Africa: Property Reels From Attacks On Foreigners”, Business Day, 28 May 2008).

If you are interested in buying or selling property in South Africa, please visit www.sahometraders.co.za.

Mortgage Origination Drop in SA

Drop in Mortgage Originations

An article in Business Day has drawn attention to the fact that banks are declining more and more mortgage applications, which combined with the implementation of the National Credit Act has resulted in significantly fewer mortgage originations in the market.

Willie van Aardt, CEO of Finbond, a mortgage origination and consumer finance company said this week that the National Credit Act, which came into force in June last year, has resulted in more loans being declined due to the fact that customers no longer pass the banks’ credit criteria under the Act.

According to van Aardt, the global subprime and liquidity crises being experienced by international banks has had an impact on local banks, which are now introducing stricter credit criteria and “behaving more cautiously”.

Before the Act’s implementation, Finbond reported that 37% of its mortgage applications were declined by the four big banks, but since then 42% were declined. Van Aardt said that 2008 had already seen 45% declined.

Finbond released its financial results for the year on Tuesday, said that a shrink of 40% in mortgage origination volumes was seen by the group towards the end of last year. Finbond still showed strong results, however, achieving an operating profit of 6.9% above that forecast, but van Aardt said that this was likely due to the company’s strong diversification into the consumer finance market.

When Finbond first listed on AltX in June 2007, the total contribution of mortgage origination and related activity to net profit after tax was about 70%, with consumer finance making a contribution of 30%. Since then the company has expanded into consumer financing, with the result that mortgage activities are down to just 45.5% net profit after tax and consumer finance is up to 54.5% for the year to February.

Ooba (formerly Mortgage SA), the mortgage origination and financial services intermediary said on Tuesday that volumes of mortgage origination in the market had slipped by more than 30% since the National Credit Act came into force.

CEO Saul Geffen suggests that the interest rate hike in June last year coincided with the implementation of the Act and resulted in a “tipping point”. He added that, “As interest rates have continued to climb and affordability negatively impacted, it’s got worse”.

Geffen also indicated that Ooba’s statistics show the decline in mortgage applications by banks for credit and affordability reasons had increased by 50% since the Act. “The increase in the number of nonperforming loans on banks’ books and their capital constraints because of the credit crisis mean stricter credit criteria,” he said.

Across the mortgage origination market, Geffen said that there had probably been a 10% increase in the declines made by banks for mortgage applications since June. Jan Kleynhans, CEO of FNB Home Loans, reported that in the past two or three years, higher interest rates had led to a significant increase in consumer defaults on debts.

While the Act is preventing consumers from becoming over-indebted, this is not just true of mortgage lending; it concerns all lending (Kleynhans). “The banks are just doing their job of ensuring that people do not take on debt they can’t afford,” said Kleynhans.

The information in this article is courtesy of Nick Wilson (“Finbond originating fewer mortgages”, Business Day, 28 May 2008).

If you are interested in buying or selling property in South Africa, please visit www.sahometraders.co.za.

Housing Market Muddle in SA

Be Sure to Up Home Insurance

A press feature released by FNB Insurance Brokers has warned that homeowners should beware of a housing market muddle that could render them “vulnerable to under-insurance running into hundreds of thousands of rands”.

The short-term insurance broking arm of the FirstRand Bank financial services group believes that the problem lies in the housing and construction markets sending out mixed signals to the public, says Debbie Donaldson, MD Personal Lines.

“After nearly two years of successive interest rate increases, residential property prices have stalled or dipped,” Donaldson explains. “Some homeowners therefore assume that there is no pressure on them to step up the insurance cover on their property,” she adds.

However, the reality is that building industry inflation, which includes both labour and materials, continues to increase at a steady rate. Essentially, this translates into higher and higher costs for the rebuilding or repair of property that may be damaged or destroyed in an unforeseen event (Donaldson).

What Donaldson wants to stress is that, “[T]here is a strong case for reviewing the replacement value of the property and stepping up your cover, though you may have been lulled into a false sense of security by news of softer residential property values.”

FNB Insurance Brokers represents a clientele in all provinces and major centres in the country. Building inflation levels are said to vary geographically, but appear to be in double digits in the majority of areas. To make matters worse, the inflationary pressures in the construction sector are expected to continue for some time to come.

Donaldson points out that, “The average homeowner may wonder what it has to do with him/her when government announces in the Budget that spending on public sector infrastructure will run to about R568 billion for the next three years.” The reality is that the knock-on effects of this will affect anyone who wants to build an extension on their home or calls in a contractor to repair damage to their property.

“In the current environment, some parts of South Africa are starting to look like a building site as work proceeds on major projects, driving up demand for skills and materials and keeping prices high,” adds Donaldson. The homeowner does not appreciate the cost pressures until they suddenly experience storm damage or a fire and structural problems need to be repaired.

At the moment, what is on the top of everyone’s mind is how that neighbour on your street or one nearby had to bring his sale price down R100 000 before he could find an offer (Donaldson). This suggests that inflationary pressure has eased, when in fact the opposite is true in the construction sector.

Donaldson doesn’t believe that the 2010 Soccer World Cup will alleviate these pressures, as the expenditure on a new national infrastructure will continue well beyond the completion of the new sports stadiums.

There are financial institutions that will make periodic adjustments in the home replacement values of their mortgage-bond clients, but the underlying responsibility for ensuring an appropriate level of cover rests with the homeowner.

The advice that Donaldson gives is “not to take risks; undertake a periodic review. If your home is destroyed and you have cover of only R750 000, you could be in serious trouble if you find a total rebuild now costs R1 million.”

A scenario where there are disparities running into hundreds of thousands of rands is not unlikely, especially if the sum insured has not been reviewed for a number of years. “For peace of mind, call in a reputable broker and undertake a thorough review – then make a mental note to do the same next year,” urges Donaldson.

The information in this article is courtesy of Carol Dundas (“Rebuilding costs are increasing while residential property prices have stalled or dipped”, ITInews, 26 May 2008).

If you are interested in buying or selling property in South Africa, please visit www.sahometraders.co.za.

Xenophobic Attacks Condemned by Business in SA

Xenophobic Attacks Condemned

An article published in The Times reports how business leaders have spoken out to condemn the spate of xenophobic attacks that have spread throughout the countries main provinces, claiming more than 50 lives since the hate crimes began in Johannesburg two weeks ago.

This weekend, police and the army carried out raids in hostels believed to be where many of the attacks were planned. A number of influential business leaders, including the Transnet chief executive, Maria Ramos and the SA Property Owners’ Association chief executive, Neil Gopal, as well as Business Unity heavyweights, Bobby Godsell and Jerry Vilakazi met last week to discuss the security situation in Alexandra, the township north of Johannesburg where the first attacks broke out.

Gopal has said that, “The property industry and the business community as a whole condemn the violence unfolding in South Africa. We call on our national and provincial leaders to come into the townships, the informal settlements and city neighbourhoods that have been hit by violence.”

According to Gopal, the constitution gives immigrants, refugees and asylum seekers the right to protection and he is worried about the “difficult challenge of reintegrating the people affected by violence into society.”

Chairman of the Vodacom Group, Oyama Mabandla said that, “The attacks on citizens from other African countries don’t do South Africa proud and they don’t do Africa proud.” The cellular giant has more than 23 million customers resident in South Africa, Tanzania, the DRC, Lesotho and Mozambique and believes that more effort is necessary to deal with the crisis.

Mabandla has called on political, religious, business and civic leaders to deal with the complex issues surrounding the obvious distress and conflict prevalent in poor communities. “Now is the time for all South Africans to stop this shameful episode in our history. We are calling on attackers to lay down their weapons and on our leaders to inspire confidence that solutions will be found,” he urged.

The xenophobic attacks continue to spread from Gauteng to other provinces in the country. Reports have been made of related violence in Mpumalanga, North West, KwaZulu Natal and the Western Cape. The President’s decision to deploy the army to aid police efforts to stem the violence seems to have paid off, but the question is for how long.

The information in this article is courtesy of Simpiwe Piliso (“Attacks mark a ‘shameful episode’ in SA history’, The Times, 27 May 2008).

If you are interested in buying or selling property in South Africa, please visit www.sahometraders.co.za.

Small Building Companies Taking Strain in SA

Small Building Companies Taking Strain

An article in Business Day reports that it is not just real estate agents who are facing job losses, small and mid-sized construction companies that turned down work a year ago because they were so busy are now “begging for work”.

John Whall, Montagu Property Group’s director of development, construction and marketing, says that a year ago these companies were “extremely busy” and did not even want to “price jobs”. He adds that, “A lot of them were building residential developments [which] have come to a halt because of an oversupply”.

The spiraling interest rates and glut of properties on the market in the last year has caused a dramatic reversal of fortunes in the construction sector. Eskom and its electricity crisis are also having a negative impact. Whall says that mid-sized construction companies are literally desperate to gain work on office and industrial property developments.

David Green, MD of commercial and industrial property brokers Pace Property Group, says that those facing much tougher times are the small construction companies. “It is unfortunately quite concerning as many of the small construction companies currently only have the projects which have not yet been completed on their books and are not able to obtain further contracts for the balance of 2008 and beyond”.

According to Green, “This is a result of the residential slowdown, the electricity crisis and the escalated building costs, which have rendered many projects unfeasible”. He maintains that the larger companies are fine because there is still “more work available to them, particularly from the infrastructural development, government projects and other major building works. This is not the same for the small to mid-sized construction companies”.

Green is concerned that many of the smaller companies will be unable to weather this particular storm. “[T]hey will be laying off a lot of staff and this sector is a major employer within the construction industry as a whole”.

First National Bank property strategist, John Loos says that if mid-sized construction companies had previously been busy with residential and retail developments then they would most certainly be experiencing a “significant slump in work”, generally speaking.

Loos believes that there is still a “strong need for space, given the low vacancy rates” in construction activity in the industrial and office property sectors. He says that in these two sectors, it would be various supply-side constraints that would be more of an issue periodically for these companies.

The information in this article is courtesy of Business Day (“South Africa: Small Building Companies Begging for Work”, 23 May 2008).

If you would like to buy or sell property in South Africa, please visit www.sahometraders.co.za.

Residential Investment Growth in SA to Slow Further

Drop in Building Plans Passed

An article in Business Day reports that building plans passed for the private sector have fallen by a seasonally adjusted 1.7% in the first quarter of the year, compared to the same time last year, according to official data.

Residential building plans account for half the total of plans passed and these fell by 8.9% over the same period, which is a trend taking its cue from interest rate hikes and a drop in property prices. Statistics SA said that while residential building plans passed showed a decline, non-residential building plans rose 8.8% and alterations indicated an increase of 6.7%.

“We are still in an environment where building plans are lower than a year ago,” said Citigroup’s South African economist, Jean-Francois Mercier. “It suggests residential investment growth will slow further.”

Since June 2006, interest rates have increased by 4.5 percentage points, a bid by the Reserve Bank to slow inflation, which has been aggravated by rising world fuel and food prices. This has caused household debt costs to escalate to 11% of disposable income, consequently curbing consumer spending and bringing a halt to a seven year rally in house prices.

According the ABSA, the country’s biggest mortgage lender, house prices are falling in real terms this year. Compared with the last quarter of last year, the number of building plans passed rose 15.8% in the first quarter of 2008, with non-residential buildings taking the lead.

The official figures cover the value of building plans passed by large municipalities, which is adjusted at constant prices for 2000. In March, the value of building plans rose 6.9% when compared with the same time last year.

The information in this article is courtesy of Mariam Isa (“South Africa: Building Plans Passed Drop 1.7 Percent”, Business Day, 22 May 2008).

If you are interested in buying or selling property in South Africa, please visit www.sahometraders.co.za.

Expropriation Bill Assault on SA Property Rights

Expropriation Bill Assault on Property Rights

A statement released by the Democratic Alliance (DA) this week calls for joint Public Works and Agriculture / Land Affairs deliberations on the government’s proposed Expropriation Bill. The statement also urges ordinary South Africans to “make their voices heard” during the public participation process.

19th May 2008 marked the start of a series of public hearings on the Expropriation Bill, with the hearings commencing in Beaufort West and then scheduled to continue across the country until the 18th of June. The DA is said to be doing everything in its power to ensure that the public is made aware of the details of these hearings, so that they can voice their opinions on a piece of legislation that promises to have a profound impact on the future of all South Africans.

The DA’s position on the Bill is clear: “While we wholeheartedly support a sustainable and equitable land reform process, we believe that the Bill in its current form will severely undermine just such a process and, even more seriously, will threaten the foundation of South Africa’s economic well being – the security of property rights”.

According to the DA, “the Bill constitutes a full-on assault on some of the most fundamental aspects of the Constitution and should be of concern to anyone – whether they be urban or rural, black or white – who currently holds a right in property or intends to do so in the future”.

Considering how important this legislation is to South Africa’s future economic well being, the DA is set to make a formal request that when the Bill comes before Parliament, it is dealt with jointly by the Portfolio Committee on Public Works, as well as that on Land Affairs and Agriculture.

This is mainly due to the fact that the Bill has enormous implications for the future security of property rights for all those who own property – in fact, it will have a particularly profound impact on the agricultural sector, at a time when increased inflation and soaring food prices have demonstrated how important it is to ensure that this sector is able to survive and thrive.

The success or failure of the land reform policies in South Africa will ultimately affect everyone and it will be disastrous for the country if we fail to undo the injustices of past land repossessions. However, it will be equally serious if the government were to put in place legislation that goes against the constitution and is a clear threat to the economic future of South Africa. The DA promises to do all in its power to prevent such a situation from happening and emphasizes that “the challenge is now for all South Africans who share this vision to make their voices heard”.

The information in this article is courtesy of a statement made by DA spokesperson, Maans Nel MP (“Expropriation bill a “full-assault” on property rights – DA”, Politics Web, 19 May 2008).

If you would like to buy or sell property in South Africa, please visit www.sahometraders.co.za.

Bad News for Estate Agents in SA

Tough Times for Estate Agents

An article published on the Business Report website has indicated that the severe slowdown in residential property sales is leading to a number of estate agents leaving the industry and the worst is yet to come, say industry players.

The principal of the Seeff Properties office in Centurion, Steve van Wyk said last week that where his office had 53 agents a year ago, there are now just 42. “I think that the numbers will reduce further, particularly over the course of this year,” he said.

Van Wyk added that the Property Trader, which many estate agencies use to market houses for sale, has shrunk from 130 pages last year to about 80 pages this year. This, he attributed to the fact that many of the smaller estate agencies are closing and the bigger agencies are cutting back on marketing outlay, in a bid to see themselves through the “tough times”.

Managing director of Seeff Pretoria East region, Gerhard van der Linde reported that the number of his agents has remained stable, but that agents from smaller agencies are “gravitating towards the brands and companies”.

Andrew Golding, chief executive of Pam Golding Property, said that his company had “not yet” experienced a decline in the company’s number of agents, but added that it was still too early to know how bad it was going to get for the more marginal agents.

When it comes to the decline in the volume of house sales this year, Seeff Properties estimated a drop of about 35%, while Pam Golding Properties indicated that volumes were down about 30% over the past two years.

Both companies rejected claims made by the Estate Agency Affairs Board (EAAB) that 26 000 of the 82 000 estate agents who were licensed last year had not renewed their licenses this year.

Chief executive of the EAAB, Nomonde Mapetla said that the reduction was most likely due to the slowdown in the property market because of the series of interest rate hikes over the last two years, as well as the implementation of the National Credit Act in June last year.

Van Wyk argued that in February this year, 29 of his agents had not yet received their fidelity fund certificates, despite having paid in full. “I know, I have proof of payment,” said van Wyk. “I spent two hours at the EAAB’s office going through it with them. I gave them a copy of the agent’s identity document and the proof of payment, but [we] are still sitting with nine agents without certificates”.

In order to practice legally and to earn commission on sales, estate agents must all have a fidelity fund certificate issued by the EAAB. Once new training requirements for agents are implemented, van Wyk believes that there will be between 15 000 and 20 000 left operating in the country. These new compulsory qualifications will essentially be a barrier to entry into the property industry, with prospective agents expected to attend formal training courses for a year and passing a sequence of exams.

Golding is fully in support of the new training requirements, but believes that the implementation of such a new curriculum in the industry will cause chaos, unless it is well thought out. His Property Group is preparing to have its 2000 agents fully accredited within the next five years, but the threat has come from the lack of clarity about requirements and the lack of confidence in the new system, according to Golding.

He asks, “Are there enough assessors and are the procedures robust enough for example, on the recognition of prior learning?”

The information in this article is courtesy of Roy Cokayne (“Property industry faces tougher times”, Business Report, 19 May 2008).

If you would like to buy or sell property in South Africa, please visit www.sahometraders.co.za.

Reasons for Negative Sentiment in SA

Property Dragged Down by Negative Sentiment

Dispatch Online’s business reporter, Siya Miti discusses how political uncertainty, the current electricity crisis and the never-ending effects of crime are “hot on the heels” of interest rate hikes as some of the key factors behind the residential property market’s literal “nosedive” in the past months.

This is according to FNB’s property barometer for the first quarter, which was released yesterday. The survey has identified these as the concerns behind emigrations and “semi-grations” (those moving to other parts of the country), which are currently influencing the residential property market.

The survey is conducted among estate agents and the three factors of politics, electricity and crime, together with the effect that neighbouring Zimbabwe’s brewing political turmoil is creating, came out ahead of the National Credit Act as the major causes of the current slump in the residential property market.

FNB’s property economist, John Loos has said that estate agents interviewed as part of the survey pointed to interest rates as the leading cause for the current situation. “We believe that rising interest rates are probably still ‘public enemy number one’ in terms of exerting pressure on the residential property market,” said Loos. “However, the gap is narrowing between the importance of interest rates and non-interest rate negative forces.”

Two of the main reasons given for selling property were relocating for security reasons and emigration. Accordingly, the barometer denotes crime as a “significant contributor” to negative sentiment. The Southern Cape Coast seems to be the most favoured location when it comes to semi-gration.

It is believed that the lifestyle offered in the region, as well as the ever-repellant forces of crime in the major metros, may increase the Southern Cape’s ability to attract the skills set necessary to sustain the high rates of economic growth that it is currently experiencing, thereby boosting the demand for residential property, this according to Loos.

Of the non-interest rate factors currently dragging the residential property market down, Loos says that, “Amongst these would feature the perceived heightened political and policy uncertainty following Polokwane, which leaves the ruling party seemingly at odds with its own government, while the Eskom debacle early in the year must have contributed. The negative effects of a global economic slowdown on the local economy must also have played a role. And the heightening Zimbabwe crisis and government’s poor handling of it has been noticed by many,” adds Loos.

The information in this article is courtesy of Siya Miti (“Negative sentiment drags property down”, Dispatch Online, 20 May 2008).

If you would like to buy or sell property, please visit www.sahometraders.co.za.

How to Benefit from High Interest Rates in SA

Make the Most of High Interest Rates

A press office feature released by Mazars Moores Rowland has given some valuable advice on how to make the most of the high interest rates. The current situation can benefit you if you do a reshuffle of your current investment portfolio, making adjustments with “an eye on tax efficiency, cost effectiveness and wealth enhancement”.

Marius Fenwick, a financial advisor with Mazars Moores Rowland says that depending on your age and current portfolio mix, the improved yields that result from higher interest rates may produce greater tax liability. The key to avoiding this is knowing where to start shuffling your portfolio.

The advisor suggests, “Take a look first at your retirement annuities and consider moving some underlying investments into a money market fund where yields are now close to 12%. The interest earned within the annuity won’t be taxed”. This doesn’t mean that all the underlying investments should go into a money market fund though.

According to Fenwick, for long-term growth you need to invest in equities, which is an asset class that has outperformed bonds and property over time. “And remember too, that once the interest rate cycle peaks and turns down, the stock market will start to run,” he adds. This approach is said to make sense particularly for living annuitants in a somewhat volatile market.

Say that you’re drawing down 8% of your annual investment value as a pension. Putting some of the underlying investment into a money market fund at a yield of about 11.5% will mean that fewer equity units within the annuity will have to be sold to produce the desired income from the drawdown of 8%.

“It may be worth considering shuffling the portfolio to ensure two years’ worth of income will be generated from an allocation to a money market fund while the rest is invested in a balanced portfolio and allowed to produce an inflation-beating real return over time,” believes Fenwick.

Of course, there will be those whose tax rates are such that an interest-bearing investment in their own individual rights will not be efficient. Individuals and trusts of a high net worth (including a 40% flat tax rate) would benefit from considering an investment in dividend income funds, which are yielding up to 9,4% tax-free after fees – and preserving capital at the same time, this according to the financial advisor.

For those who are willing to put money away for a period of 5 years, a lump sum investment in an endowment product built on an interest-bearing instrument will produce around 9.3% return, which is tax-free and guaranteed for the full term.

The pressure exerted on our currency by high interest rates may make offshore investment a sensible option. Part of your portfolio shuffle should include a look at offshore-linked funds and an additional investment outside of the country, either directly or through an asset swap.

Fenwick also stresses that while prices in the listed property sector have dipped significantly in an environment of high interest rates, property fundamentals still remain sound. This option is particularly popular as an income producer for retirees.

Those who invest in property should remember that it is a long-term investment that produces a steadily rising income and that they should continue through the period of volatility, rather than secure a loss on their investment by selling shares prematurely.

Also, given that the performance of listed property tends to track that of bonds, “the time for bonds to shine will come again” and consequently, so will the opportunity for investors to consider income funds with bond exposure.

The trick is not to try and time the market and to get your selection of asset classes right, rather than your choice of asset managers. A solid-performing and balanced portfolio is said to be the solution and it is advised to let your advisor make the calls on asset classes over the long term.

The information in this article is courtesy of Claire Densham (“Making the most of high interest rates”, Mazars Moores Rowland, Itinews, 16 May 2008).

If you would like to buy or sell property in South Africa, please visit www.sahometraders.co.za.

SA Lodge Goes Totally 'Green'

Eco-Tourism Lodge 100% Green

An article published in BuaNews has highlighted the incredible eco-friendly inventions of Dr Hans Hahn, who runs an eco-tourism lodge based in Soutpansberg. The Moshavehla Lodge is detached from Eskom’s power grid and runs entirely on alternative, renewable and sustainable energy sources, essentially a combination of solar power and thermal gasification.

According to Dr Hahn, thermal gasification involves the extraction of gas by burning wood and then recycling the waste to power generators. He has also recently established a factory, which manufactures solar panels and when combined with a wood-burning boiler, this is used to heat water and power equipment.

“My invention works so well that our 700 litre tank of water starts boiling after just 30 minutes,” says Dr Hahn, adding that the recent Tourism Indaba was highly beneficial to businesses, as it exposed them to local and international visitors. He is now working towards establishing a golf course at Moshavehla, which is to be landscaped with only indigenous plants and irrigated by wastewater from the lodge.

Hahn’s daughter, Ingrid believes that her father’s sound knowledge in renewable energy could benefit the country. They intend to approach the Department of Minerals and Energy (DME) with a number of prototypes for the generation of green power.

Eskom has been struggling to provide the country with sufficient energy supply following the unsustainable increase in the use of electricity, exacerbated by the fact that South Africa has a massive infrastructure drive ahead of the 2010 Soccer World Cup. The power utility has pleaded with businesses and the public to decrease their dependency on coal-generated electricity and implement energy-saving measures in their offices and homes.

Moshavehla, which means “place where the drums beat”, is situated between mountains and amid an unspoiled biodiversity that boasts over 600 types of tree, thousands of plant species and a multitude of wildlife, including leopard, hyena, warthog and kudu. It has always been a dream of Dr Hahn to establish a conservancy on his farm to protect the indigenous fauna and flora in the area and his daughter is helping him to achieve this.

The Lodge also has a community upliftment focus to it. “We only employ local Vendas and all our furniture and arts and crafts is made locally. The community is aware of the vision we have for the property as well as the community, making them aware of the environment and how to protect it and ensure future generations can benefit from it,” said Ms Hahn.

Such a story should surely inspire others to do the same in their homes, offices and communities. There is no doubt that South Africa faces a situation where the creative implementation of renewable energy sources is necessary.

The information in this article is courtesy of BuaNews (“South Africa: Limpopo Lodge Goes 100 Percent ‘Green’”, 13 May 2008).

If you would like to buy or sell property in South Africa, please visit www.sahometraders.co.za.

Perhaps Silver Lining for SA Property Market

Standard Bank Downplays Market Slump

An article published on the Business Report website reports that Standard Bank expects a “relatively mild cyclical downturn rather than a full-blown recession” when it comes to the residential property market. The Bank made this prediction despite releasing its own property gauge results, where the median house price fell from R550 000 in March to just R530 000 in April. At this rate, prices would fall by nearly 44% in a single year.

The decline since the same time last year translated into a negative annual growth rate of 8.6% and minus 2.8% has been recorded for the five month moving average growth rate year-on-year. However, the Bank insists that its figures should not be taken at face value and interpretations should be made with caution before making assumptions.

Leon Barnard, director of Standard Bank’s personal and business banking products, says that property is still one of the best investments and has shown good results over time. However, he added that, “There is no denying that South African consumers are starting to feel the pinch of increasing inflation and the higher interest rate environment. Property prices have cooled off dramatically in the past few months as a consequence of these environmental pressures”.

Barnard acknowledges that the current figures may “raise some concern”, but on closer inspection, he believes that they reveal a more graduated picture. “Firstly, it is the uppermost sector of the property market that has cooled off the most. We are starting to see increased levels of activity in the lower property segments. It’s not all doom and gloom. Standard Bank is actually pleased with the performance and resilience being seen in the lower spectrums of the property market”, this according to Barnard.

Standard Bank has indicated that the base value from which its most recent and pending year-on-year growth rates have been calculated was set at a relatively high level last year. This was due primarily to the temporary upward adjustment in the distribution of mortgages entering the home loans sector in the months leading up to the National Credit Act’s implementation.

The residential property gauge showed that the risk of national house price deflation had risen further and that there were areas possibly already experiencing price deflation, albeit from a high base point. Houses were increasingly being sold for less than the asking price and were staying on the market for longer periods of time. There was also anecdotal evidence of an increase in the stock of houses for sale and an indication of more distress selling.

The Bank says, “This suggests that sellers have to revise their price expectations downwards, placing downside risk to house prices”.

The information in this article is courtesy of Wiseman Khuzwayo (“Standard Bank downplays house slump”, Business Report, 11 May 2008).

If you are interested in buying or selling property in South Africa, please visit www.sahometraders.co.za.

High Potential for Fractional Ownership in SA

Fractional Ownership vs Timeshare

An interesting article in the Business News section of the Bangkok Post highlights the latest trend in international property investment: fractional ownership. It’s important to differentiate fractional ownership from timeshare, which endured much criticism in Britain and has since ruined the image of timeshare as an investment vehicle.

Fractional ownership targets the same market – those who want a second home, but don’t want to pay the full price for what could be an extravagant expense. The fractional ownership of luxury holiday homes has proven a much more promising alternative to timeshare, mainly due to the fact that buyers actually own a portion of the property.

Thailand, with its booming tourism industry, is seen as a high-potential location for fractional ownership investment. There are developments in motion as we speak, with a boutique condominium in Nakalay, Phuket, a luxury apartment in Soi Bangla, Phuket and a luxury hotel with a range of exclusive units in Thong Krut on Koh Samui.

Darron Guy, co-founder of Leisure Solutions, a company working on two projects in Phuket and one in Samui, has said that although fractional ownership is somewhat new to the Thai market, it is a fairly mature market in places like North America, South Africa and Europe. “The roots do come from timeshare and what [operators] have found is that these opportunities for fractional far outweigh the benefits of timeshare” (Guy).

The fractional business has its roots in the partial ownership of assets such as yachts and planes. Guy insists that, “Fractional is often confused with timeshare”. The high-end market in North America is estimated at US$3bn a year, covering all fractionals and a concept known as a private residence club, which refers to properties of exceptional quality.

While the article focuses on fractional ownership in the Thai market, it’s interesting to note that there is already an established market in South Africa. It is believed that “lowering the price point” also attracts the “middle to high income” demographic and that “if the yield through management and rental is wrapped around that” then the model becomes even more attractive (Guy). Perhaps it’s the perfect time to consider investing in one of the fractional ownership models available in South Africa. Not only do you benefit from owning part of a luxury holiday home at a fraction of the price, all maintenance and running costs are shared between the various owners and you can sell off your share for a guaranteed profit at any time.

The information in this article is courtesy of Nina Suebsukcharoen (“A new approach to owning property”, Bangkok Post, 12 May 2008).

If you are interested in buying or selling property in South Africa, please visit www.sahometraders.co.za.

More Doom & Gloom for SA Property Market

ABSA Predicts House Price Fall in Real Terms

An article in Business Day reports that soaring interest rates and rising inflation are continuing to worsen residential property woes, with house prices in the middle segment of the market dropping 2.5% in real terms year on year in March.

According to ABSA’s latest house price index, growth slowed to just 6.8% year on year in April, which is the lowest level recorded in over 8 years. To top it off, the worst isn’t over yet, with more bad news expected in the short term and further real terms price drops anticipated during the year.

Senior property analyst for ABSA Home Loans, Jacques du Toit has said that, “Currently we are looking at an overall drop in real terms of just over 4% (for the year). In nominal terms, growth of between 5% and 6% is expected for this year”.

He added that higher interest rates were forcing real prices down and that households were also under increased pressure from rising food and fuel prices. But apparently there is a silver lining in that people who are looking for property can expect prices to become more realistic as the year progresses.

Du Toit said, “Towards the end of this year and into 2009 will be the time to buy property because we expect the property cycle to bottom out in 2009. Following this there will be a gradual recovery when interest rates start to drop”.

Property economist for Viruly Consulting, Francois Viruly expressed little surprise at the state of the current figures, but did say that the lower end of the residential property market had “kept on doing relatively well”. He expects the downturn to be a “fairly short term dip”.

Viruly believes that, “The market is adjusting downwards…during the course of next year, we will start seeing interest rates declining and this scenario is going to turn around and next year should be moving back into double digit growth”.

Lew Geffen, chairman of Lew Geffen Sotheby’s International Realty pressed that it was important to remember that, “until January there were no real problems in terms of price decreases”. The panic is said to have set in then and during the last three months, the real damage has been done (Geffen).

Geffen believes that ABSA’s figures are somewhat “skewed” due to the fact that they are using “year-on-year growth” with three quarters of the year having experienced a “normalized” property market. “I think we are definitely in a property recession. I think it’s exacerbated by sentiment,” but there are positives in that people will become used to the “status quo and sentiment should improve by the year end” (Geffen).

Nominal house price growth topped more than 35% at the end of 2004 and since then growth has been on a downtrend, as the relatively expensive property market caused demand to taper off. Over the last two years, the rise in interest rates has further hampered growth prospects in the residential property market.

The information in this article is courtesy of Nick Wilson (“South Africa: House Prices to Fall in Real Terms – Absa”, Business Day, 9 May 2008).

If you are interested in buying or selling property for sale in South Africa, please visit www.sahometraders.co.za.

SA Government to Restrict Coastal Development

Coastal Development to be Restricted

According to Reuters News, the South African government has made a move to curb the development of coastal property in a bid to protect the vast stretches of coastline from environmental damage.

The property boom experienced in South Africa in previous years resulted in the development of multi-million rand apartment blocks, mansions, golf and equestrian estates in coastal areas, primarily aimed at the foreign tourist market.

Parliament has introduced a new bill detailing a comprehensive national system for the planning and managing of the country’s extensive coastal areas. According to the Minister of Environmental Affairs, Marthinus van Schalkwyk, “Our coastline is currently not being managed and developed in a way that optimizes its resources and opportunities”.

The Minister adds that, “Economic and social opportunities for wealth creation and equity are being missed while coastal ecosystems are being systematically degraded (and) this bill sets out to correct this”.

The proposal aims to declare seashore, coastal waters, including estuaries, as well as the country’s territorial seas as “coastal public property”. This will give government the power to prevent the development of property too close to the sea and various coastal “protection zones” will be declared, within which certain activities will be prohibited.

“These measures are important not only to preserve the beauty of coastal landscapes but also to respond to threats posed by, for example, rising sea-levels associated with climate change or dynamic coastal processes,” said Van Schalkwyk.

The information in this article is courtesy of Reuters Africa (“S.Africa moves to restrict coastal development”, 8 May 2008).

If you would like to buy or sell property in South Africa, please visit www.sahometraders.co.za.

US to Invest in SA Housing

US to Invest in SA Housing

An article in a property portal magazine in the UK has reported that International Housing Solutions (IHS), an affiliate of Mortgage & Equity, LLC (‘MuniMae’) and Howard Eurocape Limited has announced that it has disclosed US$175 million of capital commitments and participating debt to its South Africa Workforce Housing Fund.

The Fund invests in middle and low-income housing for sale and for rent in South Africa. There are several additional investors who are expected to commit capital to the Fund over the next few months. Overall, IHS anticipates the Fund to total US$240 million, creating an estimated 30 000 homes to meet the increasing demand for housing in South Africa. Once fully funded, an investment of up to US$1 billion will be invested in workforce housing in the country.

Of the US$175 million, US$95 million is from a North American pension fund and a US foundation endowment. Also included is US$80 million in participating debt from the US Overseas Private Investment Corporation (OPIC), which will assist in leveraging returns for fund investors, while spurring on economic and housing development in South Africa. OPIC is a US government sponsored agency that supports private investment in emerging markets. It aims to assist US businesses invest overseas, fosters economic development in new and emerging markets, helps the private sector manage risks associated with direct foreign investment and supports US foreign policy.

IHS is a joint venture formed by MuniMae in 2005, which is a widely recognized leader in affordable housing finance in the US, with over US$20 billion of assets under management. The company is affiliated with Howard Eurocape Limited, which is a prominent property investment and development company based in Dublin, Ireland.

According to country manager for IHS UK, Elizabeth Austerberry, “[They] are very proud to have launched [their] first fund outside the USA and look forward to doing the same in the UK. IHS is dedicated to providing financing for affordable and mid-market housing projects in countries throughout the world”.

The information in this article is courtesy of People Property Portal (“American Investment for South African Housing”, 7 May 2008).

If you would like to buy or sell property in South Africa, please visit www.sahometraders.co.za.

SA Property Market on Shaky Ground

Recession on the Cards?

An article published in The Times has drawn attention to the current downtrend in the property market, indicating that property values have plummeted by nearly a tenth in just a single year. In fact, where house prices were at one stage stalled, now they’re falling.

According to mortgage data garnered from Standard Bank yesterday, the median property price in April was R530 000, which is down R20 000 from the figure for March and down 8.6% from April last year. Standard Bank’s property gauge uses the mid value of home loans granted in a month, which is unlike Absa’s report on an average monthly mortgage value.

Standard Bank has said that prices are down from a really high base set last year, due to buyers racing to beat the requirements of the newly instated National Credit Act. But the bank’s property economist, Sizwe Nxedlana indicated that the current drop in prices reflects a correction and is unlikely to be the start of a housing recession.

Nxedlana said that consumers are feeling overstretched as a result of higher interest rates, increased fuel costs and the rise in inflation. He also suggested that the year-on-year growth rate is indicative of an overall downward trend in the growth of house prices, which is due ultimately to falling demand and the fact that buyers can afford less.

“You cannot sell property today for what you could have sold it for 20 months ago. The level of debt in SA has increased over the last few years and debt repayments as a percentage of disposable income are approaching historic highs at nearly 13 percent. This is higher than two years ago, where it was less than 10 percent in a more favourable interest rate environment,” according to Nxedlana.

In response to concerns about the local residential property market falling into a recession similar to that playing out in the US, Nxedlana says that, “Our analysis of the sources of the US housing market recession highlights the vast differences in what is driving current trends in the two housing markets and suggests that a housing market recession in South Africa similar to that happening in the US is unlikely.”

Apparently, the local residential property market has the advantage of stricter lending policies, which could be the market’s saving grace in the long run, according to Nxedlana.

The information contained in this article is courtesy of Xolile Bhengu (“Property on Shaky Ground”, The Times, 7 May 2008).

If you would like to buy or sell property in South Africa, please visit www.sahometraders.co.za.

South African Property News

Johannesburg Property Market Scores

An article on a Holiday Letting website in the UK has drawn attention to property investment opportunities on the up in Johannesburg as the 2010 World Cup approaches. The rest of the country may be experiencing somewhat of a recession in the property market, but Johannesburg seems to be developing a holiday rental market ahead of one of the world’s major sporting events.

There is a “surge of regeneration” that seems to be taking place in many of South Africa’s major cities, particularly Johannesburg. This is believed to be a direct effect of the country’s status as host of the 2010 Soccer World Cup. The government hopes to eradicate townships by 2014 and politicians aim to have new homes constructed instead. However, this is problematic in that as people leave the townships, more and more houses are needed to accommodate them. According to Peet Strauss, of Pam Golding Properties, “Demand for new homes is pushing development in a way we haven’t seen before.” He went on to add that a new market for luxury apartments was developing in Johannesburg.

While not traditionally seen as a holiday destination, Johannesburg is also seeing the establishment of a holiday rental market in and around the city, with resorts such as Zilkaats and Clarens marketing themselves as property investment options. Those in the know are also keen to dispel the idea that foreign investment makes it more difficult for South African buyers to get a foothold in the local property market. “A misperception exists that foreign nationals buy exclusive, expensive homes pushing up prices to the detriment of South Africans. The issue has raised its head on a number of occasions, but nothing has come of it,” says Julian Pokroy, a solicitor specializing in home purchases by overseas investors.

The low property prices in South Africa when compared to British standards, is one of the main draw cards when it comes to overseas investment. An apartment in an affluent part of Johannesburg will usually set buyers back £95,000 and something a little bigger might cost around £235,000. Those willing to widen their search field are sure to find properties at a lower price, as prices drop significantly as you go further outside of the city. Just half an hour’s drive could reward buyers with as much as half the purchase price of properties found in central Johannesburg.

Johannesburg’s infrastructure is also seeing improvements in the run up to the World Cup. There is an underground tube system that is currently under construction and there are plans for a similar development above ground. New roads and shopping malls are being built and the city’s international airport is undergoing expansion and modernization, ready to welcome the international soccer teams and their fans in time for the sporting event in 2010.

The information in this article is courtesy of Holiday Lettings (“South African property market scores as World Cup approaches”, 2 May 2008).

If you are interested in buying or selling property in South Africa, please visit www.sahometraders.co.za.