Z
©
Good Debt vs. Bad Debt Free yourself from financial slavery DREAMS DO COME TRUE Just ask investor Musa Hadebe
LISTED PROPERTY
Brace yourself for a bumpy ride
OFFSHORE DIVERSIFICATION Global REITs gives great returns
GREEN YOUR BUSINESS Simple ways to Save
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WINNER
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MASTER INVESTOR SISA NGEBULANA
CONTENTS July 2013 COVER STORIES
8 Master Investor
12 Good Debt vs. Bad Debt
38 Listed Property
56 Offshore Diversification
64 Green Your Business
66 Dreams Do Come True
UPFRONT
RESIDENTIAL
COMMERCIAL
5 Investor Talk
22 You Don’t Need Money
38 Brace Yourself
6 INBOX
24 Investigate Thoroughly
40 Derivatives
26 Wooing The Market
42 Embracing New Trends
Financial unrest
Ask The Property Experts
To make money
Before you buy-to-let
Tax on property
8 Master Investor
With your home
SA’s self made black property billionaire
12 Break The Shackles The Good, Bad & Ugly
The key to reducing interest rate risks
Rural retail on the rise
28 Commissions, Cost & Your Bond
44 Changing The Face of JHB
30 Get Yourself Off The Blacklist
46 Eatern Cape Property Market
32 Bathroom Remodelling
50 Property Talk
What should you expect?
Free yourself from financial slavery
18 News Alerts
The ride might get a little bumpy
Part 2
From bare basics to absolute excess
AFHCO meets the challenge
Rising from the ashes
Ask the professor
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July 2013 SA Real Estate Investor
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THE TEAM
OFFSHORE 54 Help To Buy
London’s new housing scheme
56 Global Diversification
With the international REIT market
60 Turning Your Home Into a holiday home
Neale Petersen Publisher
Angelique Redmond Editor
James Clark Designer
Amy Little Designer
Melissa Petersen Office Assistant
Juanita Heilbron Traffic
Marisa George Financial Manager
Russell Krynauw Sales Director
Roy Lategan Sales Team Leader
Renier Lombard Sales Executive
Alex Masamuna Sales Executive
Russell Bennett Web Administrator
LIFESTYLE 63 Upcoming Event
World Green Building Convention
64 Simple Ways To Save By greening your business
66 Dreams Do Come True Just ask Musa Hadebe
68 5 Star Area
Sea Point ticks all the right boxes
70 Open-Source Is Back For your desktop
CONTRIBUTORS
71 The Future Not the present
72 In Business
It’s all about trust
Printed by
Dr Andrew Golding
Monique Terrazas
Jonathan Smith
Koos du Toit
John Roberts
Scott Picken
Mike Smuts
Mike Watters
Michael Dryden
Ian Anderson
Erwin Rode
Anne Nurock
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Politics, Policy & Property The road to a brighter future
BUYING PROPERTY?
Know the numbers RETIRE IN STYLE
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PROPERTY What to look out for
Heavenly Tenants How to find them
IRELAND & CANADA
Rent killing you!
Overseas investing made simple
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APRIL 2013
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MASTER INVESTOR JANNIE MOUTON
Autumn 2013
LESSONS FROM A BILLIONAIRE INVESTOR
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All rights reserved. No portion of this publication may be reproduced or used in any form without prior written consent and permission from Reale 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 © Reale Media
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INVESTOR TALK
BY ANGELIQUE REDMOND
Financial Unrest The rand is sinking faster than the Titanic on her maiden voyage and this downward spiral has investors heading for the hills. So what will the long-term effects of this economic instability be? With the mining sector unrest and labour disputes leading to investors’ lack of faith in South Africa, the President gave a speech meant to quell fears and the end result was a freefalling rand. The results of his second speech have yet to be seen. President Zuma is quoted as saying: “The Presidency will this year take a hands-on approach, working closely with relevant departments and social partners to boost confidence in the economy. We will do this against the background of achievements on the economic front since 1994, which must be borne in mind especially when we face the current economic turbulence.” With the public crises faced this year, such as the Marikana shooting, Nkandlagate, soldiers dying in Central African Republic and Guptagate, what the country is crying out for is decisive and immediate action. The current rand drops and the possibility of a financial downgrade will affect every single person in South Africa. What South Africa needs is an end, once and for all, to the constant labour disputes which threaten economic security and swift and decisive Presidential action to curtail anymore investors fleeing the ship.
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FOREWORD We can bounce back? It is becoming increasingly difficult to be successful in business and investing today. In South Africa, everyone is eating the middle class, while the wealthy are targeted for selfish civic need and the poor are just getting poorer. The global economy is sluggish at best with Europe still struggling. China and India are leading the growth stakes while the US and Japan are starting to show signs of recovery. The good news is that there is an African sunrise, with 7 of the top 10 fast growth countries on our continent. The bad news is that South Africa is not benefitting like its African counterparts. South Africa’s economy grew by only around 2.5% last year and growth is struggling to reach 2% right now. Enough said! More bad news is that there is no investor confidence in South Africa. The weakening rand, wild cat strikes, high unemployment, and the ineptness of government to deal with labour, crime, violence and corruption is now really starting to take its toll on the economy. A complex web of laws that rules and regulates individuals and small business, the backlog in housing provision and the non-delivery of services all add massive fuel to the fire. Nevertheless, we simply cannot afford to be downhearted. We have to start taking control of our own destinies and prevent governments and other organisations with ulterior motives to determine our financial futures. We have to start taking action, get streetwise financial education, build businesses, invest wisely through informed decision-making and assist other entrepreneurs to become successful. If a new breed of entrepreneurs begin to prosper, so will our economy. Make it your purpose to make a difference in the world. Neale Petersen PUBLISHER
“The stability of global financial markets is a public good. If governments fail to protect this public good, then those who suffer are the working people of the world whose jobs, whose homes, and whose standard of living depends on it.” Kevin Rudd www.reimag.co.za
July 2013 SA Real Estate Investor
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INBOX Tax On Property
Q
Michael Dryden FinServe Trust Accounting www.finserve-trusts.com
Frank Edwards Asks:
Managing Tenants
Q
Michelle Dickens TPN www.tpn.co.za
Megan Taylor Asks:
Investing In REITs
Q
Estienne de Klerk SA REIT Association www.sareit.com
Zola Mbengu Asks:
When you own more than one property, what will you be taxed and are there rebates if you own more than one? How does tax work when you generate income from more than one property?
I have recently bought a number of f lats in a complex, and I want to rent them out. What should I be wary of when looking for tenants?
I am an investor and would like to invest in REITs, please can you explain the benefits of the new SA REIT structure to me?
A
A
A
Michael Dryden Responds:
Tax will only be relevant where income is generated on a respective property, be it your first, second or third property. Usually the income generated on a property is in the form of a rental, and such rental is subject to income tax. Fortunately, earning rental on a property is treated as a ‘trade’ for tax purposes, and therefore income tax is calculated on the ‘net profit’ of the trade (ie not just the income). In simple terms, income tax is calculated on the net: amount after deducting ‘permissible’ expenditure such as bond interest, levies, repairs and so on related to the property in question. Tax is then paid on the above according to the tax rate of the particular taxpayer (eg individual, company or trust). W here a ta xpayer owns more than one property, the amounts are pooled together to represent the trade as a whole. Therefore a loss on one particular property is automatically setoff against a profit on another; balancing this results in a tax efficient property portfolio. Capital allowances (write-offs) for property is limited, but they do exist.
Michelle Dickens Responds:
From the outset, it’s vital to ensure that the tenant you choose will not default on the rent or electricity, cause damage to the property or result in costly legal fees. A simple credit check through TPN enables landlords to view the credit history of all tenants and co-tenants. While leases can be written or verbal, a written lease provides the best protection. It is unwise to take the property off the market until the tenant has signed the lease agreement and paid the deposit. The same applies for handing over the keys of the property, which should only be done once the agreement is signed and the first month’s rent has been paid in full and cleared. If you want to attract the right type of tenant, make sure that the property is maintained to its full advantage. In this way, you’re also able to avoid the risk of the tenant withholding rent for maintenance. A well-maintained property will provide rental income and capital growth – don’t lose value on the property due to non-maintenance.
Estienne de Klerk Responds:
The SA REIT has opened up new potential for the SA listed property sector. The SA REIT gives the listed property sector an internationally-recognised structure, in which good governance and best practice is ingrained, which will allow the sector to grow with tax certainty. It is also flexible enough to adapt to various models while encouraging best-ofbreed practices. This is attracting new listings to the sector, which are set grow its market capitalisation even further. South Africa’s new REIT structure has also put the listed property sector more firmly on the radar of international investors. Benefits of REITs in SA include: • The unique structure of the SA REIT asset class provides two possible ways of beating inflation: capital investment growth and regular income distributions that grow. • SA REITs have equity and bond characteristics. SA REITs offer investors the best of both worlds. A recurring cash distribution yield like a bond as well as growth in income like equity. • Your investment is predominantly underpinned by lease agreements with tenants in property assets.
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 6
July 2013 SA Real Estate Investor
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MASTER INVESTOR
BY NEALE PETERSEN
SA’s Self-Made Black Property Billionaire - No BEE Required Inspired by resourcefulness and curiosity
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July 2013 SA Real Estate Investor
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S
isa Ngebulana is the Founder and Executive Chairman of the Billion Group Limited and the CEO of Rebosis Property Fund. His entrepreneurial approach, resourcefulness and achievements are nothing short of spectacular, given the short time he has had to build a sizeable property empire. Rebosis is one of the fastest growing loan stock companies on the JSE. It has grown its market capitalisation from R2.2 billion since the first listing in May 2011 to the current R6.5 billion. Rebosis is also one of the first black managed property funds to list on the JSE. They have a
UPFRONT captained the Eastern Province rugby team and played for the Springboks in the 1940s. Of course, he was eventually kicked out of the team due to his skin colour at the time Apartheid thrived in 1948. Thereafter he started a soap making business, but was forced to leave the area in 1952. He then bought a smallholding in Mthatha where he started planting vegetables using two donkeys and a sleigh. He soon owned a number of successful family businesses, which included a general dealer, a butchery and a clay brick-making factory along the river. In fact, his grandfather has been such an inspiration to him that Sisa is naming Mtatha Mall after him.
“Corruption will lead to the downfall of our economy and our country transparency in government tender processes is critical” particularly successful development division which they hope to capitalise on. Rebosis owns all its own buildings and Sisa wants to see the market cap at around R10 billion within the next three years. Sisa is a self-made billionaire entrepreneur. He shr ugs off suggestions that he is a “tenderpreneur” using government support to achieve success. Although government is an important client of Billion Group, Sisa believes that corruption will lead to the downfall of our economy and our country and that transparency in government tender processes is critical. Rebosis has an impressive retail property portfolio, which includes the Hemingways regional mall in East London, one of SA’s top 20 malls, as well as Mdantsane Shopping City in East London and Bloed Street Mall in Pretoria. The company recently acquired Sunnypark Shopping Centre in Pretoria. In addition, the company owns a number of government-tenanted commercial office buildings. Sisa has had his fair share of successes and failures in his life, which he considers to be life lessons. He was born and bred in the Eastern Cape town of Mthatha in East London. His grandfather Buchanan Tandi (BT) Ngebulana was a strong leader and very influential in the community. He built most of the local schools, www.reimag.co.za
Sisa had the privilege of helping, learning and working in the shop and at the brickfields in his formative years, during which time his father mentored him in fundamental business skills. He inherited his father’s strong morals and work ethics, which saw his father become a successful 100% self-made entrepreneur, despite being suppressed and alienated by Apartheid blocking out black businessmen in the 60’s and 70’s. The general dealer became the central point of contact between the villagers and family members working in the cities, who would send money to the village to build their families a home. Sisa remembers getting involved in the building of local houses as a 12-year-old child, doing the planning on a piece of paper, then preparing plans and foundations for four bedroom brick houses and rondawels. He did all the costing without calculators and co-ordinated the building himself. He matricu lated at St John’s Col lege in Mthata, and then attended Fort Hare University in Eastern Cape to study law, inf luenced by his grandmother who used to win all the arguments in their home! He then attended the University of Natal (now KZN) and enrolled as an estate agent with Realty Elk to finance his studies and living expenses. Sisa also started speculating with property and flipped properties for cash. He sold about
SISA MICHAEL NGEBULANA Personal Statistics Age: 47 Qualifications/Experience: University of Fort Hare, B Juris; University of Natal (now KZN), LLB; Rand Afrikaans University (now UJ), LLM Masters degree; Cape High Court attorney Achievements: Entrepreneur of the Year 2006; Past President of SA Shopping Council; Member of Clinton Global Initiative. Marital status: Divorced with 2 kids aged 15 and 12 who live with him. His life is focused on his business during the week and his family and kids over the weekends.
Close-up Mentors: Sisa’s grandfather is his biggest inspiration, conscience and mentor. Nelson Mandela is another great inspiration, a man with an ideal he was prepared to die for. Sisa admires great characters and draws inspiration from people such as mining magnate Brian Gilbertson and Mick Davis. Books: He enjoys reading financial reports, novels and biographies, particularly those about Richard Branson, Barack Obama and Warren Buffett, as well as books about the early successful, self-made entrepreneurs such as Richard Maponya and Anton Rupert. The best financial advice Sisa has been given? Sisa learnt his financial fundamentals from his grandfather, who taught him to save, to be curious and resourceful in creating wealth and leaving a legacy, to educate himself about investments and to invest in property and stock markets.
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MASTER INVESTOR 28 homes and became one of the best local agents in Maritzburg. He renovated many of the properties using CorelDraw to prepare colourful plans for refurbishing kitchens and bathrooms, and created fencing which was termed ‘stop nonsense’. This allowed him to pay cash for his first BMW. Sisa then moved to Pinelands, Cape Town, where he completed his articles at Jan S de Villiers law firm between 1992 and 1994. To make ends meet, he bought a tow bar and launched a furniture removal business, moving furniture over the weekends in Green Point and Bloubergstrand. Qualified as a commercial lawyer, he moved to Johannesburg and set up a fulltime transport business, Blue Truck Rentals. But the stressful pace of the business took a toll on his health and he decided to accept a position as a legal advisor, specialising in finance and treasury derivatives and transactions, at Eskom. During his fiveyear stint at Eskom, Sisa was part of the first finance team enabling the Euro Rand bond issue, which they launched single-handedly. He spent 18 months in structured finance and learnt the tricks of the trade. In 1999, Sisa returned to the property game, speculating with houses and land. He started developing in Kyalami Estate and Dainfern. This was followed by other developments including a cluster development with 20 units in Bryanston and a cluster in Hyde Park in 2000.
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Sisa then decided to invest the profits from the Hyde Park development in a mining company ca l led Cent ur y Capita l. He recognised the opportunity to delist the capital and recapitalise, with Nedbank and IDC among the funders. Unfortunately, the company met with one mining disaster after the other and after having lost his entire investment, Sisa decided that real estate was the only sure investment.
The start of Billion Investments Sisa then subdivided a big parcel of land he owned in Dainfern and took an option on land in a cluster housing development in Hyde Park. Under the name Billion Investments trading as Billion Afcon, he invested in artist’s impressions, building plans and sales material and pre-sold all the homes in the development. Sisa’s next move was into the commercial property market. At a time when most big companies were moving out of the CBD, he recognised the opportunity and started to convert derelict buildings in downtown Johannesburg into A-grade off ices. The company’s next investment was Mdantsane Mall in East London. Sisa hit the headlines when he beat SA’s biggest investment and development guns - Atterbury, ZenProp and Investec Property - to build Hemingway’s Mall. Sisa formed Rebosis in 2011 and listed the company on the JSE - one of the largest new listings in the real estate sector. Billion now remains focused as a developer with total
developments of around R35 billion under construction for next 10 years. Billion also has a rapidly growing African strategy, and are developing regional shopping centres in Ghana, Nigeria and Angola. Already, 15 dedicated senior staff members are based in various African countries to grow their presence in those markets.
SISA’S ADVICE FOR PROPERTY INVESTORS
1 2
Build your wealth brick by brick
3 4
Focus on one area of investment
5
Educate yourself about property and business
6
Learn about the JSE and listed property funds
7
Investigate stock available in the listed property sector
8
Buy into a residential or listed pool fund to avoid risk
9
Acquire a savings culture - invest rather than spend
Start small and something much bigger will happen Invest in appreciating assets such as real estate
RESOURCES Billion Group
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COVER STORY
BY MONIQUE TERRAZAS
Break The Shackles Free yourself from financial slavery
How does it feel when you go to work every day, but at the end of the month you have nothing to show for it? How does it feel when you can barely afford enough food, much less pay for necessities like transport or water and electricity? How does it feel when there is no end in sight and no hope for the future? It feels like slavery... 12
July 2013 SA Real Estate Investor
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UPFRONT Many of us believe that slavery has been eradicated hundreds of years ago, but the truth is quite startling. An estimated 27 million people today are enslaved and the majority are “bonded labourers” in South Asia, whose labour – and that of their children and grandchildren - is “owned” as collateral for debts, which they will never be able to pay off. There are no “ bonded labourers” as such in South Africa, but there is no doubt that millions of South Africans are completely enslaved by debt. Just ask those who have ga rnishee orders aga inst their sa la ries, forcing their employers to pay their creditors f irst and directly, before they receive their salaries, often leaving them little to survive the rest of the month. Just ask the average South African whose debt-to-income ratio stands at 75.8% - leaving just R24 out of each R100 they earn to live on. Just ask those who have effectively become “bonded labourers”, working only to pay off their debt, and forced to make ever-more debt just to survive month to month. But how do people become so enslaved to debt? And what can we do about it?
The path to slavery... It isn’t debt as such that enslaves people. In the current global financial system, it is difficult to get ahead without access to debt financing: most people will not be able to buy a car or fund university studies, much less acquire a property, without debt. Low-interest, longer-term debt that allows you to acquire assets, such as property or qualifications, which will grow in value over time or increase your earning capacity (such as a home loan or a student loan) can help you achieve financial freedom, if it is used intelligently and responsibly. So what enslaves people is not debt as such. Rather, it is the high compounding interest payable on particularly short-term debt; the reckless and irresponsible lending practices of credit providers; and the unethical and immoral debt collection processes that turn honest, hard-working people into “bonded” labourers.
The shackles of compounding interest The interest charged on debt is a good indication of how short a path it is to financial slavery. www.reimag.co.za
“Bad” debt - which includes, for example, clothing or furniture store accounts, credit cards and personal loans – traps people into a debt spiral from which it seems impossible to escape, because of the high interest rates charged –up to 25% per annum on credit cards. It also includes the high interest rate unsecured loans, particularly those offered by the microlending industry at exorbitant interest rates of around 30% over a period of six months. In addition, this kind of “bad” debt is mostly used for expendable items that are consumed instantly or quickly and do not grow in value, such as meals and entertainment, cars, clothing, jewellery and gadgets. But even lower interest debt can shackle people to seemingly never-ending interest payments. For example, on a R1 million bond paid over 20 years at 8.5% interest, you will pay R1 082 775 in interest. In effect, that means that a R1 million property will cost you double - R2 082 775 - by the end of the 20-year term. And that is at a historically low 8.5% interest rate. Just imagine how fast a 25% interest rate can hurtle you towards financial slavery. There are legal and moral issues that must be considered in respect of the interest payable on loans created through the fractional reserve system, which allows financial institutions to “create” the money loaned through electronic bookkeeping entries. Because the banks do not “lend” something they had prior title, ownership and rights to, it is questionable whether a “loan” agreement legally exists. And this raises a moral and legal issue around the charging of interest. Why is interest charged when the bank does not loan its own money to the borrower? How can the bank charge interest on a “loan” that is not legally valid?
Unethical lending practices Given the incredible power of compounding interest to enslave people f inancially, it is no surprise that the Libor scandal caused such an outcry. The banks were exposed for manipulating the Libor and Euribor interbank interest rates - providing false figures on key interest rates upon which mortgages and loans are provided - affecting millions of people and companies across the globe. But don’t believe for a moment that the Libor scandal was just a global financial conspiracy. In 20 09, Trevor Manual, then Finance
Minister, commissioned an investigation into the considerable gap between the repo rate as determined by the Reserve Bank and the prime lending rate which local banks charge consumers. Of course, nothing came of it, but that does not mean the issue is not a matter of national importance, given the country’s massive consumer debt. And the banks certainly did not moderate their behaviour subsequently. Late last year, estate agents criticised banks for providing home loans at prime plus 6% on homes priced between R400 000 and R750 000. At a Western Cape Franchisees Conference, Rawson Property Group chairman, Bill Rawson and Mike van Alphen (a former Absa regional manager), used such phrases as ‘totally unjustifiable’ and ‘out of all proportion’ to describe the situation. “Never before in the history of South Africa have banks worked on such flagrantly exaggerated mark-ups. A 6% over prime interest rate equates to a 70% mark-up,” noted Rawson. But this is just one example of the reckless lending practices that abound. Even debt at lower interest rates provided recklessly will - just like “bad” debt – create a shortcut to financial hardship. This became patently clear during the property boom years, just before the National Credit Act (NCA) came into effect, when the banks were freely handing out 118% home loans. And when property prices stopped growing rapidly and interest rates soared, thousands of people found themselves in severe financial trouble. The implementation of the NCA brought hope that credit consumers in South Africa would receive some protection from such unscrupulous lending practices. But the financial institutions merely responded by taking their reckless lending to even greater heights. This is clearly evident in the alarming growth in unsecured lending. Unsecured lending refers to loans that are not secured by collateral, allowing the banks to charge high interest rates, which traps people into a spiral of debt. “The National Credit Regulator (NCR), realising that the easy access to unsecured lending was getting out of control, issued a Code of Conduct on 1 May 2013, requesting its members to improve their affordability analysis when considering a loan application,” July 2013 SA Real Estate Investor
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COVER STORY comments Meyer de Waal of My Budget Fitness. “This shows a realisation of the actual debt time bomb that exists. In the second quarter of 2012, a staggering R9 billion in unsecured loans were granted to borrowers who earn less than R15 000 per month, compared to only R1.5 billion in home loans for borrowers in the same income category.” Although the Reserve Bank says that the level of unsecured lending “doesn’t pose a risk to the banking system as a whole”, distressed borrowing and defaulting on loans is rife. According to the NCR, at the end of 2012, a quarter of unsecured loans in value terms were 30 days or more in arrears, and 15.7% of unsecured loans were 121 days or more in arrears. South Africa’s biggest lender, African Bank, wrote off R445 million of bad loans and reported a 26% drop in first-half profit in April, resulting in a sharp decline in its share price. This could have a ripple effect on other unsecured lenders. Many experts have expressed deep concerns about the level of debt defaults that could occur if interest rates begin to rise, given that more than 50% of South Africa’s 19.6-million credit consumers already have impaired credit records, being three or more months in arrears with debt
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repayments. And it is a situation that is rapidly deteriorating as the cost of living rises steadily and the prospect of interest rate hikes looms.
Bad business practice Unsecured lending, even when considered purely from a common sense perspective, is bad business practice. Lending money to people who cannot repay the debts, let alone the hefty interest charged on these loans, is a shortcut to disaster. Unsecured lending is uncannily similar in concept to the NINJA (No Income, No Job or Assets) loans that brought about the subprime crisis in the US and set in motion a global financial crisis the world is still trying to recover from. And as we discovered in the June 2013 edition of REI Mag, bad business practice among the country’s banks is not a government problem. Ultimately – as the Cypriots recently discovered – the buck stops the people: we will pay for the banks’ bad business practice.
Unethical and immoral debt collection Millions of South Africans have already paid a high price for the banks’ reckless lending, thanks to unethical and immoral debt collection practices.
Just ask those South Africans who have lost everything they own to unscrupulous debt collection practices. Just ask those who cannot get a job because they have been blacklisted and these adverse listings remain on their credit profiles for years, even after the debts have been settled. Just ask those whose homes have been repossessed only to be sold in execution on auctions for up to 40-50% less than market value. And that’s not the end of it: in addition to losing the property, which the banks valued and accepted as sufficient security for the loan, they then face massive shortfalls between the outstanding bond amount and the price achieved on auction. They are forced to sign an acknowledgement of debt to pay back this shortfall, leaving them with no property, huge debt and, thanks to a blacklisted credit record, limited opportunities to rent a home or get a job. Just ask those whose loans have been securitised, and yet the banks illegally repossessed their homes and personal property. As we discovered in the May 2013 edition of REI Mag, it is illegal for a bank to repossess any property if the debt in question has been securitised, because the bank no longer has any rights to the “loan” which has been
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UPFRONT securitised and now belongs to another entity. Recently, Peter Moyo from SABC3’s Special Assignment exposed the banks’ securitisation practices on national television. Follow the story on NewERA’s website and have a look at some of the responses proposed by the UBUNTU
wait for government to protect or enforce our rights. And the fastest way we, the people, can stop them is to cut off the demand, especially for “bad” debt, and to stop feeding their greed with obscene interest payments that enables them to enslave people en masse and to place the
“While most of the people and the media are blissfully ignorant and unaware of the unlawful and fraudulent activities of the banks, no one is untouched by their criminal activity” Liberation Movement should a debt that has been securitised be handed over by the bank to lawyers to initiate legal action against you.
stability of the entire financial system at risk, with no regard for the consequences that will affect every one of us.
But these practices extend beyond the home loan industry. The Star recently revealed that hundreds of cars are being repossessed by agents employed by banks, who drive around in unmarked cars fitted with number plate recognition cameras. According to the report, the banks and owners of the technology claimed they were acting within the law, but the repossessions are illegal. Only a sheriff of the court can legally hand people court orders and repossess their belongings.
Cut off the demand The fastest way to stop the banks without destroying the entire financial system is to cut off the demand, bluntly and absolutely. We refuse to enslave ourselves to compounding interest of 25% or even 30%. We refuse to accept loans that we cannot repay. We start living within our means.
Furthermore, a Third Degree investigation recently revealed that, of a random sample of 1 450 garnishee orders, only three were legal. The rest were either defective or fraudulent.
Cut up your credit cards and your store account cards. Cut down on lifestyle expenses. Don’t spend what you don’t have. Respect the power of your “promise to pay” by using it only to acquire assets that will build financial independence, only at low interest rates and only when you can indeed keep this all-important “promise to pay”.
Roughshodding over our rights?
Pay off your existing debt
And all this is happening despite our advanced Constitution and laws such as the NCA, because not all credit providers play by the rules. As Michael Tellinger of the UBUNTU Liberation Movement puts it: “While most of the people and the media are blissfully unaware of the unlawful and fraudulent activities of the banks, no one is untouched by their criminal activity. More than 20 million South Africans’ lives have been destroyed by their draconian behaviour. They act with impunity and seem to be above the law. Their actions go unpunished and are so well hidden and protected by a complex legal system that many who have tried to expose them have been silenced in various ways.”
If the financial system – which is based on our “promises to pay” – crumbles, every single one of us will be affected. We must ensure that our “promises to pay” are valid and trustworthy so that the foundation of the system does not collapse. However, we need to settle our “promises to pay” as fast as possible, to free ourselves from the shackles of compounding interest payments.
How to stop the rot The banks’ and other credit providers’ reckless lending practices must be stopped. We cannot www.reimag.co.za
At the very least, pay the minimum repayment amount on time each month to avoid additional interest payments and penalties that increase your debt burden further. But, because the minimum repayments cover mostly interest and very little of the capital amount borrowed, make every effort to pay more than the minimum amount required. This is a
powerful strategy. For example, as BetterBond explains: on an average home of R900 000, acquired with an 18% deposit on a 20-year loan at an interest rate of 8.5%, the average monthly bond repayment is R6 400 a month. If you pay only the minimum amount each month, you will pay some R800 000 in interest over the 20 years of the loan. By contrast, if you pay just 10% more than the minimum each month – or an additional R640 in this example – you will pay off the loan in 16 years instead of 20, and save around R185 000 in interest. “Focus on repaying the debts with the highest interest rates quicker, but without neglecting your promises to pay on other debts,” adds Tanya Gerstner of Gerstner Attorneys Inc. Even if you are not in complete financial dire straits yet, take a good look at your finances and realise that looming interest rate hikes will send many more down the slippery slope of the debt spiral. Knowledge and discipline are vital. “Through tools such as My Budget Fitness, you can be educated, mentored and empowered to manage your finances according to a budget prepared taking into account your actual income and expenses, to track each rand you spend on your mobile phone with the mobile2budget tool, and to maximise savings through debt consolidation to get out of debt as soon as possible,” says Meyer de Waal of My Budget Fitness. Blue Oaks Systems has launched a unique online tool called RESET, designed to assist debtors by analysing their debt. “Consumers are not aware that a monthly savings may exist in their current debt,” explains Theuns Hanekom of Blue Oak Systems. “Given the average savings of R2 300 per month per consumer reviewed, everyone’s debt should be reviewed. Savings such as these will significantly improve personal cash flow, increasing savings or at least reducing the need to borrow more. If you don’t enjoy a monthly cash flow improvement that makes a real difference, sooner or later you’re going to borrow again.” Another option is get the help of a debt counsellor, registered with the Debt Counselling Industry portal, theDCI.co.za, to reduce your debt burden. Professional debt counsellors will negotiate more favourable repayment terms to help you manage your debt better and pay it off faster. “For a less formal process without July 2013 SA Real Estate Investor
15
COVER STORY intervention of the courts, get an attorney to negotiate lesser payments with your creditors on your behalf,” advises Gerstner. If you are already in arrears with some of your creditors, enlist the help of a debt counsellor registered with theDCI immediately. Do not wait until you receive a Section 129 notice from a creditor, because that will exclude the particular debt from the protection you enjoy in terms of the NCA.
Know you have rights No matter how deeply indebted you are, you have rights as a credit consumer and you should do everything in your power to ensure your rights are respected and upheld. For example, the NCA caps the rates of interest creditors may charge. The in duplum rule, as a pertinent case in point, prohibits interest charges that exceed the amount of the principle debt. In addition, if you cannot meet your debt repayments, section 129(1) of the NCA stipulates that the bank and the client must ‘develop and agree on a plan to bring the payments under the agreement up to date’, but this is often simply ignored by the banks and other credit providers. The Constitutional Court has ruled that it is unconstitutional for a bank to sell a home in execution where the debt is disproportionately low compared to the value of the home or to the amounts already paid in. In addition, only a judge - and not a high court registrar - can grant a judgment to a bank or issue a Writ of Execution, and only once the bank has shown that the sale of the property is justifiable, given all the circumstances of the particular case. Whatever amount is outstanding, Scott Cundill of NewERA warns: “Be particularly wary of the banks’ ‘quick-sell’ options for distressed homeowners and of signing any documents in which you admit indebtedness. These contracts often contain clauses through which the banks obtain your consent to judgment or to an auction, should your property not be sold on time. This leaves in you a serious quandary because you have unwittingly signed away all your rights.” Many consumers have also faced sheriffs of the court who act without the correct documentation and with undue force, sometimes aided and abetted by police officers, and who remove or attach property unlawfully. Sheriffs of the 16
July 2013 SA Real Estate Investor
court are regulated by statute and have a code of conduct. They may not mislead the public or misrepresent themselves, or make unjustified threats. The UBUNTU Liberation Movement notes that people have rights to prevent their property from being taken against their will. As such, it has published a document “How to Deal with the Sheriff”, which is available on its website. It suggests that legal and lawful rights exists which allow citizens to pay the sheriff with
“Unethical conduct of financial institutions can only continue if we do nothing. The buck stops with us – we must be the change we want to see”
a “promise to pay” or promissory note, which is defined as “incorporeal property” and lawful means of payment according to the South African High Court Rules. “Also remember, if no legal action has been taken against you in respect of an outstanding debt for three years, the debt may prescribe and can, in effect, no longer be ‘collected’”, says de Waal. “It is crucial to understand this, because if you are unaware of this right, you may actually nullify the effect of ‘prescription’ on a debt, ie if a debt collector contacts you after four years and you agree to pay a debt that has prescribed, the entire debt – through your agreement – comes due again.”
Get involved Truth about the global financial system – and our local banks - can no longer be suppressed. In June, the International Consortium of Investigative Journalists (ICIJ) exposed how the financial system is being made to work against the interests of ordinary citizens throughout the world. “The ICIJ information is further proof that way too many banks, law firms and accountants conspire to rob countries of trillions of dollars of much needed revenue,” says Porter McConnell, Manager of the Financial Transparency Coalition (FTC). “This is neither sustainable nor tolerable and must be fixed for the well-being not only of the international financial system, but for national and local governments. We urge global leaders gathering for the G8 meeting in Northern Ireland
to cut through the rhetoric and commit to fixing the wholesale inadequacy and the secrecy that pollutes the global financial system. Financial transparency will aid growth and contribute to efficient markets. The only people to fear a transparent financial system are law-breakers.” So dire is the situation that even Pope Francis, in his first major speech on finance and the economy, during an address to foreign ambassadors in the Vatican, urged global leaders to end the ‘tyranny’ of money. He attacked the “dictatorship” of the global financial system and called for a more ethical financial system and curbs on financial speculation. Here, at the southern tip of Africa, the heat is on too, with the UBUNTU Liberation Movement hosting a public march in Sandton, Johannesburg early in July 2013, to expose the fraudulent activity of the banks and to deliver memorandums to the major banks, their law firms, the Banking Ombud and the Reserve Bank. “Each one of us is completely enslaved by the global banking cartel and the banksters that issue privately printed money to enslave everyone alive,” comments Michael Tellinger of the UBUNTU Liberation Movement. “The global banking cartel, of which the South African Reserve Bank is a part, has become the largest organised crime syndicate the world has ever seen. These banksters control everything, including the legal systems and most of the judiciary that is supposed to uphold our human rights. This is completely unconstitutional and violates all our human rights to self-determination. We will not have complete freedom as the human race until we have complete freedom from the economic tyranny and financial slavery imposed on us by the banksters, their crooked lawyers and corrupt judges who uphold their fraudulent activity.”
RESOURCES Blue Oaks Systems Gerstner Attorneys My Budget Fitness National Credit Regulator theDCI BetterBond UBUNTU Liberation Movement NewERA The Financial Transparency Coalition Rawson Property Group
www.reimag.co.za
WHAT IF THERE WAS A WAY THAT YOU COULD TAKE THE RISK OUT OF RESIDENTIAL PROPERTY LETTING? Today, some 2.3 million people rent property in South Africa. There is huge potential in the rental property market – but every landlord or estate agent will tell you that there are also risks associated with letting residential property.
What if there was a way that you could take all the legwork out of the letting process, and alleviate the risks at the same time? Rentshield has introduced a new, first-to-market, “zero deposit” residential letting tool that helps landlords and estate agents manage their property portfolios more efficiently and effectively.
Benefits to landlords:
Benefits to real estate agents:
•
Eviction costs: Rentshield covers legal costs up to R50 000 for the eviction of a non- paying tenant. They also manage the eviction process.
•
Business growth: Rentshield offers rental agents a competitive edge, enabling them to grow their rental property portfolios.
•
Loss of rental income due to eviction: In line with the Consumer Protection Act, tenant eviction is a lengthy process, often taking as long as three months. Rentshield protects the landlord against loss of income during this time, offering coverage of up to three month’s rent.
•
No extra costs: The rental agent incurs no additional expense by using Rentshield.
•
Increased rentals: Without the need for a deposit, potential tenants’ interest will be increased, translating into more rentals and fewer unoccupied properties.
•
No trust accounts: No deposit means no trust account administration.
•
Protection of agent commission: In the event of a claim, the rental agent will still be entitled to their rental commission for those months covered by Rentshield.
•
Less administration: Fewer hours spent on administration means more time to manage properties and source new business.
•
Credit vetting costs: Rentshield has a nocost service for agents to credit vet potential tenants. Their credit vetting facility is superior to any other similar facility currently used in the South African property market.
•
No more inspections: Rentshield takes care of in- and out-inspections at no cost to you.
•
•
Loss of rental income due to absconding tenant: In the event of a tenant absconding from the property before the stipulated rental period is complete, Rentshield will cover up to one month’s rent. Unpaid accounts and malicious damage: Utilities payable by the tenant that are in arrears, such as electrical bills, as well as malicious damage caused to the property by the tenant, will be covered by Rentshield up to a combined amount of one month’s rent.
•
Damages caused to property: Rentshield will cover up to one month’s rent for damages to the property caused by the tenant.
•
Peace of mind: You can rest assured that Rentshield will take care of all the legwork associated with property letting.
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 DEPOST / 0861 376748.
NEWS ALERTS
BY MONIQUE TERRAZAS
Expropriation Bill A Grave Concern The Good
The Bad
The Ugly
Churches Unite Against E-tolls
Erosion of Property Rights
Global Carbon Emissions Hit Record High
Once the Transport and Related Matters Amendment Bill, already approved by The National Council of Provinces, is signed into law by President Zuma, e-tolling in Gauteng will commence. But some good has come of this...
E x per ience t h roughout t he world a nd throughout history has incontrovertibly shown that secure property rights are essential for economic stability, growth and well-being of any society. For this reason, the latest draft of the Expropriation Bill should be a grave concern to all South Africans. It is – according to Advocate Johan Kruger of the Centre for Constitutional Rights – “arguably so loosely formulated that its enactment might result de facto in a severe erosion of property rights as protected in terms of section 25 of the Constitution”.
To prevent climate effects such as crop failure and melting glaciers, the rise in global average temperature needs to be limited to less than 2°C this century. This would require emissions to be kept to about 44 billion tonnes of carbon dioxide (CO2) equivalent by 2020. However, the International Energy Agency (IEA) recently announced that China led a rise in global CO2 emissions in 2012 to a record high, dashing hopes of limiting global warming to what scientists regard as an acceptable level and underscoring the reality that the world is on a path to an average temperature rise of between 3.6°C and 5.3°C, which will unleash unprecedented climate chaos.
In May, the Catholic Church slammed the tolling project, saying people should not buy e-tags or collaborate with e-tolling in Gauteng, due to the lack of transparency and the unfairness of tolling an existing road without providing alternative routes. Shortly afterwards, other churches expressed their support for the Catholic Church and joined it in speaking out against the e-tolls – including the Central Methodist Church, the Evangelical Lutheran Church in Southern Africa (ELCSA), the Union of Orthodox Synagogues and the Dutch Reformed Church, which said that e-tolling poses a moral, ethical dilemma. Of course, government could hardly ignore such an outcry. Deputy President Motlanthe met with religious leaders representing the South Africa Council of Churches and the South African Catholic Bishops’ Conference (SACBC), which is a positive sign, even though government did little more than acknowledge their concerns and reiterated that these concerns “had been adequately addressed”, although that is clearly not the case. Nevertheless, it is certainly encouraging that diverse religious groups in the country have found that collectively they can make an impact. It is only when civil society and the people of South Africa stand together as one that we can bring about real change. Hopefully speaking out – in unison – against e-tolls is just the beginning of civil society – regardless of race, religion or language – collectively taking a stand against government tyranny and demanding accountable and responsible government.
18
July 2013 SA Real Estate Investor
Kruger notes that the proposed Bill has to balance the right to private property ownership with the right to infringe upon that right – striking a proportionate balance between these two opposing rights. He argues that this balance cannot be achieved without a much more precise definition of the ‘public interest’; a much more restrained definition of what constitutes property – as ‘property’ is not limited to land; and a much clearer idea of the role and powers of expropriating authorities. Says Kruger: “As the draft Bill now stands, an expropriating authority at any level of government would be able to initiate expropriation proceedings related to any property of any person if they believe – in their arbitrary view – that it would be in the ‘public interest’ to do so. They could take possession of the property with immediate effect after having given notice and before payment of any offer of compensation that they might think appropriate. This would result in the expropriated party having to wait until a court determines fair and equitable compensation – which might take years to achieve.”
The IEA has urged governments to adopt four policies as a matter of urgency: improving energy efficiency in buildings, industry and transport; limiting the construction and use of inefficient power plants; halving methane emissions; and partially phasing out fossil fuel subsidies. These policies will ensure climate goals can be reached without harming economic growth. “Once again we are reminded that the gap can be closed this decade, using proven technologies and known policies, and without harming economic growth in any region,” said UN climate chief, Christiana Figueres. But we cannot wait for government – the latest carbon emissions data clearly shows that governments are unwilling or unable to take the appropriate action. We, the people, must take action now. The technology and the know-how are available to improve energy efficiency in our buildings, industry and transport. We can slow global warming and prevent catastrophic climate change, but not if we wait for any government to take action.
www.reimag.co.za
NURCHA’s Affordable Housing Programme has been actively involved in ensuring the delivery of 33.990 housing units over the last 10 years. The programme forms the cornerstone of the NURCHA Lending Portfolio, which has further programmes in infrastructure and subsidy housing. Since its inception, the Affordable Housing Programme has financed over R4.8 billion worth of projects across nine provinces. The client base extends from the largest JSE listed and non listed affordable housing developers to emerging contractors. In house development experts ensure that funding structures are tailor made, recognising that no two deals are the same. NURCHA has partnerships with a variety of leading commercial financiers and asset managers. As a Development Finance Institution (DFI) we are fully committed to addressing the critical housing backlog that exists in South Africa. The funding facilities offer flexibility, competitive rates and are designed to provide risk mitigation measures to our clients. NURCHA’s service offering extends from funding for site acquisition to construction of top structure. Emphasis is placed on developments where the end unit selling price is below R500 000.
www.nurcha.co.za Contact Nurcha: 0861NURCHA/0861 687 242 | Email: devfinance@nurcha.co.za Registered Credit Provider (NCRCP 959)
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
Gauteng
Cosmo City Ext 7 - City of Johannesburg
25.38%
Vaalmarina Holiday Township - Midvaal
16.30%
Fernridge Estate - City of Johannesburg
17.60%
Cosmo City Ext 6 - City of Johannesburg
23.82%
Kent View - City of Johannesburg
15.62%
Eastgate - City of Johannesburg
11.33%
Western Cape
Western Cape
Summerville - City of Cape Town
27.70%
Coniston Park - City of Cape Town
23.16%
Eastern Cape
Western Cape
Avalon Estate - City of Cape Town
31.25%
Schoneberg Estate - City of Cape Town
17.25%
De Molen - Swartland
13.90%
Valmary Park - City of Cape Town
11.10%
Eastern Cape
Michausdal - Inxuba Yethemba Tyutyu North - Buffalo City
Eastern Cape
22.24%
Headlands - Buffalo City
21.45%
Nahoon Valley Park - Buffalo City
Kwazulu Natal
10.88%
Bonnie Doon - Buffalo City
10.52%
Vincent - Buffalo City
Kwazulu Natal 16.52%
Stanger Manor - Kwadukuza
Shastri Park - Ethekwini
16.47%
Hospital Park - Emnambithi/Ladysmith
10.16%
Zinkwazi Beach - Kwadukuza
12.12%
9.23%
Dunkirk Estate - Kwadukuza
8.12%
Free State
Merriespruit - Matjhabeng Phuthaditjhaba-A - Maluti A Phofung
8.33%
Kwazulu Natal
Shakaskraal - Kwadukuza Free State
10.61%
Free State
27.59%
Olive Hill - Mangaung
21.16%
Jordania - Moqhaka
18.61%
Woodlands Country Estate - Mangaung
8.25%
15.61%
Hillsboro - Mangaung
5.40%
FREE STATE
Presenting the Top 5 suburbs per area value band in the Free State 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
#
Suburb
1
Merriespruit - Matjhabeng
27.59%
R 550,000
1
Phuthaditjhaba-A - Maluti A Phofung
285.57%
R 420,000
2
Phuthaditjhaba-A - Maluti A Phofung
21.16%
R 420,000
2
Merriespruit - Matjhabeng
211.33%
R 550,000
3
Welkom Ext 19 - Matjhabeng
15.32%
R 350,000
3
Petrusburg - Letsemeng
205.77%
R 450,000
4
Ehrlichpark - Mangaung
14.40%
R 620,000
4
Jagersfontein - Kopanong
202.77%
R 420,000
5
Marquard - Setsoto
14.29%
R 370,000
5
Welkom Ext 19 - Matjhabeng
194.37%
R 350,000
1
Olive Hill - Mangaung
18.61%
R 760,000
1
Olive Hill - Mangaung
164.69%
R 760,000
2
Jordania - Moqhaka
15.61%
R 970,000
2
Sasolburg Ext 4 - Metsimaholo
121.70%
R 820,000
3
Panorama - Moqhaka
12.41%
R 1,150,000
3
Harrismith Central - Maluti A Phofung
117.66%
R 780,000
4
Bergsig - Maluti A Phofung
8.88%
R 1,300,000
4
Panorama - Moqhaka
110.79%
R 1,150,000
5
Eureka - Dihlabeng
8.83%
R 1,150,000
5
Jordania - Moqhaka
109.85%
R 970,000
111.18%
R 2,450,000
75.41%
R 1,500,000
Mid Value : R250k – R700k
7 year
Median
Mid Value : R250k – R700k
High Value : R700k – R1.5mil
High Value : R700k – R1.5mil
Luxury : R1.5mil+ 1
Woodlands Country Estate - Mangaung
8.25%
R 2,450,000
1
Woodlands Country Estate - Mangaung
2
Hillsboro - Mangaung
5.40%
R 1,500,000
2
Hillsboro - Mangaung
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 REIResidential Residential
Guarantees For Rentals Property investors who invest in short-and long-term rentals face big challenges when the tenant leaves. Often they find the security deposit doesn’t cover damages to the property, or a tenant absconds and they lose that income until they secure a new tenant. There have been cases in the holiday rental market where property damages have cost the property owner anywhere from R200 000 up to R700 000. What has happened in the short-term rental market is that due to changes in the macro environment, a one month security deposit has become insufficient. With the demand now for two to three month’s rental as a security deposit, it is difficult to conclude rental agreements. On Friday 17th May GEXsa officially launched in Cape Town – Guarantee Exchange South Africa provides much-needed guarantees to longand short-term rental owners and agents should a tenant abscond or leave the property in a bad state.
Concern Over Home Loan Legislation
Protect Against NonDisclosure
The Banking Association of SA has warned against interference in the ‘stable’ banking sector, fearing banks may be forced to make home loans to clients who do not qualify. Concern has arisen following Human Settlements Minister Tokyo Sexwale’s intention to ‘deracialise’ residential suburbs, using the Home Loan and Mortgage Disclosure Act, among other measures. Association head, Cas Coovadia, warned that the government should not interfere in the sector. ‘We have the second most stable banking sector in the world. We shouldn’t do anything to destabilise it,’ Coovadia is quoted as saying. But Xolani Xundu, Sexwale’s spokesperson, denied the Minister intends to force banks to give home loans to people who do not qualify. “The legislation obliges banks to give loans to people of all races. It creates dialogue between the Minister and the banks.”
In terms of the Consumer Protection Act, as it stands right now, says Lanice Steward, managing director of Knight Frank Anne Porter, all sellers of residential properties must sign a condition report on the property that they are selling, providing all known details of defects on the property. The Property Practitioners’ Bill, which is being drafted by the Estate Agency Affairs Board and will govern all estate agents and real estate principals in South Africa, will include this as a requirement from all agents, to bring it in line with the Consumer Protection Act. However, it is imperative now, said Steward, that all sellers sign this condition report when they list their property. This should be supplied by the agent with whom they are working and should become part of the agreement of sale. This condition report is to protect the seller against non-disclosure, she said.
Valuable Input
Laurie Wener, MD Pam Golding Group
Paul Abbott, Franchisee, Rawson
Bill Rawson, Chairman, Rawson
Johann le Roux, Executive Director, Propell
“There has been a resurgence of investor interest and buyers of second homes in all suburbs, but most notably those along the coastline. Middle market family homes are in demand in areas which offer good schooling.”
“Landlords today, appreciate that a good rental agent, using the ‘tools’ available to such people (Payprop, TPN and Search Works) are able to weed out 99% of unreliable and irresponsible tenants.”
“Two R1 million units will probably give a better return than one at R2 million. Similarly, three at R700,000 will probably bring in a better return than one at R2,1 million.”
“If you’re considering buying a sectional title unit for the first time, there are many things to consider and investigate before choosing the scheme in which to buy into.”
www.reimag.co.za
Martin Goodman, Director, Rentshield “It’s the perfect time to be in the property rental industry – as indicated by Rentshield’s research survey, the demand for rental properties outstrips supply.”
July 2013 SA Real Estate Investor
21
SMART MOVES
BY KOOS DU TOIT
You Don’t Need Money To make money
M
ost of us have grown up with the belief that “you need money to make money”. While hard cash may be a requirement for most traditional savings and investments, this old adage is indeed a myth when it comes to buy-to-let property investment. The reason is simple: buy-to-let property allows investors to use the fundamental financial principle of “leveraging” or “gearing”, which is widely used by institutional investors and wealthy individuals to overcome the challenge of not having enough hard cash to invest in a good opportunity. It is a very powerful principle, as Archimedes reminded us hundreds of years ago when he said: “Give me a lever long enough and I shall move the world”.
Using other people’s money In very simple terms, leveraging or gearing is simply using other people’s money, instead of your own, to invest. And the ability to leverage or gear an investment is one of the most outstanding and unique features of a buyto-let investment strategy. What few people understand is that you don’t need R500 000 in hard cash to buy a buy-to-let property valued at R500 000. You can borrow money from the bank in the form of a home loan to buy the property. By obtaining a 100% mortgage or home loan, the investor would ‘gear’ the investment 100%. In the current market, you may need a 10% deposit of R50 000, which would amount to 90% gearing. 22
July 2013 SA Real Estate Investor
Repaying the loan
Getting the money
Of course it is all good and well if the bank gives you a bond, but how will you repay the bond ever y month? Another outstanding feature of buy-to-let property is the fact that you are not simply investing in a property that will appreciate in value over time, you are acquiring an asset that is also generating an income each month – the rental. And it is this immediate rental income that allows ordinary people to invest in property without hard cash, because the rental income from a well-chosen property will cover most – if not all – of the monthly bond repayments and other costs involved with owning and renting a property.
Of course, the banks have signif icantly tightened their credit criteria, and it is not as easy to obtain a 100% bond as it was five years ago. But this does not mean it is impossible. The banks do still grant 100% bonds, particularly on their properties in possession.
Making money without having money So, in the end, an investor can acquire a buy-tolet property with the bank’s money, and then use the rental income paid by the tenant to pay the bank each month. Once the bond is paid off – and it is possible to do so within as little as ten years - you will have a property worth much more than R500 000, thanks to capital appreciation, as well as an ongoing monthly income that increases in line with inflation year after year. And this was achieved without a lump sum investment, and without a substantial monthly investment. It means that you can indeed make money – earning capital growth and a growing monthly income from a buy-to-let property – without having money to invest.
It does mean that investors need to approach their loan applications with professionalism, ensuring their applications comply with the banks’ stringent criteria in terms of affordability and acceptable security, that their cash flow can indeed support the repayment of the loan and that the value of the property – as the security for the loan – will in fact cover the outstanding loan should the investor default or sell. In doing so, investors may find the services of a professional bond originator that specialises in buy-to-let property, such as P3 Bonds, indispensible. If you present the banks with a viable proposition that is well researched, thoroughly and accurately motivated, neatly and correctly presented, and respects their lending criteria, you will make it easy for the banks to approve the finance. It may require a bit more work, but the effort will be thoroughly worth it, allowing you to harness the power of leveraging - or gearing as the financially-savvy call it – and enabling you to make money and create wealth, even when you don’t have hard cash to invest.
RESOURCES P3 Investment Group
www.reimag.co.za
STRATEGIES
BY KOOS DU TOIT
Investigate thoroughly Before you buy-to-let
I
t is widely known that selecting the right investment properties is fundamental to the success of your property investment business. The benefits of choosing the right property are legion: you can be almost assured that you will enjoy good capital growth for many years, that you will be able to attract the right type of tenant, that the property will rarely - if ever - be vacant, and that the maintenance and upkeep costs will be reasonable. Yet, one of the biggest pitfalls that property investors step into is buying a property without conducting a thorough investigation. This may be because investors rarely understand what a thorough investigation encompasses. For this reason, the P3 Investment Group has narrowed down their stringent criteria for a good investment opportunity to 10 crucial variables that all investors can apply to their investment decisions.
10 crucial variables to investigate 1. Price – Given the spectacular returns an investment in a buy-to-let property produces, it isn’t necessary to hunt for “bargains” only. However, you should never pay more than the reasonable market value. 2. Rental income – Contact several rental agencies in the area to establish what the average rental for the property under consideration will be, as well as whether there is rental demand for such a property. 3. Break-even – Most investment properties will require the investor to carry an initial monthly shortfall, the difference between the rental income and the property expenses. As the rental increases year after year, this shortfall amount diminishes until the rental covers all 24
July 2013 SA Real Estate Investor
the property expenses and break-even point is reached. Calculate what the monthly shortfall will be each year and how long it will take to reach break-even, to ensure you are able to fund these shortfalls comfortably and that the period it will take to reach break-even point is acceptable. 4. Condition of the property – The older the building, the higher the maintenance and repair costs are likely to be. And, in general, the better the condition of the building, the higher the rental potential. 5. Vacancy – The rental demand in the area in which the property in located is crucial, but even where the demand is high, smart investors calculate a vacancy factor into their cash flow calculations. 6. Area – What is the general condition of the area in which the property is situated and its longer term prospects for growth and development? This will determine the capital growth rate you can expect on the property over the years. 7. Levies and taxes – How much will you have to pay in levies, rates and taxes and how do these compare to similar areas? The levies, rates and taxes on a property can have a significant inf luence the bottom line of a property investment.
implementing changes that could increase the yield? Can you subdivide, extend the unit, renovate or add a garage? 10. Bank valuation – Does the bank validate your decision to acquire the propert y by granting a mortgage bond? T hese 10 cr ucia l va r iables shou ld be investigated for every single property you evaluate. If it seems like too much work or effort, it might be better to harness the skills and expertise of a professional propert y investment organisation, who have dedicated teams scouring the market for properties that meet these requirements, from which their members can select the most promising for further investigation.
Use technology Another powerful tool investors can use to ensure they can make the right choice is stateof-the-art and custom-designed software, such as the P3 Property Wealth Manager, which allows investors to “look into the future” and to assess the quality of the investment opportunity quickly and accurately.
8. Affordability in terms of cash flow – Can you comfortably fund the initial shortfalls, as well as interest rate increases, vacancies, a defaulting tenant, emergency repairs or unexpected maintenance?
Sma r t proper t y investors consistent ly and diligently investigate ever y propert y investment oppor t unit y, by fol low ing a proven system underpinned by tailor-made software that allows them to apply the same stringent selection criteria to every property. This not only ensures that they select only the real opportunities, but also enables them to select the best option when faced with a number of opportunities.
9. Cont rol – How muc h cont rol w i l l you have over the proper t y in terms of
P3 Investment Group
RESOURCES
www.reimag.co.za
MANAGING
BY JOHN ROBERTS
Wooing the Market With your home
T
HERE can be few people who doubt the residential property market currently favours buyers and that sellers, faced with extensive competition from alternative options, must do everything possible to present their homes in the most appealing fashion.
A sound way of determining if your house is market-ready is to ask yourself: would you buy your own home? It is a question requiring honesty, best answered through an objective analysis of its best and worst features. If being objective is difficult, get input from someone else who will be honest, since honesty is how to determine a realistic selling date and achievable price. Sellers generally do not see their homes with the same eyes as prospective buyers - broken windows, peeling paintwork, missing roof tiles, sagging gates and mould in the shower tend to become common place. Yet, they are detractors that will stand out a mile to buyers who will either be put off the property completely or use those issues to justify a low offer. Property professionals constantly see sellers repeating mistakes, directly impacting on the pricing they achieve or even reaching the point in the negotiations where an offer can be placed on the table. What then would be some pointers for achieving the ideal show house and thus bringing potential buyers to the door? Gary Player famously stated you only get one 26
July 2013 SA Real Estate Investor
chance to make a first impression. The curb, as the property’s sense of arrival, is essential in shaping visitors’ perspectives - and that means show house ready includes ensuring the garden or landscaping is tidy, manicured and inviting. If the gates sag, the driveway is broken and the unkempt garden full of weeds, schedule some maintenance before putting it on the market. Remove obstacles and repair or replace anything that could be distracting - broken roof tiles, loose gutters, cracked paving tiles and poorly maintained garage doors or driveways can be distracting. It is now that a repaint should be considered. Painting is one of the most effective ways of sprucing up a property, but, while your favourite colour may be purple, choose a neutral shade to broaden the appeal. Internally, neutral colours provide buyers with a blank canvas on which to place their signature. Cluttered rooms have a negative impact on potential home buyers, so another critical part of show house preparation is removing excess furniture, cleaning out garages, neatening studies and cleaning out cupboards. People also love light, meaning bright interiors sell homes. Typically older homes have heavy curtaining, so attempt to bring in as much light as possible. If natural sunlight is limited, ensure the lighting is new and bright. For viewings ensure every light is turned on and make sure the bathrooms are well lit and bedside lamps actually work.
Invest time and effort into analysing every room and undertaking those repairs you have been ignoring for months or years. Door and window handles, garden gates, balustrading, built-in cupboards, tiles and air-conditioners all require regular maintenance and repairs, so get it done before putting the house on the market. Replace worn items with new ones. Pay attention to detail by reviewing your home from a buyer’s perspective. Worn light switches can easily be replaced; bathrooms need to be spotless; old silicone strips and fresh white beads are essential to selling. Shower floor and doors need to be immaculate and glass hobs and extractor fans should be as good as new. Avoid anything that could provide strong odours including items that relate to cooking or pets in the home. Animal smells are extremely off-putting and while you may be oblivious to doggy odours emanating from your carpets, buyers will not be. This is exactly the type of problem an honest friend should share to allow you to do the requisite cleaning to make your home marketready. Remember that smell is a powerful sense so use it to your advantage by including fragrant scents in the rooms and cupboards. However, it is also critical to remember that buyers prepared to upgrade or renovate properties are in the vast minority and are unwilling to pay a premium for a property for fear of overcapitalising. It is thus imperative that sellers ask themselves what they would expect to get for their money and then, if their home offers this. W hile shor tcomings like location are unchangeable, there are budget-friendly improvements that significantly improve the property’s appearance and appeal. Sellers should tour their neighbourhood to see other properties on the market; establish the competition and ascertain asking prices. The bottom line is that if you want the top price for your home, you have to give the market a top product. In not doing that, buyers will simply move on to the next property.
RESOURCES Just Property Group
www.reimag.co.za
Do you want financial freedom and to save thousands every month? Are you stressed out every month when it comes to paying your bills? Robbing Peter to pay Paul and then spending hours weaving your way through your tangled budget? Stop your stress, all you have to do is send an email to reimsave@budgetfitness.co.za to receive your unique code which will show you how to save massively every month on your debt repayments. Most people find it a nightmare to budget their expenditure every month. At mobile2 budget we have developed some really cool tools to enable you to manage your budget and track each rand that you spend. We also have some great products and software to help you to find out how much you can save if you replace the debt that hurts the most, with less expensive debt. So say goodbye to stress and runaway budgets, get financial freedom today, send us an email and let us save you time and money!
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GETTING STARTED
Commissions, Costs & Your Bond
BY ANGELIQUE REDMOND house into one that involves images, videos and social and multi media. And an estate agent who understands and can use these tools is an invaluable asset. When you are looking at buying a home, before you even enlist the help of an estate agent you need to know what sort of price range you are going to be looking at, and that is where a bond comes in. Unless you are able to pay cash for the property, you will need to investigate getting a bond. Below we look at options and important facts you need to know about getting a bond. Linda Rall, ooba KZN Sales Manager, takes you through the need-to-know information.
Costs you will incur In addition to paying a deposit there are a number of other upfront costs involved such as legal costs, transfer duty, bond registration fees and bank fees.
Repayment terms
What should you expect?
W
hether you are buying or selling your home, you will at some point encounter estate agent’s commission and the process of applying for a bond. But what exactly do the two entail? Let’s take a look at estate agents commission first and what exactly they do to earn their commission.
Inside Estate Agents & commission Estate agents sel l or let residentia l or commercial properties, businesses or land for their clients. The role generally involves valuing properties, which includes looking at the property’s condition and comparing it to others in the area to get the best price for the client. They also market the property and negotiate deals on behalf of their clients. While you might consider going it alone, before you do, consider what value an estate agent adds to the process of both buying and selling your home. Estate agents generally charge a fee of up to 7.5%. This fee is not set and there is no regulation in South Africa on what an estate agent can charge for commission. This fee should be looked at as an investment, as not only is the estate agent investing in the process of selling your property but is also an invaluable 28
July 2013 SA Real Estate Investor
partner in getting your property to sell at the best price possible in the best time frame. The fee should be clearly discussed at the beginning of the marketing process and should be done after the home has been valued. The agent is paid depending on what the home sells for, so it is in their best interest to get the best possible price for your home. When an agent is asked to come and value your home, the Estate Agency Affairs Board requires that the agent must provide the seller with a marketing plan specifying exactly how the property will be marketed and which services will be provided. In return for the estate agent’s commission, you will get an extensive marketing campaign for your propert y. Professional photos will be taken and posted on the realtor’s website and adverts will be placed in various newspapers, property websites and magazines, which does carry a cost. How well your home is displayed and marketed has a huge impact on when and for how much your home sells for. With the advent of the Internet and new platforms and technology, selling your home or buying a new one has evolved from the process of a for sale sign outside your
The average repayment term is 20 years, however the repayment term can go up to 30 years.
How much does this amounts to, what interest are you likely to pay? For a R1 million bond paid over 20 years at 8.5% interest, you will pay R2,082,775 by the end of the term (interest portion is R1,082,775). Banks are calculating interest based on a variety of factors and each transaction is individually priced but it is important that homebuyers realise that current interest rates offered are mostly positioned above the prevailing prime rate rather than below it so prime plus rate offerings are more common now and concessions below prime was the norm in years gone by.
The legal jargon that is used and what it means When you buy a property, the property is purchased “voetstoots” or as is. This means that any patent defects (visible problems) and latent defects (problems you can’t see) are the buyer’s concern – unless the seller hides or does not disclose the problem before the sale whilst he/ she should have had reasonable knowledge of the problem. However, there are some assurances for the buyer. The law requires that the seller must www.reimag.co.za
RESIDENTIAL provide the following certificates: • An electric compliance certificate • A gas compliance certificate (if there is gas on the property) • A plumbing certificate (for properties in the City of Cape Town municipality) • An electrical fence certificate (if there is an electric fence) • A beetle-free certificate (this is usually only provided in coastal areas, and may be left off by agreement between the buyer and the seller). These certif icates will have to be signed off by a registered or certif ied contractor who is authorised to issue them, to be valid. For transfer to take place, the seller has to have obtained a clearance certif icate from the municipality confirming that the rates payments are up to date. Both the seller and the buyer will have to show that their tax affairs are in order for SARS to issue the transfer duty or exemption receipt. Another commonly used term is Home Owners Cover. If a fire, f lood or any other unforeseen disaster were to damage or completely destroy your home, you’d be faced with the stress of having to rebuild and find alternative accommodation. You’d also be forced to pay a bond instalment on an asset that no longer exists. Therefore this insurance is a statutory requirement if the property is bonded. You have the freedom of choice to obtain this cover from any accredited insurer.
When is it legal and binding? The sale agreement is a legal and binding document between the parties and can be enforced once all the conditions set therein have been met by the parties concerned within the time provided. i.e. if the sale of a property is subject to a bond being issued by a bank before a set date then this condition will be considered concluded once such a bond has been granted within the time period provided.
Who is liable for the deposit? The buyer is liable to provide the deposit.
What can you do if you cannot afford the deposit, what are your options? If the buyer is not successful in obtaining a 100% loan (full purchaser price) from one of the financial institutions then deposit options must be considered. There are short-term loan www.reimag.co.za
products that may be available for smaller deposit requirements under R150 000 and there are also options of pension-backed lending facilities in certain instances where buyers belong to pension or provident funds that allow such lending with their pension fund being offered as security. Government departments also have the opportunity of applying for a paper guarantee provided to the banks against the pegging of the individual pension fund (guarantee known as the Z573). This document will however indicate the maximum bond or loan that the client may buy up to, alternatively the guarantee falls away.
In terms of a guarantor, what do they do, when can you use them, how can they help/hinder you home loan? This is referred to as a suitable surety and not all banks will accept the offer of surety by another party in order for the purchasers to increase their chances of approval. Where banks will accept a surety to improve changes of approval the surety must be able to qualify for the finance in their own right and often need to have a direct interest in the property such as a spouse who is living on the premises etc. Certain banks insist that they will not accept surety and the party offering surety must become the coapplicant on the offer to purchase.
“Use an expert originator to get you the best deal on your home loan” Safeguard yourself throughout the process and ensure a good outcome Use an expert originator to get you the best deal on your home loan. Getting a home loan approved involves lots of paperwork, some of which can be very confusing. It gets even more complicated if you apply to more than one bank. Because of this, it’s a good idea to use the services of an expert originator, like ooba, to submit your application to multiple banks. The process of buying and selling a house is a stressful experience, but with the right knowledge and people helping you, you can streamline the process and save yourself time and money.
RESOURCES
Talking digital with Stuart Chait, Founder of Homes2go
1. Where do you see the digital industry going both internationally and locally? The growth of the digital industry has been exponential over the past few years, and seems set to carry on that way. We have seen huge developments in the local digital space, and we wanted to capitalise on this. The reduction of print media is a direct result of the digital market increase. 2. What online tools do you personally endorse? We have integrated a property valuation tool into our website which is provided by Lightstone. This enables users of the site to obtain a valuation of their property from the comfort of their desks, for the bargain price of R50. The valuations are 97% accurate and we think that it is an invaluable tool for homeowners looking to sell their property online. 3. While people search online, they still like to see and view the property; do you see this changing anytime soon? For most people, buying a home will be the biggest and most important purchase that they will make during their lifetime. Given the magnitude of the investment, we understand why so many buyers are insistent on viewing properties before they commit to buying. Obviously there are exceptions, but for the most part we do not see this changing in the near future. It is important for buyers to feel at ease during the process of purchasing a home, and viewing a property provides a certain peace of mind that viewing online simply cannot. The digital platform also provides an opportunity for buyers to sift through potential properties before narrowing them down to the few options which they would then go and view.
ooba July 2013 SA Real Estate Investor
29
FINANCE
BY NEALE PETERSEN
Get Yourself Off The Blacklist Part
2
What to do when you’ve been blacklisted
F
ollowing on from last month’s article on how to deal with debt and get yourself off the blacklist, we take a closer look at how you can go about removing a judgment against you.
Step 6 - Rescinding an administration order (notices) a. If you are in a situation to settle your debt faster than the current administration order – then get a list of the credit providers who are included in your administration order b. Compile an affidavit stating your reasons to cancel the administration order. Your reasons need to be convincing enough to prove your ability to independently pay creditors. c. Show that your f inancial situation has improved since you applied for administration. Ideally, in your affidavit, include a budget that you have drawn up which shows your income, expenditures and also a surplus that proves you would be able to pay your credit providers. d. Once your case is heard in court and you gain a favourable outcome, the court order can 30
July 2013 SA Real Estate Investor
be presented to credit bureaus for removal of the listing. Unfortunately, it takes a little more time depending on what it is you are trying to clear. If there are court processes involved, it can take up to 3 – 4 months. The credit bureaus however do have a duty to remove adverse information from the ‘blacklist’ within 20 days after they have received a rescission order.
Step 7 - Removing a judgment against you It is important to establish which court has a record of the judgment as you have to apply to the same court to have your name cleared. Normally if judgment was given, it would be clearly indicated on the credit report. If not clearly indicated and you are doubtful, it is a very good idea to find out. You could always contact the credit provider to make 100% sure.
The steps a. Get an attorney who specialise in this type of work or if you cannot afford such attorney, then talk to an attorney through a free legal
clinic to understand the judgment. Institutions include Johannesburg University Law Clinic (011-559 6506), or the Stellenbosch Law Clinic, (021-808 3600). b. Request the Outstanding Balance Statement (OBS) on the account owed from the creditors who brought the judgment against you. c. Once you receive the OBS, you can negotiate a settlement amount in order to get consent for rescinding (cancellation) of the judgment. d. After paying the account the next step is to present the consent for rescinding of the judgment at the same court where the judgment was given. This is done by way of an application for rescission of the judgment. In certain courts, a mere written consent is not sufficient, and an affidavit from the creditor is required. Sometimes, you have to provide an affidavit by yourself. Different courts often have different requisites. e. You will be issued with a Rescission Court Order (RCO), which you then present to the credit bureau and the judgment will be www.reimag.co.za
RESIDENTIAL removed. Some credit bureaus require that you also complete a Rescission Form. Remember, the credit bureaus have up to 20 business days to remove the information. f. Bankruptcy/insolvency is a last option to consider only in extreme circumstances if you cannot settle the payments or come to a negotiable settlement, but it is an option. Sometimes a person may find that he cannot be sequestrated as he does not have sufficient assets to prove to the court that there will be a benef it for creditors when his assets are liquidated and distributed amongst his creditors and then a court may refuse to grant a sequestration order. Normally you could first opt for debt review, debt administration or assistance in payment arrangements by an attorney.
Step 8 - Opting for Debt Administration Meyer de Waal says that an application for debt administration does not constitute a 100% proper blacklisting. So what actually happens? W hen t he consu mer appl ies for debt administration, a copy of the court application is served upon the consumer’s credit providers. Usually, at this point, the credit providers opt
to make a note on the credit bureaus’ sites to indicate (warn) that the consumer is under debt administration. This action by the credit prov iders is usually a measure to ensure that they do not extend any further credit to the consumer, without knowing that he/ she is under debt administration and / or without obtaining the written consent of the consumer’s appointed administrator [it’s compulsory to obtain consent as per the NCA – S89 (2)(a)(ii)]. Usually consumers, who are placed under debt administration, are those consumers who cannot be helped through debt counselling, as: 1. the installments that they are able to offer could be too small; 2. one or more of the credit providers have already taken legal action and as such those accounts cannot be rearranged through debt counselling; 3. there are one or more garnishee orders against the consumer and the only way to address those specific debts (and have the garnishee orders cancelled) is through debt administration. Typically, the consumer who is placed under debt administration is not an ideal candidate for sequestration, as the consumer would not
have enough assets or any assets, which could be liquidated in the sequestration process. The Magistrates Court Act 32 of 1944 limits the amount of debt to be placed under administration at R50 000.
Step 9 - Opting for debt counselling or debt review Debt counselling or debt review is another pro ce s s t h rou gh wh ic h ov er-i ndebte d consumers are assisted. In these cases, there is no limit on the amount of debt, which could be placed under debt review. The NCA also obliges debt counsellors to register consumers under debt review on the sites of credit bureaus (this is done via the NCR). Contrary to debt administration matters where additional debt is allowed as long as the administrator consents, with debt review matters, the consumer is not allowed to obtain any further credit whilst under debt review. So get out there today, take action and free yourself from the burden of restricted finances.
RESOURCES Gerstner Attorneys My Budget Fitness
Q&A with Brendan O’Brien, CEO of Urban Space 1. Why should you buy off-plan property? When you buy an Urban Space home off-plan, you are able to personalise your home by amending the design and layout of your home and selecting all of the finishes including kitchen and bedrooms cupboards, floor finishes, sanitary ware, electrical fittings and wall tiles to suit your own taste. The value of a home invariably increases between the time you sign contract documents and the time your home is complete. Having a brand new, substantial home within a security estate in a firstclass location is a very rare commodity indeed and will always command a premium. 2. What vision do you have for the buildings of the future? My vision of buildings of the future is primarily that they become more and more environmentally
www.reimag.co.za
friendly utilising energy technologies to reduce the impact on the environment. 3. What is the off-plan market like now? Overall, selling off-plan in this market is difficult for the lower to middle sectors of the market. However, as we are offering such a rare commodity in the very top end of the market, we have consistently sold offplan throughout the recession, based largely on the simple fact of limited supply and high demand for this type of product. 3. Tell me a bit about where you feel this market will go in the future? I see the sector of the market in which we operate increasing in value consistently over the years to come, based purely on the limited supply and the ever-increasing demand for quality homes within security estates in prime locations. I feel the market
overall will continue to increase in line with inflation over the next couple of years and will only start to increase in real terms after that. 4. What trends in proper t y do you se e emerging? I see a huge increase in densification of urban areas providing secure, manageable sized properties. This will include the densification of areas up till now considered “rural” but within the urban edge.
July 2013 SA Real Estate Investor
31
IMPROVING
BY ANGELIQUE REDMOND
Bathroom Remodelling From bare basics to absolute excess
T
he t hought of remodel l ing you r bathroom will either fill you with joy or have you crying in the corner. Regardless of which image enters your mind, you can turn your loo and bath into a luxurious centre of calm. There are 13 top trends in bathroom remodelling you can apply to your home.
Remodelling on a budget If you are constrained by a budget then don’t despair: there are a number of ways you can make your dreary bathroom look almost new. The first thing to look at is your f loor, if you have a tiled floor, then fix old, cracked or broken tiles. It doesn’t take long to learn how to fix a tile or grout, the main thing you need to have is patience and accuracy. There is no point fixing the tiles only to have gaps or skew tiles mar your effort.
A new coat A new coat of paint can instantly revitalise your bathroom. If your bathroom walls are covered in wallpaper, get rid of it, hire a steamer and take it down, then apply a fresh coat of white paint to the walls, this will open up the space and instantly update your bathroom’s look and feel. If the paint needs a new coat, then ensure you don’t just paint over flaky, sticky or peeling paint. Rather remove the old paint before 32
July 2013 SA Real Estate Investor
adding a new coat. Make sure before you paint that there is no sign of mildew, if you spot some mildew, add a mildew inhibitor to the paint before you start on your walls.
Sand them down If you have existing bathroom cabinets, sand them down and either paint them or stain them, depending on what look you are going for in your bathroom. Another idea is to whitewash them, and keep the colours in your bathroom neutral. Whatever paint you use make sure it’s waterproof.
Fix the fixtures Replace all your hardware fixtures. New cabinet or door handles and towel racks and light fixtures will transform your bathroom without costing a fortune. Your new could be someone else’s old, so look at online auctions or markets for either antique fixtures or modern fixtures at a bargain price.
It’s all in the plumbing It’s no good updating the whole look and feel of your bathroom only to have painfully slow dribbles of water ruin your bathroom experience. If you have a water pressure problem, get a plumber to have a look at it, it may be something quite small causing the
sluggish water pressure. I once lived without hot water and a trickle of water coming out my shower for 2 weeks because the new shower fittings were too modern for the old pipes. It took my plumber one hour to remedy the situation and restore the flow of hot water to my showering experience.
Accessorise! Throw out all the old threadbare towels, the mismatched curtains and worn rugs. It’s time to go shopping for new towels and hampers and maybe even a few pictures or plaques on the wall. You don’t have to buy matching sets, but try and keep the colours complimentary. Buying new towel racks and bathroom organisers can also add that special touch to your bathroom.
When budget is not an issue: tubs or showers? While it is ideal to have both, if you have limited space it’s better to go with either a large airy shower or a soaking tub. Gone are small little cubicles with curtains or sliding glass doors, the showers of today are big and open, with either partial walls or none at all. Instead the entire tiled bathroom is turned into an open air shower, or has just one wall. You can even have a custom shower built per your specifications, with wall-mounted showerheads, hand-held www.reimag.co.za
showers
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doors
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balustrades stacking
Tel: 016-933 0483│ Fax: 016-933 3306 │ email: info@geminiframeless.com |www.geminiframeless.com
IMPROVING
can do a lot with just the right amount of light, either via windows, skylights or having a wall of glass where your normal wall would be, making your bathroom bright and light filled.
Go granite One big splurge item, which will enhance your bathroom, is granite, think countertops and floors. Born from molten magma, granite is a much more durable and functional stone than marble. Granite’s crystalline structure is far more resistant to abrasions, staining and discolouration than most marbles. Denser and stronger than all natural stones, granite is an excellent choice for high traffic areas where class and style are desired. Granite feels at home in a country farmhouse as well as a modern high rise. The variety of colours and textures are traits that set granite apart from the rest.
Sink about it
showerheads, shower tiles, rain bars, body sprays or steam showers. If you opt for a bathtub, think more along the lines of a deep, insulated tub where you can stretch out and relax.
Let the light in Depending on where your bathroom is, you 34
July 2013 SA Real Estate Investor
How many sinks do you want? While you may be tempted to get two sinks, the addition of another sink to your bathroom can raise the roof on remodelling costs and you may have to limit counter and mirror space. You have to decide if you really have to have that second sink.
Utter luxury When it comes to extras in a master bathroom remodel, look toward the luxurious. Hang an extravagant chandelier over a soaking tub; add built-in warming drawers for towels or install a pass-through fireplace for ambience and warmth. Sound systems and televisions have become
SOME TOP TIPS • • • • •
Some hardware stores and home improvement stores offer free “how to” classes on everything from painting to tiling. You can refresh a shabby linoleum floor by bleaching it to get rid of stains and grime. If you buy new tiles for your floor or tub enclosure, buy enough to have extras on hand in case you need to make repairs in the future. Avoid cluttering your bathroom with toiletries, pictures, gimmicky things, etc. This makes a bathroom look less spacious and puts off potential buyers (and guests). Don’t skimp on the paint. Spend a little extra and get a good quality paint that is mildew-resistant. Apply a primer and at least two coats of finish colour.
quite common in master bathrooms, but today’s remodels are taking the concept to a new level. Flat screens are becoming more popular and in-mirror models, where the television is visible only when it is on, are another option. A bathroom is more than just a place to shower and get clean, it is a refuge from a busy and hectic lifestyle and often the only place you can relax and unwind. Make sure you know exactly what you want, and then consult a professional about your bathroom remodel. www.reimag.co.za
CAPE TOWN - 021 511 3125
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BRANCHES: JOHANNESBURG - 011 462 4640
www.tiletoria.co.za
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DURBAN - 031 459 0049
REI Commercial
Government Gets Green Stars
Concern over SETA Regulations
Saldanha Bay Set For Industrial Action?
The new Department of Environmental Affairs (DEA) head office in Pretoria has received a 6 Star Green Star SA Off ice Design v1 certification from the Green Building Council South Africa (GBCSA). This is the f irst government building in South Africa to achieve a 6 Star Green Star SA rating, as well as being the first 6 Star rated green building in the City of Tshwane. A further stellar accomplishment was that the project achieved the highest score for a large commercial office space of this magnitude awarded by the GBCSA to date. “ This is an exceptional illustration of the public and the private sector working together to deliver an outstanding example of green building,” said GBCSA CEO Brian Wilkinson.
The SA Property Owners Association (SAPOA) announced it has a serious concern with government’s amendments to the SETA Grant Regulations. Government has cut mandatory grants, or refunds, to companies that undertake sector education training, from 50% to 20% of its skills development levy. The skills development levy companies pay is 1% of payroll and they have been able to claim a proportional refund of the levy to the extent they have incurred cost on training and development. SAPOA President, Estienne de Klerk says: “This can only be negative for skills development in SA. It obliterates a key incentive for our members to train and develop employees and flies in the face of the National Development Plan’s policy of fast, inclusive growth through sk ills development. It also neglects the collaborative approach between government and companies to close the country’s yawning skills gap.”
Progress is well underway towards the declaration of Saldanha Bay as an Industrial Development Zone (IDZ) and reports indicate that the move will create not just overall economic growth in the area, but also many opportunities for investors in property. The town is located around 120km north of Cape Town. The intention to declare the IDZ was gazetted in November 2012, with a public comment phase closing at the end of January this year (2013). Trade and Industry Minister Rob Davies will consult with the rest of the Cabinet before making a final decision, expected within a matter of months. “The IDZ process has identified three main sectors for further development,” says Stephanie Wynne Cole of Pam Golding, “namely renewable energy, oil and gas and maritime ship-building, and steel and minerals. It is estimated that the project will create at least 4 500 direct jobs in its first year, and up to 15 000 in subsequent years.”
Valuable Input
Erwin Rode CEO of Rode & Associates “The growth in industrial rentals is slowly heating up, seemingly benefiting from the lagged impact of declining industrial property vacancy rates.”
www.reimag.co.za
Izak Petersen, CEO, Dipula Income Fund “Since listing in August 2011, Dipula has closed deals that will, once all assets are transferred, more than double the size of the fund.”
Jonathan Klimek, Leasing Consultant, JHI “With reduced office rentals resulting from the recent economic downturn, corporates seeking appealing office space offering good value in the Johannesburg area are currently able to choose from a number of appealing options.”
Gill Marcus, Reserve Bank Governor “To date, the passthrough from the exchange rate to inflation has been relatively constrained, particularly compared to previous periods of high volatility and currency weakness.”
Ian Anderson, CIO, Grindrod Asset Management “Listed property companies have been raising new equity capital at an unprecedented rate and it was only a matter of time before these issuances would have a negative impact on prices.”
July 2013 SA Real Estate Investor
37
LISTED
BY IAN ANDERSON
Brace Yourself... The ride might get a little bumpy
S
outh Africa’s listed property sector has succumbed to a weaker Rand and higher bond yields. During May 2013, the sector declined by 11.1%, led by substantial declines in many of the larger, more liquid companies that are widely held by institutional and foreign investors. Over the past two years, South Africa’s listed property sector has benefited from declining bond yields and a reduction in official interest rates. However, during May, bond yields in South Africa rose due to higher yields in the US and country specific issues that manifested themselves in a substantially weaker Rand. The decline in listed property prices was exacerbated by Growthpoint’s R2.5 billion equity raise, which was announced on 21 May 2013 and preceded much of the downturn in prices. Listed property companies have raised or announced their intention to raise approximately R10 billion in equity capital so far this year, having raised more than R30 billion in the preceding two years. The capital has been raised to fund incomeenhancing acquisitions and redevelopments, which should drive longer-term value creation. But, the quantum of equity issuance has satisf ied a signif icant amount of investor demand for listed property and exposed the sector to short-term volatility. Importantly, last month’s price action was not driven by a change in property fundamentals or a substantial change in the prospects for distribution growth. Investors can now invest in the listed property sector at a substantially higher initial yield (almost 7% at the end of
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May, from 5.9% at the end of April), but still expect distribution growth to average between 7% and 9% per annum over the next three years. However, investors should brace themselves for a bumpy ride in the short term. The increase in foreign ownership of South Africa’s largest listed property companies exposes the sector to significant volatility due to the short-term, opportunistic nature of these investments. Any deterioration in South Africa’s fundamentals and the resulting change in foreign investor sentiment would lead to further capital losses in the sector. Based on management guidance, the outlook for the rest of 2013 and 2014 has moderately deteriorated. Similar views have been expressed by retailers who have witnessed a slowdown in sales volumes, particularly among less affluent customers. This may put pressure on retail rentals in the medium-term, although most listed property companies expect to be able to push through modest growth in rents paid by their retail tenants. The office and industrial markets remain tough and most management teams expect little growth in market rentals over the medium term. Retaining tenants and filling vacant space in a tough leasing market has resulted in an increase in concessions, like rent-free periods. On a more positive note, the cost of debt capital is reducing as interest rates remain lower and more companies broaden their access to the debt capital markets. With interest rates expected to stay lower for longer, despite the increase in inflation, listed property companies with fixed
debt maturing in the short term will benefit from the lower interest rate environment. The lower cost of capital available today presents an opportunity for listed property companies to undertake income-enhancing acquisitions, developments and redevelopments. Initial income yields on these projects are often more than 1% or 2% above the company’s cost of capital and create signif icant value for shareholders through an increase in the company’s income base. While the listed property sector is enjoying access to cheaper capita l, many private investors are being completely shut out by banks unwilling to lend to smaller players in the property market. This has reduced competition for property acquisitions and should enable l isted proper t y compa n ies to cont inue improving the overall quality of their property portfolios. Today, an investment in South Africa’s listed property sector offers the prospect of an attractive initial income yield (almost 7%) and the opportunity to experience both income and capital growth in excess of inflation over the long term. In the short term, the sector is likely to experience higher levels of price volatility until the Rand stabilises and bond yields consolidate or start falling. Each pullback in prices is another opportunity to gain exposure to an asset class that provides an adequate level of income and hedges income and capital against inflation in the long term.
RESOURCES Grindrod Asset Management www.reimag.co.za
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FINANCE
Derivatives...
BY JONATHAN SMITH
The key to reducing interest rate risk
D
uring the past few weeks readers wou ld have noticed ex tensive volatility in our Rand/Dollar and Rand/Pound exchange rate and this has led to some concern over both our inflation and interest rate outlook. Although South Africa’s economy is soundly managed at present, our country is part of the group of developing economies and, as such, suffers from volatile interest rate activity as world markets punish or reward other developing economies for their poor or good fiscal discipline. Even in an emerging market, such as South Africa, property companies can make use of a wide variety of derivative (interest-hedging) instruments to protect themselves against interest rate fluctuations. The purpose of using derivatives for the purpose of defining a gearing (loan) strategy is to provide a hedge against volatile interest rate activity and, now that there is a possibility of interest rates rising – somewhat extensively if our Rand continues to slide and inf lation skyrockets as a result – such hedging becomes a critica l consideration for commercia l property investors.
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July 2013 SA Real Estate Investor
The core problem when deciding upon a hedging policy is to strike a balance between uncertainty and the risk of opportunity loss. It is in the establishment of this balance that we must consider the risk aversion and the preferences of the investors. Establishing and implementing an hedging policy is a strategic decision of the utmost importance that can determine a property company’s success or failure.
incumbent within their present loan agreement by entering into an agreement with a third party who provides a fixed (or capped) interest rate derivative product.
South African borrowers can benefit from a deep (extensive and wide) and liquid hedging market that can secure interest rates for up to fifteen years, although most property funds only do so for a maximum of three to five years as SA conditions can change relatively quickly, compared to the European and American markets. The result of a property investment company’s participation in such structured schemes is that their earnings are smoothed for a defined investment period, making investor participation an attractive option (to investors) and creating certainty in an uncertain and volatile universe.
Derivative instruments can be divided into two groups
The use of interest rate derivatives allows geared property companies to: (i) repay their floating rate loans and obtain a fixed rate loan from a new (alternative) financier for a specified period; or (ii) swap out of the f loating rates agreement
In either circumstance, the property company obtains the benefit of a fixed interest rate on its borrowings for a specified period and can guarantee shareholders a smooth return.
Forward products: which products f i x the borrower into a forward rate of interest (regardless of market fluctuations) and which, consequently, fix the repayment for which the borrower is liable during the loan period. These products can be termed interest rate swaps or forward rate agreements. Option products: which products introduce f lexibility into the repayment arrangement and which allow the borrower to repay the loan at the borrower’s option. Normally, such an option attracts a cost premium (of approximately 2%) in view of the risk which the lender faces by having to face the possibility of an early repayment of the loan value. These products are termed caps, floors and collars. www.reimag.co.za
COMMERCIAL The borrower’s decision as to whether to obtain a forward or option product will depend on the borrower’s view of the market rates into the future. Market shift instigators, such as commodityprice shifts, disinvestment, catastrophic events or price shocks, can cause the confidence in an economy to decline in such a manner that the cost of money rises steeply. Such rises are reflected in the yield curve of our bonds from time to time. The market’s perception of future inf lation is the factor which determines the slope of the yield curve: if the market anticipates that inf lation shall increase, then the market is suggesting that there shall be (as a result of such increased inflation) less money circulating in the economy. If there is less money circulating in the economy, the resultant under-supply shall result in a higher demand for bonds, forcing the yield of bonds upwards. Having established how the yield curve works, we are now able to relate this (yield) curve to a borrower’s desire to borrow funds with some certainty. By calculating the value of the amount available for loan repayment, one can calculate both the value of the loan that can be taken and maximum interest rate the borrower can tolerate. This means that the borrower can agree a fixed interest rate over a ten year period which will establish a fixed (certain) cash flow during the ten year period. As discussed above, the yield curve – a summation graphical representation of the certain 3, 6, 9 and 12 month money market rates as well as the benchmark government rates payable in respect of the RSA 157, RSA 168 and RSA 196 long-bonds – is an indication of where rates are expected to lie during the investment horizon. The yield is normally sloped upwards (positively sloped) in order to portray the lender’s desire to obtain a higher rate for longer period loans. This higher rate compensates the lender for inflation and business associated risk. www.reimag.co.za
A downward sloping yield curve indicates that short-term interest rates are high and, as money becomes more available as a result of investment in the bond and money markets, lenders expect the cost of money to decrease over time. In an inflationary environment, such as South Africa may experience in the coming months, the yield curve is positively sloped, indicating that the cost of medium- to long term funding can be expected to increase. Investors in the property sector would be well advised to monitor the yield curve on a regular basis and to ensure that their asset managers are compensating for interest rate fluctuations by obtaining the benefit of derivative products.
“The benefit of a hedging mechanism or a derivative agreement is that the borrower pays a fixed interest repayment during the agreed period” Matching principle Financiers are able to match the cash flow needs of the borrower by determining with accuracy the borrower’s requirements and funding the amount required in a carefully calculated manner which provides the borrower with a steady or smooth cash stream. The repayment is matched to the residual lease income over the loan period after interest rates are pegged. Bearing in mind the two alternative derivative arrangements which are available, the borrower can fund the property development through a fixed rate loan or through an option capped loan. The latter allows the borrower to repay the loan in the event that such repayment is prudent. In the case of an option product, the borrower renews the loan periodically and the lender guarantees that interest rates – over a mediumterm period of 3 to 5 years (and even over a longer period of 15 to 20 years will remain within a (narrow) band (or spread) of values. This has positive implications for the risk prof ile of the investment as the standard
deviation of an investment can now be reduced to a narrower range as a result of the very small (financial) interest rate risk. Naturally, property portfolio investments are even more reliant on such forward rate agreements and interest rate swap agreements as the portfolio risk extends to many shareholders and asset managers have to do all they can to limit such risk.
Calculating the cost of interest derivatives South Africa has a large array of useful and interesting hedging and derivative instruments. The essential issue with regard to hedging or derivatives is that, through a series of calculations, lenders or funders can work out a flat interest rate for as long as fifteen years, which fixed interest rate will be payable by the borrower for the length of the loan period. The outcome of this is that the equity investor can expect to receive a f lat earnings yield throughout the period of the investment, creating a certainty about his or her investment in what may have otherwise been an uncertain investment paradigm. The benefit of a hedging mechanism or a derivative agreement is that the borrower pays a fixed interest repayment during the agreed period and his or her repayments are not subject to interest rate fluctuations: this is because the interest rate is fixed throughout the loan period. You will recall having read that there are two groups of derivative instruments which we need to consider. Forward interest products (such as interest rate swaps and forward rate agreements); and option type products (such as interest cap agreements or caps, floors and collars.) Choices between the two are related to the borrower’s need to attain certainty (in his repayment schedule) and his perception of future interest rate fluctuations. During the past twenty years, the fastest growing global financial market has been the futures and swaps markets. These markets allow borrowers to manage the risk associated with interest rate volatility.
RESOURCES Courtwell Consulting
July 2013 SA Real Estate Investor
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RETAIL
BY ANGELIQUE REDMOND
Embracing New Trends Rural retail on the rise
T
he basic ingredients for life are food and clothing, and for small towns and townships, rural retail stores are meeting this need more predominantly. Townships and smaller towns generally do not have great transportation systems and are not in close proximity to large shopping centres, further increasing the preference for rural retail stores and malls. Keillen Ndlovu, head of Property Funds for Stanlib says, “When it comes to retail property investment, the lower income market is still
the place to be. It is where the population is and where the growth is. There are still opportunities for smaller retail centres with a convenience element”. South African townships have undergone a series of transformations since the 1990’s, and public and private sector investment has increased, with townships becoming an everpresent part of the urban landscape in South Africa. The residential elements of a township are old township houses, hostels, RDP houses, informal settlements and vacant land suited for residential purposes, as well as houses which double as informal shops and homes.
Some towns have up to 600 000 people, and consumer demand for convenience as well as steady population growth offers major prospects for retailers. In South Africa, people living in rural areas and townships (or second economy locations) spend more than R308 billion annually, representing 41 percent of total consumer spending. “Townships and rural areas in SA have emerged as a new market for national retailers as we see an upward movement amongst township communities in terms of expendable income”. Says Ndlovu. Pronounced spikes in shopping at month ends and early stages match payments of government social grants and salaries for the growing working middle-class, less reliant on discretionar y spend, providing more stable trading densities in rural retail. With approximately 16 million people currently on social grants in South Africa, the market for rural retail has a large base from which to draw its customers and has created a strong demand for more retail centres in areas where previously there were none. Clearly social grants paid by the state are encouraging growth in rural retail and are helping retailers in township shopping centres weather the current economic conditions. “This movement has resulted in a considerable increase in shopping mall development in these previously untapped areas.” Says Marc Edwards of Spire Property Management.
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www.reimag.co.za
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Outlying towns in the Eastern Cape such as Sterkspruit – situated just before the Lesotho border, and Mthatha and Tsolo in what was formerly known as the Transkei, are experiencing an increased demand for retail space, reports Amanda de Lange, portfolio manager of JHI Properties, based in Port Elizabeth. JHI operates in the area along the Eastern Cape from Mthatha through to East London, King Williamstown, Sterkspruit and Queenstown. “Currently we are receiving a high number of enquiries for retail space in Sterkspruit and Mthatha, mainly as a result of a pent-up demand as well as growing passing trade. It also appears that national retailers, who may perhaps have saturated the market in major centres, are now looking at outlying areas with potential,” says de Lange. One example of a retailer who has acted with foresight in this regard is Shoprite. With over 1500 stores, it is Africa’s largest grocery chain and is in a prime strategic position as it has already penetrated the rural market quite effectively. Two Shoprite stores owned by a community property fund, in Diepsloot and Tembisa, enjoyed the highest turnover per square metre of any Shoprite outlet in SA over the past two years. Futuregrowth portfolio manager James Howard said Shoprite has a long history of investing in township and rural property even before returns looked promising.
“Shoprite has backed rural development for the past 15 years, before these areas were seen as investment hotspots. We have seen land in places that are considered ‘no-go areas’ develop into attractive ... stores.” Diepsloot and Tembisa were not the only township areas that were experiencing property investment, he said, pointing to investors’ confidence in townships and high-density areas. “It is specifically retail that creates the base of a new development node that other initiatives can then benefit from, including Bridge City in the KwaMashu area in KwaZulu-Natal, which was built over a commuter railway station and has a new magistrate’s court and a hospital being built.” And with a significant increase in the development of townships and rural areas, this is a new market for national retailers.
A growing rural retail lanscape Kenako Mall in Port Elizabeth is setting new standards and creating a good example when it comes to township and rural retail developments. Pointbreak ’s John Hamman adds: “This is a long-term investment and we have made provision for potentially expanding to 30 000 m² in the future. Apart from the value which Kenako Mall offers investors, we’ll also be looking at increasing the value that the mall brings to the community.” The opening of Kenako Mall was met with much excitement. The parking lot, with just under a thousand bays available, was fully packed.
Following the traditional ribbon cutting, hundreds of trolley-pushing, cheering people streamed into Kenako Mall, most notably into Shoprite. The positive comments and posts on the Kenako Mall Facebook Page, with nearly 7 500 “likes” already, is indicative that the timing and location for Kenako Mall was spot on, filling a need in the community. “The increase in expendable income in townships and rural areas has opened up a new market for national retailers,” says Pointbreak’s Pieter Laubscher. “Kenako Mall gives its target market access to South Africa’s leading retail and fashion brands. In terms of creating a pleasant shopping experience, we invested in a beautiful centre layout and quality finishes.” The 19 000 m² mall is ideally placed in one of Port Elizabeth ’s biggest townships, with a catchment area of more than 340 000 shoppers and an estimated retail potential of R1,2 billion. Besides the 4 000 m² Shoprite, other top brands as tenants include Truworths, Ackermans, Pep, Clicks, Mr Price, Tekkie Town, Capitec, Standard Bank, Hungry Lion, McDonalds, Jet, Edgars Active, Identity, Legit, Fashion IQ , etc. At the opening, Kenako Mall had 88% tenants, with 76% being nationals and a keen interest in the remaining 12% of the mall.
RESOURCES Stanlib, JHI, Pointbreak Spire Property Management July 2013 SA Real Estate Investor
43
REDEVELOPMENT
BY ANGELIQUE REDMOND
Changing the face of JHB’s inner city
F
AFHCO meets the challenge
ollowing on from the article on the mass exodus from Johannesburg’s inner city, to the suburban area, the questions that remains is what will become of the inner city now? Once a bustling hub of activity and a renowned business district, can Johannesburg’s CBD come back fighting? The answer lies in the companies and people who are, building by building, changing the face of the inner city, and stimulating activity. Enter AFHCO and it’s Chief Operating Off icer, Renney Plit, who have numerous successful projects under their belt, and many more on the cards. Johannesburg was one of the many cities that faced massive urbanisation as people f locked towards the city for work, swelling the number of residents and creating a massive housing backlog, which in turn created massive overcrowding and turned once lively, sought-after areas into crime hotspots, such as Hillbrow. Loren Landau, director of the African Centre for Migration and Society at the University of Witwatersrand, says: “While the rates of migration may not be as high as some feared, the growth rate when translated into absolute numbers nonetheless represents an important demographic and political challenge to local authorities and others mandated to provide for the urban poor.” Cities like Johannesburg remain a magnet for migrants from inside and outside the country and while the expected
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levels of growth have not happened, the city is still growing at an estimated 1.9 percent per annum, twice the national rate. “We’ve still got a backlog in terms of addressing needs like housing,” said Prof Phil Harrison, a member of South Africa’s National Planning Commission. “It might actually be a blessing if growth isn’t as fast as was anticipated.” Investing in the inner cit y is well worth it from a f inancial point of view, Paul Lapham, the chief executive of Citiq, explains: “ an innercity apartment purchased in 2000 would have delivered capital appreciation of 11.5 percent (conservatively speaking) over the
“There is also the hope that government and council will become more engaged.” past 12 years, while similar townhouses in suburbs such as Greenstone, Halfway House, Winchester Hills, Northriding, Olivedale and Weltevreden Park would have generated capital returns of 10.5 percent a year. All property markets go through cycles. The last six years have seen pedestrian and, in some cases, negative growth nationally. In fact, 2012 was the year that saw the lowest number of both inner city and suburban townhouse sales since 2000. But, even during the slump, apartments in the inner city of Joburg have remained a solid investment choice, supported
by the city’s status as the economic hub of South Africa.”
But what are the challenges? W hile there are ta x incentives for inner city redevelopment in terms of the Urban Development Zone, which allows companies to write off the cost of construction spent on a project over a period of five years, this only equates to 20% per annum. Renney Plit of AFHCO explains: “ as great as it sounds, the incentive does not drive inner-city investment. The benefits of this tax write off with typical returns investors are able to achieve, are very long-term. After servicing the debt interest on your project, you are not likely to see any benefit from the UDZ for probably at least the first 5 to 8 years. So I don’t think many investors see it as a real driver of investment decisions.” One way forward for investors is for government to review this allowance and come up with a way to impact the short-term benefit for affordable housing investors. Another challenge faced by affordable housing developers is anti-landlord or punitive legislation coupled with a very slow and uncertain legal process. There is a poor enforcement of home affairs policies leading to a proliferation of slum and hijacked buildings, many of whose occupants are illegally in the country. Renney says, “we have a building that we bought, occupied by rent paying tenants, but www.reimag.co.za
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ABOVE LEFT: Greatermans Department Store Before Refurbishment in shocking condition, which became hijacked after we gave notice to the residents to vacate so that the building could be refurbished. We have been involved in court battles trying to obtain an eviction, for about four years. Besides the holding cost on the investment value, other costs such as legal fees, security costs and Council charges build up very quickly.” “The courts have ruled that the City Council is responsible to provide alternate accommodation to the low-income occupants, but they fail to do so, and the process drags on. While Council has hardly delivered to this market sector despite being told to do so by the Courts, it has also unfairly become the burden of the Joburg Council and the Joburg ratepayers to foot the bill for the huge urbanisation taking place in the country, and also the huge migration from Africa into Joburg, both legal and illegal. Joburg inner city is seen as a place of opportunity to make money, and trade in the city is massive,” explains Renney. Along with these problems come the very visible problems faced in the inner city of service delivery and the billing system of the Johannesburg City Council. A city, which is dirty, poorly maintained and mismanaged, creates a poor environment for investment. Any capital interventions by the Council tend to deteriorate, as there are simply no on-going maintenance plans. Despite service delivery protests and this issue becoming a hot news www.reimag.co.za
ABOVE RIGHT: After Refurbishment
topic as residents become fed up with the lack of service delivery, will this bring about change?
towards public transport, bicycle routes and pedestrian walkways”.
Johannesburg Executive Mayor Clr Mpho Parks Tau said in his State of the Cit y Address that in the 2013/2014 financial year alone, the City would spend R7.3 billion on infrastructure, a 37% increase compared with the current year’s infrastructure spend of R4.6 billion. Expenditure on the maintenance of the current infrastructure would be increased from 2.5% to more than 7% of the city’s annual budget, he said.
The Executive Mayor said the new spatial master plan would “transform apartheid settlement patterns and build and vibrant middle-class environment, where everyone can feel safe”. Despite the vow to clean up the crime and grime, it still remains to be seen whether this will be implemented effectively and maintained, after all it doesn’t matter what plans are implemented if there is little or no follow through.
T he massive in f rast r uc t u re spend ing w i l l resu lt in Johannesburg competing favourably with other major cities on the African continent, where seven of the world’s fastest growing economies are found. Of the R7. 3 bi l l ion t h at wou ld b e s p ent on infrastructure in the 2013/2014 financial year, which starts on July 1, R450 million would be channelled into the inner city to address issues such as crime and grime, poor urbanisation, overcrowding and safety.
Despite these challenges there is still a lot of positivity surrounding the CBD and the inner city as developers continue to change the face of the inner city and provide much needed affordable housing. The urbanisation of Johannesburg’s CBD has had a positive effect on the city, it has become the permanent abode of hundred of thousands of residents and their children. The slogan “Live Play Work Shop” defines the city. There is also the hope that government and council will become more engaged and work together with developers and each other to see real change happen. Renney says: “The City is changing and redeveloping at a rapid pace, despite the lack of Government and Council assistance. Imagine what could be achieved if these two public bodies performed.”
A s pa r t of t he 10 -yea r R 110 bi l l ion infrastructure expenditure programme, the city is to introduce a high-density residential development – described as the new “Corridors of Freedom” – that would not only change Johannesburg’s urban landscape, complete with new transport arteries, but would also represent “a decisive move away from private vehicle use
RESOURCES AFHCO July 2013 SA Real Estate Investor
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SMART MOVES
BY BRIAN HAYWARD
Eastern Cape Property Market Rising from the ashes
T
he exclusive Eastern Cape seaside resort of St Francis Bay is one of the unlikely players in the region’s residential property market turnaround, after devastating fires gutted 75 properties on the town’s pristine canals in November last year. According to property professional Jaco Rademeyer, owner of Jaco Rademeyer Estates, the town is experiencing a property market boom thanks to the funds from insurance companies to rebuild the gutted properties. The town’s property values are rising again as builders stream in for the construction of newer, modern homes along the sought-after canal. Some of the homes razed were valued at between R4 million and R6 million. This did not include the value of their contents. This rejuvenation has made the town one of the province’s key property investment areas, Rademeyer said. “There is a definite property boom in St Francis Bay since the fires. The whole the area’s property market has been dead since the recession in the late 2000s, when the first property people got rid of was their luxury homes,” said Rademeyer. “Now that we’re coming out of the recession, people are again looking at investing in lifestyle properties. Added to that trend is the economic growth because of the rebuilding. Contractors in the town have work and there is an inf lux
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of capital into the area. Sales in that area are picking up again.” Another investment area to watch, according to R ademeyer, was the Set t ler cit y of Grahamstown. Its unusual mix of a high demand for accommodation by Rhodes University students, and limited development space given the city’s location, has seen the area’s property prices steadily grow despite the recession. About 40% of homes sold in Grahamstown between March last year and March this year were priced bet ween R800,000 and R1,5 million – a sign of confidence in the market, Rademeyer said. Nelson Mandela Bay, too, was experiencing a surge in residential property demand, although prices remained fairly stagnant, said Rademeyer. Residential property demand and interest among buyers has jumped to more than 20% so far this year, he said. The upward trend was reiterated in the 1st Quarter 2013 FNB Estate Agent Survey, which showed a noticeably stronger picture of domestic residential property demand nationally than the preceding quarter. This came after the final quarter of 2012 had shown a slight decline.
A city on the rise In the Bay, where property prices went into negative territory thanks to the recession in the
late 2000s, demand is once again starting to pick up, Rademeyer said. “There has definitely been robust growth this year. In fact it started last year, after a very flat 2011,” said Rademeyer. “In 2006 residential property growth was up to 25%, but because of the recession we experienced a negative growth rate. “But we are definitely coming out of that now. Although economists say nationally we are still in a bad place in terms of residential property growth, in the Bay we are coming out of that, although the growth is very area-based also very dependent on what has been done to the house.” Because of the high number of people defaulting on their bond repayments and the subsequent home repossessions by banks, supply of residential property outstripped demand in the city – but that is changing. “Demand is picking up again. More people are visiting properties and putting pen to paper. The amount of deals going through is up about 25% from last year,” said Rademeyer. “Nationally the trend seems to be that a house sits on the market for four months before being sold, but here, if priced correctly, we are seeing properties move in two months or less.” For Rademeyer, business has doubled when compared to the same period last year – a trend that was being experienced throughout the city www.reimag.co.za
COMMERCIAL to varying degrees, he said. “I deal with a lot of agents in town, and many experienced a record month in April, which shows business is finally improving since the recession.”
Coega’s market boost With the take-off of business in the Coega I ndu st r i a l D e v e lopment Z one , where companies such as Famous Brands are setting up R400 million factories and the anticipated PetroSA oil refinery is mooted for the area, the residential property market has been reignited, Rademeyer said. He said the developments at Coega had seen an influx of wealth from outside the city – from SA and abroad – as top businesses relocated top experts to their operations at Coega. This has seen areas like Uitenhage and Despatch experience booms in residential demand, as contractors move to the city for projects at Coega. The trend has been even more pronounced in the suburb immediately bordering Coega, Motherwell NU5 and NU6, said Rademeyer. “There used to be uncertainty around Coega, but now that it is taking off and people are buying instead of renting,” he said. “With Coega, we are going to see more of an influx of high earning foreigners to the Bay.
“People from outside the city coming from Joburg and Cape Town are interested in estate living, where security is provided 24 hours and there is a focus on holistic lifestyle qualities. They are looking for big plots and house in secure estates with homes going for R3-million and over.”
Still a buyer’s market The biggest growth in the Nelson Mandela Bay market has been in homes priced up to R1.5 million. “This because people in that price range are your middle-class salary earners. It’s easier for these buyers to get bonds for the properties, as opposed to self-employed buyers who struggle more to obtain bonds. These buyers are usually salaried employees with a combined household income of about R35 000 a month – they can secure these sorts of bonds,” Rademeyer said. “That’s what is good about properties in the Bay: you can a decent home with three bedrooms, a double garage and sometimes even a swimming pool for up to R1 million.” Increasingly popular areas in the city include the suburbs of Lorraine, Mangold Park, Westering and Kabega where demand has grown a massive 30 to 40% from last year.
Meanwhile, the R1.5 million to R3 million house price range saw “a completely different buyer”, Rademeyer said. “It is usually a buyer who wants to upgrade on their lifestyle. The sellers are under stress because they upgraded during the boom years and overextended themselves and now we see some of these properties being sold at less than what was paid for during the boom.” Although prices have remained stagnant, there has been 20% year-on-year growth in demand for these properties, he added. “I often say to clients if they bought this type of property in 2006/7 and didn’t do major renovations, given the recession, they would be lucky if they get anything more than what they paid for it. “ These homes a re genera l ly va lued at the same price that they paid for it. These properties generally sit for four months or longer on the market.” In the R3 million and over category, “buyers generally don’t need bonds: they usually have a big deposit or it’s a cash transaction,” said Rademeyer. “Sometimes it ’s an upgrade of lifestyle, so the deal is subject to selling aother property.” Activity in this price bracket was up 10% in the Bay, Rademeyer said, although it generally took six months to sell the property. “Here we are dealing with a very specific buyer who knows exactly what they want. These buyers know their money is growing better in other investments than in property at the moment. They aren’t putting their money into property at the moment. They rather rent and let their money grow faster in other investments.”
Close to home Escalating living costs have forced many Bay families to relocate to be closer to schools and the workplace, said Rademeyer. “A lot of people are selling to try and get closer to schools and work because of fuel and living costs,” he said. At the same time, the buyers’ market meant that families with liquidity were also upgrading to larger homes. Buyers were not having to pay as much to upgrade as they would have in the boom years, although those looking to extend their bonds were scrutinised closely by banks, he said.
RESOURCES
Jaco Rademeyer Estates www.reimag.co.za
July 2013 SA Real Estate Investor
47
STRATEGIES
BY PAUL BARROW
Commercial Property Uncovered The head of the Barrow Group shares some insights
T
he Barrow Group in Johannesburg is a family-owned, f ifth-generation commercial property and construction company. Paul Barrow heads up the property side of the business and has identified some of the following trends and made some observations about the commercial property sector. • G ov e r n me nt ’s pl a n ne d rol lout for infrastructural spend, upgrading of roads and improvement of services will hopefully stimulate the economy, providing work for property professionals. • The office letting market remains tough, although the pressure remains mainly on Band C-grade buildings in marginal areas and this sector is expected to remain stagnant. • Interest continues to be good in the A-grade category, as well as in new buildings. This trend will continue and improve. • Vacancy levels in our office portfolio are as low as they have ever been – around 3%. The demand for office space in decentralised, safer and more upmarket suburbs continues, and is a global phenomenon. Proximity has always been crucial and continues to be so. • Due to improved public transport in Rosebank and Sandton, these suburbs will continue to gain popularity and there will be a stronger demand for office space. • Not ma ny developers cater for t he requirement of smaller off ice space in the A-grade sector. However there’s a demand among many well-established smaller businesses. • There’s a demand and an appeal among companies to entirely lease an office building for themselves alone, to give them a presence that is not diluted by sharing with other companies. • Some older office buildings are currently being divided – they were designed for a single tenant and have lost that tenant. They now need to renovate and divide, as it’s difficult to sell an
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entire office block that’s empty and not incomeproducing. Dividing it reduces risk and increases the likelihood of it to be rented out sooner. • Houghton is experiencing an uptake in demand for commercial property, following on the heels of Rosebank, the latter’s revitalisation having been a major catalyst. • The demand in Bryanston, where lowerrise offices are the norm, is to be located in a hub that has easy access to the surrounding residential area. It’s about working in close proximity to where you live. • The demand from overseas investors looking to establish a presence in South Africa continues. Their interest is in AAA-grade buildings in Johannesburg and locations that are secure, where transport is not an issue. • T here’s a lso a dema nd f rom S out h A frican businesses that need a presence in Johannesburg. Businesses in Sandton, not near the Gautrain, or located in older buildings are looking at better placed offices in new buildings. • With the cost of electricity continually rising and companies now more educated about energy-saving, they want to see the latest in technology to reduce consumption (especially air-conditioning and electricity) so
as to keep costs down. This is the advantage of new buildings, which have been designed with energ y-saving in mind. This leads to responsible developments and it is also important that tenants are seeing developers as ‘doing the right thing’. • The landlord/tenant relationship is more important than ever and landlords are listening more to tenant requirements. Due to moving costs and a shortage of good rental deals, tenants are not likely to move around much. • One of the trends predicted for 2013 has been the dropping of rental deposits. This is only sustainable for large institutions because they rely on critical mass. Barrow doesn’t see it as a trend for the other players. Dropping deposits will remove the incentive for tenants to leave buildings in a good condition and with paid-up utility bills. • Advice to developers: they should stick to what they know; their niche in the market and not diversify in the hope of more profit. It’s tougher to succeed if they diversify. • The construction industry has been through some challenging times, but is seeing signs of improvement.
RESOURCES The Barrow Group www.reimag.co.za
The Commercial and Industrial Specialists
PROPERTY FORUM
ASK THE
PROPERTY PROFESSOR
C
an you distinguish your “cap rate” from your “discount rate”, and when signing a lease are you sure that all parties understand what is included and excluded in “operating costs”? Is the Consumer Price Index the correct deflator to use in the rental escalation of leases? When signing a lease do the land owner and tenant have a similar understanding of the responsibilities associated with a triple net lease? For the seasoned property investor property terminology is part of a daily vocabulary and becomes second nature. But for the novice property investor the sector can feel not unlike travelling in a foreign country with one’s limited understanding of the local language. It should therefore not come as surprise that a clear understanding of important property concepts and terminology can have a profound impact on the success or failure of an investment opportunity. This new column offers you an opportunity to query concepts that you may have come across in the South African property market. Investment markets across the globe apply investment concepts that are generally accepted and understood across different markets. Having a common understanding of investment concepts not only facilitates financial interactions across markets and countries, but also offers a common framework for property investments to be analysed. For instance, investment concepts such as the investment yield are used across investment classes. Whether one is invested in cash, bonds, equity and property. There is little disagreement that the investment yield reflects the ratio between income derived from an investment and the value of the asset. The development of international accounting and financial standards has also played an important role in the harmonisation of terminology across national boundaries. Yet, important country specific terminology continues to exist. For example, the use of debt financing is referred to as “gearing” in some countries and, “leverage” in others. British investors acquire properties based on a “year’s purchase”, while in South African investors apply a “capitalisation rate”.
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The property market also has its own terminology. And to Professor Viruly this can be added concepts used in particular sub markets of the property market. Moreover, the property investor is confronted with an array of concepts that are of a legal, financial and technical nature. While a concept such as the net operating income (NOI) is common across investment classes, the property investor has to understand the specific characteristics of the property cash flow. The net operating income of a commercial property investment is determined by the strength of the lease, vacancy rates, rental escalations and operating costs. In the retail sector reference is made to “turn over” clauses and “trading densities”. In the industrial property sector practitioners refer to the “eaves height “, and possibly a ‘cubic metre ‘of space. In the office sector it would be normal to speak of “gross rentals and operating costs”. In South Africa reference is made to specific local legal concepts such as the “erf “, and “huur-gaat-voor-koop “. The practical importance of rigorously defining property concepts is illustrated by the fact that over the years a number of legal cases have had to resolve disagreements regarding the interpretation of, for instance, the inflation rate, operating costs and the size of a property let. Being an active investor in an investment class is a continuing learning experience which includes fine tuning one’s knowledge of changing market instruments and practices. Even for the most experienced property investor, entering a new property market can be daunting, requiring a steep learning curve. This column provides a platform offering an opportunity to discuss the critical legal, financial and technical concepts used by property investors in South African commercial and residential property markets. Readers are encouraged to “Ask the Professor” questions about the market.
www.reimag.co.za
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US Housing Crisis Is Over
Q1 Strong For Europe
PIC Set To Expand Into Africa
The infamous US housing crisis which spilled over into worldwide markets and was a major cause of the 2008 global f inancial crisis seems to f inally be over in the US at least. Residential real estate prices released by S&P/Case Shiller recently show that the US residential market has begun to recover after 5 years of negative growth. The results show that in the 12 months to Februar y 2013, US house prices rose by 9.3 percent. This index is based on the property values in 20 major cities. The largest gainers were Phoenix with 23 percent growth, followed by San Francisco (19 percent growth) and Las Vegas (18 percent growth). The two largest US cities, Los Angeles and New York, also both recorded price grow th over the 12 month period.
The first quarter of 2013 saw high levels of direct real estate investment across Europe, building on the momentum at the end of 2012, as both international and domestic investors targeted real estate assets. Transaction volumes in the large markets of UK, France and Germany grew as they retained the bulk of investor attention. This resulted in London, Paris and Moscow all ranking in the top 10 global cities by volume, accounting for US $11.5 billion of the $40 billion total investment. Over 50% of transactions in these three cities was cross-border, as overseas investors sought to gain exposure in the largest European markets. Richard Bloxam, Head of European Capital Markets at Jones Lang LaSalle explained: “Buyers are scrambling for opportunities in the largest European commercial real estate markets and this strong competition for the best product means we have seen a widening of search criteria, including location, asset class and risk level.
The Public Investment Corporation (PIC) is awaiting final approval to invest up to R12 billion in commercial real estate in various countries across Africa, the PIC’s first foray into property markets outside SA’s borders. PIC recently overtook JSE-listed Growthpoint Properties as the biggest player in the SA commercial property space, with real estate assets under management now at a colossal R62,5bn at March 31. That’s up from R25,7bn four years ago. Lesiba Maloba, GM of PIC says given the shortage of existing stock in most African countries, the PIC is looking to partner SA developers, institutions and retailers to develop new properties. “We don’t want to be a passive investor in a property fund. We prefer to be involved directly on an operational basis.’’ But Maloba concedes that Africa is still “virgin territory”, with such vast potential that the PIC’s African investment strategy is not yet set in stone.
Valuable Input
Craig Illman, CEO, Propwealth
Michael Bauer, GM, IHFM
Jenny Ellinas, CEO, Cypriot Realty
Dr Andrew Golding, CE, Pam Golding
Andrew Rissik, Director, Sable FX
“Invest to hold, not to flip or on-sell. Property is a slow wealth creation process with a 10-15 year outlook in London. Buying UK property for cash f low is what most savvy buy-to-let investors are looking for, capital growth is a bonus.”
“The introduction of REITs to the South African propert y investment market is a huge advantage as an international property investment vehicle for South Africans.”
“Cy pr us is t he on ly Eu ropean count r y of fer ing Per ma nent R e s i d e n c y w it h o ut prescribing that you have to physically live there.”
“London has an e x t raord ina r y t rack record of rental and capital growth which makes it an ideal longterm investment - and inflation hedge, not to mention potentially a currency hedge - for a residential buy-to-let investor.”
“Now more than ever when using Rands to ma ke an offshore investment, look for value in your purchase pr ice. A wea k R and and inflated asset prices offshore can contribute to some hefty losses in the event that the Rand turns the corner.”
www.reimag.co.za
July 2013 SA Real Estate Investor
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LONDON
BY MIKE SMUTS
Help To Buy London’s new housing scheme
A
ga inst t he now a l l-too-fa m i l ia r backdrop of economic turmoil in the Eurozone and the ongoing questions regarding the speed and timing of the global recover y – the London propert y market continues to prosper.
Si r Mer v y n K ing recent ly sa id in a n interview with Sky News that the Help To Buy scheme was “too close for comfort” to the US mortgage guarantee schemes that triggered the financial crisis and must not be allowed to become permanent.
Official figures from the Land Registry show that London house prices rose 6.2 per cent in the year to April to an average of £375,795. The monthly increase from March was 1.4 per cent, according to the Land Registry.
The scheme, unveiled in the Budget, will see the Government guarantee up to 15% of a mortgage on properties worth up to £600,000 and is due to run for three years.
The biggest jump was in the borough of Camden, with an annual rise of 11.8 per cent. Prices in Merton rose by 11.4 per cent compared to last year, in Hammersmith and Fulham by 11 per cent and in Wandsworth by 10.8 per cent.
Help To Buy comprises two parts: sharedequity loans and a mortgage guarantee. The shared-equity part of the scheme has already begun and offers a 20 per cent equity loan to anyone, not just first-time buyers, buying a new-build home, meaning they can do so with just a 5 per cent deposit.
London property prices are still racing ahead of other UK regions, but according to analysts UK house prices as a whole will surge by at least 8 per cent and could even reach 13 per cent over the next few years.
The guarantee part of the scheme starts in January 2014 and will incentivise lenders to offer those with smaller deposits better mortgages, because the Government will guarantee 15 per cent of the loan.
The average UK home was worth £167,912 last month, up 1.1 per cent on the previous year, but analysts at Morgan Stanley predict house prices will rise 8 per cent as a whole with increasing lending and driving up bank profits, aiding further recovery in the housing sector.
But although there is insistence that Help to Buy is not aimed at pushing up prices, experts say encouraging first-time buyers to take out mortgages with high loan-to-value ratios will do just that. The Organisation for Economic Co-operation and Development (OECD) has warned that “without a sufficient supply response, some measures could create upward pressure on house prices”.
The f igures come as leading economists, the outgoing Bank of England governor Sir Mer v yn King and former Chancellor Alistair Darling are all warning that the Government’s “Help to Buy scheme” could fuel property prices. 54
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There is of course always the potential of pushing up prices in any initiative that increase demand for housing – especially
while supply is still very limited and we may very well see some very strong growth over the next year. The success of the scheme will however lie in the UK Government’s ability to use this impetus to encourage more housing starts by the UK’s house builders in order to relieve some of the pressure on the supply side of the equation. Just as importantly they will need to keep tight control over were the Help to Buy funds flow to ensure it benefits First Time Buyers (FTBs) who are crucial to a well-functioning housing market. It is a well-known fact that First Time Buyers are the lifeblood of the property market but they also play a key role in economic development. It is estimated that for every one buyer who purchase a home for the first time, a further six transactions are created further up the housing ladder. Each such transaction creates economic and employment opportunity for those working in the industry. These may be as direct as the estate agents, solicitors, surveyors, mortgage brokers and banks working on each transaction or opportunities that are created indirectly for furniture manufacturers and suppliers, moving companies, painters and decorators. For an economy like the UK, heavily dependent on service sector industry, a well-managed “Help to Buy” scheme may just be a helping hand for far more people than just those getting on the property ladder.
RESOURCES
Smuts & Taylor
www.reimag.co.za
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GLOBAL LISTED
BY MIKE WATTERS
Global Diversification
T
With the international REIT market
he term “global village” in investment parlance is now as relevant to real estate as it is with the other major asset classes such as equities, bonds and currencies. Investors have an almost unlimited choice when considering an investment in global real estate. The overriding consideration, that “property is a local asset”, should however always be kept in mind. The conundrum for investors in global real estate is therefore “how can you safely invest in a global asset class that has very local characteristics?” Even w it h today ’s power f u l internet search engines such as Google, it would take a potential investor an inordinate amount of t i m e t o a n a l y s e l o c a t i o n specific real estate opportunities in suff icient detail to make an informed investment decision. This could be achieved by working with a trusted agent or middle man and an experienced property/ asset manager but as experienced property investors know, real estate can be as much a liability as an asset if not managed well.
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6.0%
The answer lies in looking no further than the listed environment of the quoted Real Estate Investment Trust (“REIT”). This vehicle is now a fully-f ledged, universally accepted mature investment product that offers considerable advantages over fixed real estate. Among these are: • liquidity; • real time pricing; • professional management; • local knowledge; • diversification or sector specialisation; • size; and • tax transparency. UK IPD All Property Yield minus UK 10 year Gilt
5.0% 4.0% 3.0% 2.0% Property looks expensive
1.0%
As South Africa has already joined this international trend, the intimate workings of the REIT vehicle will be assumed as a given for the purposes of this article.
Timing your investment Having made the decision to invest in the international REIT market, the next decision is to consider the macro-economic conditions in global sub-markets.
Property yields (and by def inition prices) are driven by numerous factors. The most significant of these are considered to be: • expected (real) growth rates; • pricing relative to sovereign long Average bonds; and • pricing relative to underlying net asset value. Property looks cheap An additional factor in recent times has been the quantitative easing (“QE”) programs initiated by central banks which has become a major influencing factor of late.
0.0% -1.0% -2.0% 2004
July 2013 SA Real Estate Investor
2005
2006
2007
2008
2009
2010
2011
2012
2013
The graph on the left shows how markets can swing between relative over-valuation and under-valuation. In this example UK property prices soared to unrealistic levels up to www.reimag.co.za
GLOBAL LISTED Performance history together with forecasts published by rated analysts should be used in determining who to back.
How much to invest in offshore real estate The rule of thumb is considered to be between 10% and 20% of your portfolio should be in property and about 25% of this should be offshore. This would equate to between 2.5% and 5% of your portfolio in offshore real estate. This can be allocated to internationally focused SA property unit trusts (eg Oasis Crescent International Property, Metropolitan Global Property, Catalyst Global Real Estate); international property shares listed on the JSE (eg Intu Properties, Capital & Counties, Redefine International, Nepi) or international asset ma nagers (eg A l la n Gray Orbis, Coronation, Prescient, Cohen and Steers). The first two can be accessed by investing ZAR currency whilst the latter will require a direct foreign investment using your foreign investment allowance.
The prognosis for investment returns mid-2007 before retreating significantly. UK property prices relative to 10 year gilts currently sit at historic lows. The South African and Australian listed sectors are currently considered very expensive whereas on the f lipside other markets such as Singapore, Hong Kong and Canada are probably neutral at the moment. Japan has had a good run, mainly driven by QE, and is expensive, whilst the UK, Europe and USA have further to run. Once you have decided to invest and have chosen your desired geographical locations, the next decision is picking the actual stocks to invest in. Here you should look at the individual management teams and the sectors they operate in. Redef ine International has a diversif ied mandate meaning it selects the regions and property sectors to invest in. It makes the big decisions on capital recycling and deployment. If you are a sophisticated investor and feel you are more experienced in making these calls yourself, you should invest in the sector specialists. In the UK these would include, inter alia: 58
July 2013 SA Real Estate Investor
• • • • • • • •
Office REITS; Retail REITS; Industrial REITS; Storage REITS; Medical and Healthcare REITS; Residential REITS; Student accommodation REITS; and Infrastructure REITS.
If you are investing via an asset manager, they will most likely do the analysis and selection for you.
Choosing your management team Although property investment is a medium to long-term game, one should be aware of shor t-term ma rket f luct uations that inevitably result from having a listed and liquid security. Management teams can be battered by too much “short-termism” from analysts and shareholders. Investors should look beyond the short term and support those management teams that invest for long-term performance. Eliminate managers that chase quick fixes such as buying short-term income or speculative development with capitalised interest. Future capital expenditure on ageing portfolios must also be kept in consideration.
R EITS around the world are currently attracting signif icant income f lows from investor pools hungry for yield. The central banks QE initiatives are exacerbating these f lows by creating “easy money”. Investors need to be mindful that when the QE tap is eventually turned off, interest rates will begin to rise which may cause a negative re-pricing of REITS. This eventuality is however considered to be some-time away – markets are currently discounting that the Bank of England will only begin to raise interest rates in late 2016. The other side of the coin is that interest rates are only expected to rise once economic growth rates return to historical norms. This will inevitably result in rising rental levels that will counterbalance higher interest rates. The guide here is to choose REITS with low to medium gearing levels, where the upside of rental growth will exceed the cost of higher interest rates. One also needs to look at those REITS that have long-term debt and long-term fixes on their debt - a dose of inflation could send the prices of these REITS into orbit.
RESOURCES
Redefine
www.reimag.co.za
STRATEGIES
BY ANGELIQUE REDMOND
Turning your Home
Into a holiday home
R
enting out your house for a short period of time, either during the tourist season or during a worldwide event, like the Olympic games, is becoming more and more popular and there are now even websites on the Internet dedicated solely to this endeavour. While it can be a great way to make some extra money, there are risks associated with it.
The risks When you are looking for a long-term lease, you do extensive background checks on potential tenants, but with a shorter lease, sometimes you don’t have the opportunity to do your due diligence. Without the proper check, you have no idea who you are letting into your home. If you are renting out your house, even for a short period of time, you may have to get a new insurance policy, which will cover your renters. This will raise your insurance costs and you will need to figure out and factor in the costs when deciding if it’s worth your while. One of the biggest risks to renting out your home for profit, is your belongings will be left behind. Any documents or personal items you leave behind are exposed and susceptible to theft by criminals posing as short-term renters. Depending on the documents you leave behind, someone could extract enough information to impersonate you and run up debt in your name. 60
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If you are going to rent out your home for a short period of time, lock up or remove all your sensitive information.
here is a major social revolution which could help tourism and many families keep af loat through the next four or five lean years.”
During a financial crisis
Also increasingly popular, says Rawson, are systems whereby families exchange homes at no cost to either. This, too, he says, is helping to keep the tourist trade alive.
As has been widely reported, Greece, Italy, Spain, Portugal and Cyprus have been especially hard hit by the current Eurozone and US financial problems and this has caused major unemployment in these countries - and a serious decline in most property values. There have, of course, been some exceptions, such as central Paris, central London, Brussels and Monaco, but the majority of Eurozone homes are now still struggling to get back to 2007 values.
How have hard pressed bondholders in these areas responded to the crisis? Bil l Rawson, Chairman of the Rawson Property Group, says that one of the trends reported back to him by colleagues living in Europe is that in the more popular tourist areas, many people, particularly young couples, have been prepared to move out of their homes and to live with friends or family for part of the year – and then to rent their properties out on shortterm leases to visitors. This, says Rawson, has proved a huge blessing to the tourist industry because tourists are now able to hire complete homes or apartments for as little as R500 per day. “What we are seeing
Says Rawson, “The secret of success is to tap into an already busy holiday renting agency or to advertise in carefully selected overseas media on your own. Recent reports indicate that the rentals obtainable on short-term holiday leases can be very satisfactory indeed, especially if these are in golf estates or on the Atlantic Seaboard. It looks very much as if there is a growing trend for homes to be made available for several months a year while the owners revert to dual living or other means which enable them to vacate their homes for two to five months.” While short-term renting is not for everyone it can be a quick fix in a time of crisis and provide capital when you desperately need it, but there are significant risks to opening your doors to strangers and you need to consider the pros and cons carefully before making your decision.
RESOURCES Global Property Guide
www.reimag.co.za
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REI Lifestyle UPCOMING SACSC CONGRESS
Sandton Convention Centre Johannesburg 11 - 13 September
How does retail remain innovative in a world where shopping is evolving apace? The latest developments in the competitive and changing retail landscape will be charted at the South African Council of Shopping Centres (SACSC) 17th Annual Congress, the continent’s premier retail event. Nedbank Corporate Property Finance, the leader in corporate property finance, is putting its considerable weight behind the largest gathering of retail and retail property professionals in Africa. It will sponsor the SACSC Congress 2013.
IPD INVESTMENT CONFERENCE
Cape Town 18 - 19 July
Now in its 11th year, the annual IPD Property investment conference is widely recognised as the prime property investment event in South Africa, attracting leading Investment and Real Estate executives. Unrivalled content is presented by speakers from IPD’s international network and by South African thought-leaders, in a compact two-day format with significant networking impact. This year we invite property onto the red carpet to showcase its intrinsic value.
DISCONNECT
THE INTERNSHIP
Cinema Release 19 July A comedy you can not miss
Billy (Vince Vaughn) and Nick (Owen Wilson) are salesmen whose careers have been torpedoed by the digital world. Trying to prove they are not obsolete, they defy the odds by talking their way into a coveted internship at Google, along with a battalion of brilliant college students. But gaining entrance to this utopia is only half the battle. Now they must compete with a group of the nation’s most elite, tech-savvy geniuses to prove that necessity really is the mother of re-invention.
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ROCKY HORROR PICTURE SHOW IN CAPE TOWN
Fugard Theatre Cape Town Opening 9 July
Richard O`Brien`s THE ROCKY HORROR SHOW has travelled the World since making it`s humble debut performance at the Royal Court, London in 1973 and continues to fascinate audiences around the globe. This Musical romp, produced with an all local cast and crew by The Fugard Theatre, opens at the Fugard Theatre in July for a limited season only.
Cinema Release 12 July
This ensemble drama starring Jason Bateman, Hope Davis and Alexander Sarsgard is bought to the screen by Murderball director Henry Alex Rubin and explores the pressures put on people in a modern world surrounded by the very technology meant to make their lives easier. With today’s technology and gadgets, it is sometimes hard to connect with other people. Disconnect is about a group of individuals searching for a real human connection. As their storylines intertwine, a shocking truth is exposed about how technology mediates and defines not only our relationships, but even our lives.
This saucy, racy musical, which features hits like “Science Fiction/Double Feature”, “Dammit, Janet!”, “Sweet Transvestite” and the infamous “The Time Warp” and “Touch-a, Touch-a, Touch-a, Touch Me” tells the story of a newly engaged couple, Brad and Janet, getting caught in a storm and coming to the home of a mad transvestite scientist unveiling his new creation, a muscle man named Rocky Horror. There they meet some of the strangest creations on the planet. Tickets are available through Computicket. com OR the Fugard Theatre box office on 021 461 4551...
www.reimag.co.za
UPCOMING EVENTS
World Green Building Convention 16-18 October
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eing held on African soil for the first time ever – this year South Africa will play host to the largest international network inf luencing the green building marketplace, comprising 92 global councils – making this the most distinctive sustainable building gathering ever hosted on the continent. The WorldGBC Congress will run in parallel with the premier Green Building Convention at the Cape Town International Convention Centre making it an incomparable opportunity for global green building thought leaders, industry professionals, innovators, environmentalists and students to exchange ideas, build capacity and accelerate the green building movement.
Connecting Minds – visionary speakers in line-up Already confirmed in this year’s line-up of impressive speakers are: Richard Fedrizzi, founding chairman of the US Green Building Council and current Chairman of the WorldGBC; Romilly Madew, CEO of the Australian Green Building Council – voted as one of Australia’s top 100 most influential people in 2012; Gunter Pauli, entrepreneur, author and initiator of the Blue Economy concept - a plan to develop 100 manufacturing innovations with viable business models that could generate 100 million jobs in 10 years - all with zero emissions and no waste; Lewis Pugh, an ocean advocate, pioneer swimmer and explorer who was named as a Young Global Leader by the World Economic Forum for his potential to contribute to shaping the future of the world through inspiring leadership; and Cameron Sinclair, the co-founder and CEO of Architecture for Humanity, a charitable organization which seeks architectural solutions to humanitarian crises and brings professional design services to communities in need. “The Green Building Convention is not only about knowledge-sharing – it’s also about like minds connecting,” says Brian Wilkinson, CEO of the GBCSA. “We have created plenty of opportunity for delegates to engage with captains of industry and key decision-makers and opportunity to browse stands showcasing the latest in green building innovation.”
Building value – what to expect An engaging programme has been designed to both challenge and shift paradigms, which will be enriched by a world-class exhibition - created to encourage business to business opportunity, stimulate the green economy and inspire both our global network local and international colleagues. Underpinned by the ‘ReWire’ theme this year offers several exciting new activities such as city walking and building tours. A Sustainable City Tour, will be led by the City of Cape Town, and showcases the sustainable initiatives that the city is currently rolling out. In addition to the walking tours, delegates will be able to undertake building tours of various Green Star SA rated buildings in Cape Town and see first-hand what sets these buildings apart. www.reimag.co.za
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GREEN MONITOR
BY SUSAN WARD
Simple Ways To Save By greening your business
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hether you run a home-based business or a brick-and-mortar retail business, there are simple, easy things you can do to go green. And operating a green business is not only good for the environment but good for your business’s bottom line because conserving resources and cutting down on waste saves money. Here are just ten easy-to-implement ideas for running a green business from the Department of Foreign Affairs and International Trade’s Greening Operations guides that you can put into practice right now to make your business a more environmentally friendly place. Whether you run a home-based business or a brick-and-mortar retail business an off-site enterprise, there are simple, easy things you can do to go green. And operating a green business is not only good for the environment but good for your business’s bottom line because conserving resources and cutting down on waste saves money.
Go green by: 1. Turning off equipment when it’s not being used. This can reduce the energy used by 64
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25 percent; turning off the computers at the end of the day can save an additional 50 percent. 2. Encouraging communications by email, and reading email messages onscreen to determine whether it’s necessary to print them. If it’s not, don’t! 3. Reducing fax-related paper waste by using a fax-modem and by using a fax cover sheet only when necessary. Fax-modems allow documents to be sent directly from a computer, without requiring a printed hard copy. 4. Producing double-sided documents whenever possible. 5. Not leaving taps dripping; always close them tightly after use. (One drop wasted per second wastes 10,000 litres per year.) 6. Installing displacement toilet dams in toilet reservoirs. Placing one or two plastic containers filled with stones (not bricks) in the toilet’s reservoir will displace about 4 litres of water per flush - a huge reduction of water use over the course of a year.
7. Finding a supply of paper with maximum available recycled content. 8. Choosing suppliers who take back packaging for reuse. 9. Instigating an ongoing search for “greener” products and services in the local community. The further your supplies or service providers have to travel, the more energy will be used to get them to you. 10. Before deciding whether you need to purchase new office furniture, see if your existing office furniture can be refurbished. It’s less expensive than buying new and better for the environment.
A Green Business Starts With Small Steps Environmentally friendly actions don’t have to be large to have an impact. Consistently reducing the amount of energy, water, and paper our businesses use can make a huge difference, both to the environment and to our pocketbooks. How much paper would you save over the course of a year, for instance, if you always ran doublesided copies? A small easy way to go green - but a big result!
www.reimag.co.za
Integrated Real-time in the Cloud
Software designed for property managers www.mdapropsys.com 0861 00 2231
MY STORY
BY ANGELIQUE REDMOND
Dreams Do Come True Just ask Musa Hadebe
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usa Hadebe, the second runner up in the Master Investor of the Year competition has overcome adversity to get where he is today, with a keen eye for investing, he caught the judges attention and his story catapulted him into the top three. 66
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“I working as a technical advisor for Westbank First Auto, but I had this idea that I needed to work for myself, so that I could create jobs for other people and gain financial freedom. I had brothers and sisters who were not working and I could see how hard it was to find employment,
with unemployment rife and growing each day,” says Musa. He then decided to quit his comfort zone and taking a risk he resigned and started a tuck shop in Yeoville, JHB. Not long after this he spotted a shop in Joubert Park already under ownership but not being utilized to it’s fullest www.reimag.co.za
potential. Musa approached the owner with a proposal to make the shop more profitable and he agreed. “That actually turned out to be the big break on my life because I opened a supermarket there and I had to close the take away sport and converted it to a laundry business, as times goes I was working hard and the place was very busy, I also managed to buy the bottle store as well,” explains Musa. But with that success came rent increases and Musa began thinking of investing in property, having seen how his landlord was making money simply through owning the property turned Musa onto the idea of becoming a landlord himself. As he says, “what got me interested in property is that I could see that if you have it and are taking care of it, property can bring you lots of money in the long run.” He began reading SA Real Estate Investor Magazine and attending property seminars to learn more about investing in property. It was during the sale of his first property that Musa leant he was a shrewd negotiator, “while I was looking for a property to buy I came across this Estate Agent in Kempton Park, they were selling a flat for R390 000, so they showed me the place and I liked it. I came back afterwards to talk to the tenant about the rent and other things that I wanted to know, it so happened that the tenant told me that this 2 bed roomed f lat actually belonged to the same agent and that he owned another f lat in the same complex. Next day I called the agent and he and his wife came by and we discussed them selling both flats to me. They said if the price is right they would sell, so we negotiated. I ended up buying both flats for a good price, paying R335 000 for each, which was a very good price to pay.” With a 100% bank financed bond, Musa was now a property owner to not one but two properties. And he hasn’t looked back since that first sale. “ I currently have 10 properties and own my own company called Mthimkhulu Property, I buy, sell and rent property and do rental management, and my properties have a market value of about R7, 5 million.”
stream of income. I also like the relationship between a tenant and the landlord as I am a very hand on person,” explains Musa. “When I started buying properties as I have mentioned earlier I started with two flats and the concept that I was using or learnt was to buy a property and then put a tenant in it, and you can subsidise it for maybe two or three years. After that it will be able to pay for itself because rent goes up every year. It was my first time investing in property and I enjoyed it , but as they say, ‘experience is a good teacher.’ I continued to learn about the property business and asked people that I knew questions about investing. The nice thing about this industry is that most of the people who are in it are very easy to talk to and they freely give you information, and in much the same way I help anyone who asks me for property advice.” A major source of inspiration for Musa was Mark Anthony, a rental manager in the Hillbrow/ Braamfontein area. He knew Mark from a business relationship between the two when he ran a cleaning company that contracted out to his building. So one day Musa went to him and they sat down, “I told him that I have started buying properties because I liked what he was doing and I want to learn from him, he was so happy to give me few hours of his time and he asked me to explain to him what I have done and how far I am. I explained everything about the methods that I was using; from there he said something to me
that I will never forget in my life. He did not want to criticize the methods that I am using, he just said ok I will ask you this question and I need an answer. I said go ahead, he said you have a shop right? How much do you buy a loaf of bread for? I told him R5.00, he asked me how much I was selling it for. I said R5.50, but he asked me why I wasn’t selling it for R4.50? I explained I have to make a profit and he asked why I was doing the opposite with the property. That is a lesson I will never forget, and he also told me where to find those properties all around JHB and even how to get the tenants. From there I must say I did exactly as he said with all the properties that I bought and they were all cash positive properties. I never looked back; today I am only interested in properties that are going to generate money immediately.” Knowledge and instinct play a key factor in Musa’s success, with little knowledge about the industry he picked up on one of the key factors to success, cash generating property and using other peoples money to make you money. With a good instinct and the right knowledge Musa has realised his dream of becoming financially free and generating employment, “ Most of the information I needed I got from SA Real Estate Investor Magazine,” says Musa, “ Some of the people I look up to are Gordon Mackay and the P3 Property Group.”
“My finance strategy has always been to apply for a 100% bond and if I don’t get it then I pay the deposit using funds from my business’s. My property strategy is to buy old houses, renovate them and rent them out, generating a steady www.reimag.co.za
July 2013 SA Real Estate Investor
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AREA REVIEW
BY ANGELIQUE REDMOND
5 Star Area
Sea Point ticks all the right boxes
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ituated between Signal Hill and the Atlantic Ocean, Sea Point is one of the most densely populated and vibrant suburbs of Cape Town. Sam Wallis, a commander serving under Capt a i n C o ok , w ho c a mp e d w it h h is men there to avoid the smallpox epidemic sweeping through the Cape, named Sea Point in 1776. By the early 1800s Sea Point had begun to develop as a residential suburb and by 1839 it had connected with Green Point to become one municipality. In 1875, a census indicated that the combined population of Sea Point and Green Point was 1425, and by 1904 this number had grown to 8839. The liberal politician of the Cape Colony a nd M P of Cape Tow n, Sau l Solomon i n f luenc e d muc h of S e a Poi nt ’s e a rly development in the 1800s. Solomon was perhaps best known for his fight against racial inequality in the Cape, although he was also known as the founder of the Cape Argus. During 1862, the opening of the tramline in Sea Point f ur ther boosted the a rea’s development with it gaining the reputation as Cape Town’s first commuter suburb. On 1 December 1905, the railway line from Cape Town had reached Sea Point. 68
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Today residential property in Sea Point has become more sought-after, which has led to a recent surge in the property values in the area. Currently the average price of a house in Sea Point is R 3 784 144. There are currently 434 properties on the market in Sea Point. Divided by Main Road, there are t wo areas of Sea Point. Above Main Road is the predominantly residential area of Sea Point with homes and guesthouses looking over Table Bay and Robben Island. Below Main Road exists the high-rise apartment blocks and hotels, which face the sea. The Sea Point promenade is a popular tourist and local destination for jogging and walking dogs. Find the locals here on a Sunday playing an intense soccer match or walking their dogs Sea Point is filled with locals from the area, Green Point, and Bantry Bay, but it also has a strong tourist population. Find the young and hip in this area, as well as a large working population. Ever y thing from schools to nightclubs exists in Sea Point, drawing a large crowd of vibrant people.
When to visit Sea Point? Sea Point is located just up the road from the V&A Waterfront, both on the Atlantic
Seaboard. The best time to visit this area is during the summer, between November and April, when the weather is fine and hot. Winter tends to be cold and wet, but the storms around Cape Town are a sight to behold, especially when tucked up in your Sea Point accommodation on the beachfront.
Close By attractions Adelphi centre: Originally opened in 1974,this centre on Sea Points Main Road has a plethora of clothing shops, grocery stores, and boutique items for your tourism de lights. V& A Waterfront: This is a mall with a difference; situated in a working harbour, the Waterfront houses over 400 shops and restaurants. Located next to this mall is the Two Oceans Aquarium. This is a must-see if you love marine life and / or have children.
Things to do near Sea Point Right up the road from the Sea Point suburb is Table Mountain the iconic f lat-topped mountain for which Cape Town is so famed. You can take the rotating cable car up to the top or, if you are of the more adventurous sort, take the tough hike through the forests and up to the top. Either way, the views are stunning and endless. www.reimag.co.za
Settle for nothing less than a Sunday dinner and live jazz performances at the Winchester Mansions Hotel on any given Sunday. Here you can experience a classy afternoon entertainment with many other tourists and locals. If you happen to be staying in Cape Town accommodation during the month of December, take a break from the Christmas activities and come down to Sea Point for the Festival of Chariots. The East-meets-West experience will move you and inspire you as to the diversity of our country.
Getting around Sea Point is on the Golden Arrow and Hop On Hop Off bus route, so you’ll always be at the centre of transportation.
Area property information Adrian Goslett, CEO of RE/MAX of Southern Africa, says that due to the large number of high-rise developments, sectional title units in Sea Point outnumber freestanding homes by approximately nine to one. Houses in Sea Point range from modest to grand. Above Main Road, one can find a large, exclusive villa or house for sale, while below the road, one can find more affordable options dotted between blocks of flats. Whether you want to make the suburb your www.reimag.co.za
home or want to profit from real estate, a house for sale in Sea Point is an excellent investment. According to Lightstone figures, the area is popular among all age groups and buyer types with around 30% of recent buyers aged between 50 and 64 years old, 28.57% aged between 36 and 54 years old, 24.76% aged from 18 to 35 years old and 16.57%, 65 years old or older. He adds that the largest percentage of existing owners (35.03%) are from the 65 years old and older age group, this group also accounts for 37.33% of those who have recently sold their property. Goslett says that from 2004 to 2008 property prices in Sea Point saw steady annual increases, however, in 2009 prices dropped for the first time. The decline was short-lived and by 2010 property prices had regained what they lost and hit record highs of an average of R3.2 million for a freestanding home and approximately R1.564 million for a sectional title unit. While prices saw another dip during 2011, they have once again gained momentum and are currently significantly higher than the prices seen during the peak of the boom period. He notes that property sales volumes were remarkably high from 2004 up until 2007, with an average of around 600 properties selling per
year. However, in 2008 the number of properties sold in Sea Point dropped to approximately 380. While numbers of sales have stayed at the levels seen in 2008, these are still much higher than numbers experienced in many other suburbs around the country.
Demand for property According to Goslett, the most sought-after real estate in Sea Point last year was property that fell within the R800 000 to R1.5 million-price bracket, accounting for 37.9% of all properties sold in the area between April 2012 and March 2013. He notes that another popular price bracket were properties priced between R1.5 million and R3 million as 33.3% of homes sold within the same period fell within this price range. Around 14.1% of properties were sold for between R400 000 and R800 000, while 12.5% were sold for R3 million and higher. Only 2.2% of properties were sold for under R400 000 between April 2012 and March 2013. Whether you want to live in Sea Point or buy property for investment purposes, this area gets 5 stars from our property team, and is a great place for long-term investment.
RESOURCES RE/MAX
July 2013 SA Real Estate Investor
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TECH TALK
BY RUSSELL BENNETT
Open-Source Is Back op For Your Deskt
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ack in the late nineties and early noughties, when I was still deeply entrenched in the burgeoning technology journalism game, open-source software (OSS) was one of my pet “beats”. Specifically, the drive to get a Linux distribution capable of taking on the giant Microsoft in the desktop space. In truth, this was a favoured topic for many tech journos of the time. And why wouldn’t it be after all, as who isn’t interested in reading about a way which could drive down the purchase price of new PCs by R1000 overnight, without compromising a whit on computing horsepower or component quality. And the big-hitters of the Linux world were pushing just as hard to make this happen, for obvious reasons of their own. Until along came Mark Shuttleworth with the Ubuntu Linux distro, which still today is probably the strongest contender for desktop mindshare in the OSS world. However, despite all this media focus and massive R&D spend, it never happened. Today Linux still accounts for about 1% of global desktop operating systems, or a sixth of what self-styled niche player Apple can boast of OS X. Itself, incidentally, a desktop environment firmly rooted in UNIX. However, all that may well be just about to change... This time, the drive is happening more quietly, but with probably the only tech company capable of taking the fight to Microsoft at the helm. Google’s Linux-based Android platform has already 70
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managed to establish itself as a dominant force in mobile computing products, but while Microsoft have been busying themselves tweaking and tuning the latest incarnation of Windows to be suitable competition, the Android explosion has been quietly slipping the other way, and is now making an appearance on otherwise conventional laptops from giant ICT providers like HP. That’s right, HP is producing an Android-powered notebook called the SlateBook X2. Effectively identical to the Split X2, which sports Microsoft’s Windows 8 OS, the SlateBook enters the market at 60% of the cost of the Redmond-based version. And even more importantly, it doesn’t sport a clunky, difficult-to-use and strictly-for-techies user environment, but boasts the same sleek and friendly operating environment which many of us are already accustomed to using on our smartphones and tablets. It’s an ingenious move, and whereas by the mid2000s I had realised that Linux in its existing flavours was never going to be able to successfully muscle-in on the MS-dominated desktop space, in this Google-backed incarnation the opposite sentiment is true. Driven by the groundswell it has created in mobile computing, Android has more than just a chance of grabbing a healthy slice of this shrinking pie. In fact, if moving to Android has similar implications for the cost of laptops, notebooks, and the rapidly-receding PC, it’s just about a surety that the tide will shift very, very fast for Microsoft’s fortunes.
The flip side of course is that in Android, much of the fresh-faced idealism of those old Linux distributions is gone. Android is not about freeing up your computing hardware to be used precisely as you want to use it without the big and bad corporate monarchy dictating what you can and can’t do (and how many times a year they need to be paid for you to do it). It’s more about simply shifting the crown from the head of the decaying king and on to the less-wrinkled brow of a new divine leader. Make no mistake, Android is still far more open to tinkering than the Microsoft platform, and remains at its heart dependant on a globallydistributed development model, but it’s far more controlled and constrained to traditional financial mechanisms than Linux was just a decade ago. Maybe, from an ideals perspective, not the perfect result, but without these core changes the Linux market could never have achieved what Google is doing today with Android. Proof, perhaps, that in the modern world, the old axiom about there being “No such thing as a free lunch” is a more ruthless and absolute truth than ever. The days of idealism and free techie love may be no more, but the fruits of this fancyfree philandering are just about ripe and ready to fall where they may.
RESOURCES Linux www.reimag.co.za
MOTOR TALK
BY RUSSELL BENNETT
The Future Not The Present
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here’s one thing which is certain about the Electric Vehicle (EV) today, even to die-hard petrolheads. They are the future. End. Of. Discussion. As a vocal opponent of the EV movement, this is difficult certainty to swallow. But it doesn’t make it any less true. As soon as EVs can be produced for a similar amount of money to more conventionally-powered counterparts, and as soon as battery development hits a 500km range between recharges and a recharge time of under 10 minutes, the days of fossil-fuelled cars will be over. Which is probably why Nissan SA has just supplied ten new LEAFs (it stands for Leading, Environmentally friendly, Affordable Family car) to our own power parastatal - ostensibly for testing. To assist with paving the way for the EV in SA, to ensure that our infrastructure can handle the wave apparently poised to break upon it in the near future. To leverage the lessons learnt by Nissan from global rollouts of this innovative product and ease these teething problems for local consumers eager to jump on the electric wagon. Except that none of this actually eases the real underlying problems plaguing the EV across the globe. Although in perfect conditions a brand-new LEAF may manage over 200kms range, in more typical driving conditions this tumbles dramatically. And heaven forbid that you may want to heat your cabin in winter, or cool it in the summer. Activate the climate www.reimag.co.za
control and you’ll shed kms of range like a Russian stripper sheds fur overcoats. At this point, I have to say, it would be a lot easier for me to join the hordes of motoring writers who wholeheartedly support the EV drive. After all, it’s the direction the entire industry is moving in, and swimming against this tide is about as futile as the veritable breaking wind is against powerful natural forces. The auto manufacturers would be happier with me, the average reader would stop lambasting me about being “out of touch with the real world”, and we could all continue to careen headlong and blind into this Brave New World of automotive propulsion. However, that would mean burying my head in the sand and ignoring the real issues at stake here. Letting the hype wash away rationality and carry us all along powerless on its crest, to crash against whatever hidden obstacles might present themselves blissfully unaware. In fact, opposition is all that will save the electric car in the end. If, as is currently happening, manufacturers are allowed to flood the market with an unf inished, unresolved product as they are currently trying to do, when the real problems become common knowledge the technology may find itself shelved yet again never to recover. The EV needs more development before it’s a viable alternative. Gifting R4-million worth of New Breed cars to a parastatal which hasn’t thought about the future in two decades is not
going to solve any issues. It’s pure PR, a highprofile gift which will also serve as a rolling advertisement and nothing more. A gesture designed to ease the fears of the average consumer without actually resolving the real reasons behind these concerns. A veritable celebration of the outright victory of marketing over engineering a la the eternal Dilbert cubicle-based battleground. Briefly, then, here are the conundrums which really need solving. A 100% charge real-world range of around 160kms, provided you leave the climate control off. Batteries which actually need to be charged to only 80%, or else longterm degradation worsens dramatically. In other words, if you want more than 130kms range from your EV, you’ll be shelling out for new batteries much sooner than the alreadyambitious projections. Performance which degrades as the charge is consumed, so while your car might be able to keep up with traffic on the way in to the office in the morning, it’ll be sluggish and tired in traffic on the way home. On the supply side, for the equation to start making real sense, we need to increase the mix of clean energy sources over dirty coal or even potentially catastrophic nuclear. That is literally all Eskom could need to research with the introduction of cars like the LEAF, and that’s a consideration which it should be taking into account already even without the EV in the picture, but is moving slowly and very ponderously on without any real will or future vision. July 2013 SA Real Estate Investor
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LESSONS
BY ANN NUROCK
In Business It’s all about
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hese days it’s hard to trust anyone. Government, business leaders and even sportsmen have let us all down and trust has now fallen to disturbingly low levels. Let’s take a look at South Africa: while we may trust the institution of government, we don’t trust government officials and the main reason for this is corruption. No surprise there but what is surprising is that, South Africa aside, people in the world simply don’t trust CEOs. In fact they would trust government officials more than they would CEOs. All over the world, the business sector with the lowest trust scores is a sector in which we should trust the most – financial services. People do not trust the very institutions where they put their money? Shocking! Now, in South Africa, we’re lucky that regulations are so strict that it has almost forced a trust culture of financial services. What I found so enlightening from all the research and with working on some of the world’s leading brands, is that trust is not some elusive, intangible concept. Trust is a basic instinct. It can be taught, established, built and restored. Trust holds every relationship together. We know that without trust, there is nothing, be it business or personal!
Why is trust important in business? When you have trust, you have a whole load of 72
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proven benefits. One of them is speed. In his book, “The Speed of Trust”, Stephen Covey talks about the fact that when there is trust in an organization or any business relationship, there is collaboration, transparency and loyalty. And it is true, because people recommend you more; they place more orders and employees want to work for you. Relationships with trust are then based on commitment and everything speeds up … this results in costs going down. The reverse applies when there is no trust. There is friction and politics, and everything slows down … resulting in costs going up.
The new world order People are fast realising that what they used to trust and their reasons for doing so have changed. They don’t have to trust the same source, the same opinion formers, and the same leaders. They can form their own opinions based on the shared experiences of like-minded people. Statistics show that 93% of people trust people just like themselves more than anyone else and, even more surprising, 70% of people now trust the word of strangers more than anyone else. Take a look at how we get our information today – from people we don’t know on Twitter. We go to ‘TripAdvisor’ for holiday advice from strangers and when we want to recruit someone, we use LinkedIn for recommendations - strangers.
In business, this means that leaders now have to be more respectful; not only to their employees but to their customers as well. It is more than just about the bottom line; it is also about how you achieve it in terms of your leadership skills and ethics.
Social media We live in a social, transparent and sharing world that requires trust to function effectively. When it comes to brands, social media has given the customer power. They can instantly tell if a brand is not authentic. It’s simple, if your brand does not have the right intent, they won’t trust it. And this means, your brand is vulnerable and can be exposed by just one tweet. And through careless messaging, a familiar brand can lose the trust it has built up over years - the consequences of which can be severe, if not fatal.
Trust is no longer a ‘nice to have’ … it’s an absolute imperative People want to work for and with people who have the competence and who can deliver. Results are not only the reason why we are in business, but also serve as one of the greatest motivators of trust. But these days it’s also about how we get to those results that matter. It is about your intent, your integrity and how you treat your employees and customers.
RESOURCES Relationship Audits and Management (RAM) www.reimag.co.za
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STANLIB Direct Property Investments STANLIB Direct Property Investments manages the Liberty Property Portfolio which owns the Eastgate Shopping Centre and is the majority shareholder of Sandton City. We have launched the STANLIB Africa Direct Property Development Fund which aims to invest in retail-led real estate developments with a focus on opportunities in West and East Africa.
www.stanlib.com
STANLIB is an Authorised Financial Services Provider