Nedbank has launched an affordable housing finance scheme available to South Africans earning less than R9 760, which makes first time home ownership just that much more accessible. The bank has teamed up with the French Development Agency (AFD) to provide loans for low income housing.
Jeff Lawrence, Head of Affordable Housing at Nedbank Retail, says that despite efforts by the government, there are still many challenges that plague the low income housing sector, such as the ever-growing issues of affordability, where costs associated with land, infrastructure, building and high interest rates are by far exceeding market earnings.
The proposed housing scheme applies innovative and first-to-market initiatives that include a once-off non-refundable grant of R8 500 for the various applicants. The grant will be employed to cover legal and up front home loan costs, with the remainder helping to reduce the total loan amount.
The rate structure benefits clients in that the interest rate will never go up, but may come down should the interest rates move below the original agreement rate. This will ensure that home owners are protected from the dangers and uncertainties involved with a fluctuating interest rate environment.
The period for the home loan agreement is typically 20 years, which exceeds the 12 year reducing cap period. After 12 years, the agreement will revert to a variable rate, but the client is able to negotiate any other interest rate option that may be available at the time.
Lawrence says that the latest initiative with AFD is designed to address the affordability issues in the current market by making it possible for more people to qualify for housing finance. He adds that cash injections like that from AFD are necessary in that they work to remove barriers to home ownership.
“Nedbank is proud of its partnership with AFD as it will enable the bank to tap into new markets and play a role in making a contribution to help South Africans access home loans and financial services,” says Lawrence. The program will benefit from the bank’s knowledge of the local housing market, as well as its infrastructure.
He goes on to say, “What makes this initiative even more attractive is that it is not restricted or linked to any particular housing development, allowing people to buy homes of their choice, in the specified areas”. Initially the program will be restricted to pilot sites laid out for the purposes of first time home buyers, with the possibility that it will be extended to other areas within Gauteng and other provinces in the country.
Lawrence notes that it was necessary to understand the concerns and needs of the target market. “The offer has been designed to address these concerns and also prove to this market that home ownership is within their grasp”. The loan will encompass a borrowers education program, which is aimed at assisting and educating clients about the nuances involved with home ownership and maintenance.
Some of these include understanding and clarifying the terms and conditions, highlighting the client’s rights and responsibilities before signing the contract, as well as addressing any questions or concerns the client might have. “As a responsible lender, we want to ensure that clients make informed decisions when entering into the home loan agreement,” Lawrence says.
AFD Regional Representative, Christophe Richard says that, “AFD fosters access to home ownership for populations which would normally be excluded from it and promotes support programs in partnership with private banks. AFD financing makes it possible to reduce the amount in capital borrowed by households that meet specific criteria to implement training for borrowers. The aim is to help banks go beyond the commitments of the Financial Sector Charter”.
The initiative for affordable housing comes after a Memorandum of Understanding was signed between the country’s four retail banks and the Minister of Housing in 2005 and is also in line with a commitment made by the various banks to the Financial Charter signed in October 2003. The banking sector committed to providing R42 billion in low income housing finance by 31 December 2008. In light of all this, it seems that Nedbank is indeed holding up its side of the bargain.
The information in this article is courtesy of Durr Online (“New home loan finance for under R10 000 earners”, Moneyweb, 29 September 2008).
Find property in South Africa.
Showing posts with label south africa property for sale. Show all posts
Showing posts with label south africa property for sale. Show all posts
Wednesday, October 15, 2008
Wednesday, October 8, 2008
Have We Reached the Bottom of the Cycle?
(Accessed from www.realestateweb.co.za on October 7, 2008.)
Real estate veteran Bill Rawson says that while house prices are down, national sales are up dramatically, which suggests that we have reached the bottom of the cycle. Perhaps the most common mistake made by sellers in the current market is to insist on an asking price that is no longer acceptable.
While property prices in the Cape continue to perform better than most other provinces in South Africa, they are still 20% off their peak in 2007. Often when sellers find that the offers they have been receiving reflect this then they enter a state of denial, blame the agent, the advertising or any other factor and refuse to drop below the original asking price.
This tends to leave the property on the market for six to twelve months, after which it is probably below market value due to a certain stigma that it may have picked up. Buyers are generally suspicious of homes that have been on the market for so long, assuming that there is some hidden fault that prevents them from selling.
The right time to drop your asking price is the moment you realize that the price is not going to be accepted. Once you do this, it is highly likely that some of the original potential buyers will regain interest in the property. While it can be emotionally upsetting for a seller to reduce the price on a home when he or she has spent time and money lavishing it with care, buyers are in the best position that they have been for nine years, so it is really no use trying to buck the trend – it almost never works.
The total number of homes on the market has fallen by 20% and the time taken to sell a property is now between twelve and fifteen weeks, which is nearly twice as long as in 2007. Rawson also doesn’t see the situation changing any time soon, although the Reserve Bank’s decision not to raise interest rates seems to have stabilized the market somewhat and probably signals the end of the downturn.
The veteran goes on to say that now is a great time to buy, despite the difficulties in obtaining bond finance. Property is still a top line investment and this has never been truer than in today’s tight market conditions. Consumers have grown overly cautious and negative in the current market climate and its time to dispel these reactions.
Rawson Properties, which has just over 140 franchises across the country, has recovered from a low in May/June to record a 250% increase in sales in September. However, Bill Rawson concedes that this trend is by no means universal and that his company is possibly unique in this aspect. Many smaller agencies are still going under and agents are dwindling, with the national figure down to 55 000 from 85 000.
With the latest political developments, interest may well be likely to decline, but there are questions being raised about the direction the new political leadership will take and exactly how ‘fairness to all’ will play out in terms of the dispensation. So far, it seems to have been handled quite well.
An encouraging sign is that South Africans seem to be more accepting of the new price structures in the property market, which often involves scaling down. Rawson has seen an increase in large deposits recently (up to 30% of the sale price), which also reflects that buyers are scaling down.
Rawson adds that, “Ongoing branding and marketing, with an increased emphasis on sophisticated customer related IT systems, ongoing support for franchisees with training, advice and encouragement and upgrading all of the support systems (again, particularly those that are IT related) are the factors that are taking the Rawson group forward”.
Find property in South Africa.
Real estate veteran Bill Rawson says that while house prices are down, national sales are up dramatically, which suggests that we have reached the bottom of the cycle. Perhaps the most common mistake made by sellers in the current market is to insist on an asking price that is no longer acceptable.
While property prices in the Cape continue to perform better than most other provinces in South Africa, they are still 20% off their peak in 2007. Often when sellers find that the offers they have been receiving reflect this then they enter a state of denial, blame the agent, the advertising or any other factor and refuse to drop below the original asking price.
This tends to leave the property on the market for six to twelve months, after which it is probably below market value due to a certain stigma that it may have picked up. Buyers are generally suspicious of homes that have been on the market for so long, assuming that there is some hidden fault that prevents them from selling.
The right time to drop your asking price is the moment you realize that the price is not going to be accepted. Once you do this, it is highly likely that some of the original potential buyers will regain interest in the property. While it can be emotionally upsetting for a seller to reduce the price on a home when he or she has spent time and money lavishing it with care, buyers are in the best position that they have been for nine years, so it is really no use trying to buck the trend – it almost never works.
The total number of homes on the market has fallen by 20% and the time taken to sell a property is now between twelve and fifteen weeks, which is nearly twice as long as in 2007. Rawson also doesn’t see the situation changing any time soon, although the Reserve Bank’s decision not to raise interest rates seems to have stabilized the market somewhat and probably signals the end of the downturn.
The veteran goes on to say that now is a great time to buy, despite the difficulties in obtaining bond finance. Property is still a top line investment and this has never been truer than in today’s tight market conditions. Consumers have grown overly cautious and negative in the current market climate and its time to dispel these reactions.
Rawson Properties, which has just over 140 franchises across the country, has recovered from a low in May/June to record a 250% increase in sales in September. However, Bill Rawson concedes that this trend is by no means universal and that his company is possibly unique in this aspect. Many smaller agencies are still going under and agents are dwindling, with the national figure down to 55 000 from 85 000.
With the latest political developments, interest may well be likely to decline, but there are questions being raised about the direction the new political leadership will take and exactly how ‘fairness to all’ will play out in terms of the dispensation. So far, it seems to have been handled quite well.
An encouraging sign is that South Africans seem to be more accepting of the new price structures in the property market, which often involves scaling down. Rawson has seen an increase in large deposits recently (up to 30% of the sale price), which also reflects that buyers are scaling down.
Rawson adds that, “Ongoing branding and marketing, with an increased emphasis on sophisticated customer related IT systems, ongoing support for franchisees with training, advice and encouragement and upgrading all of the support systems (again, particularly those that are IT related) are the factors that are taking the Rawson group forward”.
Find property in South Africa.
Tuesday, October 7, 2008
FNB Urges Consumers to be Cautious
Some Encouraging Signs but Beware
A press office feature released by FNB indicates that the risks to property have shifted from interest rates to economic growth and that consumers should heed this latest development. The FNB Property Barometer for the third quarter of 2008 was released on Monday and showed further weakening in levels of demand activity experienced by estate agents.
From a previous level of 4.4 on a scale of 1 to 10 in the second quarter, respondents to the survey indicated a further decline to an average level of activity recorded at 4.1, which is the lowest in the history of the barometer. The average length of time a property stays on the market has also increased from 14 weeks and 6 days to 20 weeks and 1 day in the most recent quarter.
Just 12% of the market comprised first time buyers, which is the lowest percentage on record, while sellers not obtaining their asking price increased from 85% in the previous quarter to 88%. The buy to let sector of the market is also relatively subdued, with a mere 13% of total buyers believed to be buy to let investors.
John Loos, FNB Home Loans Property Strategist, says that looking forward there have been some encouraging signs emerging, which reflect well on the future of the residential market. Most notably, the recent fall in oil prices, which has resulted in domestic fuel price cuts, as well as a softening in global food price inflation. FNB believes that the CPIX inflation rate may well be at its peak.
The onset of an expected decline in inflation would result in inflation having less of an impact on disposable income going forward, while interest rate cuts are anticipated from April 2009. The debt to disposable income ration in the household sector has also started to fall, which suggests that there is some improvement in the ability to service its debt burden.
However, in light of all the encouragement, Loos warns that consumers should not get too excited just yet. The current threat to global economic growth coming out of the US seems to be moving in to replace the previous risks. Loos says that it would be naïve to think that South Africa’s property market and financial sector are not exposed to the potential fallout from the US.
While the bailout plan is currently being implemented by the US government, it still remains to be seen as to how severely the recovery plan is regulated and how strict lending policies to households in the US become in a bid to restore responsible lending practices. The combination of tight lending criteria and falling house prices could have a profound impact on already-low consumer confidence in the US and subsequently on economic growth in the world’s biggest economy.
South Africa is by no means immune to the recessionary conditions and financial strain that may emanate as a result of the current crisis in the US. That being said, FNB’s most likely scenario appears to be one where domestic growth is slower, but remains positive. This would ultimately lead to a recovery in the demand for residential property from next year, as interest rates begin to decline.
South African consumers would do well not to ignore the current global growth risks when making investments going forward. If the crisis in the US gets significantly worse then the local property market will by no means escape unscathed. Loos suggests taking caution with regard to spending and borrowing practices until such time as we have more reliable indications of where the crisis stands. Despite some encouraging inflation and interest rates signs, South Africa is far from being out of the dark just yet.
This information is courtesy of John Loos (“Risks to property shift from interest rates to economic growth – ignore at your peril”, ITInews, 6 October 2008).
Property for sale in South Africa.
A press office feature released by FNB indicates that the risks to property have shifted from interest rates to economic growth and that consumers should heed this latest development. The FNB Property Barometer for the third quarter of 2008 was released on Monday and showed further weakening in levels of demand activity experienced by estate agents.
From a previous level of 4.4 on a scale of 1 to 10 in the second quarter, respondents to the survey indicated a further decline to an average level of activity recorded at 4.1, which is the lowest in the history of the barometer. The average length of time a property stays on the market has also increased from 14 weeks and 6 days to 20 weeks and 1 day in the most recent quarter.
Just 12% of the market comprised first time buyers, which is the lowest percentage on record, while sellers not obtaining their asking price increased from 85% in the previous quarter to 88%. The buy to let sector of the market is also relatively subdued, with a mere 13% of total buyers believed to be buy to let investors.
John Loos, FNB Home Loans Property Strategist, says that looking forward there have been some encouraging signs emerging, which reflect well on the future of the residential market. Most notably, the recent fall in oil prices, which has resulted in domestic fuel price cuts, as well as a softening in global food price inflation. FNB believes that the CPIX inflation rate may well be at its peak.
The onset of an expected decline in inflation would result in inflation having less of an impact on disposable income going forward, while interest rate cuts are anticipated from April 2009. The debt to disposable income ration in the household sector has also started to fall, which suggests that there is some improvement in the ability to service its debt burden.
However, in light of all the encouragement, Loos warns that consumers should not get too excited just yet. The current threat to global economic growth coming out of the US seems to be moving in to replace the previous risks. Loos says that it would be naïve to think that South Africa’s property market and financial sector are not exposed to the potential fallout from the US.
While the bailout plan is currently being implemented by the US government, it still remains to be seen as to how severely the recovery plan is regulated and how strict lending policies to households in the US become in a bid to restore responsible lending practices. The combination of tight lending criteria and falling house prices could have a profound impact on already-low consumer confidence in the US and subsequently on economic growth in the world’s biggest economy.
South Africa is by no means immune to the recessionary conditions and financial strain that may emanate as a result of the current crisis in the US. That being said, FNB’s most likely scenario appears to be one where domestic growth is slower, but remains positive. This would ultimately lead to a recovery in the demand for residential property from next year, as interest rates begin to decline.
South African consumers would do well not to ignore the current global growth risks when making investments going forward. If the crisis in the US gets significantly worse then the local property market will by no means escape unscathed. Loos suggests taking caution with regard to spending and borrowing practices until such time as we have more reliable indications of where the crisis stands. Despite some encouraging inflation and interest rates signs, South Africa is far from being out of the dark just yet.
This information is courtesy of John Loos (“Risks to property shift from interest rates to economic growth – ignore at your peril”, ITInews, 6 October 2008).
Property for sale in South Africa.
Thursday, October 2, 2008
Property Still Not Up to Scratch in SA
FNB has recently indicated that expected job losses are bound to put more pressure on the ailing South African property market. Statistics show that real house prices have dropped by nearly 10% and that a lack of affordability continues to work as a handbrake to the market.
The September FNB House Price Index was released this week and figures showed a slight year-on-year increase at 1.8%, but prices month-on-month are declining at –0.1%. Taking inflation into account, residential property values plummeted by an incredible 9.5%.
This year has seen South African consumers take a beating, with rising interest rates and skyrocketing food and fuel prices. The banks have also tightened their grip on available credit as a result of the National Credit Act, which came into force last year. This has caused a significant drop in the demand for property, as potential buyers struggle to find funding.
Estate agents have reported a dramatic decline in sales volumes and in many instances at least half of what they were in early 2007. There has been an exodus of agents from the market, with the estimate that at least 20 000 are no longer in business compared to the same time last year.
Add to the mix a surplus of sellers, thanks to political uncertainty and government incompetence around Eskom and other issues inspiring a wave of emigration and you have at the very least a buyers’ market, but also something close to a recession in that sector of the economy.
General economic growth has proven disappointing as well, which has led to a shedding of jobs – another development that FNB indicates is not good for the residential property sector. However, FNB property strategist John Loos says that when affordability is measured in terms of average house price/average income, it appears to be improving, but “the catch is that the improvement in affordability refers to those who remain employed throughout the economic downturn”.
Loos went on to say that the economy “may already be at a stage of net job losses in the formal sector and this situation will partly offset any possible improvement in interest in the residential property asset class, as a result of improving affordability for regular income earners”.
“In short, given a slowing economic growth rate and slow real household disposable income growth for the household sector as a whole, we are not necessarily at the stage where an increasing number of people can afford the average priced house,” Loos said. The recent shocks in the stock market led the downturn, but areas in the lower price range may now be deteriorating faster.
Paul Beadle, managing director of Just Money, said that the current financial crisis playing out around the globe affects South African consumers in that the bottom line is there is less money to go around. “This affects businesses that are now struggling because their stock value has fallen or because the cannot find the additional investment they need to grow. It also means that many banks are unwilling to lend cash because of the greater risks now involved”.
Beadle also said that South African banks are “actually in good shape because they had limited exposure to the credit problems in the US that caused this crisis”. Nevertheless, investors on the global market are extremely wary of risk, so they are going to be cautious when it comes to investing in emerging markets like SA.
This lack of inward investment could have a profound impact on growth and profits of companies in South Africa, which is on top of the ongoing economic concerns and the high cost of living putting more pressure on consumers, said Beadle.
There are some estate agents who report a slight increase in show day visits and sales in recent months. According to Jeanne van Jarsveldt of the RE/MAX Group, “The past three months has seen a steady market recovery and has been the best we have seen on a national level during 2008”.
Loos warned that “early signs of improving household fundamentals are not believed to be sufficient to turn the market around” and that this is anticipated around April next year when the first interest rate cut is expected.
The information in this article is courtesy of Realestateweb (“Property prices: still looking ugly”, 1 October 2008).
South Africa property for sale.
The September FNB House Price Index was released this week and figures showed a slight year-on-year increase at 1.8%, but prices month-on-month are declining at –0.1%. Taking inflation into account, residential property values plummeted by an incredible 9.5%.
This year has seen South African consumers take a beating, with rising interest rates and skyrocketing food and fuel prices. The banks have also tightened their grip on available credit as a result of the National Credit Act, which came into force last year. This has caused a significant drop in the demand for property, as potential buyers struggle to find funding.
Estate agents have reported a dramatic decline in sales volumes and in many instances at least half of what they were in early 2007. There has been an exodus of agents from the market, with the estimate that at least 20 000 are no longer in business compared to the same time last year.
Add to the mix a surplus of sellers, thanks to political uncertainty and government incompetence around Eskom and other issues inspiring a wave of emigration and you have at the very least a buyers’ market, but also something close to a recession in that sector of the economy.
General economic growth has proven disappointing as well, which has led to a shedding of jobs – another development that FNB indicates is not good for the residential property sector. However, FNB property strategist John Loos says that when affordability is measured in terms of average house price/average income, it appears to be improving, but “the catch is that the improvement in affordability refers to those who remain employed throughout the economic downturn”.
Loos went on to say that the economy “may already be at a stage of net job losses in the formal sector and this situation will partly offset any possible improvement in interest in the residential property asset class, as a result of improving affordability for regular income earners”.
“In short, given a slowing economic growth rate and slow real household disposable income growth for the household sector as a whole, we are not necessarily at the stage where an increasing number of people can afford the average priced house,” Loos said. The recent shocks in the stock market led the downturn, but areas in the lower price range may now be deteriorating faster.
Paul Beadle, managing director of Just Money, said that the current financial crisis playing out around the globe affects South African consumers in that the bottom line is there is less money to go around. “This affects businesses that are now struggling because their stock value has fallen or because the cannot find the additional investment they need to grow. It also means that many banks are unwilling to lend cash because of the greater risks now involved”.
Beadle also said that South African banks are “actually in good shape because they had limited exposure to the credit problems in the US that caused this crisis”. Nevertheless, investors on the global market are extremely wary of risk, so they are going to be cautious when it comes to investing in emerging markets like SA.
This lack of inward investment could have a profound impact on growth and profits of companies in South Africa, which is on top of the ongoing economic concerns and the high cost of living putting more pressure on consumers, said Beadle.
There are some estate agents who report a slight increase in show day visits and sales in recent months. According to Jeanne van Jarsveldt of the RE/MAX Group, “The past three months has seen a steady market recovery and has been the best we have seen on a national level during 2008”.
Loos warned that “early signs of improving household fundamentals are not believed to be sufficient to turn the market around” and that this is anticipated around April next year when the first interest rate cut is expected.
The information in this article is courtesy of Realestateweb (“Property prices: still looking ugly”, 1 October 2008).
South Africa property for sale.
Tuesday, September 30, 2008
Still Money to be Made in SA
Investment Opportunities Still There
An article in The Times discusses the recent drop in value of assets under management experienced by private client operations following the recent fall in markets. Sean Farrell, CEO of RMB Private Bank, says that the falling markets have affected the private banking sector, as clients have seen the value of their property and equity portfolios decline.
According to Farrell, primary residences tend to have the least effect, as people still need a home in which to live. However, the decline in property prices can also result in homeowners having negative equity in their homes, investment properties and business premises.
“Fortunately, we have not seen that in our business so far, as many of our clients who run into trouble on the lending side are able to trade out of their positions by shedding some assets,” said Farrell.
When it comes to equity, Farrell says that clients can literally see their net asset value decline as the market falls. Even so, RMB Private Bank’s net inflows into its wealth management business were over R1 billion in August, which suggests that clients still have cash to invest.
“We have built a very robust process when it comes to asset allocation. Wealth managers are particularly keen to establish clients’ short-term income and liability needs, so that there is no need to engage in fire sales in declining market conditions to meet their obligations,” said Farrell.
He went on to say that, “When there is a short-term liquidity need, we are not going to pump all the assets into equities, but rather keep an appropriate portion in cash. As a result, clients are well positioned to ride out poor market conditions and their losses remain paper losses that are reversed when markets turn”.
The poor market conditions serve to reinforce the need for a proper strategy that has been presented to and agreed with by clients. “We are going through an extreme downturn. Provided their strategy is still relevant, they must sit tight and ride the cycle and not panic. In equities there has been a fair amount of sector rotation and a weighing towards more cash than direct equities. It is in poor market conditions that your process is tested,” argued Farrell.
Mark Logan, head of private clients at Grindrod Bank, said that another consequence of poor markets is that revenues on the investment side of business fell. “However, falling markets also provide opportunities as it is at such times that clients start questioning their private banks’ investment philosophy and performance and there can be some churn as clients shift banks. Bad markets can result in you gaining or losing clients”.
Logan went on to say that volatile markets also force private banks to increase their level of communication with the client to both reassure and keep them in touch with events and market trends. He said that the wealth management operations of private banks must have a credible strategy and an investment philosophy that clients support.
The information in this article is courtesy of Andrew Gillingham (“Still plenty of cash to invest”, The Times, 27 September 2008).
Buy or sell property in South Africa.
An article in The Times discusses the recent drop in value of assets under management experienced by private client operations following the recent fall in markets. Sean Farrell, CEO of RMB Private Bank, says that the falling markets have affected the private banking sector, as clients have seen the value of their property and equity portfolios decline.
According to Farrell, primary residences tend to have the least effect, as people still need a home in which to live. However, the decline in property prices can also result in homeowners having negative equity in their homes, investment properties and business premises.
“Fortunately, we have not seen that in our business so far, as many of our clients who run into trouble on the lending side are able to trade out of their positions by shedding some assets,” said Farrell.
When it comes to equity, Farrell says that clients can literally see their net asset value decline as the market falls. Even so, RMB Private Bank’s net inflows into its wealth management business were over R1 billion in August, which suggests that clients still have cash to invest.
“We have built a very robust process when it comes to asset allocation. Wealth managers are particularly keen to establish clients’ short-term income and liability needs, so that there is no need to engage in fire sales in declining market conditions to meet their obligations,” said Farrell.
He went on to say that, “When there is a short-term liquidity need, we are not going to pump all the assets into equities, but rather keep an appropriate portion in cash. As a result, clients are well positioned to ride out poor market conditions and their losses remain paper losses that are reversed when markets turn”.
The poor market conditions serve to reinforce the need for a proper strategy that has been presented to and agreed with by clients. “We are going through an extreme downturn. Provided their strategy is still relevant, they must sit tight and ride the cycle and not panic. In equities there has been a fair amount of sector rotation and a weighing towards more cash than direct equities. It is in poor market conditions that your process is tested,” argued Farrell.
Mark Logan, head of private clients at Grindrod Bank, said that another consequence of poor markets is that revenues on the investment side of business fell. “However, falling markets also provide opportunities as it is at such times that clients start questioning their private banks’ investment philosophy and performance and there can be some churn as clients shift banks. Bad markets can result in you gaining or losing clients”.
Logan went on to say that volatile markets also force private banks to increase their level of communication with the client to both reassure and keep them in touch with events and market trends. He said that the wealth management operations of private banks must have a credible strategy and an investment philosophy that clients support.
The information in this article is courtesy of Andrew Gillingham (“Still plenty of cash to invest”, The Times, 27 September 2008).
Buy or sell property in South Africa.
Friday, September 26, 2008
SA Political Saga Won't Affect Property Trends Says Expert
Politics Won't Affect Property Yet
FNB’s property strategist, John Loos believes that the recent change in president may have rattled some cages, but it “is unlikely to change an already deteriorating residential market trend”.
Kgalema Motlanthe’s somewhat dramatic entry into the presidency following the ANC’s recall of Thabo Mbeki and the subsequent resignation of cabinet ministers en masse has certainly caused a stir, but Loos says that this will not have a significant impact on residential real estate.
Loos issued a report yesterday saying that, “Insofar as such events create negative sentiment in and towards the country, they are potentially negative for residential property performance”. The direct impact can be in the guise of higher emigration rates from sensitive “suburban” markets, which are still dominated by three minority population groups.
According to Loos, “Indirect impacts can occur when general investor confidence is negatively affected, which can have a negative impact on economic growth and thus on purchasing power for residential property”.
The recent events have likely created the perception of factional divisions within the ANC and highlighted a party whose succession plan was not clearly thought out, especially given the temporary uncertainty surrounding the minister of finance, Trevor Manuel, who has played an integral part in stabilizing South Africa’s economy.
Where some would refer to the situation as a crisis, Loos is more inclined to “call it democracy functioning reasonably well”. He notes that constitutional procedures have been observed and the outgoing president “has accepted the decision, has not mobilized his army or a band of thugs to protect his position, and has not started to import weapons from China or any such thing”.
Loos went on to say that the public spat between Mbeki and ANC leader Jacob Zuma “looked pretty tame” in comparison to the showdown between US politicians of late. Mbeki has merely stepped down and the country does not seem to require a special negotiation process to remove him from office.
However, the events can’t be expected to alter the trends of declining residential property sales, home loan applications and emigration selling that continues to plague the South African market. Loos believes that economic factors should overshadow political events and that there are various things needed to turn the market for the better:
- An expected turn in inflation in the final quarter of the year, with an improvement in numbers “expected to cause real disposable income growth to turn upward as from early 2009”;
- A declining debt-to-disposable income ratio for households, which in turn is expected to cause the debt service to fall in the last three months of the year;
- Interest rates falling, which is expected from April; and
- The “ultimate recovery of the global economy”, which will have a positive impact on the local economy.
Loos seems to think that “a year from now, when the dust has settled on the current process of political leadership change”, the economy will turn for the better and combined with the benefits of 2010, there will be a significant decline in emigration. He added that policy shifts are more important than people shifts or policy wish lists.
“The world’s and our own political history tells us that the utterances from new leaders on their path to power are not always a good indication of what policies are to follow,” Loos advised.
In the meantime, head of Seeff Properties, Samuel Seeff has warned that an improvement in the property market could be further off than expected, thanks in part to the latest political saga. With an estimated 20 000 estate agents being forced out of the industry, the residential sector has taken a firm beating this year, with sales plummeting and falling property prices.
The bad performance in the housing market has been linked in part to negative sentiment about South Africa, with sellers increasingly citing emigration as a motivation behind offloading a home and consumers finding it increasingly difficult to obtain finance due to the stricter credit laws in place.
Many sellers and players in the industry have been biding their time in the hope that interest rates will improve, but even that looks unlikely with recent hints being dropped by SA Reserve Bank governor, Tito Mboweni.
The information in this article is courtesy of Realestateweb (“Politicians won’t move property market yet – bank”, 25 September 2008).
South African property for sale.
FNB’s property strategist, John Loos believes that the recent change in president may have rattled some cages, but it “is unlikely to change an already deteriorating residential market trend”.
Kgalema Motlanthe’s somewhat dramatic entry into the presidency following the ANC’s recall of Thabo Mbeki and the subsequent resignation of cabinet ministers en masse has certainly caused a stir, but Loos says that this will not have a significant impact on residential real estate.
Loos issued a report yesterday saying that, “Insofar as such events create negative sentiment in and towards the country, they are potentially negative for residential property performance”. The direct impact can be in the guise of higher emigration rates from sensitive “suburban” markets, which are still dominated by three minority population groups.
According to Loos, “Indirect impacts can occur when general investor confidence is negatively affected, which can have a negative impact on economic growth and thus on purchasing power for residential property”.
The recent events have likely created the perception of factional divisions within the ANC and highlighted a party whose succession plan was not clearly thought out, especially given the temporary uncertainty surrounding the minister of finance, Trevor Manuel, who has played an integral part in stabilizing South Africa’s economy.
Where some would refer to the situation as a crisis, Loos is more inclined to “call it democracy functioning reasonably well”. He notes that constitutional procedures have been observed and the outgoing president “has accepted the decision, has not mobilized his army or a band of thugs to protect his position, and has not started to import weapons from China or any such thing”.
Loos went on to say that the public spat between Mbeki and ANC leader Jacob Zuma “looked pretty tame” in comparison to the showdown between US politicians of late. Mbeki has merely stepped down and the country does not seem to require a special negotiation process to remove him from office.
However, the events can’t be expected to alter the trends of declining residential property sales, home loan applications and emigration selling that continues to plague the South African market. Loos believes that economic factors should overshadow political events and that there are various things needed to turn the market for the better:
- An expected turn in inflation in the final quarter of the year, with an improvement in numbers “expected to cause real disposable income growth to turn upward as from early 2009”;
- A declining debt-to-disposable income ratio for households, which in turn is expected to cause the debt service to fall in the last three months of the year;
- Interest rates falling, which is expected from April; and
- The “ultimate recovery of the global economy”, which will have a positive impact on the local economy.
Loos seems to think that “a year from now, when the dust has settled on the current process of political leadership change”, the economy will turn for the better and combined with the benefits of 2010, there will be a significant decline in emigration. He added that policy shifts are more important than people shifts or policy wish lists.
“The world’s and our own political history tells us that the utterances from new leaders on their path to power are not always a good indication of what policies are to follow,” Loos advised.
In the meantime, head of Seeff Properties, Samuel Seeff has warned that an improvement in the property market could be further off than expected, thanks in part to the latest political saga. With an estimated 20 000 estate agents being forced out of the industry, the residential sector has taken a firm beating this year, with sales plummeting and falling property prices.
The bad performance in the housing market has been linked in part to negative sentiment about South Africa, with sellers increasingly citing emigration as a motivation behind offloading a home and consumers finding it increasingly difficult to obtain finance due to the stricter credit laws in place.
Many sellers and players in the industry have been biding their time in the hope that interest rates will improve, but even that looks unlikely with recent hints being dropped by SA Reserve Bank governor, Tito Mboweni.
The information in this article is courtesy of Realestateweb (“Politicians won’t move property market yet – bank”, 25 September 2008).
South African property for sale.
Wednesday, September 24, 2008
Emerging Markets Under Pressure After Wall Street Crisis
While the main saga plays itself out in New York and London, there has been a significant ripple effect on the rest of the world. Investors in emerging markets like South Africa, which are known as “second tier economies”, have predicted an era of stunted growth and weaker currency.
Overall, emerging markets are already down 33% this year, which is far worse than the performance on Wall Street itself. Concern over Washington’s $700 billion bailout plan played a part in the tumble of the rand on Tuesday by more than 2%. Stock markets in India, Turkey and Russia all fell by more than 3%.
However, there are very few market analysts that predict a return to the financial drama that overwhelmed Asian economies in 1997, as well as Russia, Brazil, Argentina and Turkey in subsequent years. Emerging markets like South Africa are far more robust financially than in the past, with healthy surpluses that have been accumulated for just such a rainy day. There are some that might even attract investors wary of Wall Street and London.
According to Arnab Das, head of emerging markets research at Dresdner Kleinwort, an investment bank in London, “The unfortunate reality is that in one way or another everyone in the world is exposed, but that doesn’t mean there won’t be winners and losers”.
Mark Williams, an analyst of emerging Asian economies at Capital Economics, a London consulting firm, says, “Whenever something like this has happened, risk aversion has always won out and emerging markets tend to suffer more than most when the world gets into trouble”.
The primary factor for concern is that these countries generally run large current account (trade) deficits, which continue to rely on foreign investment to balance the books. South Africa’s deficit is close to 10% of gross domestic product, while in some countries like the Balkans and the Baltics it is even higher.
Royal Bank of Canada’s emerging markets strategist, Nigel Rendell says, “The financial stress leads investors to avoid things that are high risk. Emerging markets can be a high risk and an area to keep out of”. He goes on to say that if investment dries up then these countries could be left short of cash. Consequently, the only option left is to let the currencies slide.
The currency “is either devalued, or allowed to depreciate, or you have to slow down the domestic economy and slow imports from coming in at such a rate,” Rendell says. This could signal a sharp slowdown in growth rates in Turkey and Eastern Europe.
India Leaking Capital
India also seems to have been ‘leaking capital’, which has resulted in a failing currency that has subsequently put upward pressure on inflation, with figures currently more than 12%. “Comparatively, we would say India is relatively insulated because its economy is relatively closed, but we have seen capital leaving India and pressure on the currency,” says Hugo Navarro, an economist at Capital Economics. “It’s to the stage where the government is stepping in and taking steps to strengthen [the rupiah] because of concerns over inflation”.
The more optimistic news is that there are emerging economies like Russia and Brazil that are flush with cash due to peak commodity prices, as well as an economic boom in China. But even these countries are not immune, as leading Shanghai stocks are down more than 60% from their peak. The Russian market was suspended for 2 days last week having fallen more than 50% over the past four months.
It has been noted by Williams that emerging Asian stocks have dropped by more than those in developed countries, but this does not mean that the region suffers from the same financial imbalances as those affecting Western finance. “We’ve seen nothing like the kind of property bubble that has grown up in the US and UK, so there is good reason to think that Asian growth will hold up pretty well,” he adds.
The big question seems to be whether the US and European economies will slow down enough to affect Asian exports, but Williams believes that both India and China are well protected in the fact that much of the demand is generated by domestic consumers. “But some of the smaller economies like Singapore, Malaysia and Taiwan are very reliant on exports to the US and Europe”.
Another gauge of how healthy emerging markets are is the premium that has to be paid by borrowers. This has been steadily increasing in recent months, making loans much more expensive and initiating questions about whether borrowers will actually be able to pay off their loans when due dates fall.
Refinancing Loans
Dutch bank ING has calculated that $111 billion worth of emerging market bonds will have to be refinanced in the next year. With credit tight, there is doubt as to whether corporate borrowers will be able to refinance their loans.
Das doesn’t believe that we will see a sovereign debt default problem, where countries are unable to pay back their loans. Instead, the focus will be on banks and companies “that have been major issuers into the credit bubble”.
He goes on to say that, “Russia, Kazakhstan and Ukraine had a number of banks issuing debt. They haven’t all lost access [to credit], but if even Gazprom is having to pay higher [interest rate] spreads [on loans], you can be sure that the weaker names will continue to have a much harder time getting bond deals done”.
The information in this article is courtesy of Mark Rice-Oxley (“Emerging Markets Hit Hard by Wall Street Crisis”, The Christian Science Monitor, 24 September 2008).
Buy property in South Africa.
Overall, emerging markets are already down 33% this year, which is far worse than the performance on Wall Street itself. Concern over Washington’s $700 billion bailout plan played a part in the tumble of the rand on Tuesday by more than 2%. Stock markets in India, Turkey and Russia all fell by more than 3%.
However, there are very few market analysts that predict a return to the financial drama that overwhelmed Asian economies in 1997, as well as Russia, Brazil, Argentina and Turkey in subsequent years. Emerging markets like South Africa are far more robust financially than in the past, with healthy surpluses that have been accumulated for just such a rainy day. There are some that might even attract investors wary of Wall Street and London.
According to Arnab Das, head of emerging markets research at Dresdner Kleinwort, an investment bank in London, “The unfortunate reality is that in one way or another everyone in the world is exposed, but that doesn’t mean there won’t be winners and losers”.
Mark Williams, an analyst of emerging Asian economies at Capital Economics, a London consulting firm, says, “Whenever something like this has happened, risk aversion has always won out and emerging markets tend to suffer more than most when the world gets into trouble”.
The primary factor for concern is that these countries generally run large current account (trade) deficits, which continue to rely on foreign investment to balance the books. South Africa’s deficit is close to 10% of gross domestic product, while in some countries like the Balkans and the Baltics it is even higher.
Royal Bank of Canada’s emerging markets strategist, Nigel Rendell says, “The financial stress leads investors to avoid things that are high risk. Emerging markets can be a high risk and an area to keep out of”. He goes on to say that if investment dries up then these countries could be left short of cash. Consequently, the only option left is to let the currencies slide.
The currency “is either devalued, or allowed to depreciate, or you have to slow down the domestic economy and slow imports from coming in at such a rate,” Rendell says. This could signal a sharp slowdown in growth rates in Turkey and Eastern Europe.
India Leaking Capital
India also seems to have been ‘leaking capital’, which has resulted in a failing currency that has subsequently put upward pressure on inflation, with figures currently more than 12%. “Comparatively, we would say India is relatively insulated because its economy is relatively closed, but we have seen capital leaving India and pressure on the currency,” says Hugo Navarro, an economist at Capital Economics. “It’s to the stage where the government is stepping in and taking steps to strengthen [the rupiah] because of concerns over inflation”.
The more optimistic news is that there are emerging economies like Russia and Brazil that are flush with cash due to peak commodity prices, as well as an economic boom in China. But even these countries are not immune, as leading Shanghai stocks are down more than 60% from their peak. The Russian market was suspended for 2 days last week having fallen more than 50% over the past four months.
It has been noted by Williams that emerging Asian stocks have dropped by more than those in developed countries, but this does not mean that the region suffers from the same financial imbalances as those affecting Western finance. “We’ve seen nothing like the kind of property bubble that has grown up in the US and UK, so there is good reason to think that Asian growth will hold up pretty well,” he adds.
The big question seems to be whether the US and European economies will slow down enough to affect Asian exports, but Williams believes that both India and China are well protected in the fact that much of the demand is generated by domestic consumers. “But some of the smaller economies like Singapore, Malaysia and Taiwan are very reliant on exports to the US and Europe”.
Another gauge of how healthy emerging markets are is the premium that has to be paid by borrowers. This has been steadily increasing in recent months, making loans much more expensive and initiating questions about whether borrowers will actually be able to pay off their loans when due dates fall.
Refinancing Loans
Dutch bank ING has calculated that $111 billion worth of emerging market bonds will have to be refinanced in the next year. With credit tight, there is doubt as to whether corporate borrowers will be able to refinance their loans.
Das doesn’t believe that we will see a sovereign debt default problem, where countries are unable to pay back their loans. Instead, the focus will be on banks and companies “that have been major issuers into the credit bubble”.
He goes on to say that, “Russia, Kazakhstan and Ukraine had a number of banks issuing debt. They haven’t all lost access [to credit], but if even Gazprom is having to pay higher [interest rate] spreads [on loans], you can be sure that the weaker names will continue to have a much harder time getting bond deals done”.
The information in this article is courtesy of Mark Rice-Oxley (“Emerging Markets Hit Hard by Wall Street Crisis”, The Christian Science Monitor, 24 September 2008).
Buy property in South Africa.
Monday, September 22, 2008
Property a Resilient Investment Class
Property the Safest Bet
While global markets and investors literally shudder in the aftermath of the collapse of Lehman Brothers and AIG, South African property investors are somewhat smug in comparison.
Paul Hansen of Stanlib, a major asset management company, noted that the JSE was about 25% off its high and close to lows seen in January as a result of the chaos that ensued on world markets following the crisis on Wall Street.
In an assessment on the impact the crisis will have on South African investors, Hansen said, “The JSE looks good value all-round, but if world markets continue to fall, the JSE may do likewise. With the MSCI World Index down 27% (in dollars) at 2005 levels and the JSE All Share Index down 25%, we don’t think this is a time to be selling, even though there may be more downside to come”.
However, amid the falling share prices, there is good news for some investors. Hansen said, “Remember that over the past few months in SA, three of four asset classes have done well (listed property, bond and cash)”. Investors in publicly listed property companies aren’t the only ones who are breathing a deep sigh of relief.
The collective opinion seems to be that investing in brick and mortar at least gives you something tangible after the crash, while making a wrong move with equities or even cash in a bank with unsecured deposits may just give you grey hair and plenty of useless paper for your troubles.
The recent property statistics released by Lightstone Risk Management go a long way towards comforting investors, as the snapshot goes back to 2000 and indicates that South African residential property prices, unlike shares, are all in positive terrain. Granted, they are falling and likely to drop further, but they aren’t likely to plunge dramatically like shares do at times, which is an excellent reason to include residential bricks and mortar in a personal investment portfolio.
In general, property prices tend to go up at a fairly sedate pace and wind down slowly, more or less in line with interest rates. It’s not likely that you’ll wake up one morning to find your property worth 25% less than it was the day before, which is something that could easily happen with equities.
The stark contrast in performance between residential property and shares in general this week has highlighted the volatility of the stock market. Bill Rawson, founder of Rawson Properties once said in an interview that he believed buy-to-lets were the answer for people looking for a steady stream of income. He pointed out that even blue chip companies on the stock market cannot be taken for granted when you are dealing with important financial requirements, as even the big companies come and go.
Pieter de W Louw has released a new book for the P3 Investment Group called Property – Your key to wealth. In it he says that he couldn’t believe his own eyes when he read the 2005 Financial Planning Handbook of South Africa to find that residential property is portrayed as ‘high risk’ investment class.
“What has gone wrong in this industry? Are the learned professionals of the financial industry so biased that they have completely lost their minds? I am honestly sad when I have to say that you should be extremely cautious when taking investment advice from just anyone who boasts with the ‘highest qualification in financial planning’ (CFP) behind their name. Why do I think that the risk is low? The answer is common sense. Show me an entry level property in South Africa that has declined in value over the past decade,” he argues.
Reinforcing this view that property is a low risk investment with high returns are some recent statistics from ABSA, which indicate that property beat all other asset classes over 5, 10, 15 and 20 years – and is almost as ‘low risk’ as cash. However, this doesn’t mean that it’s all plain sailing for property investors. Whatever the case, when it comes to making money in property, the reality is that you can’t win if you aren’t in the game and playing the game also has its ups and downs. At the end of the day, property does appear to be a resilient investment class in comparison to other types at the moment.
The information in this article is courtesy of Jackie Cameron (“Property: the safest investment bet”, Realestateweb, 19 September 2008).
Property for sale in South Africa.
While global markets and investors literally shudder in the aftermath of the collapse of Lehman Brothers and AIG, South African property investors are somewhat smug in comparison.
Paul Hansen of Stanlib, a major asset management company, noted that the JSE was about 25% off its high and close to lows seen in January as a result of the chaos that ensued on world markets following the crisis on Wall Street.
In an assessment on the impact the crisis will have on South African investors, Hansen said, “The JSE looks good value all-round, but if world markets continue to fall, the JSE may do likewise. With the MSCI World Index down 27% (in dollars) at 2005 levels and the JSE All Share Index down 25%, we don’t think this is a time to be selling, even though there may be more downside to come”.
However, amid the falling share prices, there is good news for some investors. Hansen said, “Remember that over the past few months in SA, three of four asset classes have done well (listed property, bond and cash)”. Investors in publicly listed property companies aren’t the only ones who are breathing a deep sigh of relief.
The collective opinion seems to be that investing in brick and mortar at least gives you something tangible after the crash, while making a wrong move with equities or even cash in a bank with unsecured deposits may just give you grey hair and plenty of useless paper for your troubles.
The recent property statistics released by Lightstone Risk Management go a long way towards comforting investors, as the snapshot goes back to 2000 and indicates that South African residential property prices, unlike shares, are all in positive terrain. Granted, they are falling and likely to drop further, but they aren’t likely to plunge dramatically like shares do at times, which is an excellent reason to include residential bricks and mortar in a personal investment portfolio.
In general, property prices tend to go up at a fairly sedate pace and wind down slowly, more or less in line with interest rates. It’s not likely that you’ll wake up one morning to find your property worth 25% less than it was the day before, which is something that could easily happen with equities.
The stark contrast in performance between residential property and shares in general this week has highlighted the volatility of the stock market. Bill Rawson, founder of Rawson Properties once said in an interview that he believed buy-to-lets were the answer for people looking for a steady stream of income. He pointed out that even blue chip companies on the stock market cannot be taken for granted when you are dealing with important financial requirements, as even the big companies come and go.
Pieter de W Louw has released a new book for the P3 Investment Group called Property – Your key to wealth. In it he says that he couldn’t believe his own eyes when he read the 2005 Financial Planning Handbook of South Africa to find that residential property is portrayed as ‘high risk’ investment class.
“What has gone wrong in this industry? Are the learned professionals of the financial industry so biased that they have completely lost their minds? I am honestly sad when I have to say that you should be extremely cautious when taking investment advice from just anyone who boasts with the ‘highest qualification in financial planning’ (CFP) behind their name. Why do I think that the risk is low? The answer is common sense. Show me an entry level property in South Africa that has declined in value over the past decade,” he argues.
Reinforcing this view that property is a low risk investment with high returns are some recent statistics from ABSA, which indicate that property beat all other asset classes over 5, 10, 15 and 20 years – and is almost as ‘low risk’ as cash. However, this doesn’t mean that it’s all plain sailing for property investors. Whatever the case, when it comes to making money in property, the reality is that you can’t win if you aren’t in the game and playing the game also has its ups and downs. At the end of the day, property does appear to be a resilient investment class in comparison to other types at the moment.
The information in this article is courtesy of Jackie Cameron (“Property: the safest investment bet”, Realestateweb, 19 September 2008).
Property for sale in South Africa.
Monday, September 8, 2008
South African Tax Law Amendments
New Tax Break on Residential Units
If you own at least 5 residential property investments then SARS may soon hand you a gift by changing the tax law. Tax expert David Warneke explains that the new Revenue Laws Amendment Bill issued on 1 August 2008 has a number of interesting, but fairly complicated amendment proposals to the Income Tax Act. Among these is the proposal to revamp the section 13ter allowance applying to residential housing units let out by the taxpayer or occupied by the full time employees of the taxpayer.
Warneke is a tax partner at Cameron & Prentice Accountants and he examines the proposal in a guest column published by Realestateweb. He says that the amendment essentially entails a write off at the uniform rate of 5% over 20 years, which replaces the current total write off of 12% in the first year and 2% every other year for a period of 45 years with an upfront loading of deductions.
However, where the unit consists of only part of a building, for instance a single flat in a sectional title scheme that was not developed by the taxpayer then the cost on the write off is deemed to be only 55% of the taxpayer’s actual cost. This means that if the flat cost R1,5m then the write off will be 5% of 55% of R1,5m or R41 250 per annum. Where the unit is a stand-alone property, such as a house or if the taxpayer built the flat then the 55% reduction does not apply and the full 5% per annum of actual cost may be claimed.
Warneke goes on to say that the new dispensation will only apply to new and unused residential units or improvements. “Residential units” are essentially defined as a residential building or apartment, other than guesthouses, hotels or holiday accommodation. The section requires that the taxpayer own at least 5 residential units within the same geographical vicinity to qualify for any deduction. Furthermore, the residential unit or improvements must be wholly or primarily used for producing rental income in the course of a trade carried out by the taxpayer. It is also allowed for the unit to be occupied by employees of the taxpayer or of another company within the same group of companies as the taxpayer (if the taxpayer is a company).
According to Warneke, the write off accelerates to 10% straight line where the building is a “low income residential unit”, which is defined as a residential unit where the cost does not exceed R200 000 and if an apartment, the cost does not exceed R250 000. These amounts do not include the cost of land and the bulk infrastructure. The section also requires that the owner of the low income residential unit must charge a monthly rental of no more than 1% of the cost, i.e. R2000 pm if a building and R2500 if an apartment.
The information in this article is courtesy of David Warneke (“New tax break: Allowance on residential units revamped”, Realestateweb, 7 September 2008).
Property to buy or sell in South Africa.
If you own at least 5 residential property investments then SARS may soon hand you a gift by changing the tax law. Tax expert David Warneke explains that the new Revenue Laws Amendment Bill issued on 1 August 2008 has a number of interesting, but fairly complicated amendment proposals to the Income Tax Act. Among these is the proposal to revamp the section 13ter allowance applying to residential housing units let out by the taxpayer or occupied by the full time employees of the taxpayer.
Warneke is a tax partner at Cameron & Prentice Accountants and he examines the proposal in a guest column published by Realestateweb. He says that the amendment essentially entails a write off at the uniform rate of 5% over 20 years, which replaces the current total write off of 12% in the first year and 2% every other year for a period of 45 years with an upfront loading of deductions.
However, where the unit consists of only part of a building, for instance a single flat in a sectional title scheme that was not developed by the taxpayer then the cost on the write off is deemed to be only 55% of the taxpayer’s actual cost. This means that if the flat cost R1,5m then the write off will be 5% of 55% of R1,5m or R41 250 per annum. Where the unit is a stand-alone property, such as a house or if the taxpayer built the flat then the 55% reduction does not apply and the full 5% per annum of actual cost may be claimed.
Warneke goes on to say that the new dispensation will only apply to new and unused residential units or improvements. “Residential units” are essentially defined as a residential building or apartment, other than guesthouses, hotels or holiday accommodation. The section requires that the taxpayer own at least 5 residential units within the same geographical vicinity to qualify for any deduction. Furthermore, the residential unit or improvements must be wholly or primarily used for producing rental income in the course of a trade carried out by the taxpayer. It is also allowed for the unit to be occupied by employees of the taxpayer or of another company within the same group of companies as the taxpayer (if the taxpayer is a company).
According to Warneke, the write off accelerates to 10% straight line where the building is a “low income residential unit”, which is defined as a residential unit where the cost does not exceed R200 000 and if an apartment, the cost does not exceed R250 000. These amounts do not include the cost of land and the bulk infrastructure. The section also requires that the owner of the low income residential unit must charge a monthly rental of no more than 1% of the cost, i.e. R2000 pm if a building and R2500 if an apartment.
The information in this article is courtesy of David Warneke (“New tax break: Allowance on residential units revamped”, Realestateweb, 7 September 2008).
Property to buy or sell in South Africa.
Friday, September 5, 2008
Latest House Price Index Stats from ABSA and FNB
What's the Worst Case Scenario?
The latest reports from FNB’s house price index indicate that a drop of 5% is the worst South African consumers can expect before things in the residential property market begin to improve. Before now, FNB’s property watchers have relied primarily on data retrieved from other sources, but the bank has now developed its own index, using details from mortgages approved to produce price inflation figures.
According to FNB, the results of this new index are relatively similar to ABSA’s, with the figures indicating a 2.3% year on year increase in house prices in August. This is down 3.5% from the data recorded in July and reflects a continuing “declining inflation trend”. In real terms, FNB’s property strategist John Loos says that there has been a drop of almost 9% and that basis prices are dropping month to month, with a –0.3% fall in nominal terms in August.
“While month on month house price deflation is already here, year on year price deflation is expected to arrive soon. However, no ‘freefall’ is anticipated. Rather, around a –5% year on year deflation is expected at the worst part of the price cycle in the first half of 2009,” says Loos. He goes on to say that after that, price inflation is predicted to resume late next year “on the back of recovering economic growth and declining interest rates”.
According to FNB’s market sample, the average house price transacted as at August was around R681 000, while the median price was about R550 000. “In reality though, both measures are over-estimates of what the average house value in South Africa really is. This is because higher income households are generally more mobile than low income ones, which means that a greater percentage of total stocks gets traded in middle to upper income areas, as opposed to, for example, black townships,” explains Loos.
Loos argues that if every property could be valued, even RDP housing, regardless of whether it gets transacted, the average median values would be considerably lower. The FNB house price index is calculated using the average value of housing transactions financed by the bank. He says that in order to eliminate outliers from the data sample, transaction values have to be above 70% of the property valuation, but below 130%, while sales concluded above R10m and below R20 000 are excluded.
The strategist emphasized that the house price depicted in indices does not really show the “full extent of residential market weakness”. In fact, “sellers are somewhat inflexible when it comes to dropping their asking price. Some would stay out of the market during these weak times, while others hold on longer to obtain their price, often incurring higher holding costs,” Loos says.
Therefore, sales volumes would probably give a better reflection of the current state of the market than prices. Agents are generally seeing volumes down by close to half of what they were at the same time last year. Meanwhile, ABSA also released their house price index on Thursday and put the average house price at about R962 500. The average nominal price of a medium sized house with an average price of around R946 200 increased by a mere 2% year on year in August, which incidentally is the lowest growth rate since January 1993, this according to ABSA’s senior property analyst Jacques du Toit. Larger houses (up to 400m²) increased by a little over 1% according to the data supplied by ABSA, which brings the average house price to R1 368 000 and small houses increased by just under 4%, bringing the average house price in this sector to about R682 500.
In real terms though, ABSA says that house prices have been falling for the last six months with a drop not far off 10% in July. The bank believes that real house prices are set to drop by another 7% this year, which is the first annual decline since 1999. The nominal growth rate for 2008 is expected at around 4.5%.
“It is, however, only in 2010 that nominal price growth is expected to rise to a level of above 10% again, while real price growth is projected to turn positive in the same year after two years (2008 and 2009) of real price declines,” according to du Toit. He goes on to say that the latter part of this year and early 2009 will probably be “the best time to buy property”.
The information in this article is courtesy of Realestatweb (“Residential property prices: the worst-case scenario”, 4 September 2008).
Buy or sell property in South Africa.
The latest reports from FNB’s house price index indicate that a drop of 5% is the worst South African consumers can expect before things in the residential property market begin to improve. Before now, FNB’s property watchers have relied primarily on data retrieved from other sources, but the bank has now developed its own index, using details from mortgages approved to produce price inflation figures.
According to FNB, the results of this new index are relatively similar to ABSA’s, with the figures indicating a 2.3% year on year increase in house prices in August. This is down 3.5% from the data recorded in July and reflects a continuing “declining inflation trend”. In real terms, FNB’s property strategist John Loos says that there has been a drop of almost 9% and that basis prices are dropping month to month, with a –0.3% fall in nominal terms in August.
“While month on month house price deflation is already here, year on year price deflation is expected to arrive soon. However, no ‘freefall’ is anticipated. Rather, around a –5% year on year deflation is expected at the worst part of the price cycle in the first half of 2009,” says Loos. He goes on to say that after that, price inflation is predicted to resume late next year “on the back of recovering economic growth and declining interest rates”.
According to FNB’s market sample, the average house price transacted as at August was around R681 000, while the median price was about R550 000. “In reality though, both measures are over-estimates of what the average house value in South Africa really is. This is because higher income households are generally more mobile than low income ones, which means that a greater percentage of total stocks gets traded in middle to upper income areas, as opposed to, for example, black townships,” explains Loos.
Loos argues that if every property could be valued, even RDP housing, regardless of whether it gets transacted, the average median values would be considerably lower. The FNB house price index is calculated using the average value of housing transactions financed by the bank. He says that in order to eliminate outliers from the data sample, transaction values have to be above 70% of the property valuation, but below 130%, while sales concluded above R10m and below R20 000 are excluded.
The strategist emphasized that the house price depicted in indices does not really show the “full extent of residential market weakness”. In fact, “sellers are somewhat inflexible when it comes to dropping their asking price. Some would stay out of the market during these weak times, while others hold on longer to obtain their price, often incurring higher holding costs,” Loos says.
Therefore, sales volumes would probably give a better reflection of the current state of the market than prices. Agents are generally seeing volumes down by close to half of what they were at the same time last year. Meanwhile, ABSA also released their house price index on Thursday and put the average house price at about R962 500. The average nominal price of a medium sized house with an average price of around R946 200 increased by a mere 2% year on year in August, which incidentally is the lowest growth rate since January 1993, this according to ABSA’s senior property analyst Jacques du Toit. Larger houses (up to 400m²) increased by a little over 1% according to the data supplied by ABSA, which brings the average house price to R1 368 000 and small houses increased by just under 4%, bringing the average house price in this sector to about R682 500.
In real terms though, ABSA says that house prices have been falling for the last six months with a drop not far off 10% in July. The bank believes that real house prices are set to drop by another 7% this year, which is the first annual decline since 1999. The nominal growth rate for 2008 is expected at around 4.5%.
“It is, however, only in 2010 that nominal price growth is expected to rise to a level of above 10% again, while real price growth is projected to turn positive in the same year after two years (2008 and 2009) of real price declines,” according to du Toit. He goes on to say that the latter part of this year and early 2009 will probably be “the best time to buy property”.
The information in this article is courtesy of Realestatweb (“Residential property prices: the worst-case scenario”, 4 September 2008).
Buy or sell property in South Africa.
Thursday, September 4, 2008
Asset Manager Argues for Investment in Equities and Bonds
Should You Buy That House?
Shaun le Roux is a portfolio manager at Alphen Asset Management and in an article published by Realestateweb, he poses the big question pervading the minds of many smaller investors: is residential property really a great long-term investment?
Many South Africans, along with their American counterparts up until some time last year, appear to have an unshakeable belief that residential property is a great investment. In fact, when it comes to paying rent to a landlord so that he can afford to pay off his bond, there seems to be a determined attitude to rather own property and put savings towards your own bond. This begs the question whether this tendency to own rather than rent and invest the difference elsewhere is always appropriate?
The answer is generally dependent on a number of factors. For instance, timing would have a profound impact from a capital appreciation perspective – if you entered the residential property market in 2002 then a house can make a great investment. However, the sad reality is that most of the time it doesn’t. For most property owners, a house is bound to be the largest financial investment that they will ever make and is deemed a key factor in their overall net worth.
There are many financial planners who choose to exclude a client’s residential property from the list of assets in order to determine the level of savings and asset allocation necessary to meet their financial needs. The prevailing view seems to be that you never know what price you will achieve when you decide to sell, especially in light of a market that is prone to ‘wild swings in confidence’. More often than not, a large percentage of the value realized would have to be used to discharge debt.
Even so, there are plenty of smart operators so to speak that habitually earn profit from an extensive knowledge of the relative value of specific properties and because the market is not liquid, pricing can be extremely inefficient. This skill is not really something attributable to the average homeowner though.
When it comes to residential property outperforming as an investment class, there are several factors working against it. First of all, the transaction costs on a sale or purchase, which include transfer duties, estate agent fees, conveyancing charges and high selling costs. In comparison, transaction costs in a liquid market trading in securities like equities or bonds are but a fraction of this.
Second, the home that you reside in does not generally produce an income. As any investment expert will tell you, the holy grail when it comes to investing is the power of compounding. Of course, some may argue that paying off the bond on a house allows the investor to benefit from this power by virtue of the fact that the outstanding debt steadily decreases. However, a house is really a depreciating asset, as the value of bricks and mortar falls in real terms over time. To add to this, the average house, especially an older one tends to require a significant input of cash for annual maintenance.
Le Roux goes on to say that investing in a growth asset like equities or income yielding investment property has far more long-term advantages. Mark Seymour (Alphen Angle) discussed the South African equity market and said that an annualized real return of about 9.5% has been achieved over the past 50 years.
If the returns achieved on the price index of the SA equity market are compared with the ABSA House Price Index over the past 40 years then the JSE has been a vastly superior investment to average houses and this is before even taking into account the re-investment of dividends. This superior return on growth assets comes from the ability of sound investments to generate returns in excess of inflation and the opportunity to re-invest and compound these returns into new growth options. In the case of equities, the excess capital distributed to shareholders in the form of dividends is tax-free.
To top it off, bond repayments have to be made out of disposable after-tax income and a monthly contribution to a retirement plan sees the first 15% of before-tax income directed to such a savings plan enjoying considerable tax benefits. A retirement plan that is started early that has high allocation to growth assets is likely to be the most important investment that the average investor will ever make. When retirement arrives, they will still require a home to live in, but they will also need to draw an income from somewhere to meet their monthly expenditure.
The advice is not all doom and gloom when it comes to investing in residential property though. Le Roux believes that the strongest case to be made for residential property is the manner in which a bond acts as a vehicle for forced saving. The savings rate in South Africa is currently abysmal with many consumers surviving on credit and living beyond their means. Monthly bond repayments do enforce a degree of saving, but at the same time, this is weighed heavily in favour of the bank and at the expense of the homeowner, particularly in the first few years after taking out a bond as the repayments go towards paying off interest and not capital.
There is another argument in favour of residential property that posits property values as underpinned and supported in the long-term by the fact land is a scarce and finite resource. This is particularly true in areas where there is high demand, such as cities or on the coast. However, le Roux argues once again that while the value of land is bound to appreciate and so inspire investment, it is still a non-income yielding property. The average man in the street may not be so fortunate as that who called the market right or picked the next Plettenberg Bay.
While le Roux’s comments may not have a profound impact on the trend towards owning property rather than renting in South Africa, he does has a valid point. Perhaps the best piece of advice when owning or planning to invest in a home is to ensure that you do the maths correctly. You shouldn’t be living beyond your means and you should be meeting your retirement objectives with your existing savings levels and investment portfolio.
The information in this article is courtesy of Shaun le Roux (“Residential property: a great long-term investment?” Realestateweb, 2 September 2008).
Buy or sell property in South Africa.
Shaun le Roux is a portfolio manager at Alphen Asset Management and in an article published by Realestateweb, he poses the big question pervading the minds of many smaller investors: is residential property really a great long-term investment?
Many South Africans, along with their American counterparts up until some time last year, appear to have an unshakeable belief that residential property is a great investment. In fact, when it comes to paying rent to a landlord so that he can afford to pay off his bond, there seems to be a determined attitude to rather own property and put savings towards your own bond. This begs the question whether this tendency to own rather than rent and invest the difference elsewhere is always appropriate?
The answer is generally dependent on a number of factors. For instance, timing would have a profound impact from a capital appreciation perspective – if you entered the residential property market in 2002 then a house can make a great investment. However, the sad reality is that most of the time it doesn’t. For most property owners, a house is bound to be the largest financial investment that they will ever make and is deemed a key factor in their overall net worth.
There are many financial planners who choose to exclude a client’s residential property from the list of assets in order to determine the level of savings and asset allocation necessary to meet their financial needs. The prevailing view seems to be that you never know what price you will achieve when you decide to sell, especially in light of a market that is prone to ‘wild swings in confidence’. More often than not, a large percentage of the value realized would have to be used to discharge debt.
Even so, there are plenty of smart operators so to speak that habitually earn profit from an extensive knowledge of the relative value of specific properties and because the market is not liquid, pricing can be extremely inefficient. This skill is not really something attributable to the average homeowner though.
When it comes to residential property outperforming as an investment class, there are several factors working against it. First of all, the transaction costs on a sale or purchase, which include transfer duties, estate agent fees, conveyancing charges and high selling costs. In comparison, transaction costs in a liquid market trading in securities like equities or bonds are but a fraction of this.
Second, the home that you reside in does not generally produce an income. As any investment expert will tell you, the holy grail when it comes to investing is the power of compounding. Of course, some may argue that paying off the bond on a house allows the investor to benefit from this power by virtue of the fact that the outstanding debt steadily decreases. However, a house is really a depreciating asset, as the value of bricks and mortar falls in real terms over time. To add to this, the average house, especially an older one tends to require a significant input of cash for annual maintenance.
Le Roux goes on to say that investing in a growth asset like equities or income yielding investment property has far more long-term advantages. Mark Seymour (Alphen Angle) discussed the South African equity market and said that an annualized real return of about 9.5% has been achieved over the past 50 years.
If the returns achieved on the price index of the SA equity market are compared with the ABSA House Price Index over the past 40 years then the JSE has been a vastly superior investment to average houses and this is before even taking into account the re-investment of dividends. This superior return on growth assets comes from the ability of sound investments to generate returns in excess of inflation and the opportunity to re-invest and compound these returns into new growth options. In the case of equities, the excess capital distributed to shareholders in the form of dividends is tax-free.
To top it off, bond repayments have to be made out of disposable after-tax income and a monthly contribution to a retirement plan sees the first 15% of before-tax income directed to such a savings plan enjoying considerable tax benefits. A retirement plan that is started early that has high allocation to growth assets is likely to be the most important investment that the average investor will ever make. When retirement arrives, they will still require a home to live in, but they will also need to draw an income from somewhere to meet their monthly expenditure.
The advice is not all doom and gloom when it comes to investing in residential property though. Le Roux believes that the strongest case to be made for residential property is the manner in which a bond acts as a vehicle for forced saving. The savings rate in South Africa is currently abysmal with many consumers surviving on credit and living beyond their means. Monthly bond repayments do enforce a degree of saving, but at the same time, this is weighed heavily in favour of the bank and at the expense of the homeowner, particularly in the first few years after taking out a bond as the repayments go towards paying off interest and not capital.
There is another argument in favour of residential property that posits property values as underpinned and supported in the long-term by the fact land is a scarce and finite resource. This is particularly true in areas where there is high demand, such as cities or on the coast. However, le Roux argues once again that while the value of land is bound to appreciate and so inspire investment, it is still a non-income yielding property. The average man in the street may not be so fortunate as that who called the market right or picked the next Plettenberg Bay.
While le Roux’s comments may not have a profound impact on the trend towards owning property rather than renting in South Africa, he does has a valid point. Perhaps the best piece of advice when owning or planning to invest in a home is to ensure that you do the maths correctly. You shouldn’t be living beyond your means and you should be meeting your retirement objectives with your existing savings levels and investment portfolio.
The information in this article is courtesy of Shaun le Roux (“Residential property: a great long-term investment?” Realestateweb, 2 September 2008).
Buy or sell property in South Africa.
Thursday, August 28, 2008
South African Property Owners Can Breathe Sigh of Relief
Land Reform Bill Put on Ice
There has been vigorous debate recently concerning the government’s proposed Land Bill aimed at speeding up the land reform program in South Africa. Farmers and citizens alike can breathe a huge sigh of relief at news that the parliamentary committee has shelved the legislation, citing lack of consultation as the reason behind the decision and has said that the Bill will be reintroduced at a later date.
The government has said that it wants to redistribute nearly a third of white-owned farm land by 2014. At the end of Apartheid, almost 90% of South African land was owned by whites, who made up just 10% of the overall population at the time. So far, the land reform program has only succeeded in transferring 4% of this land to blacks.
Critics of the proposed legislation have argued that it would be unconstitutional, as it would prevent people from going to court should their property be taken. In fact, there are those who have argued that the expropriation could extend beyond agricultural property to all types of property, be it intellectual, commercial or personal.
The Land Bill was introduced by the ANC government in April this year and aimed to give the government greater powers to transfer land and property from existing owners. A committee statement said: “The decision [to shelve the bill] was reached after consultation with various stakeholders both within and outside parliament and in the interest of broader consultation and effective public participation”.
The government’s land restitution program is focused on returning land seized by whites after 1913 to the disenfranchised black population. However, earlier this year it was determined that the program had failed in its mandate. Thousands of claims are still being processed across the country for land and property that was taken unlawfully from black owners during the Apartheid era and before.
Farmers and civil society may well be pleased with the government’s decision to put the legislation on hold, but the reality remains that land redistribution continues to be a problem that needs to be addressed in South Africa. The government may have been stalled at this point, but no doubt there will be new legislation to follow.
The information in this article is courtesy of BBC News (“S Africa land reform bill shelved”, 27 August 2008).
Property for sale in South Africa.
There has been vigorous debate recently concerning the government’s proposed Land Bill aimed at speeding up the land reform program in South Africa. Farmers and citizens alike can breathe a huge sigh of relief at news that the parliamentary committee has shelved the legislation, citing lack of consultation as the reason behind the decision and has said that the Bill will be reintroduced at a later date.
The government has said that it wants to redistribute nearly a third of white-owned farm land by 2014. At the end of Apartheid, almost 90% of South African land was owned by whites, who made up just 10% of the overall population at the time. So far, the land reform program has only succeeded in transferring 4% of this land to blacks.
Critics of the proposed legislation have argued that it would be unconstitutional, as it would prevent people from going to court should their property be taken. In fact, there are those who have argued that the expropriation could extend beyond agricultural property to all types of property, be it intellectual, commercial or personal.
The Land Bill was introduced by the ANC government in April this year and aimed to give the government greater powers to transfer land and property from existing owners. A committee statement said: “The decision [to shelve the bill] was reached after consultation with various stakeholders both within and outside parliament and in the interest of broader consultation and effective public participation”.
The government’s land restitution program is focused on returning land seized by whites after 1913 to the disenfranchised black population. However, earlier this year it was determined that the program had failed in its mandate. Thousands of claims are still being processed across the country for land and property that was taken unlawfully from black owners during the Apartheid era and before.
Farmers and civil society may well be pleased with the government’s decision to put the legislation on hold, but the reality remains that land redistribution continues to be a problem that needs to be addressed in South Africa. The government may have been stalled at this point, but no doubt there will be new legislation to follow.
The information in this article is courtesy of BBC News (“S Africa land reform bill shelved”, 27 August 2008).
Property for sale in South Africa.
Wednesday, August 27, 2008
SA Property Transfer Guide Paints a Positive Picture
Not All Doom and Gloom
The South African property market may be experiencing difficult times, but data released by the South African Property Transfer Guide (SAPTG) indicates that the situation is not quite as dim as some of the latest media reports might suggest. This is according to SAPTG National Training Manager, Dieter Deppisch, whose comments were recorded in an article published by iafrica.
Deppisch says, “It’s not all ‘doom and gloom’ across the entire real estate sector. While certain segments within specific areas in South Africa have experienced a fall in prices, there is reason to believe that trading conditions will become bullish in the short-term”. He acknowledges that the residential property market in general is experiencing a sharp downturn, but Deppisch argues that this is a perfectly natural part of the cycle. “The industry is going through what economists call a ‘correction in the marketplace’,” he explains.
The data available through SAPTG’s advanced online property reports has informed Deppisch’s insistence that it is primarily the middle segment of the residential market that is feeling the worst effects of the current downturn. “SAPTG data paints an accurate picture of what is happening nationally, regionally and all the way down to street level,” he says. “The lower economic end of the market is actually experiencing growth in both value and volume of sales. Similarly, there has also been a healthy increase in the value of sales at the very top end of the market, whilst this has been tempered by a decrease in volume in most areas”.
In his illustration of conditions at the lower end of the market, Deppisch uses the example of Gauteng’s Protea Glen. “If we compare the first seven months of 2007 with the same period this year, our data indicates that the suburb has experienced excellent growth,” he argues. “Excluding transfers valued at R100 000 or below, which may typically include RDP housing and deceased estates, the volume of transfers is up from 517 last year to 548 this year”.
In fact, the average house price in Protea Glen has risen by a healthy 19%, from R239 328 in 2007 to R285 000 this year. “The data clearly shows that this large suburb hasn’t been hit by the real estate recession and is, in fact, still experiencing healthy growth,” says Deppisch. This suburb falls into the Bond Battalions category in Clusterplus, Knowledge Factory’s reputable geo-demographic segmentation tool, which denotes this category as having suburbs made up largely of young parents weighed down by their families, bonds, rates and taxes, as well as the maintenance of a second hand family car.
The SAPTG data also reveals that some suburbs in the higher end of the market are also doing well. The Upper Crust and Pearl Strings categories of Clusterplus typically feature large homes with immaculate gardens, swimming pools and tennis courts, in leafy, older neighbourhoods. These have experienced a decrease in transfer volumes since last year, but not in value.
Examples include the Johannesburg suburbs of Sandown and Bryanston, where “Sandown has seen average transfer values increase by 17.2%, while the volume of sales has dropped by 28%. Similarly, average values have increased by a vigorous 31.2% in Bryanston, even though the suburb has experienced a 10.5% drop in the volume of sales,” says Deppisch.
When it comes to an indication of healthy growth in the top end of the market, there is one suburb in particular that stands out. Also in Gauteng, Sandhurst has reflected an amazing 49.1% increase in average transfer values and only a 10% drop in volume. Deppisch explains that buyers at the high end of the market are not typically affected by the tight lending criteria of the National Credit Act and include both local and foreign cash buyers.
With 15 years of comprehensive transfer information available through the SAPTG to back up his stance, Deppisch disagrees with the pessimistic claims made by various property analysts that property values have plummeted across the board. “What is true is that there are areas in the country where prices have fallen by 30 to 40% and even more,” he notes, “but the fall in property value has been largely confined to the middle sector of the residential market. In addition, it should be noted that at times the perceived ‘decrease’ is artificial, reflecting the difference between a seller’s unrealistic wish-price and actual market value or the difference between a ‘sellers cycle’ price compared with prices in the ‘buyers cycle’. At times, even estate agents are to blame since some offer an unrealistically inflated value to a prospective seller simply to acquire a sole mandate”.
Deppisch clarifies the middle segment as consisting of properties between 140m² and 220m² that have an average transfer value of R967 000 and admits that it has been “hit pretty hard”, with volumes down by as much as 35% nationally and real growth slightly below CPIX inflation calculated year on year. Despite this, he remains adamant that the future still looks promising, even for this segment of the market.
“There is light at the end of the tunnel, even for the middle segment,” he asserts. “Most analysts agree that inflation will peak by the first quarter of next year and that the first rate cuts can be expected before the end of 2009. What this means is that the current correction could well be over within 18 months and we will begin the cyclical shift from a buyers’ to a sellers’ market again”.
The information in this article is courtesy of Property iafrica (“Some boom amidst gloom”, 27 August 2008).
Find property for sale in South Africa.
The South African property market may be experiencing difficult times, but data released by the South African Property Transfer Guide (SAPTG) indicates that the situation is not quite as dim as some of the latest media reports might suggest. This is according to SAPTG National Training Manager, Dieter Deppisch, whose comments were recorded in an article published by iafrica.
Deppisch says, “It’s not all ‘doom and gloom’ across the entire real estate sector. While certain segments within specific areas in South Africa have experienced a fall in prices, there is reason to believe that trading conditions will become bullish in the short-term”. He acknowledges that the residential property market in general is experiencing a sharp downturn, but Deppisch argues that this is a perfectly natural part of the cycle. “The industry is going through what economists call a ‘correction in the marketplace’,” he explains.
The data available through SAPTG’s advanced online property reports has informed Deppisch’s insistence that it is primarily the middle segment of the residential market that is feeling the worst effects of the current downturn. “SAPTG data paints an accurate picture of what is happening nationally, regionally and all the way down to street level,” he says. “The lower economic end of the market is actually experiencing growth in both value and volume of sales. Similarly, there has also been a healthy increase in the value of sales at the very top end of the market, whilst this has been tempered by a decrease in volume in most areas”.
In his illustration of conditions at the lower end of the market, Deppisch uses the example of Gauteng’s Protea Glen. “If we compare the first seven months of 2007 with the same period this year, our data indicates that the suburb has experienced excellent growth,” he argues. “Excluding transfers valued at R100 000 or below, which may typically include RDP housing and deceased estates, the volume of transfers is up from 517 last year to 548 this year”.
In fact, the average house price in Protea Glen has risen by a healthy 19%, from R239 328 in 2007 to R285 000 this year. “The data clearly shows that this large suburb hasn’t been hit by the real estate recession and is, in fact, still experiencing healthy growth,” says Deppisch. This suburb falls into the Bond Battalions category in Clusterplus, Knowledge Factory’s reputable geo-demographic segmentation tool, which denotes this category as having suburbs made up largely of young parents weighed down by their families, bonds, rates and taxes, as well as the maintenance of a second hand family car.
The SAPTG data also reveals that some suburbs in the higher end of the market are also doing well. The Upper Crust and Pearl Strings categories of Clusterplus typically feature large homes with immaculate gardens, swimming pools and tennis courts, in leafy, older neighbourhoods. These have experienced a decrease in transfer volumes since last year, but not in value.
Examples include the Johannesburg suburbs of Sandown and Bryanston, where “Sandown has seen average transfer values increase by 17.2%, while the volume of sales has dropped by 28%. Similarly, average values have increased by a vigorous 31.2% in Bryanston, even though the suburb has experienced a 10.5% drop in the volume of sales,” says Deppisch.
When it comes to an indication of healthy growth in the top end of the market, there is one suburb in particular that stands out. Also in Gauteng, Sandhurst has reflected an amazing 49.1% increase in average transfer values and only a 10% drop in volume. Deppisch explains that buyers at the high end of the market are not typically affected by the tight lending criteria of the National Credit Act and include both local and foreign cash buyers.
With 15 years of comprehensive transfer information available through the SAPTG to back up his stance, Deppisch disagrees with the pessimistic claims made by various property analysts that property values have plummeted across the board. “What is true is that there are areas in the country where prices have fallen by 30 to 40% and even more,” he notes, “but the fall in property value has been largely confined to the middle sector of the residential market. In addition, it should be noted that at times the perceived ‘decrease’ is artificial, reflecting the difference between a seller’s unrealistic wish-price and actual market value or the difference between a ‘sellers cycle’ price compared with prices in the ‘buyers cycle’. At times, even estate agents are to blame since some offer an unrealistically inflated value to a prospective seller simply to acquire a sole mandate”.
Deppisch clarifies the middle segment as consisting of properties between 140m² and 220m² that have an average transfer value of R967 000 and admits that it has been “hit pretty hard”, with volumes down by as much as 35% nationally and real growth slightly below CPIX inflation calculated year on year. Despite this, he remains adamant that the future still looks promising, even for this segment of the market.
“There is light at the end of the tunnel, even for the middle segment,” he asserts. “Most analysts agree that inflation will peak by the first quarter of next year and that the first rate cuts can be expected before the end of 2009. What this means is that the current correction could well be over within 18 months and we will begin the cyclical shift from a buyers’ to a sellers’ market again”.
The information in this article is courtesy of Property iafrica (“Some boom amidst gloom”, 27 August 2008).
Find property for sale in South Africa.
Monday, August 25, 2008
Property Myths Exposed - To Buy or Rent?
Should You Rent or Buy?
In the current property market climate, investors are understandably shy and there are many potential buyers who are choosing to rent and rather bide their time until the market improves. However, there are experts who believe that the property market is set to hit rock bottom in the coming months and this is in fact the ideal time to make that investment.
In an article for Realestateweb, Jackie Cameron asks the question, “Is it really better to be a landlord than a tenant?” This was inspired by an American article called ‘Rent vs Buy Myths that Ruined the Housing Market’, which discussed some of the so-called myths that made people justify buying houses that they probably could not afford during the property boom in the US.
Myth 1: Renting is like throwing your money away.
Those who believe that renting is the way forward seem to think that buyers pay money to the bank for the first 5 years for the privilege of borrowing money. In contrast, renters pay for one thing each month: shelter – they don’t pay interest, tax and other property-related costs.
Myth 2: It doesn’t cost more to buy than it does to rent.
Those who decide to rent pay a deposit, while those who own spend loads of money on the initial costs, with the home needing to appreciate in value considerably before these costs become insignificant, is the argument here.
Myth 3: Buyers have assets; renters do not.
Those in favour of renting say that while they may not co-own a home with a lender, this doesn’t mean that they don’t have assets. In fact, they have extra cash to pay for these other assets.
Myth 4: Houses are a good investment.
There are some renters who believe that housing is “not an investment” and that although home prices can rise, the rate of appreciation on housing does not extend beyond inflation levels. The American article cites an annual real return on US housing gauged between 1890 and 2005 as a “pathetic 0.4% per year”. It also indicated that the gain in new prices over the last 20 years in the US is just a fraction of what the average investor in stocks would have made.
While some of these arguments may reflect sentiment currently holding force in our own country and may make for interesting reading, there seems to be a flaw in the assumption that those who rent are actually saving the money that might be going towards a bond payment. The reality is that South Africa’s relatively dismal national savings rate puts paid to that idea.
There are certainly plenty of good reasons to rent rather than buy a property, particularly in light of the limited overhead costs each month and the peace of mind that comes with knowing that your hands aren’t tied financially for the foreseeable future. However, if you manage your property carefully then it is possible for ordinary income earners to create substantial wealth through ownership.
There are plenty of people who will attest to the fact that their financial independence began with an investment in simple bricks and mortar. In the long run, at the very least you should own the roof over your head, as it may just be shelter, but it is your shelter and no one can take that away from you.
The information in this article is courtesy of Jackie Cameron (“Renting vs buying: 4 property myths”, Realestateweb, 18 April 2008).
Buy or sell property in South Africa.
In the current property market climate, investors are understandably shy and there are many potential buyers who are choosing to rent and rather bide their time until the market improves. However, there are experts who believe that the property market is set to hit rock bottom in the coming months and this is in fact the ideal time to make that investment.
In an article for Realestateweb, Jackie Cameron asks the question, “Is it really better to be a landlord than a tenant?” This was inspired by an American article called ‘Rent vs Buy Myths that Ruined the Housing Market’, which discussed some of the so-called myths that made people justify buying houses that they probably could not afford during the property boom in the US.
Myth 1: Renting is like throwing your money away.
Those who believe that renting is the way forward seem to think that buyers pay money to the bank for the first 5 years for the privilege of borrowing money. In contrast, renters pay for one thing each month: shelter – they don’t pay interest, tax and other property-related costs.
Myth 2: It doesn’t cost more to buy than it does to rent.
Those who decide to rent pay a deposit, while those who own spend loads of money on the initial costs, with the home needing to appreciate in value considerably before these costs become insignificant, is the argument here.
Myth 3: Buyers have assets; renters do not.
Those in favour of renting say that while they may not co-own a home with a lender, this doesn’t mean that they don’t have assets. In fact, they have extra cash to pay for these other assets.
Myth 4: Houses are a good investment.
There are some renters who believe that housing is “not an investment” and that although home prices can rise, the rate of appreciation on housing does not extend beyond inflation levels. The American article cites an annual real return on US housing gauged between 1890 and 2005 as a “pathetic 0.4% per year”. It also indicated that the gain in new prices over the last 20 years in the US is just a fraction of what the average investor in stocks would have made.
While some of these arguments may reflect sentiment currently holding force in our own country and may make for interesting reading, there seems to be a flaw in the assumption that those who rent are actually saving the money that might be going towards a bond payment. The reality is that South Africa’s relatively dismal national savings rate puts paid to that idea.
There are certainly plenty of good reasons to rent rather than buy a property, particularly in light of the limited overhead costs each month and the peace of mind that comes with knowing that your hands aren’t tied financially for the foreseeable future. However, if you manage your property carefully then it is possible for ordinary income earners to create substantial wealth through ownership.
There are plenty of people who will attest to the fact that their financial independence began with an investment in simple bricks and mortar. In the long run, at the very least you should own the roof over your head, as it may just be shelter, but it is your shelter and no one can take that away from you.
The information in this article is courtesy of Jackie Cameron (“Renting vs buying: 4 property myths”, Realestateweb, 18 April 2008).
Buy or sell property in South Africa.
Friday, August 22, 2008
Divergence Prominent in Light of SA Property Market Future
Views Differ on Future of Property
According to a recent article published by Business Report, economists seem to have divergent views when it comes to the property market outlook. This came to light at a fractional ownership conference in Cape Town yesterday.
Property strategist at FNB’s home loans department, John Loos forecast an improvement in sentiment, saying that now is “probably as good as it gets” in terms of the best time to buy property before prices start to recover.
Erwin Rode, of property research company Rode & Associates, had a much more pessimistic view, saying that “a long period of stagnation lies ahead” and this could last as long as five years. “That means prices of houses will lag inflation. That is, if building costs go up by 8 percent, house prices will rise by 4 percent in nominal terms,” he said.
According to Rode, this is the result of people in developed countries having lived beyond their means and surviving for many years on borrowed money. Fractional ownership is governed by the same regulations as timeshare and although there are several different models, the main difference is that it is confined essentially to the very upmarket property. Rode hoped that this would continue to be the case and that banks would stay out of financing it.
Dirk Wilson, co-founder of fractionalownership.co.za and the conference organizer, said that fractional ownership differed from timeshare in that the investors gained a share of equity in the property and not just the right to occupy the premises or let it for a certain period. Fractional sales are said to be “doing quite well” considering the state of the property market, but more participants are needed in providing properties, which have dropped from 64 six months ago to just 34 companies at present.
There has been a great deal of interest in South Africa from overseas investors and buyers looking for properties available now and not in the planning stage, such as golf estates or near the beach. There have to be hospitality and leisure facilities of a high standard, such as room service and a spa. Fractional ownership is really an investment in lifestyle and thus comes with a certain standard of living.
According to Wilson, 74 percent of enquiries about fractional title investment properties in South Africa were from overseas, including the UK, the US, Australia and the UAE. Also, a large number of South African expatriates are interested in property investment here, but “not a whole house,” as he said.
The information in this article is courtesy of Audrey d’Angelo (“Economists give widely differing views on property”, Business Report, 22 August 2008).
If you would like to buy or sell property in South Africa, please visit www.sahometraders.co.za.
According to a recent article published by Business Report, economists seem to have divergent views when it comes to the property market outlook. This came to light at a fractional ownership conference in Cape Town yesterday.
Property strategist at FNB’s home loans department, John Loos forecast an improvement in sentiment, saying that now is “probably as good as it gets” in terms of the best time to buy property before prices start to recover.
Erwin Rode, of property research company Rode & Associates, had a much more pessimistic view, saying that “a long period of stagnation lies ahead” and this could last as long as five years. “That means prices of houses will lag inflation. That is, if building costs go up by 8 percent, house prices will rise by 4 percent in nominal terms,” he said.
According to Rode, this is the result of people in developed countries having lived beyond their means and surviving for many years on borrowed money. Fractional ownership is governed by the same regulations as timeshare and although there are several different models, the main difference is that it is confined essentially to the very upmarket property. Rode hoped that this would continue to be the case and that banks would stay out of financing it.
Dirk Wilson, co-founder of fractionalownership.co.za and the conference organizer, said that fractional ownership differed from timeshare in that the investors gained a share of equity in the property and not just the right to occupy the premises or let it for a certain period. Fractional sales are said to be “doing quite well” considering the state of the property market, but more participants are needed in providing properties, which have dropped from 64 six months ago to just 34 companies at present.
There has been a great deal of interest in South Africa from overseas investors and buyers looking for properties available now and not in the planning stage, such as golf estates or near the beach. There have to be hospitality and leisure facilities of a high standard, such as room service and a spa. Fractional ownership is really an investment in lifestyle and thus comes with a certain standard of living.
According to Wilson, 74 percent of enquiries about fractional title investment properties in South Africa were from overseas, including the UK, the US, Australia and the UAE. Also, a large number of South African expatriates are interested in property investment here, but “not a whole house,” as he said.
The information in this article is courtesy of Audrey d’Angelo (“Economists give widely differing views on property”, Business Report, 22 August 2008).
If you would like to buy or sell property in South Africa, please visit www.sahometraders.co.za.
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