Get a Better Rate on Your Home Loan

(Accessed from www.realestateweb.co.za on 11 September 2008
Mike Spencer*
11 September 2008

With interest rates so high it is important to get the best possible rate on your home loan.

According to valuer and estate agent Mike Spencer of Platinum Global in Bloemfontein, you qualify for a discount when you have good credit records, high value bonds, high deposits and multiple bonds. Using numerous services at your lending bank and being a high-income client will also earn you discount.

He strongly advises anyone with a bond to ask for a discount. Only a few people ask for a better rate and simple accept the one given by the bank. Surprisingly you might receive and extra 0.25% or 0.5% discount if you do so.

Another tip is to talk to your bank about consolidating your loans. By doing this you will end up paying fewer fees, a lower interest rate and smaller bank charges.
Consolidating your loans with one bank will also result in lower cost and interest rates.

There is a government penalty tax on bonds over 80% up to 1.5%. By moving funds around you can reduce the very high percentage bond down to below this percentage.

Remember that banks will reward you for having more services at one bank. It would be wise to have your cheque and bankcard accounts at the same bank where you have your loan. Always ask your bank about the benefits should you bring all your business to them.

Mike Spencer also argues that it is wise to consider consolidating products such as Absa One. Here, the bank will approve an overall level of credit available to you and all your assets would be taken as security in return. This is a considerable saving in cost because they do not usually register a bond against your property.
You will then receive a chequebook, credit card and petrol card that is linked to this account. Each night your daily expenses are paid for from this account. This means that you live of a single account resulting in a low interest rate. You can also use this account to buy property, cars and live up to your credit limit. Everything you buy is cash, resulting in cash discounts. You will pay an agreed minimum and interest is at the bond rate less you discount.

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How to Survive the Global Market Crash

(Accessed from www.realestateweb.co.za on 10 October 2008)
Jackie Cameron*

Survive the Crash

While the world has been inundated with news about plummeting stock markets, financial systems in trouble and anticipation of a global recession in the last week, there are some estate agency bosses in South Africa that appear quite optimistic about the state of the local market.

Recent statements from Rawson Properties, Pam Golding and RE/MAX have been upbeat, suggesting that we may well have seen the worst in the residential market and things are set to improve. News that interest rates will remain unchanged has reinforced this hope and a sudden surge in sales and increased attendance at show houses are also positive signs for the property market.

However, there are those who believe that the views of estate agents should really be taken with a pinch of salt, as they have never been known to speak negatively about the market even when things are looking seriously dire. One has to ask whether the improvement in sales is really a sign that things are looking up? Or is it merely a ploy to inspire buyers who have been sitting on the fence?

According to Bill Rawson, sales for his group were up an incredible 250% in September and he urged that, “Despite the difficulties with getting bond finance, now is a wonderful time to buy. This is a message we need to put out into the market, which in its reaction to the downturn has now grown overly cautious and negative. Property remains a top-line investment and this has never been truer than in today’s tough sale conditions”.

Rawson is right in that property is an excellent long term investment. However, in the short term, those who take out mortgages and rent are likely to experience tight financial conditions at the very least. Many businesses and consumers are bound to fall into money trouble at some point and banks are far stricter in their lending criteria.

ABSA has been tracking trends in house prices for decades and only expects the situation to turn around at some stage next year. Real property prices, taking into account inflation, have dropped by around 10% annually, which means that purchasing power has been lost if your cash has been held in bricks and mortar.

Barry Sergeant’s analysis of the South African economy seems to point to tougher times ahead, not easier ones (Moneyweb). He believes that interest rates can’t be cut in line with the globally coordinated central bank packages simply because our economy is not in good shape.

He says that with the staggeringly high unemployment rate and trade deficits, as well as the minimal foreign reserves, the country is left “with little choice but to perform somersaults, and other awkward things, to attract foreign cash inflows”. Sergeant notes that investors tend to borrow elsewhere at a lower interest rate and then send their money over to South Africa to earn more and make a profit.

Mike Flux, executive director of Madison Property Fund Managers, also seems to be more pessimistic about the situation, primarily due to economic reasons. He warned that up to a third of jobs in the property sector could be lost over the next two years. “Add in more global meltdown, multiple recessions, plus a dash of Zuma election fun and we are in for interesting times” (Realestateweb).

The fact that interest rates weren’t cut this week shouldn’t come as a surprise. Reserve Bank governor Tito Mboweni cited a reason for the decision as being that “wages show inflation expectations are not anchored”. His own salary increase says a lot about this, with an annual raise of 30%, which is considerably higher than inflation expectations.

What about those of us who earn ordinary salaries though? The reality is that we need to get back to old fashioned basics. Draw up a budget listing your income and all of your bills and then trim the unnecessary monthly expenses. Perhaps it’s time to revisit your car and household insurance, either insisting on a reduction in your premium for your car that is now a year older or shopping around for a better rate.

You could even look at swapping your home loan for a better deal. Banks, like insurance companies, are not likely to reward you for all the years that you have been in business with them. Perhaps it’s time to trade in your car for a more economical one or to change your cell phone contract to pay as you go. It is amazing how much you can save from cutting out the unnecessary treats and shaving costs here and there adds up.

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Why You Need a Tax Number to Buy Property

What SARS Has to do With Property

When it comes to buying your first home, there are a number of things required by various parties that can prove extremely complicated. For instance, the transferring attorneys will ask for your tax number. Now many of you might like to know what on earth SARS has to do with buying property.

The answer is simple: any transfer of immovable property in South Africa gives rise to the payment of transfer duty, which is levied under the Transfer Duty Act. The property cannot be transferred into your name until the transfer duty has been paid or a declaration has been submitted citing that the transaction is exempt. The latter involves purchases by public benefit organizations or property transactions where VAT is charged.

As well as the receipt for transfer duty, the seller needs to fill out a declaration (Form TD1), as does the buyer (Form TD2). The information that is required on these declaration forms includes the income tax numbers of the buyer, seller and estate agent (where applicable).

This can create a problem where the tax compliance records of any party are not up to scratch, which is yet another weapon that SARS has in its armoury. Transfers of property have been known to be put on hold in cases where any one of the parties has not complied with their tax obligations.

Most property transactions have to be registered at the Deeds Office and this cannot take place without a transfer duty receipt or exemption certificate from SARS. However, registration is not necessary where fixed property is registered in the name of a trust, company or close corporation and there is merely a change in beneficiaries, shareholders or members.

SARS thus requires estate agents who are party to such transactions to complete a declaration (Form TD7). This is necessary because the change of ownership here does not require registration of the transfer in the Deeds Office, since technically the ownership of the property itself has not changed. These transactions are still subject to transfer duty however, and in the past many buyers have managed to avoid paying transfer duty by failing to declare the purchase of these shares to SARS.

The information in this article is courtesy of Steven Jones (“Why Sars wants your income tax number when you buy a property”, MoneywebTax, 30 September 2008).

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Market Trends and their Predictions for the Future

Should You Rely on Market Trends?

An article published in Business Day has drawn attention to market sentiment, suggesting that it may not be as reliable a short-term barometer as many investment commentators seem to think.

Apparently, the favoured test of its accuracy is the future correlation of share prices and the growth of earnings. If the market trend happens to change, this indicates that much the same trend will occur with companies’ investment fundamentals.

Ben Temkin, author of the article in Business Day, is not convinced that this is the case. Over the years, he has noticed that a bull trend ends when shares are overbought and vice versa. This kind of situation, he says, is not only true of shares, but also the residential property market, where house prices kept rising as long as demand met supply. When it suddenly became evident that supply was outdoing demand (which in the stock market would mean that shares are overbought), prices began to stick at first and then fall.

The residential property market is in a bear trend now, but it didn’t become a bear trend ahead of the hike in interest rates. In fact, house price levels were resistant to interest rates for quite some time.

Even more interesting to note is the fact that the line chart of the JSE electronics and electrical index has had (over the past two years), almost the same shape as the JSE real estate index. If the barometer thesis is to be followed, this would mean that the current weakness in the JSE real estate index is a warning that a bear market in commercial and industrial property is expected and there should be significant falls in earnings in the affiliated companies in the electronics and industrial index.

Temkin can accept that the supply of office, retail and factory space can, or already has, overtaken demand because of the current economic slowdown. However, he finds it much more difficult to believe that the demand for infrastructural growth is suddenly to going to slow down and drastically stunt the growth of Altech and Reunert, as the barometer would suggest.

In his experience of the stock market, Temkin has seen that a change in its trend does not necessarily signal good or bad news. However, it does tell us when good or bad news has been digested and that this process can often be uncomfortable, which pushes the trend too far and too fast.

Temkin goes on to describe the market as a crowd, using the recent example of crowd behaviour in Sasol’s share price trend. For obvious reasons, Sasol’s share price is correlated with the price in oil. The crowd often tends to forget though that Sasol is not only about oil. The Private Investor portfolio bought shares in Sasol in December at R315.70 and the oil price was then just $95 a barrel.

When the oil price peaked at $140 towards the end of last month, Sasol’s share price hit the roof at R506 in May, which was well before the peak in the oil price. Currently, oil is priced around $125, which is 10% below its peak and Sasol’s share price is about R400, 20% below its peak. This merely proves the market lied on Sasol’s way up or is lying now. The point here is that you cannot rely on market sentiment to be an early warning sign of future investment fundamentals, which obviously include plenty of gambling.

The information in this article is courtesy of Ben Temkin (“South Africa: Market Trends Not That Reliable”, Business Day, 30 July 2008).

Visit www.sahometraders.co.za if you would like to buy or sell property in South Africa.

Housing Market Muddle in SA

Be Sure to Up Home Insurance

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Xenophobic Attacks Condemned by Business in SA

Xenophobic Attacks Condemned

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

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

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

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

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

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

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

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

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

Small Building Companies Taking Strain in SA

Small Building Companies Taking Strain

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

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

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

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

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

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

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

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

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

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

Expropriation Bill Assault on SA Property Rights

Expropriation Bill Assault on Property Rights

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

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

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

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

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

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

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

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

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

Bad News for Estate Agents in SA

Tough Times for Estate Agents

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Reasons for Negative Sentiment in SA

Property Dragged Down by Negative Sentiment

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

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

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

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

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

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

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

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

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

How to Benefit from High Interest Rates in SA

Make the Most of High Interest Rates

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Perhaps Silver Lining for SA Property Market

Standard Bank Downplays Market Slump

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

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

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

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

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

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

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

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

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

High Potential for Fractional Ownership in SA

Fractional Ownership vs Timeshare

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

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

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

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

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

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

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

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

More Doom & Gloom for SA Property Market

ABSA Predicts House Price Fall in Real Terms

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

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

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

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

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

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

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

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

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

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

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

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

SA Government to Restrict Coastal Development

Coastal Development to be Restricted

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

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

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

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

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

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

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

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

US to Invest in SA Housing

US to Invest in SA Housing

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

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

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

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

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

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

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

SA Property Market on Shaky Ground

Recession on the Cards?

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

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

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

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

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

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

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

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

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

South African Property News

Johannesburg Property Market Scores

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

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

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

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

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

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

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

South African Property News

Power Shortage Not to Affect New Developments

An article by Luyanda Makapela in BuaNews reports that concern over electricity supply shortages and the proposed moratorium on new property developments is somewhat unfounded, according to Housing Minister Lindiwe Sisulu. The Minister has reassured South Africans that any new residential property developments requiring less than 100KW and low-income housing projects will not be affected.

This follows concerns raised by the Banking Association of South Africa (BASA) that suggested perceptions created by Eskom’s announcement of a moratorium last month could have a negative effect on all future housing developments. Ms Sisulu is quoted as saying, “The power supply challenges cannot be allowed to affect housing delivery to South Africa’s poor and government’s commitment to improve the living conditions of its citizens”.

The Minister of Housing met with Minister of Minerals and Energy, Buyelwa Sonjica and Minister of Public Enterprises, Alec Erwin in a bid to put to rest the concerns raised by BASA. Department spokesperson, Marianne Merten reports that, “Minister Sisulu wants to again confirm that government is committed to ensure new property developments requiring supplies of less than 100KW or 100KVA and affordable housing projects receive the necessary electricity supplies”.

Ms Merten insisted that, “[A]ny lingering doubts on this matter must now be laid to rest, particularly as Eskom already said it will not stop any developments”. She also assured that all those developments that have already applied and received quotations would receive energy.

In line with efforts by government to deal with the power crisis, the Department of Housing has joined a government task team to ensure that energy efficient building regulations are enacted. The criteria will be incorporated into the standard regulations of the National Home Builders’ Registration Council (NHBRC). “The housing department will play its role to ensure that individual households are part of the national energy saving drive,” according to Ms Merten.

The Minister of Minerals and Energy, Buyelwa Sonjica addressed a number of delegates at the 10th annual African Power and Electricity Congress at the Sandton Convention Centre recently and advised that government had instituted a Power Conservation Programme (PCP), which is intended to manage the rationing of power. “To address the current situation, a number of policies and strategies have been developed and approved to ensure that we approach the value chain of electricity supply in an integrated and sustainable manner,” the Minister said.

It was also reported that the Nuclear New Build Programme and the Renewable Energy and Liquid Fuels and Strategies have been developed and approved. In order to speed up the implementation of power conservation programmes, the Minister said that her department was in the process of developing necessary regulations under existing legislation to facilitate the department’s legislative mandate. “As a region and continent we will continue to call upon all our fellow governments and private sector to collaborate in managing the prosperity of the African continent,” according to Ms Sonjica.

The information in this article is courtesy of Luyanda Makapela (“South Africa: Power Shortage Will Not Affect New Property Developments”, BuaNews, 24 April 2008).

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

South African Property News

Pam Golding Top of the Pack?

An article by I-Net Bridge suggests that while most agencies are struggling in the current property market, Pam Golding reports a total growth in turnover of 13.5% over the previous year, which is way ahead of the market. The record sales achieved amount to R21bn in the financial year ended in February.

Chief executive Dr Andrew Golding says that performance has been achieved despite the introduction of the National Credit Act in June 2007, the ever-rising interest rates, political uncertainty and the effects of the energy crisis currently gripping the country. Successful transactions were concluded for a total of 26,000 clients and while “this represents a 9% decrease in units over the previous period, it does however indicate sound growth in market share as the rest of the industry reported decreases ranging from 20-30%” (Golding).

Golding says that the Group expanded its network of offices to 310, with 25 new offices being launched throughout southern Africa. The residential sales came in at an impressive R18bn, reflecting a growth of 9% over the previous year. The company’s average house price is up to R1.4m from R1.1m last year. The bulk of homes sold were in the R1-6m margin, with an increasing number of transactions over the R20m mark and some exceeding R35-40m.

The number of sales to overseas buyers represents just 3% of the total residential units sold by Pam Golding Properties, of which buyers came from 26 countries around the globe. The bulk of sales were to British nationals, followed by those from America, Germany, Holland, Belgium and France. According to Golding, “It is interesting to see the increasing demand among American buyers, and following our successful international property exhibitions held in Russia, China and India last year (2007), we are also experiencing growing interest from those countries”.

Golding acknowledges that the market is clearly in for a challenging year ahead and has no doubt that even in the medium and long term, property as an asset class will continue to be a sound investment option offering excellent returns.

The information in this article is courtesy of I-Net Bridge ("Pam Golding Reports R21bn in Sales", The Times, 23 April 2008).

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