Farmer Wins Landmark Case
An article published on the IOL website discusses the results of what some are calling a landmark case for South African farmers and other citizens with business interests in crisis torn Zimbabwe. On Tuesday, the Pretoria High Court ruled in favour of a Bothaville farmer who lost a number of farms and businesses in Zimbabwe due to the ongoing political upheaval.
The Judge, Bill Prinsloo, ruled that Crawford von Abo had the right to diplomatic protection of his assets in Zimbabwe from the South African government, specifically regarding the violation of his rights by the Zimbabwean government. Prinsloo also ruled that the government had 60 days to remedy the situation and report back to the court regarding the steps taken to restore his rights in Zimbabwe.
Von Abo has been struggling for more than six years to get the South African government to act against the Zimbabwean government’s confiscation of land owned by South African citizens. Up until now, his pleas have fallen on deaf ears and von Abo’s counsel told the court that his efforts to obtain help from the government were like “the Yellow Brick Road – the road to nowhere”.
According to von Abo, in 1997 the Zimbabwean government violated his rights by destroying his property interests in a number of farms in the country, which occurred as part of its national policy to expropriate white-owned farms. To this end, he was not paid compensation for his loss.
Judge Prinsloo said he regretted how difficult it had been to resist the conclusion that “the respondents (government) were simply stringing the application along and never had any serious intention to afford him proper protection”.
Prinsloo went on to say, “Their feeble efforts, if any, amounted to little more than quiet acquiescence in the conduct of their Zimbabwean counterparts and their ‘war-veteran’ thugs”. According to the judge, von Abo had demonstrated that his rightful property in Zimbabwe was unlawfully expropriated under international law and that he had not been compensated for it.
Von Abo’s attempts to protect his interests by suing the Zimbabwean government within the country had proved futile. Prinsloo said that given the state of the country’s legal system and the government’s disregard for the orders of its own courts, particularly in light of expropriation, no more remedies were available to him.
Prinsloo added that the South African government had dealt with the von Abo matter in bad faith and irrationally. “For six years or more, in the face of a stream of urgent requests – they (government) did absolutely nothing to bring about relief to the applicant and hundreds of other white commercial farmers in the same position. Their ‘assistance’ was limited to empty promises”.
He went on to say, “They (government) exhibited neither the will nor the ability to do anything constructive to bring their northern neighbour to book. They paid no regard, of any consequence, to the plight of valuable citizens such as the applicant with a 50-year track record in Zimbabwe and other hard-working white commercial farmers making a substantial contribution to the GDP in Zimbabwe and providing thousands of people with work in that country”.
The judge thus concluded that von Abo qualified for diplomatic protection from the South African government, which “may involve effective diplomatic pressure on the Zimbabwean government to restore the properties to the applicant and his companies and to pay compensation for losses and damages”.
As part of the ruling, Prinsloo indefinitely postponed von Abo’s claim for damages against the government regarding the farms and business interests he had lost in Zimbabwe. Von Abo indicated during the trial that the conservative total in damages pertaining to his six farms, including the implements and other assets lost, amounted to around R60 million.
According to Ernst Penzhorn, von Abo’s lawyer, in response to the verdict, his client indicated that he “is grateful that he could have turned to a court in his own country to protect his rights. This is comforting if one looks at how he was treated with no sympathy by members of the executive”.
Penzhorn said that the next step would be to approach the Constitutional Court to confirm the judgment. He said he believed that the decision would open the door for many South African citizens who lost business interests in neighbouring Zimbabwe. Regarding the claim for damages, he said that they would first see what the government’s response is before going any further.
The information in this article is courtesy of Zelda Venter (“Landmark win for SA farmer”, Pretoria News, 30 July 2008).
Visit www.sahometraders.co.za if you would like to buy or sell property in South Africa.
Thursday, July 31, 2008
Wednesday, July 30, 2008
Expropriation Bill Likened to Situation in Zimbabwe
Civil Society Says No to Land Bill
An article published on the IOL website has drawn attention to civil society’s reactions over the government’s proposed land bill. Fears have been expressed about the possibility of a Zimbabwe-like situation being set in motion.
Opposition parties and non-governmental organizations all joined hands in Centurion on Monday to oppose the controversial land bill at the first of two meetings held by the ad-hoc committee for the protection of property rights. The meeting was attended by representatives of the DA, ACDP, FF Plus, Solidarity and the Transvaal Agricultural Union (TAU).
The land bill has been designed to counter the slow progress of land reform in South Africa, but the farming sector has dismissed the bill as a government tool to enforce Zimbabwe-style land grabs.
Former foreign affairs minister, Pik Botha attended the conference and when asked about whether South Africa could go down the same road as its neighbouring country, replied, “There is no question about it. There would have been no agreement, no constitution if we (National Party) were told then that this amendment would be implemented”.
He added that, “Property rights, like other fundamental rights, were agreed upon by the National Party and the ANC to be included in the Bill of Rights. It is unconstitutional to tamper with them and will lead to catastrophe”.
Botha argued that the injustices of the past could not be compensated for in the present by the creation of further injustices. Some of the consequences, he said, would be decreased food production and no foreign investment. “Black people, whom this is intended to help, will end up like those in Zimbabwe and pay the highest price”.
Director of research at the University of North West, Professor Andre Duvenhage said that the ANC’s decision at Polokwane suggests a shift from a policy of non-state intervention in the market to a more radical pro-expropriation stance, which will make land reform a less market-driven process.
Duvenhage said that in 1994, about 80% of agricultural land or around 82 million hectares was owned by about 61 000 commercial farmers, but that number has dropped to just 46 000 at present. The government’s goal to have 30% of the land redistributed to blacks by 2015 amounts to about 25.9 million hectares, but at the current rate this goal would only be achieved by 2058. 20.6 million hectares of land must still be transferred.
TAU general manager, Bennie van Zyl said that the government’s “lies and distortions” about the history of land ownership in South Africa bordered on ridiculous and that, “No white commercial farmer has stolen the land he is currently farming on from anyone”.
Van Zyl added that investor confidence was of the utmost importance in South Africa, but the ANC was acting as if this was of no concern to them at all. “How can they expect that anybody will invest with confidence in a country where they could at any time be targeted with such a draconian Expropriation Act?”
He also said that the role of agriculture in the economy has not been sufficiently recognized and that the uncertainty created by this proposed land bill has frightened off investors. “The government has to show the world that what is happening here is not another Zimbabwe and that South Africa will not end up as part of a history of failure in Africa,” he argued.
Confronting the issue of affirmative action, Botha said that the ANC’s obsession with quotas has resulted in the rejection of skilled workers and artisans who would certainly have made a significant contribution in terms of the promotion of skills among black workers, as well as actual empowerment.
Botha went on to say that the ‘boomerang effect’ of the Employment Equity Act and the way in which it was being implemented has seen masses of blacks still not trained or employed. “We acknowledge that the ANC inherited a lot of misery from the past, but at least they also inherited the most advanced infrastructure in Africa,” he said.
There is no doubt that land reform needs to take place in South Africa, but the question remains whether the new land bill is the right way forward, particularly in light of its threat to property rights entrenched in the constitution that set this country free from Apartheid.
The information in this article is courtesy of Barry Bateman (“Land bill ‘can cause Zim-type situation’”, Pretoria News, 29 July 2008).
Visit www.sahometraders.co.za if you would like to buy or sell property in South Africa.
An article published on the IOL website has drawn attention to civil society’s reactions over the government’s proposed land bill. Fears have been expressed about the possibility of a Zimbabwe-like situation being set in motion.
Opposition parties and non-governmental organizations all joined hands in Centurion on Monday to oppose the controversial land bill at the first of two meetings held by the ad-hoc committee for the protection of property rights. The meeting was attended by representatives of the DA, ACDP, FF Plus, Solidarity and the Transvaal Agricultural Union (TAU).
The land bill has been designed to counter the slow progress of land reform in South Africa, but the farming sector has dismissed the bill as a government tool to enforce Zimbabwe-style land grabs.
Former foreign affairs minister, Pik Botha attended the conference and when asked about whether South Africa could go down the same road as its neighbouring country, replied, “There is no question about it. There would have been no agreement, no constitution if we (National Party) were told then that this amendment would be implemented”.
He added that, “Property rights, like other fundamental rights, were agreed upon by the National Party and the ANC to be included in the Bill of Rights. It is unconstitutional to tamper with them and will lead to catastrophe”.
Botha argued that the injustices of the past could not be compensated for in the present by the creation of further injustices. Some of the consequences, he said, would be decreased food production and no foreign investment. “Black people, whom this is intended to help, will end up like those in Zimbabwe and pay the highest price”.
Director of research at the University of North West, Professor Andre Duvenhage said that the ANC’s decision at Polokwane suggests a shift from a policy of non-state intervention in the market to a more radical pro-expropriation stance, which will make land reform a less market-driven process.
Duvenhage said that in 1994, about 80% of agricultural land or around 82 million hectares was owned by about 61 000 commercial farmers, but that number has dropped to just 46 000 at present. The government’s goal to have 30% of the land redistributed to blacks by 2015 amounts to about 25.9 million hectares, but at the current rate this goal would only be achieved by 2058. 20.6 million hectares of land must still be transferred.
TAU general manager, Bennie van Zyl said that the government’s “lies and distortions” about the history of land ownership in South Africa bordered on ridiculous and that, “No white commercial farmer has stolen the land he is currently farming on from anyone”.
Van Zyl added that investor confidence was of the utmost importance in South Africa, but the ANC was acting as if this was of no concern to them at all. “How can they expect that anybody will invest with confidence in a country where they could at any time be targeted with such a draconian Expropriation Act?”
He also said that the role of agriculture in the economy has not been sufficiently recognized and that the uncertainty created by this proposed land bill has frightened off investors. “The government has to show the world that what is happening here is not another Zimbabwe and that South Africa will not end up as part of a history of failure in Africa,” he argued.
Confronting the issue of affirmative action, Botha said that the ANC’s obsession with quotas has resulted in the rejection of skilled workers and artisans who would certainly have made a significant contribution in terms of the promotion of skills among black workers, as well as actual empowerment.
Botha went on to say that the ‘boomerang effect’ of the Employment Equity Act and the way in which it was being implemented has seen masses of blacks still not trained or employed. “We acknowledge that the ANC inherited a lot of misery from the past, but at least they also inherited the most advanced infrastructure in Africa,” he said.
There is no doubt that land reform needs to take place in South Africa, but the question remains whether the new land bill is the right way forward, particularly in light of its threat to property rights entrenched in the constitution that set this country free from Apartheid.
The information in this article is courtesy of Barry Bateman (“Land bill ‘can cause Zim-type situation’”, Pretoria News, 29 July 2008).
Visit www.sahometraders.co.za if you would like to buy or sell property in South Africa.
Monday, July 28, 2008
Small Towns Still Booming in SA
Investment Getaway in the Karoo
An article published in the Weekend Post has drawn attention to the Karoo’s newfound status as a dream location for property investment. In fact, with the rest of the Western Cape suffering from a continuous slump in the property market, the historical town of Graaff-Reinet is literally booming.
The main reason for the comparative boom in the Karoo property market seems to be buyers snapping up affordable housing and taking up a quieter, safer lifestyle. Unlike big cities, property experts believe that small towns are now being seen as ‘havens of peace and tranquility’ that is no longer available in more urbanized areas.
According to estate agents based in the Graaff-Reinet area, while the national property market may be struggling due to higher interest rates and the ever-increasing cost of living, they are battling to keep up with demand in the town commonly referred to as the “gem of the Karoo”.
The country’s fourth oldest town, Graaff-Reinet is renowned as the Karoo’s biggest tourist destination. Estate agents say that its popularity is growing among middle and high-end buyers, with small two or three bedroom homes selling for over R550 000 and a historical four bedroom home selling for R3.3 million.
Wayne Rubidge, Pam Golding principal for the area, says he thinks, “There is a combination of reasons why there is an increased interest in Graaff-Reinet. There is a great community, great schools and a growing economy – people are making serious lifestyle choices”. According to Rubidge, artisans, contractors and other property-related service providers are booked up months in advance, which is all indicates a booming property market.
Ken Ralph, national vice president and chairman of the southeastern region of the Institute of Estate Agents of South Africa, says that he has seen an increasing trend where buyers are moving to smaller communities along the Garden Route, primarily because of the improved cost of living and better security.
“Security is a big drawcard for people. The cost of living is also not as high in bigger city centres,” Ralph said. Rubidge adds that the influx of “new blood” into Graaff-Reinet is creating a number of new job opportunities in the region. “There has been a boom in new business as well. New skills mean new industries, fresh thinking gives new perspectives and opportunities,” he said.
Essentially what is driving the growth of industry in the town and fuelling the region’s economy is a combination of traditional sheep and livestock farming and the more recent game, wildlife and leisure practices, according to Rubidge. “This has positive spin offs for the property market and a new term commonly heard is ‘investment getaway’ – frequently used in describing homes in the R1 million to R2 million price bracket”.
Gillian Kleynhans, and estate agent for Midlands Properties, has noticed a significant increased in property being sold for business purposes. “We have seen a growing interest in all aspects – people looking to open businesses, or buy residential properties and smallholdings. People don’t only want to look in town, but surrounding areas as well,” she said.
Agreeing with Rubidge, Kleynhans says that the main attraction factor for buyers is the improved quality of life. “Our kids can still ride their bikes to school, it’s a lovely place to live and raise a family,” she said. “You have some people who are not in full retirement who want a smallholding. It is the best of both worlds – you can grow your own produce and be part of a vibrant community at the same time”.
According to Jenny McNaughton, of Seeff Properties, “There has been some international interest but most of the calls I have received have been from people in other provinces. People want to get away from the crime and daily traffic”.
The information in this article is courtesy of Melody Brandon (“Boom as buyers discover Gem of Karoo”, Weekend Post, 26 July 2008).
Visit www.sahometraders.co.za if you would like to buy or sell property in South Africa.
An article published in the Weekend Post has drawn attention to the Karoo’s newfound status as a dream location for property investment. In fact, with the rest of the Western Cape suffering from a continuous slump in the property market, the historical town of Graaff-Reinet is literally booming.
The main reason for the comparative boom in the Karoo property market seems to be buyers snapping up affordable housing and taking up a quieter, safer lifestyle. Unlike big cities, property experts believe that small towns are now being seen as ‘havens of peace and tranquility’ that is no longer available in more urbanized areas.
According to estate agents based in the Graaff-Reinet area, while the national property market may be struggling due to higher interest rates and the ever-increasing cost of living, they are battling to keep up with demand in the town commonly referred to as the “gem of the Karoo”.
The country’s fourth oldest town, Graaff-Reinet is renowned as the Karoo’s biggest tourist destination. Estate agents say that its popularity is growing among middle and high-end buyers, with small two or three bedroom homes selling for over R550 000 and a historical four bedroom home selling for R3.3 million.
Wayne Rubidge, Pam Golding principal for the area, says he thinks, “There is a combination of reasons why there is an increased interest in Graaff-Reinet. There is a great community, great schools and a growing economy – people are making serious lifestyle choices”. According to Rubidge, artisans, contractors and other property-related service providers are booked up months in advance, which is all indicates a booming property market.
Ken Ralph, national vice president and chairman of the southeastern region of the Institute of Estate Agents of South Africa, says that he has seen an increasing trend where buyers are moving to smaller communities along the Garden Route, primarily because of the improved cost of living and better security.
“Security is a big drawcard for people. The cost of living is also not as high in bigger city centres,” Ralph said. Rubidge adds that the influx of “new blood” into Graaff-Reinet is creating a number of new job opportunities in the region. “There has been a boom in new business as well. New skills mean new industries, fresh thinking gives new perspectives and opportunities,” he said.
Essentially what is driving the growth of industry in the town and fuelling the region’s economy is a combination of traditional sheep and livestock farming and the more recent game, wildlife and leisure practices, according to Rubidge. “This has positive spin offs for the property market and a new term commonly heard is ‘investment getaway’ – frequently used in describing homes in the R1 million to R2 million price bracket”.
Gillian Kleynhans, and estate agent for Midlands Properties, has noticed a significant increased in property being sold for business purposes. “We have seen a growing interest in all aspects – people looking to open businesses, or buy residential properties and smallholdings. People don’t only want to look in town, but surrounding areas as well,” she said.
Agreeing with Rubidge, Kleynhans says that the main attraction factor for buyers is the improved quality of life. “Our kids can still ride their bikes to school, it’s a lovely place to live and raise a family,” she said. “You have some people who are not in full retirement who want a smallholding. It is the best of both worlds – you can grow your own produce and be part of a vibrant community at the same time”.
According to Jenny McNaughton, of Seeff Properties, “There has been some international interest but most of the calls I have received have been from people in other provinces. People want to get away from the crime and daily traffic”.
The information in this article is courtesy of Melody Brandon (“Boom as buyers discover Gem of Karoo”, Weekend Post, 26 July 2008).
Visit www.sahometraders.co.za if you would like to buy or sell property in South Africa.
South African Estate Agents Feel the Pinch
Troubled Times for Estate Agents
An article published on the IOL website draws attention to the plight being suffered by real estate agents across South Africa. Hard times in the property industry have literally decimated the numbers of estate agents around the country, especially those who jumped on the bandwagon to make some money during the property boom.
The current economic slowdown has been punctuated by spiraling interest rates and rising food and fuel prices, but to make matters worse, the tougher credit laws have reduced sales by up to 30%. This has caused many struggling estate agents to cut their losses and leave the industry.
Concerns about the property industry were raised at the Nedbank Property Association Awards held in Cape Town last week, where many estate agents complained that the National Credit Act was killing the market, particularly for properties priced in the range of R250 000 to R1 million.
Many potential buyers have been refused loans by banks because of poor credit records and stricter lending criteria. There has been a call for the government to step in and provide previously disadvantaged buyers with collateral, deposits and subsidies to remove the risks to banks.
Currently, banks reject around 15 to 60 percent of bond applications in the range of a quarter of a million and a million rand. However, there are some players in the industry who believe that there are plans in the pipeline to amend the National Credit Act so that housing and car loans receive different treatment.
Tony Bailey, director of Platinum Property Trends, said that he had it on good authority that the government was taking another look at the act. “There are pending changes because the government had good intentions but did not realize the gravity of the act’s implications”.
Bailey went on to describe the many estate agents who have left the industry because of the slower economy as “chickens that entered the market for easy pickings”. He called their entry into the market a “feeding frenzy”.
In order to survive the current downcycle, many estate agencies had made a move to sell property overseas, in response to the heightened demand by the more affluent South Africans looking to buy property overseas for investment purposes.
Jeanne van Jaarsveldt, marketing and finance director of RE/MAX Southern Africa, said that while there had been a 7 percent drop in the number of real estate agents since the beginning of the year, about 311 new agents had joined the group. Two offices have been sold and would soon be re-opening. An investment of R9 million has been invested on brand positioning, with a focus on increased advertisement.
According to van Jaarsveldt, a lot of the agents who have pulled out of the industry should not have been there in the first place. Also, “a lot of agents are moving from smaller brands to the bigger ones”.
Andrew Golding, director of Pam Golding Properties, said that in today’s rapidly changing climate, a different kind of expertise is called for than that required during the boom years. The unprecedented growth over the last five years had upped the ranks of estate agents in South Africa by at least 40 percent.
However, now that the selling pattern has changed, so have the methods of selling altered and the survival of estate agents in the current market will depend on their ability to focus more precisely on training and skills.
The information in this article is courtesy of Melanie Peters (“Hard times for estate agents”, Cape Argus, 26 July 2008).
Visit www.sahometraders.co.za if you would like to buy or sell property in South Africa.
An article published on the IOL website draws attention to the plight being suffered by real estate agents across South Africa. Hard times in the property industry have literally decimated the numbers of estate agents around the country, especially those who jumped on the bandwagon to make some money during the property boom.
The current economic slowdown has been punctuated by spiraling interest rates and rising food and fuel prices, but to make matters worse, the tougher credit laws have reduced sales by up to 30%. This has caused many struggling estate agents to cut their losses and leave the industry.
Concerns about the property industry were raised at the Nedbank Property Association Awards held in Cape Town last week, where many estate agents complained that the National Credit Act was killing the market, particularly for properties priced in the range of R250 000 to R1 million.
Many potential buyers have been refused loans by banks because of poor credit records and stricter lending criteria. There has been a call for the government to step in and provide previously disadvantaged buyers with collateral, deposits and subsidies to remove the risks to banks.
Currently, banks reject around 15 to 60 percent of bond applications in the range of a quarter of a million and a million rand. However, there are some players in the industry who believe that there are plans in the pipeline to amend the National Credit Act so that housing and car loans receive different treatment.
Tony Bailey, director of Platinum Property Trends, said that he had it on good authority that the government was taking another look at the act. “There are pending changes because the government had good intentions but did not realize the gravity of the act’s implications”.
Bailey went on to describe the many estate agents who have left the industry because of the slower economy as “chickens that entered the market for easy pickings”. He called their entry into the market a “feeding frenzy”.
In order to survive the current downcycle, many estate agencies had made a move to sell property overseas, in response to the heightened demand by the more affluent South Africans looking to buy property overseas for investment purposes.
Jeanne van Jaarsveldt, marketing and finance director of RE/MAX Southern Africa, said that while there had been a 7 percent drop in the number of real estate agents since the beginning of the year, about 311 new agents had joined the group. Two offices have been sold and would soon be re-opening. An investment of R9 million has been invested on brand positioning, with a focus on increased advertisement.
According to van Jaarsveldt, a lot of the agents who have pulled out of the industry should not have been there in the first place. Also, “a lot of agents are moving from smaller brands to the bigger ones”.
Andrew Golding, director of Pam Golding Properties, said that in today’s rapidly changing climate, a different kind of expertise is called for than that required during the boom years. The unprecedented growth over the last five years had upped the ranks of estate agents in South Africa by at least 40 percent.
However, now that the selling pattern has changed, so have the methods of selling altered and the survival of estate agents in the current market will depend on their ability to focus more precisely on training and skills.
The information in this article is courtesy of Melanie Peters (“Hard times for estate agents”, Cape Argus, 26 July 2008).
Visit www.sahometraders.co.za if you would like to buy or sell property in South Africa.
Friday, July 25, 2008
Buyers Appear to be Holding Off on SA Property
Houses Not Selling Despite Low Prices
An article by Dispatch Online’s business correspondent, Xolile Bhengu has drawn attention to the fact that despite lower prices, houses are harder to sell. In fact, sellers are having to settle for far less than asking price and real estate agents are not optimistic about the market improving in the current quarter. This is according to First National Bank’s latest Residential Property Barometer.
The recent survey by FNB is yet another confirmation that the continued economic slowdown is putting pressure on homeowners. Based on perception, agents polled in the survey reported that houses in the greater Tshwane area and the Western Cape have been the slowest movers during the second quarter of 2008.
The FNB Property Barometer indicated that four out of five properties remained on the market for four months before reaching a sale. Despite the reduction in prices, at least 85% of sellers settled for less than the original asking price, which is up slightly on the first quarter. The sale of lower income housing worth less than R350 000 was stable in comparison, but still averaged about 11 weeks on the market.
FNB conducted the survey by interviewing 150 estate agents from across South Africa, many working for some of the top estate agencies. Property strategist for FNB Home Loans, John Loos said that rising interest rates was the top cause for the slowdown according to estate agents, but this also included uncertainty around the economy and the political climate in the country.
Emigration is said to have accounted for 18% of sales in the second quarter, which is up 12% from the previous quarter. 8% of buyers were said to be moving closer to their places of work. Loos added that the volume of properties on the market is not surprising, particularly in light of the ANC’s Polokwane conference in December last year, where Jacob Zuma was elected party president, the electricity crisis, the election shenanigans in neighbouring Zimbabwe and the recent xenophobic violence.
Loos said, “It must be taken into account that the negative sentiment on the South African outlook and the questions about leadership come largely from the minority population in former white suburbs. Even estate agents are feeling miserable. Only 15% of the respondents said they believed there would be a market turn in the next quarter”.
While analysts have said it is too soon to start investing in the market, Loos believes that this is a good time to buy and will get even better as time goes on. “Interest rates may be high now, but they also eventually go down. If you can afford to buy a property, the opportunity to buy looks good in the next quarter,” he said.
The information in this article is courtesy of Xolile Bhengu (“Houses harder to sell despite lower prices”, Dispatch Online, 22 July 2008).
Visit www.sahometraders.co.za if you would like to buy or sell property in South Africa.
An article by Dispatch Online’s business correspondent, Xolile Bhengu has drawn attention to the fact that despite lower prices, houses are harder to sell. In fact, sellers are having to settle for far less than asking price and real estate agents are not optimistic about the market improving in the current quarter. This is according to First National Bank’s latest Residential Property Barometer.
The recent survey by FNB is yet another confirmation that the continued economic slowdown is putting pressure on homeowners. Based on perception, agents polled in the survey reported that houses in the greater Tshwane area and the Western Cape have been the slowest movers during the second quarter of 2008.
The FNB Property Barometer indicated that four out of five properties remained on the market for four months before reaching a sale. Despite the reduction in prices, at least 85% of sellers settled for less than the original asking price, which is up slightly on the first quarter. The sale of lower income housing worth less than R350 000 was stable in comparison, but still averaged about 11 weeks on the market.
FNB conducted the survey by interviewing 150 estate agents from across South Africa, many working for some of the top estate agencies. Property strategist for FNB Home Loans, John Loos said that rising interest rates was the top cause for the slowdown according to estate agents, but this also included uncertainty around the economy and the political climate in the country.
Emigration is said to have accounted for 18% of sales in the second quarter, which is up 12% from the previous quarter. 8% of buyers were said to be moving closer to their places of work. Loos added that the volume of properties on the market is not surprising, particularly in light of the ANC’s Polokwane conference in December last year, where Jacob Zuma was elected party president, the electricity crisis, the election shenanigans in neighbouring Zimbabwe and the recent xenophobic violence.
Loos said, “It must be taken into account that the negative sentiment on the South African outlook and the questions about leadership come largely from the minority population in former white suburbs. Even estate agents are feeling miserable. Only 15% of the respondents said they believed there would be a market turn in the next quarter”.
While analysts have said it is too soon to start investing in the market, Loos believes that this is a good time to buy and will get even better as time goes on. “Interest rates may be high now, but they also eventually go down. If you can afford to buy a property, the opportunity to buy looks good in the next quarter,” he said.
The information in this article is courtesy of Xolile Bhengu (“Houses harder to sell despite lower prices”, Dispatch Online, 22 July 2008).
Visit www.sahometraders.co.za if you would like to buy or sell property in South Africa.
Thursday, July 24, 2008
SA Property Market Not So Bad in Comparison
Slowdown Global Phenomenon
An international article published by Business 24/7 indicates that international real estate transactions have dipped by 46%, a figure influenced by the global credit crunch and economic uncertainty.
Investment in Asia and other emerging markets continues to grow, as major commercial property sales internationally totaled $154 billion in the first quarter of 2008, as compared to $283 billion at the same time last year, according to a New York based Real Capital Analytics report.
Property sales figures for the last couple of months reflect a weakening in Asia and an increasingly severe drop in sales in the United States and Europe. The United Kingdom appears to be leading the price declines, with the US following close on its heels. Since September 2007, the initial yield on acquisitions of commercial property has risen by more than 25 basis points in the Americas and by nearly 40 basis points in Europe.
Investment in land and development rights in Asia has topped almost $29 billion so far this year, making it the most popular choice for investors. Office properties in Europe come in second with just under $20 billion invested, followed by the Americas with $15 billion in transactions through April 2008.
Close to $56 billion of major commercial property transactions were completed in Europe, Africa and the Middle East during the first quarter of 2008. However, a significant turn of events saw Europe surpass North America as the most active marketplace for property sales. This should all be taken with a pinch of salt though, considering that this status was achieved while suffering a 40% drop in sales as compared to the 70% drop experienced in North America. The victory may also be shortlived, as property sales in Asia continue to grow and are not far behind.
Europe
Nearly all property types and most countries in Europe have seen a sharp decline in transactions this year and this has been more severe where larger deals are concerned. The number of deals in the first quarter year-on-year of more than $1 billion has decreased from 13 to just 5, while portfolio activity has dipped to 63% and entry-level deals have been cut by 89%.
Despite the slowdown this year, Britain still retains its status with the largest volume in Europe, even though this decreased overall by 61%. Germany, Sweden, Belgium and Denmark have all recorded bigger declines in property than Britain, while France, Russia and Poland have all fared a little better with sales down by 40% compared to a year ago.
Asia
The Asian sector includes Australia and New Zealand, which recorded positive trends in the first quarter, but this is beginning to lose some momentum. Sales of major commercial properties in Asia came to $48.3 billion in the first quarter of 2008, which is a 27% increase year-on-year. The gains seem to mask a gradual slowing in activity that has since become evident.
Global market factors are certainly having an impact on the slowdown, but the new regulations on land deals implemented by China are also partly responsible, according to the report. Auctions of major land plots in China totaled more than $10 billion per month, but has since dropped to just $3 billion. Despite this recent decline in sales, the total volume in China is still up 70%, equaling $21 billion. Sales in Hong Kong were somewhat flat in the first quarter, but a strong April has brought an increase of 21% year-on-year.
To the contrary, the sales volume in Australia and New Zealand has severely decreased by 47% and 24% respectively. Both countries performed badly in almost all sectors, as a number of listed property companies struggled to combat high levels of debt that resulted from a binge on property in the US, the UK and Japan in 2007. The total volume in Singapore declined by 36%, mainly due to an 85% volume drop in the apartment sector, as investors anticipate further weakening in housing.
Developed countries have experienced a fall of 25% in property transactions this year, while sales in emerging markets are up by a healthy 68%. Emerging countries were responsible for $102 billion in global property sales, representing 45% of total volume in Asia.
Americas
For the first time in the last five quarters, the volume in the western hemisphere has not topped $130 billion, recording only $50 billion in significant commercial property transactions in North and South America. However, performance over the last nine months is largely due to the credit crunch fallout. Some sectors in the US are down by as much as 80% in volume year-on-year, with all sectors suffering across the board.
The US remains the single largest national property market, although the deal flow is down by nearly 70% year-on-year. Canada is experiencing a similar situation, with volume declining by more than 70% over the same period. Needless to say, prices have not dropped nearly as much as volume has, with buyers and sellers engaged in a battle of wills over who will back down first on prices. The gap may be as wide as 15%.
The outlook seems to be brighter further south, with Brazil, Mexico and other developing countries starting to realize some of their potential. Mexico has a total volume up by more than 400% in the first quarter. South America has shown significant increases, with total volume quadrupling and land acquisitions leading the way. Argentina and Chile have also exceeded their total volume for the year compared to 2007.
Suffice it to say that while South African consumers are certainly feeling the pinch when it comes to interest rates and inflation, this economic slowdown is a global phenomenon and in fact, it is the developed countries that seem to record the worst hits. Emerging markets continue to grow, albeit more slowly, but there is still light at the end of the tunnel, so to speak.
The information in this article is courtesy of Parag Deulgaonkar (“International real estate transactions dip 46%”, Business 24/7, 23 July 2008).
Visit www.sahometraders.co.za if you would like to buy or sell property in South Africa.
An international article published by Business 24/7 indicates that international real estate transactions have dipped by 46%, a figure influenced by the global credit crunch and economic uncertainty.
Investment in Asia and other emerging markets continues to grow, as major commercial property sales internationally totaled $154 billion in the first quarter of 2008, as compared to $283 billion at the same time last year, according to a New York based Real Capital Analytics report.
Property sales figures for the last couple of months reflect a weakening in Asia and an increasingly severe drop in sales in the United States and Europe. The United Kingdom appears to be leading the price declines, with the US following close on its heels. Since September 2007, the initial yield on acquisitions of commercial property has risen by more than 25 basis points in the Americas and by nearly 40 basis points in Europe.
Investment in land and development rights in Asia has topped almost $29 billion so far this year, making it the most popular choice for investors. Office properties in Europe come in second with just under $20 billion invested, followed by the Americas with $15 billion in transactions through April 2008.
Close to $56 billion of major commercial property transactions were completed in Europe, Africa and the Middle East during the first quarter of 2008. However, a significant turn of events saw Europe surpass North America as the most active marketplace for property sales. This should all be taken with a pinch of salt though, considering that this status was achieved while suffering a 40% drop in sales as compared to the 70% drop experienced in North America. The victory may also be shortlived, as property sales in Asia continue to grow and are not far behind.
Europe
Nearly all property types and most countries in Europe have seen a sharp decline in transactions this year and this has been more severe where larger deals are concerned. The number of deals in the first quarter year-on-year of more than $1 billion has decreased from 13 to just 5, while portfolio activity has dipped to 63% and entry-level deals have been cut by 89%.
Despite the slowdown this year, Britain still retains its status with the largest volume in Europe, even though this decreased overall by 61%. Germany, Sweden, Belgium and Denmark have all recorded bigger declines in property than Britain, while France, Russia and Poland have all fared a little better with sales down by 40% compared to a year ago.
Asia
The Asian sector includes Australia and New Zealand, which recorded positive trends in the first quarter, but this is beginning to lose some momentum. Sales of major commercial properties in Asia came to $48.3 billion in the first quarter of 2008, which is a 27% increase year-on-year. The gains seem to mask a gradual slowing in activity that has since become evident.
Global market factors are certainly having an impact on the slowdown, but the new regulations on land deals implemented by China are also partly responsible, according to the report. Auctions of major land plots in China totaled more than $10 billion per month, but has since dropped to just $3 billion. Despite this recent decline in sales, the total volume in China is still up 70%, equaling $21 billion. Sales in Hong Kong were somewhat flat in the first quarter, but a strong April has brought an increase of 21% year-on-year.
To the contrary, the sales volume in Australia and New Zealand has severely decreased by 47% and 24% respectively. Both countries performed badly in almost all sectors, as a number of listed property companies struggled to combat high levels of debt that resulted from a binge on property in the US, the UK and Japan in 2007. The total volume in Singapore declined by 36%, mainly due to an 85% volume drop in the apartment sector, as investors anticipate further weakening in housing.
Developed countries have experienced a fall of 25% in property transactions this year, while sales in emerging markets are up by a healthy 68%. Emerging countries were responsible for $102 billion in global property sales, representing 45% of total volume in Asia.
Americas
For the first time in the last five quarters, the volume in the western hemisphere has not topped $130 billion, recording only $50 billion in significant commercial property transactions in North and South America. However, performance over the last nine months is largely due to the credit crunch fallout. Some sectors in the US are down by as much as 80% in volume year-on-year, with all sectors suffering across the board.
The US remains the single largest national property market, although the deal flow is down by nearly 70% year-on-year. Canada is experiencing a similar situation, with volume declining by more than 70% over the same period. Needless to say, prices have not dropped nearly as much as volume has, with buyers and sellers engaged in a battle of wills over who will back down first on prices. The gap may be as wide as 15%.
The outlook seems to be brighter further south, with Brazil, Mexico and other developing countries starting to realize some of their potential. Mexico has a total volume up by more than 400% in the first quarter. South America has shown significant increases, with total volume quadrupling and land acquisitions leading the way. Argentina and Chile have also exceeded their total volume for the year compared to 2007.
Suffice it to say that while South African consumers are certainly feeling the pinch when it comes to interest rates and inflation, this economic slowdown is a global phenomenon and in fact, it is the developed countries that seem to record the worst hits. Emerging markets continue to grow, albeit more slowly, but there is still light at the end of the tunnel, so to speak.
The information in this article is courtesy of Parag Deulgaonkar (“International real estate transactions dip 46%”, Business 24/7, 23 July 2008).
Visit www.sahometraders.co.za if you would like to buy or sell property in South Africa.
Wednesday, July 23, 2008
Estate Agents Still Performing Despite Tough Conditions
Top Property Awards in SA
An article published on by Real Estate Web draws attention to the winners of the coveted South African property awards. Jacoba (Kobie) Potgieter from Port Elizabeth is the new Nedbank Property Association Property Professional of the Year for 2008, making her the top real estate agent in the country.
The announcement of these awards took place at the Arabella Hotel in Hermanus over the weekend after ten nominees selected nationally for the property industry’s most prestigious title were interviewed by a panel of judges.
The awards are open to all members of the Property Association and the entry level is based on annual sales of more than R10 million (R7.5 million in rural areas) or 40 sales completed over a 12 month period ending in February 2008.
Potgieter has won a number of international and local awards, the latest being the highest commission earner in RE/MAX’s international team outside of the USA and Canada for the first quarter of 2008. She is the broker owner of RE/MAX’s independent estate agency in Port Elizabeth and the agency has rocketed from a sales staff of five in 2003 to a crew of 58 agents today and holds a commanding share of the market.
The award is also based on the agent’s community and social involvement, which in the case of Potgieter includes the sponsorship of primary and secondary schools, the organization of fund raising events for feeding and clothing orphaned babies, as well as the delivery of food packages to old age homes and indigent people.
The full nominees for the award were Kobie Potgieter (RE/MAX Independent Properties), Marianda de Villiers (Estpro Consultants), Michael Stephens (Seeff Properties), Roma Naude (RE/MAX Jacaranda), Sue du Preez (Pam Golding Properties), Carina Nieuwoudt (Realty1 IPG), Gerhardt Jooste (Prosperito), Daisy Govender (RE/MAX Dolphin Realtors) and Elna Maree (Agripro).
Movers and Shakers included Jeanne van Jarsveldt (RE/MAX Southern Africa), Mark Beckett (Bond Choice), John Cooper (Chas Everitt IPG), Rhys Dyer (Ooba), Dennis Dykes (Nedbank Limited), Linda Erasmus (Fine & Country), Adrienne Hersch (Adrienne Hersch Properties cc), Lydia Monyamane Makgadis (Properties & Development), Ian Slot (Seeff Atlantic Seaboard CBD & City Bowl) and Bruce Swain (Leapfrog Property Group).
The Young Lions comprised Douglas Ravenscroft (RE/MAX Platinum), Colin Green (Rabie Property Group), Liesel Greyvenstein (Greyven Steins Nortier), John Hart (Serengeti Golf and Wildlife Estate), Gerhard Kotze (ERA South Africa), Milton Koumbatis (Miltons Matsemala Inc), Ralph Rabie (Parcor), Cyrus Rogers (The Home Channel), Martin Schultheiss (Homenet) and Michelle Swart (Velvet Square).
The information in this article is courtesy of Rodney Hayter (“SA’s top property awards: winners”, Realestateweb, 21 July 2008).
Visit www.sahometraders.co.za if you would like to buy or sell property in South Africa.
An article published on by Real Estate Web draws attention to the winners of the coveted South African property awards. Jacoba (Kobie) Potgieter from Port Elizabeth is the new Nedbank Property Association Property Professional of the Year for 2008, making her the top real estate agent in the country.
The announcement of these awards took place at the Arabella Hotel in Hermanus over the weekend after ten nominees selected nationally for the property industry’s most prestigious title were interviewed by a panel of judges.
The awards are open to all members of the Property Association and the entry level is based on annual sales of more than R10 million (R7.5 million in rural areas) or 40 sales completed over a 12 month period ending in February 2008.
Potgieter has won a number of international and local awards, the latest being the highest commission earner in RE/MAX’s international team outside of the USA and Canada for the first quarter of 2008. She is the broker owner of RE/MAX’s independent estate agency in Port Elizabeth and the agency has rocketed from a sales staff of five in 2003 to a crew of 58 agents today and holds a commanding share of the market.
The award is also based on the agent’s community and social involvement, which in the case of Potgieter includes the sponsorship of primary and secondary schools, the organization of fund raising events for feeding and clothing orphaned babies, as well as the delivery of food packages to old age homes and indigent people.
The full nominees for the award were Kobie Potgieter (RE/MAX Independent Properties), Marianda de Villiers (Estpro Consultants), Michael Stephens (Seeff Properties), Roma Naude (RE/MAX Jacaranda), Sue du Preez (Pam Golding Properties), Carina Nieuwoudt (Realty1 IPG), Gerhardt Jooste (Prosperito), Daisy Govender (RE/MAX Dolphin Realtors) and Elna Maree (Agripro).
Movers and Shakers included Jeanne van Jarsveldt (RE/MAX Southern Africa), Mark Beckett (Bond Choice), John Cooper (Chas Everitt IPG), Rhys Dyer (Ooba), Dennis Dykes (Nedbank Limited), Linda Erasmus (Fine & Country), Adrienne Hersch (Adrienne Hersch Properties cc), Lydia Monyamane Makgadis (Properties & Development), Ian Slot (Seeff Atlantic Seaboard CBD & City Bowl) and Bruce Swain (Leapfrog Property Group).
The Young Lions comprised Douglas Ravenscroft (RE/MAX Platinum), Colin Green (Rabie Property Group), Liesel Greyvenstein (Greyven Steins Nortier), John Hart (Serengeti Golf and Wildlife Estate), Gerhard Kotze (ERA South Africa), Milton Koumbatis (Miltons Matsemala Inc), Ralph Rabie (Parcor), Cyrus Rogers (The Home Channel), Martin Schultheiss (Homenet) and Michelle Swart (Velvet Square).
The information in this article is courtesy of Rodney Hayter (“SA’s top property awards: winners”, Realestateweb, 21 July 2008).
Visit www.sahometraders.co.za if you would like to buy or sell property in South Africa.
Tuesday, July 22, 2008
Experts Urge Investors to Stay in the Market in SA
Keep Investing Say Experts
An article published on the Personal Finance website draws attention to concerns over the current downturn in the South African market and urges investors not to bail out just yet. You will lose the substantial gains of the past five years and this may seriously hamper your ability to retire financially secure.
The article likens the hammering being experienced by the property and equity markets in the current economic conditions to a war zone, suggesting that investors will most probably have to “keep their heads below the parapet for some time”. However, the equity and property experts are of the opinion that survival is possible if investors don’t panic and aren’t strangled by debt.
Prices of property and equity have been falling fast this year; with Standard Bank’s house price data reflecting a 9% drop in median house prices in the year to April. Equity markets, both local and foreign, have been in the spotlight since May, with the FTSE/JSE All Share Index (Alsi) down to 27 995 at the close of trade on Thursday, after having capped 33 000 in May.
Of course, the weakening of property and equity values this year has been impacted by the rising inflation rate. In factual terms, any nominal returns are reduced and any losses are increased by the loss of real value due to an inflation rate of 10.9% for the year to May.
Considering the previous five years of growth up until now though, most people don’t have to panic, as they have rarely seen it so good. As Paul Hansen of Stanlib puts it, investors in his company’s Small Cap Fund may have received a “huge klap” by the fund’s 40% drop from a record high last year, but the fund “is still triple the value it was in 2003”.
According to Rian le Roux, chief economist at Old Mutual, over the past five years investments in almost all sectors in South Africa have fared exceptionally well. The average annual return for unit trust funds in the domestic general equity sub-category has realized over 30% each year, while the ABSA house price index increased by 18% each year. Over the same period, inflation was stable at an annual average of 6%.
Essentially, this translates into a sharp growth in the wealth of most South Africans who invested in residential property and equity over the past five years, mainly through retirement funds, insurance policies and unit trusts. However, le Roux asserts that such high returns could not be sustained and the current slowdown was to be expected.
“Investors who invested in the past year or two are hurting, especially those who invested in financial and industrial shares,” says le Roux. He warns that during “bear markets”, investors “need to guard against any inclination to panic as they see their wealth falling”.
Instead of panicking prematurely, investors should rather remind themselves of the volatility of markets and that historically, those who have chosen to ride out the storm have been rewarded in the long term. Most asset managers are following their own advice and hanging in, even if their short term performance is negative, as they believe that the current volatility will reflect better pricing in the medium term.
Johan de Lange, director of South Africa’s top performing asset manager Allan Gray Investor Services, says that his company focuses on finding shares that offer basic value, with an investment horizon of at least four years. He adds that individuals should be considering long term investment objectives and “guard against acting irrationally”.
Trevor Pascoe, head of investment services at Old Mutual, says that many investors are tempted to move their money from equities to cash, even when their budgets are not really under pressure, simply because they are afraid the markets will continue to fall.
“Even investment professionals struggle to get market timing right on a regular basis. Investors who panic and disinvest from the market during downswings and reinvest during upswings usually destroy value. Smart investors realize the importance of continuing to invest through a dip, making the bear market work for them by picking up equities cheaply,” says Pascoe.
Le Roux insists that those facing difficulties in the current economic climate are people are entrenched too deeply in debt. He goes on to say that Old Mutual estimates that household debt interest repayments increased from 6% of household after-tax income at the end of 2003 to 11.5% currently.
His advice seems to be not to give into temptation and dip into your long term savings to see you through the rough times, as this may be beneficial in the short term, but in the long term it may leave you with insufficient funds for retirement. “If budgets are under pressure, you should rather try to reduce your monthly spending”.
According to Jeremy Gardiner, of Investec Asset Management, the two primary risk factors investors now face are being overweight in either commodities or cash. “While the long run commodity story is fundamentally sound, a significant correction within the next two years is quite possible. Commodities are an important part of any investment portfolio, but your exposure should be appropriate to your risk profile. Similarly, be careful of being overweight in cash for too long. The risk of being out of the market when it turns up is as high as the risk of being in when the markets turn down,” says Gardiner.
The information in this article is courtesy of Bruce Cameron (“Now is the wrong time to stop investing”, Personal Finance, 19 July 2008).
Visit www.sahometraders.co.za if you would like to buy or sell property in South Africa.
An article published on the Personal Finance website draws attention to concerns over the current downturn in the South African market and urges investors not to bail out just yet. You will lose the substantial gains of the past five years and this may seriously hamper your ability to retire financially secure.
The article likens the hammering being experienced by the property and equity markets in the current economic conditions to a war zone, suggesting that investors will most probably have to “keep their heads below the parapet for some time”. However, the equity and property experts are of the opinion that survival is possible if investors don’t panic and aren’t strangled by debt.
Prices of property and equity have been falling fast this year; with Standard Bank’s house price data reflecting a 9% drop in median house prices in the year to April. Equity markets, both local and foreign, have been in the spotlight since May, with the FTSE/JSE All Share Index (Alsi) down to 27 995 at the close of trade on Thursday, after having capped 33 000 in May.
Of course, the weakening of property and equity values this year has been impacted by the rising inflation rate. In factual terms, any nominal returns are reduced and any losses are increased by the loss of real value due to an inflation rate of 10.9% for the year to May.
Considering the previous five years of growth up until now though, most people don’t have to panic, as they have rarely seen it so good. As Paul Hansen of Stanlib puts it, investors in his company’s Small Cap Fund may have received a “huge klap” by the fund’s 40% drop from a record high last year, but the fund “is still triple the value it was in 2003”.
According to Rian le Roux, chief economist at Old Mutual, over the past five years investments in almost all sectors in South Africa have fared exceptionally well. The average annual return for unit trust funds in the domestic general equity sub-category has realized over 30% each year, while the ABSA house price index increased by 18% each year. Over the same period, inflation was stable at an annual average of 6%.
Essentially, this translates into a sharp growth in the wealth of most South Africans who invested in residential property and equity over the past five years, mainly through retirement funds, insurance policies and unit trusts. However, le Roux asserts that such high returns could not be sustained and the current slowdown was to be expected.
“Investors who invested in the past year or two are hurting, especially those who invested in financial and industrial shares,” says le Roux. He warns that during “bear markets”, investors “need to guard against any inclination to panic as they see their wealth falling”.
Instead of panicking prematurely, investors should rather remind themselves of the volatility of markets and that historically, those who have chosen to ride out the storm have been rewarded in the long term. Most asset managers are following their own advice and hanging in, even if their short term performance is negative, as they believe that the current volatility will reflect better pricing in the medium term.
Johan de Lange, director of South Africa’s top performing asset manager Allan Gray Investor Services, says that his company focuses on finding shares that offer basic value, with an investment horizon of at least four years. He adds that individuals should be considering long term investment objectives and “guard against acting irrationally”.
Trevor Pascoe, head of investment services at Old Mutual, says that many investors are tempted to move their money from equities to cash, even when their budgets are not really under pressure, simply because they are afraid the markets will continue to fall.
“Even investment professionals struggle to get market timing right on a regular basis. Investors who panic and disinvest from the market during downswings and reinvest during upswings usually destroy value. Smart investors realize the importance of continuing to invest through a dip, making the bear market work for them by picking up equities cheaply,” says Pascoe.
Le Roux insists that those facing difficulties in the current economic climate are people are entrenched too deeply in debt. He goes on to say that Old Mutual estimates that household debt interest repayments increased from 6% of household after-tax income at the end of 2003 to 11.5% currently.
His advice seems to be not to give into temptation and dip into your long term savings to see you through the rough times, as this may be beneficial in the short term, but in the long term it may leave you with insufficient funds for retirement. “If budgets are under pressure, you should rather try to reduce your monthly spending”.
According to Jeremy Gardiner, of Investec Asset Management, the two primary risk factors investors now face are being overweight in either commodities or cash. “While the long run commodity story is fundamentally sound, a significant correction within the next two years is quite possible. Commodities are an important part of any investment portfolio, but your exposure should be appropriate to your risk profile. Similarly, be careful of being overweight in cash for too long. The risk of being out of the market when it turns up is as high as the risk of being in when the markets turn down,” says Gardiner.
The information in this article is courtesy of Bruce Cameron (“Now is the wrong time to stop investing”, Personal Finance, 19 July 2008).
Visit www.sahometraders.co.za if you would like to buy or sell property in South Africa.
Monday, July 21, 2008
SA Commercial Industrial Property Market Still Strong
Still Booming Says Rode
An article released by the South African Insurance Times and Investment News website argues that despite the prevalent doom and gloom currently being experienced in the residential property market, commercial and industrial markets are still booming. This is according to the latest issue of Rode’s Report on the South African Property Market.
As Erwin Rode says, “Industrial rentals in particular are sustaining the robust growth we saw during the first quarter of 2008. For example, nominal rentals for prime industrial space in the Central Witwatersrand have shown a particularly impressive year-on-year growth of 27%”.
The report indicates that other industrial nodes that have performed well include the Cape Peninsula with a growth of 24%, Durban at a growth of 22% and Port Elizabeth growing by 14%.
According to Rode, “This is particularly impressive when one takes into account building-cost inflation: even though this is expected to have grown by 20% on a year ago, we nevertheless still saw real-rental growth in all of these industrial areas, barring Port Elizabeth”.
Although the building industry was expected to reflect a slowdown, the latest Rode’s Report shows that non-residential building activity (represented by real gross fixed capital formation or GFCF) was up by 14% in the last quarter of 2007, while residential GFCF, which has actually been slowing since the end of 2005, grew by 6.4%.
However, Rode concedes that it still remains to be seen what effect Eskom and its moratorium on new developments could have on the industry. The report shows that office rentals in certain areas have done quite well too, with rentals in Johannesburg up by 16% and in Pretoria and Cape Town, decentralized figures up by 15%. Taking into account building-cost inflation of 20%, it is unlikely that these decentralized office nodes will reflect positive real growth over the last year.
Flat rentals in Johannesburg were also doing well, with nominal rentals ending on an average 26% higher year-on-year, which far exceeds the growth rate in consumer inflation of 9%. However, other metros did not fare so well, with the lowest being achieved in Cape Town and Pretoria at only 8%.
When it comes to the listed property sector, the report shows that investors are now insisting on higher income returns, which has in turn led to price drops in the market. Since the end of 2007, the historic income yields on listed property have weakened (increased) from about 6% to over 8% during May this year, resulting in an average price growth of –6% year-on-year during the first quarter of 2008.
With regard to capitalization (‘cap’) rates for prime office property, the report also indicates that this sector of the market is still reflecting some strength in the first quarter of 2008, although the cap rates on industrial leasebacks and shopping centres have weakened.
Rode says, “The non-residential market has been a sellers’ market since 2003, but under the current circumstances, it could now turn to being a buyers’ one. However, the prospects of strong rental growth could still provide a negotiating lifeline for sellers”.
Where property investors are concerned, the report indicates that a total return (income return plus capital appreciation) of around 15-15.5% was expected during the first quarter of 2008. “One of the ways of determining the value of an income-producing property is by discounting the expected future income stream by a required hurdle (opportunity-cost) rate,” Rode explains.
Essentially, the sharp decrease (or strengthening) in hurdle rates since 2000 acts as an indication of how favourable investor sentiment has been towards non-residential properties. Rode goes on to say that this was not just a result of the strong business-cycle upswing in the South African economy at the time, but also the structurally low, stable inflation and interest rates, which promised lower, risk-free opportunity costs.
However, in the current economic environment, investors may soon require higher minimum income and total returns in order to convince them to acquire directly held property. There is also little relief expected for the housing market – in May this year, national house prices in the middle segment of the market showed a growth of only 4% year-on-year. Even more concerning is the fact that house prices were 0.1% lower in May 2008 than they were a month earlier.
According to John Lottering, an economist at Rode & Associates, “We have year to see the impact of the interest-rate hikes experienced not only in April of this year, but those as far back as October and December 2007, as the full impact of these hikes is only truly revealed in the market up to three quarters of a year beyond their occurrence. We are of the opinion that by the end of this year, average prices could contract by up to 10% compared to December 2007”.
The information in this article is courtesy of Lynette Smit (“Rode’s Report on the SA Property Market 2008:2”, ITInews, 17 July 2008).
Visit www.sahometraders.co.za if you would like to buy or sell property in South Africa.
An article released by the South African Insurance Times and Investment News website argues that despite the prevalent doom and gloom currently being experienced in the residential property market, commercial and industrial markets are still booming. This is according to the latest issue of Rode’s Report on the South African Property Market.
As Erwin Rode says, “Industrial rentals in particular are sustaining the robust growth we saw during the first quarter of 2008. For example, nominal rentals for prime industrial space in the Central Witwatersrand have shown a particularly impressive year-on-year growth of 27%”.
The report indicates that other industrial nodes that have performed well include the Cape Peninsula with a growth of 24%, Durban at a growth of 22% and Port Elizabeth growing by 14%.
According to Rode, “This is particularly impressive when one takes into account building-cost inflation: even though this is expected to have grown by 20% on a year ago, we nevertheless still saw real-rental growth in all of these industrial areas, barring Port Elizabeth”.
Although the building industry was expected to reflect a slowdown, the latest Rode’s Report shows that non-residential building activity (represented by real gross fixed capital formation or GFCF) was up by 14% in the last quarter of 2007, while residential GFCF, which has actually been slowing since the end of 2005, grew by 6.4%.
However, Rode concedes that it still remains to be seen what effect Eskom and its moratorium on new developments could have on the industry. The report shows that office rentals in certain areas have done quite well too, with rentals in Johannesburg up by 16% and in Pretoria and Cape Town, decentralized figures up by 15%. Taking into account building-cost inflation of 20%, it is unlikely that these decentralized office nodes will reflect positive real growth over the last year.
Flat rentals in Johannesburg were also doing well, with nominal rentals ending on an average 26% higher year-on-year, which far exceeds the growth rate in consumer inflation of 9%. However, other metros did not fare so well, with the lowest being achieved in Cape Town and Pretoria at only 8%.
When it comes to the listed property sector, the report shows that investors are now insisting on higher income returns, which has in turn led to price drops in the market. Since the end of 2007, the historic income yields on listed property have weakened (increased) from about 6% to over 8% during May this year, resulting in an average price growth of –6% year-on-year during the first quarter of 2008.
With regard to capitalization (‘cap’) rates for prime office property, the report also indicates that this sector of the market is still reflecting some strength in the first quarter of 2008, although the cap rates on industrial leasebacks and shopping centres have weakened.
Rode says, “The non-residential market has been a sellers’ market since 2003, but under the current circumstances, it could now turn to being a buyers’ one. However, the prospects of strong rental growth could still provide a negotiating lifeline for sellers”.
Where property investors are concerned, the report indicates that a total return (income return plus capital appreciation) of around 15-15.5% was expected during the first quarter of 2008. “One of the ways of determining the value of an income-producing property is by discounting the expected future income stream by a required hurdle (opportunity-cost) rate,” Rode explains.
Essentially, the sharp decrease (or strengthening) in hurdle rates since 2000 acts as an indication of how favourable investor sentiment has been towards non-residential properties. Rode goes on to say that this was not just a result of the strong business-cycle upswing in the South African economy at the time, but also the structurally low, stable inflation and interest rates, which promised lower, risk-free opportunity costs.
However, in the current economic environment, investors may soon require higher minimum income and total returns in order to convince them to acquire directly held property. There is also little relief expected for the housing market – in May this year, national house prices in the middle segment of the market showed a growth of only 4% year-on-year. Even more concerning is the fact that house prices were 0.1% lower in May 2008 than they were a month earlier.
According to John Lottering, an economist at Rode & Associates, “We have year to see the impact of the interest-rate hikes experienced not only in April of this year, but those as far back as October and December 2007, as the full impact of these hikes is only truly revealed in the market up to three quarters of a year beyond their occurrence. We are of the opinion that by the end of this year, average prices could contract by up to 10% compared to December 2007”.
The information in this article is courtesy of Lynette Smit (“Rode’s Report on the SA Property Market 2008:2”, ITInews, 17 July 2008).
Visit www.sahometraders.co.za if you would like to buy or sell property in South Africa.
Friday, July 18, 2008
SA Consumers Still Optimistic
Latest Consumer Confidence Index
A recent article discusses the results of the latest Master Card Worldwide Index of Consumer Confidence for the latter half of 2008, which shows that South Africans remain impressively optimistic, despite significant increases over the past 6 months.
The bi-annual survey also indicated an understandable drop in consumer confidence year-on-year, when compared to last year’s score of 80.7 for the second half of 2007. “The index provides valuable understanding in the shifts of South African consumer sentiment, as well as the identification of market trends over time. The current Index score shows that consumers remain positive despite a considerable drop in confidence over the last six and twelve months,” according to Eddie Grobler, senior vice president and general manager for Africa, Master Card Worldwide.
The survey is conducted on behalf of Master Card by a third party research company and is designed to gauge consumer sentiment for the six months ahead. Respondents are interviewed by phone and the information relates to consumer perceptions on economic trends only. It is not a projection of the business or financial performance of Master Card Incorporated or any of its affiliates.
The selected markets where the survey is conducted include South Asia, the Middle East and Africa (SAMEA). The eight markets surveyed comprise Egypt, India, Kuwait, Lebanon, Qatar, Saudi Arabia, South Africa and the UAE, with scores based on answers to questions relating to five key economic indices. These indices are employment, economy, regular income, stock market and quality of life. A score above the midpoint of 50 indicates that consumers are optimistic about the overall economic climate, while a score below 50 indicates pessimism.
The South African survey focused on the major cities of Johannesburg, Cape Town and Durban, revealing that Johannesburg, with a score of 75.9, is the most optimistic of the three urban areas. Durban recorded a score of 73.8, while Cape Town reflected a score of 72.9, with consumers in Durban experiencing the biggest decline in confidence, having previously been the most optimistic of the three cities.
“It is my opinion that the golden era of consumer confidence in South Africa is beginning to lose its shine,” said Mike Schussler, chief economist at T-Sec. “While it is important to note that the Index is still positive at 74.3, the fact remains that the Index dropped by 6.4 points year-on-year and by 9.4 points in the last six months. This makes South Africa the third least optimistic of the eight countries surveyed”.
The economy proved to be the category that experienced the biggest decline in confidence. When asked whether they expected the country’s economic performance to improve, remain the same, or worsen over the next six months, nearly 48% said that they expected it to remain the same or get worse. 52% of the respondents were more optimistic and said that they expected it to get better.
According to Schussler, “My sense is that, in general, consumers are still confident about the prospects of South African economic growth – they just feel that it will now grow at a much more leisurely rate”. He noted that this feeling may be due in part to the recent drop in South Africa’s GDP growth rate, which has gone from a rate of 5.3% in the last quarter of 2007 to just 2.1% in the first quarter of 2008.
Other noteworthy results compared to the previous Index include the stock market indicator (83.0 six months ago, now 69.8), the quality of life indicator (82.9 six months ago to 71.2) and the employment indicator (81.9 six months ago and now 72.9).
“Again, though, it is important to note that the stock market reached record highs immediately after the survey period, so we expect the stock market indicator to remain positive in the future. And, year-on-year, consumers’ view of the stock market actually improved by over two points, reflecting the highs that the stock market has achieved during 2007/8,” said Schussler.
When it comes to the decline in the employment indicator, Schussler believes that this has more to do with the fact that employment growth in South Africa has slowed down considerably and rumours of job losses in the mining and manufacturing sectors has received a lot of attention in the media.
A surprising result seems to be that the respondents’ expectation of an increase in their regular income remains extremely optimistic. Schussler suspects that this is probably due to the fact that social welfare payments have not been affected by the current economic slowdown.
The Index score of 74.3 may indicate that South African consumer confidence is still optimistic, it is significantly lower than its peak of 91.1 for the second half of 2006 and below the historical average of 80.1 – highlighting the fact that optimism is not as high as it has been in the past. Currently only Lebanese and Egyptian consumers are less optimistic than their South African counterparts, with South Africa dropping from fourth to sixth place out of eight in the last six months.
The information contained in this article is courtesy of the Supermarket website (“South Africans feeling the pressure”, 16 July 2008).
Visit www.sahometraders.co.za if you would like to buy or sell property in South Africa.
A recent article discusses the results of the latest Master Card Worldwide Index of Consumer Confidence for the latter half of 2008, which shows that South Africans remain impressively optimistic, despite significant increases over the past 6 months.
The bi-annual survey also indicated an understandable drop in consumer confidence year-on-year, when compared to last year’s score of 80.7 for the second half of 2007. “The index provides valuable understanding in the shifts of South African consumer sentiment, as well as the identification of market trends over time. The current Index score shows that consumers remain positive despite a considerable drop in confidence over the last six and twelve months,” according to Eddie Grobler, senior vice president and general manager for Africa, Master Card Worldwide.
The survey is conducted on behalf of Master Card by a third party research company and is designed to gauge consumer sentiment for the six months ahead. Respondents are interviewed by phone and the information relates to consumer perceptions on economic trends only. It is not a projection of the business or financial performance of Master Card Incorporated or any of its affiliates.
The selected markets where the survey is conducted include South Asia, the Middle East and Africa (SAMEA). The eight markets surveyed comprise Egypt, India, Kuwait, Lebanon, Qatar, Saudi Arabia, South Africa and the UAE, with scores based on answers to questions relating to five key economic indices. These indices are employment, economy, regular income, stock market and quality of life. A score above the midpoint of 50 indicates that consumers are optimistic about the overall economic climate, while a score below 50 indicates pessimism.
The South African survey focused on the major cities of Johannesburg, Cape Town and Durban, revealing that Johannesburg, with a score of 75.9, is the most optimistic of the three urban areas. Durban recorded a score of 73.8, while Cape Town reflected a score of 72.9, with consumers in Durban experiencing the biggest decline in confidence, having previously been the most optimistic of the three cities.
“It is my opinion that the golden era of consumer confidence in South Africa is beginning to lose its shine,” said Mike Schussler, chief economist at T-Sec. “While it is important to note that the Index is still positive at 74.3, the fact remains that the Index dropped by 6.4 points year-on-year and by 9.4 points in the last six months. This makes South Africa the third least optimistic of the eight countries surveyed”.
The economy proved to be the category that experienced the biggest decline in confidence. When asked whether they expected the country’s economic performance to improve, remain the same, or worsen over the next six months, nearly 48% said that they expected it to remain the same or get worse. 52% of the respondents were more optimistic and said that they expected it to get better.
According to Schussler, “My sense is that, in general, consumers are still confident about the prospects of South African economic growth – they just feel that it will now grow at a much more leisurely rate”. He noted that this feeling may be due in part to the recent drop in South Africa’s GDP growth rate, which has gone from a rate of 5.3% in the last quarter of 2007 to just 2.1% in the first quarter of 2008.
Other noteworthy results compared to the previous Index include the stock market indicator (83.0 six months ago, now 69.8), the quality of life indicator (82.9 six months ago to 71.2) and the employment indicator (81.9 six months ago and now 72.9).
“Again, though, it is important to note that the stock market reached record highs immediately after the survey period, so we expect the stock market indicator to remain positive in the future. And, year-on-year, consumers’ view of the stock market actually improved by over two points, reflecting the highs that the stock market has achieved during 2007/8,” said Schussler.
When it comes to the decline in the employment indicator, Schussler believes that this has more to do with the fact that employment growth in South Africa has slowed down considerably and rumours of job losses in the mining and manufacturing sectors has received a lot of attention in the media.
A surprising result seems to be that the respondents’ expectation of an increase in their regular income remains extremely optimistic. Schussler suspects that this is probably due to the fact that social welfare payments have not been affected by the current economic slowdown.
The Index score of 74.3 may indicate that South African consumer confidence is still optimistic, it is significantly lower than its peak of 91.1 for the second half of 2006 and below the historical average of 80.1 – highlighting the fact that optimism is not as high as it has been in the past. Currently only Lebanese and Egyptian consumers are less optimistic than their South African counterparts, with South Africa dropping from fourth to sixth place out of eight in the last six months.
The information contained in this article is courtesy of the Supermarket website (“South Africans feeling the pressure”, 16 July 2008).
Visit www.sahometraders.co.za if you would like to buy or sell property in South Africa.
Thursday, July 17, 2008
South African Property a Buyers Market
Why Buyers Should Invest Now
An article published by the Daily Dispatch Online discusses the current trend in the property market and urges buyers that the time to invest in a fixed asset like property is about six months away, when the market finally hits rock bottom.
Many homeowners may refute this and say that it would be mad to touch property investments in a climate where house prices continue to fall. Why would anyone want to buy an asset that is steadily losing value?
Senior economic analyst at ABSA, Jacques du Toit said, “In real terms, property prices have already declined since late last year, which implies that, on average, a property owner who has bought property during the past two years is set to make no profit, or even a loss, if he sells now”.
On the back of a global economic slump, ABSA predicts real house price growth to fall by around 6% in 2008 and by another 3.3% in 2009. Du Toit anticipated that the best time to invest in property would be the second half of this year and early 2009, especially in terms of a buy-to-let perspective.
Marriott Income Specialists chief executive, Simon Pearse agreed that six months from now would be a prime time to invest in property, as prices still have to lose some momentum. “You need to buy when the interest rate is at its highest and inflation at its most. When no one wants to buy property, that is the best time to buy…and then you will make the most money,” according to Pearse.
He added that if property investors do not have cash reserves right now, they should try and convince their bank to loan them the maximum amount available under the tight conditions and purchase a bargain property. “You are not borrowing for the sake of borrowing, but buying an asset,” he urged, and the asset value will begin to rise just as interest rates start to fall.
Effectively, the situation created is one where the investor’s bond payments would decrease on an asset that continues to rise in value. When is the right time to leave the property market? The simple answer would be when interest rates start to rise again or when everyone at the local pub informs you what a great investment property is, said Pearse.
Taking this advice into account, Marriott developed the first commercial property fund for private investors in South Africa in 1997, when the property market was at its lowest ebb in the past twenty years. This fund recorded a 200% return on investment between 1997 and 2005, when the property boom began to taper off.
According to Pearse, property will always be a sound long-term investment because property values and rental income are linked to inflation, which means that prices continue to rise over time. During the first part of this year, rentals in East London increased by 50%, this according to the Trafalgar National Rental Index.
Du Toit warns that investors in the property market should not anticipate any positive real capital growth in the next 18 to 24 months. “In view of property being medium to longer-term investment – five years and longer – property investors should look through the current downward cycle and focus on income returns, with a view of achieving positive real capital appreciation from 2010,” he said.
The information in this article is courtesy of Roux van Zyl (“Buyers can benefit from property’s fall”, Daily Dispatch Online, 16 July 2008).
Visit www.sahometraders.co.za if you would like to buy or sell property in South Africa.
An article published by the Daily Dispatch Online discusses the current trend in the property market and urges buyers that the time to invest in a fixed asset like property is about six months away, when the market finally hits rock bottom.
Many homeowners may refute this and say that it would be mad to touch property investments in a climate where house prices continue to fall. Why would anyone want to buy an asset that is steadily losing value?
Senior economic analyst at ABSA, Jacques du Toit said, “In real terms, property prices have already declined since late last year, which implies that, on average, a property owner who has bought property during the past two years is set to make no profit, or even a loss, if he sells now”.
On the back of a global economic slump, ABSA predicts real house price growth to fall by around 6% in 2008 and by another 3.3% in 2009. Du Toit anticipated that the best time to invest in property would be the second half of this year and early 2009, especially in terms of a buy-to-let perspective.
Marriott Income Specialists chief executive, Simon Pearse agreed that six months from now would be a prime time to invest in property, as prices still have to lose some momentum. “You need to buy when the interest rate is at its highest and inflation at its most. When no one wants to buy property, that is the best time to buy…and then you will make the most money,” according to Pearse.
He added that if property investors do not have cash reserves right now, they should try and convince their bank to loan them the maximum amount available under the tight conditions and purchase a bargain property. “You are not borrowing for the sake of borrowing, but buying an asset,” he urged, and the asset value will begin to rise just as interest rates start to fall.
Effectively, the situation created is one where the investor’s bond payments would decrease on an asset that continues to rise in value. When is the right time to leave the property market? The simple answer would be when interest rates start to rise again or when everyone at the local pub informs you what a great investment property is, said Pearse.
Taking this advice into account, Marriott developed the first commercial property fund for private investors in South Africa in 1997, when the property market was at its lowest ebb in the past twenty years. This fund recorded a 200% return on investment between 1997 and 2005, when the property boom began to taper off.
According to Pearse, property will always be a sound long-term investment because property values and rental income are linked to inflation, which means that prices continue to rise over time. During the first part of this year, rentals in East London increased by 50%, this according to the Trafalgar National Rental Index.
Du Toit warns that investors in the property market should not anticipate any positive real capital growth in the next 18 to 24 months. “In view of property being medium to longer-term investment – five years and longer – property investors should look through the current downward cycle and focus on income returns, with a view of achieving positive real capital appreciation from 2010,” he said.
The information in this article is courtesy of Roux van Zyl (“Buyers can benefit from property’s fall”, Daily Dispatch Online, 16 July 2008).
Visit www.sahometraders.co.za if you would like to buy or sell property in South Africa.
Wednesday, July 16, 2008
South African Property Tax Advice
Property Tax Pointers
An article published by Real Estate Web provides some excellent insights on how to beat property tax. “For expenses to be tax deductible against rental income, there must be a genuine intention to conduct the trade of letting” (David Warneke, tax fundi).
In cases where the property was not let fully during the tax year then reasonable steps must have been taken to find another tenant and if losses were incurred, there has to be a reasonable prospect of the investment turning a profit (even after a number of years). Where losses did result, these may be “ringfenced”, which means that they might not be deductible against income from any other trade. This only applies to an investor who is a natural person.
The following is a list of the most common income tax deductions on residential property that is rented out:
§ Interest on bond or other loans
§ Repairs and maintenance
§ Rates
§ Letting agent’s commission
§ Sectional title levies
§ Advertising
§ Insurance
§ Wear and tear on movable assets let with the property
§ Accounting fees
§ Bad debts
§ Bank charges
§ Write-off of the cost of the property in terms of section 13 (relating to certain properties in ‘Urban Development Zones’)
The following are not tax deductible, but can be added to the base cost for CGT, which is calculated when the property is sold:
§ Transfer duty or VAT on the purchase of the property
§ Bond registration fees
§ Conveyancer’s fees
§ Cost of improvements to the property (provided that these are still reflected in the state of the property when it is sold)
§ The remuneration of a surveyor, valuer, auctioneer, lawyer or consultant relating to the acquisition of or disposal of the property
§ Any expenses incurred to establish, maintain or defend a legal right or title in the property.
When it comes to the various problems related to the expenses outlined above, these include:
Interest:
The loans must be used to finance the property. This will preclude cases where the bond is raised using the property as security and the funds are then used to finance private expenses.
Repairs versus improvements:
There are a multitude of income tax cases that deal with the distinction between repairs and improvements to property. While repairs are tax deductible, improvements may qualify for inclusion as part of the base cost of the property for CGT. In other words, for an expense to qualify as a ‘repair’, there has to be damage or deterioration and the intention of the taxpayer must be to restore the item ‘repaired’ to its original condition. The repairs also have to apply to a part of the property and not amount to the reconstruction of substantially the entire property.
Wear and tear on assets let with the property:
Wear and tear can be claimed only if the assets have not been integrated into the building. Once an asset becomes integrated, it loses its status as a separate asset in its own right. For example, this applies to light switches and fittings.
Bad debts:
The debt must have gone bad in order to claim it. This means that the taxpayer must be able to produce evidence that the amount has become irrecoverable during the tax year – it cannot simply be doubtful.
Although these pointers are relatively straightforward, it is still optimal to seek professional advice when discussing tax deductions.
The information in this article is courtesy of David Warneke, a tax partner at Cameron & Prentice, senior lecturer on Tax at UCT and author of a text used at universities throughout South Africa. (“Property tax beaters: 24 quick pointers”, Real Estate Web, 14 July 2008).
Visit www.sahometraders.co.za if you would like to buy or sell property in South Africa.
An article published by Real Estate Web provides some excellent insights on how to beat property tax. “For expenses to be tax deductible against rental income, there must be a genuine intention to conduct the trade of letting” (David Warneke, tax fundi).
In cases where the property was not let fully during the tax year then reasonable steps must have been taken to find another tenant and if losses were incurred, there has to be a reasonable prospect of the investment turning a profit (even after a number of years). Where losses did result, these may be “ringfenced”, which means that they might not be deductible against income from any other trade. This only applies to an investor who is a natural person.
The following is a list of the most common income tax deductions on residential property that is rented out:
§ Interest on bond or other loans
§ Repairs and maintenance
§ Rates
§ Letting agent’s commission
§ Sectional title levies
§ Advertising
§ Insurance
§ Wear and tear on movable assets let with the property
§ Accounting fees
§ Bad debts
§ Bank charges
§ Write-off of the cost of the property in terms of section 13 (relating to certain properties in ‘Urban Development Zones’)
The following are not tax deductible, but can be added to the base cost for CGT, which is calculated when the property is sold:
§ Transfer duty or VAT on the purchase of the property
§ Bond registration fees
§ Conveyancer’s fees
§ Cost of improvements to the property (provided that these are still reflected in the state of the property when it is sold)
§ The remuneration of a surveyor, valuer, auctioneer, lawyer or consultant relating to the acquisition of or disposal of the property
§ Any expenses incurred to establish, maintain or defend a legal right or title in the property.
When it comes to the various problems related to the expenses outlined above, these include:
Interest:
The loans must be used to finance the property. This will preclude cases where the bond is raised using the property as security and the funds are then used to finance private expenses.
Repairs versus improvements:
There are a multitude of income tax cases that deal with the distinction between repairs and improvements to property. While repairs are tax deductible, improvements may qualify for inclusion as part of the base cost of the property for CGT. In other words, for an expense to qualify as a ‘repair’, there has to be damage or deterioration and the intention of the taxpayer must be to restore the item ‘repaired’ to its original condition. The repairs also have to apply to a part of the property and not amount to the reconstruction of substantially the entire property.
Wear and tear on assets let with the property:
Wear and tear can be claimed only if the assets have not been integrated into the building. Once an asset becomes integrated, it loses its status as a separate asset in its own right. For example, this applies to light switches and fittings.
Bad debts:
The debt must have gone bad in order to claim it. This means that the taxpayer must be able to produce evidence that the amount has become irrecoverable during the tax year – it cannot simply be doubtful.
Although these pointers are relatively straightforward, it is still optimal to seek professional advice when discussing tax deductions.
The information in this article is courtesy of David Warneke, a tax partner at Cameron & Prentice, senior lecturer on Tax at UCT and author of a text used at universities throughout South Africa. (“Property tax beaters: 24 quick pointers”, Real Estate Web, 14 July 2008).
Visit www.sahometraders.co.za if you would like to buy or sell property in South Africa.
Tuesday, July 15, 2008
A New Trend Taking Form in SA
Green Building Way Forward
An article published on the Engineering News website has drawn attention to the successful introduction of ‘green’ building systems into the industry by steel framework building company, Vela Steel Building Systems.
Vela Steel MD, Brent Harris says that the company will extend its ‘green’ building system across all sectors and is confident about the decision, particularly in light of the fact that many developers and builders in the private market are becoming aware of the advantages of steel framed building, which consists of a reduced building program, cost savings and improved thermal qualities.
Steel is fully recyclable and building a house on an elevated platform essentially minimizes the impact on its surroundings. Transporting an entire house on a truck reduces the number of heavily laden vehicles on the road.
According to Harris, “Many houses have already been built using our lightweight steel frame system. Property developers are starting to realize that houses that are built with a steel framework as opposed to conventional brick and mortar offer better insulation during the winter and are cooler in the summer. Another advantage that a steel framework offers is the fact that it is easily erectable, offering quicker turn around times and is built to customer specifications”.
Vela Steel uses computer aided design (CAD) software in the design of these frameworks. “With the CAD software the company is able to factor all variables into the building of a house, so that the customer can specify the look and feel they require,” explains Harris.
The company has been involved in a number of residential projects recently. Towards the end of March this year, a project was completed at the Vaal Dam near Vereeniging, just south of Johannesburg. It required the construction of a 450m² luxury home using lightweight steel frames and roof trusses.
“Once the framework had been erected the external walls were clad with OSB board and Vermont plank and internally with gypsum board. The insulation in the wall cavity provided the thermal insulation. Vela SBS was awarded the contract towards the end of November 2007, construction time was about four months with completion of the project in March this year,” said Harris.
Another project involved the erection of a steel framework and roof trusses for a home in Fourways. “The project was very similar to the Vaal project. The only difference being that GDS [a property development company] opted to cover the outer steel framework with a combination of a single brick skin and Vermont plank. GDS approached Vela SBS with the project towards the end of 2007 and like the Vaal project, the house in Fourways took three months to complete. Both developers are currently building their second steel framed house. The second Fourways house is a double storey plus loft, which has proved to be quite challenging, yet our system has proved to be more than capable,” Harris added.
Considering the latest global trend towards being more ‘green’ conscious, this move by Vela Steel could well be the way of the future. Already, architects are being challenged to design homes that mould into their environment and make use of natural light and shade to supplement warmth in winter and protect from the harsh sun during summer. Builders are also coming up with innovative ways to insulate homes and make them less of a strain on the natural environment.
The information in this article is courtesy of Jonathan Faurie (“Building company introduces green building system”, Engineering News, 11 July 2008).
Please visit www.sahometraders.co.za if you would like to buy or sell property in South Africa.
Sunday, July 13, 2008
Light at the End of the Tunnel for Property Market in SA
Property Slump Felt Globally
An article in the Weekend Post has highlighted the fact that while South Africans are currently under increased financial pressure due to rising inflation and interest rates, as well as the steady drop in house prices, the situation is not isolated and is being experienced elsewhere in the world.
After the property boom in South Africa four years ago, the bottom has literally fallen out of the market, with sellers in the Cape having to settle for up to 30% less than asking price. Many homeowners are finding themselves ‘out of pocket’ in a buyers’ market and some are even being forced to put their homes up for auction in a bid to get the highest possible sale price.
The latest trend in the residential property market has seen buyers literally ‘shopping around’ for the best deals. FNB property economist, John Loos indicated that a recent survey of estate agents by the bank showed that up to 83% of sellers nationally were having to accept offers lower than asking price.
“This is not surprising. During the property boom in 2004, only 30% of sellers had to accept lower offers. It has increased dramatically since then and I think that is indicative of lean times,” said Loos.
According to Ian Olivier of Ian Olivier Properties, Port Elizabeth’s residential property market has seen up to 90% of homes selling for less than asking price – with some sellers taking 30% cuts or more.
Olivier said, “On average, we’re finding that sellers are accepting offers of 10% less than their original listing price, with some dropping substantially more. Among recent examples is a townhouse in Lorraine, which the seller initially priced at R575 000 against the advice of his agent. It is now being marketed at R390 000, five months down the line”. He adds that a house in an upmarket suburb listed at R3.7m recently sold for a million rand less.
Ken Ralph, national vice president and chairman of the southeastern region of the Institute of Estate Agents of South Africa has advised homeowners who are struggling to meet financial demands with the ever-increasing cost of living, petrol and high interest rates, to seek out their bank’s assistance before choosing to sell their homes.
According to Ralph, “Banks don’t want to repossess properties because the market is so saturated”. He added that South Africans are not the only ones experiencing this kind of pressure. “If you look at Australia and New Zealand, the property market is the same. Prices have fallen (in those countries) by up to 20%”.
Hanilie Bassingthwaighte, principal of Pam Golding Properties in East London said that the more correctly priced the properties, the higher the likelihood of achieving a successful sale. “On the rising market, sellers took it for granted they would get what they were asking. However, given the decline in the market, they cannot ask the same,” she said.
Buyers are no longer restricted by choice as they were during the boom years, when the stock of property on the market was in short supply. Buyers are now controlling the market activity by submitting offers lower than asking price and setting the bottom line when it comes to negotiations over price.
“This means that sellers who are not prepared to entertain pricing advice from their listing agents are effectively knocking their properties right out of the market,” said Olivier, adding that sellers should be aware that buyers are invariably walking away from deals rather than committing themselves financially.
Realistically priced homes are still likely to sell within the globally accepted benchmark period of 3 months. “It is not unheard of for homes to sell within a month either – if they are properly priced. What is indisputable is that uptake of over-priced properties has dropped to almost zero,” said Olivier.
Despite all the perceived ‘doom and gloom’, Ralph argued that, “We went through a similar period in 1998, but what goes up must go down. It’s not all negative, there is still light at the end of the tunnel”.
There are still those who have an immense amount of faith in the South African economy and Ralph is privy to many successful clients who are currently in the process of buying more properties, as well as overseas buyers taking advantage of the local opportunities available.
The information in this article is courtesy of Melody Brandon (“Desperate times as home prices plummet”, Weekend Post, 12 July 2008).
If you would like to buy or sell property in South Africa, please visit www.sahometraders.co.za.
Friday, July 11, 2008
South African Homeowner's Point of View
7 Year Boom Reaches End
An article in Business Day has called an end to the seven year boom in the property market, saying that homeowners can literally wave goodbye. The main focus at the JSE on Monday involved property investment, particularly in light of the fact that most of us are paying more to hold onto these assets while their value continues to drop.
Our homes are the primary assets that many of us hold and they are also mostly mortgaged. When the Private Investor’s portfolio fell by yet another percentage point, there was some solace for those not having shares in the property and banking sectors.
Investors are generally averse to backing banks because of their cyclical earnings growth. In fairness to the banks though, investors are probably overly sensitive to the local earnings banking cycle, as a large part of banks’ profits are gained from services other than lending.
The non-lending services provide banks with a cushion when bad debts are increasing and when lending, particularly on residential properties, is decreasing. Our prejudice is reinforced by a certain resentment towards banks for charging us to lend them money and their often poor service.
When it comes to property however, there is literally no prejudice, as our homes not only provide us with a comfortable place to live, but are generally sound investments. The author of the article in Business Day, Ben Temkin uses his own experience in the property market as an example.
Temkin bought his present home a little over seven years ago, when the stagnation of the residential property cycle was coming to an end. After improvements, the cost just about broke even on the property they sold. The one purchased was at a fair price, which left plenty of room for capital gain.
By the middle of 2001, there was no doubt that the property boom was coming and Temkin responded by making substantial improvements to the property, before the cost of building began to escalate. Compared to his other investments, the weight on property was certainly on the high side.
If he had had excess liquidity, Temkin said that he would definitely have moved into the property sector on the JSE. There were at least 5 of the 7 boom years left in prospect for rapid earnings growth. Greedy investment over that period pushed share prices to overvalued levels. Temkin did not have excess liquidity and was comfortable to hold onto his investments and not trade any for property shares.
During the period May 2001 to May 2007, the JSE real estate sector increased from 300 to 900, which showed an average annual compound growth of 20%. By September last year, the index was around 860 and was already in a downtrend due to share prices that had overrun earnings growth. The historic price earnings ratio in 2001 was about 12 and in 2007, it was about 30. At a more cooled off index of 620, the historic price earnings ratio of 16 still looks uncomfortably high.
The information in this article is courtesy of Ben Temkin (“South Africa: Homeowners Can Say Goodbye to Seven Boom Years”, Business Day, 9 July 2008).
If would like to buy or sell property in South Africa, please visit www.sahometraders.co.za.
Wednesday, July 9, 2008
Tenants Ask for Rental Reductions
Tenants Want Rent Reduced
An article published on the Cape Business News website draws attention to the plight currently being experienced by tenants in the retail industry. The current economic situation in South Africa has resulted in some tenants struggling to meet monthly rental payments.
These indications are according to Marc Edwards, general manager of Spire Property Management, who says that a market shift has been seen in their retail portfolio. “Office rentals in areas such as Cape Town’s Southern Suburbs remain consistently high due to space shortages in AAA office buildings. However, with consumers tightening their belts, retailers are taking strain and some are therefore starting to call for relief in the form of lower rentals,” says Edwards.
Edwards adds that, “Landlords need to take a realistic look at the strategic value of individual tenants in a shopping centre. It is extremely important for a centre to maintain the right tenant mix and to avoid having a lot of space standing vacant, so it makes sense to try and assist valued tenants through difficult times”. He has a point in that having tenants close their doors will benefit no one at the end of the day.
When it comes to ways that landlords can assist tenants is to enforce a turnover clause with lower basic rentals. This will give tenants more flexibility when times are tough, but allows the landlord to benefit progressively when the tenant’s turnover exceeds the set figure.
Edwards also suggests that tenants take a “realistic look at their business” and then make an informed decision about where their premises should be located, whether it should be in a shopping centre or whether they could achieve similar benefits in a small factory or other premises where rentals are relatively low.
Essentially, attracting more customers needs to be a collaborative effort between landlords and tenants, as landlords are effectively stakeholders in each shop within their complex and can play an important role in bringing more customers to the centre. Edwards insists that, “Today, more than ever, owners, tenants and property managers need to work together to find ways to make the centre more attractive and ensuring that shoppers’ needs are properly met”.
A prime example would be the Dean Street Arcade in Cape Town’s upmarket suburb of Newlands, where some of the tenants were moved around in the centre in a bid to maximize their exposure to potential customers. A strategic decision included improving the tenant mix by placing a pharmacy in the arcade, which has a tendency to trade well in all conditions and will attract more shoppers to the centre, consequently benefiting other tenants.
The information in this article is courtesy of Cape Business News (“Tenants Call for Rental Reductions”, 7 July 2008).
If you are interested in buying or selling property in South Africa, please visit www.sahometraders.co.za.
Monday, July 7, 2008
SA Homes May Now be Worth Less than the Bond
Negative Equity the Latest Risk
An article published on the Business Report website draws attention to the latest trend in the property market, where homeowners now face the risk of negative equity on their homes as house prices continue to drop.
Standard Bank’s median house price in June dropped by 11.3% year-on-year to R550 000, which only increases the possibility that some homeowners now owe more on their homes than they could sell them for. The moving average growth in median house prices over the last five months stands at minus 7.8%.
Standard Bank’s property economist, Sizwe Nxedlana has said that these negative numbers had been distorted somewhat by the surge in median house prices at the same time last year, ahead of the National Credit Act implementation.
This entire year, Standard Bank has recorded either flat or negative median house price growth. In January and February, the figures were at zero, with minus 5.2% registered in March, minus 8.6% in April and minus 13.2% recorded in May.
According to Nxedlana, declines of this magnitude and duration in the demand for property “are not inconsistent with national house price deflation”. He added that negative equity in mortgage bonds was now a possibility, particularly for those who bought houses at the peak of the property boom.
However, this would only become an issue if a sale of the property were to take place in the current climate. Homeowners might be better served to stay in the property and ride out the storm rather than sell it for a price that would be much lower than expected.
A senior property analyst at ABSA, Jacques du Toit said that a homeowner who obtained a 100% bond early this year and now wanted to sell the property might well be unable to sell it for a price that covered the bond. Essentially, the more recently a bond has been taken out, the higher the likelihood of this happening.
Another important contributing factor is the size of the mortgage bond as compared to the cost of the property. “Those who have not put down a deposit and [have] taken out a 100 percent bond are more at risk,” said du Toit.
It is also possible that some homeowners have “dipped into their bonds” and taken out some of the equity to finance or pay off other debts, but it would be impossible to determine to what extent this has occurred. The problem is that those who have done so will have accumulated more debt as a result.
Eventually, these homeowners would no longer be able to afford the bond repayments and would not have equity left in their bonds. Nxedlana maintains that the short-term outlook for the residential property market remains bleak.
The information in this article is courtesy of Roy Cokayne (“Homeowners risk negative equity as house prices drop”, Business Report, 2 July 2008).
If you would like to buy or sell property in South Africa, please visit www.sahometraders.co.za.
Thursday, July 3, 2008
Globalisation Affects Investment
Diversify Your Assets?
An article published in Newsweek brings up an interesting notion as it discusses the recent hype surrounding globalization making the world a smaller place, with barriers falling and fear of foreign markets diminishing. The latest trend with small investors is the diversification of assets on a global scale, as they search the world for big returns.
The adage ‘don’t put all your eggs in one basket’ dates back to 17th century Italy, but investors have only just started to catch on. Financial advisors have been warning clients to diversify for years, but typical investors are only recently starting to venture beyond their local markets. Spreading your bets should apply not only to stocks versus bonds and real estate, but also the United States versus Europe, as well as Japan and emerging markets like South Africa.
A major reason for the growing trend towards global investment is simply because advancements in technology make it possible. Restrictions on the movement of capital are beginning to fall away and the Internet makes it easier to track what is happening in remote places. Historically, it has been low interest rates that have pushed investors to seek profit further afield, particularly as emerging markets have become more open to welcoming them.
While daytraders dabble in Thai baht and South African rand online, chat rooms compare the merits of blue chips from Boston to Beijing and Budapest, with US workers pouring their savings into emerging market funds and Britons seeking out real estate in the sunny African climes. The International Monetary Fund (IMF) released its world economic outlook this month and reported that foreign portfolio holdings as a percentage of market capitalization have increased in many developed countries around the world.
The crux of the matter seems to be that while it is probably sensible to invest in what you know, the reality is that investors often think they know a lot more about their local market than they really do. Americans in particular have been left with a bitter taste after recent experience, which perhaps explains the growing tendency to invest abroad. In light of the current South African market, perhaps it would serve small investors well to diversify their assets globally.
The information in this article is courtesy of Newsweek (“Money Travels: As Barriers Fall and Fear of Foreign Markets Diminishes, Small Investors Go Global in the Search for Big Returns”, 2 July 2008).
If you are interested in buying or selling property in South Africa, please visit www.sahometraders.co.za.
Wednesday, July 2, 2008
More Bad News for the SA Property Market
June House Prices Down
An article published on the Reuters Africa website yesterday indicates that South African median house prices fell by 11.3% year-on-year in June, put under even more pressure by higher interest rates and tougher credit laws.
Sponsors of the survey, Standard Bank said that house prices peaked in June last year as the impending implementation of the National Credit Act (NCA) fostered uncertainty in homeowners and investors. The new credit laws came into effect that month in a bid to clamp down on excessive lending in the market.
Standard Bank’s monthly property gauge indicated the average house price to be R550 000 last month as compared to R620 000 at the same time last year. The five month moving average growth rate reflects a negative –7.8% and the demand for mortgages has been falling since June last year.
According to a spokesperson from Standard Bank, “This is due to a confluence of headwinds confronting the South African consumer. These include high interest rates and inflation, as well as additional hurdles of accessing credit brought about by the NCA. In our view, declines in the demand for property of this magnitude and duration are not inconsistent with national house price deflation”.
South Africa’s Reserve Bank has raised its repo rate by 500 basis points to 12% since June 2006 in an effort to curb inflation, but price pressures driven by rising food and fuel costs continue to build. The targeted CPIX (consumer inflation minus mortgage costs) raced to 10.9% year-on-year in May, which is the highest recorded level in over 5 years. All-items inflation was recorded at 11.7% and the higher rates have pushed mortgage payments up 36% over the last two years.
Standard Bank stated that the monthly data may have been distorted somewhat by high base effects, with many people rushing to finalise deals before the NCA came into effect in June last year, but the general trend was in line with the tough conditions that South African consumers faced.
The information in this article is courtesy of Reuters Africa (“S.Africa June property prices fall on high rates”, 1 July 2008).
If you are interested in buying or selling property in South Africa, please visit www.sahometraders.co.za.
Tuesday, July 1, 2008
South African Homeowners Face Troubled Times
Homeowners Feel the Pinch
An article in The Times reports that more repossessions are bound to be on the cards as South Africans face yet another interest rate hike. There is simply no good news for homeowners trying to sell their property, as the latest house price survey reflects a dip that has not been seen since 1999.
To make matters worse, if you have put your house on the market, you can expect to get up to 40% less than your initial asking price by year-end. The property boom bubble of previous years is steadily deflating in the current down cycle.
ABSA’s House Price Index, which was released yesterday, recorded single digit year-on-year nominal growth of 4.3% in May, down 1.2% from the 5.5% recorded in April – this translates into the slowest house price growth in 9 years. The average price of a mid-sector house dropped to about R960 700 in May, from an average R974 000 in April.
The ABSA index bases its figures on the total purchase price of houses in the 80m² to 400m² size category, valued at around R2.9m or less in 2007, including any home improvements and for which loan applications were approved.
The Bank expected the Reserve Banks’ Monetary Committee to introduce a 100 basis point interest rate hike next week, with the potential for further rate hikes if the CPIX (inflation mortgage costs) remained “stubbornly high”.
Property analyst for ABSA, Jacques du Toit said that more people were selling homes than there were buyers in the market, as the broad economic conditions started to have an effect on the affordability levels of consumers.
“We anticipate and expect property repossessions to pick up, but coming from a low base. The repossessions would not be isolated to a particular market segment; it would affect virtually all segments of the residential property market. The increase of stock in the market is a reflection of the financial difficulties that people are going through,” du Toit said.
Lew Geffen, head of Lew Geffen Sotheby’s International Realty said, “It’s a question of being truthful to your clients to save them severe pain by procrastinating and not accepting the offer today. Today’s low offer is tomorrow’s miracle price. This market is not going to recover any time soon”.
Geffen believes that the property market will come down by a significant 40% from the unbelievable highs of 2007, adding that there are already 60% less buyers in the market today, compared with the same time last year. Looking at the bank requisite of between 5% and 25% equity for property purchases ranging from R800 000 to R4m, indications are that the market is expected to drop another 25% on top of the current estimate of 15%.
As Geffen says, “Take into account that today a man who wants to purchase a R2m property, which is the average selling price in our company, will have to earn more than R87 000 gross per month in order to qualify; and if the market drops by 25% that same person will need to earn R65 200 gross, which is also no picnic”.
The Tenant Profile Network (TPN) is a registered credit bureau that provides tenant rental payment profiles for property managers and landlords and reports an increase in demand for rentals as compared to a year ago.
Managing director of TPN, Michelle Dickens said that the company had also witnessed a trend towards six month versus twelve month lease periods, in a bid to increase rentals and meet mortgage repayments. National rental averages are up to R4000 per month. There has also been an increase in properties initially put up for sale that have now been put up for rent to cushion the longer period of waiting for an offer to purchase.
“Demand for rental property is far outstripping market availability. Estate agents are now at the reverse effect of a property sales boom and are sitting with an over-supply of stock,” said Dickens.
The Alliance Group specializes in auctions and reports that countrywide they have a thousand houses up for sale from execution, repossession and insolvency. The company predicts that thousands of families will lose their homes by the end of the third quarter of the year.
The information in this article is courtesy of Xolile Bengu and Simpiwe Piliso (“Homeowners feeling down”, The Times, 1 July 2008).
If you would like to buy or sell property in South Africa, please visit www.sahometraders.co.za.
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