What Effect Will Crisis Have on SA?

An article published by The Times discusses Nedbank chief economist, Dr Dennis Dykes’ view that the current crisis in the US could potentially impact South Africa far less than many other countries around the world.

Dykes argues that countries with extremely high household debt to income ratios, such as the UK and Australia (both currently at 160%) are at a much higher risk than South Africa (at 76%).

“Banks in these countries are reluctant and unable to grant more credit to consumers, which will affect all aspects of these economies, particularly property prices,” according to Dykes. He goes on to say that the current weakness in South African property prices is more likely cyclical than structural.

“In other words, the global crisis is not really the cause of the slowdown in our property market. Higher interest rates, coupled with huge gains in house prices over the last few years, were already having a cooling effect on our property market,” Dykes explains.

He adds that, “There is also a good possibility that interest rates in South Africa will decrease over the next few months, as global and local inflation slows. This will bring confidence back into the local housing market. However, a strong recovery is unlikely in the short term”.

Another factor is that none of the big South African banks have been directly exposed to the subprime market in the US. “Although there could be some counter-party losses resulting from bank failures elsewhere, it is likely that the direct impact will be very minimal,” Dykes notes.

He also says that the consolidation that occurred in the South African banking industry a few years ago left those remaining in the game very strong financially. While it has not been expressly stated by the government, Dykes concludes that it would no doubt back up the banking system should this ever be required.

The information in this article is courtesy of I-Net Bridge (“Crisis shouldn’t hit SA houses: Dykes”, The Times, 8 October 2008).

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Bid to Professionalize Real Estate Industry in South Africa

IEASA Calls on Estate Agents

The South African Institute of Estate Agents (IEASA) has called on all real estate agents practicing in the country to join the institute. This is in a bid to increase the professionalism and responsibility of estate agents in the industry.

By becoming a member of the Institute of Estate Agents (or an MIEA), the agent will be assuring buyers and sellers of a degree of training and qualifications specific to their field. The members are also registered to practice as estate agents and have access to the institute’s widespread support network and services.

IEASA national president, Dr Willie Marais spoke at a recent conference and said, “The Estate Agency Affairs Board has made it plain that it wishes real estate to be regarded as a profession and just an amorphous industry. But that would presuppose that every agent belonged to a professional association – as doctors, lawyers and engineers do. And IEASA is currently the only organization recognized to fulfill that role. Consequently, the time is coming when agents who wish to be recognized as professionals will have to belong to IEASA – and those who don’t will be beyond the pale”.

Currently, only one out of every six estate agents working in South Africa are members of the institute. As the property industry evolves, training is without a doubt a cornerstone for agents who want to make a success out of their business. Dr Marais indicated that it is vital for those who are really serious about the industry to become better educated about all aspects of what their work entails.

IEASA has taken the lead when it comes to ensuring that all of its members are well informed and kept up to date on the terms and developments of property law and its affiliated practices. So if you are an agent practicing in South Africa then perhaps you should consider becoming a member of a professional institution like IEASA.

The information in this article is courtesy of HomesGoFast (“A Call to South Africa Real Estate Agents”, 6 October 2008).

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House Prices Up in September

Some Life in Property Market

A recent article published by Reuters discusses South African house prices, indicating an increase of 3.6 percent year-on-year in September. This is the first increase in 10 months, reflecting fresh activity in the ailing market after an extremely difficult year.

Standard Bank’s property gauge released on a monthly basis showed an increase in the median house price at R580 000. The five month moving average is still in negative terrain, but has improved year-on-year to –5.5 percent after several months of steadily falling prices.

After sharp declines in May and June, Standard Bank said that the rate of decline slowed in July and August, but indicated that the property sector would remain under pressure until consumer spending starts to recover from its cooling period.

The bank said in a statement that, “The unexpected 3.6 percent increase in September is not seen as a new trend, but rather the result of volatile monthly data. It is anticipated that the index will once again show low or negative growth in the months to come. Nonetheless, the latest data show that there is some life in the property market”.

Household budgets have taken a beating with the enforcement of stricter lending laws and a series of interest rate increases, which has in turn put the housing sector under strain. The central bank increased the repo lending rate by 5 percentage points to 12 percent between June 2006 and June 2008 in a bid to fight inflation.

This house price increase coincides with a slowing in the upward rates cycle in August and market experts predict that the next move in interest rates will be down sometime in 2009. Slowing household spending is evident in falling retail and new vehicle sales and the bank believes that the sector may not recover until this picks up again and interest rates start falling.

“Residential property will remain in the doldrums until such time that fundamental drivers of the market turn for the better and that may be some time off,” according to Standard Bank.

The information in this article is courtesy of Reuters Africa (“S.Africa house prices up, but problems remain”, 2 October 2008).

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New Rules When it Comes to Property

Property Game Has Changed

There is no doubt that this year will be put down as one of the most shocking in South African property market history, with the army of estate agents shrinking unbelievably and panicking sellers struggling to offload properties.

Add to the mix the recent financial crisis in the US, Eskom’s incompetence and the political turmoil set in motion with Mbeki’s dismissal by the ANC, the nation has had a lot of drama to deal with this year. Even so, the news isn’t all bad.

Survival of the fittest applies:
When it comes to estate agents, the order-takers can’t cope and are leaving the market in droves. That means that buyers and sellers should be left with a much more competent group of real estate specialists who know the value of hard work. Dr Piet Botha, chairman of Nationlink said, “When the market was hot and homes were selling before they even reached the market, you didn’t need to worry about getting the best agent – just the cheapest”. Now you need a top salesperson. He advises, “Interview agents rigorously and insist that they present you with proof of their recent successes and a well-conceived marketing plan that goes way beyond the usual internet listing, one or two show days and a tiny weekly advert”.

There is more money to be made for the survivors:
Considering that the pool of estate agents is smaller, this should translate into more money because there will be more stock shared amongst fewer players. Also, some of the more savvy operators are offering their agents bonuses if the home is sold within 30 days or at the asking price, which is a clever way to motivate agents into selling your home first (Nationlink).

Tough times call for financial savvy in order to survive:
Interest rates have given consumers quite a beating this year and they show no sign of easing just yet. This means that it’s a good idea for property owners to tighten their belts and keep cash available for emergencies. We seem to have entered an era of “goodbye bling, hello thrift”, which is a trend that has been seen internationally. It seems that the “buy now, pay later” mindset is over and this “means no more conspicuous consumption, at least for a year or two. Instead we have conspicuous carefulness,” according to a personal finance advice site (fool.co.uk). The latest trend will be bragging about bargains rather than big brands.

Renting is hip:
It seems that it is no longer “in” to be a property buyer, as renting is looking increasingly more attractive. Lanice Steward, managing director of Anne Porter Knight Frank, says her agents “come across young, upwardly mobile people who tell [them] that they prefer to rent at discount rates in a good area rather than compromise with a less attractive home in a not-so-fashionable suburb”.

Steward goes on to say that this philosophy is “short-sighted”, as it is popular with “yuppies who earn good salaries, drive expensive cars and believe that they have what it takes to ‘make it’ in today’s commercial world – but the day will come when they rue their decision”.

“They will find themselves without a home of their own and condemned to annual rent increases in perpetuity,” argues Steward. When it comes to buying homes, those who scrimp and save to put a deposit together, buy a home and then work on it will see that every five to seven years they are able to upgrade at very little extra cost, indicates Steward.

Speculators find new hobbies:
There are many speculators who seem to have left the market; especially those who saw residential property as a get rich quick scheme and have now had their fingers burned. With property losing popularity as an investment option, investors who do stay in the market are likely to make more money in the long run. That is assuming that less stock will be built.

Developers are switching from residential to commercial:
With banks continuing to pull the plug on funding new residential projects, developers are moving their attention to commercial property. Nedbank’s move with La Residence in Sandton, which angered estate agents who had already attracted a number of quality buyers, is a prime example. The fact that FNB has announced it will withdraw funds for buyers in new developments means that in the long run, this should be good for residential property prices – rental and sales. The supply in certain areas has exceeded demand at times.

Predictions for the future:
The construction sector has been under exceeding pressure, but big developments are going ahead. This indicates that those with money to spend still see potential for their investments in South Africa. There are announcements almost every week with international investors boasting big property projects in the country. Local hoteliers like Sun International report excellent bookings for 2010 and the Fifa Confederations Cup in 2009 will bring even more visitors. The new President has also reassured the nation that economic growth and a successful 2010 World Cup are priorities, so things seem to be looking up for a brighter South African future.

The information in this article is courtesy of Jackie Cameron (“Property game’s ‘new rules’”, Realestateweb, 26 September 2008).

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Threat of Land Grabs in SA Not Over Yet

It was recently reported that the Portfolio Committee on Public Works debating the proposed Land Bill had suspended its deliberations on the 14th of August 2008. Now a top law firm has warned clients that the land grab law could well be back on the table by next year.

Webber Wentzel, an SA law firm has issued a warning to clients regarding the controversial land expropriation bill and alerted them to the fact that the draft law has not been withdrawn, despite a statement by the Ministry of Public Works to the contrary.

There has been extensive media coverage on the issue, with Realestateweb recently reporting that the law had been shelved, but not withdrawn. Earlier this week, one of the country’s top law firms revealed to the media that it was spelling out all the details of the contentious law to its clients, which bears extreme similarities to the land grabs that have led to the well-publicised economic demise of neighbouring Zimbabwe.

Peter Leon, partner and head of Webber Wentzel’s natural resources and regulatory practice group, has said that the statement saying that the bill had been withdrawn was issued, but “the Minister of Public Works has not withdrawn the Bill, as required by the National Assembly’s Rules. And all indications are that the Bill could well be reintroduced after next year’s general election”.

He warned that the withdrawal looks to be only temporary, as the precise legal status of the Bill remains unclear. “On the 17th of September 2008, the Director General of the Department of Public Works indicated to the media that it was possible that the Bill could be reviewed in 2009. It has also been reported that the future of the Bill is being discussed by the chairperson of the committee and the Minister of Public Works,” the law firm said in its statement.

It went on to say that, “The Bill empowers the Minister of Public Works to expropriate any property for a public purpose or in the public interest despite public hearings on the Bill that raised concerns that it would severely discourage foreign investment and infringe the Constitution’s property clause”.

According to the Bill, “public interest” includes “the nation’s commitment to land reform and to reforms to bring about equitable access to South Africa’s natural resources”, while “property is broadly stated to include ‘a right in property’ as well as ‘moveable property’”. Leon interprets this as meaning that shares in a company, as well as various other rights in property, such as intellectual property rights, could be capable of expropriation under the Bill.

Leon also said that prospecting and mining rights granted under the Mineral and Petroleum Resources Development Act 2002 would also constitute property for the purposes of the Bill. “As the Bill has not been formally withdrawn, doubt remains as to whether it will be completely redrafted or merely reconsidered at a later stage. At the time of its ‘withdrawal’, the portfolio committee chairperson stated that the general consensus within the committee was a desire to see the Bill reintroduced when either feasible or appropriate,” he said.

The law firm outlined the steps in the legal process as follows:
- The draft Expropriation Bill 2008 was tabled by the Minister of Public Works in the National Assembly on 16 April 2008 and was subsequently referred to the Portfolio Committee on Public Works;
- The Portfolio Committee invited written submissions on the Bill in late April 2008, which were to be submitted by 16 May 2008. Extensive public hearings were conducted by the Committee in Parliament, as well as each of the nine provinces in late June 2008;
- The consultation process on the Bill gave rise to a number of objections;
- Despite the intensive public hearing process, the reason given to justify the Bill’s sudden “withdrawal” was a lack of proper consultation;
- On 14 August 2008, the Committee announced that it had suspended its deliberations on the Bill.

The information in this article is courtesy of Realestateweb (“Land grab law: set to make a come back – warning”, 18 September 2008).

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Call for Review of Property Laws

Push for First Time Buyer Concessions

Jeanne van Jarsveldt, financial director of RE/MAX Southern Africa has indicated that a serious review of the law is needed to stimulate the property market and encourage first time buyers to invest. He would like to see the current threshold on payment of transfer duty to be enforced on sales over R1 million and this should be accompanied by tax breaks for first time buyers.

A “rescue package from government” seems to be what is needed in order to avoid further distress in the South African property market. Van Jaarsveldt said that the US anchored its recently launched Housing Stimulus Bill around a tax break of over R52 000 for first time buyers in an effort to stabilize the flailing market.

A similar tax concession in South Africa would go along way towards relieving some of the pressure on affordability for first time buyers, who are trapped by the five percentage point interest rate increases over the last two years.

Van Jaarsveldt also believes that a temporary suspension of transfer duty on all price categories is worth considering, at least until the market has begun to recover. He indicated that the Real Estate Institute of Australia is pressuring the government for an exemption from stamp duty on first time buyer transactions, as well as on retirees downsizing their properties. The same is happening with Britain’s National Association of Estate Agents in the UK.

According to economists, abolishing transfer tax would cause the treasury to lose around R10 billion a year, which would not make too much of a dent in the government’s budget, but would certainly ease the buying and selling of homes.

Mike Bennet, head of ProProp Franchising Group, agrees with van Jaarsveldt in his call for a temporary suspension of all transfer duty on sales under R1 million until the market starts to improve and would also like to see banks given permission to relax the National Credit Act rules on houses selling for less than R700 000.

Van Jaarsveldt refers to the property market as “a pillar of our economy” and believes that the current high number of negatives surrounding the market make it absolutely crucial that some concession be made in order to stimulate home ownership.

He said, “To ignore the situation seriously jeopardizes the growth of the emergent black middle class who we all know are vital at this stage of our country’s transformation”.

The information in this article is courtesy of Jeanne van Jaarsveldt (“First-time buyers need a break – ReMax”, Business Report, 17 September 2008).

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Where to Invest in Offshore Property

Top 5 Offshore Destinations

An article by Mariana Tolken published by Moneyweb discusses five offshore property hotspots that show promise as retirement destinations, immigration possibilities and big city investments with sound diversification opportunities.

London
This is always one of the top destinations with South African investors, as London shares a similar time zone and has a cultural background and history linked to this country. 30% of central London’s properties will never come up for sale in our lifetime, as they are bound by non-distribution family trusts. The tenant base in London is an added benefit in that it is one of the highest worldwide, with 42% of all Londoners unlikely to become property owners in the city they reside. There is a constant shortage of accommodation in traditional suburbs, which works to keep prices high and capital values increasing. A one bedroom apartment in a reputable London area will cost you at least £250 000, although you would likely need to spend around £300 000 to be in a good neighbourhood. The most expensive penthouse apartment was recently sold in Hyde Park for £100 million.

New York
With the dollar at a record low against all other currencies, the city that never sleeps is the ideal buyer’s market. One of the biggest cities in the world, New York is the global hub of TV, advertising, fashion, music and publishing, rivaling London and Tokyo. Considering the base interest rate of just 2% and this being the biggest economy in the world, this is perhaps the best time to invest. Finding a tenant couldn’t be easier, as there are 8.2 million residents per 790 square kilometres and the population is destined to increase to 9.5 million by the year 2030. Manhattan houses a population of 1.6 million, with an added 1.3 million who commute to work on a daily basis. It also holds two thirds of all jobs in New York, with the highest per capita income in the United States. The average price of an apartment in Manhattan is around $600 000, compared to an average $300 000 in the US.

Australia
Now one of the motivating factors behind property investment in Australia is the country’s appeal among South Africans as an immigration destination. The lifestyle, excellent climate, political and economic stability, as well as the growing population and a GDP on par with most European countries, paints a more than appealing picture. When you add the favourable Sterling Exchange rate, this means that you are likely to get more for your money in Australia. However, there is a strict immigration and visa application process in place and those wishing to buy property must hold a permanent resident visa or a special category visa/permission. Australian property may not be the greatest buy to let investment, as the rental income is not high enough to cover all costs and interest rates are higher than in the UK. However, it is the perfect option for many South Africans as a result of its affordability, the shared language, sunny climate and low crime rate. The average cost of an apartment in Melbourne is about AUS$340 000.

Mauritius
This is without a doubt one of the best retirement options for South Africans not wishing to invest too far abroad, as Mauritius has the irresistible island appeal. It is easy to invest here in South African rands and there is the added benefit of residency for you and your dependants, which means that you can almost feel the sand between your toes. The appeal is heightened by the lack of exchange controls and inheritance tax, as well as the 15% flat tax for individuals and companies. Buying into an Integrated Resort Scheme (IRS) is the only way that foreigners are able to own property on the island. Mauritius is an excellent investment in terms of political diversity and property values are expected to hold. However, it is not the ideal place to invest in buy to let property, as the income is not only very seasonal, but around half of rental income is the norm for letting marketing and management services. The entry and exit costs are also quite steep, including stamp duties of between $50 000 and $70 000 on both purchase and sale, while furniture pack cost in IRS shemes is around $100 000. The starting price for an IRS unit in Mauritius is around $800 000 and could even reach $3.5 million.

Crete
This location was included mainly for its appeal as a holiday home investment option. Crete is the biggest of the Greek isles and offers those in the market the opportunity to diversify their assets and gain a foothold in the European property market at a fraction of the cost in bigger cities like London. While Crete is relatively undiscovered and unexploited, the property market is well established and prices have risen steadily over the last ten years, with the Euro having an appreciating track record. A mortgage can be obtained from a Greek bank for up to 80% of the purchase price at an interest rate of around 5.5%. Letting opportunities are also seasonal, but letting management fees are not as high as in Mauritius. There is capital gains tax that applies, but no inheritance tax. A villa on the island would cost in the region of $200 000 to $300 000 and this would assist, if not virtually guarantee, a residency visa application for the country should one wish to settle there permanently.

The information in this article is courtesy of Mariana Tolken (“Five off-shore property hot spots”, Moneyweb, 15 September 2008).

South Africa property.

Estate Agency Boss Issues Warning to Landlords

Landlords Beware

The CEO of RealNet Property Group, Tjaart van der Walt has warned that landlords looking to increase rentals could land in financial trouble. The current market has seen rental accommodation in strong demand, which has consequently placed landlords in a stronger position than in previous years.

There is anecdotal evidence however, that tenants are showing increasing resistance to the rapidly escalating rentals and that landlords should carefully consider the benefits of a long-term relationship with reliable tenants before pushing up the rental.

If landlords continue to hike the rent unreasonably, the reality is that tenants with good credit records will have no problem whatsoever finding alternative accommodation. While the tenant has to then go through the inconvenience of sourcing another unit and moving out, the landlord will be left with the prospect of finding a new tenant that may or may not be as reliable in paying the monthly rental.

Van der Walt goes on to say that landlords should keep in mind the costs involved in sourcing new tenants. For instance, costs may include advertising, cleaning, repairing and perhaps even repainting the property. A second consideration is that there will be no rental income while the property is being prepared for new tenants and even at an increased monthly rental for the new tenant, it will take a good deal of time before the lost income is made up.

There is a third factor that might prove worrying is the danger of vandalism when properties stand empty and the cost of temporary security measures should be considered. In short, van der Walt suggests that landlords are likely to find that once all the costs are added up, they might well have been better off had they given their initial trustworthy tenants a break.

The information in this article is courtesy of Tjaart van der Walt (“Tenants resist rising rentals – estate agency boss”, Realestateweb, 13 September 2008).

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Household Debt on the Mend in SA

Good News At Last

According to John Loos, FNB’s property economist, there is improvement expected in the household sector’s financial situation that is likely to reverse the fortunes of the ailing residential mortgage market in South Africa. This means that after steep declines year on year since the middle of 2007, the value of new mortgage loans is expected to show positive growth year on year towards the second half of 2009.

When it comes to the strength of the residential property and mortgage markets, the well being of the country’s household sector is key and it is also important to keep a close eye on the economy. “In recent times, we have started to see the early encouraging signs that the household sector’s financial position may start to turn for the better,” says Loos.

He goes on to say that, “Most notable was the South African Reserve Bank not hiking interest rates in August and as oil prices decline and global food price inflation tapers a bit, we are increasingly hopeful that the country has finally reached the end of interest rate hiking”.

Loos indicates that with the expectation that interest rates will only begin to fall around April next year, it is also believed to be the start of a declining trend in household debt to disposable income ratio, which is anticipated to lead the all-important household debt service ratio (the cost of servicing household sector debt as a percentage of disposable income) commencing its decline at the end of this year, prior to being assisted by interest rate cuts.

“But life hinges around more than just debt and the encouraging global inflation news in the form of declines in commodity prices bodes well for local inflation. We may well be very near to the peak in consumer price inflation numbers and with the country’s wage bill inflating steadily, a decline in inflation should translate into a recovery in disposable income growth in real terms, possibly late in the current year, after a declining growth trend spanning back to the beginning of 2007,” says Loos.

The anticipated recovery in real disposable income growth is expected to precede a recovery in economic growth, but this is based on the assumption that although economic growth will go slower for a while, South Africa will not fall into a recession.

The information in this article is courtesy of I-Net Bridge (“Household recovery good news for property”, The Times, 11 September 2008).

Property South Africa.

Some Positivity for SA Property Market

Property Sales on the Up

Tony Clarke, managing director of Rawson Properties has reported a dramatic improvement in property sales recently. He went on to say that all players in the residential sector have been watching the economic indicators because it is an historic fact that an upswing in the economy usually sets in motion a rise in property prices. However, while we all may be desperately in need of this to happen, Clarke believes that it is still not quite here yet.

The economy took a marked upturn in the second quarter of this year, growing by 4.9% quarter on quarter after a dismal growth of just 2.1% in the previous quarter. However, this should not be taken as an indication that we are now in a strong economic period. The improved figures have to be considered in context with those of the first quarter, in which the mining and manufacturing sectors have been hit hard by the Eskom crisis and exceptionally high fuel prices.

The second quarter of the year has seen power supplies more constant and fuel prices have finally starting to fall, while prices in the agricultural sector have been bolstered by the sudden upturn in global prices around the world. Although this is not likely to become a permanent phenomenon, low food prices are now generally a thing of the past.

While the improved second quarter was a welcome relief, weaker growth is now expected throughout the latter half of this year. Industries in the consumer market, the financial sector and real estate development will continue to function well below their 2007 peaks. Even those who did quite well on the back of a weaker rand will feel the effects of considerably reduced commodity demands in the last half of the year.

When it comes to property, Clarke remains positive and has said publicly that with interest rates likely to be stable from now on, the residential sector is set to bottom out. He believes that prices will stop falling within the next two or three months and by January there will be real growth creeping back into the market. Currently, Rawson Properties has seen a dramatic increase in market activity, up to 35% month on month. That being said, this is an extremely good time to buy for anyone looking to build up a useful buy to rent property portfolio in the residential sector.

The information in this article is courtesy of Tony Clarke (“Dramatic improvement in property sales – estate agency”, Realestateweb, 11 September 2008).

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SA Leaning Towards International Property Trends

High Rise Here We Come

An interesting article published on iafrica.com has drawn attention to the international trend towards high-rise living and how this seems to be playing out in South Africa. It seems that despite efforts made by developers to promote the sales of apartments like those in Melrose Arch in Sandton and the Point area in Durban, South Africa has a long way to go before it reaches the same popularity as high-rise living enjoys in London and New York.

According to Mike Bester, CEO of Realty1 International Property Group, “This type of lifestyle could become very important in the future if we look at the rising costs of land and building”. Statistically, ABSA’s report on property trends in luxury housing released in May 2007 showed that population density increased by 89.4% in the country’s metropolitan areas during the period 1996 to 2005, while only increasing 33% in rural areas.

Bester explains that, “This kind of pressure means higher numbers of people looking for housing in urban areas and although the current occupants of flats are more likely to be lower income individuals who can’t afford better accommodation, we’re seeing this starting to change with the increased supply of luxury apartments coming onto the market”.

High-rise apartment complexes, such as Melrose Arch in Sandton and the New Ponte in Hillbrow, generally offer residents a variety of added benefits, from gyms on-site, to restaurants and shopping facilities, as well as the all-important 24 hour security and parking facilities.

Richard Goller, a former editor of the Sunday Times magazine and now freelancing in London, says that he lived in a high-rise apartment in central Johannesburg by choice. “I’ve always loved the idea of the apartment lifestyle – chic and convenient,” he says. “The amenities in the building were great and the apartment itself was a good investment”.

Goller believes that a city like Johannesburg, with its huge population growth and ever-increasing problems of urban sprawl will no doubt follow international trends. “If there is sensible urban planning, it means more people per square kilometre which means more high-rise apartments,” he says.

Bester tends to agree with Goller, “This form of housing could certainly help to alleviate the pressure on the urban areas. And with the traffic problems and the cost of fuel unlikely to reduce substantially in the long term, people want to cut their traveling time and expenses,” he says. “What better way to do this than to live close to your place of work?” Bester believes that a rising trend amongst the more affluent South African families seems to be in line with living close to the city during the week and having a home further out where the family can disappear to over weekends.

Bester’s theory is certainly based on recorded sales of high-rise apartments. In June last year, a newly converted high-rise block in Durban (the Berea Lofts) sold out all 133 units, which included 3 glass-fronted penthouse apartments within days of release. The ultra luxurious and expensive Nedbank La Residence in Sandton recently changed plans in favour of using the space for offices, but had sold half of its 152 units at the time of cancellation for up to R40 000 per square metre.

Having said this though, the new luxury apartments in Durban’s revitalized Point area haven’t done quite so well. The reason for this lack of success seems to be the surroundings, which appear to be discouraging the buyers. Bester explains, “It’s difficult to consider buying a R1,2 million apartment in a secure block if you have to run the gauntlet of drug dealers, pimps and prostitutes to get to the building”.

When asked how high-rise living in South Africa currently compares with that in London, Goller answered, “Well, apartment lifestyles are still cheaper in South Africa when it comes to property, but in London you get a different kind of value: security and being at the centre of things”. Bester goes on to say that, “While luxury high-rise living may well be the way of the future for many South Africans, it’s going to take a while before we start to view ‘flat life’ as a viable alternative lifestyle to an upmarket sectional title unit”.

The information in this article is courtesy of iafrica.com (“The way of the future”, 10 September 2008).

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House Prices Falling on Global Scale

House Price Crash Stats

An article in the UK’s Guardian has highlighted a global phenomenon in the house price crash that began in the US and spread across the globe, this according to international estate agents Knight Frank, which also indicated that there are steep declines taking place in Europe and Asia at the moment.

The country recording the worst fall in house prices seems to be Latvia, where figures stand at a plummet of 24.1% over the past year. New Zealand, Denmark and Lithuania have all experienced price declines, along with Malta, Germany, Ireland, Estonia, Britain and the US. Even countries that have not seen a dramatic fall in prices are witnessing a rapid deceleration in price growth.

The article mentions that South Africa’s rate of house price inflation has collapsed from 15.5% at the same time last year to just 3.8% today and is expected to be negative soon. In countries like France, Spain and Greece, price growth has literally halved and is recorded at less than 3.2%.

Russia was the fastest growing market last year, with an unbelievable house price growth of 53.7% in the second quarter of 2007, but this has since fallen back to 26.5%. According to Nick Barnes, head of international research at Knight Frank, “The index shows that global house price inflation is continuing to fall back, with much of continental Europe now seeing low or negative growth. Housing markets in countries such as Spain, Denmark, the UK and Ireland are all being severely challenged by the global credit squeeze”.

In the long-term, the rate of global house price growth fell to 4.8% in the second quarter of 2008, which is down from 6.1% in the first quarter of this year. There are a number of countries that are now entering their second year of house price declines and Germany is among the worst hit, with a falling rate of 4.4% last year and 2.5% this year.

Barnes says, “There is less demand for owner-occupied property in Germany than in many other European countries and there is no shortage of supply”. In Spain, the Knight Frank index reflected a price rise of 2.4% annually, but it warned that falls in house prices are now almost inevitable.

“The well-publicised problems in Spain have not yet fed into house price statistics. So far, price falls have been concentrated in the coastal resorts and among new developments in the large cities,” Barnes indicated.

“Spain looks likely to fall into recession later this year and house sales fell steeply during June. The number of sales dropped by 34.2% in May and 29.6% in June, suggesting that wider price falls could be imminent”.

However, investors who have bought second homes in Bulgaria have plenty of reason to feel bullish. According to Knight Frank, the current annual house price growth is 32.2%, which is only slightly lower than the 33.7% recorded in the first quarter of the year.

Biggest fallers in 2008:
Latvia 24.1%
United States 16.8%
Estonia 16%
Lithuania 9.9%
Denmark 9.6%
Ireland 8.1%
UK 3.9%
Malta 2.7%
Germany 2.5%
New Zealand 2.2%

The information in this article is courtesy of Patrick Collinson (“House price crash goes global”, Guardian, 2 September 2008).

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Tricks of the Investing Trade

Bear Market Survival

With damning statistics and predictions of impending economic doom, it is no surprise that many investors are tempted to believe that the local markets are in crisis. According to an article published in The Times however, the experts say that equities will always outperform inflation in the long term – the trick is to hang in there and ride out the storm.

Graham Ledbitter, senior portfolio manager at BoE Private Clients, says that equity markets should always outperform both inflation and cash in the long term, except in countries afflicted by civil war or gross economic incompetence.

“The statistics show that over the past 48 years, shares on the JSE generated a total return of 20% a year compound. For the same period, inflation was 8.6% a year, while cash before tax returned only 9.8% over the same period,” says Ledbitter.

He goes on to argue that the reason behind the relatively strong performance of equities lies in the necessity for all countries to develop their gross domestic product (GDP) in real terms over time. “Virtually all countries need to have a growth strategy in order to prevent unemployment as populations grow. In simplistic terms, a growing GDP leads to growing profits for companies, resulting in growing dividends, which causes share prices to rise,” Ledbitter says.

In fact, most major economies, including South Africa, were growing at a strong rate until recently. Corporate profits and dividends were good and stock markets responded by generating very strong returns, especially the local bourse. “When the stock market is in a bull phase, all good news is pounced upon as an excuse to drive share prices higher and bad news just gets brushed off as irrelevant. Conversely, in bear markets bad news drives share prices lower and good news tends to be regarded as irrelevant,” according to Ledbitter.

The senior portfolio manager at BoE Private Clients notes that the current downturn in the market is only one of many economic ‘crises’ over the last few decades, which include the major collapse of the rand following P.W. Botha’s notorious ‘Rubicon’ speech and the global stock market collapse in 1987, which wiped a value of 38% off the JSE in just a few days.

Negative sentiment also had a profound impact prior to the elections in 1994, when nervous investors believed that the incoming ANC government would expropriate or nationalize property. There were similar feelings that came to the fore during the emerging-markets crisis in 1998, where certain governments defaulted on their debt, as after the 9/11 attacks in 2001 and the collapse of the rand in the same year.

“In each case…it appeared to many investors as if there was no way out and that nothing would ever be the same again. But in each case, the world didn’t end. Nor will it end now. Problems will get sorted out, growth will resume and shares will start rising again,” Ledbitter asserts.

He goes on to say that once you have made your investment, you should not get over-excited when the price rises or nervous if it declines and should rather “fix in your mind the long-term returns on equity – that is 20% a year compound. And with that in mind, relax and enjoy your share investments”.

According to the latest Merrill Lynch fund manager survey, 50% of local managers are bullish on equities and relatively few are bearish on bonds. When it comes to the commodity market, 25% of managers think it is undervalued, with 69% seeing more buying opportunities. A total of 44% want to invest in construction, beverages and food producers, bond and offshore investments, while domestic cash levels fell to 15% this month.

Mark Appleton, chief investment officer at BJM Private Client Services, says that resource shares are looking significantly more attractive after an average pullback of 23% since the end of June. He says that resources have under-performed considerably in the industrial and financial sectors recently and this has created a buying opportunity. The valuations for quality blue chip resources are well below ten times earnings, which presents the perfect opportunity for companies to add to their portfolio.

Tips on surviving a bear market:

- Have a sensible time line – about five years or longer and do not try and time the market.
- Buy shares in companies that have been around for a long time and have consistently produced good earnings and dividend growth
- Spread your investments over several sectors – do not concentrate them in the flavour of the month or ignore one that is out of favour
- Invest in shares that pay good dividends and if possible, re-invest so that they compound over time
- Buy a business newspaper every day and read about companies that either interest your or in which you have made an investment
- Only sell shares if there is a fundamental reason to do so, not due to fall in share price and the reverse also applies.

The information in this article is courtesy of Madoda Milazi (“How to survive the bear market”, The Times, 1 September 2008).

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Know the Facts Behind the Property Market Crash

Latest Stats on Market Crash

Realestateweb has published yet another article detailing the grim situation still being experienced in the South African property market, this time revealing the latest figures from RE/MAX of Southern Africa, the biggest residential real estate sales group in the industry.

The figures provide telling insight into what has been happening in the residential property market this year. The statistics were compiled by RE/MAX of Southern Africa and BetterBond and reflect the residential property buying transactions and property market performance as compared to the same period in 2007.

Sales transactions: 2008 vs 2007

According to the stats, there has been a year-on-year decrease of 38% in the amount of property sales transactions nationally (across all price brackets) between January to July 2008, compared to the same period in 2007.

The total amount of properties under R499 000 sold this year is 36% less than the same time in 2007. Overall, the number of sales transactions has dropped by 42% year-on-year for properties priced between R500 000 and R749 000. There has been a decrease of 39% for properties in the R750 000 to R999 999 price bracket and a drop of 33% for properties valued at R1m to R1,499 999.

When it comes to the higher price brackets, the biggest decrease was recorded in the R1,5 to R2,5m price bracket, where the total properties sold so far this year is nearly 50% less than the same time last year. In sales of properties over the R2,5m mark, there has been a drop of 44%.

Most Active Price Brackets

In light of the total national transactions conducted by buyers and property investors between January and July this year, the most active property price bracket with figures recorded at 43% is that of R499 999 or less. This was followed by 25% for properties priced between R500 000 and R749 000, 15% for those priced between R750 000 and R999 999, 12% for homes in the R1m to R1,499 999 region, 4% for properties valued at R1,5m to R2,5m and 1% for homes priced anywhere above R2,5m.

Regional Stats

The total number of national sales transactions in the R499 999 or less price bracket in the months from January to July, the metropolitan regions recorded the following stats: 29% for Gauteng, Limpopo, Mpumalanga and North West; 22% for the Western Cape; 18% for KwaZulu Natal; 9% for the Eastern Cape and 2% for the Freestate. The remaining 20% refers to property sales in the non-metropolitan or rural areas across all nine provinces.

In the category regarding sales valued between R500 000 to R749 999: Gauteng, Limpopo, Mpumalanga and North West recorded the highest total of 41%, with KwaZulu Natal coming in behind on 20%, the Western Cape at 18%, 4% for the Eastern Cape and just 2% in the Freestate. 13% was recorded for sales activity that took place in the non-metropolitan and rural areas throughout the nine provinces.

When it comes to properties priced between R750 000 and R999 999: Gauteng, Limpopo, Mpumalanga and North West recorded the leading figure of 39%, followed by the Western Cape at 23%, 19% in KwaZulu Natal, the Eastern Cape at 6% and the Freestate tailing with 4%. The remaining 9% was recorded in the non-metropolitan and rural areas in the country’s nine provinces.

In the R1m to R1,499 999 price range, the highest percentage recorded was again in Gauteng, Limpopo, Mpumalanga and North West at 42%, with the Western Cape reaching 25%, KwaZulu Natal recording 17%, the Eastern Cape at 3% and the Freestate at just 1%. Sales in the non-metropolitan and rural areas came in at 12%.

The property price bracket between R1,5 and R2,5m had KwaZulu Natal in the lead taking 28% of all sales transactions, followed closely by the Western Cape on 27%, Gauteng, Limpopo, Mpumalanga and North West on 20%, the Eastern Cape fetching 4% and the Freestate again at 1%. The rest summed up to 14% of the total national sales activity.

The highest property price category of over R2,5m showed the Western Cape as having the largest amount of sales transactions at 36%, with KwaZulu Natal coming in second at 32%, Gauteng, Limpopo, Mpumalanga and North West with 20%, the Eastern Cape at 4% and the leftover in the non-metropolitan/rural areas in South Africa recording 8% of total sales.

There are signs of a slight market recovery in the near future and with the effect of higher interest rates, the acceleration of consumer inflation, as well as the strict lending criteria from all major financial institutions, this has highlighted that the single most important motivation for consumers is affordability and the ability to sustain their debt exposure.

The data discussed reflects a shift towards properties priced in the lower brackets, while premium properties in excess of R2,5m in the Western Cape remains in high demand across the country. During the course of August, RE/MAX of Southern Africa has noticed a definite revival in the property market, with many branches recording their highest number of property sales for any month this year.

There is one thing that comes out clearly in all of this, the way that lending institutions look at consumer risk and debt exposure has forever altered the landscape of the real estate market and both consumers, as well as agents need to learn how to adapt to the changing environment.

The information in this article is courtesy of Jeanne van Jarsveldt (“SA’s property market crash: grim new stats”, Realestateweb, 28 August 2008).

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Rental Stocks Depleting Fast

Rentals in High Demand - ERA

A Business Report article has drawn attention to the intensifying conditions in the current property market with the demand for rental properties in South Africa literally going through the roof. This is becoming increasingly problematic, as the stocks are proving to be in limited supply.

ERA chief executive, Gerhard Kotze said that this is the broad consensus from a range of group offices around the country. He indicates that although the high interest rates and current inability to afford homes or obtain home loans are the biggest factors driving the rental market, there are also an increasing number of property owners who are opting to downsize to smaller rental accommodation and letting out their own homes to stay afloat financially.

Kotze says, “Infrastructure developments such as those for Eskom and the minerals and precious metals boom, as well as pockets of strong regional development are also creating demand for rental properties”.

According to Helene Visser of ERA Steer Blaauwberg, encompassing the Table View area, her region has had a “very active” rental market of late with a reasonable supply of long-term rental stock and some attractive rental bargains. “But there is also a strong demand for short term rentals and a shortage of furnished rental accommodation. Rentals at the lower end are around R3500 a month and at the higher end around R6500 a month,” she says.

In the East London area, Penny Lindstrom from ERA Sun Beacon Bay says that townhouses are in short supply and thus fetch a premium rental, while ERA Brakpan’s Monica van Tonder says that there is only rental stock available because various new developments are nearing completion.

At ERA Ermelo, Retha de Beer has an enormous rental portfolio, as the mining sector and Eskom’s current expansion in the area are fuelling the demand for townhouses and homes for rent. “Much of the demand is coming from senior management and technical people seconded to these projects,” she says, “and two-bedroom townhouses are renting for around R3300 a month”.

Lucille Kaplan of ERA Pretoria East reports that in Tshwane, there has been a definite increase in rental demand across the board, with prices ranging from R3800 a month to an incredible R25000 a month in some cases.

The information in this article is courtesy of Business Report (“Rental stocks drying up, says ERA”, 25 August 2008).

Property for sale in South Africa.

Green Phenomenon Takes Hold in South Africa

Property Entering Green Era

Astute property developers, investors and entrepreneurs will no doubt already be aware of the next big era in the property, namely the profound impact that ‘green building’ practices are going to have on the industry in the foreseeable future. There are boundless business opportunities emerging as South Africa’s commercial property developers and investors join the bandwagon of what is fast-becoming a global phenomenon.

Building design is undergoing a transformation, moving away from work environments that are closed off from the outside world towards places of business designed to be at one with the natural surroundings. For instance, the power-draining air conditioners so often found in high-rise buildings and the shimmering glass towers that trap heat are set to become a thing of the past, as landlords and tenants demand real estate more reliant on renewable energy and reusable materials.

The recent IPD/Sapoa Property Investment Conference held in Cape Town recently focused primarily on the global trend towards constructing and refurbishing buildings along environmentally friendly lines. Delegates were informed that commercial property and the world’s airlines are two of the major contributors towards the production of dangerous carbon gas emissions destroying the earth’s ozone layer and as a result, contributing to the ever-looming global warming.

The South African real estate industry has only recently begun adopting green building standards, but the movement is expected to gain momentum. The Green Star Rating System is currently being introduced and although the ratings are not compulsory, pressure is anticipated to come from corporates, particularly those with international shareholders who want to be seen as socially and environmentally responsible.

According to the chairman of the Green Building Council of SA, Bruce Kerswill, “We in South Africa haven’t felt the sense of urgency on this yet. But we can expect to see stakeholder and government pressure here soon. South Africa has agreed to cut carbon emissions”. While some may not be inspired by the moral aspect, there is certainly a compelling business case for the greener option, with research showing that productivity can increase from about 5% to 15% with employees who work in a ‘green’ building.

Like all the healthier things in life, green buildings do tend to be on the expensive side when it comes to building and ultimately renting, however the cost is not quite as much as one might expect. For instance, in Australia a four-star building would cost the same as a non-green building in capital costs, while a five-star building requires more technology and would be around 5% extra in total cost. At 11% more for a six-star building, Kerswill believes this is “not a huge premium” to pay.

Buildings that promote the use of public transport rather than the use of private vehicles by being situated close to major transport nodes or because smaller cars get the best parking will earn more points than those that don’t. There is a huge emphasis on recycling and points are earned for sourcing local products rather than importing cheaper ones from elsewhere. There is another category that rewards “innovation” and this aims to “stimulate out of the box thinking” rather than simply adhering to the ratings.

Kerswill insists that this is not just a passing fad. Development director at Old Mutual Investment Group Property Investments, Brent Wilshire says that his organization has looked at their “top eight” buildings in a bid to identify areas to “make a difference”. He also produced some interesting figures indicating the extent to which these buildings ‘guzzle natural resources’. Just a 20% reduction in water use at these buildings alone would conserve enough water to fill 133 swimming pools every day.

“The important thing is you need to be able to measure then you can set targets,” Wiltshire says, highlighting the value of a green building rating system. “In our new assets, the green building principles are best practice. What is important is to get the right team in place. It’s about putting the philosophy in place upfront and making sure the team buys into it – it’s about an attitude”.

Managing director of IPD Occupiers and Management in the UK, Christopher Hedley indicates that corporate property will come under increased pressure and scrutiny for environmental performance and compliance. “Property investors face risks. Tenants will act and valuers will respond,” he says. He adds that as more green buildings come onto the market, they will start to get cheaper. “There is an increasing pressure to deliver. We have the need for accurate information. We’ve got to create monitoring and targets and need to be able to prove performance,” Hedley says.

The information in this article is courtesy of Jackie Cameron (“Making money in the new property era”, Realestateweb, 20 August 2008).

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

International Delegates Drawn to SA Property Course

Sapoa Course World Class

An article in Business Day draws attention to commercial property association, Sapoa and its flagship property development course, which attracted the highest number of international delegates in its history. This merely goes to show how the reputation of the program's quality is spreading beyond South Africa’s borders.

The property management program deals specifically with finance, valuation, property law, negotiation, investment, development and marketing, all in the context of property. The course is run jointly by Sapoa and the University of Cape Town’s Graduate School of Business and is an intensive program run over a two week period aimed at sharpening skills across a wide range of property disciplines.

According to Sapoa CEO, Neil Gopal, more than half of the applicants who apply each year are turned away. This year, there were 131 applications in total, of which just 64 were accepted. There are 8 international delegates that form part of this year’s program delegates, which is the highest number since the course was first offered in South Africa.

The program has lectures that cover a broad range of topics related to property, including economics and strategic thinking, town planning and valuation, marketing and property management. Instructors for the course are selected from the faculty at UCT’s Graduate School of Business, as well as a pool of specialists and professionals who are members of Sapoa.

The information in this article is courtesy of Business Day (“South Africa: International Delegates Attend Sapoa Course”, AllAfrica, 13 August 2008).

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

More and More Investors are Attracted to Liquid Options

Time to Cash In?

An article published by South African Insurance Times and Investment News poses the question: change to cash, or not? This comes in response to the current volatility and uncertainty surrounding the equity and bond markets, where cash is becoming an increasingly attractive option for concerned investors.

Joint MD of Taquanta Asset Managers and asset manager of the NedGroup Money Market Unit Trust, Stephen Rogers is of the opinion that cash should not be seen as an ‘all or nothing’ alternative. Taquanta Asset Managers is regularly ranked as South Africa’s top cash manager in a range of independent market surveys.

Rogers said, “It’s probably too late to switch from equities to cash right now. But it is time to re-weight one’s investment portfolio and to include a higher proportion of cash than before, although it may not be advisable to move all one’s equity and bond investments into cash”.

Rogers went on to say that, “If one is fortunate enough to come into new money – for example, from the sale of one’s property, an inheritance or even winning the lotto – then cash is probably the best place to put it right now, at least until some level of normality returns to the equity, bond and property markets”.

He dismisses the argument that equities remain a better investment option than cash due to rising inflation, the tax drag and self-discipline risks associated with having ‘liquid’ cash investments, such as money market funds. Rogers points out that very few investment opportunities can guarantee returns over 12% in the current climate, which is at least a positive return considering the present rate of inflation.

Rogers asked, “What else is beating inflation or is likely to beat inflation in the foreseeable future?” He added that equity unit trusts are just as susceptible to tax and self-discipline risks as money market funds. “The point is that while equities may have been able to deliver returns of above 30% in the past, negative returns are becoming something of a norm in the current volatile market,” Rogers said.

According to Rogers, there are highly divergent views on where the resources and financial counters are going, or even whether these still offer value. The pure equity fund managers who promise a positive return overcoming inflation in today’s market is likely stretching the truth, he believes. “Equity trading volumes are significantly down in the institutional space – the institutions are not going there – and that should serve as a guide to private investors,” Rogers urged.

The information in this article is courtesy of Marilyn de Villiers (“Change to cash – or not?” ITINews, 12 August 2008).

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

SA Bank Responds to Criticism Over Home Loan Withdrawals

FNB Clarifies its Decision

Recently, it was reported that the Ombudsman for Banking Services fired a warning shot at FNB for its decision to withdraw home loan approvals on a large scale. An article by Realestateweb discusses the bank’s reaction to a “frank” meeting with the Ombudsman, in a bid to clarify which home loans are to be pulled.

A Big Four bank, FNB has assured developers that it will try and help those who are in financial trouble as it withdraws loan approvals for properties under construction. It also said that it will not reassess recently approved home loans that would normally take three to four months to register.

These assurances come in the wake of a “frank” meeting with the Banking Ombudsman, who recently fired a public warning at the bank, which has largely been seen as an unprecedented move. FNB’s decision to withdraw home loans on a large scale, as reported in an earlier article, will have major implications for developers, intermediaries and other players in the residential property industry.

After meeting with the Ombudsman, advocate Clive Pillay, the bank said that its “original statement on its reassessment decision may not have been clear and may have inadvertently caused unnecessary confusion and concern”. It went on to say that FNB and Pillay have since “agreed that the bank’s criteria, as now spelt out, for reassessing home loans approved in principle more than a year ago are ‘fair and equitable’”.

According to FNB, the home loan applications to be reassessed are those that take up to a year or longer to register and are of a development-type nature (excluding building bonds), not those that usually take three to four months for transfer and registration. Its intention is to “prevent customers from taking on more debt they are unable to service, resulting in an over-indebtedness position”.

The bank will only reassess applications should the following criteria apply:
- Where FNB guarantees have not already been issued;
- Any judgments or defaults evident with credit bureaus arise between the original granting of the home loan and prior to registration of the property;
- Customers confirm they are unable to afford the home loan subsequent to the original approval.

Each home loan will be reassessed “on a one-on-one basis with the intention of granting final approval for as many of the affected customers as possible. The bank will only decline applicants in cases where the client will be severely over-indebted should the transaction go ahead,” the bank said.

Customers who failed to provide their updated financial information are required to confirm their intention to go forward with the deal, otherwise FNB will contact each of the identified customers with the intention to proceed with the home loan, unless any of the above criteria are applicable.

Also, FNB is aware of the “impact its decision may have on any one developer and their financial institutions and will accordingly engage with them to find an amicable solution to mitigate any undue losses that may arise”.

The information in this article is courtesy of Realestateweb (“FNB: most new home loans “safe”, 12 August 2008).

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

Top Economist Predicts Interest Rate Drop in SA

Interest Rates to Drop Soon

An article published by Realestateweb predicts that interest rates will begin to fall fast from later this year, according to a top economist. Inflation is set to drop more than it has risen and is expected to be back in the South African Reserve Bank’s target range of 3-6% by the time the 2010 World Cup kicks off.

What this means is that you can expect interest rates to start falling later this year, putting some of the purchase power back into the pockets of already struggling consumers. This breath of optimistic fresh air comes from FNB’s chief economist, Cees Bruggemans, who spoke at the annual Rode conference on property in South Africa, held in Stellenbosch on Monday.

The FNB economist is not alone in his thinking that the worst of the interest rate saga is over. Just last week, investment strategist for Investec Securities, Brian Kantor said that R157 (a government bond) was shedding important clues that the worst could certainly be over for interest rates.

Bruggemans believes that Reserve Bank Governor Tito Mboweni may well press the pause button at the next Monetary Policy Committee meeting. Mboweni has used interest rates as the primary tool to manoeuvre towards his target of 3-6%. Bruggemans’ analysis indicates that the first interest rate cut might come in December, which means a prime interest rate of 15% by the end of the year and a prime interest rate of 13% by the end of 2009.

However, he went on to emphasise that his view is dependent on a number of variables, which include the oil price not producing another shock. Since June, the oil prices and agricultural prices have dropped due to the stability of the rand. Lower than expected economic growth, with a sacrifice in large parts of the economy already being advanced, is also a factor.

The current account deficit at 9% of Gross Domestic Product is extremely worrying, as this places South Africa as a high-risk country from the perspective of foreign investment and might easily produce a withdrawal of funds.

“We are running a high interest rate defence policy and it has worked to this day,” said Bruggemans, in light of the rand’s value. “The nice folks at StatsSA are making a few imaginative changes…that is really knocking inflation down,” was Bruggemans’ comment about changes to national inflation measures. “We are suddenly looking at an inflation projection that goes down faster than the rise ever was. That starts between now and November,” he said.

The R157 was trading at a yield of 10.9% in June and recently, it has been trading around 9.3%. According to Kantor, these figures are in “recognition” that the South African Reserve Bank won’t push interest rates any higher. The bond’s market reaction reflects the notion that SARB has come to the end of its interest rate hiking.

Dries du Toit, of Dries du Toit Consult CC agreed with Kantor, saying that the bond yields “act like a barometer” and indications are that they have been falling over the past five weeks. “People price listed property on the back of bonds. Since November [listed property] fell by 35% up to the first week in July. Already it has turned around and increased by 15%,” du Toit said at the Rode conference.

Du Toit went on to say that, “If we are successful in getting interest rates down, the future will exceed all our expectations. I’m not talking about house prices, but commercial, direct and listed property”. He said, “No one rings a bell at the bottom. Ding-a-ling-a-ling – we have already seen the bottom in listed property prices”.

According to du Toit, listed property may not be a “super buy”, but it is still a buy, while he believes that there is still worse to come for the residential property market.

The information in this article is courtesy of Realestateweb (“Interest rates to come down fast – top economist”, 11 August 2008).

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