Expropriation Bill Assault on SA Property Rights

Expropriation Bill Assault on Property Rights

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

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

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

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

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

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

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

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

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

Bad News for Estate Agents in SA

Tough Times for Estate Agents

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Reasons for Negative Sentiment in SA

Property Dragged Down by Negative Sentiment

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

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

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

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

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

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

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

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

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

How to Benefit from High Interest Rates in SA

Make the Most of High Interest Rates

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

SA Lodge Goes Totally 'Green'

Eco-Tourism Lodge 100% Green

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

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

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

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

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

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

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

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

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

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

Perhaps Silver Lining for SA Property Market

Standard Bank Downplays Market Slump

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

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

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

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

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

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

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

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

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

High Potential for Fractional Ownership in SA

Fractional Ownership vs Timeshare

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

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

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

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

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

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

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

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

More Doom & Gloom for SA Property Market

ABSA Predicts House Price Fall in Real Terms

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

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

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

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

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

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

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

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

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

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

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

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

SA Government to Restrict Coastal Development

Coastal Development to be Restricted

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

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

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

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

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

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

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

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

US to Invest in SA Housing

US to Invest in SA Housing

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

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

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

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

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

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

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

SA Property Market on Shaky Ground

Recession on the Cards?

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

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

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

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

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

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

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

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

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

South African Property News

Johannesburg Property Market Scores

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

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

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

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

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

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

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

South African Property News

Power Shortage Not to Affect New Developments

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

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

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

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

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

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

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

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

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

South African Property News

Pam Golding Top of the Pack?

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

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

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

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

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

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

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

South African Property News

Property Barometer At All Time Low

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

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

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

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

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

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

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

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

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

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

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

South African Property News

Rode's Take on the Current Property Market

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

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

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

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

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

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

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

South African Property News

Interest Rates Bring Down House Sales

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

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

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

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

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

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

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

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

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

South African Property News

Green Building Accelerated in SA

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

South African Property News

Lower Income Groups Hit Hard

An article published on the Iafrica Business website has suggested that the latest interest rate hike will have a negative effect on the residential property market, particularly in light of the predicted recovery this year. The latest hikes are expected to delay the recovery considerably. The South African Reserve Bank hiked interest rates by a further 50 basis points in January, bringing the increase since June 2006 to 450 basis points.

“Whereas we had expected rates to move sideways for the entire 2008, a scenario which I believe would have led to a gradual recovery in residential demand as from mid-year, such a recovery has in all probability been delayed considerably, and it will take substantially longer for household confidence to start recovering,” according to John Loos, a property strategist for FNB.

House prices have already felt the pinch of higher interest rates, with Standard Bank’s property gauge reporting a drop in residential property prices for the first time in eight years during March. This pushed the y/y inflation to a negative 5.2% y/y.

Loos added that the news would increase the likelihood of a small period of national house price deflation, which might have been avoided had the rates been kept on hold. When splitting up the market by price category, Loos says that the combination of rate hiking and high food price inflation will bring the superior performance of the lower-priced end to a close.

“Lower income groups face the ‘double-whammy’ of rising interest rates, as well as high food price inflation. Food price inflation affects lower income households worse because it consumes a higher portion of their total income,” he said. Loos also suggested that those strongly holiday property-driven areas are probably also in for a torrid time, until such time as the interest rate cycle has made a clear turn.

A sector that will benefit from the rate hike is the rental market. “FNB’s rental property barometer has already been pointing towards a recovering rental market, and I believe that in the current environment of uncertainty and negativity, the resumption of rate hiking will be an additional boost for rental demand,” reports Loos.

The information in this article is courtesy of Tiisetso Motsoeneng (“Rate hike to hit property market”, I-Net Bridge, 10 April 2008).

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

South African Property News

Debt Burden on Consumers Increases

An article in the Mail & Guardian Online has indicated that consumers and small businesses are beginning to collapse under the increased debt burden created by higher interest rates, petrol prices and food prices.

The latest figures from Statistics SA paint a rather dismal picture, with personal insolvencies increasing by 58% last month compared to the same time a year ago and the civil debt judgments against companies skyrocketing to 41.2%. Even liquidations for the first two months of 2008 increased by 6%, which is the first time since February 2002 that this has happened. This comes as no surprise though, considering that the ratio of levels of household debt to disposable income rose to 77.6% at the end of last year, compared to just 72.8% at the end of 2006.

Not only is this the highest level of debt ever recorded in South Africa, the higher interest rates mean that the cost of servicing this debt has also risen. At the beginning of 2006, the cost of servicing debt was about 7.2% of disposable income, but this has since increased to 11.5%. Take into account petrol price hikes of 20% since the beginning of the year and the increase in food prices and the once pretty picture gets bleaker by the minute.

Standard Bank has reported an average repossession of two houses per month in 2007, with that number increasing to five houses per month since the end of 2007 and into 2008. 40% of repurchases for 2007 occurred in the last quarter, which is a trend that has continued this year.

Marcel de Klerk, a member of ABSA’s vehicle and asset finance division, says that it has seen an increase in repossessions in the first three months of 2008. Last year, an average of 100 vehicles a month were repossessed, compared to an unbelievable average of 1300 vehicles a month in 2008 so far. A 15% increase in car repossessions is expected for 2008.

The Reserve Bank reports that banks have made bad debt provisions of R10bn or 0.57% of their total assets. These are loans that have defaulted and the property (a house or car) is going to auction. A year ago, this figure was more like R7.8bn or 0.51% of total assets. As a percentage of assets, the increase that has occurred between December 2006 and the same time in 2007 represents a 10% increase in bad debts.

The main culprit when it comes to bad debt seems to be credit cards, which show the biggest potential for default. Although actual bad debts have only increased slightly over the past year, the number of repayments that have fallen in arrears (three months or more) has risen 54% when compared to a year ago.

Company insolvencies have also sharply increased and according to Jo Schwenke of Business Partners, which supports and finances small business development in South Africa, it is the restaurant industry that has been the worst hit. Schwenke reports that any business geared towards consumer-discretionary spending, including food stores like Pick n Pay and Spar, have seen a fall in turnover. The rapid increase in food prices has resulted in higher financial gain, but there is a clear indication that consumer spending has dropped.

“We are checking whether the business is sound and that the lower turnover is owing to broad economic slowdown – then we will restructure a deal to assist them. This is a priority for us right now,” says Schwenke, adding that Business Partners has also seen a slight upturn in arrears, increasing by around a third, but on small percentages.

The news is not all bad though, as businesses geared towards the infrastructure boom and sub-contracting to larger construction firms are still doing well. Those businesses geared to the export market are certainly benefiting from the weaker currency. There may be a fall in domestic tourism, but the industry as a whole is seeing more foreign visitors who are taking advantage of South Africa as a cheaper holiday destination.

The black cloud does have a sliver of silver lining though. The growth of private sector credit in February slowed faster than anticipated, registering 20.8% - down from 23.1% in January. The markets were expecting a somewhat modest slowdown of 21.9%. Economist Kevin Lings says that, “Although the slowdown is still relatively modest, it is expected to become more apparent during 2008.” Once these numbers are adjusted for inflation, the real credit is really only growing at 10.9% compared to its peak of 20.8% in February 2007 (Ling).

Mortgage lending grew by 0.8% in February and by 23.1% in the past year. Ling says that these numbers may be high, but it is the lowest monthly growth in mortgage credit since December 2002. In terms of value, mortgage advances only increased by R7bn in February as compared to a monthly average of R14.1bn in 2007.

Standard Bank’s property gauge reflected a drop in house prices for the first time in five years, with the average price being R550 000 compared to R580 000 previously. Credit card growth also decreased from a high of 44.1% in July 2007 to 21.6% this year.

Ling believes that a combination of interest rates and the introduction of the National Credit Act have helped to slow the demand for credit, as well as consumer and housing activity. “Hopefully, the Reserve Bank will be willing to continue to leave interest rates unchanged, while they assess the impact of the recent rate hikes,” says Ling. The key seems to be in a difficult economic atmosphere, consumers need to tighten their purse strings, borrow less and save more.

The information in this article is courtesy of Maya Fisher-French (“Under a debt weight”, Mail & Guardian Online, 10 April 2008).

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