High Rise Here We Come
An interesting article published on iafrica.com has drawn attention to the international trend towards high-rise living and how this seems to be playing out in South Africa. It seems that despite efforts made by developers to promote the sales of apartments like those in Melrose Arch in Sandton and the Point area in Durban, South Africa has a long way to go before it reaches the same popularity as high-rise living enjoys in London and New York.
According to Mike Bester, CEO of Realty1 International Property Group, “This type of lifestyle could become very important in the future if we look at the rising costs of land and building”. Statistically, ABSA’s report on property trends in luxury housing released in May 2007 showed that population density increased by 89.4% in the country’s metropolitan areas during the period 1996 to 2005, while only increasing 33% in rural areas.
Bester explains that, “This kind of pressure means higher numbers of people looking for housing in urban areas and although the current occupants of flats are more likely to be lower income individuals who can’t afford better accommodation, we’re seeing this starting to change with the increased supply of luxury apartments coming onto the market”.
High-rise apartment complexes, such as Melrose Arch in Sandton and the New Ponte in Hillbrow, generally offer residents a variety of added benefits, from gyms on-site, to restaurants and shopping facilities, as well as the all-important 24 hour security and parking facilities.
Richard Goller, a former editor of the Sunday Times magazine and now freelancing in London, says that he lived in a high-rise apartment in central Johannesburg by choice. “I’ve always loved the idea of the apartment lifestyle – chic and convenient,” he says. “The amenities in the building were great and the apartment itself was a good investment”.
Goller believes that a city like Johannesburg, with its huge population growth and ever-increasing problems of urban sprawl will no doubt follow international trends. “If there is sensible urban planning, it means more people per square kilometre which means more high-rise apartments,” he says.
Bester tends to agree with Goller, “This form of housing could certainly help to alleviate the pressure on the urban areas. And with the traffic problems and the cost of fuel unlikely to reduce substantially in the long term, people want to cut their traveling time and expenses,” he says. “What better way to do this than to live close to your place of work?” Bester believes that a rising trend amongst the more affluent South African families seems to be in line with living close to the city during the week and having a home further out where the family can disappear to over weekends.
Bester’s theory is certainly based on recorded sales of high-rise apartments. In June last year, a newly converted high-rise block in Durban (the Berea Lofts) sold out all 133 units, which included 3 glass-fronted penthouse apartments within days of release. The ultra luxurious and expensive Nedbank La Residence in Sandton recently changed plans in favour of using the space for offices, but had sold half of its 152 units at the time of cancellation for up to R40 000 per square metre.
Having said this though, the new luxury apartments in Durban’s revitalized Point area haven’t done quite so well. The reason for this lack of success seems to be the surroundings, which appear to be discouraging the buyers. Bester explains, “It’s difficult to consider buying a R1,2 million apartment in a secure block if you have to run the gauntlet of drug dealers, pimps and prostitutes to get to the building”.
When asked how high-rise living in South Africa currently compares with that in London, Goller answered, “Well, apartment lifestyles are still cheaper in South Africa when it comes to property, but in London you get a different kind of value: security and being at the centre of things”. Bester goes on to say that, “While luxury high-rise living may well be the way of the future for many South Africans, it’s going to take a while before we start to view ‘flat life’ as a viable alternative lifestyle to an upmarket sectional title unit”.
The information in this article is courtesy of iafrica.com (“The way of the future”, 10 September 2008).
Buy or sell property in South Africa.
Wednesday, September 10, 2008
Tuesday, September 9, 2008
SAHometraders Press Release
SAHometraders Property Portal Goes Mobile
SAHometraders is proud to announce the mobile launch of its national property website as of August 2008.
FOR IMMEDIATE RELEASE
PRLog (Press Release) – Sep 08, 2008 – This latest innovation in the South African property portal industry is aimed at providing users with the opportunity to browse property listings anytime, anywhere simply using their cell phone, with the help of intuitive mobile-friendly search tools.
A dynamic property media marketing company, SAHometraders specializes in the provision of a national property portal representing real estate agents across South Africa. The aim is to meet the demand for alternative forms of advertising with progressive online marketing ideas and state of the art design features. Active since 2003, the site has over 600 subscribers, listing some 35,000 properties, with 120,000 unique visitors every month.
With an estimated 12 million mobile phone users in South Africa, the potential market exposure is infinite. This option is available to all WAP enabled mobile phones and can be accessed via http://saht.mobi. Users are now able to find listings of properties for sale or rent throughout South Africa, view images and descriptions, send enquiries by email: all from the convenience of the palm of their hand.
SAHometraders – South Africa’s most effective way to buy, rent, sell or let property!
# # #
About SAHometraders: A media marketing company that operates as a national property portal and real estate directory representing estate agents who wish to market their product online, listing properties for sale or rent throughout South Africa.
Find property for sale in South Africa.
SAHometraders is proud to announce the mobile launch of its national property website as of August 2008.
FOR IMMEDIATE RELEASE
PRLog (Press Release) – Sep 08, 2008 – This latest innovation in the South African property portal industry is aimed at providing users with the opportunity to browse property listings anytime, anywhere simply using their cell phone, with the help of intuitive mobile-friendly search tools.
A dynamic property media marketing company, SAHometraders specializes in the provision of a national property portal representing real estate agents across South Africa. The aim is to meet the demand for alternative forms of advertising with progressive online marketing ideas and state of the art design features. Active since 2003, the site has over 600 subscribers, listing some 35,000 properties, with 120,000 unique visitors every month.
With an estimated 12 million mobile phone users in South Africa, the potential market exposure is infinite. This option is available to all WAP enabled mobile phones and can be accessed via http://saht.mobi. Users are now able to find listings of properties for sale or rent throughout South Africa, view images and descriptions, send enquiries by email: all from the convenience of the palm of their hand.
SAHometraders – South Africa’s most effective way to buy, rent, sell or let property!
# # #
About SAHometraders: A media marketing company that operates as a national property portal and real estate directory representing estate agents who wish to market their product online, listing properties for sale or rent throughout South Africa.
Find 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.
Wednesday, September 3, 2008
House Prices Falling on Global Scale
House Price Crash Stats
An article in the UK’s Guardian has highlighted a global phenomenon in the house price crash that began in the US and spread across the globe, this according to international estate agents Knight Frank, which also indicated that there are steep declines taking place in Europe and Asia at the moment.
The country recording the worst fall in house prices seems to be Latvia, where figures stand at a plummet of 24.1% over the past year. New Zealand, Denmark and Lithuania have all experienced price declines, along with Malta, Germany, Ireland, Estonia, Britain and the US. Even countries that have not seen a dramatic fall in prices are witnessing a rapid deceleration in price growth.
The article mentions that South Africa’s rate of house price inflation has collapsed from 15.5% at the same time last year to just 3.8% today and is expected to be negative soon. In countries like France, Spain and Greece, price growth has literally halved and is recorded at less than 3.2%.
Russia was the fastest growing market last year, with an unbelievable house price growth of 53.7% in the second quarter of 2007, but this has since fallen back to 26.5%. According to Nick Barnes, head of international research at Knight Frank, “The index shows that global house price inflation is continuing to fall back, with much of continental Europe now seeing low or negative growth. Housing markets in countries such as Spain, Denmark, the UK and Ireland are all being severely challenged by the global credit squeeze”.
In the long-term, the rate of global house price growth fell to 4.8% in the second quarter of 2008, which is down from 6.1% in the first quarter of this year. There are a number of countries that are now entering their second year of house price declines and Germany is among the worst hit, with a falling rate of 4.4% last year and 2.5% this year.
Barnes says, “There is less demand for owner-occupied property in Germany than in many other European countries and there is no shortage of supply”. In Spain, the Knight Frank index reflected a price rise of 2.4% annually, but it warned that falls in house prices are now almost inevitable.
“The well-publicised problems in Spain have not yet fed into house price statistics. So far, price falls have been concentrated in the coastal resorts and among new developments in the large cities,” Barnes indicated.
“Spain looks likely to fall into recession later this year and house sales fell steeply during June. The number of sales dropped by 34.2% in May and 29.6% in June, suggesting that wider price falls could be imminent”.
However, investors who have bought second homes in Bulgaria have plenty of reason to feel bullish. According to Knight Frank, the current annual house price growth is 32.2%, which is only slightly lower than the 33.7% recorded in the first quarter of the year.
Biggest fallers in 2008:
Latvia 24.1%
United States 16.8%
Estonia 16%
Lithuania 9.9%
Denmark 9.6%
Ireland 8.1%
UK 3.9%
Malta 2.7%
Germany 2.5%
New Zealand 2.2%
The information in this article is courtesy of Patrick Collinson (“House price crash goes global”, Guardian, 2 September 2008).
Find property in South Africa.
An article in the UK’s Guardian has highlighted a global phenomenon in the house price crash that began in the US and spread across the globe, this according to international estate agents Knight Frank, which also indicated that there are steep declines taking place in Europe and Asia at the moment.
The country recording the worst fall in house prices seems to be Latvia, where figures stand at a plummet of 24.1% over the past year. New Zealand, Denmark and Lithuania have all experienced price declines, along with Malta, Germany, Ireland, Estonia, Britain and the US. Even countries that have not seen a dramatic fall in prices are witnessing a rapid deceleration in price growth.
The article mentions that South Africa’s rate of house price inflation has collapsed from 15.5% at the same time last year to just 3.8% today and is expected to be negative soon. In countries like France, Spain and Greece, price growth has literally halved and is recorded at less than 3.2%.
Russia was the fastest growing market last year, with an unbelievable house price growth of 53.7% in the second quarter of 2007, but this has since fallen back to 26.5%. According to Nick Barnes, head of international research at Knight Frank, “The index shows that global house price inflation is continuing to fall back, with much of continental Europe now seeing low or negative growth. Housing markets in countries such as Spain, Denmark, the UK and Ireland are all being severely challenged by the global credit squeeze”.
In the long-term, the rate of global house price growth fell to 4.8% in the second quarter of 2008, which is down from 6.1% in the first quarter of this year. There are a number of countries that are now entering their second year of house price declines and Germany is among the worst hit, with a falling rate of 4.4% last year and 2.5% this year.
Barnes says, “There is less demand for owner-occupied property in Germany than in many other European countries and there is no shortage of supply”. In Spain, the Knight Frank index reflected a price rise of 2.4% annually, but it warned that falls in house prices are now almost inevitable.
“The well-publicised problems in Spain have not yet fed into house price statistics. So far, price falls have been concentrated in the coastal resorts and among new developments in the large cities,” Barnes indicated.
“Spain looks likely to fall into recession later this year and house sales fell steeply during June. The number of sales dropped by 34.2% in May and 29.6% in June, suggesting that wider price falls could be imminent”.
However, investors who have bought second homes in Bulgaria have plenty of reason to feel bullish. According to Knight Frank, the current annual house price growth is 32.2%, which is only slightly lower than the 33.7% recorded in the first quarter of the year.
Biggest fallers in 2008:
Latvia 24.1%
United States 16.8%
Estonia 16%
Lithuania 9.9%
Denmark 9.6%
Ireland 8.1%
UK 3.9%
Malta 2.7%
Germany 2.5%
New Zealand 2.2%
The information in this article is courtesy of Patrick Collinson (“House price crash goes global”, Guardian, 2 September 2008).
Find property in South Africa.
Monday, September 1, 2008
Tricks of the Investing Trade
Bear Market Survival
With damning statistics and predictions of impending economic doom, it is no surprise that many investors are tempted to believe that the local markets are in crisis. According to an article published in The Times however, the experts say that equities will always outperform inflation in the long term – the trick is to hang in there and ride out the storm.
Graham Ledbitter, senior portfolio manager at BoE Private Clients, says that equity markets should always outperform both inflation and cash in the long term, except in countries afflicted by civil war or gross economic incompetence.
“The statistics show that over the past 48 years, shares on the JSE generated a total return of 20% a year compound. For the same period, inflation was 8.6% a year, while cash before tax returned only 9.8% over the same period,” says Ledbitter.
He goes on to argue that the reason behind the relatively strong performance of equities lies in the necessity for all countries to develop their gross domestic product (GDP) in real terms over time. “Virtually all countries need to have a growth strategy in order to prevent unemployment as populations grow. In simplistic terms, a growing GDP leads to growing profits for companies, resulting in growing dividends, which causes share prices to rise,” Ledbitter says.
In fact, most major economies, including South Africa, were growing at a strong rate until recently. Corporate profits and dividends were good and stock markets responded by generating very strong returns, especially the local bourse. “When the stock market is in a bull phase, all good news is pounced upon as an excuse to drive share prices higher and bad news just gets brushed off as irrelevant. Conversely, in bear markets bad news drives share prices lower and good news tends to be regarded as irrelevant,” according to Ledbitter.
The senior portfolio manager at BoE Private Clients notes that the current downturn in the market is only one of many economic ‘crises’ over the last few decades, which include the major collapse of the rand following P.W. Botha’s notorious ‘Rubicon’ speech and the global stock market collapse in 1987, which wiped a value of 38% off the JSE in just a few days.
Negative sentiment also had a profound impact prior to the elections in 1994, when nervous investors believed that the incoming ANC government would expropriate or nationalize property. There were similar feelings that came to the fore during the emerging-markets crisis in 1998, where certain governments defaulted on their debt, as after the 9/11 attacks in 2001 and the collapse of the rand in the same year.
“In each case…it appeared to many investors as if there was no way out and that nothing would ever be the same again. But in each case, the world didn’t end. Nor will it end now. Problems will get sorted out, growth will resume and shares will start rising again,” Ledbitter asserts.
He goes on to say that once you have made your investment, you should not get over-excited when the price rises or nervous if it declines and should rather “fix in your mind the long-term returns on equity – that is 20% a year compound. And with that in mind, relax and enjoy your share investments”.
According to the latest Merrill Lynch fund manager survey, 50% of local managers are bullish on equities and relatively few are bearish on bonds. When it comes to the commodity market, 25% of managers think it is undervalued, with 69% seeing more buying opportunities. A total of 44% want to invest in construction, beverages and food producers, bond and offshore investments, while domestic cash levels fell to 15% this month.
Mark Appleton, chief investment officer at BJM Private Client Services, says that resource shares are looking significantly more attractive after an average pullback of 23% since the end of June. He says that resources have under-performed considerably in the industrial and financial sectors recently and this has created a buying opportunity. The valuations for quality blue chip resources are well below ten times earnings, which presents the perfect opportunity for companies to add to their portfolio.
Tips on surviving a bear market:
- Have a sensible time line – about five years or longer and do not try and time the market.
- Buy shares in companies that have been around for a long time and have consistently produced good earnings and dividend growth
- Spread your investments over several sectors – do not concentrate them in the flavour of the month or ignore one that is out of favour
- Invest in shares that pay good dividends and if possible, re-invest so that they compound over time
- Buy a business newspaper every day and read about companies that either interest your or in which you have made an investment
- Only sell shares if there is a fundamental reason to do so, not due to fall in share price and the reverse also applies.
The information in this article is courtesy of Madoda Milazi (“How to survive the bear market”, The Times, 1 September 2008).
Buy or sell property in South Africa.
With damning statistics and predictions of impending economic doom, it is no surprise that many investors are tempted to believe that the local markets are in crisis. According to an article published in The Times however, the experts say that equities will always outperform inflation in the long term – the trick is to hang in there and ride out the storm.
Graham Ledbitter, senior portfolio manager at BoE Private Clients, says that equity markets should always outperform both inflation and cash in the long term, except in countries afflicted by civil war or gross economic incompetence.
“The statistics show that over the past 48 years, shares on the JSE generated a total return of 20% a year compound. For the same period, inflation was 8.6% a year, while cash before tax returned only 9.8% over the same period,” says Ledbitter.
He goes on to argue that the reason behind the relatively strong performance of equities lies in the necessity for all countries to develop their gross domestic product (GDP) in real terms over time. “Virtually all countries need to have a growth strategy in order to prevent unemployment as populations grow. In simplistic terms, a growing GDP leads to growing profits for companies, resulting in growing dividends, which causes share prices to rise,” Ledbitter says.
In fact, most major economies, including South Africa, were growing at a strong rate until recently. Corporate profits and dividends were good and stock markets responded by generating very strong returns, especially the local bourse. “When the stock market is in a bull phase, all good news is pounced upon as an excuse to drive share prices higher and bad news just gets brushed off as irrelevant. Conversely, in bear markets bad news drives share prices lower and good news tends to be regarded as irrelevant,” according to Ledbitter.
The senior portfolio manager at BoE Private Clients notes that the current downturn in the market is only one of many economic ‘crises’ over the last few decades, which include the major collapse of the rand following P.W. Botha’s notorious ‘Rubicon’ speech and the global stock market collapse in 1987, which wiped a value of 38% off the JSE in just a few days.
Negative sentiment also had a profound impact prior to the elections in 1994, when nervous investors believed that the incoming ANC government would expropriate or nationalize property. There were similar feelings that came to the fore during the emerging-markets crisis in 1998, where certain governments defaulted on their debt, as after the 9/11 attacks in 2001 and the collapse of the rand in the same year.
“In each case…it appeared to many investors as if there was no way out and that nothing would ever be the same again. But in each case, the world didn’t end. Nor will it end now. Problems will get sorted out, growth will resume and shares will start rising again,” Ledbitter asserts.
He goes on to say that once you have made your investment, you should not get over-excited when the price rises or nervous if it declines and should rather “fix in your mind the long-term returns on equity – that is 20% a year compound. And with that in mind, relax and enjoy your share investments”.
According to the latest Merrill Lynch fund manager survey, 50% of local managers are bullish on equities and relatively few are bearish on bonds. When it comes to the commodity market, 25% of managers think it is undervalued, with 69% seeing more buying opportunities. A total of 44% want to invest in construction, beverages and food producers, bond and offshore investments, while domestic cash levels fell to 15% this month.
Mark Appleton, chief investment officer at BJM Private Client Services, says that resource shares are looking significantly more attractive after an average pullback of 23% since the end of June. He says that resources have under-performed considerably in the industrial and financial sectors recently and this has created a buying opportunity. The valuations for quality blue chip resources are well below ten times earnings, which presents the perfect opportunity for companies to add to their portfolio.
Tips on surviving a bear market:
- Have a sensible time line – about five years or longer and do not try and time the market.
- Buy shares in companies that have been around for a long time and have consistently produced good earnings and dividend growth
- Spread your investments over several sectors – do not concentrate them in the flavour of the month or ignore one that is out of favour
- Invest in shares that pay good dividends and if possible, re-invest so that they compound over time
- Buy a business newspaper every day and read about companies that either interest your or in which you have made an investment
- Only sell shares if there is a fundamental reason to do so, not due to fall in share price and the reverse also applies.
The information in this article is courtesy of Madoda Milazi (“How to survive the bear market”, The Times, 1 September 2008).
Buy or sell property in South Africa.
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