Real Estate Investor April 2013 by Combustion Publishing

Politics, Policy & Property The road to a brighter future

BUYING PROPERTY?

Know the numbers RETIRE IN STYLE

THE 2013 BUDGET

How will you be affected?

Investing in retirement villages

IRELAND & CANADA

Overseas investing made simple

April 2013 R50.00 (Incl. VAT) R43.86 Other Countries

LESSONS FROM A BILLIONAIRE INVESTOR www.reimag.co.za

MASTER INVESTOR JANNIE MOUTON

We’ve got sub-saharan africa covered.

MaXiMising ProPertY PotentiaL

AFRICA ENQUIRIES Leonard Michau lmichau@broll.co.za +27 (0)11 441 4000

NIGERIA | www.broll.com.ng Erejuwa Gbadebo egbadebo@broll.com.ng +234 (0)1 270 1892

MALAWI | www.broll.co.mw Gavin Balsdon gavinb@broll.co.mw +265 (0)1 834 311

MAURItIUS/MAdAGASCAR/SEyCHELLES Rhoy Ramlackhan rhoy@broll-io.com +230 (0) 468 1222

GHANA | www.brollghana.com Kofi Ampong kampong@brollghana.com +233 (0)302 669 852

NAMIBIA | www.brollnamibia.com.na Marco Wenk marco.wenk@brollnamibia.com.na +264 (0)61 374 500

PART OF THE CBRE AFFILIATE NETWORK

EDITORIAL PUBLISHER Neale Petersen EDITOR Angelique Redmond

Contents APRIL Cover

DESIGN STUDIO James Clark, Brent Fisher & Amy Little CONTRIBUTORS Monique Terrazas, Jonathan Courtwell, Koos du Toit, Angie Redmond, John Roberts, Scott Picken, Iselle McCalman. PHOTOGRAPHY Stock Exchange, 123RF TRAFFIC Juanita Heilbron

write to us:

editorial@realemedia.co.za

Guide

Page 14

Politics, Policy & Property

Page 36

Buying Property

Page 46

Retire In Style

Page 56

Investing In Ireland & Canada

Page 64

The 2013 Budget

Page 10

Master Investor: Jannie Mouton

FINANCIAL MANAGER Marisa George WEBSITE Diamatrix WEB ADMINISTRATOR Russell Bennett

ADVERTISING National Russell Krynauw russellk@realemedia.co.za Roy Lategan roy@realemedia.co.za Andre Evans andre@realemedia.co.za Material & Traffic Juanita Heilbron juanita@realemedia.co.za

to advertise: 021 674 5026

CIRCULATION

FEATURES 5

INVESTOR TALK Questions Still Remain

BOOK REVIEWS Whats New In April

8 INBOX Ask The Property Experts Getting a mortgage 10

MASTER INVESTOR JANNIE MOUTON ‘Boere Buffett’ Is A True Value Investor

to subscribe:

COVER STORY Politics, Policy & Property Together we can build a better South Africa

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CASE STUDIES The Good, Bad & Ugly

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RESIDENTIAL 24

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www.reimag.co.za All rights reserved. No portion of this publication may be reproduced or used in any form without prior written consent and permission from Real Estate Media. The publisher gives no written guarantees or assurances and makes no representation regarding any goods or services written or advertised within this edition. Prospective investors should always consult their attorneys, advisors or accountants. Copyright © Real Estate Media cc

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SMART MOVES If You Fail To Plan

28 IMPROVING Essential Extensions More space, more value 32 ACQUIRING Know Your Numbers 34 PROFILES Behind The Hammer Julius Buchinsky talks auctions 36

GETTING STARTED First -Time Buyers Driving the property market

April 2013 SA Real Estate INVESTOR

COMMERCIAL 42

Contributors

LISTED RESULTS Listed Property

Neale Petersen is an accomplished entrepreneur, magazine publisher, author, speaker, investor, infoproneur and business coach. Neale is the founder owner of Reale Media publishers of South African Real Estate Investor Magazine.

44 DEVELOPMENTS Your Next Step 46

SMART MOVES Want To Retire In Style?

Russell Bennett is the erstwhile editor of Drivemagazine.co.za, as well as our own resident “Webbie”. He’s a fast-car freak, as well as one serious tech-head, who is driven primarily by passion above all else.

48 FRANCHISING Battle Of The Burgers 50

RETAIL FOCUS One Click Shopping

Angelique Redmond is our talented editor. With a passion for words and music, her pink earphones are a permanent fixture.

OFFSHORE 54 LONDON The Crown Jewel Of The Global Market 56

Monique Terrazas is REIMS 2012 SAPOA award winning property investment writer, she is a treasured REIM contributor for almost five years.

HOLIDAY HOMES An Irish Adventure

58 CANADA Is Canada About To Burst? 60 AFRICA Growing Mozambique

John Roberts is the CEO of The Just Property Group, a dynamic property company born from the motivation to create a property industry leader.

LIFESTYLE 64

BUDGET 2013 Your Comprehensive Guide

WEALTH MONITOR Dreaming Of Island Life?

MOTOR TALK VW Golf Vs Porsche Boxster

TECH TALK The Beauty Of Glass

Other R176,8 BN

Economic affairs R132.1 BN

How will the money be spent?

Social protection R134.9 BN

Housing and community R132.1 BN

Education R232.5 BN

April 2013 SA Real Estate Investor

Public order and safty R108.9 BN

Employment and social security R49.2 BN

76 LESSONS Creative Thinking

Defence R44.6 BN

Koos du Toit is the CEO of P3 Investment Group that offers hope and guidance to anyone looking to build a successful investment portfolio.

Jonathan Smith is the Director of Courtwell Consulting and has extensive experience in property and consulting, including educational programs.

Health R133.6 BN

www.reimag.co.za

FINANCIAL INTELLIGENCE CENTRE ACT

ADVERTORIAL

Estate Agents Must Report Suspicious Transactions

Examples of transactions that could be suspicious within the estate agency environment include:

he Financial Intelligence Centre (the FIC) reminds estate agents of their obligations to report any suspicious or unusual transactions which they may be aware of in their businesses. The FIC is the national centre for developing and disseminating financial intelligence to law enforcement and intelligence agencies, the South African Revenue Service, and other local and international agencies.

•

The FIC uses the financial information it receives to identify the proceeds of unlawful activities, with a view to combat money laundering activities and the ﬁnancing of terrorism. Suspicious and unusual transaction reports (known as STRs) are an essential element in helping the FIC to identify suspected criminal activity and the potential proceeds of crime.

•

The obligation to submit STRs to the FIC, in terms of section 29 of the Financial Intelligence Centre Act, No. 38 of 2001, as amended, applies to all businesses in South Africa, including estate agents.

• •

The obligation is imposed on any person who: Carries on a business Is in charge of a business Manages a business Is employed by a business. While STRs are being submitted by some businesses, the FIC is concerned that some estate agencies are not meeting their obligations in terms of ﬁling STRs. This requirement applies to both estate agents trading as sole proprietors as well as group estate agents.

• •

• • • •

Paying a large cash deposit without disclosing the source of the funds Poor explanation for the early redemption of mortgages The using of false identity when buying or selling property The buyer insists that the property be registered in the name of an unrelated third party The buying price is paid by an unidentiﬁed third party The buying price is paid into a foreign bank account Inconsistent or weak reasons for paying cash Use of cash coupled with a speedy sale A purchase made without the property being viewed Immediate resale of the property Any other activity which does not make business sense.

Submitting an STR does not mean that you cannot continue with the transaction or that you will lose your commission on the deal. The FIC Act protects persons who submit reports to the FIC. In addition to protection against legal liability, the identities of those involved in making a report to the FIC remain conﬁdential. Failure to comply Failure to report suspicious or unusual transactions could lead to action being taken against the

offending estate agency and employees of the estate agency, amounting to imprisonment of up to 15 years or a fine of up to R100 million. By reporting suspicious and unusual transactions to the FIC, estate agents are helping in the fight against crime. This will contribute to a safer and more stable business operating environment, encouraging and improving investor confidence. How to submit STRs Visit the FIC’s website - www.fic.gov.za – and click on the Reporting button.

For further information call 0860 222 200 or e-mail us at ﬁc_feedback@ﬁc.gov.za

DO THE RISKS ASSOCIATED WITH RESIDENTIAL LETTING LEAVE YOU FEELING EXPOSED?

THE RIGHT TOOLS FOR THE JOB In life, success is often dependent on having the right tools. This is true in all industries – and particularly in the property market. At a time when people are finding it increasingly important to manage their finances and investments shrewdly, Rentshield has launched a new “zero deposit” residential letting tool. SO HOW DOES IT WORK? Rentshield puts landlords in control of their residential letting portfolio, allowing them to manage their portfolio more efficiently and cost effectively. The innovative product allows the landlord to forego the initial hefty tenant’s deposit requirement, which often acts as a deterrent to potential tenants. While this “zero deposit” offering is hugely appealing to tenants, the benefits for landlords are numerous, as they are protected for almost every eventuality.

WHAT ARE THE BENEFITS OF RENTSHIELD? •

Online tenant vetting facility (no cost)

•

Thorough in and out inspections (no cost)

•

Landlord protected for non-payment by tenant for up to three month’s rent

•

Landlord protected against damages caused by the tenant for up to one month’s rent

•

Rentshield takes care of the eviction process in compliance with the CPA

•

Rentshield covers the landlord’s legal fees for eviction of a tenant to the total value of R50 000

•

Landlord is protected against malicious damage and unpaid utilities for up to one month’s rent

•

No more legwork that comes with renting property

The cost of Rentshield is included in the total monthly rental paid by the tenant. To qualify, tenants must be South African citizens and be able to afford the rent. All leases protected by Rentshield must be a minimum of 12 months.

For more information, visit: www.rentshield.co.za or call 0861 DPOSIT / 0861 376 748.

INVESTOR TALK

BY ANGIE REDMOND

What lies ahead for SA?

his month we look at politics, policy and property and how these three things are interconnected: when one system fails, they all do. But even in the light of the glaring problems our country faces, there is still hope. The new Budget announced was not as dire as we expected and the State Of The Nation Address was encouraging. Even though crime and corruption are rife, the building blocks are in place - all we have to do is get involved. The new Budget allocation of funding to help first–time buyers who fall outside the financial bracket of low-income housing is very positive, not just in terms of helping renters buy their first property, but also in stimulating the property industry. While house price growth has been slow, the emergence of this new generation of buyers should greatly stimulate the market. In this edition, we explore who first-time property buyers are. Also in this edition, we investigate the new Budget and the tax measures it introduces, and debate whether online shopping will steamroll traditional methods of shopping and change the face of retail. The question still remains: What lies ahead for South Africa? The next general election is around the corner and with a new political party entering the race, will this have any effect on the outcome? Or will a new party simply divide the minority even further? One cannot read the news today without a new government corruption scandal jumping off the page. This, in itself is promising, because it means the watchdogs out there are keeping the public informed. As much as we all moan about the corruption, the fact that we know about it means our democracy is working. I am an optimist, I believe in a brighter tomorrow, but I realise we have a very long road ahead of us. And the only way we will get there is together. So, when the political parties come a-knocking to court your vote, ask them what they intend to do for you, for your children and for your country. And without further ado, enjoy this month’s edition of REImag! Angelique Redmond

EDITOR

“Men make history and not the other way around. In periods where there is no leadership, societ y stands still. Progress occurs when courageous, skillful leaders seize the opportunity to change things for the better.” Harry S. Truman – 33rd president of the USA www.reimag.co.za

April 2013 SA Real Estate INVESTOR

BOOK REVIEWS Freakonomics By Stephen Dubner & Steven Levitt

Just About Everything A Manager Needs To Know In South Africa By Neil Flanagan & Jarvis Finger

Cult bestseller, new buzz word... Freakonomics is at the heart of everything we see and do and the subjects that bedevil us daily: from parenting to crime, sport to politics, fat to cheating, fear to traffic jams. Asking provocative and profound questions about human motivation and contemporary living and reac h i ng some a ston ish i ng conclusions, Freakonomics will make you see the familiar world through a completely original lens.

Organize Now!

This book distils just about everything relating to successful ma na gement prac t ice into prac t ica l a nd immed iately accessible “how-to’s”, providing answers to all your management problems and questions in straightforward language with the minimum of fuss. You no longer have to separate the practica l ideas from entangling management jargon and theory – the authors have done all that for you. Black Jerusalem

By Jennifer Ford Berry

By Happy Ntshingila

Organize Now! is a week-by-week guide to simplify your space and your life. It offers practical advice on how to organize any part of your life in less than one week. Clutter steals your storage space, robs your time and energy and takes away the peace of your home. Use the easyto-follow checklists and tips to deal with physical and mental clutter, and learn how to make getting organized a faster, easier and more effective process.

Black Je r u salem t r a c k s t he events and people who shaped the growth of the HerdBuoys adver tising agenc y through successful and sometimes notso-successf u l new business solicitation. As the first blacko w ne d a d v e r t i s i n g a g e nc y in S out h A f r ica , it wa s at the forefront of the ‘changemanagement’ revolution from 1991 to 2006. Happy Ntshingila tells the behind-the-scene stories of this advertising agency.

The Facebook Effect

Building Agreement

By David Kirkpatrick

By Roger Fisher & Daniel Shapiro

Today - six years after it was created in a Harvard dorm room - over 500 million people use Facebook reg u larly, in just about ever y country on earth. That a company this powerful and inf luential was started as a lark by a couple of 19-year-olds makes it a fascinating and surprising tale. With exclusive inside access to all the company’s leaders David Kirkpatrick tells of the vision, the tenacity, the refusal to compromise, and the vision Zuckerberg has.

W hether you’re negotiating with an angry boss or a difficult colleague or a stubborn teenager - you can learn to use your emotions to help you achieve the result you want. Building Agreement show you how to control the five ‘core concerns’ that motivate people and express appreciation for what others think, feel or do. Build affiliation and turn an adversary into a colleague.

www.thebizmall.co.za

BOOKS AVAILABLE AT Knowledge Is Money

April 2013 SA Real Estate Investor

www.reimag.co.za 6

CUS T

CE VI

R SE R ME O

PROPERTY GROUP

EXCELLENCE

INBOX

ROPERTY EXPERTS Purchase Price In London

Applying For Mortgage

Investing In South Africa

Craig Illman Propwealth UK www.propwealth.co.uk

Linda Rall Ooba www.ooba.co.za

Bill Rawson Rawson Properties www.rawson.co.za

Simon Thirsk asks:

I am very interested in purchasing property offshore, however, what sort of cash must be available? Do you provide tenants and secured income for a period of time?

Craig Illman answers:

The more, the better, as with most things in life. The question always remains, what are you looking to get out of your property? In London we are looking at small cash flow (or yields) but good capital growth (around 5%) whereas other areas like Liverpool are offering fantastic yields of around 9% but no capital growth. Personally my partner and I invest in Liverpool right now, as we are after the cash flows. Another big question on cash is the price difference between London and Liverpool. In London a one bedroom will cost you around £290 000, whereas in Liverpool, a one bedroom will cost you around £50 000. You can see the massive difference hence the better yields in Liverpool. The London price is over what the banks will lend on, so you can get a mortgage in London, whereas in Liverpool you would need cash. Tenants are key to our buy-to-let strategy so you never have a problem getting tenants. London is crammed with people looking for accommodation. Liverpool is not as crammed but we never wait more than two weeks to tenant our units. We have agents that take care of this for us.

Jenny Howard asks:

I want to apply for a joint mortgage, my mother and I are looking at embarking on buying our first property together, she is currently earning R12 000 after tax and I earn R11 000 after tax, what would we qualify for?

Linda Rall replies:

Buying a property with a partner – like your mother – is a good way to improve your chances of getting your home loan approved and to reduce the monthly repayments that you will each have to make. It’s not as simple as merely knowing how much you earn. The banks will also want to know how much you spend. Your joint monthly income is R23 000, and let’s say that you spend R10 000 on food, transport and clothing and other expenses. Your disposable income will be R13 000, which means that your new monthly bond repayment should not exceed this amount per month, but your bank will also be unlikely to grant a bond for which the repayments are more than 30% of your joint gross monthly income. This means that should your mother be earning a gross monthly income of R15 000 and you be earning a gross monthly income of R14 000 then your joint monthly gross income is R29 000 and the maximum loan repayment that you will be allowed to pay is R8 700 which means that a bond of approximately R1 000 000 could be granted.

Jason Barnard asks:

With all the uncertainty in South Africa on the issue of land reform and rights, is now still the best time to be investing in developments here in South Africa? I want to invest in residential developments but am hesitant due to the political climate at present.

Bill Rawson responds:

I want to make it clear that I support land redistribution. I genuinely believe that it is essential as part of the rectification of previous wrongs, but it has to be emphasised again and again that a fair way must be found in which to facilitate this. I have to warn all those responsible for action in this field that land or property grabs without compensation are a signal to the international business community that it is time to beat a retreat. Many potential buyers ask me just how likely property grabs could become in South Africa. No expropriation has taken place yet. However there have been threats to do so if the willing buyer and willing sellers can’t accommodate each other. Property owners here are at present left secure in their ownership. I am also inclined to think that those who govern our country – and our economy – are aware that the right to own property in perpetuity is the cornerstone of any free economy and that it will be very damaging to our economic prospects to embark on any major land reform projects other than ones possibly in the agricultural sector.

Do you have a property question you would like answered by our experts?

If so, post it on ASK THE EXPERTS on www.reimag.co.za or email editorial@reimag.co.za 8

April 2013 SA Real Estate Investor

www.reimag.co.za

The Professional Development Project of the Faculty of Law, University of Cape Town, offers seminars, lectures, workshops, and short courses of postgraduate standard. Who will benefit from the following courses? Estate agents, rental agents and those in the property industry generally. ADVANCED RESIDENTIAL RENTAL SEMINARS Tuesday, 23 April 2013, Durban Thursday, 9 May 2013, Cape Town Course fee: R2,000

Does the thought of advising clients on advanced landlord-tenant issues leave you feeling unsure and overwhelmed? Or are you an experienced estate agent looking to update yourself on recent legal developments? This seminar deals with landlord-tenant law on a comprehensive basis, including developing areas of the law, such as the Consumer Protection Act. We look beyond run-of-the-mill situations, with emphasis on practical application using real life examples where complex and obscure areas of the law were applied.

DRAFTING IN PLAIN LANGUAGE WORKSHOPS 16 to 18 July 2013, Cape Town 13 to 15 August 2013, Johannesburg Course fee: R6,000

The plain language movement is gaining momentum in South Africa. This is due to the requirements of the Consumer Protection Act, but also to the realisation by businesses that drafting contracts in language which both parties understand is more efficient. Join us for a practical three-day workshop in which we analyse the concept of plain language, provide you with the tools to identify and remedy language that is unclear, and give you writing exercises to practice the techniques you learn. Course presenters

Course presenter Marlon Shevelew is the senior attorney at Marlon Shevelew and Associates, a boutique law firm that specialises in residential, commercial and industrial rental property law, sectional title law, civil and commercial litigation, corporate recovery and consumer law. Marlon has more than 13 years of experience. On behalf of the Law Society of South Africa, he has educated attorneys and candidate attorneys countrywide on eviction and rental property law. He is also a regular guest on SAfm’s “The Law Report”.

Elizabeth de Stadler is a practicing attorney in Cape Town. She specialises in general regulatory compliance due diligences; training and workshops on regulatory compliance; opinion work on the Consumer Protection Act, the National Credit Act, Banking Law, and Contract Law; and plain language drafting. She is the co-author of a consumer law textbook and a guide on plain language legal drafting, and she is the editor of the Consumer Law Review, a monthly update on consumer law-related matters. Ruth Baitsewe is head of the Unit for Document Design at the Stellenbosch University (SU) Language Centre. For the past two years Ruth has been involved in establishing the SU Language Centre’s services in document design, professional communication and plain language. The SU Language Centre offers specialist training in plain language usage which includes critical analysis of documentation, usability testing, reader-focused testing, and redesign and rewriting of organisational documentation.

UNDERSTANDING CONTRACTS AND READING AND WRITING LEGAL LANGUAGE 20 to 22 August 2013, Cape Town Course fee: R6,000

So many of our obligations, in business and in our personal lives, come to us through contracts and legal language. Yet how often do we fully understand what we are doing and what the consequences will be for our business and ourselves? This intensive three-day programme will demystify the content and implications of common contracts and assist participants in taking ownership of the contracts they enter into. As the process and the content of contracts are examined, the scope of contracts to protect our interests and to limit our vulnerability will become clearer. Course presenter Terry Boxall is a practising commercial attorney attached to the UCT Law Faculty, who has extensive experience in teaching practical legal issues to people without specialised legal knowledge.

Programme and venue information Signing in will commence at 9:00 unless otherwise advised and the day will end at approximately 17:00. Instructions regarding the programme and venue will be sent to you electronically a week prior to the event. Award of certificate: A certificate of attendance from UCT will be awarded to those with full attendance. Closing date for registration: One week prior to the seminar/workshop/course Registration and enquiries: Please contact the Professional Development Project: Paula Allen on 021 650 5558 Andrea Blaauw on 021 650 5413 Email paula.allen@uct.ac.za / andrea.blaauw@uct.ac.za Visit our website, www.lawatwork.uct.ac.za, to download the registration form.

MASTER INVESTOR

BY NEALE PETERSEN

Meet Success with Jannie Mouton â&#x20AC;&#x2DC;Boere Buffettâ&#x20AC;&#x2122; is a true value investor

he first thing that struck me when I met Jannie Mouton was his charisma, focus, forthright approach, blatant honesty and dry sense of humour. His use of quirky anecdotes, his generosity in sharing his insights and his willingness to offer practical solutions are remarkable. He answers complex questions and responds to situations with realtime solutions, which makes resolving them seem really simple. His achievements, success and business savvy are unmatched, but it all 10

April 2013 SA Real Estate Investor

started through failure and challenging times, he says. Tenderpreneurs who use entitlement, position and power to gain an unfair advantage is one of his pet peeves. This is understandable, coming from someone who achieved success through hard work, determination and a grand vision. They say that mastery is the ultimate form of power and this South African billionaire entrepreneur is the epitome of mastery and power in his field. Mouton has created most

of his wealth building businesses from scratch and investing in businesses on the JSE. He is better known for his incredible business acumen and financial success rather than for his prowess in investing in real estate. But he clearly fits the accolade of Master Investor as he has achieved beyond the extraordinary. However, it a known fact that the wealthy hold a large part of their wealth in real estate, as Mouton does. The life lessons and stories www.reimag.co.za

FEATURES that Mouton has to share are invaluable to entrepreneurs, investors and business owners alike. While his story is mainly about business challenges and success, it also provides property investors with valuable guidance and inspiration. When the chips are down and things are not going your way, there is always a solution, a way to make adjustments and a comeback to achieve success.

The start of a legend S t e l l e n b o s c h Un i v e r s i t y ’s m o d e l i s undoubtedly successful - they have produced seven of South A frica’s top 20 richest people. Mouton studied for a B Comm at Stellenbosch University and then qualified as a Chartered Accountant in 1973. Today, he features on the top 20 Rich List with six other of his South African business counterparts who also studied commerce or law at Stellenbosch University. Mouton prog ressed into a f ina nc ia l ma nagement ca reer before for m ing a Johannesburg-based stockbroking business with friends, which was reasonably successful. Later they realised that it was easier to buy an existing brokerage, which they did in 1982. It became known as Senekal, Mouton and Kitshoff (SMK). They listed more than 40 companies on the JSE Altex exchange. The company started to boom but was highly reliant on gearing or - as many people in property industry call it - using OPM (Other People’s Money). This was risky. But Mouton believes in calculated risks - using speculative methods, only if you are in the know and thoroughly understand the how. In October 1987, the bubble burst with a market crash of more than 30% in one day. Many of the companies that were listed at the time were not well established and, as a result, dropped off the exchange.

‘You’re fired’ In 1995, completely unexpectedly, Mouton was fired as Managing Director of the firm he had founded. Of the 20 partners in the business, 19 had voted him out. At the age of 48, Mouton was shaken - he had lost his job, his company, his friends and, more importantly, his confidence. But, he believes that this was a defining moment in his life and a huge game changer. From that day onwards, he realised, the future was in his www.reimag.co.za

hands only. His turnaround strategy and the lessons he learnt on his path back to success are inspirational. His approach was simple but powerful: both feet on the ground but reaching for the stars.

The comeback plan Although officially unemployed, Mouton realised he had to keep on moving forward, despite his setback, to achieve his dream. He believes that if you find yourself in such a position, it is crucial to ensure you continue to get up in the morning, as if you have a job, and to go to an office, or somewhere else, to reflect and plan. This keeps your life on track. The next crucial aspect is to have someone as a soundboard to bounce ideas off. Mouton took time to do a SWOT analysis on h i msel f to ident i f y h is st reng t hs, weak nesses, oppor t unities and threats and to enable him to adapt his approach. Mouton also started reading books for ideas and inspiration, including Warren Buffett’s books on success and Napoleon Hill’s ‘Think and Grow Rich’, which had a big influence on his life. Hill was tasked by Carnegie to f ind the ultimate success formula for riches, which is: 1. Educate yourself 2. Build a business 3. Give everything back to charity. From Hill’s book, Mouton went back to basics and formulated his own action plan. Drawing inspiration from Hill’s words that “if you believe that you will reach your goal then you are already 90% there”, Mouton took the specific steps detailed in the book: 1. Get to know yourself. 2. Formulate your desires, your dream and your vision. 3. Keep your goal in mind. 4. Write it down. 5. Read, think and scheme. 6. Read business books by successful people. 7. Develop a mastermind group. 8. Always be positive. 9. Remember that quitters never win and winners never quit. Mouton then wrote down his own goals based on the principles of Napoleon Hill’s book ‘Think and Grow Rich.’

JANNIE MOUTON Personal Statistics Age: 65 Qualifications/Experience: B Com (Hons) Stellenbosch, CA (SA)

Close-up Mentors: Mouton admires Warren Buffett who, despite his humble family beginnings, became the third richest person in the world. Hobbies: Readingnewspapers, playing Sudoku and socializing with family and friends. Books: His favourite book is Think and Grow Rich by Napoleon Hill, which helped him reformulate his dream, as well as Warren Buffett’s books. Motto : To be humble and successful. Mouton’s investment philosophy:

Don’t follow the crowd.

Know what is going on around you in the markets.

Track interest rates.

Don’t speculate, especially if you don’t understand the market.

Don’t be averse to taking calculated risks.

Always invest for the long term.

When profiting, make a contribution to society.

Your investment creates jobs.

April 2013 SA Real Estate INVESTOR

MASTER INVESTOR American billionaire investor and the third wealthiest man in the world, Warren Buffett, lives and works in the small town of Omaha, Nebraska rather than in New York City close to Wall Street. Here, Buffett says, he is undisturbed by irrelevant factors and noise. Mouton shares Buffett’s philosophy and says that is part of the reason PSG has its head office in Stellenbosch and not Johannesburg. He believes in working in a place where he can think more clearly.

MOUTONS’S DREAM GOALS IN 1995

1 2 3 4 5 6 7 8

A share or a big stake in a listed company. The company must have a financial services sector focus. Raise capital to develop a strong base. Adopt a decentralised management style and delegate. Become associated with smart people. Move to and settle in Stellenbosch, Cape Town. A small office with a relaxed environment. Think more and do less.

Mouton then bought a recruitment and personnel placement agency company called PAG. He obtained control of PAG, which had a market capitalisation of R7 million, at 36c per share. He eventually sold the company for R107 million, an achievement he ascribes partly to luck. Mouton went on to form the high ly successful financial services company, the PSG Group, which he says became his life. He is the founder and Chairman of PSG, which

is now worth R14 billion and incorporates 39 companies that pay R2.6 billion in taxes. Steinhoff is a 20% shareholder in PSG. Difficult times create opportunities, says Mouton, and he established many of the new businesses during times of crisis. Capitec Bank, for example, was formed when banking fees were under fire and they created new markets by banking the unbanked. They got a banking licence and moved from loan shark to hero with multiple national micro lending outlets. Capitec now has 3.7 million clients and has been identified as one of the 27 Brands of Tomorrow as rated by Credit Suisse. Their share price listed at R2 and has risen above R220 recently.

“In 1995, completely unexpectedly, Mouton was fired” Given the crisis in South Africa’s education system, the company also bought into Curro Private Schools. It allowed the company to take advantage of a massive gap in the market, as no new schools are being built and the market share of private schools in South Africa is 4%, compared to the 13% average globally. Mouton was recently listed on the Sunday Times rich list as the 19th richest South African businessman, with a personal fortune of R3 billion, and by Forbes Magazine as Africa’s 40th wealthiest person, with his collective companies valued at over R61 billion. Mouton has always believed that a reputation can only be earned. A brand can easily be

BUSINESS LESSONS LEARNT

1 2 3 4 5

The team is far better than the individual. Make decisions and take risk. Involve and inspire your family and colleagues. Make them shareholders. Be positive and proactive.

bought, but the real character and integrity of the brand is the face behind the brand.

The property story Mouton is affectionately known in business as the “Boere Buffett” for quoting and relentlessly following Warren Buffett ’s investment strategies. Just recently he bought a R27 million, 51 hectare vacant property in Stellenbosch, although he is still not sure what he wants to do with it. He currently owns Klein Gustrouw wine estate, which has a magnificent view of Jonkershoek Valley, a nature reserve in Stellenbosch which features some of South Africa’s most sought-after vineyards. He says that difficult times are the times to look for real opportunities. The financial crisis has created crisis for many and opportunity for few. He has made some of his best investment moves during the crisis. Mouton says you can create wealth for yourself by buying shares on the JSE or investing in business or even property. He does not believe in giving investment tips or business tips, but rather shares a fundamental investment philosophy which is ingrained in his success approach.

RESOURCES PSG Group

JANNIE MOUTON’S BOOK: Jannie Mouton: And Then They Fired Me | Management & Business One of South Africa’s greatest success stories, Jannie Mouton built his business from scratch after getting fired at age 48. Straight-talking Mouton tells the inside story of how he started PSG, turning it into a triumphant success in only 15 years. Today the companies he is involved in have a market capitalisation of R61 billion. Known in the industry for being difficult, Mouton nevertheless has a soft heart and a passion for poetry. Outspoken and not scared of controversy, Jannie Mouton has only once managed to sack an employee himself. • Who is the man behind PSG’s phenomenal success? • Can he “predict the markets”, as Finweek has suggested? • What is the story behind the Pioneer Foods cartel saga? • Why is he unconcerned at the fury of many in the wine industry about his plans for KWV? In this book, Jannie Mouton spills the beans on what really went on behind the scenes. He talks openly of even the most controversial transactions he has been involved in. With his typical honesty and humour, he freely shares his business and investment advice.

April 2013 SA Real Estate Investor

www.reimag.co.za

CUS T

CE VI

R SE R ME O

PROPERTY GROUP

EXCELLENCE

COVER STORY

BY MONIQUE TERRAZAS

Politics, Policy and Property

The road to a better future for South Africa

roperty ownership, property rights, proper t y va lues – a l l aspects of property are impacted and influenced by the political dispensation and government policies. As such, property owners need to understand the political situation and government’s policy direction, because the economic, political and social freedom in a country directly impacts the ownership, use and value of the property in the country. Our Rainbow Nation is a miracle. For those who can remember the tenuous days before our first free and fair elections, and for those who recently watched the documentary Miracle Rising: South Africa, it will be patently clear just how close we came to civil war and anarchy on so many occasions. But with strong leadership, a great vision and a people who were willing to do what was necessary to make the vision a reality, our democracy was created despite incredible odds. We have much to be proud of, including the most progressive Constitution in the world and almost 20 years of peace and significant progress in many respects. The ANC-led government introduced marketfriendly policies after 1994 and in the decade that ensued, South Africa became freer on all 14

April 2013 SA Real Estate Investor

indices measuring economic, political, social and related aspects of freedom. It ushered in the longest period of sustained growth the South African economy had experienced in its history.

But at the same time as the global economic crisis hit, the real danger emerged on the political front.

The 2011 Census further reveals much progress to be proud of. The portion of South Africans who had completed matric increased from 23% to 41%. The proportion of South Africans living in formal dwellings increased from 58% to 77%. The proportion of households with piped water increased from 61% to 73%, and those with access to electricity increased from 58% to 84%. Interventions in the treatment and prevention of HIV and TB have increased average life expectancy from 56 years in 2009 to 60 years in 2011 and there has been a significant decrease in infant mortality. Since 2009, government has spent around R860 billion on infrastructure.

Although its alliance partners are communist or socialist in ideology, these have never been ANC policies. But in 2007, at Polokwane, we saw the first substantial “dirigiste” shift in ANC policy after the effective coup by Jacob Zuma, ousting President Thabo Mbeki.

Sound economic policies helped South Africa weather the global economic crisis of 2008 better than most countries. Nevertheless, the country was signif icantly impacted, moving into a brief recession and losing a million jobs within the space of a year. The countr y has, however, sur vived and our economy is growing, albeit slowly.

2007... a turning point

Leon Louw, executive director of the Free Market Foundation (FMF), explains that all the “isms” - communism, fascism, socialism, welfare statism, capitalism - are variants of a single “ism”, dirigism. Dirigism, he says, derives from the French word “dirigisme”, meaning state control of economic and social affairs, regardless of whether it is “left” or “right”. All the “isms” entail social engineering with government ownership or control of resources and people. The true opposite of dirigism is a French non-”ism”, laissez faire or free market economy. This 2007 shift in government policy – away from the ANC’s laissez faire roots – brought about a very different picture for South Africa www.reimag.co.za

FEATURES as ref lected in our reversal down all major indices of economic, political and social freedom. And the timing could not have been worse, as the damage to the economy created by this policy direction was compounded by the ravages of the global economic crisis.

example. Statistics reveal that the number of people who die in police custody has gone up by a massive 365% in the last 10 years. And the rate of convictions is shockingly low. Is the SAPS above the Constitution and the Rule of Law?

As a result of the “dirigiste” shift in the ANC, South Africa has since 2007 been faced with a government who has forgotten its role as the representative body of the people, tasked with implementing the wishes of the people and the policies that serves the people best. While many government policies seem well-intentioned, increasing state intervention in every aspect of life is creating terrible unintended consequences.

But the government itself is increasingly operating above the Constitution and the Rule of Law. The possibility of a ‘media appeals tribunal’ (MAT) was first raised at the 2007 ANC national conference in Polokwane. The media and some analysts labelled it an attempt to curb press freedom – in direct contradiction of the Constitution. But the red warning lights were clear with the reintroduction of the highly controversial Protection of State Information Bill in 2010. Critics over a wide range claimed it would stif le the media’s ability to expose corruption or other illegal activities within organs of state. Silencing the media is a one-way road to tyranny.

State intervention Both Free Market Foundation (FMF) and Law Review Project (LRP) have expressed grave concern about the increased assault on civil liberties and individual freedom in South Africa, especially when these assaults are cloaked in seemingly well-intentioned and even harmless policies. Louw notes that it was CS Lewis that warned us: “Tyranny sincerely exercised for the good of its victims may be the most oppressive. The robber baron’s cruelty (and) cupidity may at some point be satiated; but those who torment us for our own good will torment without end for they do so with the approval of their own conscience”.

“Tyranny sincerely exercised for the good of its victims may be the most oppressive” “Governments worldwide have found that it is easy to get support for state intervention on issues such as tobacco and liquor. And they have readily embraced the consequence that, once in place, such measures open the door for increased interventions in other areas that go far beyond the need to protect, for example, passive smokers, to the point of extreme erosion of lifestyle choices, freedom of association, property rights, basic liberty and personal dignity,” says Louw.

www.reimag.co.za

ABOVE: President Jacob Zuma For example, the draconian smoking laws in South Africa are seemingly well-intentioned. Indeed, no South African supports smoking. But smoking is not the issue! The erosion of personal liberty is the issue. Once government has decided that South Africans should not smoke and, essentially, makes it impossible to do so, what can stop them to infringe on ever more liberties and choices? “Condoning the loss of some lifest yle liberty condones losing all liberty. If we do not stop the march of antifreedom activists, they will not stop until all lifestyle and liberty is lost,” says Louw. Ensuing measures that follow logically include controlling liquor consumption and limits on salt, sugar and caffeine allowed in food. And, given the scientific consensus that junk food, dangerous activities, sweets, f izzy drinks, obesity, premarital and extramarital sex and public cycling or walking need stricter regulation, where will we draw the line to curb state intervention and demand the freedom to make our own lifestyle choices? And, indeed, it has not stopped at tobacco and liquor regulation. There are many other pertinent examples of government intervention and increasing control. The death of Mozambican taxi driver, Mido Macia, after being dragged behind a police vehicle is clear evidence of police brutality. The Marikane Massacre was another prime

Government is also increasingly operating in secrecy. The Right2Know campaign (R2K) recently released a hard-hitting report on the state of secrecy in South Africa, offering insight into the mysterious National Key Points of which, President Jacob Zuma’s Nkandla home, is one. An apartheid-era security law, the National Key Points Act allows the minister of police to declare any building in the country a National Key Point, which is then deemed so important to national security that it requires extra security, extra protection and extra secrecy. In the last five years, there’s been a 54% increase in the number of national key points across the country – but there is no list available to South African citizens. “Government’s attempt to use the National Key Points Act both to justify and to hide the R238 million Nkandla upgrade is just the latest and most extreme abuse of a law that has undermined democracy since its inception,” says a R2K opionion-editorial piece on the Act. “Simply, it’s a law that undermines basic rights; at the very least we should know how widely those rights are being undermined.” Perhaps the most recent example of government rough-shodding over the rights of the country’s citizens is the fact that legislation paving the way for putting e-tolling on the Gauteng Freeway Improvement Project April 2013 SA Real Estate INVESTOR

COVER STORY regulations are not the answer. In fact, increasing government interference in a free market economy has resulted in some truly terrifying challenges for the country. And our shocking unemployment rate certainly ranks as supreme among all of these. For many years experts and analysts have noted that the suffocating labour laws in the country have directly contributed to the massive unemployment problem.

ABOVE: A COSATU strike. (GFIP) into practice was approved in the National Assembly. Despite the massive public outcry, strong opposition by most opposition parties, mass action by the ANC’s alliance partner Cosatu, and even lega l action instit uted by the Opposition to Urban Tolling Alliance (Outa), the government has simply continued. Again, the issue is the long-term consequences of this government action and the precedent it sets. As John Loos, Household and Property Sector Strategist at FNB, notes: “Although it is only a few national roads in Gauteng being tolled at this stage, the public will be aware that other major cities will probably be next, and if successfully implemented, why can’t other government entities toll their roads too?” But perhaps the most concerning example of government interference is the proposals around land reform. Government’s disturbing pat tern of erosion of proper t y rights our Constitutional right to own property - culminated in the publication of the Green Paper on Land Reform, which has been described as “a new assault on the Constitution and the Rule of Law”. Looking beyond the highly emotive issue of redistributing white-owned farmland to black people to address the past, the Green Paper is actually a systematic erosion of the property rights of all South Africans, regardless of colour or race.

April 2013 SA Real Estate Investor

John Kane-Berman, chief executive of the South African Institute of Race Relations, notes: “We risk embarking on another form of social and racial engineering heedless of the key lesson from the past: how hard it is to reverse the results of such projects. Property rights, like freedom, are indivisible. Nobody should think their own rights will be secure if those of white farmers can be invaded, or those of mining companies can be eroded. Each successful invasion of course creates a precedent: if mineral rights or water rights can be nationalised, farm land may be next. If the Government has the power to tamper with intellectual property rights by fixing drug prices or doctors’ fees, why should its price-fixing powers not be extended into other realms?” he asked. Dr Anthea Jeffery, Head of Special Research at the South African Institute of Race Relations, concurs: “Already the ANC has white-anted the Constitution in various ways, and the green paper on land reform goes much further, using the emotive land issue to bypass the Judiciary and establish a new norm: that the amount of compensation payable on expropriation can be decided by a state official (the valuer-general) and that title to land can be set aside or be ‘invalidated’ by a new bureaucratic body, the land management commission. Once this norm has taken root, there will be little to prevent it being extended to mines, banks, firms, shares, or any other asset.”

Unintended consequences State intervention and ever-more draconian

So unbearable has the situation become that the Free Market Foundation has filed a constitutional challenge to South Africa’s Labour Relations Act 1995 in the Gauteng North High Court. FMF Chairman Herman Mashaba explained: “This labour law challenge is about giving people the freedom to decide for themselves what kind jobs they want to do, what amount of pay they are prepared to work for, and what conditions they are prepared to work under. It is about their freedom to make their own decisions about their own lives. It is the sole right of unemployed people to decide what jobs they consider to be better than no job at all......to decide what job is a ‘decent’ job. No one has the right to take away that decision-making power from desperate people. It is evil to do so”. The FMF believes that in the absence of the strict labour laws, many of the millions of unemployed who want to work can find a job and young people who need to get a foot on that first rung of the ladder can start to climb. The country’s labour laws have not only contributed to massive unemploy ment, but along with the red tape encumbering entrepreneurs in South Africa, it has also curtailed the entrepreneurial spirit of the people and discouraged the establishment of small businesses. “The environment is complicated and the requirements expensive to implement, thus discouraging entrepreneurs and consequently employment. South Africa fails dismally in business and job creation,” notes the FMF. According to the SME Growth Index™, ‘Easier/Harder for Small Business in South Africa’, produced by business environment specialists SBP, 74% of the sample report of 500 SME operators in the South African economy feel that it had become more difficult to operate a business in the year preceding the survey. Red www.reimag.co.za

FEATURES tape is consuming between some 3% and 6% of companies’ turnover, depending on the sector. It also hits smaller firms particularly hard. Those employing less than 21 people are paying more than double - proportionate to their turnover - than those employing more than 40. Politics and policies have further impacted the country in terms of investment – and not just foreign investment. Businesses in the country have effectively been on an investment strike for some time. South African corporate savings are at a multi-decade high. The sector was sitting on roughly R520-billion in mid-2012 – the highest levels since 1995 - because they are reluctant to invest. According to a recent survey from global consultancy Grant Thornton, nearly half of South African business leaders say that they are delaying important decisions about the future because of uncertainty regarding the political direction the country is taking. “Over and above post-recessional blows‚ nationwide strikes and instability in our mining sector‚ additional issues - particularly political insecurit y‚ regulatory concerns and public policy issues are adding further pressures on the stability of South Africa’s business environment‚“ Grant Thornton said in a statement. “In line with Bric business leaders‚ 42% of executives in South Africa agree that over-regulation and bureaucracy constrict business growth and this highlights how stifling regulatory systems and processes have an impact on the day-to-day functions within a company.”

So what is the solution? A number of issues are clear. Firstly, South Africa needs a vision. Secondly, South Africa needs leadership - not state intervention and increased regulation that erodes freedom, stifles entrepreneurship, creates unemployment and discourages investment. Thirdly, and perhaps most importantly - we need a collective effort in which government, individual and corporate citizens, as well as a strong civil society, work together to build a brighter future.

Where are we now? A number of important recent events provide an insight into what the future may hold. www.reimag.co.za

ABOVE: The National Development Plan.

ABOVE: Trevor Manual author of the NDP.

South Africans waited with bated breath for the outcome of the ANC’s 53rd National Conference in Mangaung in December 2012. Despite fears, there were no major changes to policy, but rather some milder shifts that were very positive.

broad outlines of further initiatives. But mostly, Zuma’s SONA focused on the NDP and its triple aims of reducing unemployment and inequality and eliminating poverty.

Firstly, the nationalisation of the mines was finally struck off the agenda. It is a very fortunate turn of events indeed, given that talk of nationalisation certainly hampered investment and business confidence. Similarly, some of the more radical leftist proposals were silenced and the ANC took a more moderate approach with economic policy proposals aimed at reassuring foreign and local investors. This included, after a long silence, President Zuma finally speaking out strongly against Julius Malema, who terrified South Africans and foreign investors alike with his radical, violent talk. Zuma made it clear that Malema is officially gone.

“The NDP is a plan for the whole country and it is a long-term vision” But perhaps the best news is that Zuma made it clear that Trevor Manuel’s National Development Plan (NDP) was the party’s chosen path ahead. Similarly, the State of the Nation (SONA) address held no surprises. President Zuma reported back on work in progress, outlined corrective actions where needed, and provided

This was followed by Finance Minister Pravin Gordhan’s annual Budget, which provided a more detailed indication of the priorities for the next year – and again, the message was clear: “The 2013 Budget takes the National Development Plan as its point of departure and the strategic plans of government and the medium-term expenditure plans will be aligned to realise our objectives.”

The vision: NDP The great news, then, is that we finally have a vision. The NDP is a plan for the whole country and it is a long-term vision. It aims to ensure that all South Africans attain a decent standard of living through the elimination of poverty and reduction of inequality. It defines a desired destination and identifies the role different sectors of society need to play in reaching that goal. Even better news is that the NDP has been widely welcomed by economists and political parties. As Cyril Ramaphosa recently commented in a speech: “I cannot recall a time in the history of our democracy when there has been such broad agreement among political parties and social partners about the work that needs to be done to build our future. The National Development Plan, which provides an overarching programme to eliminate poverty and reduce inequality in South Africa by 2030, has been endorsed across the political spectrum.” April 2013 SA Real Estate INVESTOR

COVER STORY Leadership

To successfully achieve the vision, South Africa will need strong leadership – not state intervention and government control that can be traced back to the shift in the ANC policy in 2007 at Polokwane. But it would appear that even President Zuma understands that the country needs s t ron g le a d e r s h ip. Enc o u r a g i n g l y, at Manguang, Zuma replaced his trademark song Mshini’wam – which many considered divisive and inappropriate – with a new song he sang during the opening of the conference, one that carries a nobler message: retelling Nelson Mandela’s words to his followers that “the journey was long, but they would meet on Freedom Day”. The fact that Zuma sang the song again at the end of the conference lead some to believe that he is indeed serious about restoring the nation’s faith in their leader.

“South Africa will succeed – provided that we can work together as South Africans” The election of Cyril Ramaphosa as the new deputy president of the ANC is also good news, implying that there will be political willpower at the top to implement the NDP. While some have commented that Ramaphosa will not be able - single-handedly – to change the ANC, it must be said that he is widely respected. As the ANC’s Chief Negotiator during those tenuous days before the election in 1994, he showed himself to be a man of integrity and moral fibre, with a deep commitment to the country. And he has subsequently proved himself a capable businessman and leader. Beyond the internal ANC politics, South Africa has already moved into election mode in anticipation of next year’s elections. The Democratic Alliance (DA), which is the official opposition, has said it is preparing “furiously” for the elections and has published details of their plan to grow the economy at 8%. Another possible leader has emerged with the birth of Dr Mamphela Ramphele’s Agang – “a political platform to steer the country on a path towards an empowered citizenry, accountable publ ic ser v ice, rev ita l ised 18

April 2013 SA Real Estate Investor

economy and enhanced global standing”. Community activist, medical doctor, academic and former World Bank managing director, Ramphele says: “I want us to re-imagine how we can work together as South Africans, to break the mould and reinvent our politics and our policies so that we can escape the destructive patterns of division and alienation in which we are trapped as a result of the oppression of the past. This is an opportunity for citizens to take ownership of their own country’s destiny and shape it.”

WHAT CAN YOU DO? your right to vote, but 1 Exercise not simply based on emotion

or political affiliation. Take time to read the election manifestos published by the political parties and make an informed decision, so your vote really counts.

Get involved in civil rights movements who are working to protect your rights! Support organisations such as Right2Know, Outa, the Free Market Foundation, and the Law Review Project.

Report corruption, fraud and bribery! And never pay a bribe to anyone – including a traffic officer to get yourself off the hook with a speeding fine.

Read the NDP, listen to the SONA and the Budget Speech, and stay informed.

Become involved. Join industry organisations and participate in business groups to ensure you can contribute towards a brighter future.

Join the many South Africans who are ‘ledging’ to make South Africa better by visiting the LedgeSA Facebook page.

Volunteer in your community. Give of your time and expertise to help build a better community for your children to grow up in.

Your country, your responsibility This is indeed what South Africa truly needs right now: a strong and committed people individual and corporate citizens and a strong, vibrant civil society, who are vigilant and vigorous in defending our collective rights and participating with enthusiasm and focussed action to make this country work for all of us. As Edmund Burke cautioned: “The only thing necessary for the triumph of evil is that good men should do nothing.” Each one of us, as South African citizens, can no longer do nothing. It is time for us to “take ownership of our country’s destiny and shape it”. We must get involved. We must curb government’s attempts to interfere in free markets and to erode our civil liberties. But at the same time, we need to participate in creating a future, putting the past behind us and working together to a common future. In the words of former President FW de Klerk at an event in Zurich recently: “South Africa will succeed – provided that we can work together as South Africans to support our Constitution; to demand the rights that it guarantees; and to achieve the vision of human dignity, equality and enjoyment of human rights and freedoms that it articulates.” We need to collectively heed the call by President Zuma for a Social Compact that brings together labour, business, government and other social partners. Although these sectors may have different, and sometimes divergent, interests, they share an overriding concern about the growth of our economy and the transformation of our society. As Ramaphosa recently concluded: “[The call for a Social Compact] places an obligation on each of us to ask what it is that we can and

should be doing to contribute to meaningful change in our society. The clarion call that President J.F Kennedy made to Americans at his inauguration in 1960 has relevance for us as South Africans when he said: ‘Ask not what your country can do for you but what you can do for your country.’ Again, we face incredible odds. Again we need strong leadership, a great vision and a people who were willing to do whatever is necessary to make the vision a reality. Again we are poised for a miracle... www.reimag.co.za

You’ve dreamt of it, now own it!

True African bush living at the only Bush & Aero Estate in the world Life at Zandspruit is one of peace and tranquility - a home cocooned in wild life and bush, offering a tranquil getaway from a demanding world. The exceptional weather all year around gives you ample opportunity to explore your environment with wildlife walks, horse rides or game drives. View this tranquil setting from the comfort of your living room or pool deck.

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KEY FEATURES  Estate size: 1000 ha game farm  200 full title stands. Sizes range from 4 000 m² to 15 000 m²  House designs are in 3 different styles being  Farmhouse  Pavilion  Thatch  650 ha of untouched wildlife reserved exclusively for owners game viewing pleasure  Safe environment and close to retailers, doctors and recreational facilities  1 km hard surfaced private runway, for aviation enthusiasts  Park and hanger your plane next to your bush home

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CASE STUDIES

BY MONIQUE TERRAZAS

New EEAB Board Appointed The Good

inted board appo te a st e w e N

Following a wave of scandals, most notably the Wendy Mechanik saga and the resignation of chief executive officer Nomonde Mapetla, the Estate Agency Affairs Board of SA (EAAB) – the governing body of the estate agency industry - was dissolved by Human Settlements Minister Tokyo Sexwale. The EAAB was then put under administration and lawyer Taswell Papier was appointed as administrator, tasked by Sexwale to restore stability in the board and facilitate good corporate governance. Minister Sexwale has f inally announced the new board of the EAAB. The members of the 15-member board come from a variety of sectors including the financial services, the legal fraternity, the estate agency industry and civic society. The new board’s first and urgent assignment would be to appoint its chairperson and CEO. “The tasks facing the new board are not only challenging but could also be exciting,” said Sexwale at a media briefing. “The litmus test of the success of the new board will be premised upon good governance, integrity of their processes, credibility of their decisions, transparency as well as constant interaction with the members of the public.” Good news indeed for estate agents who have been unable to obtain their Fidelit y Fund Certif icates that allow them to trade legally, for consumers who look to the EAAB for protection as well as for the propert y industry which has suffered great reputational damage as a result of a corrupt and inefficient governing body. 20

April 2013 SA Real Estate Investor

The Bad

e the tail of th The sting in ry to vic Eskom tariff

Nersa’s decision that Eskom would be allowed to increase electricity tariffs at an average yearly rate of 8% between 2013 and 2018 - half of the 16% sought by the utility – has been widely welcomed at all levels of South African society. It is indeed encouraging that Nersa considered about 200 written and 162 oral representations before making its determination, which it said was based on reason, facts and evidence that the 8% would not run Eskom into the ground. However, Eskom’s warning of the impact of the determination on its ability to keep the light on may prove a sting in the tail of this victory. Eskom said that Nersa’s decision would “present some challenges” in meeting Eskom’s mandate of “keeping the lights on”. In fact, Eskom has called on all South Africans to use electricity sparingly as “the power system is extremely tight”. When households are requested to switch off everything but one light and the TV, just to keep the power on, one wonders if we really understand just how tenuous the power supply in South Africa is? And should we be subjected again to the enormous economic costs of rolling blackouts as experienced previously, the lower tariffs may well become a hollow victory. Essentially, then, the lower tariff increase has shifted much of the responsibility for keeping the lights on from Eskom to its users. While we are paying less than Eskom had envisaged, we now face a grave responsibility to reduce our consumption drastically to ensure the real price we pay in terms of the lower tariffs doesn’t become rolling blackouts that could cripple the economy.

The Ugly

ert author Rob “Rich Dad”s for bankruptcy Kiyosaki file

This headline stunned many “Rich Dad” fans. Let’s first understand what really happened. Kiyosaki did not file for bankruptcy in his personal capacity. One of Kiyosaki’s businesses, R ich Globa l LLC, f i led for cor porate bankruptcy. A former business partner, The Learning Annex, who hosted Rich Dad events in the United States, sued Rich Global LLC for unpaid royalties going back to 2002-2004. Rich Global contended that the royalties were never part of the deal. The courtroom arguments on both sides were compelling. But the jury eventually decided in favour of The Learning Annex and they were awarded $23.7 million. Since Rich Global hasn’t been active in business since 2009 and only had $1.8 million in assets, the only real recourse was to file for bankruptcy. Since this is a corporate bankruptcy, Kiyosaki’s personal assets are protected according to US law. Kiyosaki himself is still worth an estimated $80 million. So, here’s the real story: the more wealth you accumulate, the more likely you will become a target of litigation. Implement measures to protect yourself and your assets from the unexpected, including lawsuits, accidents, death and divorce. Asset protection is not a means to cover up fraudulent behaviour, it is a legal tool to protect your assets from common misunderstandings and sour grapes that inevitably happen in life. Especially in the business world. Robert Kiyosaki did not engage in fraud. He and a partner simply had a business disagreement. The partner won. But because Rich Global was set up as a separate entity, Kiyosaki’s personal assets were protected. If you don’t have an asset protection strategy in place, get one in place as a matter of priority. Understand, however, that this is a highly specialised field, so find a qualified attorney who focuses solely on asset protection. www.reimag.co.za

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Home Owners Associations â&#x20AC;&#x201C; Seminar Drafting the memorandum and rules of home owners associations and other non-profit companies under the new Companies Act All pre-existing section 21-companies, including home owners associations using this corporate form, automatically became non-profit companies when the new Companies Act commenced on 1 May 2011. The existing memorandum and articles of association of such a company qualifies as its memorandum of incorporation for purposes of the new Act. However, any provisions that conflict with the new Companies Act will become void at the end of April 2013 when the two-year transitional period comes to an end. It is a good idea for these companies to revise their constitutive documents so as to ensure that they are in line with the demands of the Companies Act. Because the new Act allows considerable flexibility in the structuring and governance of non-profit companies, pre-existing section 21-companies should consider whether it would be to their advantage to adopt a new style memorandum taking advantage of some of these new possibilities.

Sectional Title Schemes & HOAs Management - Seminar Management of sectional title schemes and home ownersâ&#x20AC;&#x2122; associations: important legal principles provided by the courts The most recent case law has an impact on sectional title management and home owners associations. The law is not static â&#x20AC;&#x201C; whether as a result of the passage of new laws, changes to existing legislation or court judgments interpreting existing legislation and principles, there are always new developments. This is particularly noticeable in the developments in the law relating to the management of sectional title schemes and HOAs, which is not surprising as communal living has become increasingly popular in South Africa and our law in this regard is constantly being adapted. Our seminar is aimed at bringing sectional title and HOA management practitioners fully up to date with the latest court judgments and changes in legislation. In this context, the underlying structures of sectional title schemes and HOAs are discussed to make it easier for the seminar participant to distinguish between the communal living systems that one finds in sectional title schemes on the one hand and HOAs on the other.

Who Should Attend? Anyone involved in the management of sectional title schemes and home owners associations (particularly those who render management services and provide advice, such as managing agents, attorneys, estate agents, developers, dispute resolution service providers) as well as trustees and May owners. www.reimag.co.za 2013 SA Real Estate Investor 3

RESIDENTIAL HOT SPOTS

PROVINCIAL PERFORMERS

Highlighting the top performing suburbs in the major provinces, based on highest rate of annual inflation and indicated for e ach value band. Mid Value : R250k – R700k

High Value : R700k – R1.5mil

Gauteng

Luxury : R1.5mil +

Gauteng

Cosmo City Ext 1 - City of Johannesburg

19.56%

Vaalmarina Holiday Township - Midvaal

17.42%

Fernridge Estate - City of Johannesburg

14.53%

City & Suburban - City of Johannesburg

19.30%

Kent View - City of Johannesburg

16.57%

Mountain View - City of Johannesburg

14.10%

Western Cape

Summerville - City of Cape Town

30.86%

Avalon Estate - City of Cape Town

25.96%

Schoneberg Estate - City of Cape Town

21.19%

Lindida - Stellenbosch

18.72%

De Molen - Swartland

15.00%

Forest Glade - City of Cape Town

12.66%

Eastern Cape

Tyutyu North - Buffalo City

22.65%

Headlands - Buffalo City

11.13%

Bonnie Doon - Buffalo City

10.17%

Michausdal - Inxuba Yethemba

22.60%

Sunrise on Sea - Buffalo City

10.82%

Vincent - Buffalo City

8.45%

Kwazulu Natal

Shakaskraal - Kwadukuza

16.69%

Bazley Beach - Umdoni

13.74%

Zinkwazi Beach - Kwadukuza

10.71%

Shastri Park - Ethekwini

16.33%

Parlock - Ethekwini

10.98%

Dunkirk Estate - Kwadukuza

8.39%

Free State

Merriespruit - Matjhabeng

29.22%

Estoire - Mangaung

23.58%

Woodlands Golf Estate - Mangaung

8.88%

Welkom Ext 19 - Matjhabeng

18.49%

Jordania - Moqhaka

14.57%

Heuwelsig - Mangaung

4.65%

GAUTENG

Presenting the Top 5 suburbs per area value band in Gauteng based on the highest rate of inflation for a 1 and 7 year period. The median represents the current median value for the suburb. #

Suburb

1 year

Median

Mid Value : R250k – R700k

Suburb

7 year

Median

Mid Value : R250k – R700k

Cosmo City Ext 1 - City of Johannesburg

19.56%

R 460,000

Actonville - Ekurhuleni

221.80%

R 360,000

City & Suburban - City of Johannesburg

19.30%

R 390,000

Vosloorus Ext 25 - Ekurhuleni

214.66%

R 390,000

Windmill Park - Ekurhuleni

16.19%

R 490,000

Hospital View - Ekurhuleni

208.17%

R 410,000

Honeydew Park - City of Johannesburg

15.69%

R 540,000

Villa Liza - Ekurhuleni

203.51%

R 370,000

Leeuhof - Emfuleni

14.74%

R 440,000

Chief Albert Luthuli Park - Ekurhuleni

193.91%

R 340,000

Vaalmarina Holiday Township - Midvaal

17.42%

R 960,000

Vaalmarina Holiday Township - Midvaal

135.54%

R 800,000

Kent View - City of Johannesburg

16.57%

R 1,300,000

Bronkhorstbaai - City of Tshwane

116.75%

R 1,150,000

Sydenham - City of Johannesburg

14.95%

R 1,500,000

Meyerton Ext 6 - Midvaal

113.41%

R 1,300,000

Vanderbijl Park Se 8 - Emfuleni

14.55%

R 1,250,000

Newmarket Park - Ekurhuleni

107.43%

R 1,150,000

Meyerton Ext 6 - Midvaal

14.54%

R 1,350,000

Westonaria - Westonaria

105.47%

R 710,000

121.03%

R 3,150,000

97.67%

R 2,250,000

High Value : R700k – R1.5mil

Luxury : R1.5mil+

Fernridge Estate - City of Johannesburg

14.53%

R 2,600,000

Carlswald Estate - City of Johannesburg

Mountain View - City of Johannesburg

14.10%

R 2,150,000

Eastgate - City of Johannesburg

Disclaimer: Lightstone applies advanced statistical methods to a comprehensive property data base - compiled from the Deeds Office, the Surveyor General and other sources - to generate property market data, insights, trends and forecasts. Despite the statistical and actuarial rigour applied, Lightstone cannot guarantee the accuracy and reliability of the data. Furthermore, any information provided does not amount to advice and may not be applicable in some cases. Lightstone does not take responsibility for any losses incurred as a result of any person acting or omitting to act as a result of the publication of this information.

REI Residential

What an 8% Increase From Eskom means

Slowing In Year-On-Year Inflation Rate

Know the Prices In The Area You Want To Buy In

The National Energy Regulator of South Africa (Nersa) have approved an 8% increase in electricity costs, agreeably not the 16% requested by Eskom, but never the less a figure still above inf lation. However, when viewed against the previous 25% per annum increases, is this lower increase a little bit too late for most consumers? TPN’s research indicates residential tenants are already over-exposed to the high cost of electricity. By way of example, a tenant in a two bedroom townhouse over a 5 year period provides tangible evidence of the rising cost of electricity. In June 2009, the average monthly cost of electricity for Joe (your average tenant) was R 192.40: this number has risen year on year to a monthly cost of R 202.14 in 2010, R 351.07 in 2011, R 626.33 in 2012 and R 814.70 in 2013. Joe’s case is not isolated and most consumers relate with this increase pattern.

The FNB House Price Index for February 2013 showed further slowing in its year-on-year inflation rate, from a revised 3.9% in January to 2.6%. This continues a mild slowing growth trend from a “mini-peak ” of 7.7% growth reached in July and August 2012. The average value of homes transacted in the FNB House Price Index was R846,172 in February. This slowing year-on-year house price growth, to levels back below consumer price inf lation, implies a recent return to declining house prices in inf lation-adjusted real terms. As at January (February consumer price inf lation data not yet available), the combination of a CPI inf lation rate of 5.4% year-on-year, and a 3.9% nominal house price growth rate in that month, translated into a real year-on-year decline of -1.35% in the FNB House Price Index.

Before you commit to buying a home, you need to know what’s been happening to property prices in the area over the years so that you can gauge the likelihood of making a good return on your investment – or not. You can check the value of a property by getting an online property valuation report that gives the latest sold prices of similar properties in the suburb, street or complex. Braam de Jager, national operations manager of Aida, says a well-prepared agent will refer to a record of changes in the median price for the area, not the average when giving you an answer. He says that when the median – a price halfway between the highest and lowest prices recorded during a certain period – shows an increase, it means more buyers are buying higher-priced homes in the area. When it falls, it shows that a greater percentage of sales are taking place on the lower side of the scale.

Valuable Input

Adrian Goslett, CEO, RE/MAX "Knowing what to look for and what questions to ask when viewing a property will help the buyer distinguish between a good investment and a bad one.”

www.reimag.co.za

Michelle Dickens, MD TPN “Watch out for tenants that are quick to spin stories and refuse to hand over documentation, also beware of individuals who claim that the information reflecting on their credit check is inaccurate.”

Dawie Verryne, CEO Korbitec

JP Farinha, GM Property24

Jani Le Roux CEO, Leapfrog

“The next two years are likely to see interest rates gradually rising, based on the improvement of local debt to disposable income ratios. Expert consensus suggests that interest rates should then drop."

“Social media is rapidly becoming a preferred avenue for customers, both as a means to seek out information, and as a channel through which to have their voices heard.”

"It is always a good idea to pay as much money into your bond as possible as you’re investing in an appreciable asset. With the current, low repo rate, it would be a wise decision to decrease mortgage debt as much as possible."

April 2013 SA Real Estate INVESTOR

SMART MOVES

BY KOOS DU TOIT

If You Fail To Plan You plan to fail

“

f you fail to plan, you plan to fail.” This well-known adage applies to all areas of life – from government and business to retirement planning and personal goals. And it applies equally to building a successful property investment portfolio. Unfortunately, many prospective property investors – once they understand the power of property to create true financial independence and spectacular wealth – are filled with such excitement and enthusiasm, they jump right in and buy any property, failing to first plan and therefore exposing themselves to potential problems. On the other extreme of the spectrum, some prospective property investors, while equally enthusiastic, are incapacitated by their fear of making a mistake, leaving them unable to make decisions and exposing them to what is potentially the biggest risk: not starting at all.

The middle ground The golden middle ground between these two extremes is achieved through a well-considered and thorough plan which, essentially, becomes your Roadmap to Wealth. It allows you to avoid poor decisions by focusing your enthusiasm on specific objectives to be achieved within selected time frames, while eliminating procrastination and indecision by creating motivation, momentum and certainty through a detailed step-by-step plan of action.

Direction The power of planning lies firstly in the fact that it provides clear direction. Simply wanting to “get rich” though investing in property is not 24

April 2013 SA Real Estate Investor

a goal. A vague objective such as this could leave you with a haphazard and unstructured property portfolio, as you simply invest in the next great deal you find, perhaps placing your cash flow under strain or selecting less-thanideal properties. On the other hand, a vague objective could simply seem overwhelming, paralysing you into an inability to make any decision. Having a clear goal or destination ensures the efficient allocation of resources, makes it possible to identify priorities and ensures effective, focussed decision-making. A clear goal could be, for example, to replace your current monthly income with passive income from a property portfolio by a certain date. Once you have such a concrete goal, the action plan that will take you from where you are to where you want to be, becomes easier to plot.

Plotting the steps Once the goal is clear, you can determine what needs to be done to bridge the gap between where you are now and where you want to be. For example, if the goal is to replace a current monthly income of R35 000 with passive income from a property portfolio in 15 years, you can calculate how many properties you need to acquire, and at what time intervals, to achieve this goal. Let’s say that because you want to reduce the risk of vacancy and spread your risk over numerous properties, you decide to focus on entry-level properties that generate a monthly income of around R3 500 per month, instead of one or two luxury properties that will generate

far more income but concentrate the risks. Now it becomes easy to calculate that you need to acquire 10 of these properties over the next 10 years to generate a passive monthly income of R35 000 per month. Depending on your current financial circumstances, you could decide to acquire one property per year for the next 10 years, allowing another five years to pay off the bonds on all 10 properties before the 15 year deadline you have set. Now, instead of jumping at every opportunity and making haphazard investment decisions – or simply being unable to make a choice when faced with so many opportunities – you know that you have one year in which to find an entry-level property generating a rental of around R3 500 per month in an area with good prospects for capital growth and strong rental demand now and in the future. And the motivation for taking this action step is clear and strong: within 15 years you will own your own time, because you will have replaced your income with passive income. Many investors are surprised to find that when goals and objectives are broken down into smaller steps, even the most ambitious plan can be achieved realistically. But without a plan to channel enthusiasm and to guide decisions and actions step-by-step, many investors simply find themselves in one of the greatest – and most dangerous – pitfalls in property investment: investing haphazardly, without a plan; or worse yet: never getting started at all.

RESOURCES P3 Investment Group www.reimag.co.za

STRATEGIES

BY KOOS DU TOIT

Property Investment It’s not just for the rich

u y -t o -l e t p r o p e r t y i n v e s t m e n t is not an investment a lternative exclusively for the rich, the educated or the experienced. This is a classic property investment myth perpetuated, perhaps, by the fact that the world’s wealthiest people are always investors in property, or the fact that property investors are generally wealthy. These realities have entrenched a false perception among many that one needs to be rich to invest in property. The reality, however, is very different. The wealthy don’t invest in property because they are rich, they are rich because they have invested in property! The truth is that you don’t need to be rich – or even highly educated or experienced – to invest in property successfully.

Gearing There are two reasons for this. Firstly, property investors do not need a lump sum investment or even large monthly investments to acquire an income-producing property asset. For example, an investor does not need to have R500 000 in cash to acquire a R500 000 buy-to-let property. This is because an investor can get a mortgage bond, allowing him or her to buy a property with money borrowed from the bank. In investment circles, this is called leveraging or gearing, terms that most people assume are only for highly educated investment specialists. But buy-to-let property investment allows ordinary South Africans earning ordinary salaries to also implement the highly effective practice of gearing, which the world’s wealthiest 26

April 2013 SA Real Estate Investor

have used for decades to create wealth without using their own money and to significantly increase their return on investment.

Using other people’s money Of course, the bond has to be repaid every month but, remember, the proper t y is generating an ongoing passive monthly income – the monthly rental – which keeps pace with inflation as the rental increases year after year. This allows the investor to use the tenant’s rental to pay the bond instalments. It is entirely possible – if the right property in the right area is selected – to obtain a 100% loan at the bank to acquire an income-producing property and to earn a monthly rental from this property that will not only cover the bond repayments, but the other monthly property expenses too. So, the myth that you have to be rich to invest in property is thoroughly busted! However, not only do you not have to be rich to invest in property, the reality is that you can acquire an income-generating property asset without spending your own money!

Simple, step-by-step system Secondly, buy-to-let property investment is based on a proven step-by-step system that delivers virtually guaranteed success, allowing ordinary South Africans earning ordinary salaries to become successful property investors with no qualifications or experience, and very little time, training or effort.

Because it is based on a tried-and-tested system, with built-in risk management and contingency measures, successful buy-to-let property investment does not depend on the skills or qualifications of any person. It can be compared to owning a franchise: you don’t need qualifications or experience to run a franchise successfully; you simply have to implement the proven system on which the franchise operations have been built. So, in reality, successful property investment requires little more than learning how the simple, streamlined property investment system works and implementing this system to the letter, following step-by-step guidelines. As such, the myth that you need education, qualifications or experience to invest in property has also been busted! And not only do you not need experience or qualifications, you also don’t need much time or effort.

What is required... All that is required is the willingness to learn how to implement a simple, tried-and-tested system that allows you to acquire and pay off income-generating properties without spending your own money, and requires no qualifications or experience, and very little time and effort, to implement as a proven step-by-step system.

RESOURCES P3 Investment Group

www.reimag.co.za

IMPROVING

BY JAMES COLBY

Essential Extensions More space, more value

hen you are running out of space but can’t bear to part with your home, why not extend either upwards or outwards? Not only will you give yourself more space but you will increase the value of the property as you increase the size or space of the home. Choosing to extend your property is a big move and there are a few key factors to consider before you do this. Whether you are building a new home or planning house extensions to an existing home, you are going to need building approval from your local authority. Even if you are simply opening up a wall or partitioning a room by erecting a new internal wall, most councils will insist on working drawings.

Planning for a building extension dwelling, the extension should be built using the same finish face brick. If it is plastered and painted, it is best to match the paint colour. This isn’t always as easy as it might seem, since paint colours fade and from time to time manufacturers change their specifications.

TYPES OF HOUSE EXTENSIONS

These include: Building a core house and then adding to it later according to existing plans.

Converting a garage into extra living space.

Converting an attic into habitable space.

Constructing rooms in a roof where there is no existing attic.

Adding or converting a cellar.

Adding a conservatory, sunroom or poolroom, usually with glass.

Extension options There are various ways that you can extend an existing house. For instance you can go up and create a second storey or opt for a more straightforward lateral extension. If the pitch of your roof is sufficient, you might be able to convert this into an attic room. Alternatively you could add a separate freestanding structure with a link to your existing house. Having said that your local authority isn’t going to be bothered with style, this is an element that is essential if the extension is going to look good. Materials should also match or look as though they have been chosen carefully. This means that if yours is a face brick 28

April 2013 SA Real Estate Investor

In all instances it is essential to ensure that your new house extension complies with building standards.

Sometimes, but not always, people do plan for future extensions. This makes it a lot easier when it comes to adding on a room or converting space. As an example, where a future door is planned, building in a lintel at this point, and enclosing the door area with straight joints will make it easier to knock out the brickwork at a later stage. The fact that the bricks aren’t bonded beneath the lintel won’t be an issue, because the lintel will support those above. Even so, you will need to be sure that the extension is correctly executed, with the correct foundations (unless of course you are going up, in which case you will need to have existing foundations that can take the weight of the new building extension), and where brick or block walls meet, these will need to be bonded, or joined in such a way that cracking will not affect the structure.

Convert a garage This can be a very convenient and reasonably easy way to extend a house, although local authorities are usually strict in terms of upgrading the existing finishes. For instance you may need to have a ceiling installed, and lighting and ventilation might need to be upgraded.

Add a sunroom or conservatory there are companies that specialize in glazed structure (or one where a polycarbonate www.reimag.co.za

RESIDENTIAL material is used) that fit this category, though you can also have something designed and custom built.

everything you can to make the property look as good as possible.

Go into the roof Many older homes were built with attics that were intended to be used for storage. You might need to add windows and insulate the walls and ceilings to make the space habitable. If there isn’t an existing attic, and the roof is high pitched enough, you might consider building a room in the roof space. The basic concept is ver y similar to converting an attic, although structural alterations will be considerably more complex. If the pitch is not sufficient, you will have to extend the gable ends and increase the pitch of the roof. In both instances you will probably have to add stairways that are easy to use. In South Africa and other hot-climate countries, the roof space (and attic) in a house can become unbearably hot, so it is essential to pay attention to insulation.

Go underground Cellars are surprisingly uncommon in South Africa, but they are sometimes included in the design of a house, and may be added at a later stage providing the foundation walls are high enough. Generally it is easier to add a cellar where the house has been constructed on a slope. Just remember that for a cellar to be converted into a habitable space (even if only as a playroom), it must be totally dry (there must be a dampproof membrane between the brickwork and the soil beneath ground level) and have sufficient light and ventilation. Usually this will entail installing artificial ventilation and lighting.

You may not have the time or patience to throw yourself into an extension project at the moment, but there are clever ways you can trick the eye and give yourself a sense of more space more immediately. Not only that but you can physically open up a room to utilise existing space efficiently. Here are some expert tips on making spaces appear larger around your home.

Knock down walls By knocking down walls, you can let new light flood into areas that felt dreary and neglected before. However, it’s important that you plan which walls you want to knock down and make sure that these are not load-bearing walls. Should you need to remove load-bearing walls, call in an architect or builder to ensure that the job is done correctly. While it’s great to have a home that’s unique, it’s not advisable to remodel your property in a way that won’t sell when it comes time to move on. Making a home more open plan is a brave step, but if you do the job well, it can pay dividends both in terms of improving your home as a place to live in and add value for when it comes to selling it on. The trick is to invest your time and money wisely; get the finances in place to finish the job properly; think through the job carefully; and do your homework and do

There is a lot to consider when you think about going open-plan in your home; like whether you want to keep the original features of the room or make a modern fresh start, and whether you want to go for functionality or style. Although open-plan can be the ultimate in flexible and stylish living, there are some compromises required which you should consider before starting work. Losing separate rooms means you will sacrifice some privacy, they can be harder to heat and noise echoes more. You must go with what suits your lifestyle and be brave; knocking down walls and radically changing your home is big step, but can be incredibly rewarding when the dust has gone and you’re gazing around your new-look home!

Extend your flooring, not your house By following the same flooring pattern across different rooms, your line of sight is extended so it automatically gives a sense of more space. This works particularly well with laminate and vinyl flooring options.

Nooks and crannies Finally, if you’re stuck for ways to make more space then try and use walls and other spaces as much as you can. Shelving, wall alcoves and other nooks and crannies can be utilised to create the extra space you need.

Take the indoors outdoors By fitting sliding doors or frameless glass doors along one entire wall, you can easily extend your living - or dining spaces - into the outdoors. Focusing on letting the ‘outside in’ has been a top priority for people building extensions and homes, as gardens become more of an extension of the home itself. Like a living room outside! As people make the most of what they have, improving the garden is a good place to start as it’s generally cheaper than building extra space and is probably on par with decorating, in that the results can be relatively immediate especially for maintenance work. Whether you choose to extend or simply expand the space, make sure all the work is done by a repuatble and reliable builder.

RESOURCES Building Regulations South Africa Property 24 www.reimag.co.za

April 2013 SA Real Estate INVESTOR

FINDING

BY BEN FOURIE

Find and Choose the Best Properties To Buy The easy way

hile many experts have shared their insights into what makes a good buy, finding those deals and the right information can be tricky. That’s why I’d like to share an easy way we use to find the best properties, along with some tips on how to choose the best of these potential buys.

Use your letting agent! These days the internet and investment club reports are a great way of finding potential properties, but when it comes to choosing your top 10 properties a good letting agent can be of unsurpassed value. Here’s why: Buy-to-let investing hinges on f inding up-and-coming areas with high demand for residential, office and small business premises which should result in high capital growth over the long term. Vacancies are also less likely here and a more consistent rental increase might be expected. Such information can be hard to find, but letting agents compile these facts daily as a by-product of their business! A while ago there were two properties in Midrand that we considered buying. When we analysed them, these properties had almost identical cash flow and capital growth potential, so we phoned up our letting agent in that area to ask which one he would recommend. He pointed out that one property is closer to the 30

April 2013 SA Real Estate Investor

Gautrain bus route and that it provides easier access to major roads and so clearly was the better option. He said that the other property had been experiencing vacancies more often and that landlords had been struggling to get rental increases when contracts expired. He also told us that there was a big shortage of 1 bedroom units in the area, so if we decided to buy the property he was recommending we should opt for a 1 bedroom unit rather than the 2 bedroom unit we had in mind. Needless to say, we were very thankful that we phoned our letting agent before making our decision. Our letting agents know that we are looking for good cash flow, high capital growth type properties. We have even been getting emails from them of their own volition recommending new property developments that meet our criteria. Because we’ve built a relationship with them they are happy to help and know that if we do go through with a buy they will gain another management contract.

Compare the right specs When comparing the properties we’ve found we look at the following specs: We require a high potential for rental and capital growth. We also look to minimize our own money spent, both once off and monthly, and consider how the years to break-even ties into this. In

doing so, we ensure a high return on investment (ROI), a spec that is always scrutinised. Finally, we look at the price per square metre and the expected rent in relation to the value of the property, often termed the rent-to-value ratio. We are always sure to compare these values over a 3 year, 5 year and 10 year period in order to obtain a short-, medium- and long-term view of which properties are superior.

Use property investment software Organising all this information can be tedious, not to mention calculating the ratios and projections. So, we use property software to do this for us. This saves us a lot of time and ensures that we make accurate decisions. The property software we use also allows us to compare the key specs for our top 10 properties side by side. This makes it very easy to see which properties are superior based on the numbers.

Buy the best With the invaluable information we get from letting agents and the ease of comparing key specs using property software we have seen finding potential properties and choosing the best buys become both easy and fun.

RESOURCES 88 Pockets www.reimag.co.za

Make the Smartest Property Investment Decisions

Compare the specs of your potential properties side-by-side using Property Frontier Free download: Fully researched special report The 10 Best Investment Properties in SA for April 2013

by Ben Fourie CA(SA) and Dr Marnus Weststrate

www.propertyfrontier.com

ACQUIRING

BY PIETER LOUW

Know The Numbers Before you buy

his article dea ls w ith residentia l pr op e r t y, a nd ho w to me a s u r e i n v e s t m e n t o p p o r t u n i t y. A s a prerequisite, we depart from the premise that you have already seen the power of residential property over other forms of investment and that you want to get going. The question now is where to start and what to buy. There are a few important variables that you need to take into consideration before making a

Variables:

decision to complete an offer to purchase. Each of these variables has a distinct influence on the outcome of the investment. Let us list them one by one. At the bottom youâ&#x20AC;&#x2122;ll see an applied example on real properties that are available in the market and how much of a difference these variables can make. Purchase price - The purchase price (inclusive of transfer costs) will determine in which categor y your investment will fall. Should you concentrate on higher end properties or will you rather benefit from entry level properties? Financing options - Will you be able to get up to a 100% finance on this type of investment, or will the banks require a substantial deposit? Rental income - The relation between price and rental income is vital. This determines not only the yield of the investment, but also the monthly cash flow shortfall or surplus. Rates and taxes - Municipal rates and taxes vary from one area to another.

3 Bedroom house vs. 2 Bedroom townhouse

Purchase Price Deposit of 10% Rental income p.m. Rates, taxes and levies p.m. Management and maintenance p.m. Vacancy rate of 5% (monthly loss) Bond interest Bond term Capital growth (year on year) Rental escalation (year on year) Inflation rate for expenses

R 2 800 000 R 280 000 R 15 000 R 3 000 R 2 000 R 750 10% 20 years 12% 10% 8%

R565 000 56 500 6000 900 500 300 10% 20 years 12% 10% 8%

Projected investment results: Rental factor (monthly) Yield (annual) Cash flow shortfall year one (monthly) Cash flow breakeven time span Total negative cash flow over life of property Recoupment of negative cash flow by IRR over 20 years ROI after 20 years

April 2013 SA Real Estate Investor

0.54% 6.48% R 15 069 10 years R 1 342 120 By year 18 70.18% 110.18%

1.06% 12.72% R 607 2 years R 9 075 In just over 3 years 358.17% 566.55%

L evies - Body corporate or home owners association fees vary a lot and makes a fairly big impact on the end result. Management fees - Rental agent fees differ and together with the quality and extent of their services, this could become a real trap. Maintenance - This depends on the quality and age of the building. Vacancy - How often can you expect a vacancy is dependent on the rental demand of the area. Bond interest rate and term - Should it be a variable or fixed rate? Can you qualify for a prime or even sub-prime rate? Is it better to apply for a 30 year loan term? C apital grow th, inf lation and rental escalation - These inf lation-related aspects can have a huge impact on the outcome of an investment. I ncome tax - Depends on the entity and business structure that you employ. It goes without saying that the higher the income and the lower the combined expenditure, the better your investment. Of vital concern is the question whether you will be able to afford any shortfall that arises from this transaction. Many investors choose to develop a spreadsheet that takes all these variables into account and then use it as a tool to measure different prospective investments. A better way still, is to use dedicated software that measures all these variables in a birdâ&#x20AC;&#x2122;s eye view and show you with graphic indicators how good or bad the investment will be. Let us then look at two different examples of how these principles translate into figures. The first example is an ordinary 3 bedroom house in an aff luent area. The second example is a carefully selected 2 bedroom townhouse. By examing the numbers you can work out whether the property will be a good and sound investment, from a financial point of view.

RESOURCES

P3 Investment Group

www.reimag.co.za

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PROFILES

BY ANGIE REDMOND

Behind The Hammer

Julius Buchinsky talks auctions

his month REImag caught up with Ju l ius Buch insk y, a wel l-k now n auctioneer in Cape Town, who recently retired but is well-known for his trademark spectacles and sense of humour. Having founded the Julius Buchinsky Organisation Pty Ltd in 1973, his name became synonymous with auctioneering and property. While he has retired, his sense of humour is still as sharp as ever, and we asked him to share some of his auction stories and advice with you. “ W hen I com menced busi ne s s a s a n auctioneer, the public was very sceptical about doing business with car salesmen, insurance agents, estate agents and auctioneers. There was a distinct feeling of ‘they will catch you out’, but today, they all enjoy a good reputation,” says Buchinsky. “I’ve been wearing the same unique old-fashioned spectacles since 1955. Many people are under the impression that the spectacles are my trademark. Ladies would approach me and remark, ’Oh, I love your spectacles, can I try them on?’ I would say: ‘Sure!’ On one occasion a young lady remarked: ‘Oh I love your testicles! Oh, my gosh, I mean your spectacles!’Luckily she didn't ask if she could try them on!”

Some of the best advice I have heard Mr Jones, an experienced auctioneer, sold his business to a young man. He said, “Son, if you want to be successful, you must adhere to two 34

April 2013 SA Real Estate Investor

important things. The first is total honesty and the second is foresight. The young man asked: What do you mean by honesty?” Mr Jones replied: “If you ever make a promise, for goodness sake, keep it! Your word must be your bond.”The young man asked: “Now sir, what do you mean by foresight?” Mr Jones said: “Never, ever make anybody a promise!”

My first auction “I still remember my very first auction,” says Buchinsky. “My wife’s cousin commissioned me to auction a house in Muizenberg. I did not even possess my own set of conditions of sale yet. I borrowed a set from Zoutendyk & Brand. My secretary tip-exed out their name and substituted my name Julius Buchinsky Organisation Pty Ltd in its place, but alas, my secretary missed to erase one important condition. “I hammered my gong and said: ‘Gather around people’. I was as nervous as could be and proceeded to read the conditions of sale, including ’a deposit of 10% must be paid to the trust account of Zoutendyk & Brand‘ and continued reading until the end. “Then I immediately asked: ’Gentleman, any questions?’ ‘Yes‘ answered a colossus gentleman, a wise guy, ’why the hell must I pay the 10% deposit to Zoutendyk & Brand?’. My face turned bright red and I apologised most profusely for the error. But guess who bought the property? The wise guy! I subsequently sold him quite a good few properties by public auction.”

BASICS OF BUYING AND SELLING BY PUBLIC AUCTION Advantages • The auctioneer advertises the property extensively, resulting in a deep market penetration. • Decisions are made quickly, if you want to buy the property you have to bid. If the property is put up for sale without reserve, the highest bidder will be declared the buyer. • If the property is sold “subject to confirmation”, it means that if the bidding does not reach the reserve price, the seller does not have to sell. • The auctioneer reserves the right to negotiate with the highest bidder or any other prospective buyer However, most auctioneers do not wish to horse trade. The highest bidder at the auction will get the first opportunity to equal any higher bid which may be accepted by the seller. • If a property is sold by public auction, the buyer does not have a cooling off period. • Usually, if a property is sold by public auction, it is not sold subject to a bond, so the buyer must make his/her financial arrangements before the sale.

RESOURCES Julius Buchinsky www.reimag.co.za

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GETTING STARTED

BY ANGIE REDMOND

First-Time Buyers Driving the property market

uring 2012, the estimated f irsttime buying of residential property as a percentage of the total buying increased from 20% in the second quarter to 26% in the third quarter, according to the First National Bank (FNB) Property Barometer. This is a remarkable increase from the 12% of first time buyers active in the market during 2008.

Who Recent home buyer surveys in the US indicate that the average age of first-time buyers is 31 years old, with 65% of all first-time buyers married couples, while 16% are single women, 9% are single men and 8% are unmarried couples. The same survey taken two years prior revealed that 58% of first-time buyers were married, 20% were single women, 12% single men and 7% unmarried couples. Current South African buying trends closely follow these statistics, with the number of established, older, married first-time buyers increasing while the number of younger, single first-time buyers has decreased over the past two years. Even though many of the younger generation may not be able to enter the property market at the moment due to affordability issues, as they gain momentum in their careers and establish themselves f inancially, they will meet the 36

April 2013 SA Real Estate Investor

criteria to qualify for the necessary finance to purchase property. First time home buyer activity continues to drive the market, with over 51% of ooba’s applicants in January being first-time home buyers. The average house price for first-time buyers was up 5.5% year on year to R686,452 and up 3.2% month on month to R665,167. Statistics released in the November 2012 census show that 6 million of the country’s homes are fully paid for; 1,7m are bonded and still being paid off; 3,6 million are rented and 2,7 million are occupied rent free. Of the homes which have been paid off, 4,9 million belong to black owners, just over 500 000 to whites, about 416 000 to coloureds and 119 000 to Asians.

Why

Although the real estate market has seen many changes over the recent years, one thing that hasn’t changed is the fact that first-time buyers are an intricate part of the housing market globally, says Adrian Goslett, of RE/MAX. Goslett points out that First National Bank’s property figures show that the number of firsttime buyers has increased and now account for nine out of 10 buyers in the affordable housing sector. Goslett says that because first-time buyers are such an important part of the market, it is vital to know what they are looking for in a property. He notes that while affordability is a key factor for most, many are looking for homes that are close their workplace and amenities as well as proximate to major transport routes. Some first-time buyers also want homes that are large enough for them to be able to expand their family at a later stage. “More and more first-time buyers are gaining confidence in property as an investment and are eager to get their foot on the first rung of the ladder. Sentiment seems to be continually improving and consumers are once again excited about the housing market. Many have realised that housing prices are only going to www.reimag.co.za

RESIDENTIAL increase from this point and they understand just how incredibly low the current interest rates are. Homeownership over the long term is viewed as an excellent way to provide stability, build up equity and formulate a solid financial plan for the future,” says Goslett. Today’s f irst-time buyers plan carefully, and are specific in what they require from a property. Goslett points out some factors that are becoming more and more important to a growing number of first-time buyers.

Where With a long term plan in mind, many first-time buyers are opting for slightly larger homes that fall within their budget so that they don’t have to move when their life stage changes. “It is recommended that a buyer purchase a home that will suit their needs for at least the next five to seven years if possible, as this will allow them to pay down their bond enough to make a profit when they sell the property. For this reason, even if a bigger family may not be an option immediately, it is still important that it is considered when looking at property. A versatile home will provide a sense of stability rather than become a burden when life changes,” says Goslett.

“First-time buyers are an intricate part of the housing market” He notes that thanks to the vast amount of information at their fingertips, today’s firsttime home buyers are a sav v y bunch that understand the importance of buying a home that they can settle into for a longer period. With the recession bringing housing prices to a more affordable level, it has also become easier for first-time buyers to get into larger homes than they were in the past. However, today’s first-time buyers are realistic in terms of what they need and are more budget-conscious, looking for homes that will meet their future plans and allow for growth without putting them in financial danger. There are also those first-time buyers who would rather purchase a smaller sectional title unit that is easy to maintain. These buyers are often looking for a good investment property www.reimag.co.za

that they have the option of renting out for additional income instead of selling, if and when they need to move to a larger home. Location is an especially important factor to consider if this is part of the buyer’s future plan.

When The answer will depend on the individual and their financial situation, but essentially the answer to this question is as soon as a buyer can afford to. There is no right age to start thinking about purchasing a property, but it is never too early to get your foot into the property ownership door. With the market in a recovery phase, conditions are currently ideal for buyers wanting to invest, however affordability still remains the crux of the matter and it is vital not to rush into the decision. There is no doubt that the current market favours buyers although many would-be first-time buyers still have high debt-to-income ratios and don’t have the deposits required by financial institutions in order to qualify for finance. As soon as a buyer can show affordability and has the necessary lump amount saved up for a deposit and other costs; they should take advantage of the low interest rates and good prices that the market currently offers.

ownership. The funding will be used to aid the country’s financial institutions in lending money to people who earn too much to qualify for RDP housing, but who earn too little to qualify for home loan finance. In addition, those earning between R3 500 and R15 000 per month will be able to obtain a subsidy of up to R83 000 to enable them to obtain housing finance from an accredited bank for a home loan. The R1 billion fund will come into effect from April and should see the firsttime housing market increase and diversify as people who were previously unable to buy, dueto financial reasons, are assisted in purchasing their first property.

A bit of help The proposed government funding to promote access to home loans, especially for first-time property buyers, will be an essential component to creating more opportunities for home

RESOURCES Paddocks IHFM April 2013 SA Real Estate INVESTOR

REI Commercial

Rivonia & Sunninghill Solid Office Nodes

New Stores & New Malls

Durban North A Industrial Hotspot

In response to better access, eased traffic flows and good quality office space, the office nodes of Sunninghill and Rivonia are expected to enjoy steady demand and improved vacancies this year. Better highway infrastructure and improved traffic flows underpin steady demand and supply trends in Rivonia and Sunninghill in 2013, the latest Office Market Report from Broll Property Group, part of the global CB Richard Ellis network, has found. Broll points out that solid cap rates, consistent lease and operating cost escalations, and the reducing vacancy rates are forecast for the next 12 months. Located in northern Johannesburg, at the nexus of the busy N1 and N3 highways, Rivonia and Sunninghill are solid office nodes – especially with the completion of the upgraded Rivonia/Sunninghill interchange from the N3.

Despite challenging economic conditions more shopping centres are expected to be built this year as retailers roll out new stores to increase their market share and commercial banks experience strong growth in loan demand from existing and new property clients. Grant Rothman, head of finance at Nedbank Corporate Property Finance says loan demand from existing and new property clients is expected to grow this year, despite challenging economic conditions. “We continue to support activity in the marketplace, and pay constant attention to the quality of the assets we originate,” Rothman says. Nedbank Corporate Property Finance posted a sterling set of results with 13.9% growth in headline earnings in the year to December, compared with the year before, thanks to its selective growth strategy.

Durban North is emerging as a speculative industrial development hotspot, while land scarcity plagues industrial property prospects in Durban South. The Northern Industrial Suburbs, a cluster of Springfield Park, Riverhorse Valley, Briardene and Mount Edgecombe areas is fast emerging as an industrial hotspot in Durban. The area is showing tremendous growth potential in terms of industrial property as most of the South Durban Basin is oversaturated with no new land available for development. North Durban is squarely on the radar for companies looking for warehousing facilities and container yards.The area has natural advantages – a huge labour base in nearby areas of KwaMashu and Phoenix coupled with good connectivity as the R102, N3 and N2 flow through it. Moreover the North Industrial Suburbs lie within 25km radius of both the King Shaka International Airport and the port & container terminals at Bayhead.

Valuable Input

Marc Wainer, CEO, Redefine “The retail property sector should keep showing growth and industrial properties are on track for continued improvement, though underperformance will persist from the office sector. Most development will come from the retail and industrial sectors.”

www.reimag.co.za

Hassen Adams, Chairman, Grand Parade "The introduction of Burger King to South Africa will bring muchneeded jobs and careers for our people and help in reducing the high unemployment rate."

Ndibu Motaung, Head reasearcher, Jones Lang Lasalle "A two tier market exists in Cape Town where demand for quality buildings and prime location is prevalent reflected in competitive rentals and low vacancies. "

Selwyn Sharon, Broker, JHI "Looking back over the past two decades, it’s evident that requirements for office accommodation have changed considerably. Businesses want to be located in a pleasing environment with secure parking for their staff and clients."

Pravin Gordhan, Minister of Finance "If we succeed in driving growth towards 5% a year and government revenue doubles in the next 20 years, major infrastructure projects and new policy initiatives will be affordable with limited adjustments to tax policy."

April 2013 SA Real Estate INVESTOR

LISTED RESULTS

BY IAN ANDERSON

Listed Property Don't let the opportunities pass you by

outh Africa’s listed property sector g a i ne d 4 . 6% i n Fe br u a r y 2 013 , significantly outperforming both the bond and equity markets. During the month, a number of companies reported f inancial results that either achieved or exceeded market expectations. Importantly, most management teams painted a slightly more upbeat picture about the future and, as a result, raised market expectation for distribution growth in 2013 and 2014.

does not usually grow in excess of inf lation. However, listed property companies typically employ gearing (debt to property assets) of approximately 30%. Due to the size of their portfolios, listed property companies enjoy economies of scale and can typically negotiate better rates for services such as property management, security and cleaning. The combination of financial and operating leverage in listed property companies produces inflationbeating distribution growth.

Despite the weak economic backdrop, South Africa’s listed property companies have been able to reduce vacancies through proactive property asset management. At the same time, most companies have been able to control operational expenses and reduce their cost of capital. The result has been consistently high distribution growth, in excess of inf lation, throughout 2012.

Furthermore, the listed property sector in South Africa has evolved over the past decade and the institutional thinking that was prevalent in most management teams ten years ago has today been replaced by entrepreneurial managers with significant personal wealth invested in the companies they manage. This has resulted in a more proactive role in sweating the underlying property assets and extracting maximum value for shareholders, contributing to incremental increases in distribution growth.

For many investors who have opted not to invest in listed property because “it looks too expensive”, the realisation that longterm distribution growth from the sector as a whole is likely to be a multiple of inf lation (currently estimated at 1.2 times to 1.4 times consumer inflation) must come as a slap in the face. Which other asset class in South Africa provides investors with an inf lation-beating initial income yield and inflation-beating longterm income and capital growth? It should be noted that the inflation-beating income growth being forecast for the sector is a function of several things. Net property income (i.e. rental income less propert y operating expenses) for individual properties without the use of debt to leverage up returns 42

April 2013 SA Real Estate Investor

In April, South Africa’s listed property sector will come of age with the introduction of Real Estate Investment Trust (REIT) legislation. REITs are the de facto standard for listed property investment vehicles the world over. The introduction of REIT legislation will put South Africa’s listed property sector, with its high initial yields and above-average income growth rates, firmly on the map. This should open up opportunities to raise capital in markets other than South Africa and will lead to a significant increase in foreign ownership. Importantly, the introduction of REIT legislation will create certainty around the tax status of property loan stock companies. These

companies have historically distributed their income before taxes through the use of a linked unit structure, with one debenture linked to each share in issue. The variable rate debentures declare interest equiva lent to the tota l distributable income earned by the company. The South African Revenue Service has raised red f lags in the past regarding this structure and this had always posed a longer-term risk for investors in the sector. It also prevented significant foreign ownership of South Africa’s loan stock companies. While the current forward income yield of 6.6% looks low when compared to the longterm historical average and the sector therefore appears to offer little or no value, investors should be mindful that the listed property sector is vastly different today. It offers investors inf lation-beating income growth, achieved through the use of financial and operating leverage as well as through proactive asset management by highly skilled and incentivised management teams. Furthermore, the introduction of REIT legislation in April creates certainty around the tax status of the sector. It also provides for an investment vehicle that is extremely familiar to foreign investors who will be attracted by the high initial yields and above-average income growth on offer in the South African market. This will create additional demand for South Africa’s listed property sector. Although the economic outlook is clouded with uncertainty, the future of South Africa’s listed property sector looks far brighter.

RESOURCES

Grindrod Asset Management

www.reimag.co.za

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DEVELOPMENTS

BYJONATHAN SMITH

Your Next Step

In town planning

n last month’s edition of REImag, we d isc ussed t he impor ta nt process of compi l ing and submit t ing a z oning application in anticipation of a new or extended property development. We mentioned that there are simultaneous processes that are followed (such as the environmental impact study and the town planning application) and eluded to various other subordinate applications which are critical to these two main applications being approved. These subordinate applications – the results of which feed into the main town planning and environmental applications – are instrumental in succeeding with a town planning application for a new development or for the extension of an existing property.

use rights and to the extent that building rights have been allocated to the erf. Thus, it is imperative for developers (and investors who wish to redevelop or extend their properties) ensure that the correct use and development rights have been obtained for their property in anticipation of their proposed construction. An example of a final town planning scheme diagram appears below by way of example.

The importance of obtaining the required development rights When a (new) development is completed in accordance with a new or an amended town planning scheme, a fresh zoning certificate is issued for each (new) land portion (erf ), indicating the zoning of each particular property portion. The zoning certif icate indicates the use zoning and any other conditions that are to be applied by the town planning scheme. Town planning schemes indicate (in their associated diagram) which parts of the scheme are to be used for which purpose. Although some erven (land portions) may be used for what is called consent-use rights – uses which are in addition to their designated primary use – land portions may only be used for their designated 44

April 2013 SA Real Estate Investor

ABOVE: An example of a township-layout plan

THE MUNICIPAL DEPARTMENTS WHICH NEED TO CONSIDER THE APPLICATION ARE: • • • • • • • • • •

The town planning department The electricity department The water department The gas department The roads department The sanitation department The health department The parks department The transport department The municipal treasury

The following subordinate investigations and applications are necessary in support of your main town planning application:

Applications to the various town-council departments When progressing a town planning application through your relevant local authority, it is important to keep track of which departments have assessed your application. Often, this is done by making appointments with the relevant personnel within a department and meeting with them in order to discuss your application and to obtain a commitment from them that they shall peruse your application and advise you of their decision within a short period. Each of these departments are required to provide you with their conditions of establishment – a vital document which, once combined into an integrated document, not only indicates the council’s approval in-principle of your new or extended development but also provides their requirements for you to meet in order to obtain promulgation of your township or an occupation certificate of your new or extended building. Obtaining the conditions of establishment, then, represents a key achievement in your process to develop or redevelop a f i xed property as this means that your council has acknowledged their responsibility in providing for your development.

Public hearings Sometimes it is necessar y and, indeed, www.reimag.co.za

COMMERCIAL expedient to hold public hearings amongst the community in which you wish to develop so as to hear, acknowledge and respond to any objections that may be forthcoming from the community. Written recordals of these public meetings should be made and, if the community is content to waive their objections, signatures of the community representatives should be obtained for subsequent submission to the council. Obtaining the approval of the surrounding community and overcoming their (legitimate) objections is a further milestone in the development process as this means that your town planning and construction process will not be delayed by the objection process allowed for in our town planning law. In my experience, asking the community to nominate representatives and holding a morning seminar in order to explain your proposed development to the community representatives and obtain their support is a definitive way of overcoming this hurdle.

Geotechnical survey The purpose of geo technical survey is to inspect the below-surface soil that your development is to be constructed upon. If the soil is unsuitable for development at all, this report will tell you the bad news and, if you need extra support mechanisms to be built into the ground, this report will specify these requirements. Prior to this requirement becoming enforced, many developments were constructed upon substandard soil. An example that I shall always remember is a cluster of houses built in Esselen Park to provide homes to staff members of Transnet: it is deeply unfortunate that, unbeknown to transnet, these houses

were constructed on clay and began to crumble and subside shortly after completion. The inconvenience to dwellers was extensive and the subsequent political problems suffered by Transnet was considerable. Where your development shall take place on land which was previously mining land – that is, directly above or adjacent to a (now closed) shaft – it is necessary to obtain the clearance of the national department of mineral resources. This comes in the form of a letter from the department which permits your development, sometimes subject to certain criteria.

Providing Eskom with your ma ximum demand consumption and the proposed completion date of your development enables Eskom to include your development’s demand within their forward planning. Readers will, of course, know that Eskom’s capacity is already stretched and this has become a thorn in the f lesh of propert y developers nationwide. However, competent interaction with Eskom has, more often than not, resulted in Eskom allocating sufficient resources towards new developments. Eskom is, after all, as keen as the property sector to see South Africa’s economic growth improve.

A traffic analysis

Application to the local water board

A traffic analysis is necessary to determine how the associated roads to your new or improved development need to be widened or modified to ensure that there is sufficient and safe ingress and egress to your property. The study will show how many cars per day – and at what times – there are likely to be coming and going and will, consequently, determine the size and requirements of your surrounding road network. Those of us residing in Gauteng will know of the Allandale interchange (just by way of example) which used to take about two hours to negotiate each morning and evening before it was enlarged and modified.

Similarly, when your development’s water demand falls outside of the relevant local authority’s jurisdiction, you will need to approach the regional water board to ensure that they have provided for the necessary reticulation and supply to your proposed development.

Mining land survey

Application to Eskom When your development is so large that it shall require an electricity supply which is higher than the relevant local authority is able to maintain under its present capacity, a property developer needs to submit an application – together with specified requirements – directly to Eskom.

Application under the Heritage Resources Act Various of our buildings and gardens around South Africa are protected under our heritage leg islation and the re-development (or demolition) of any buildings older than sixty years as well as protected gardens require developers to obtain special permission therefor.

The preparation of new survey diagrams Once the design and layout of your new development has been f inalised and the associated land portions have been subdivided or consolidated, then fresh survey diagrams shall have to be prepared and lodged with the relevant surveyor-general’s office. The (new) title deed and the surveyor-general diagram include the legal description of the property.

The last few steps Three final steps towards the completion of your town planning application process is obtaining the new zoning rights of your property from your local authority, the opening of a new land register and the drafting and acceptance of the new title deeds associated with your subdivided or consolidated land portion. ABOVE: Geotechnical survey

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RESOURCES Courtwell Consulting April 2013 SA Real Estate INVESTOR

SMART MOVES

BY ANGIE REDMOND

Want To Retire In Style?

Invest in retirement villages now

enjamin Franklin said the only things that are certain in life are death and taxes. But the other certainty in life is getting old; no one can stop the clock ticking. So what do most people have to look forward to in their old age? Well if you live in South Africa and are 60 years older and don’t receive any other social grant for yourself, are not cared for in a state institution, don’t earn more than R47 400 per year or own assets worth more than R792 000 (if you are single) or earn R94 800 per year or have assets worth more than R1 584 000 (if you are married), then you will qualify for a state pension of approximately R1 200. When you take into account that inflation rises faster than social grants and that electricity in the next five years will cost 50% more than it does right now, the thought of trying to live on R1 200 is quite scary. What can you do to ensure that your quality of life is protected when you reach your twilight years? One way is to invest in a retirement home or to invest in developing a retirement home. The two types of investments are quite different and as such, there will be different problems to be wary of. Let’s look at investing in a retirement home for personal investment.

April 2013 SA Real Estate INVESTOR

Long-term value “Many people recognise the long-term value of these kinds of developments, investing long before retirement age and renting them out until the time comes for them to move in. This gives these investors the opportunity to plan for their old age and invest in these developments at today’s prices, ensuring that their capital investment holds its value, and often, even increases in value. In this way, they can rent out or sell their family homes for income during their golden years, and enjoy being part of a retirement community when it is most needed,” explains Adrian Goslett of RE/MAX. Today’s retirement villages have made big shifts away from merely serving the aged, to meeting the luxuries demanded by a more privileged society, says Goslett: “When people decide to invest in a retirement village, they consciously or subconsciously have made the decision to invest in a certain lifestyle. The term ‘retirement village’ denotes far more than mere accommodation, and incorporates a number of lifestyle benefits as well.” R e t i r e me nt d e v e lopme nt s v a r y, a nd depending on the price, they offer a number

of facilities, including central heating, airconditioning, fully-fitted kitchens, satellite television and in some cases, even Wi-Fi Internet connection. There is also a wide range of communal facilities provided, including medical and dental clinics, nursing services, lounges, laundry and housekeeping services, spa and gym facilities, a restaurant, bar, meal delivery and handyman services, a minisupermarket, and free local transport. Sports facilities are also common, and can include swimming pools, tennis courts, bowls, golf course, a video room, library and a social club. Being in South Africa, as with all residential developments, security is a major concern, says Goslett. “Retirement developments are most often fully gated communities, with state-ofthe-art security measures in place, including manned 24-hour security guards patrolling the perimeter and the entrance, CCTV sur veillance, intercom systems, personal emergency alarm systems and panic buttons fitted in each unit.” He notes that the right location of the retirement development is of crucial importance: “Apart from solid security, comprehensive www.reimag.co.za

COMMERCIAL health care and lifestyle facilities, and aesthetic considerations, retirees want to be proximate to various external amenities such as shopping centres, golf courses, cinemas, and a variety of other entertainment attractions.” Goslett says that currently, the most popular locations for these developments are along South Africa’s coastal areas: “The Western and Eastern Cape are especially attractive to many retirees, due to the beauty of the ocean and pristine beaches, as well as the perceived laid-back lifestyle enjoyed by residents of these small seaside towns. These locations are incredibly attractive to those who are ready for an extended holiday in their later years.”

THERE ARE FOUR MAIN LEGAL Ensure you appoint an agent that will work in STRUCTURES FOR RETIREMENT HOMES:

your best interests to sell your home and enable purchase The other way of investing in a retirement village is investing in the actual development of the village. With the shortage and rising need of retirement villages this type of investment is a solid asset class that guarantees investors f inancial returns. The need for retirement villages first arose in the early 1980’s as a result of increased crime and with crime higher now than in the 1980’s the demand for retirement villages will not be declining any time soon. There are certain legal structures, which govern the development of a retirement village, namely

With a life right ownership scheme, you buy the right to live in a specific unit. However, as the ownership of the property isn’t transferred but retained by the estate, no transfer duty is payable. Nor are there any registration fees, as there are no title deeds. One needs to bear in mind, however, that a life right property can’t be bequeathed to an heir, as the right terminates when you leave the village or die.

Full Individual Title is normally available when the sites or plots are situated within a common property area, which is managed by trustees, and a levy is charged to offset service costs within the common area. The buyer will receive title deeds to the property; the property will be registered in their name and includes the area around the unit for exclusive use. Owners are personally responsible for the ser v ices, rates and ta xes associated with the property.

Sectional title is another t ype of ownership, which places the rights of ownership squarely in the hands of the owner. A levy is also charged in order to finance the services provided.

Share-block schemes are less common. The complex is registered in the name of a share block company and each unit allotted a certain number of shares in the company. You buy shares, which give you the right to use a unit and the complex’s facilities but you don’t own your dwelling. This type of ownership means that one has a right of occupation to a specific unit tied to the block of shares you own. Levies are payable to cover the expenditure as sanctioned by the board of directors.

Life-right ownership: This type of ownership refers the right of tenancy to a person/persons for their lifetime and the administering authority retains the ownership. Often this type of ownership has a clause, which ensures that the estate ultimately benefits by: • The whole purchase price plus a portion of the capital growth. • The whole purchase price without capital growth. • Only a portion of the original purchase price. • No part of the purchase price. • A combination of the above.

When looking to invest in a new retirement property development, it is important to remember the following: Establish whether the developer or controlling body is financially strong and healthy. Take a few days to read all the documentation before signing. If you are unsure, speak to an attorney, accountant or financial advisor. If the retirement property agreement is not being signed by both you and your spouse or partner, find out what happens to the surviving partner in case of the death of one party. If you’re relying on the cash from the sale of your current home to finance the purchase of your new retirement property, ensure the purchase is dependent on the sale. Establish whether there are any costs on signature including administration fees and deposits and who holds these monies. Ensure the date of right of occupation is clearly stated. www.reimag.co.za

the Housing Development Schemes for Retired Persons Act 65 of 1988 and amendment number 70 of 1990, which the Government passed to protect senior citizens when it came to investing in a retirement home. But if you comply with the legal aspects of this type of investment you can turn a new retirement village into a life long investment and not just for you but also for your children and their children. As with most developments it comes down to location and what you are offering a potential senior citizen. What makes your development better than any of the others? The more you understand your market the better your chance of success. Whether you are looking at investing in a developed retirement village or developing your own as an investment, the retirement village market is not slowing down and the time to invest is right now. Arm your self with the necessary knowledge and start investing today.

RESOURCES RE/MAX

April 2013 SA Real Estate Investor

FRANCHISING

BY ANGIE REDMOND

Battle Of The Burgers Who will dominate the South African market?

Although it wants to spread its wings to other parts of Africa, it still sees a lot of potential for growth in South Africa. “We have experienced a lot of growth coming from South Africa. A lot of it is coming from the growing urbanisation, which is still a big trend in this country. There are still a lot of people f locking into urban areas,” says McDonald’s South Africa managing director Greg Solomon. Absa Investments equit y analyst Chris Gilmour said McDonald’s was still facing head-on competition with Famous Brands’ hamburger restaurant, Steers, and was likely to have a much harder face-off with the entrance of Burger King.

hen McDonald’s first came to South Africa insisting on owning every freehold site, they encountered many obstacles during their early days in the country. Steers have landed with their proverbial bum in the butter acquiring access to scores of outlet sites at service stations countrywide. With arguably most of all the best sites taken up already what will be left for Burger King? Burger K ing’s restaurants a re usua l ly freestanding buildings, located on outparcels in shopping centres and on high-traffic urban streets with superior access. The properties are usually supported by strong real estate fundamentals. It is important to note that Burger King franchises the majority of their locations, while only 15% of Burger King locations are corporate-operated. Therefore, there are a number of various lease agreements

April 2013 SA Real Estate INVESTOR

Burger King has partnered with gaming firm Grand Parade Investments to roll out outlets in South Africa, starting with Cape Town this year. and guarantors operating under the Burger King banner. Corporate-backed leases have been trending towards ground leases of 10 - 15 years in length with rent increases of 8% - 10% every 5 years. Franchise guaranteed lease terms vary, as do their respective cap rates based on perceived credit-worthiness of the operator. However, if a site has high quality real estate and strong sales, some leases have been known to offer annual rent increases or percentage rent. Burger King comes as a triple net lease, which therefore eliminates landlord responsibility.

In South Africa, Burger King will compete with Steers, Wimpy, KFC and McDonald’s.

The first Burger King outlet is already open on Adderley Street in Cape Town and they have many more outlets planned.

The impact of the battle of the burgers will be seen in the commercial property sector, which will surely see positive growth as companies like Burger King set their sights on South Africa as a investment destination.

McDonald’s plans to open 20 to 30 new restaurants in the next few years with more focus on urban areas and smaller towns.

Gi lmou r sa id bot h Bu rger K ing and McDonald’s would struggle to compete with Steers, which was far more entrenched in all areas. “It has taken McDonald’s a long time to reach the 180 restaurants mark and it is understandable because Famous Brands has managed to penetrate the market so well and for a long time.”

RESOURCES

South Africa.Info

www.reimag.co.za

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RETAIL FOCUS

BY ANGIE REDMOND

One Click Shopping Will it change the face of retail in South Africa?

out h A f r ica ns love to shop. A nd increasingly, as Internet access and the number of online retailers grow, they’re doing it online, logging on to buy everything from books to wine to electronic equipment. But will online shopping become the way we shop in the future or will it remain an alternative to the traditional method of shopping?

It’s easier Most retailers have cottoned on to the fact that online shopping is an easy way to diversify and cut costs, by offering shoppers both a physical store and an online store you cater for both methods of shopping. And with online retail showing figures in the excess of 8 million users, retailers need to align their business models and ensure that they tap into this channel for long-term success. More recently, Edcon’s CNA division and Mr Price have entered the online retail market. A few weeks ago Apple announced the arrival of the Apple iTunes store in the country, which is estimated to give South African music fans purchasing access to a library of about 20-million local and international hits. Food retail giants Pick ‘n Pay and Woolworths also have home-shopping websites which are aimed at the higher end of the market. Although online retail is still a small part of these businesses, it is seen as an important channel for the long-term future. A recent survey conducted by MasterCard found that 58% of local active Internet users now shop online, up from 53% in 2010. Furthermore, the arrival of the online payment system Paypal in 2010 has helped to encourage growth within the e-commerce market. With an increasingly competitive Internet service 50

April 2013 SA Real Estate INVESTOR

www.reimag.co.za

COMMERCIAL provider market, along with more compelling mobile and Smartphone-based access options, South Africa is starting to see a significant increase in the number of online users.

No storefront, less cost Commercial buildings can be expensive to maintain. There is rent to pay, or premises to purchase, heating and lighting costs. More staff may be necessary to deal with customers in person. Local or national advertising has to be paid for. In contrast, an online business only needs a small office and a good website, to advertise services and products to the whole world. Storage space is required for stock, but the business would need to employ fewer staff to deal with orders, in this way they save money on rent on furnishings and maintenance, with the core cost of the business being devoted to website development and maintenance, storage space and shipping (which is often included in the cost of the product).

Constraints to the development T here a re a number of ba r riers to the development of online retail shopping in the country. These include the relatively low penetration and high cost of broadband Internet. Another constraint to the development of online retail shopping is the local postal system, which is widely perceived as inefficient and poorly run. Most retailers find themselves in a quandary and bound to rely on private courier services, particularly time-sensitive ones, which in turn can be costly. The industry tends to focus on products such as books, music and DVDs. However, one clear threat to these businesses is from the rapid rise in popularity of e-book and tablet devices, which is removing delivery constraints and costs. In a related trend, e-commerce may also drive an increasing number of consumers to shop online, so that they can be sure their key goods are available before traveling to the mall. Given the rapid growth of online users in South Africa and consumers turning to mobile devices and other forms of social media while they shop, retailers can no longer afford to ignore the opportunities offered by e-commerce in the retail space. The successful retail business model of the future will be digitally different to that in the past.

Stores will survive No matter how pervasive online shopping becomes, it will never obliterate hands on www.reimag.co.za

shopping, and the convenience of running into the shop for a litre of milk or going to the chemist for medication. There is also the ability to browse and touch and try before you buy, that online shopping simply does not have and for that reason will never completely replace bricks and mortar business.

What do the retail figures say? The fourth quarter of 2012 provided an average 24.2% increase in sales per square metre over the previous quarter. This is a slight easing from the 25.9% boost to sales in Q4 2011 and the 26.9% increase recorded in Q4 2010. T h i s s l i ght t ap e r i n g of f i s p e rh ap s unsurprising, though, given the easing of household consumption expenditure figures and uncertainties within the domestic and global economies. Average annual gross rentals for super regional centres are at roughly the same level as they were last year, however the other types of centres have recorded marginal improvements. These overall increases, however, remain below inf lation. Aside from small neighbourhood centres, vacancy rates in all types of centres fell in the fourth quarter of 2012 compared to the previous quarter. The negative correlation between vacancy rate and centre size and quality holds true, with super regionals enjoying the lowest vacancies at just 1.8%. This is followed by regionals at 1.9%, small regionals at 2.4% and community centres at 2.9%. Neighbourhood centre vacancies opposed the downward trend, increasing to 4.4% in the December quarter. Reversing the previously declining foot traff ic trend primarily drove the relatively strong trading density growth in small regional centres. Although the average spend per person remains fairly f lat, this is more than compensated for by the increases in number of people visiting these types of centres.

Online shopping trends In terms of trends, a survey conducted by MasterCard Worldwide between September and October of 2010 in which 8,500 consumers participated revealed that South Africans accessing the Internet, do so mostly to check their email (95%), to browse information/study material (74%), to control their bank balance

(73%) and to browse for leisure (73%). 51% of South Africans who have access to the Internet are shopping online and 75% of those confirmed having done so in the previous three months. The MasterCard study also showed that 89% of South Africa’s online shoppers are satisfied with their virtual shopping experience, and that 73% of respondents intended, at the time, to make computer-based purchases over the next six months. South Africans favouring online shopping find the experience more convenient (online shops are always open, there is no need to deal with sales people or to drive to the store, etc…), user-friendly and easier than physically going to the shop or ordering something using a catalogue or through a call centre. Also 54% of South Africa’s online shoppers tend to conduct research before their Internet-based purchases either by surf ing the web or by compiling references from friends and family. Impulse online shopping decreased from 22% to 8% between 2009 and 2010. The survey performed by MasterCard also established that the preferred products of South Africa’s online shoppers are CDs and DVDs, at the top of the list with 50%, followed by books and art, with 45%. Then come airline tickets, shows/movie tickets, and home and electric appliances. A previous survey by Synovate ranked music and movie downloads at the top of South Africa’s online shopping list, as these products are easy to access and provide instant gratification. Regarding payment methods used for online shopping, MasterCard’s report revealed that South Africans prefer credit cards (48%) and, to a lesser extent, debit cards (29%). Other online payment options include the internationally known PayPal system that allows for convenient and quick money transfers/payments in a secure environment (without revealing credit card numbers or banking accounts details. The bottom line appears to be that not only is online retail here to stay but it is an integral part of the retail industry and will play an large role in the future. As Internet becomes a permanent and cheaper option for many, online shopping will change the face of South Africa retail.

RESOURCES Pricewaterhouse Coopers

April 2013 SA Real Estate Investor

CMY

REI Offshore

Africa Growth Strong

Urban Sales In England Up

US Shows Strong Price Growth

Demand for high quality residential and commercial property continues to grow across Africa on the back of the continent’s sustained strong economic growth and rising wealth. Africa is in the midst of a period of dynamic economic expansion, having averaged GDP growth of more than 5% per annum over the last decade and this is leading to a dynamic real estate market.

The average asking price of properties for sale in urban areas in England is up 1.9% on this time last year, while asking prices for properties in the country are down 5.1% over the same period. Urban asking prices now stand at an average of £315,170, up from £309,280 a year ago, according to the latest research from PrimeLocation. But rural asking prices are now £272,180 on average, down from £286,890 this time last year. Over the past 12 months, country property prices have fallen hardest in the North East, down 11.3% and the South West, down 10%, the data from the property firm shows, taking average asking prices in these two regions to £180,760 and £272,480 respectively. Rural prices also fell 5.5% in the East Midlands to an average of £234,280, by 5.1% in the North West to £322,930 and by 3.7% in Yorkshire and Humber to £238,700.

US property is experiencing the strongest price growth in over seven years, according to the National Association of Realtors, as rising home sales and shrinking inventory drive the market recovery forward, leaving agents struggling to find the supply to meet demand. Indeed, pending home sales increased 4.5 per cent in January from December, the NAR revealed, leaving transactions 9.5 per cent above January 2012 - the highest reading since April 2010 and the 21st month of annual increases in a row. “Favorable affordability conditions and job growth have unleashed a pent-up demand,” commented Law rence Yun, NAR chief economist. “Most areas are drawing down housing inventory, which has shifted the supply/demand balance to sellers in much of the country. It’s also why we’re experiencing the strongest price growth in more than seven years.”

According to Knight Frank’s newly released Africa Report 2013 this strong growth is expected to continue and is creating wealthier populations, particularly in the largest and most rapidly growing urban centres. It says that Africa’s mega cities such as Lagos, Nairobi, Accra, Lusaka and Dar es Salaam are increasingly becoming the drivers of its economic growth.

Valuable Input

Rick Yohn, VP, RE/MAX LLC

Lee-Ann Bac, Director,Grant Thornton

Dr. Stan Humphries, Chief Economist, Zillow

Boris Johnson, Mayor, London

Andrew Golding, CE, Pam Golding

“ It s e e m s l i k e t h e recession has prett y much moved out of Nor t h A mer ica but Europe is still teetering on the edge a little bit. Asia seems to be doing fairly well.”

“The Minister spoke specif ica l ly about creating simpler rules in terms of reducing the time and cost for investing and operating in Africa. Many SA property companies are looking to expand into Africa.”

“The winter months are typically when things cool off in the housing market, but high demand and continued tight inventory in many markets have helped keep things at a boil through the early part of 2013 in the US.”

“The £100m in funding for affordable housing is a not her fa ntast ic opportunit y for housing providers in the capital to deliver the homes that this city desperately needs.”

“We are seeing South A frican investors increasingly look ing to acquire properties in overseas countries for a variety of reasons, including sound investment potential in the medium to long term as well as good rental returns.”

www.reimag.co.za

April 2013 SA Real Estate Investor

LONDON

BY MIKE SMUTS

The Crown Jewel Of The Global Market

London is the capital of the wealthy

ondon is the luxury homes capital of the world, and the global prime property market is more similar to the fine art market than to the mainstream property market, according to a new report from Christies International. Limited stock, strong international buyer demand, and high net worth individuals’ “increased appreciation for world-class lifestyle offerings” have pushed prices for luxury homes to “historic highs”, with London once again leading the field. Christies’ report (Luxury Defined: An Insight into the Luxury Residential Property Market) compares 10 of the world’s top property markets — London, New York, Hong Kong, Paris, San Francisco, Cote d’Azur, Toronto, Dallas, Los Angeles, and Miami — and debuts the “Christie’s International Real Estate Index”, which promises to be “the first ever true global indicator for luxury residential real estate”. The Index ranks markets across “key metrics including record sales price, prices per square foot, percentage of non-local and international purchasers, and the number of luxury listings relative to population”.

April 2013 SA Real Estate INVESTOR

www.reimag.co.za

OFFSHORE These findings are backed up by the 2013 Knight Frank ’s Wealth Report released in March showing that London, with its 118 resident billionaires, has retained its crown as the High Net Worth (HNW) capital of the world. The Wealth Report is the definitive guide to the international world of prime residential propert y. Produced by Knight Frank in conjunction with Citi Private Bank, this annual publication surveys High-Net-Worth Individuals, private bankers and wealth advisors around the world and offers a unique perspective on the key luxury property markets around the world. For the purpose of the report a High Net Worth Individuals is defined as someone with $30 million or more in net assets – roughly R275 million. The total wealth of HNWIs increased by $566 billion to $26 trillion in 2012 (an increase of 2%) while globally, the pool of these uberwealthy individuals grew by 8,700 (roughly 5%). Over the next ten years another 95,000 individuals are set to break the $30 million barrier in terms of personal wealth, leading to a 50% increase in High Net Worth Individuals around the world. Across Asia, the number of HNWIs is set to rise by 88% over the next decade, the joint highest rate of growth in any world region, yet North America is expected to retain the highest total number of HNWIs in 2022.

Tangible assets most popular investments Unsurprisingly, given the continued economic uncertainty in much of the world, High Net Worth individuals continue to favour more tangible and straightfor ward assets like property as an investment – often seen as safe havens during times of turmoil. Property accounted for the largest share of HNWI investment portfolios, averaging 22% globally, with portfolio allocations increasing sharply and predicted to rise further this year. This so-called “f light to quality” is likely to continue to drive the values of prime property in the major global cities higher in the short to medium term. www.reimag.co.za

Equities, on average, still made up 15% of portfolios, but a net balance of 10% of respondents said their clients reduced their exposure to stocks and shares last year. The super-wealthy, especially those in China, are also set to step up their interest this year in “investments of passion” such as art, fine wine, classic cars, coins and watches. Knight Frank’s Luxury Investment Index shows that classic cars have seen the largest appreciation in value over the last decade, with an average uplift in price of 395%. The basket of collectable assets such as art, f ine wine, classic cars, coins and watches within the overall luxury index has accrued cumulative gains of 175% over 10 years (with a 6% uplift in 2012 alone). The ultra-wealthy also increased their spending on philanthropic activities in 2012 compared to 2011, with the most significant increase in expenditure among those in Asia, Russia and The Commonwealth of Independent States (CIS).

Luxury homes capital of the world While Monaco remains the most expensive location in the world to buy prime residential property (a luxury home can range in value from $5,350 to $5,920 per square foot), London and New York remain the top destinations for the world’s ultra-high net worth individuals to live and invest in. Asian cities like Singapore, Hong Kong, Shanghai and Beijing are fast catching up but London’s status as a world city however remains unchallenged for the time being. As the crown jewel of the global property market for more than a decade, it is the powerhouse of the UK economy, with a financial services industry that retained its global status even in the wake of the financial crisis. The world’s wealthy have beaten a path to the city, mainly due to the long-standing view that London property offers a safe haven, the enduring attractions of the city’s excellent education and the strong economic and social factors that makes it the investment destination of choice for the world’s wealthy. The Knight Frank report also gives us some interesting insight into this phenomenon and especially the attitude of the super-rich when it comes to property. While the preservation and creation of additional wealth through property

is of some importance, what they really value, the Attitudes Survey shows, is the lifestyle that comes with an open, cosmopolitan environment that provides both personal and property security. The Russian authorities, for example, have a history of seizing assets from wealthy oligarchs, so a London property is considered a long-term investment out of reach of the Kremlin’s grasp. The second most important factor when choosing a second-home location was its potential to provide a long-term safe haven for capital. Wealthy property buyers also place an immense importance on their children’s education with an estimated 85% of Asian and 81% of Latin American buyers indicating that they are likely to send their children to university overseas. So the ongoing popularity of purchasing homes in cities with a number of prestigious universities should come as no surprise. All of this evidence suggests that cities such as London and New York, which have been able to withstand economic headwinds and can boast additional lifestyle benefits, will continue to attract the wealthy of the world. The report also shows that High Net Worth Individuals tend to favour city property above beach houses or ski chalets. Overall, almost 50% of HNWIs have a second-home townhouse or apartment, compared with 20% owning waterfront homes and 10% ski properties. Some 43% of the HNWIs surveyed said they expect to purchase more city property this year. So while the global economic slowdown continues to dominate sensational headlines around the world, it would seem that this harsher environment has not diminished the ability of High Net Worth individuals around the world to continue growing their substantial wealth. Furthermore, it seems clear that the appetite of wealthy individuals for acquiring prime property in the major global cities like London remains strong and, most importantly, looks unlikely to diminish any time soon.

RESOURCES Smuts and Taylor

April 2013 SA Real Estate Investor

HOLIDAY HOMES

BY BERND BIEGE

An Irish Adventure And your dream holiday home

round 200 London-based residents considered a house move to Ireland, in this Gathering year and lifestyle was one oft-quoted reason for considering relocating across the Irish Sea; that and the fact Irish property prices have plummeted 50-60%. Suddenly, buying a home in Ireland is now a very realistic prospect for many UK residents.

Buying a holiday home in Ireland Before the property boom hit the island, this was a common-and-garden occurrence; many small cottages or purpose-built holiday homes were sold to Irish, British and European customers, at a lesser degree to international clients. Irish holiday homes were long regarded as cheap, then as a potentially very successful investment. During those times, even the most casual visitor seemed to be able to cajole Irish banks into providing mortgages. Until 2008, when the whole property bubble burst and many “fool-proof ” investments ended up like the proverbial albatross around the neck.

And today? Well, buying Irish property as a holiday home away from home might still be attractive. But it all comes down to numbers.

Here are the basic facts you need to know: Who can buy property in Ireland? Generally speaking anyone who can pay for it. As owning property in Ireland does not confer any rights of residency, even those depending on visas may buy. Overseas investors are welcome in general. 56

April 2013 SA Real Estate INVESTOR

Is it possible to get an Irish mortgage to buy a holiday home? In theory ... yes. In practice this has gone the same way as Lehman Brothers at about the same time. Virtually no banker and definitely no subprime lender will today stump up the purchase price of a holiday home. It is hard enough to get a mortgage for residential property if you want to be an owner-occupier.

Where can I buy property in Ireland? Actually in the pub over a pint ... if both parties know what they are doing. There are no laws governing the correct process of buying and selling property. The more usual way, however, is through the offices of an estate agent. They will be the intermediary between the buyer and the seller and facilitate viewings. One interesting fact: the estate agent takes his fees out of the sale price, this will be handled by the seller. There should be no payments from the buyer (though, ultimately, you will pay for everything).

Where do I find estate agents in Ireland? In virtually any larger town and, of course, on the Internet. The main difference between individual agents being whether they display the “asking price” (not a fixed sum) or whether you have to contact them in person for this. Please note that the same property may be

on offer by several estate agents, often with a differing asking price.

If the asking price differs, which one is “real”? All are, but the lowest would be the most realistic. Stay near that with your offer - a higher offer will be gladly accepted, but having the same property on the market with several estate agents at different prices carries a whiff of desperation with it already.

Who do I make the offer to and what happens then? You make the offer to the estate agent who will convey it to the seller ... who will then accept or decline it. Acceptance may be taken back later (“gazumping” used to be quite popular), but in our leaner times a quick sale is often the optimum for the seller.

Do I need a solicitor? Technically not, but you should always employ the services of one to make sure everything is kosher. The estate agent may recommend a local solicitor, should you not be able to source one yourself.

RESOURCES Irish Examiner

www.reimag.co.za

CAPE TOWN Ground floor, Liesbeek House, River Lane, Mowbray PO Box 23644, Claremont, 7735 Tel: +27 21 680 5272 | Fax: +27 86 670 6490

SANDTON 2nd Floor, West Tower, Nelson Mandela Square, Sandton, PO Box 785553, Sandton, 2146 Tel: +27 11 881 5706 | Fax: +27 86 670 6490

Official South African marketing agent for LEPTOS ESTATES www.LeptosEstates.com

Contact: Jenny Ellinas | +27 83 448 8734 | jenny@cypriotrealty.com | www.cypriotrealty.com

CANADA

BY COLLEEN MAY

Is Canada About To Burst? Experts say unlikely

anada is a North American country consisting of ten provinces and three territories. Located in the northern part of the continent, it extends from the Atlantic to the Pacific and northward into the Arctic Ocean. Canada is the world’s secondlargest country by total area, and its common border with the United States is the world’s longest land border. Ca n a d a’s p opu l at ion den sit y, at 3. 3 inhabitants per square kilometer (8.5 /sq mi), is among the lowest in the world. The most densely populated part of the country is the Quebec City – Windsor Corridor, situated in Southern Quebec and Southern along the Great Lakes and the St. Lawrence River. Av e r a g e w i n t e r a n d s u m m e r h i g h temperatures across Canada vary from region to region. Winters can be harsh in many parts of the country, particularly in the interior and Prairie Provinces, which experience a continental climate.

Housing crisis, to be or not to be? It was the decisions by the Bank of Canada under Mr. Carney’s leadership to cut interest rates during the crisis and hold them down subsequently that enabled a surge in household debt and house prices. W hile American consumers were running down their debts, Canadians were adding to theirs, so that by the end of last year household debt was 165 per cent of income, in the same territory as the peak in the US at the start of the crisis. House prices, meanwhile, rose 23 per cent in the three years to April 2012. The International Monetary Fund has been warning since 2011 that Canadian homes looked overvalued, because the ratios of house prices to incomes 58

April 2013 SA Real Estate INVESTOR

and to rents were respectively 20 per cent and 29 per cent above their long-run averages.

visit the Canada Revenue Agency website at www.cra-arc.gc.ca.

The housing market is still one the most serious threats to the outlook. Canada is “unlikely” to suffer a US-style housing boom and bust, the IMF said last year, but warned: “the unwinding of domestic imbalances could prove more disruptive than anticipated in our baseline scenario”.

Property Tax (municipal) – If the seller has already paid the full year’s property taxes to the municipality, the buyer will have to reimburse them for the remainder of the year’s taxes.

The Vancouver housing market is not entirely dead, and at the top end of the market there are often foreign buyers prepared to put their money down. Yet in a sign of how the tables are turning, the reviving US market is now attracting envious looks from across the border. Whether the Canadian housing market rises or falls, will remain to be seen.

Purchasing in Canada There are no restrictions for non-residents purchasing real estate in Canada, though they may become subject to Canadian income tax laws, and will certainly encounter the following taxes on their transactions: Property Transfer Tax (British Columbia) – The tax rate is one per cent on the first $200,000 of the property’s fair market value and two per cent on the remaining fair market value. Harmonized Sales Tax (British Columbia) – The 12% HST applies to the purchase price of newly constructed and substantially renovated homes. The government has created a rebate under which, on average, buyers of new homes up to $525,000, would not pay any more tax due to harmonization than under the old PST system, in the price of a new home. Buyers of new homes above $525,000 will be eligible for a rebate of about $26,250. For more information,

Residence Status and Income Tax If non-residents stay in Canada for more than 182 consecutive days, they may be considered Canadian residents for Canadian income tax purposes. Non-residents of Canada pay tax on income received from sources in Canada. The type of tax paid, and the requirement to file income tax returns, depends on the type of income received. Canada has tax treaties with many countries, including the United States. A tax treaty is designed to avoid double taxation for people who would otherwise pay tax on the same income in two countries.

Non-Resident sales When selling or disposing of Canadian real estate, non-residents must notify the Canadian government within ten days of the completion of the transaction to obtain a certificate of compliance. A certificate of compliance will only be issued if the CRA has received either a prepayment on account of the taxes owing or appropriate security for the prepayment. The CRA charges a financial penalty to nonresident owners of taxable property in Canada who sell that property and do not, within ten days, provide notice of the sale to the CRA.

RESOURCES Financial Times

www.reimag.co.za

AFRICA

BY GAYE DE VILLIERS

Growing Mozambique From the ground up

ue to the continued growth of the ener g y s e c tor i n Mo z a mbique , particularly given the discovery of big gas reserves in the Cabo Delgado province, Pemba appears as one of the best locations in which to invest, says Adrian Frey, director of Pam Golding Properties Mozambique. “A continued effort in regard to investment in public infrastructural improvements has been made over the past few years, including roads, airports etc, and in addition, a continued private sector effort in regard to new projects has been helping turn Mozambique into a very appealing destination. With visible improvements to this beautiful country, both in big cities and small coastal areas, Mozambique is set for future growth. As there is growing middle class in Mozambique, opportunities are created for investors who want to invest in commercial real estate, such as shopping malls and related activities. Housing for this sector is also needed, providing further opportunities for investors.

March 2013 SA Real Estate INVESTOR

“ However, as t here is st i l l a lack of infrastructure and quality buildings, coupled with an existing and growing demand, this creates an opportunity for new investors in Mozambique. Situated in Nampula province, Nacala, with the deepest natural port on the east African coast - which will be used for the export of coal as well and other exports and imports, is an ideal location for real estate investors. Tete, the province which is home to the biggest coal operations in the country, also has some good real estate investment opportunities. However, due to international coal prices and issues around transporting coal out of Tete, the coal industry is currently a challenging market. “In Maputo, where most companies have their national headquarters and where a large and growing community of expatriate staff works and lives, there still is a shortage of medium and high end residential and commercial properties on the market. Important new infrastructural developments, such as the ring road, will

connect all the key parts of town and its surrounds and help alleviate traffic congestion as well as encourage the development of new residential estates, while the bridge to Catembe will facilitate the flow of people into Maputo. As a result the city will expand and new development areas have already been identified, with some projected developments already taking place. There is also a shortage of secure, gated residential estates, as the majority of the new developments taking place are apartment units and many residents prefer to live in standalone houses within estates with security, green space and offering a more pleasant environment in which to live,” says Frey. Says Gonçalo Morgado Marques, manager of Pam Golding Properties Mozambique: “South Africans and other foreigners are allowed to invest in real estate in Mozambique, either by buying existing properties (only properties that did not belong to the government) or by acquiring the right to use and benefit from the land and developing their own projects – and in this case they have to register a local company. In Mozambique, the land belongs to the state and cannot therefore be sold, transferred, mortgaged or charged for, but both foreign citizens and foreign companies can hold the above referred right under certain requirements. For individuals the requirements are a minimum of f ive years’ residence in Mozambique and an approved investment project. For companies (foreign held but registered in Mozambique), the requirements are an approved investment project and hav ing obtained the lega lly prescribed formal authorisation. Marques says rental income on properties in Mozambique is very attractive. In Mozambique yields on rental usually range from 12 to 15 percent, which is a sound return. “Both residential and commercial properties offer sound returns. Depending on the location, residential properties may be a better investment, however, commercial properties also have high appeal as a variety of uses can generally be explored and applied, ultimately increasing profitability. If one considers return on residential development, construction costs are from approximately USD 700 up to USD 1.300 with completed products reaching selling prices of USD 3.500 or in some instances even higher,” he says.

RESOURCES

Pam Golding Properties

AUDIT

•

TA X

•

ADVISORY

In business, as in life, you make the difference. As specialists in audit, tax and advisory services, we provide support at every stage. For expert advice on the Real Estate industry, contact our experienced Real Estate advisors today. Get to know us better at www.mazars.co.za Contact your nearest Mazars office on 0861 Mazars

registered auditor

– a firm of chartered accountants(sa)

an approved financial services provider

REI Lifestyle DECOREX

THE SOLAR SHOW

9 -10 th April Sandton Convention Centre, JHB It focuses on everything the energy sector needs to know: How to implement solar energy strategies How to ﬁnance major solar projects How to prosper from regulation and legislation How to source new solutions The Solar Show is Africa’s largest solar forum bringing an unequalled level of excellence and abundance of decision makers. It is the only African event that attracts regional and international developers, power producers and utilities, industry, government and large energy users - year after year.

SAPOA CONVENTION

27 APRIL 2013

www.reimag.co.za

CTICC

Adults R70 Students/Pensioners R60 Kids U12 R10 South Africa’s finest décor, design and lifestyle expo themed ‘bliss’ promises to provide plenty of design and décor ideas and inspiration, a showcase of the latest décor trends as well as lots to buy and loads of practical know-how. Decorex Cape Town’s customary demo’s and how to’s promise to inspire a whole new approach to home living and a variety of trendy pop-up restaurants mean visitors are guaranteed a great day out.

GOOD FOOD & WINE SHOW

2013 will mark the 45th Convention Anniversary of the annual SAPOA convention and this year they will be celebrating in style! The Annual SAPOA Convention and Property Exhibition is the pre-eminent property industry conference of the year. The event features many relevant and thought-provoking local and international speakers and is the ultimate networking event for any property professional - offering unrivalled opportunities to engage with industry leaders. With something for everyone, the 2013 networking events include plenary sessions, workshops, seminars, the Beach Party and Golf Day, which have earned 5-star recognition as “standalone events” over the years. With flexible registration, come and be part of this splendid & magnificent event from 14 - 16 May at Sun City, situated in the bushveld of South Africa’s North West province, surrounded by the imposing mountains of the Pilanesberg and home to South Africa’s Big 5 – Elephant, Rhino, Lion, Leopard and Buffalo.

FREEDOM DAY

25 – 28 April 2013 Trade Day Thurs 25th & Friday 26th 10am – 7pm (6pm on Sunday)

This day commemorates the very first free elections held in South Africa in 1994 post – apartheid. Now nearly ten years on we are looking at our third general election since 1994, which will be held next year.

The new-look Good Food & Wine Show kicks off in Cape Town, at the CTICC, from 23 to 26 May, 2013, and will feature appearances by a host of celebrity chefs, including Gordon Ramsay. Tickets cost R110 for adults for R55 for children. This includes more free theatres than ever before. Visitors will also receive a coupon book that will allow for massive savings and specials. Web: www.goodfoodandwine.co.za

ARBOUR DAY

26 APRIL 2013 National Arbor Day is the Tree Planter’s holiday, and has been celebrated since 1872. It began in Nebraska, a largely treeless plain back in the 1800’s. It is a day to plant and dedicate a tree to help nature and the environment. Millions of trees are planted on this day.

PSYCHO

This Golden Globe-nominated bio pic tells the story of the relationship between “Master of Suspense” director Alfred Hitchcock (Anthony Hopkins) and his wife, Alma Reville (Helen Mirren), during the making of his seminal film, Psycho. In cinema on the 5th of April, this film is a must-see for any fan of the cult classic Psycho or any serious Hitchcock fan.

April 2013 SA Real Estate Investor

BUDGET 2013

BY PROF PETER SURTEES

Your Comprehensive Guide To the 2013 budget

axpayers in South Africa were pleasantly surprised to find that the 2013 budget speech delivered no increases in tax rates, despite contrary predictions ranging from the maximum marginal rate to VAT. The proposed termination of the conduit principle for trusts, a core element of trust law, has, however, cast a pall on what was otherwise a fairly benign and predictable Budget. The country is aware that the budget was delivered at a tough time, in the midst of difficult global economic conditions. However, true to form, the Minister delivered a conservative and well-considered budget. Importantly, a Commission will be formed this year to look at tax policy reform for the future, and the findings of this Commission will be of key interest to taxpayers in the future, and will set the tone for future budgets. The main tax proposals for the 2013-14 fiscal year are: personal income tax relief of R7 billion, mainly by extending the rate bands for natural persons; no increase in the personal tax, corporate tax or VAT rates; employment incentives to assist young work seekers and promote special economic zones; relief for small businesses; harmonisation of treatment of contributions to retirement funds and increase in the contribution limit; carbon tax to

April 2013 SA Real Estate INVESTOR

How much more will Alcohol and Tobacco cost you? Malt beer

increase by 7,5c to R1.08 per 340ml can

Fortified wine

increase by 19,5c per 750ml bottle

Unfortified wine

increase by 15c per 750ml bottle

Sparkling wine

increase by 56c per 750ml bottle

Ciders & alchoholic Fruit beverages

increase by 7,3c per 330ml bottle

Spirits

increase by R3,60 to R39,60 per 750ml bottle

Cigarettes

increase by 60c to R10,92 per packet of 20

Pipe tobacco

increase by 32c to R3,54 per 25g

Above: Increase in alcohol and tobaccco

LIFESTYLE be phased in; the introduction of tax-preferred savings and investment accounts, foreshadowed in 2012; extension of the date on which certain withholding taxes come into place, as well as the announcement of a new service fee withholding taxes. Individuals will reach the maximum marginal rate of 40% at R638 000 compared with R627 000 last year. This means that the tax thresholds are now R67 111 for persons under 65, R104 611 for those between 65 and 75 and R117 111 for persons over 75.

An unexpected development announced in the Budget is that a withholding tax on services fees paid to offshore beneficiaries, applied at a rate of 15%, will be introduced as from 1 March 2014. Furthermore, the anticipated introduction of a withholding tax on interest – which was to be introduced with effect from 1 July 2013 – has been deferred until 1 March 2014. The anticipated announcement about funding for the National Health Insurance project, following the President’s statements on the topic in the recent state of the nation speech,

Where does the money come from? TAX REVENUE

2013 / 14

306 188

31 265

169 830

41 340

242 990

Fuel Levies

44 970

OTHER

61 421

TOTAL

898 004

100

Personal Income Tax Excise Duties Corporate Income Tax Customs Duties VAT

Above: Tax revenue Defence R44.6 BN

Other R176,8 BN

Public order and safty R108.9 BN

Employment and social security R49.2 BN

Economic affairs R132.1 BN

How will the money be spent?

Social protection R134.9 BN

Housing and community R132.1 BN

Education R232.5 BN

Above: The National Budget. www.reimag.co.za

Health R133.6 BN

never materialised. Instead, the question of how to fund the NHI has caused a postponement for several years for further consultation, given the current economic climate. After some public consultation in 2012 Trea su r y intends to proceed w it h t he implementation of a tax-preferred savings and investment fund in order to encourage household savings. Any returns received on invested funds as well as any withdrawals from the fund would be exempt from tax. The account would have an initial annual contribution limit of R30 000 and a lifetime limit of R500 000 increased regularly for inflation. This regime will compete with the banks for investment funds, which should make for interesting movement in this area. There were two announcements relating to mining. The first was a recognition that the current mining royalty regime has broadened the South African tax base while at the same time providing relief for marginal mines. A review of the mining tax regime will be undertaken, both in order to consider whether the current approach to royalty taxation is robust and also in order to assess what the most appropriate mining tax regime is in order to ensure that South Africa remains a competitive investment destination. The second announcement acknowledges the urgent need to address dewatering mines. Mining rehabilitation entities have long enjoyed tax exempt status, and the extension of this status to mining dewatering associations is under consideration. On the construction front, incentives for constructing low cost housing for sale below R300 000 per unit are in the offing. There will be an exclusion of R60 000 per unit. Lessees who construct buildings or improvements on leased premises will have access to building investment allowances. At present, a lessee may deduct the cost of buildings or improvements over the lease term only if the expenditure was incurred under an obligation included in the lease. A lessee who erects or improves buildings other than under an obligation under the lease is precluded from writing off the cost because the allowances only apply to the owner of the property. This will change so that the allowance will be available to the person who has “possession and use”.

April 2013 SA Real Estate Investor

BUDGET 2013 The trading stock provisions are set for two amendments. Mark-to-market rules for banks and brokers, announced in 2012 for introduction in 2014, have been postponed for further refinement. In addition, the cost price of trading stock will be in terms of IFRS and not based on generally accepted accounting practices approved by SARS. This will reduce the need for SARS to make judgment-based decisions as to the value of trading stock, as the value will be determined by an outside measure. It was proposed that government will once again focus attention on restricting interest deductions on certain debt instruments. More particularly some of the announcements include a proposal to re-characterise certain debt instruments, which will not realistically be repaid within 30 years, such as equity instruments. In these circumstances, the

interest incurred on these instruments will not be allowed as a deduction for tax purposes. In addition, a deduction for interest which is considered to be excessive in the context of debt used to fund a business acquisition will be limited in certain circumstances. The simplif ication of ta x treatment of retirement funds is set to come into operation from 2014, where the treatment of contributions to pension, provident and retirement annuity funds will be unified. Employer contributions to funds will be treated as fringe benefits and a maximum of 27.5% of the higher of taxable income or employment income will be allowed for contributions, capped at R350 000. There will not be a carbon tax this year, but a discussion paper will be published to initiate consideration of this issue.

On the international front, four proposals are under consideration. Steps will be taken to terminate practices where expenditure is incurred but not yet paid in respect of services received from non-resident connected persons. In these circumstances expenditure will be deductible only when it is actually paid. Listed South African multinationals will each be able to treat one local subsidiary as a non-resident for Reserve Bank purposes, so that treasury operations can remain in South Africa rather than these functions being located offshore. Certain anomalies in the controlled foreign company regime, notably relating to research and development, will be removed. F i na l ly, t he c u mb er some met ho d of calculating the taxation of currency gains and losses will be simplified and will be driven by IFRS principles.

RESOURCES Norton Rose

Personal income tax rate and bracket adjustments, 2012/13 - 2013/14 Taxable income (R)

Rates of tax

Taxable income (R)

Rates of tax

R0 - R160 000

18% of each R1

R0 - R165 600

18% of each R1

R160 001 - R250 000

R28 800 + 25% of the

R165 601 - R258 750

R29 808 + 25% of the

amount above R160 000 R250 001 - R346 000

R51 300 + 30% of the

amount above R165 600 R258 751 - R358 110

amount above R250 000 R346 001 - R484 000

R80 100 + 35% of the

amount above R258 750 R358 111 - R500 940

amount above R346 000 R484 001 - R617 000

R128 400 + 38% of the

R178 940 + 40% of the

R500 941 - R638 600

R132 894 + 38% of the amount above R500 940

R638 601

amount above R617 000

Rebates

R82 904 + 35% of the amount above R358 110

amount above R484 000 R617 001

R53 096 + 30% of the

R185 205 + 40% of the amount above R638 600

Rebates

Primary

R11440

Primary

R12 080

Secondary

R6 390

Secondary

R6 750

Tertiary

R2 130

Tertiary

R2 250

Tax threshold

Below age 65

R63 556

Below age 65

R67 111

Age 65 and over

R99 056

Age 65 and over

R104 611

Age 75 and over

R110 889

Age 75 and over

R117 111

Above: Personal income tax rate adjustments 66

April 2013 SA Real Estate INVESTOR

www.reimag.co.za

INNOVATIONS

BY ANGIE REDMOND

Work, Home & On The Go Get digitally integrated with the ROS

hat if you could integrate all your digital needs into one small black box? You are lying on the couch and can’t remember the name of the movie you have been dying to see, do you get up and walk to your computer to Google it? No, you simply use your TV.

You might be thinking, how is that possible, well quite simply it’s the new step in the evolution chain of complete home and digital integration. As technolog y evolves, our lifestyles are constantly evolving and moving towards a complete integration of work, home and play through technology. The Residential Operating System or ROS for short, is a new digital device which enables home owners to converge their digital world by accessing a range of services including broadband, telephony,

April 2013 SA Real Estate INVESTOR

DStv On-Demand, multimedia content, online radio, social media and home security from the comfort of their television screens. Smart Village MD Chris van der Walt explains, “Home owners are increasingly investing in technology that will allow them to enhance the quality of the time they spend there”, Van der Walt says. “In line with Faith Popcorn’s predictions made a few years ago, we are seeing a growing tendency to cocoon our lifestyles. The home has become the epicentre from where we prefer to work, study and socialize.” And this need for technology, which will enhance the quality of your time at both work and home, is set to continue and grow. Whether you work from home, home school your children or return to your safe haven at the end of a stressful day at work, technology

in our homes has to keep up with the demands for a fast, seamless and reliable integration. “We believe ROS is an innovative and exciting new system that we will change our digital life forever”, says Chris. For the first time ever, you now have remote access to all your media at your home, no matter where you are. The ROS allows you to access your media library or live streaming through your smart phone or Pc when you are one the move. Another feature, which is essential today, is security, crime in South Africa is a major reality and one that every household faces, with the ROS you can remotely monitor and control your home, whether you are at work on travelling. And with instant alert notifications, you can rest assured your home is in good hands.

www.reimag.co.za

LIFESTYLE Highlights of the ROS features include: Communication: A ROS enabled home phone with VOIP (Voice over Internet Protocol) gives users a complete voice offering at very competitive rates with local, long-distance and international calling. Other features such as call forwarding, call waiting, voice mail and caller ID are included. Internet & Applications: ROS a l low s users to enjoy the best of the web and smart phone applications from the comfort of their television. Whether watching YouTube videos, following friends on Twitter of tagging friends and family on Facebook, ROS even allows users to listen to 40,000 multiple-genre radio stations from around the world.

users to view their favourite photos and videos as well as listen to their favourite music on from their television sets.

home phone from any PC, tablet or a smart phone connected to the Internet.

Home Monitoring: ROS a l lows you to add up to 6 wireless cameras to your home network, which you can control, and watch remotely from your Smartphone or laptop. Enjoy enhanced security features such as motion Detection Alerts and instant alert notif ications so you always know what is happening at your home.

The ROS multimedia centre sports a 320GB hard drive, and supports 2.4GHz and 5.8GHz WiFi access. It also has HDMI, eSATA, Ethernet and USB ports to easily connect devices to the ROS box. It can be connected to any broadband connection for Internet and VoIP telephony services. Its built-in virtual PBX supports multiple lines and up to 8 simultaneous voice calls.

Networking: ROS simplifies connectivity at home, as ROS is the only wireless router that users will need to access the Internet.

Video on Demand: ROS users can rent videos from DSTV on Demandâ&#x20AC;&#x2122;s premium entertainment library featuring the latest movie releases, shows and series with just a click of a button.

Storage & Sharing: ROS has a 320 GB Hard Drive* which allows you to store your music, videos, and photos. Easily share your personal media with friends and family that are also connected to ROS.

Multimedia Player: Users can store all their multimedia on one central device. ROS allow

Mobility: ROS gives you easy access to all of your digital media, wireless cameras and your

Technical details

So where can you get a hold of one of these? The ROS device, with a TV extender, is available for all users living in residential estates or working from corporate office parks that make use of the Smart Village solution. And if you donâ&#x20AC;&#x2122;t have the Smart Village solution, a smaller version of the ROS is set to be launched later this year, with 16GB of internal storage for users with their own storage system, (NAS) which can then be plugged into the device.

RESOURCES Smart Village

www.reimag.co.za

April 2013 SA Real Estate Investor

WEALTH MONITOR

BY ANGIE REDMOND

Dreaming Of Island Life? Buy your own

he process of buying a private island is similar to the action of buying a house in multiple ways, only the cost is much greater. When considering a house, you check for the general condition, the foundations, if it has rising dampness, and if there are termites present. Buying an island is similar, but there are far more things to consider, and in most cases, the buyer of an island has no experience on which to base his or her judgment apart from an emotional attachment. Considering the amount of money that you have to spend to buy a private island, it’s critical that you are aware of the following issues.

Set your price. It’s stating the obvious to say that the bigger your budget, the better an island you can afford, but some people have very unrealistic expectations of what they can afford. It’s better to spend as much as possible to buy the island, even to the extent of waiting until you have funds for development. Saving money in the short term will generally get you a poorer quality island and once you have bought the island and developed, there is no changing your mind. It’s better to have a more attractive island than purchasing a poorer quality island just to save money.

Location, location, location Choose your location. The location of an island is one of the most crucial factors in most people’s decision to purchase. It’s very important that you strongly consider this when purchasing. You’re not just buying an island, you’re buying its surroundings. There should be a village nearby where one can get supplies and an airport close at hand, for instance. In other words, what makes an island feasible is the infrastructure that is available to it. Some islands are close to villages which is good because you can obtain staff and supplies, but on the other hand, it then lacks privacy.

Water water everywhere and not a drop to spare Make sure there’s a reliable water supply. You’ll 70

April 2013 SA Real Estate INVESTOR

find water is the most important element of living on an island, and the second largest factor affecting the choice of an island. In general, the smaller the island, the less water. This applies in reverse, except if the island is rocky (even large rocky islands have problems producing water). Every island has some variety of options to obtaining fresh water. Look for a ground water table high enough to dig a well. If a well already exists, have it inspected to ensure it’s dependable. This can be done by pumping the well dry and seeing how many minutes it takes to fill again. The amount of water that you’ll be able to get from a well determined by using this method will give you a figure called cubic meters or cubic feet of water. However, poor water supply isn’t as big a factor in the tropics, because a good rain water cistern can supply enough water over the dry season saved up from the monsoon season and the occasional shower.

and lowest recorded levels for the river. Good anecdotal evidence can be gathered by talking to local people as well. Islands are located in bays and estuaries with shallow bottoms are prone to tidal variations, and access to these islands may be very difficult at low tide. Offshore islands also experience the usual tidal patterns, and are the most prone to dangerous weather.

Climate

Note its anchorage

Choose one with a desirable climate. Islands can be divided into three climactic types: Temperate, Mediterranean and Tropical. In general, tropical islands are located between the tropics of Capricorn and Cancer - this encompasses what is termed the tropics. Mediterranean islands can be deemed to be those that may fall in areas where there are high temperatures but low rainfall, this is typified by islands in the Mediterranean, the Canary islands, Bermuda, Bahamas etc. Temperate islands are basically those that are in an area where it is generally cold such as northern Europe, Canada and northern USA. You should consider carefully what type of climate you prefer. Each has its pros and cons and while many people love the tropics, some find the heat and humidity oppressive. Mediterranean climate produces the best balance of heat without the high rainfall and humidity of the tropics. Always be aware that the first day you visit an island may not be the typical weather that the island experiences on a day-to-day basis. Islands that are located in rivers are obviously prone to f looding and droughts. Talk to the local authorities and ask them for the highest

Anchorage is the island’s firmness and stability to the ground. Select an island with good anchorage, because without this, it may be almost impossible to land on the island. Or, even worse, you may be stuck on the island and not be able to get off. A good anchorage should be sheltered from the prevailing winds, have a sandy bottom for good holding, and have a deep water access to the beach, without rocks or coral.

Check its accessibility Accessibility is a prime factor in your choice of an island and directly depends on how much discomfort and traveling time you are willing to put up with. It also depends on how much experience you have with boats, and how comfortable you are with the ocean because the only way to get to an island is by boat. Travel time by boat is also affected by many factors such as what type of boat, its engine, and of course the seasonal weather conditions.

Note its topography Islands vary from the perfectly flat Caribbean style island to the rocky cliffs and mountainous types. If you have a preference, it’s important that you tell brokers you contact of the type of island you want. Most islands aren’t flat, and on what are called continental islands (the drowned tops of hills) there is only a small area of flat land. In general, the area of flat land on a continental island is approximately 10-12% of the island and this must be taken into consideration when planning your development.

RESOURCES Private Islands www.reimag.co.za

ARCHITECTURE

BY ANGIE REDMOND

Future Forward Architecture The buildings of tomorrow

he future of architecture seems to have two main prongs: sustainable design and the sleek, high-tech look. At first glance, these two directions may seem to be mutually exclusive. For some people, green living conjures up visions of existing close to the Earth -- houses built out of straw by their owners, with rain barrels to water organic gardens and turbines to harness wind power. Crunchy, hippie, granolaeating stuff, and very low-tech. On the other hand, a high-tech home brings to mind geeks who are big into electronics -- more like “The Jetsons” in a lot of ways. The truth is that the future of architecture incorporates both types of elements -- the minimalist, modern, sleek aesthetic and the environmentally friendly, money-saving practicality. And while homes will probably always have the same basic features (a roof, windows, a kitchen, a bathroom, a room with a sofa and TV in it), the future of architecture has the power to change the way that we live -for the better. According to Denis Hayes, one of the founders of Earth Day, a whopping 82 percent of Americans, and over half of all human beings on the planet, dwell in cities, which weren’t designed with sustainability in mind. In reality, the Earth is running out of resources and room. At least in the places where many of us want to live, meaning the cities. In large cities, this means that people who can afford it often pay big bucks for small spaces, while people who live in

April 2013 SA Real Estate INVESTOR

the suburbs and work in the cities spend time, money and gasoline commuting to their jobs. While there are lots of potential solutions to these problems, types of architecture can make a big difference. One way is the super-tall building -- not just a skyscraper, or high-rise as we think of them, but 30 stories high or even more. It’s truly vertical living. We’ve already seen a trend toward more mixeduse communities, meaning living, playing, shopping and working all in one area, with promising results. The super-tall building trend takes this to the next level, since the sky is literally the limit. Imagine how living in a building like this could change your life. Your co-workers could be your neighbours (hopefully you like them in both settings). You’d feel more invested in your environment since it’s all contained in one place. The idea is to not only have a smaller physical footprint on the Earth but to also build a lively, dynamic community of people. No more urban sprawl. There are even ways to lessen these ubertall buildings’ impact on the environment, such as using electronic glass panels that darken when exposed to higher temperatures to help cool the building and absorb sunlight to generate energy. Buildings are already being designed with this ideal in mind. The iceberg-shaped London edifice known as The Shard has 72 floors that include office space, residences, shopping and

more. Its builders also boast that it will be more energy-efficient and have indoor gardens. Don’t want to live in a big, shiny tower? Going more compact is also the way of the future for single-family homes, for both economic and environmental reasons. There’s no one set “architecture of the future.” For example, a company called Alchemy Architects is already selling prefabricated homes called weeHouses. They comprise modules that look like shipping containers, and the houses can be as small as one container (435 square feet or 40 square meters) or as large as four (1,765 square feet or 164 square meters). You work with the company to design the right one for you, buy your home site and get it ready with a foundation and utilities, and Alchemy ships out your house. Appliances and green features like bamboo flooring and alternative energy sources are all available, and the company claims that because it’s prefab, its houses are less expensive than conventional homes. W hile those highly creative, futuristic architectural designs are fun to check out, the real future of architecture -- especially for us nonmillionaires -- will probably be more subtle and practical. Smaller, more affordable, greener, and yes, with even more advances in technology.

RESOURCES How Stuff Works www.reimag.co.za

MOTOR TALK

BY RUSSELL BENNETT

VW Golf vs Porsche Boxster Who gets the title?

arch is not only the month of the Geneva International Motor Show in the automotive world, it’s also Car Of The Year month, all in caps so that you can just coin it Coty, being grandly revealed, lauded, and speculated over by a great gaggle of commentators.

Of course, under those quite limiting criteria, the winner here should probably also have been the new Golf. But it wasn’t yet released when our teams and committees were adjudicating, so fair enough. It’ll be eligible for the next one of these galas, and will still have a really good chance of winning it then. So the Boxster it is.

On the same days in which Ferrari was at last unveiling its latest masterpiece - the laughably named LaFerrari. Yes it is. Really. Both the Geneva show itself and our local SAGMJ announced their very own Coty verdicts. And even more strangely, although the two esteemed bodies have chosen very, very different cars, they’ve both actually been pretty sharp.

While, technically, I’m sure the Boxster is really that good, the very nature of these Coty awards has to be questioned. I’m a massive performance enthusiast, as are most of the judges, and of course to us the Boxster is undoubtedly a leading light. But it does represent a huge disconnect from the market realities of today. It’s quite the spiky line to tread.

The winners? Geneva went the most predictable way of all, and chose the new VW Golf. Which I’ve been driving around in for a week, and it really is a very good car. In fact, if what you want is the most middle-of-the-road, rounded, possibly bland but absolutely best every day all-purpose competitively-priced car on the market today, the Golf 7 will exceed expectations. By miles.

Then, any form of generalised Coty is just always going to be a trace ridiculous isn’t it? I mean, for me, I might happen to think that the BMW M5 would actually be the perfect choice, but for anyone living in a crowded deadlocked city, or out on a farm even, or somewhere without many roads at all, it’s not exactly sensible. Parameters have to be defined to a certain extent. Even though the title of the award itself suggests that this should be the one, the best one, of all, parameters notwithstanding. When it can’t be.

Our local collective of editors and media commentators have, for the first time in many years, abandoned the “ best all-round car” approach in favour of the “most improved model” formula. Which is a bit odd, because it sort of leaves cars like the mercurial Toyota 86 without much chance of winning. Anyway, another German, in fact a car from essentially the same stable, the new Porsche Boxster, has run off with our silverware. 74

April 2013 SA Real Estate INVESTOR

Nevertheless, this year, both choices are technically very good. The Geneva decision will please the masses of transport purchasers, the local choice will tickle the fancy of the few who can afford sports cars pink. The new Golf is extremely clever, while managing to

maintain a strong sense of continuity for the legendary model name. The new Boxster, on the other hand, simple raises the compact sportster bar, again without being overly dramatic in its list of changes. The Boxster has always been among the top echelon of this class, the new one simply stamps Porsche’s authority on the niche more firmly than ever. What really did surprise me however, and the signs were at Geneva as well the most important international motor show of the year - there were no prizes for the very politically correct Electric Vehicle (EV) or even hybrids. It has now become clear, that despite some powerful marketing efforts from some of the world’s largest manufacturers, that the EV is going nowhere fast. And not just because it’s run out of battery again. A ma z i ngly, it seems t he ma rk et ha s responded based on its own findings, and not those of the hype machines, and voted with its feet by not migrating en masse to electric power. That is something to be thankful of - it never was the silver bullet to our climate problems and at least now some of the ample amounts of R&D being flushed down the EV drain can be redirected to future propulsion technologies which are viable.

RESOURCES Volkswagen Porsche

www.reimag.co.za

TECH TALK

BY RUSSELL BENNETT

The Beauty of Glass It’s in the eye of the beholder

ometimes, technology moves so quickly, that even technology people like me feel we’ve been left a few steps behind. With the recent beta-testing release of Google’s latest possible flagship product, Google Glass, that’s exactly how this innovative company wanted it to be. The market, still coming to grips with the fabulous computing power modern smartphones and tablets have placed at our fingertips, isn’t ready for Glass as yet. And Google knows it. Wearable computing concepts were still largely based on some sort of call for interaction - a choice by the user whether to respond or not. Like a cellphone embedded into a shirt-sleeve, for instance. It’s pervasive because it’s always there, but it isn’t always directly in your line of sight. Unlike Google Glass, which is. Well, at least a clock and “OK Glass” prompt always are, up in your peripheral vision. And similarly, the capabilities of this remarkable new tech are always no more than a voice prompt or hand gesture away. Now that’s pervasive. In fact, misgivings about our own readiness for the product aside, Glass cannot fail to ignite our most fevered tech-f uel led imaginations. It is, in short, a killer product, and one which now that it’s been seen will certainly change once again the way we use and interact with every day technology, even adjusting the depth of applicability of this technology to new levels of human-machine integration. Yes, it really is that monumental. That’s quite a claim to fame, for a pair of geeky wet-dream sunglasses. April 2013 SA Real Estate INVESTOR

If you haven’t seen Glass in action as yet, I’d really recommend you search YouTube for some demos of it working. And while you’re watching it, try to remember that this isn’t a future vision you’re being punted - there are actually early adopters walking around the US right now with these units on their faces, getting to grips with this all new paradigm. It just seems too far-fetched to be true, but it is. It isn’t often that a new development hits with such powerful, ripple-generating force. But that’s because this isn’t some new development

“The hyper-connected nature of Glass reverberates with the strong existing trend of complete computing mobility, but takes it to the next natural level” which may or may not change the way tomorrow works. It’s the kind of solution that just about everyone will look at, and instantly see ways in which this technology will be helpful in their own lives, useful in their everyday activities whatever they may be. There are several key ingredients here. It’s more than simply having a screen embedded into a pair of shades. The hybrid voice-gesture interface is a natural way of bringing these two disparate technologies together in the field. The hyper-connected nature of Glass

reverberates with the strong existing trend of complete computing mobility, but takes it to the next natural level. And finally the first-person viewpoint of the integrated camera coupled with the ease of use of simply issuing a single voice command to start shooting, will completely change the way we see video and stills capturing infiltrating our lives of tomorrow. Bringing all of these technologies together into a working prototype is one thing however, but Google has even forged ahead with the second phase and signed up an unspecified number of fortunate US souls to receive these things, today. Google will use the data gathered during this Explorer phase of the Glass project to further refine and tweak the product, with an eye on putting them into retail stores by the end of 2013. That’s amazing developmental pace. They’re even already speaking to major sunglass manufacturers to add some more design spice into the mix. Apple and Microsoft ought to take note. This is innovation. This is why technology companies exist, it is the heart, soul, and pumping blood of the technology industry. This is a home run with all the bases loaded. And I can guarantee you, it will be the future and spawn a myriad copy-cat offerings. By the end of this year, we’ll be well on our path to computing which is no less obtrusive, and no more challenging to interact with, than saying “Good morning” to a colleague.

RESOURCES Google

www.reimag.co.za April 2013 SA Real Estate Investor 75

LESSONS

BY RICHARD BRANSON

Creative Thinking Get out of your comfort zone

suitable and sustainable location to position our new factory? What impact will our new offices have on the surrounding ecosystem? Everyone was energized by this challenge of envisioning and creating a sustainable future -- after all, who doesn’t have a vested interest in finding a solution? This is an area we are going to continue to explore, tackling the problems together. And as I was listening to the researchers and my team, I was reminded that learning is not just a luxury, but integral to the growth of our group and the health of our company.

very successful entrepreneur’s story is different, because when you build a company from the ground up, its culture and purpose usually reflects your personality and principles. That may be why the Virgin Group is so diverse, with so many businesses in so many different industries: I’ve always been a lifelong learner, interested in discovering how things work, and the people I work with tend to be similar. I’m extremely fortunate in that I am able to occasionally host gatherings on Necker Island, bringing in innovative thinkers to help us expand our horizons. The discussions are wide-ranging, covering a variety of topics -- most people would be surprised at just how broad the parameters are. Just recently, with our not-for-profit foundation, Virgin Unite, we hosted a group of scientists from the University of Oxford. Led by Ian Goldin, who heads the Oxford MartinSchool, the researchers shared their thoughts on ways to manage the increasing human population and the resulting impact on the planet’s resources, despite the current lack of political leadership on both issues.

April 2013 SA Real Estate INVESTOR

The importance of biodiversity isn’t a topic that would appear to have immediate applicability in the business world, but we were all fascinated. The researchers’ work focuses on mapping biodiversity and ecosystem services, from entire landscapes down to individual species. Their goal is to create effective technological tools to identify species and evaluate conservation locations. Kathy Willis, who is director of the Biodiversity Institute at Oxford, told us about their remarkable land mapping project, which will help businesses and other organizations to make more informed decisions about land use. These may seem like lofty concepts, but this discussion got us thinking about how companies will need to adopt practices like land mapping if they are going to thrive in the coming years. Consumers are becoming increasingly frustrated with corporations that are only out for themselves, rather than helping their communities and the planet. Our group and other companies are going to need to know the answers to such questions as: Where is the most

If you are trying to grow a diverse, creative team, you don’t need to bring your employees to the Caribbean to keep them learning. Invite guest speakers to your office. Go to events focusing on topics that are not strictly related to your industry and bring some of your employees along. Watch a few of the many incredible TED talks online. Remember, one of the best ways to learn is by taking your team members out of their comfort zone and embracing new ideas -- and you’ll see results. Focusing on a topic out of the norm can bring renewed vigor to everyday activities. One of the results of this and other discussions on the topic of sustainability is that we are looking at ways to better account for the impacts our activities are having on the natural resources on which we rely. We’ve decided that we want our company to be around for a long time -- 100, 200, 500 years or more. That will only be possible if we build on the insight that doing good for our environment is good for business. Our approach to growth won’t work for everyone. As I’ve written before, if you want to be an entrepreneur, you should always build on your strengths and pursue ideas that interest you. While my talents and traits are certainly helping me with my work at Virgin, your own talents, goals and aspirations are likely quite different -and will play a key part in your success too.

RESOURCES Entrepreneur

www.reimag.co.za

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