SA Banks Share Different Views on Credit

FNB Criticised for Credit Withdrawals

An article by Realestateweb has drawn attention to the Ombudsman for Banking Services' recent warning shot fired at First National Bank (FNB)’s decision to withdraw home loan approvals “on a large scale”. ABSA has since revealed that it is those professionals who are self-employed that are being hardest hit by the severe downcycle in the property market.

FNB released the news about its home loan shock this week, saying that it was pulling the plug on property credit in the current economic climate, where inflation continues to rise and property prices are falling. The reason given for this decision is that levels of affordability have “deteriorated considerably”.

The decision involves the reassessment of certain loans that have already been approved; however those that have been lodged in the Deeds Office or registered will not be affected. Spokesperson for FNB, Xolisa Vapi said, “We continue to reassess offers. The need has become more acute now, given the fast-changing circumstances”.

Vapi admitted that this action is “unusual” and has not been carried out in a long time, “but has always been a possibility because the bank’s offers to provide credit include a clause allowing it to exit if necessary”. He went on to say that every contract has a clause allowing the bank to reassess its offer.

The focus of the reassessment is on home loan approvals that have been granted in the last year and have not yet been registered. Although Vapi could not divulge statistics for the amount of approvals the bank is set to withdraw, he did say that it is “on a large scale”.

The Ombudsman for Banking Services, Clive Pillay has taken an unprecedented step in his public criticism of the move by FNB. In a statement made to the media on Wednesday, Pillay argued that it was “sound and prudent to reassess bonds granted in principle,” but “cautioned that each matter be reassessed in a manner that does not unduly prejudice the customer”.

Pillay outlined the following scenario, which would “severely prejudice the purchaser” – where a home loan has been granted and the buyer then pays a deposit to the seller. “While the parties are awaiting registration, the bank withdraws the bond, either completely, or offers the purchaser a smaller bond. Because of the bank’s decision, the purchaser is unable to proceed with the transaction”.

What happens then is the seller insists that the buyer “fulfill his contractual obligations” and in so doing, the “seller retains the deposit paid and sues the purchaser for the balance of the purchase price”. In such a situation, said Pillay, the bank “should consider alternatives to assist the customer”.

Even so, Pillay said that reassessment is in compliance with the National Credit Act, which enforces strict new credit criteria and this is partly responsible for the dramatic decrease in property deals over the last year. Pillay urged bank customers who are unhappy with the outcomes of their related disputes to approach his office: 0861 662 2837.

Managing executive for ABSA’s home loans, Gavin Opperman is reported as saying that he spends more than half of his day collecting and recovering. This is true of self-employed professionals in particular, he said, such as lawyers and those in the medical field, who are “really battling” in tight economic conditions, but not necessarily the “guy who has a café on the corner”.

What seems to be happening is that consumers are now not going to doctors and dentists and are no longer paying their medical aids, according to Opperman. He referred to an example of a property he had recently handed over to the Alliance Group for auction after a medical professional could no longer keep up with his debts, having put down a deposit of R3m plus costs and was paying off the balance of R7m with a mortgage.

This particular individual paid R10m about 18 months ago for his home and was struggling to meet home loan repayments of around R100 000 per month. Even more discouraging is the fact that the owner can expect around 50 to 60% of that market value on auction. Opperman stressed that this is by no means an isolated case and that ABSA would assist individuals in similar situations if they contact the bank as soon as they anticipate financial trouble.

“These people will bounce back. We’ll restructure the debt and he will rent for a while,” said Opperman of the medical professional who is about to lose his home at auction. He went on to say that those in the affordable housing sector were not as hard hit as the upper income earners.

Opperman may be spending much of his time looking at debt recovery, but he remains optimistic about property because “you are effectively saving” when you invest in bricks and mortar. Also, saving money in a home loan makes better financial sense than saving it elsewhere. “We don’t believe interest rates will escalate further. So affordability calculations for mortgages now shouldn’t be a problem,” said Opperman.

Saul Geffen, chief executive officer of South Africa’s biggest mortgage originator, Ooba, said that FNB began reassessing and withdrawing home loan approvals at the end of July. “In the cases where a reassessment of our clients’ financial position has become necessary, we are expediting the process by contacting our clients and assisting them with completing the required documentation,” he said.

Geffen indicated that Ooba would try and secure alternative bond finance through a different lender where FNB makes a withdrawal. “Presently, banks do have different appetites for risk and we therefore find that an application declined by one bank is often granted by another bank,” said Geffen.

The information in this article is courtesy of Realestateweb (“Ombudsman fires public warning shot at FNB”, 7 August 2008).

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

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.

SA Lodge Goes Totally 'Green'

Eco-Tourism Lodge 100% Green

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

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

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

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

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

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

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

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

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

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

Perhaps Silver Lining for SA Property Market

Standard Bank Downplays Market Slump

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

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

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

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

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

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

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

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

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

High Potential for Fractional Ownership in SA

Fractional Ownership vs Timeshare

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

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

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

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

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

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

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

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

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.

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

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.

South African Property News

Property Barometer At All Time Low

An article on the Dispatch website indicates that the First National Bank (FNB) residential property barometer has recorded an all time low for any quarter measured since its launch in 2003.

The barometer measures commercial activity in South Africa’s major urban centres on a scale of 1 to 10 and has dropped from 5.09 in the previous quarter to 4.96 in the first quarter of 2008.

FNB has reported that up to 83% of people selling their homes have been forced to accept much lower offers than their asking prices, making the South African property market decidedly in favour of buyers. The average time that a house stays on the market has risen from 11 weeks and 2 days in the previous quarter to 12 weeks and 4 days in the most recent quarter.

Economists at FNB have said the deterioration in the market is due to a “sustained regime of interest rate hikes and rising inflation eating into disposable incomes”. They also argue that a general erosion of sentiment has been caused by a slowing economy, most notably since the political change that occurred in Polokwane in December and the current energy crisis being experienced in the country.

The slow activity in the coastal market is evidence of a changing appetite for luxury holiday homes, which FNB property strategist John Loos believes is “the result of rising interest rates impacting to a greater degree on non-essential holiday buying than on primary residential demand,” with Gauteng “more dominated by the latter form of demand making it slightly less cyclical than the coast”.

According to FNB, the rise in consumer price inflation has had more of an impact on the lower-end residential property sector, which has been attributed to essential items such as food and petrol that carry a larger weight in lower income groups.

FNB has said that while the higher end of South Africa’s residential property market looks healthier in the first quarter than the lower end, the barometer has picked up a substantial increase in the number of properties sold in order to emigrate than compared to the previous quarter.

However, in light of the future, FNB believes “that unease over political uncertainty will subside. Furthermore, we are seeing certain market fundamentals improving, notably a strengthening rental market which would at some stage improve buy-to-let attractiveness, as well as sharply slowing residential building activity which will help to bring supply more in line with demand”.

The determining factor in terms of the overall market recovery is deemed to be how interest rates pan out. “We believe that the market will be looking for very strong evidence that rates are set to decline before demand and activity levels gradually start to recover”. This is only expected late in 2008.

The information in this article is courtesy of Dispatch Online (“Property barometer drops to its lowest level”, 22 April 2008).

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

South African Property News

Rode's Take on the Current Property Market

An interview with property economist Erwin Rode of Rode & Associates indicates that the house party most South Africans have been enjoying over recent years is officially over for now.

There has been much debate among property experts lately, with one side arguing that the current scenario is merely a “bump” in the road that will soon “head skywards”, while the other side predicts a “continuing downward spiral for the foreseeable future”. Rode suggests that before coming to any rash predictions about the future, it is first necessary to clarify how we got here in the first place.

The residential property boom experienced in the early years after the millennium is a once-in-twenty-years experience. “We must remember that it came off a very low base to begin with, and coincided with the longest business-cycle upswing (which started in 1999) that the country has ever experienced,” according to Rode. The combination of steady economic growth and low interest rates managed to spur on the market into “a state of euphoria”. Rode says that these expectations of growth are often “self-fulfilling” and that all these factors resulted in a “sustained – but unsustainable – growth” that far outweighed income growth and replacement costs. This inevitably led to houses becoming that much less affordable.

Rode believes that what is happening now amounts to a “natural period of consolidation” and that the struggling world economy, rising interest rates and the continuing electricity crisis in the country have merely sped up the cycle. Obviously, Standard Bank’s recent findings that house prices have declined for the first time in 8 years and the recent interest rate hike of 50 basis points by the Reserve Bank have done little to ease the panic in the marketplace.

Rode says that, “We should bear in mind that the effect of a change in interest rates is only felt three quarters (nine months) down the road, and high nominal interest rates are going to be with us for a long time to come. Thus the 2010 enthusiasts in South Africa might like to rethink their predictions of a property boom induced by the soccer World Cup.” He adds that, “A one month tourist orgy was never going to create a boom.”

The information in this article is courtesy of Rode & Associates (“The house party is officially over for now”, www.rode.co.za, 16 April 2008).

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

South African Property News

Interest Rates Bring Down House Sales

An article in Business Day reports an immediate negative impact on property values across the board after the latest interest rate hike. The Alliance Group auction house expects this to result in a further increase in liquidations in the short term.

CEO Rael Levitt says that the Alliance Group has noticed, “even more valuation decreases in the residential property market and certain sectors of the commercial market”. The Group has also noticed a “decline in values on our auction floors, but it is still too early to provide an exact percentage”.

In fact, between February and March this year, a 56% increase in company liquidations and personal insolvencies was reported and Levitt expects this trend to continue in the short term. He says that South Africans have become used to an “upward trajectory only” in residential property values over the last five years, “Now we are having a dose of reality setting in. All the other issues aside, interest rates have a direct effect on value. When interest rates go up, valuations of property go down”.

Levitt believes that the current problems run a lot deeper than prevailing sentiment. Vacant land prices have dropped by up to 30% in the past six months, with certain residential property nodes showing a decrease of 5-10% over the same time (Levitt). “I don’t expect a residential crash, but I do expect a real correction in prices. How far that correction will go is anybody’s guess.”

However, FNB property strategist John Loos does not expect a dramatic crash in house prices. Given the latest interest rate hike and widespread concern about further increases, the residential property market may be heading for “a short period of mild price deflation,” which would obviously be experienced as more pronounced in reality.

Gavin Opperman, managing executive of ABSA Home Loans, says that the rising interest rates are affecting affordability and making it more challenging for the consumer. “This, coupled with other consumer expenses such as fuel, municipal rates and so forth, will result in a natural slowdown of property growth. We have to realize that we are coming off an all time high in terms of residential property growth,” says Opperman.

Opperman expects a price growth of about 7% this year when it comes to residential property. “South Africans still attach sentiment to property and believe it to be a good investment in their diversified portfolio. Historically, property has always been a medium to long term investment.” He also believes that the hike in interest rates and the slowing growth in property prices will hamper speculative buying.

The information in this article is courtesy of Nick Wilson (“South Africa: Interest Rates Knock House Sales – Alliance”, Business Day, 16 April 2008).

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

South African Property News

Green Building Accelerated in SA

An article published on the Engineering News website has indicated an increased awareness amongst South Africans to save energy and a consequent acceleration in green-building techniques amidst the national energy crisis.

Awareness of the need to save energy and protect our natural resources has grown significantly over the past ten years, particularly in light of scientific evidence presenting the effects of climate change on our environment. The world has been spurred into a frenzy of activity to pinpoint viable solutions to preserve our future, without entirely undermining the various lifestyle benefits that we have become accustomed to as a result of economic progress and development.

The economies are booming in many developing countries, which means that infrastructural development is also burgeoning. This has placed unbelievable strain on energy supply systems and the supply-side responses are also increasing the damaging carbon emissions into the atmosphere. This has brought the issue of green building technology to the fore, particularly due to the fact that the various methodologies are perceived as a critical element in improving the overall sustainability of residential, commercial and government property.

Given the current electricity supply shortages in South Africa, this energy-saving mindset has taken on significance as an economic imperative. Government and Eskom have called for residential and commercial consumers to take an active part, along with the industry and mining sectors, “in saving 3000 MW every day for the foreseeable future” (Engineering News).

Last year, it was reported that South Africa, by developed economy standards, was still lagging behind in its implementation of green building technology, despite the fact that government and consumers were increasingly aware of the need to preserve the environment. The creation of the Green Building Council of South Africa (GBCSA) in September is certainly a positive development, as it aims to promote green building in the commercial property sector. The Council will provide a forum for all members of the property industry, including scientists, property owners, developers, consultants and government to work together in implementing sustainable green building practices.

While South Africa is still considered lagging, it is acknowledged that some positive headway has been made. Another crucial development is the move to establish a green-building rating tool in South Africa. This tool will act as a guide for the establishment of green buildings and play a vital role in ensuring that energy and resources are utilized efficiently and wisely, so reducing the emission of carbon dioxide into the atmosphere.

The first pilot rating tool is expected to be released in July this year and once the various processes and industry feedback are complete, the GBCSA will move towards full implementation. The development process has been similar to that taken in Australia, as the two hemisphere nations share such a similar climate. However, the tool will be adapted to the unique conditions, applicable standards and legislation, as well as the available resources in South Africa.

“This is a voluntary tool and a market-led initiative rather than a regulatory intervention. It is designed to galvanise built-environment professionals and practitioners around the issue of sustainability. It incorporates high standards, which will apply to the top end of the property market and new commercial and public developments,” according to Bruce Kerswill, chairperson of the GBCSA.

The main concern seems to be whether the South African market is open to change and willing to embrace the inevitable transformation that comes along with green building technology. So far, the response has been positive, but momentum is likely to pick up once organizations try to compete and thereby set the pace for the evolution of green building in South Africa (Michelle Malanca, GBCSA rating tool project manager).

When asked whether the rating tool will become legislation, Kerswill emphasizes that it is a “voluntary tool” and that the government may decide to legislate certain aspects in time, primarily with regard to saving energy and water. Malanca says that, “Our aim is addressing best practice, as opposed to minimum practice” though. The Australian market has experienced a complete transformation, not only in terms of energy saving and green building, the various building and material suppliers and manufacturers have also transformed. It is hoped that the same situation will be repeated in South Africa.

The green building rating tool is believed to be an excellent way of dealing with the energy crisis in South Africa. Statistics show that green buildings have been known to reduce the consumption of energy by up to 50%, which is far beyond the 10% sought by Eskom. Even retrofitting is known to increase energy efficiency by up to 70%, decrease piped water use by 80% and lower discharge to sewers by 70%.

Malanca reports that on a global scale, buildings are deemed responsible for 40 to 50% of electricity consumption. “Studies released indicate that green building is the one mitigation solution that not only reduces carbon emissions, but, at the same time, is also the least expensive and most cost-effective solution of all,” she maintains.

Eskom spokesperson, Andrew Etzinger agrees with Malanca, saying that green building has a pivotal role to play in South Africa’s current energy crisis, adding that less electricity consumption will in turn result in lower emissions of damaging greenhouse gases. It seems that the implementation of green building methodologies presents a win win situation for residential and commercial consumers in South Africa.

A number of big names in the South African commercial sector, most notably Clicks, BP and Woolworths have all made some effort towards establishing green practices in their various buildings. However, only the rating tool will be able to show whether the steps being taken are green enough. Considering the current power crisis and possible water crisis in the country, green building promises not only to save energy, it will also put South Africa on the global map of protecting its valuable resources and becoming an environment friendly nation, premised on the notion of economic growth and development.

The information in this article is courtesy of Brindaveni Naidoo (“Green Building: SA accelerates green-building techniques amidst national electricity crisis”, Engineering News, 11 April 2008).

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