CONTENTS October 2013 COVER STORIES
8 Master Investor
12 The Green Evolution
22 Infinite Returns
COMMERCIAL 38 Your Needs And Objectives The development process
More Rights
40 More Rights More value
42 Building A Property Empire
44 Office Letting Secrets
Jacques Stoltz tells you how you can do it too!
40 More Rights Means...
44 The Secret To Office Letting Discover the right strategy for success
UPFRONT 5 Investor Talk
22 Returns On Investments
6 Inbox
24 Managing Your Cash Flow
Change your life today
Ask The Property Experts What are the costs?
8 Master Investor
Lessons from Donald Trump’s right-hand man
12 You Too Can Be A Property Tycoon
Retire wealthy, here’s how...
18 News Alerts
The Good, Bad & Ugly
46 Your Property Plan
RESIDENTIAL
Where are the real returns?
50 Thinking Of Listed Property?
Property is THE way to wealth
The experts tell you how best to invest!
OFFSHORE
The right action plan gets results
26 Fine Tune Your Lease
54 Zimbabwe Post-Election
28 Social Media’s New Face
56 Black Gold In The US
30 Become A Property Pro
58 Global Wealth Index
34 Win A R5 Million Dream Home
60 Magical Malta
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CONTRIBUTORS JT FOXX JT Foxx is a serial entrepreneur and real estate investor and is known worldwide as one of the top speakers and coaches in the wealth creation, real estate and business sectors. He has also been a radio personality over the last seven years. Publisher - Neale Petersen Editor - Angelique Redmond Designers - James Clark & Amy Little Traffic - Juanita Heilbron Financial Manager - Marisa George Office Assistant - Melissa Petersen Web Administrator - Russell Bennett Sales Manager - Roy Lategan Sales Executives - Andre Evans, Renier Lombard, Alex Masamuna, Marc Oppel Lindsay Reynolds, Fabian Murphy & Chase Daniels
TONY COLLINS Tony Collins is the co-author and editor of the book “Introduction to commercial property finance, development & investment. He has 40 years’ experience in construction and real estate development investment and finance. MIKE SMUTS Author, entrepreneur and full-time property investor, Mike Smuts is a recognised London property expert who has helped many South Africans make great returns in the London property market.
Tel: 021 674 5026 Fax: 086 627 2400 Email: info@realemedia.co.za Physical: Bizmall, Shop 3, Heritage House, 20 Dreyer Street, Claremont, 7700 Postal: PO Box 858, Howard Place, 7405
JASON LEE Jason Lee has a BA LLB degree from the University of Cape Town. In recent years Jason has acted as legal and corporate advisor to South African-based property financiers, developers, investors and realtors in multi-million rand deals. SCOTT PICKEN Scott is the CEO of IPS Invest & Wealth Migrate and is an offshore investment specialist. Since 2003, IPS has been helping people invest internationally with confidence.
Advertising: 021 674 5026 Subscriptions: 0861 228 669 / subs@realemedia.co.za Distribution: On The Dot Distribution For distribution inquiries contact Craig Hughes on 021 918 8659 / 073 395 2396 Printing: CREDA Communications
JONATHAN SMITH Jonathan is the director of Courtwell Consulting and has extensive experience in property and consulting including educational programs. Courtwell Consulting provides five key services to the private and public sectors in South Africa.
Published by REALE MEDIA Neale Petersen (CEO) B. Taylor
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ANN NUROCK Ann Nurock specialises in business relationships. She is the South African Partner of Relationship Audits and Management, a global consultancy that focuses on the measurement and opitmisation of business relationships.
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MONIQUE TERRAZAS Monique is a journalist and freelance writer, with more than a decade of experience across a range of industries, and was the winner of the 2012 SAPOA Property Feature Journalist of the Year Award. KOOS DU TOIT Koos is the CEO of P3 Investment Group and an invaluable source of education and information on investing in property. P3 offers hope and guidance to anyone looking to build a succesful investment portfolio. JOHN ROBERTS John is the CEO of The Just Property Group. He is one of the property industry leaders. The Just Property Group’s vision is to provide focussed property services through specialised franchise outlets, in specific niche areas in the property arena. IAN ANDERSON Ian Anderson (B Com, CFA, CAIA) is Chief Investment Officer at Grindrod Asset Management. He has more than 17 years’ experience and a proven track-record in managing the portfolios of listed property securities.
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INVESTOR TALK
BY ANGELIQUE REDMOND
Change Your Life Today Investing in property can create real wealth and allow you to retire very comfortably, this is not opinion but proven fact. Property investing, done the right way, creates assets that will continue to give you a salary long after you stop working. This edition of REIM, we focus on the positives, on how you can create the same wealth so many people have made through property investing principles that work, and you don’t have to take our word for it, instead listen to the people who have been there and done, they got the T-shirt and the lifestyle to prove TWITTER COMMENT that property investing works if you work at it! While South Africa has its problems, this is still a prosperous country with many opportunities, and Trix_Tanzarella@SA_Reimag Just wanted to let you know personally that our people who prime themselves to take advantage of expectations were exceeded at the Wealth Masterclass those opportunities get the rewards. A recent report JHB yesterday. A varied selection of knowledgeable and conducted by the New World Wealth, an Oxford inspiring speakers - including yourself. Will certainly attend again in future. based consultancy firm, shows that South Africa has some high net worth individuals, Johannesburg Follow us on Twitter SA_Reimag came first, with 23 400 millionaires, Cape Town came fourth, with 9 000 millionaires, Durban was sixth with 2 700 millionaires and Pretoria was eighth with 2 500 millionaires. That’s an impressive amount of millionaires! And let’s be honest, who wouldn’t want to be a millionaire? Sure you could play the lotto and maybe you will get lucky, but there is a far simpler way, and FACEBOOK COMMENT that’s to invest and invest smart in something people will always need, property. Land is the one resource we cannot make more of, and as the population grows, more people need homes, Imran Ahmed commented on Real Estate offices, places to get life’s essentials, this is what makes property a great investment. In today’s Investor Magazine modern world we need homes, shops and places to conduct business, the where and the mode Imran wrote: "I attended the seminar in JHB today, it was nothing short of brilliant. It vertainly was the spark might change with the times but the actual need for a structure doesn’t. This month’s edition is I needed to jump into action. Thanks to your team for a call to action, a call to change your life today! putting together this event!” Happy Reading Angelique Redmond EDITOR
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PUBLISHERS FOREWORD Donald Trump is probably the world’s most notorious real estate billionaire. He has become a sought-after celebrity as a result of the success of his hit TV show ‘The Apprentice”. I had the unique privilege of meeting Trump in October 2011 in Sydney, Australia. I have also interviewed Don Jnr. who is his eldest son and Vice President of the Trump Organization. Don Jnr. was our Master Investor in our October 2012 edition and was also the keynote speaker at our recent Wealth MasterClass. The question is: are the Trump’s eyeing South Africa, given the huge opportunities in Africa? What many people don’t know is that Donald Trump does not make a key real estate or business decision without consulting his right-hand man and closest advisor, George Ross. Ross was recently in South Africa for the first time with JT Foxx’s first Mega Partnering Africa event that is attracting the business and real estate of South Africa. I also had the privilege of interviewing Ross and learning from the man whose net worth is over $500 million. There are so many lessons you can learn from these successful investors that you can use even if you are a small investor, so make sure you pick up the nuances in the Master Investor piece. The biggest asset for an investor is his negotiation skills. Neale Petersen PUBLISHER
“Landlords grow rich in their sleep without working, risking or economising.” John Stuart Mill www.reimag.co.za
October 2013 SA Real Estate Investor
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ASK THE EXPERTS What Are The Costs?
Meyer de Waal Oosthuizen & Co Meyer de Waal Attorneys www.oostco.co.za
Q
Kate Young Asks:
Making The Right Investments
Q
Justin Clarke Private Property www.privateproperty.co.za
Kenneth Mashungu Asks:
Transferring Funds
Q
Andrew Rissik Sable FX www.sable-group.com
Allistair Brooks Asks:
As a young couple, my husband and I want to buy a house, but we want to know, aside from the actual cost of the house, what other fees should we expect to pay?
Is residential property investment still a good option to invest in right now? And how do I ensure I make the right investment option?
How can I avoid losing money if I own a property overseas with transfer charges and the falling rand value? I don’t want to pay high transfer charges and lose money.
A
A
A
Meyer de Waal Responds:
The first cost will be paying for the house – consider to have a deposit available if the bank does not approve a 100% loan. If the bank only approves a 90% loan, you will have to come up with a cash deposit of 10%. Then you have to pay transfer attorney’s fees and their expenses, which will include VAT on the fees and deeds office fees plus transfer duty. If you buy from a property developer sometimes the VAT on the purchase price and all the transfer fees and expenses can be included in the price as the developer will pay for all the transfer costs and bond registration costs. If you take up a loan from a bank you will also have to pay the initiation fees of the bank to process the loan application, budget +/- R5 700.00 for this, sometimes it is absorbed in the home loan, or must be paid in advance. Then you will have to pay a fee and expenses, like deeds office fees and software licence fees, to the attorney that registers the bond. As the fees of the attorneys and transfer duty are determined on a sliding scale according to the value of the transaction, it is best suggested that you go to a website that calculates all these fees and minor expenses – like postage and petties – as well. We suggest go to http://www.avidfirefly.co.za/04671/ and do your own calculations.
Justin Clarke Responds:
No matter whose data you are looking at, property prices have been pretty much flat since the beginning of the financial crises in 2008. That is five years of very low growth. Low interest rates have been countered by lack of easy finance and high relative credit exposure that most families are exposed to. On the other hand supply has also been disrupted with developers only now starting to trickle back to work, so there has been very little new stock coming onto the market. Also most of the surplus stock of property sitting on the balance sheets of banks and developers has been absorbed into the market. On the demand side the economy has behaved really badly, but remember we have had GDP growth of around 3% compounding for the last five years and the new middle class has still been growing, putting enormous pressure on rentals. Add to that the latest data from estate agents and originators that new records are being broken in terms of volumes of new home loans granted and volumes of sales done and we see a very clear picture arising. If you are in the business of property investment or want to get going, it is almost too late. As American banking dynasty Baron Rothschild said, buy when “when there is blood in the streets”. Don’t wait for the crowd for affirmation because you will be too late.
Andrew Rissik Responds:
This question touches on a few areas of risk for any investor who has purchased an offshore rental property. There are two broad aspects to the investment, paying the price and receiving the return. Paying the price is either by cash or part cash and part mortgage bond. Typically the cash component will be coming from South Africa so it’s key to ensure that you get the best rate of exchange as well as the lowest fees for transfer. Furthermore the fund externalisation needs to be correctly reported to the authorities and maybe a tax clearance certificate will be required. Once the offshore property is owned, tenanted and generating cash flow, the net income could be kept offshore or brought back to SA (with a mortgage the monthly payment would be settled before any remaining income could be enjoyed). In respect of transfer charges/costs, banks are renowned for non-transparent pricing: there are fees, commissions and then of course the rate margin. Using an independent forex broker results in no fees and a more competitive exchange rate.
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 angie@realemedia.co.za 6
October 2013 SA Real Estate Investor
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MASTER INVESTOR
BY NEALE PETERSEN
SUCCESS TIPS FOR INVESTING & BUSINESS 1 There is no real difference between
large and small real estate deals, other than the amount of zeros.
2 Deal with honourable people and
be honourable in your business dealings.
3 Relationships are important in
real estate and business. Years ago you could make a deal just by shaking somebody’s hand. Somehow this got lost in the modern age and legal documents dictate the relationship.
4 With any deal, do your own investigations first.
5 Don’t be swayed by what other
people say, recognise that they are looking at an issue from their viewpoint.
6 Use the advantage of accessing
vast amounts of information online.
7 Don’t generalise about a property
market based on problems or success in one area. Get down to the specifics, understand the statistics and news, and decide what is pertinent to the particular transaction.
Lessons From Donald Trump’s Right-Hand Man Billionaire lessons for property investment
8
October 2013 SA Real Estate Investor
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A
t 85 years old, George H Ross says: “If I could do it all over, I would not change anything in my life.” He is currently Executive Vice President and Senior Counsel for the Trump Organization, as well as business and legal advisor to Donald J. Trump. He is responsible for development of foreign investments and supervision of leasing and operation of 40 Wall Street in Manhattan’s Financial District, directly across from the New York Stock Exchange and the tallest building in downtown Manhattan, as well as Trump Tower, the world-renowned Fifth Avenue skyscraper. He is also responsible for licensing, promotion and marketing of Trump products. He has officially been with the Trump Organization since 1996 but has been associated with Donald Trump for many years. Looking back, Ross comments that you can plan all you want, but life takes you where you are meant to be. He initially planned to become an engineer. At 17, he joined the US Army because they offered to send him to college. He attended Clemson College and graduated from Brooklyn College of the City of New York and Brooklyn Law School and was admitted to the Bar in New York and the Supreme Court of the United States in 1953. Ross practiced as a real estate attorney for more than 50 years and, as the senior partner of a major law firm, served as general counsel, consultant and negotiator for renowned real estate investors. He assisted with the acquisition and development of major buildings and other projects in the New York area including the GM building, Chrysler building, Olympic Tower, Trump Tower, the St. Regis, Stanhope, Grand Hyatt, St. Moritz, Gotham Hotels, Graybar building, 40 Wall Street, 100 Wall Street and 101 Park Avenue. Notable clients include Donald J. Trump, AT&T, Katz Communications, Inc., Chase Manhattan Bank, United Technologies Corp., Leslie Fay Companies, Inc., Samuel LeFrak, Dutch Reformed Church, Lazard Freres, Societe Generale, Western Union and Random House. He has participated in various substantial litigation and arbitration proceedings. He says many real estate lawyers don’t know about their clients’ business, their bottom line and their future, and therefore they do not understand their own unique abilities to add value to their clients. Ross says he made it his business www.reimag.co.za
UPFRONT to understand those dynamics. He adds that his most important real estate lesson has been that is there is a huge difference between the legal aspects of real estate and the business of investing in real estate. Ross has also been a lecturer on various subjects relating to real estate and negotiation techniques for the Learning Annex, Get Motivated and the Billionaires Club. He is the author of two books “Trump Strategies for Real Estate: Billionaire Lessons for the Small Investor” and “TrumpStyle Negotiation”. For more than 20 years, he was adjunct professor of the New York University School of Professional Studies and Continuing Education where he taught several courses in negotiation and real estate transactions. In addition to a multitude of real estate investments as a private investor, Ross was a co-founder of Beck-Ross Communications in 1966, which owned and successfully operated multiple radio stations in the US until 1987 when it was sold to a large conglomerate for millions of dollars. More recently, he has featured as a Boardroom advisor on Donald Trump’s highly successful TV show “The Apprentice”.
How it started with the Trumps Ross recalls how he met Donald Trump at his offices around 1974. Trump was 27 years old and wanted to upgrade a run-down hotel, called the Commodore and situated on 42nd Street, into a first-class state-of-the-art business hotel. Trump had a reputation for courage, which was certainly required, as the deal involved negotiations with government agencies and other powerful parties to obtain the necessary concessions. Furthermore, the building was derelict and inhabited by squatters, with $15 million in taxes outstanding and mortgage foreclosure impending. It took years of ongoing discussions with the railroad executives who owned the building, state officials, lenders and other parties, extensive negotiations and impressive out-of-the-box thinking to successfully conclude the deal to the satisfaction of all parties concerned. But Trump’s diligence and determination paid off and in 1980 the hotel re-opened as the Grand Hyatt New York. Ross notes that he was impressed with the 27-year-old Trump’s tenacity and determination
GEORGE ROSS Personal Statistics Age: 85 Marital Status: Married for over 60 years, with two daughters and three grandchildren Hobbies: Tennis and golf
Close-up Mentors: Ross’ father was his first mentor but died when Ross was only 16 years old. His philosophy was that life is a series of tunnels: you dig, you get dirty and you find the shortest way to the other side. He subsequently had mentors in real estate and law. Donald Trump always uses Ross as a sounding board, because he tells it like it is. Although Trump often doesn’t like what Ross has to say, he still respects Ross’ opinion. Books: Ross is an avid reader. He has also authored two books, one with Donald Trump and Andrew McLean titled “Trump Strategies for Real Estate: Billionaire lessons for the Small Investor” and another titled “Trump-Style Negotiation: Powerful strategies and tactics for mastering every deal”. Biggest Achievement: Ross says that personal relationships, not money, are important to him. Despite his many impressive business achievements, Ross is particularly proud of the fact that he has achieved balance in his life: he now works four days a week and spends the other three days with family and friends, not just socialising, but also mentoring them. The best financial advice you have been given? Give more than you get. Don’t think you can’t make a mistake. Motto: Always follow the truth and maintain your own reputation. Don’t cut corners!
October 2013 SA Real Estate Investor
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MASTER INVESTOR to take on a project of this magnitude and see it through. The deal cemented Trump’s reputation as a major force in the real estate industry and provided the foundation for other even bigger and more impressive deals. Ross remained in touch with the Trumps and when, in 1995, he considered retirement, Trump invited him to join the Trump Organization. The rest, as they say, is history.
Trump’s 40 Wall Street Building What may be referred to as “the greatest real estate deal done – ever”, Donald Trump’s most successful deal, the 40 Wall Street building, will be hard to beat. Originally named the Manhattan Company Building, the building comprised of 1.3 million square feet of office space distributed over 72 storeys in what is arguably one of the best locations in the world. Once the tallest building in the world, it towers over the city and is landmark in New York. In 1994, the building was leased by a bank, but totally mismanaged, entirely vacant and in state of total disrepair. After years of vacancy, Trump purchased the property for $1 million,
invested more than $200 million in restorations, and brought it to the peak of its original grandeur. Today, the high profile tenants that occupy the Trump building represent the pinnacle of New York City in their international prestige and power, and the building is the crown jewel in the Trump portfolio.
Trump’s mistakes and successes Ross notes that everyone makes mistakes, but what is important it to learn from those mistakes. For example, in the late 1980’s, Trump lost focus, thinking that any business he touched turned to gold. Indeed, the banks threw money at him: when he asked for $60 million, they gave him $80 million. Ross believes that Trump should never have bought an airline, which resulted him losing substantial amounts money. By 1990, Trump had hit the rocks and was more than $900 million in debt. Trump had to rebuild his empire and, although an expensive lesson, they learnt a great deal from the experience.
The Apprentice “The Apprentice” has been going for more than
10 years already and has proved to generate great returns for Trump. Mark Burnett and Trump sell each programme for $2 million per country and it is dubbed into many languages. Ross says “The Apprentice” offers many lessons for investors and businessmen - from how to dress, act and speak to how to control yourself under pressure.
Where to next? Ross says that at 85, he has no intention to retire. As long as his mind is clear, he intends to make a lot of money for charities. He has his own charity for children suffering with cancer called St Judes.
Are the Trumps looking to invest in South Africa? Impressed with quality of property in South Africa and the local investors, whom they regard as open-minded and successful, the Trumps are looking at opportunities in the country which may fit into their investment approach of investing in ultra-luxury properties.
RESOURCES The Trump Organization
COVER STORY
BY MONIQUE TERRAZAS
You Too Can Be A Property Tycoon
Retire wealthy... Here’s how
A
t the SA Real Estate Investor Magazine’s annual Wealth MasterClass events, South Africa’s number one investment and wealth seminars, held in Johannesburg and Cape Town, delegates were inspired by some of the most successful property investors in South Africa and the world.
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October 2013 SA Real Estate Investor
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UPFRONT Dolf de Roos, internationa l propert y investment guru, spoke to delegates from China via live streaming, where he is investigating new opportunities. Donald Trump Jnr., star of “The Apprentice” spoke to delegates enroute to announcing a major new development in Washington DC – the redevelopment of an architectural treasure, the Old Post Office building located just two blocks from the White House, into a world-class hotel. The world’s number one real estate coach, JT Foxx, spoke about the more than 500 properties deals worth $40 million that he has concluded in just six years. Local billionaire businessman Jannie Mouton and billionaire property fund tycoon Sisa Ngebulana shared their journeys to success, rising up from humble beginnings. So how do these investors continue to create wealth and success during one of the most trying economic eras the world has ever seen? One clear, consistent message emerged from all the speakers at the event: find your passion and take action!
Find your passion If there is one common characteristic among all the successful investors speaking at the Wealth MasterClass event, it is their unmistakeable passion for property investment and wealth creation. There can be no doubt that all these investors relish playing the property investment game, constantly hone their strategies and tactics, and delight in the success they achieve. With the same enthusiasm, they admit to their mistakes and regard these as invaluable lessons that allow them to improve their strategies and tactics deal after deal. It is interesting to note that their passion and enthusiasm are not driven by money. As Ryan Pinnick, Natural Success mentor, explained to delegates: “Life is not about working seven days a week, chasing money while compromising health and relationships and giving up the things you enjoy. Success is doing what you love, what is most important to you and connecting to your genius. Create a business you love and enjoy!” Donald Trump Jnr told delegates that the “Trump mindset” is based on the belief that you have to be passionate about what do, if you want to excel. He said that this “Trump mindset” can be described simply as the willingness to take action, bringing energy and attention to every aspect of the business. www.reimag.co.za
He says that to the Trump family, property is not just work, it is a vocation, a hobby, a passion and a way of life. Asked what was the single most important lesson he learnt from his dad Donald Trump Snr, he said: “It’s not just about the money or the paycheck. You have to pursue inspiring goals and live your passion.” It is also evident that these investors are not afraid to take risks, because they follow a system and surround themselves with expert partners, and therefore the risks they take are calculated.
Understanding the passion So why are these investors so passionate about property? What is it about property that inspires and excites them to achieve such incredible levels of success? Why are they so keen to share their knowledge with others? It is simply because they know beyond any doubt that property investment is the simplest, most efficient and most powerful wealth creation tool and it is available to anyone who chooses to pursue wealth creation. Property investment is supremely simple. Dr Koos du Toit of P3 Investment Group explains: “The investor acquires a property in a good location with strong and sustainable rental demand. The property is acquired through a mortgage loan, so the investor does not have to use his/her own money to acquire the property. The property is then rented out to a tenant, and provided that the right property in the right area was acquired with the right finance, the tenant’s rental should cover the bond repayments and other property expenses, including the fee for professional tenant and property management. The investor has thus acquired an income-generating asset without investing any of his/her own money, because the property was acquired with the bank’s money, and the loan repayment and other property expenses are covered by the rental paid by the investor. “Provided that investors follow a tried-and-tested system, with built in risk management strategies, such as rental insurance, an investor needs no previous qualifications or experience, and very little time, money or effort to acquire such a passive income-generating asset, which is also producing capital growth.” In addition to its stunning simplicity, property investment is also the most efficient wealth creation tool. This is because the investor, having invested
none of his/her own money, enjoys both ongoing capital growth on the property, as well as a growing ongoing passive income, as the rental increases in line with inflation year after year. Property investment is also the most powerful wealth creation tool, producing truly spectacular returns on investment. This is because both the capital growth and the growth in income are compounded. And compounding, as Einstein reminded us, is the eighth wonder of the world. Furthermore, if the investor did not invest a cent of his/her own money, but is receiving both capital growth and a growing income, the returns are, in fact, infinite. And that is exciting, indeed.
Endless possibilities Of course, one property is unlikely to turn the average investor into a millionaire overnight. However, given the simplicity of the property investment system, as well as the fact that investors need no previous qualifications or experience, and very little time, money or effort to acquire an investment property, the system can be duplicated again and again. “This allows even ordinary salaryearning investors to build up a small but highly profitable portfolio of buy-to-let properties, creating a guaranteed income stream for retirement and beyond, as well as ongoing capital growth,” notes Dr du Toit. While most novice investors naturally think in terms of entry-level residential properties, which have certainly proven to be a lucrative segment, the simplicity of the property investment system offers virtually unlimited possibilities. It works equally well for middle-class residential properties and luxury properties, even though the number of zeros will increase. For example, an investor may acquire a luxury property in an upmarket suburb to cater for rental demand from foreign embassies or foreign companies and their employees. Or, the investor may simply acquire and rent out middle-class homes in a fast growing middle-income suburb. The system applies equally well to student accommodation near educational centres and to welllocated flats or cottages in sought-after holiday areas. It can work as well with individual properties or with a block of flats or a cluster of townhouses. The system applies equally well in city centres and in developing towns, and it works as well as the coast as it does inland. But the simplicity, efficiency and power of the October 2013 SA Real Estate Investor
13
COVER STORY property investment system are not confined to a particular country. It works as well in the US as it does in South Africa, and it works as well in Sydney as it does in London. Thus, property investment transcends borders and investors who are looking to diversify their portfolios offshore literally have the world at their feet. The system is certainly also not restricted to the residential sector. The same system is effective whether the investor acquires a small retail centre or even a single shop. It works as well with a warehouse as it does with an office building. This ensures that property investors have extensive scope to diversify their portfolios into other property sectors, including office, retail, industrial or hospitality.
Playing with the big boys In fact, the property investment system detailed above, used by individual property investors, is the exact same system used by large institutional investors and listed and unlisted property companies. As P3 Investment Group explains: “Essentially, listed property companies are large-scale buy-tolet specialists. They acquire a quality portfolio of commercial properties and rent these properties out to tenants. The acquisition of the properties are financed through corporate property finance provided by financial institutions; by issuing shares or units and listing these on a stock exchange; or a combination of these strategies. Investors in these shares or units then receive a portion of the monthly rental income generated by the properties in the portfolio and, as the value of the properties appreciates over time, the value of the shares or units also increases.” Investors who do not want to build and manage their own property portfolios can therefore tap into the simplicity, efficiency and power of property investment by investing in companies who are already implementing the system, for example, property portfolios listed on the JSE. Investors can buy shares in specific listed property companies and share in the rental income produced by prime South African properties, as well as the capital growth these properties produce. For a more diversified approach, investors can invest in an exchange traded fund (EFT) which simply tracks the performance of South Africa’s listed property sector, such as PropTrax. There are also property collective investment schemes classified under the South African – Real Estate – General category. 14
October 2013 SA Real Estate Investor
These funds offer investors exposure to 80% or more of listed companies in the FTSE/JSE Real Estate Industry category. Investors can also invest in unlisted property companies and funds, or in property syndications. The latter allows a number of investors pool their relatively small investment contributions to invest in extensive property portfolios and share in the lucrative returns that are otherwise reserved for the institutional investors. These investment options further allow investors to diversify their investments into more complex property sectors, such as mega-regional retail shopping centres and industrial property developments, as well as to diversify their property investments into various property sectors offshore. The bottom line, however, is that from direct investments in student accommodation or entry-level bachelor pads to luxury or holiday properties, and from local properties to exotic offshore destinations, and from investments in listed companies and funds to unlisted companies and funds and syndications, investors truly have a world of opportunities to tap into the simplicity, efficiency and power of property as a wealth creation tool. The next question then, is where do you start, given the staggering number of opportunities to choose from?
Keep your eye on the big picture It is important for investors in any market to understand the bigger picture in terms of the macroeconomic, political and social environment in which their property investments are located. At the Real Estate Investor Magazine Wealth MasterClass events, world scenario strategist, Clem Sunter, enlightened delegates with an entertaining, yet sobering, overview of current macro trends, highlighting the reality that the game has changed drastically in the wake of the Global Financial Crisis and the social revolution that is being driven by the growing dominance of social media. His insightful potential global scenarios are must-have information for investors and can be accessed via www.mindofafox.com. Dolf de Roos, in answering delegates’ questions at the Wealth MasterClass events, said that his number one consideration when assessing a new market is population growth. In response to the question of which countries investors should be
looking at, he noted that investors can invest just about anywhere in the world and do very well, but that his advice is to give preference to those countries where the average population growth rate is the highest. This population growth is not limited to natural growth, but also refers to areas with a high influx of immigrants, such as Western Europe which is experiencing a massive migration of people from Eastern Europe, or areas with a rapid rate of urbanisation, like many African countries. De Roos said this advice is based on the reality that a growing population fuels a demand for property, which in turn boosts capital growth and rental demand. He posed Phoenix, Arizona in the US as a prime example, saying: “The population growth in Phoenix is staggering, double the national US average. It is therefore not surprising that rental demand and capital growth is so strong in the city. In fact, in 2012, the city has seen a 26% increase in property values, even higher that the 23% recorded in the previous year. This is driven by the massive population growth.” De Roos qualifies his advice by cautioning investors that while they keep an eye on the bigger picture, they should also be careful to generalise. “What you are looking for is trends that beat the average,” he says. “Even in countries where the natural population growth may not be impressive, the rate of urbanisation may be above the average. So do not only look at a country as a whole, look at various sectors and the demand in these sectors, and identify a specific need to fulfil. This will allow you to charge higher rentals and build a waiting list of future tenants.”
Own your niche There are so many real estate opportunities across so many property sectors in so many countries. How does an investor choose an investment? Trump Jnr advises investors not to be generalist, but rather to pick a niche and specialise in that niche. “This is the Trump way – we focus exclusively on the ultra-luxury segment. We have chosen this niche and established ourselves as pioneers in this field. We identify a need and then ensure that we fulfil it the Trump way, making sure our properties are on the cutting edge, ahead of the trend and always up-todate with the latest innovations.” De Roos also advocates niche approach and a strategy that will allow an investor to own that niche. He cites a recent property deal he did in Australia as an example. A strong and growing need for student www.reimag.co.za
COVER STORY accommodation was identified in an Australian city. But de Roos and his team did not simply build or acquire suitable property, they conducted a survey among the students to determine what students were looking for, offering as a reward a priority spot on the waiting list. As a result, the team identified that students’ priorities were – quite surprisingly - double beds, followed by high-speed Internet, microwaves instead of stoves, and sensor security systems on doors. In providing for their exact needs, de Roos and his team can charge a premium for their student accommodation and have an extensive waiting list guaranteeing longer term sustainability.
acquisition, zoning, planning, marketing and the many other aspects. Property investment offers endless possibilities to challenge yourself and find out how far you can take it. It is an infinite canvass for applying knowledge, trying new things, coming up with smart ideas, and finding new ways to do it bigger, better, faster and more cost-effectively.”
This, says de Roos, is the real secret to identifying opportunities: being creative and going beyond the average.
De Roos notes that for investors facing challenges in obtaining finance as a result of the banks’ tight lending criteria, partnerships are often the answer. He encourages investors to explore opportunities to partner with friends or family, with other investors whom they can meet at networking functions, conference and seminars, or even through placing an ad in the newspaper.
The most valuable real estate In order to beat the average, identify a niche and own the niche by differentiating your property in a way that adds value to the tenants, investors need to think outside the box. In light of this, de Roos notes that the most valuable piece of real estate you will ever own is the six inches between your ears. This is where out-ofthe-box thinking occurs and real opportunities are identified. He says that investors should read books, research strategies online, attend conferences and seminars and distil from these resources classic investment principles. However, investors should not passively absorb information, they have to apply these principles to each unique deal and situation, and that means thinking for yourself.
Partner up As these master investors relish the creative side of property investment, they also take care of the details by building a strong network of experienced, expert partners.
Ettienne Pretorius, in sharing his Seven Rules for building a property business at the Wealth MasterClass events, further noted that when investors build a network of property professionals and people in the know, it creates a funnel of information which results in deals simply landing on your desk. In addition to a network of professional contacts, investors should also find mentors or coaches. And not only mentors in the property industry, but also personal development mentors and coaches who can assist them to fulfil their true potential.
Take action!
The only limitation on a property investor is his/ her own imagination. Property investment is a great adventure. Be creative, be extraordinary.
This is without a doubt the number one piece of advice provided by all the master investors at the Wealth MasterClass events.
JT Foxx simply also focuses on doing things differently and has labelled this approach as a tendency to “disrupt the normal”. According to Trump Jnr, it is exactly the endless possibilities to create, innovate and achieve ever greater feats that are so enthralling about the property industry. “Transforming empty land into legacy, adding immense value to a once derelict building to benefit a community, seeing a grand vision come to life before your own eyes, it is very gratifying. In addition, property investment is exceptionally dynamic and diverse – no two days are the same – there is always a new challenge to overcome, a new problem to solve – in the
As Dolf de Roos says: “Property investment is not rocket science - just do it!”.
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October 2013 SA Real Estate Investor
Foxx comments that for every 1000 properties he considers, three or four really great deals emerge. Investors need to take action – looking for deals, investigating deals and making offers – continuously. Don’t give up after just 20 offers. “Success is not a matter of chance, it is a matter of choice,” he says. “Surround self with the right people and the right information, and it can only go well.” Pretorius has also included “Take action!” in his Seven Rules for building a property business. “Vision
without action is dreaming,” he says. “Take action, then take responsibility. If it’s a good deal, the money will follow. The rest is details.” “Do not allow fear of rejection or failure stand in your way,” says Trump Jnr. “Go get what you want. Get out there and work harder than the next guy. Make contacts, make deals, negotiate, demand better deals. You have to take action to get what you want.” David Becker, performance coach to a number of Olympic and world-class athletes, including multiple world record holder Lewis Pugh, says: “You can make excuses. You can make money. But you can’t do both.” He believes the ability to take action and therefore create results requires a strong, unstoppable mindset. Applying his six keys to creating an unstoppable mindset, is the first action you can take right now to set yourself on the path to wealth creation.
DAVID BECKER’S SIX KEYS TO CREATING AN UNSTOPPABLE MINDSET 1 Define a crystal clear vision of what you want to create in every area of your life. Make it detailed, word it as a positive statement and write it down.
2 Define why you want to achieve
this vision to create a sense of purpose that will provide the emotional fuel.
3 Visualise the end result in great
detail, involving all five senses and your emotions, as if it has already been achieved.
4 Celebrate as if you have already achieved your vision, even if it is through a small, token act.
5 Take action! You don’t have to do
everything at once, just take one small action towards your vision.
6 Develop and maintain positive
mental environment. Surround yourself with inspiring people, quotes, pictures and input. The quality of your thinking impacts the quality of your life and the results you achieve. www.reimag.co.za
ON SHOW
1st Phase 50% sold
www.leadwood.net
1 hectare freehold title stands available within a 15,000-ha Big Game Conservancy where Big Game roam free • Tranquil safe environment in a managed estate and reserve
• • • •
7km from the town of Hoedspruit in the Kruger Park area and a 4.5 hour drive from Gauteng All amenities available including private schools Close proximity to Hoedspruit/Eastgate airport with daily scheduled flights Consulting Developer with over 35 years in bush development experience
Call to view Nita Dalziel (m) 082 568 5950 Patrick Jordan (m) 072 698 0515 or Glen Poole (m) 083 657 7756
Directions: From R40 at Hoedspruit, turn onto R527 Lydenburg/Tzaneen - 7kms from Hoedspruit * Terms and conditions apply and subject to availability. E&OE.
NEWS ALERTS
BY MONIQUE TERRAZAS
In The Property News... The Good
The Bad
The Ugly
SA improving in Property Rights Protections
Ruling breaks new ground on property approvals
Farm Share Plan
According to 2013 International Property Rights Index (IPRI), which measures the intellectual and physical property rights of 131 nations from around the world, South Africa is the highest ranked African nation and ranks 26th overall, with a score of 6.8 (out of 10). From 2009 to 2013, the overall South African IPRI score decreased by 1.2%. However, South Africa’s IPRI score slightly improved by 0.1 points in 2013, due to improvements in all component scores.
The Supreme Court of Appeal recently issued a judgment, ordering Rhodes professor Matthew Lester to demolish his R8 million property in Kenton–on-Sea at his own expense within 180 days, deeming the house to be in contravention of Section 21 of the National Building Regulations and Building Standards Act. The judgment, which upheld an earlier judgment of the Eastern Cape High Court, was delivered by five of the country’s top judges.
Organised agriculture is concerned about a proposal contained in a Department of Land Affairs policy document that says farmers should be encouraged to ‘voluntarily’ give shares in their farms to workers.
The IPRI emphasises the great economic differences between countries with strong property rights and those without. Nations in the top quintile such as Finland, Australia, and the US enjoy an average national GDP per capita of $38,288 while nations in the second quintile, such as Ireland, Chile and South Africa have an average GDP per capita of $26,680 (South Africa trails with $9,616).
The case began 10 years ago and included seven high court applications, entailing aspects of neighbour, public and administrative law. Ndlambe Municipality and High Dune House (Pty) Ltd, the owners of a neighbouring property, applied for a demolishing order on Lester’s property on the grounds that it contravened building regulations, obstructed the view and affected privacy. Lester countered the claim, proposing the house instead be altered in accordance with submitted plans.
Free Market Foundation director Jasson Urbach said, “Countries in the top 20% are seven times wealthier than countries in the bottom 20%. The study shows that countries with low scores prosper if their scores are increasing. Conversely, countries with high scores stagnate if their scores decline. What this means is that high-scoring countries such as South Africa are punished severely if they compromise property rights, whereas low-scoring countries are rewarded generously if they enhance property rights”. “The IPRI highlights the key role played by property rights not only in keeping an economic system fair and transparent but also in representing the backbone of any free market economy,” said Lorenzo Montanari, Executive Director of the Property Rights Alliance.
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October 2013 SA Real Estate Investor
The Supreme Court judges said that when a building was erected without approved plans in terms of the National Building Regulations, the court had no discretion, but to ‘enforce statutory prohibitions’. “One is acutely aware of the financial calamity, inconvenience and disruption which the demolition of what is plainly [an] expansive luxurious dwelling, and a primary residence to boot, would cause Lester. But the upholding of the doctrine of legality, a fundamental component of the rule of law, must inevitably trump such personal considerations,” the judges concluded. The judgment could see thousands of homes and offices in South Africa demolished and property developers facing criminal charges.
According to this document, workers with 10 years of ‘disciplined service’ on commercial farms should be given 10% shares in the ownership of the land. After 25 years of service, this should become 25% and after 50 years, the workers should be given 50% shares. The proposal makes no mention of what would happen when there were more workers with more than 10 years of service on the same farm. AgriSA legal and policy adviser Annelize Crosby said the proposal was not executable, as shares in land only hold value when the land is eventually sold. If the unlikely possibility that such a policy – which she believed to be unconstitutional – could be enforced, it would lead to disinvestment in the industry, she said. TAU SA said a provision that it will be a ‘voluntary’ programme would put ‘unnecessary and unfair pressure’ on farmers to take part in such initiatives. Pieter Groenewald, the Freedom Front Plus’ parliamentary spokesperson on Rural Development and Land Reform, said that the proposals are frightening and could cause enormous harm to South Africa’s agriculture as it could lead to large scale disinvestment. He added that it is a thinly disguised attempt by government to expropriate farms and boils down to nothing less than brutal expropriation of land, similar to that which took place in Zimbabwe.
www.reimag.co.za
KRAAIBOSC KRAAIBOSC H KRAAIBOSC H KRAAIBOSC H H C O U N T R Y E S T A T CE O U N T R Y E S T A TME
A N O R
M A N O R
REI Residential Ooba Average Purchase Prices for 2012-2013 Indicator
July 2013
July 2012
Change year on year (July 2013 vs July 2012)
June 2013
Change month on month (June 2013 to July 2013)
Average purchase price
902,900
846,863
6.6%
919,965
-1.9%
Average purchase price of first time buyer
710,312
657,069
8.1%
694,143
2.3%
Average approved bond size
771,300
740,733
4.1%
794,357
-2.9%
Average deposit (as % of purchase price)
14,6% (R131,600)
12.5% (R106,130)
16.8%
13.7% (R125,608)
6.6%
Average age of applicant
37
37
No change
37
No change
Average initial decline ratio (first bank decline)
47,3%
48%
-0.7%
47.6%
-0.3%
Ratio of applications declined by one lender but approved by another
29.9%
27.6%
2.3%
28.7%
1.2%
Effective approval ratio
66.8%
65.3%
1.5%
66.1%
0.7%
Residential Property Prices Going Up The latest statistics from ooba, South Africa’s biggest bond originator, show continued strengthening in residential property prices. ooba’s Average Purchase Price has shown a year-on-year price growth of 8.3% to R905,20, while the First-time Buyers’ Purchase Price is showing a year-on-year increase of 4% to R686,176. Applications from first-time home buyers remain high, with 51.1% of ooba’s intake of bond applications in August from this segment. “ooba statistics continue to show consistent house price growth for 2013, reflecting the positive residential demand growth and better market fundamentals that prevail,” says Rhys Dyer, CEO of ooba. The Average Approved Bond size is higher year-onyear by 3.9%, while the Average Deposit, at 15% of the purchase price, is higher both year-on-year and month-on-month by 31.6% and 2.7% respectively. ooba statistics for August show that first-time buyers are placing a deposit of just under 10% on their new homes.
Valuable Input
Adrian Goslett, CEO, RE/MAX “While it is important for buyers to look at the property they purchase as an investment and consider factors that could affect the long-term appreciation of the property’s value, it is just as important that they simply love the house and that it fits their lifestyle.” www.reimag.co.za
Bill Rawson, Chairman, Rawson Property Group “Much of the state and parastatal land is sited far more conveniently in relation to work providers than the current informal settlements and would be ideal for low cost housing, with or without new industrial infrastructure.”
Gauteng Is The Economic Hub Of South Africa Standard Bank’s latest Residential Property Viewpoint (RPV) (published 16 September) shows that almost half the flats and townhouses built in South Africa between 2001 and 2011 were erected in Gauteng, which saw net inward migration soar to over one million people over that timeframe. Gauteng also has the highest population density in the country with approximately 675 people per square kilometre, compared to a national average of 43 people per square km. “As the economic hub of South Africa, migration to Gauteng is to be expected but the past decade has shown an above average increase in building activity in the province,” said Steven Barker, head of home loans at Standard Bank.
October 2013 SA Real Estate Investor
21
GETTING STARTED
BY KOOS DU TOIT
Enjoy Infinite Returns On Investments Property is THE way to wealth
M
any so-called financial experts and those who dispense investment tips around the braai, advise against property investment based on the fact that property is an illiquid asset that cannot be converted into cash overnight, as is possible with, for example, shares or fixed deposits. It is true that one cannot cash out a property investment overnight, particularly in the current buyers’ market in which the estimated average time of properties on the market prior to sale is around 17 weeks, with 90% of properties sold at less than the asking price and the average drop in asking price estimated at 10%. However, while it is certainly true that property is an illiquid asset, it is a myth that this is a “drawback” – a myth based on the misperception that one can only access the returns by disposing of the asset. In fact, the illiquid nature of property assets is a benefit, for two reasons. Firstly, the illiquid nature of property investments prevents investors from making rash decisions based on short-term developments and, secondly, the illiquid nature of property investment ensures the crucial longterm investment perspective.
Avoiding rash decisions One of the greatest investment pitfalls property investors face is their own human nature which, in financial circles, is referred to as “investor risk”. It refers to the fact that investors are often swayed by emotion - ranging from wild optimism to sheer panic - which results in buying high, selling low, getting the timing wrong or abandoning long-term investment strategies in 22
October 2013 SA Real Estate Investor
response to short-term market fluctuations. The result of emotional investment decision-making is often that investors sell at a loss and then miss the recovery which would have seen them recoup their losses. So, precisely because property is an illiquid investment, and cannot be acquired or disposed of in a moment of panic of euphoria, it protects investors from making emotional decisions based on short-term events and market fluctuations.
The crucial long-term perspective The illiquid nature of property also ensures investors to take a longer-term perspective on the investment. A long-term perspective is a key investment success strategy advocated by all financial advisors and investment experts, regardless of the asset class. In the property industry, the general consensus is that a property investment should have an investment horizon of at least five years. Given that the property cycles in South Africa tend to last around seven years, this would be a more appropriate time frame. However, there is also a macro property cycle, believed to stretch over 20 years, and from this perspective a 20-year investment horizon will provide the truly impressive returns that property can offer. But if you want to create infinite returns on your property investment, plan to keep it forever. The longer you hold a property, the higher the return on investment, because the longer you hold the property, the more rental income and the more capital growth the property generates. If you acquire the property in a trust, the
property will continue to generate both capital growth and income for generations beyond your lifetime – a very successful strategy employed by the world’s wealthiest, who have held properties in trust for 300 years and more, allowing their families for generations to enjoy the wealth created by infinite returns on investment.
Accessing your returns The myth that the illiquid nature of a property asset is a drawback is in part due to a belief that an investor must sell the property to access the returns, as would be necessary when cashing out an investment in, for example, shares. But this is a misnomer, because the investment property is an asset, and as such an investor can access the returns created by the capital appreciation on the property through refinancing (taking out a second mortgage on the property), or by pledging the property as security to raise other types of finance. This means that an investor can access the return on investment on an income-producing property without selling the asset and losing future capital appreciation and without giving up the monthly income the property is generating.
Benefits of an illiquid asset The fact that property is an illiquid asset is not a drawback. It is a hedge against investor risk and against a short-term perspective, and it creates the ability to access returns without having to sell the underlying asset and sacrificing future capital appreciation and income.
RESOURCES
P3 Investment Group
www.reimag.co.za
FINANCE
BY KOOS DU TOIT
Managing Your Cash Flow The right action plan gets results
O
ne of the most common pitfalls propert y investors step into is neglecting to project carefully and then to manage tightly the cash f low of an investment property on an ongoing basis.
Cash flow management Cash f low management is little more than ensuring there is enough cash available, at the right time, to cover the expenses that must be met. This, however, seems deceptively simple, because good cash f low management is more than a simple calculation to check whether the expected income exceeds the expected expenses. In reality, cash flow management is a forward-planning strategy, requiring a thorough understanding of the expected income and expected expenses, as well as careful provision for the unexpected events that might impact on the investor’s ability to meet comfortably the expected expenses given the expected income.
The income The starting point should be to calculate the expected income realistically - establishing a realistic rental income and annual increase, while factoring in possible scenarios that could affect the collection of this income, such as a vacancy or non-payment of rental. Even the best 24
October 2013 SA Real Estate Investor
property may at times be vacant and even the best tenant may on occasion pay the rental late or not at all.
and jeopardising the long-term success of their property portfolios.
For this reason, smart property investors factor in a vacancy rate of 5% into their cash f low calculations, even if the current vacancy rate for the area is lower. Similarly, professional property investors take out rental insurance to ensure that the rental is received on time every month, regardless of whether or not the tenant pays on time, or at all.
The expected expenses should be covered comfortably by the expected income and the contribution the investor can make, comfortably, from his/her own pocket.
In the same way, smart property investors ensure they can comfortably afford any shortfall between the rental income and the monthly expenses from their personal cash flow. “Comfortably” means that in covering the shortfall from his/her own pocket, the investor’s personal monthly cash flow does not become tenuous. In fact, it implies that even when covering the shortfall each month, the investor’s personal cash flow will still provide for a buffer to absorb minor out-of-the-ordinary expenses, whether in respect of personal financial needs or the property investment.
The unexpected
However, prudent cash f low management further includes building a financial “buffer” or “war chest” of sufficient funds to cover the unforeseen and unexpected events that have so often derailed even the best investment strategies. These “unexpected” events include, for example, a prolonged vacancy, a non-paying tenant that refuses to vacate the premises, damage to the property, unexpected extensive repairs or maintenance, or a special levy. The best way to build up such a “war chest” is to budget more than the minimum monthly bond repayment in the cash flow calculations and to pay this higher amount into an access bond, where access to it will be retained, while this money is reducing the interest payable on the bond as well as the term of the loan.
The expenses
Plan ahead
When considering the expected expenses, it is important to make provision for all expenses, including rates and taxes or levies, utilities, insurance, rental management fees and routine maintenance, taking into account that these expenses will increase each year and the increase will be at least the rate of inf lation, although many expenses, notably rates and taxes and utility costs, are rising well above inflation.
P3 Investment Group’s investors rely on easyto-use and intuitive Property Wealth Manager software, which prompts them to factor in all these variables. This ensures investors make informed investment decisions before acquiring a property and then manage tightly the cash flow of the property acquired.
The cash f low should make provision for inevitable interest rate increases, which may raise the monthly bond repayments beyond the “comfortable” level. Whatever the current interest rate, smart investors calculate their cash flow projections on a 12% interest rate (the long-term average) before buying a property. This allows them to build a buffer against interest hikes without impacting their cash flow
With the right software that provides an historical, current and future view of the cash flow position of a property, making provision for numerous variables and “unexpected” events, and with an action plan to build up a solid “war chest” of funds to cover the unforeseen, property investors can not only successfully avoid the property investment pitfall of careless cash flow management, but transform it into a competitive advantage.
RESOURCES
P3 Investment Group
www.reimag.co.za
MANAGING
BYJOHN ROBERTS
Fine Tune Your Lease To suit you and your tenant accommodation as their home and thus take umbrage at being told how long an extra person may stay. A visitor spending a few nights with their friends is unlikely to be an issue for anyone, but when that extends to weeks, things may turn nasty. There are valid reasons for landlords limiting the numbers - the more people, the higher the wear and tear; unauthorised tenants do not pay rent or for repairs and unapproved residents create legal hassles during evictions.
I
t is common knowledge that landlords can fine-tune their leases to fit with personal beliefs or requirements. It is not unreasonable for the lease agreement to state the property may not be inhabited by smokers or that pets are not allowed or to stipulate that the maximum number of people who stay on the property cannot exceed a specific figure. However, leases are two-way agreements and there is nothing stopping tenants from including clauses in the lease that benefit their lifestyles and requirements. Essentially a lease is more than just a document outlining how much needs to be paid each month and how long the tenant may live there. Leases are legally binding documents that contain the do’s and don’ts and both sides must ensure they have carefully read them and understood their contents before entering into that agreement. The Consumer Protection Act has now made it law for documents to be written in clear language, so excuses that “it is too full of incomprehensible jargon” cannot cut the mustard.
What then are some issues tenants and landlords should resolve before signing on the dotted line? The first would be the issue of guests and their length of stay. Tenants consider their rented 26
October 2013 SA Real Estate Investor
Hence, ensure the lease states the length of stay for guests and the number of additional people that may move into the rented accommodation. An extension on the guests’ policy is sub-letting while on holiday. Leases typically prohibit tenants from sub-letting the home without the landlord’s prior written consent in a bid to protect his investment. The tenant has been vetted to live in that property; paid deposits to cover potential damages and is legally bound to the responsibilities associated with renting someone’s home. Subtenants are not bound to the same criteria and may not have the same respect for someone else’s property. Before signing the lease, tenants should discuss these issues with the landlord. Maybe they have planned an extended backpacking tour through south-east Asia and want to sub-let the property to cover some of their expenses - but ensure this is an agreed condition. The next issue is that of personal touch. Tenants want to live in their own space, but does that include banging holes in the wall or making alterations to accommodate the dishwasher or washing machine? If tenants bolt something to the wall or lay carpets because the wooden floors are cold in winter, those items become the landlord’s property unless the lease agreement states otherwise.
Ensure the lease states what changes are acceptable to facilitate individual tenant requirements, but make returning the property to its original state the tenant’s cost and responsibility. Today’s connectivity also means millions of people globally work from home or look to start a home-based business. However, this also needs to be addressed before signing the lease as most leases state the property can only be used for residential purposes - and that expressly dismisses working from home. There would be flexibility depending on what that business involves. Working alone with a computer and telephone could hardly cause due stress on the property, but having clients traipsing through daily and delivery trucks arriving throughout the day may not be something with which the landlord is happy. Repairs and maintenance is another issue of which both sides need to be clear of their responsibilities. While it is undoubtedly the owner’s responsibility to repair the cracked and crumbling steps leading to the front door, it is the tenant’s responsibility to pass on information relating to their demise in the first place. The lease states the tenant must alert the landlord immediately to any dangerous conditions, but months go past and then an outsider injures himself on those stairs. Potentially it could be tenant who may be held responsible for third party damages, because no notice had been passed on to the owner. However, equally as important is for landlords not to lose sight of the reality that this remains their property and investment. That means, whether you are self-managing one rental property or 10, landlord insurance should be a paramount concern to ensure you are covered if tenants default on their rentals - despite your best efforts to transform the property into their haven.
RESOURCES Just Property Group
www.reimag.co.za
CUS T
CE VI
www.justresidential.co.za •
R SE R ME O
PROPERTY GROUP
EXCELLENCE
SMART MOVES
BY ELIZABETH SENGER
Social Media’s New Face Changing the face of communication
T
he biggest and most pressing challenge facing most sectional title schemes today is a severe lack of communication between the relevant parties involved. Each year body corporates appoint a handful of people to manage their investments and more often than not these individuals have no relevant experience or financial management skills. In addition, they have no knowledge of the Sectional Title Act or what it stands for and according to Ross Glenn, developer of Social Estate, this is a dangerous situation for property owners. Glenn explains, “It’s important to note that trustees appointed by the body corporate don’t have the final say in matters regarding the scheme – they are actually appointed to serve and unless specified by the owners, cannot carry out any action that has not been approved by the body corporate.” This is why open and transparent communication is imperative for sectional title schemes. It will protect the trustees by allowing owners to remain privy as to what is happening with their investment and in addition allow owners to provide input where required. According to the South African Registrar of Deeds (also known as the Deeds Office), there are currently 64 419 registered Sectional Title Schemes in South Africa and an average growth of 2.84% per annum has been recorded over the last five years. 28
October 2013 SA Real Estate Investor
As the trend for managed communities such as townhouse complexes and estates continues to grow, mostly due to the affordability and security they offer, so too do the challenges these members face. Conflict between community members and everyday management disputes can lead to real discontent, mostly because of the lack of two-way communication and transparency. Glenn, also a computer programmer with 13 years experience in various sectors including client relationship management systems, developed Social Estate after his first-hand experience as an active trustee and owner of a unit within one of Joburg’s many residential complexes. Being fully aware of the common challenges facing management, owners, residents and service providers of managed communities, Glenn created SA’s first social media platform that targets managed communities to ease the process of communication between members. Launched late last year SocialEstate.co.za is set to change the way body corporates and homeowner associations operate by radically speeding up management tasks typical of a sectional title scheme or residents association, and by putting members in touch to resolve issues within a fraction of the time. Says Glenn, “My motivation to initially become a trustee was to get involved in matters concerning the complex where I’d lived for a few years already. But I soon realised that I didn’t like the idea of
being responsible for other people’s money while not being fully aware of what it was being spent on and I especially struggled with the idea of other trustees discussing matters of relevance to me, in my absence.” Glenn continues, “But it was also about the amount of time and resources being an active trustee requires of you. The amount of emails and phone calls I found myself having to make just wasn’t sustainable.” Social Estate offers a number of useful tools that completely eliminates the need for emails and telephone calls. One of these features is a discussion board where members can chat and share ideas. Trustees can also start private discussion topics, allowing them to cover matters between monthly trustee meetings. The helpdesk feature means trustees can effectively manage enquiries and requests, which are logged and then tracked, keeping the person that submitted the request updated with notifications. In fact, tenants can save huge amounts of time from being able to contact the scheme management directly rather than having to work through the rental agency. Access to other handy tools – like a polling system to get a general consensus from residents on certain topics and also a service provider directory with a feedback and rating option – provide an interactive platform that keeps everyone in the loop. Service providers can www.reimag.co.za
RESIDENTIAL interact directly with their clients and provide input with regards to maintenance and upkeep of their property, ultimately building relationships with their clients. Importantly, communication through Social Estate allows a scheme to keep a historical archive of all activities, which alone is a benefit that greatly outweighs the use of email. Considering the turnover of trustees and managing agents this is a huge advantage to the scheme and future management. The reaction from body corporates, residents and contractors has been overwhelmingly positive with members agreeing that Social Estate vastly improves efficiency, accuracy and transparency, enabling better time management and quick decision-making that involves all relevant parties. Says Wouter van den Heever, managing member at Ambercom Property Management, “We are involved in an industry that requires clear concise communication to all stakeholders at all times to ensure transparency and good governance. Social Estate has made this task
significantly easier and since we started using this product, we’ve seen greatly improved communication between trustees and owners”. According to Glenn, good communication is the key to a peaceful community, “Consider a hundred people – of ages spanning from the early 20s to 50s and over – living together in the same space only a few metres apart and having to abide by rules they were never consulted on the first place. There is no way a community like this can coexist peacefully without the ability to communicate freely and develop relationships”. Glenn goes on to explain a case where Social Estate played a pivotal role in improving social well-being within a community. “A tenant who lived in a sectional title scheme did not want to be contacted at all through any medium and refused to socialise at any level. With the ability to view people’s profiles and peruse their activity and behaviour through Social Estate she developed enough confidence to begin interacting with other members until eventually she was willing to provide her cellphone number to all members in the scheme through a public discussion
topic. There has been such an overwhelming transformation with regards to her willingness to participate and socialise that she is now driving other members to hold a community gathering so people can get to know each other better in person”. Glenn believes that Social Estate is a valuable additional benefit of buying in a newly developed complex. At the inception of a body corporate, communication and a historical log of decisions made is imperative to the future of the scheme and can be easily achieved through this clever social media platform, with minimal administration requirements. Glenn has big plans to further develop Social Estate into a mechanism for generating income for large communities such as residential associations and housing estates. His aim is to give these establishments the tool to raise additional funds for community improvement and spur local business growth through direct marketing to their communities.
RESOURCES
Social Estate
MANAGING
YOUR PROPERTY
ONE PIECE AT A TIME Catering for both Property Owners and Agents, Nikita is an extremely powerful yet easy-to-use application that is geared to manage your Property Portfolio in the most efficient manner, every step of the way.
www.nikitasoftware.com
Toyah Gawne +27 11 745 5901
STRATEGIES
BY ANGIE REDMOND
Become A Property Pro Invest like the best
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he latest statistics from ooba show positive year-on-year house price growth in July of this year of 6.6% to an average purchase price of R902 900. “Property price growth and higher home loan approval rates continue to positively inf luence the property market, there is renewed confidence in the market and home buyers have more access to credit for home loans, which has been aided by record low interest rates,” says Rhys Dryer, CEO of ooba. While the performance and prospects for the residential property market are closely related but not dependant on the economic growth of the country, employment and income growth, property performance is cyclical. A (property) cycle is a frequent set of improving and receding discernable (property) trends as a result of external and internal market influences.
TYPICALLY, A PROPERTY CYCLE IS CHARACTERISED BY 5 DISTINGUISHABLE PHASES 1 A growth phase (expansion) 2 A (peak) boom phase 3 A recessionary (decline/contraction) phase
4 A trough phase 5 A recovery phase To a large extent, it is possible to determine which phase (of the five mentioned above) the property cycle is currently in and, then, with some certainty, to predict the commencement of the next phase in the property cycle. If one monitors the general conditions associated with each phase and correctly predicts and anticipates the onset of the next set of general conditions, one can, as a consequence, predict the commencement of each phase within the property cycle. 30
October 2013 SA Real Estate Investor
Adrian Goslett, CEO of RE/MAX, says, “Looking at property cycles over the past few decades, there is a definite pattern that can be followed over a period of nine years. Every nine years there is an economic downturn, which takes an average of 10 months to complete from the top of the cycle to the bottom. The bottom of the cycle usually lasts approximately 24 months, followed by a slow yet solid upturn to the top with a recovery period of about 64 months. Understanding the property cycles will assist investors in knowing when to purchase property in order to see the highest returns on investments. Investors can confidently take advantage of the slower periods knowing that their investment will see significant growth during the booms and solid appreciation over the long term.” Understanding property cycles and knowing when to invest in property is just one step in turning property into your second income. The other is ensuing you have the funds to do so, and that means having a saving mindset. You need to live within your means and prioritise what to spend your income on each month. While straight saving into your bank account is a good start, the interest you will earn is lower than the inflation rate. If you take your savings and invest them in a deposit on a property, your appreciation will be between 6 to 11%, with a bond you can invest your money into property worth more than you have saved. This then comes down to how much you can afford, which is why it’s so important to live within your means and have a clean and clear credit record. The better your credit record, the more you can qualify for when you apply for a bond.
Why invest in buy-to-let? Residential property has always grown positively over the medium term, it has far less volatility in growth than, say, the stock market and is more
stable than commercial property. The reason why is simple, residential property is one of the basic needs: food, clothing and shelter. An investment into any of these three will always have a good chance of success, as they do not depend on the economy, regardless of what the economy does, you still need a place to live. It is important to note that entry-level property is a basic need, not luxury property, which is more of a want, so entry-level properties will always perform better than luxury properties. And based on the factors of affordability and changing lifestyles, the focus of the demand for and supply of new housing has largely been smaller-sized houses and higher density flats and townhouses over the last few years. When you invest in residential property, you should look at entry-level properties, they will provide you with the first step on your investment ladder. South Africa has a rapidly emerging middle-class, and while the population is set to grow, the one thing that isn’t growing is land; there is a set amount of land and a growing demand for rental homes. Investing in buy-to-let property is not a science but there are a few hard and fast rules when it comes to buy-to-let and one of them is to buy property that your prospective tenant will want to live in. You may not necessarily love the property you are considering but as long as your tenant does that’s what matters. You need to ask yourself, what does your picture perfect tenant want? Are you investing in a flat or a house? Generally if you are investing in a flat then you are going to want to target either single or married working couples without children, so you will need to ensure your property is close to transportation and business centres. Whereas if you invest in a home, you are looking at couples with children, so a house close to a school district that has a good safety track record and is child-friendly will be attractive to your ideal tenant. By placing yourself in your www.reimag.co.za
RESIDENTIAL tenant’s shoes, you can buy a property that will appeal on the rental market and ensure that you never sit with a vacant investment property. While property remains a vital part of an investment portfolio, it is very important to note that it is a long-term investment. The length of time you hold onto a property before selling it will be a key element to building personal wealth. Residential property and buy-to-let property remain a great investment in your future and a fantastic way to get that second income!
What do the experts say? John Roberts, CEO, Just Property Group In my opinion, the factors any investor in property should consider are the following: Area: where do I want to invest and why? Consider the history of rental returns in the area, the location of the property and how the surrounding environment will impact on the desirability of the property for your target market. Who is my target market: students, first time homeowners, lower or higher end of the market? Property management: will I manage the property privately or will I use an agency. This has
a substantial effect on return on investment. What’s happening in the surrounding area? infrastructure changes, new schools or shopping centres.
Dr Andrew Golding, chief executive of the Pam Golding Property group What sets a successful residential investor apart? Have patience – and do your homework! Research the market carefully, be patient and make a considered purchase decision based on all of the above-mentioned factors, and ensure that your property acquisition (in the instance of a buy-to -let investment) is within your budget and that you can afford the bond repayments should you find yourself without a tenant for a period of time.
Samuel Seeff, Chairman, Seeff Top 3 most important factors to investing: Location, location, location - buying in the right area, but more importantly buying the right property in the right area. Knowledge and information - it is vital that investors do their homework and arm themselves with knowledge about the areas
that are in demand, both from a buyer and rental perspective. Wisdom of patience - smart investing requires knowledge and, above all, the wisdom of patience to ensure your asset grows in value and to know when the right time is to sell to yield the best profits.
Adrian Goslett, CEO of RE/MAX The first element that an investor should consider is their return on investment, not just capital appreciation or return, but also operational return or rent that can be generated. An investor makes his profit when he buys not when he sells. In other words, he will only pay what the property is worth to him and not necessarily what the market suggests. There is no emotional attachment and therefore it is easier to walk away. A savvy investor will also spend much of his time scrutinising the creditworthiness of the tenant, whether they are existing tenants or new.
RESOURCES Just Property, RE/MAX, Seeff, ooba
PROPERTY FORUM
INVEST IN REAL ESTATE LIKE WARREN BUFFET THE JT FOXX WAY JT FOXX JT Foxx is a serial entrepreneur and real estate investor and is known worldwide as one of the top speakers and coaches in the wealth creation, real estate and business sectors. He has also been a radio personality over the last 7 years. Originally from Canada, he started eight years ago with $974 and a very old Ford Ranger Pick up truck. His areas of expertise are marketing, branding, sales and strategic thinking and investing. He is also the founder of the world-renowned event Mega Partnering and Mega Partnering Africa.
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eal estate is by far one of the best vehicles to grow your wealth and to accumulate assets. Hoarding cash is the wrong strategy especially if inflation creeps up or the value of the Rand starts tanking against other world economies. Many people got hurt during the last real estate crash and are still skeptical about investing again, even though they know there has never been a better time. The reason many got hurt is that they invested like real estate investors rather than real estate entrepreneurs. Too many investors work in their business rather than on it or bought properties where the margins were so tight they had to do the work themselves to make the deal work. Sadly, this strategy didn’t work and many lost it all, only to be left with broken hopes and dreams. My strategy for investing has always been one of success modelling. Take what other very successful people or other industries are doing and apply it to what you are doing in your real estate business. That way you are not only being disruptive but you are creating your own economy. In my case, I have always looked up to and idolised Warren Buffet and have tried to build my real estate business in the manner he built his empire. Here are the four main concepts.
information, which turned out to be wrong. That mistake was a R200,000 loss but one of the greatest lessons of all because had this not happened it could have cost me a lot more later on in life. Despite this isolated mistake, even after well over 500 deals, my partners still like to bring it up.
Buffet/Foxx Principle #1
The final lesson is that you need to find good partners. Whether you are Donald Trump or Warren Buffet you will run out of money to do deals and you are going to outgrow your bank or scare your bank into capping the amount they are willing to invest. Banks are scared and even Buffet, who is flush with cash and bought Heinz Ketchup for $22.4 billion, brought in a partner. Trump no longer uses his own money to build big development projects, rather he finds local developers to partner up with. So it is essential that you find a value added partner where you have a mutual beneficial relationship that is built on loyalty and trust. I truly believe that this lesson from Warren Buffet, and his relationship with Charlie Munger made me realise at a young age that no matter how good of an investor I can be, I will always run out of money, so why not find a partner? Better to get 50% of 500 deals, than 100% of 6 properties. Buffet proved that whether the market is up or down, it shouldn’t matter because if you bought right you can weather any market turbulence. Those who are successful in today’s market are strategic and those who are financially stuck are still tactical, scratching their heads as to why they are not they getting the deals below market or funding.
Don’t invest in companies or stock. Invest in people. My VP of real estate has been with me for six years and because of him I put less than 15 minutes a week in the real estate business. We have systems and checklists, and I have trained him personally to take a bad deal and turn it into a good deal. My job is simple: trust but verify.
Buffet/Foxx Principle #2 Don’t gamble when it comes to real estate. You make money when you buy, not when you sell. Every property I purchase I treat as a company and I have a 90-day, and a one,three and five year plan. If you buy real estate without an exit strategy in hand you might as well buy a lottery ticket because your odds to success just drastically dropped. Hoping and praying that your property will go up in value is not a strategy but another form of gambling.
Buffet/Foxx Principle #3 You are only as good as your last deal. So if you want to purchase a property on a tight margin and the deal turns out not to make a lot of money or even worse, it turns into a loss, how will this affect your ability to get more funds from your partners or banks? I remember early in my career I had done 50 very profitable deals in a row and started getting cocky and not doing the fundamental things that had made me successful and bought a property based on third party
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October 2013 SA Real Estate Investor
Buffet Foxx Principle # 4
Remember, flip real estate for short cash, but long-term wealth comes from buying and holding. It may not be sexy but as you grow your portfolio, other vertical and horizontal business possibilities will occur just as it did for Buffet. At the end of the day, if you want to be successful and help others, do what no one else is doing: get a great real estate coach who will push you outside of your comfort zone and will also mitigate very expensive mistakes. There are often no second chances at real estate but in today’s market in South Africa you finally have one. Don’t waste it procrastinating or repeating the same mistake.
www.reimag.co.za
privateproperty .co.za
IFESTYLE IZE
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U LT I M AT
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LIFESTYLE
BY ANGIE REDMOND
PR
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U LT I M A T
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Win A R5 Million Dream Home With Top Billing
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op Billing, a brand and broadcast show synonymous with architectural and design excellence, has launched a oncein-a- lifetime competition. The prize is one contestants would do almost anything for; the chance to live the Top Billing lifestyle. After 21 years on the air, Top Billing decided to reward their viewers with the opportunity to own a dream home worth over five million rand plus a luxury car worth over R700 000. The home comes with a much soughtafter address in the heart of Cape Town’s urban cultural haven, De Waterkant, in the sensational new The Mirage development. This ultra trendy metropolitan sanctuary is every urbanite’s dream. It is a one-bedroom apartment with an en-suite bathroom, walk in 34
October 2013 SA Real Estate Investor
closet and a guest loo. A luxury fitted Careline kitchen f lows into an open plan lounge also f lowing to the balcony featuring a vertical garden. The double underground parking bay is the perfect place for the winner’s new cabriolet. Partnering with only the best brands in South Africa, the home draws from a myriad of expertise: Woolworths brings their knowledge of food, fashion and décor to South Africa from the very latest trends in Paris and London. Private Property offers the best in property and investment advice. Stefan Antoni of Antoni Associates, an interior design firm that is the epitome of world class, with awards dating as far back as 1996, will be in charge of turning the interior of the dream home into a modern fairytale for today’s urban couple. Mark Rielly,
Director of Antoni Associates says: “The Top Billing dream apartment expresses a distinctly modern African attitude that is current with today’s demands of fast paced city living. The apartment will be a space of calm and serenity for re-energising, relaxing within, f loating above the city streets of its location. Using these criteria as the foundation of the design direction, the interior will be a stylised and dynamic clutter-free space that epitomises a forward-thinking, contemporary luxury urban lifestyle space that maximises spatial use, cutting-edge design and technology. The spatial constrictions of the space have influenced our design and careful consideration to ergonomic design, has influenced our design process. The requirements of the modern urban couple, that desire to live a streamlined, fluid www.reimag.co.za
RESIDENTIAL
and f inely focused existence and the need to express one’s individuality have been at the forefront in our conceptualisation of the apartment. Lighting, colour palette, materials and finishes also reflect our theme of day and night and the way in which the apartment functions differently at different times of the day. There is a strong emphasis on rhythm, geometric forms and graphic elements that are reflective of modern patterns.” A 40mbps fixed broadband line by Telkom will provide the dream home with the fastest Internet connection in South Africa as well as enable the cutting-edge technology that will make the dream home a smart home. Everything from the lights to your TV will be at your command with just the click of a button. Hansgrohe will make sure the apartment is water savvy and has the latest kitchen and bathroom collections available to turn this apartment into a true testament of style and functionality. Oggie hardwood f looring will supply the living room and bedroom with handcrafted real wooden f loors while the bathrooms and dressing room will be fitted www.reimag.co.za
with marble and granite by WOMAG. The kitchen and dressing room will follow the latest European trends in colour and hardwood inlays. The apartment will take its inspiration from the 2014 Plascon colour pallet. Miele will ensure the winner has the best appliances on the market to allow them to cook master creations from the R100 000 worth of food vouchers. This prize offers one person the chance of a lifetime, and proves that sometimes dreams do come true! The winner will be announced on the 12th of December and in February 2014 the winner will walk into their dream home in De Waterkant in The Mirage. A sub-district of the suburb of Greenpoint, cradled between the city and the Waterfront, De Waterkant is avantgarde, a cultural urban refuge highlighted by the abundance of restaurants, art galleries, gay clubs, salsa clubs, tapas bars and Parisian inspired café’s. Marketed by Dogon Group Properties and built by Nova Developers, The Mirage boasts sixteen floors of primarily residential property along with limited office space and a rooftop bar with a heated swimming
pool and braai facilities designed by Kevin Gadd Architects. The Mirage Also offers: • Lu x u r ious spa • Wi-F i connec t iv it y throughout the building • DSTV and PVR access • Ample undercover parking for residents and visitors • 24-hour security and access control with digital CCTV • Concierge service • Parcel holding room for your shopping • Plush office and retail space • Rental pool for tenants. With Table Mountain as your backdrop and a view of the harbour, The Mirage is not just an address; it’s a way of life. The final touches are being prepared for the dream home, for that one lucky person who will call this embodiment of style and design home. Top Billing in conjunction with Woolworths and expert partners are offering you the chance to change your life forever, so what are you waiting for? Get to the Private Property www.privateproperty.co.za website and enter right now or watch the next episode of Top Billing and enter to win the home of your dreams.
RESOURCES
Top Billing, Private Property, Woolworths
October 2013 SA Real Estate Investor
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REI Commercial
New Era For SA’s Retail Industry
Location Really Is The Secret To Success
SAPOA Cleans Up Limpopo
A significant collaboration and cooperation agreement will see South Africa’s shopping centre and reta il industr y ga in g reater access to global insights and resources. The agreement between the South African Council of Shopping Centres (SACSC) and the International Council of Shopping Centres (ICSC) was announced at the 17th Congress of the SACSC at the Sandton Convention Centre. Thanks to this collaboration, SACSC’s over 2,200 members will benefit from automatic entry to membership of the ICSC, effective from 1 January 2014. SACSC CEO Amanda Stops says: “This exciting agreement ushers in a new era of international cooperation for the shopping centre industry. It gives SACSC members added benefits and exposes them to the global community.”
The property industry maxim of “location, location, location” has proved to be correct when applied to the V& A Waterfront. By 2012 proximity to the Waterfront has added an estimated 23% increase in value to properties that fall within a 1.5 km radius of this prime location. The Waterfront has effectively increased neighbouring property values by R2.8bn. A study established that properties within a 1.5km of the Waterfront were worth R123 056 more for residential properties and R1.14m for commercial properties compared to similar properties elsewhere. This means that in 2012 the potential annual rates generated by properties within the 1.5km radius but outside the Waterfront was some R37.92 million for residential and R79.64 million for commercial properties.
“ W hi le we’re pleased that Limpopo is undergoing transformation, we do still find the reported staggering R2 billion worth of theft and wastage, incurred by the previous administration, extremely concerning and tota l ly unacceptable,” says Neil Gopa l, CEO of SAPOA. A six-month transitional period comes after a national government team took over the administration of the aff licted provincial departments two years ago, after it emerged that not only was the province burdened by an overdraft of R1.7 billion, but that its ability to provide services and pay salaries was under threat. It has been reported that at end-July 2013, Limpopo had achieved a R3.3 billion credit balance, largely due to corrective measures taken by national government during its intervention.
Valuable Input
Malcolm Horne, CEO, Broll Property Group “In sub-Saharan Africa, growing customer demand is coupled with an increasingly wellinformed customer base, making it easier to position retailer brands, especially as far as fashion, supermarkets and electronics are concerned.” www.reimag.co.za
Charles Vining, MD, Seeff Sandton
Michelle Dickens, MD, TPN
Desmond de Beer, MD, Resilient Property Income Fund
Lance Chalwin-Milton, Joint MD, High Street Auctions
“At the moment Sandton Central is a hive of construction activity – cranes dominate the skyline and workmen in constructionissue overalls pound the pavements. New developments are commercial, residential and mixed-use.”
“The biggest difference between commercial leases and residential leases is that companies, with the exception soleproprietors bringing in under R 2 million per annum, do not qualify for protections such as the Consumer Protection Act (CPA).”
“Developers of new shopping centres are competing so aggressively to sign up national tenants that incentives like full store fit-outs and cancellation clauses are becoming the norm.”
“The auction market was worth an estimated R6bn/year before the Auction Alliance fallout early last year. It’s down to R1.5bn.’’
October 2013 SA Real Estate Investor
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DEVELOPING
BY TONY COLLINS
Your Needs And Objectives The development process
PART 2
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and objectives set for the project. A further consideration would be the assessment of any community and political resistance to the project and the magnitude thereof.
At t h is st a g e t he de v elop er a nd t he consultants need to assess and def ine their legal, f inancial, managerial and technical capabilities for comparison with the scope
The investor begins by conducting an analysis of his own needs on the basis of which he then formulates his own criteria for selecting and eva luating investment oppor t un it ies. However, t hough needs differ with investors, they can be formulated in terms of the following considerations, namely: • Expected yield or return on capital; • Liquidity of the investment; • Risk attached to the investment;
he first step in assessing the investor’s needs and objectives is to define the developer’s goa ls and objectives, which are obtained through discussion prior to establishing uses for sites or sites for uses. The developer’s objectives will differ as the private developer will be driven primarily by the economic principle while government bod ie s a nd wel fa re org a n isat ions w i l l consider the social costs versus the social benefits as well.
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October 2013 SA Real Estate Investor
Return on capital to investor the future benefits that would accrue to the investor are referred to as the yield, or return. Four investment approaches in particular can be distinguished in terms of the type of yield return obtained from possession of property. These approaches are: • Investment for own use; • Investment for regular income; • Investment for capital growth (primary objective is selling); • Investment for amassing an estate. The investor could however have different combinations of the above approaches in mind when acquiring an investment property. Although many investors may say that they www.reimag.co.za
COMMERCIAL require a given amount of Rands per month, most investors require a specific rate of return and these yield rates can be based on • •
a required rate of return on total capital invested, or a required rate of return on equity, or an anticipated internal rate of return.
The internal rate of return is the annual amount earned on each rand of the investor’s equity while it is invested in the particular project. However, the norm is that investors require a certain after tax internal rate of return on the equity invested in a property. It is, therefore, assumed that the investor wishes to legally own the subject property for a specific time period and that the benefits such as income stream, capital growth, financing possibilities and tax benefits will be taken into account when the after tax internal rate of return is calculated.
Liquidity Liquidity refers to the ease with which an investment can be converted into money. Although fixed property is not very liquid, it need not necessarily be sold in order to obtain money but can serve as security to borrow money.
Risk Risk will always be with us. However, risk is very personal and the manner in which risk is dealt with differs according to factors such an individual’s propensity to take a risk, the financial backing and expertise available, the education of the individual, the cultural and religious background as well as the individual’s personality. Other factors affecting the manner in which we perceive risk include socio-political and economic factors. In addition, the approach to risk would differ as to whether the property to be developed is owned, or whether a property is required to be purchased for development of a need. Furthermore, throughout the decisionmaking and the property development process we are faced with a variety of risks. These risks can be avoided, transferred to insurance policies and managed. The perceived magnitude of the risk is, therefore, important and a rational approach to decision-making is thus required. This requires a thorough analysis of the array of alternatives available to the developer / contractor based on good information so that an educated decision can be taken within a minimum time period. www.reimag.co.za
In addition, risk can be described as the possibility of there being a difference between the investor’s expectations and that which he actually realises from the property. Risk can be classified into 2 categories namely: business risk and financial risk. These categories of risk are discussed below. Business risk is the difference between the productiv it y (y ield) expectations of the investor and that which comes true; it reflects the net income of the property without use of borrowed capital and it reflects an investor’s uncer taint y regarding the reliabilit y of estimates of a property’s future productivity. Furthermore, it is quite clear that if there is a relatively safe yield from a subject property the owner will not expect an excessively high rate of return. However, as an integral part of the investor’s decision-making the following aspects have to be considered, namely:
Fluctuations in interest rates can affect changes in the value of a property, possibly being the cause of loss to the investor. W here no borrowed capital is utilised by the investor to f inance the purchase of a property, the ratio of operating income to operating expenses is most important. Furthermore, one has to ensure that there is a sufficient protection against carrying the cost of borrowing funds against the security the building offers. The additional risk that arises because money is borrowed is known as financial risk. This is a risk over and above the business risk. The investor therefore, must consider that the higher the ratio of “the loan to the market value” of the property, the greater the financial risk. Where the anticipated cyclical variation in operating income is large, or where business risk is high, there should be an adequate safety
“The higher the ratio of “the loan to the market value” of the property, the greater the financial risk” Location risk; with the decentralisation of many institutional buildings to the suburbs, example, Bellville, Claremont, Newlands and Pinelands, the values of properties in the Central Business District of Cape Town have not increased in value to the same extent that they used to, when the CBD was the main commercial district of Cape Town. The Victoria and Alfred Waterfront / Granger Bay developments have also placed pressure on Agrade office space in the CBD. Purchasing power risk; this refers to the possibility of loss owing to inf lation. For a specific property to keep pace with inflation at the current rates: it must have a good location. The rental must be adjusted periodically and the property must not be subject to sudden sharp increases in operating costs. Institutional risk; public legal circumscription of fixed property is continually changing with the phasing out of rent control on blocks of f lats for example. However, though rent control is being phased out, the possibility of its re-introduction also affects the development of new apartment blocks.
margin between net income and the mortgage payment in order to prevent possible forfeiture of the property.
Rational risk takers do the following: - Carefully specify their investment objectives with regard to required rates of return, timing of returns and acceptable risk levels; - Identify and quantify major risks as accurately as possible; • Eliminate risks where possible; • Transfer risks to insurance policies; • Reduce manageable risks, and base decisions on whether the expected returns justify bearing the remaining risks in the pursuit of the investment objectives. Now that you have defined the needs and objectives, you should have a clear goal and plan on how to meet those goals. In the next edition of your step-by-step guide to developing we will look at finance, the legal requirements and the location, which is critical to the success of your development.
RESOURCES Tony Collins October 2013 SA Real Estate Investor
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STRATEGIES
BY JASON LEE
More Rights
More Value
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couple of years ago a conveyancer with whom I have done a number of deals called me and asked whether I would advise her husband with regards to a commercial property he was interested in acquiring. I agreed and will always remember how this deal unfolded at the meeting and in the years that followed.
loan terms before even factoring in the rental income from the rentable space in the property. The truth is that I actually got it horribly wrong. After the signage rights were in place, the gentleman did not get R30 000 per month from advertising fees as I’d predicted; he managed to sign a signage deal with a major brand for a staggering R88 000 per month.
At the meeting, the gentleman showed me plans for the building and told me that the seller was looking for around R2.7 million for the property. I then asked him to describe the location of the building. After he told me where it was, without hesitation I told him to sign the deal that day and get it done. I could see he was quite surprised by this, as he was expecting me to start pulling out graphs and spreadsheets and giving detailed advice. But here I was, blurting out that he must buy the building five minutes after the start of the meeting. My thinking on this deal was very simple. The building was located in a commercial node with huge visibility from a major freeway. This, to my mind, translated into enormous potential signage fees once he was able to get the signage rights in place. At the meeting I estimated that the potential advertising revenue from the signage alone would be around R30000 per month. This would be enough to cover his monthly bond repayments on commercial
This deal has always stood out in my mind as a fantastic example of how more rights in property translate into more value. Without the signage rights in place, the building was barely worth the R2.7 million he paid for it. With the signage rights in place, not only was the property a cash cow in terms of monthly income and cash flow, but the value of the property also tripled in value, based on the signage income alone.
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October 2013 SA Real Estate Investor
Even if you never intend using the additional rights you procure for yourself, these rights may have enormous value for a potential buyer of your property. Additional rights can include: • getting plans drawn and passed at council for an extension to your property or to add a second storey to a single-storey house; • getting a zoning scheme departure in place to r un a business from a residentia l property; • getting the rights in place to operate a guesthouse or backpackers’ lodge
from your property; • getting the rights in place to open a crèche or playschool from your house; • getting plans and permission in place to demolish your existing house and develop townhouses or apartments on the land; • getting the rights in place to subdivide your garden into more than one plot.
Are you adding value? These are only a few ideas to get you thinking, but the list is endless. One of my first property deals involved buying a residential property and getting a zoning scheme departure in place to operate a business from the premises. The result of this process was that a house that would usually have generated a rental income from a residential tenant of around R7 500 per month was rented out to a commercial tenant for R16 000 per month. If you want to add value to a property, think further than the bricks and mortar; think in terms of procuring legal rights that are highly sought by potential buyers and tenants. The cost and time involved in procuring these rights, in my experience, become insignificant in light of the potential upsides and benefits once the rights are in place. This excerpt has been taken from Jason Lee’s new book , Ten Simple Steps To Property Wealth, out in stores now.
RESOURCES 10 Simple Steps To Property Wealth Zebra Press
www.reimag.co.za
INVESTOR STORY
BY ANGIE REDMOND
Building A Property Empire
Jacques Stoltz tells you how you can do it too!
B
oth of Jacques Stoltz’s parents were selfemployed and invested in property for their retirement, this is the example Jacques chose to follow when he decided to invest in property. He currently manages his own successful real estate agency in Sasolberg, but a self-maintained business is just one of Jacques’ jobs. He is also an active property developer, manages his own development team and attempts to complete at least one new development per annum. So what started him on the path of investment? “My parents invested in property since I was a young boy and I use to contract myself out to them during school holidays for paintwork or minor maintenance work. I bought my first property at the age of 21 (1991) for R50 000 and sold it two years later for R65 000. I bought my second property then for R84 000. During this time was I working at Iscor and after six years resigned to start my own business. I sold this business after a year and made R100 000 profit. I bought my first property purely for
speculative reasons; I have since bought around 70 properties on auction, renovated them and resold them,” says Jacques. His financial strategy is simple, he uses a number of commercial property finance bonds, and re-finances the properties as and when he needs to for new developments, but as investors know this can be risky, which is why Jacques doesn’t bond all his properties. “Commercial property finance is an expensive route with very strict conditions attached to it. As my longterm goal is to generate an income for me once I reach retirement age, I believe that I must invest as much as possible of my cash flow back into my developments,” says Jacques. Having learnt a lot from his parents, Jacques has seen how investing in property has provided his parents with a reasonable monthly income during their retirement years, and that their property portfolio has enabled them to live comfortably in their later years. But having a good mentor is also important, something Jacques realises, “I also believe that having a good mentor is good
idea. This person should be somebody that has the same interest and views as you, somebody to look up to. I found my mentor in Jef Zidel. He is well known in the property industry and manages huge property investment funds all over the world. He is not actively involved in my business but I try to visit him on a regular basis and exchange some ideas,” explains Jacques. It’s not just about buying a property though; with long-term investments you need to have the right management structure in place to succeed. Jacques believes that a hands on management approach is the way to go, he manages his own portfolio, has admin staff and an in-house maintenance team, ensuring the tenants’ complaints, problems and maintenance issues and fixed immediately. “My tenants are my bread and butter and they should be treated accordingly. I found that my tenants are my best advertisement,” says Jacques, “I like to add some value to my properties by installing solar geysers with a bit of landscaping and irrigation systems. This encourages the tenants to live clean and considerate lifestyle, which also improves the value of the property.” With a portfolio worth around R27 million, Jacques is in the process of developing two new industrial workshops. Once completed these will bring his portfolio worth to around R30 million. A portfolio of this size generates a substantial monthly rental income. Jacques has spread his risk in the commercial and residential property sector, investing in office complexes, retail shops, workshops, and townhouses and f lats. “I focus on the lower
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October 2013 SA Real Estate Investor
www.reimag.co.za
COMMERCIAL income tenants in basically all the property sectors, ie, all my residential units caters for rental income of between R 2500/m – R4500/m. My retail outlets are located at middle-income areas and the tenants are all owner-operated stores. My industrial units focus on start-up and small businesses with rental income of below R10 000/m. In all these cases I find that the tenants are loyal and although there are months that they struggle will they always pay any rent that may fall in arrears,” says Jacques. His investment strategy is one that benefits not just him but also the area he chooses to invest in. “I like to focus on the properties that other investors are not interested in and are prepared to subsidise the instalment for a year or two. I also look for property where I can add value through my management skills and commitment to uplifting the property in the area.” Jacques first investment was a townhouse complex of 33 units. He partnered with his mother and a friend, as he had no actual cash. They formed a company and bought the complex. They secured a bond on the property and Jacques’ friend supplied the deposit. Jacques sectionalised the complex and they
ABOVE: Jacques Stoltz sold enough of the units that he was able to repay his friend and his mother and he still owns 14 units on a 50/50 basis with no bond. So what is Jacques’ best property deal? “The above-mentioned deal really kick started my investment career, but I did a number of excellent property deals. I bought a vacant stand for R100 000 and sold it a year later for R1.5m. I bought a retail complex with flats on
the first floor for a minimal amount, fixed it and I still own it. It is now worth more than R5m. I see all my deals as significant!” Not just a businessman, Jacques is a family man and likes to give back to the community, having served as the chairman of the local chamber of commerce for three years. “I believe in ‘what goes around will come around’. I focus on the lower income tenants and things do not always go the way you plan. I am always willing to assist a struggling tenant as long as the tenant plays open cards with me. I try to build longterm relationships with all my tenants. But in the end this is an investment and you can only assist a struggling tenant for so long!” Education plays a key role in Jacques’ property management skills. He has obtained diplomas through Paddocks and attended many property investment seminars. “I like to be very conservative when investing in propert y but can make up my mind ver y quickly if I see an opportunity. When I buy propert y for a long-term investment and focus on the protection of my assets, factors like price, location and interest rates are all important but for me the most important factor is if this property is a good investment and can it generate a positive income within 2 – 4 years,” says Jacques. His investment story serves as an example of what determination and hard work can achieve. Without using any of his own money, Jacques has built up a propert y empire. Using education and learning, the tools of the property trade, he has made his dreams come true.
OFFICE TRENDS
BY JONATHAN SMITH
The Secret To Office Letting Discover the right strategy for success
M
ost la nd lords have found it incredibly diff icult to lease out substantial off ice space since the onset of the recessionary climate in 2008. Our office vacancy levels currently average, at best, twelve percent and are, in some nodes within SA, as high as twenty-two percent. Low take-up of off ice space has been eventuated by the lack of office space usage as a result of a shrinkage in tertiary sector growth as well as an adjustment to our commercial space users’ business and staffing plans. Our companies use less space to save costs and, even, allow some staff to work from home or to hotdesk in order to reduce their requirements for office space. To accommodate an off ice worker (apart from the salary cost of the employee) costs a company an average of R150 0 0 0 per annum. This overhead alone is reason enough to consider reducing a company ’s space consumption as much as possible. Office landlords, therefore, need to employ a number of innovative methods in promoting the demand of their space in an economy which is not growing at any sufficient pace to improve office space demand and a commercial environment which uses offices much more efficiently than ever before.
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October 2013 SA Real Estate Investor
Such strategies can be divided into two broad categories: organic (or internal) and external.
Organic office letting strategies Office landlords should always seek to compare their offerings to those of their competitors and actively seek opportunities to improve their buildings by comparison to those buildings surrounding their developments.
“ You will need to implement a refurbishment programme in order to set your buildings apart” Those off ice building owners who have maintained their developments in pristine condition since the recessionar y climate commenced would have benefitted from having buildings that are relatively attractive. These landlords will find it easy to compare their lobbies, common areas, ablutions, kitchens and usable areas with those of their competitors and see little room for improvement. However, where your office developments do not compare well with competitive buildings, you will need to implement a refurbishment programme in order to set your buildings apart and ensure their superiority.
The f irst step, then, in implementing an organic–based off ice let ting strateg y is to ensure that your off ice development is superior by comparison to your competitor’s buildings: • compare your foyers – which must create a lasting first impression • compare your ablutions – which should provide a modern and comforting appearance • compare your passages and walkways which should be light and inviting and should include sophisticated artwork so as to inspire tenants and visitors • compare your lifts – which should be fitted out in a contemporary manner • compare your appurtenances which should be mounted in attractive cases and clearly sign-boarded • compare your electronic accessibility – which should always provide comprehensive wireless connectivity • compare your tenant signage – which should be upmarket in appearance and contain a modern and dignified qualitative air • compare your usable (dedicated) areas which should be clear, clean and light so as to provide potential tenants with an anticipation of their tenancy • compare your parking facilities – these should be light, clean and marked out in an exemplary manner, providing special widened bays close to the lifts and stairs for executives and disabled people. www.reimag.co.za
COMMERCIAL Potential tenants do not consider pricing first: they first consider location and, then, the amenities and comfort provided by an office location, followed closely by connectivity. When preparing a fact sheet for marketing purposes, provide potential tenants with a colourful double-sided fact sheet which indicates where your building is and how it connects to main thoroughfares, taxi and other transport routes, train and bus stations as well as airports (in a smaller inset diagram). List all of the benef its and features of your office building, such as available space for a tenant’s expansion, parking facilities and how well your building is managed: potentia l tenants look towa rds mov ing into developments that are managed in an exemplary manner as they are, then, able to focus on their own business operations. A brilliant letting strategy includes refurbishing the foyer, one lift and one common area set (passage, ablution and kitchen) and, then, fitting out one small suite with expensivelooking f inishes and furniture (including carpets, walls and ceilings): potential tenants shall often, see themselves in the attractive, inviting show suite and want to sign a lease for the show suite itself. All potential tenants are attracted to green buildings at present in view of the mediumterm savings which these buildings provide. If it is at all possible, commit to installing green technology such as energy and water saving devices within a reasonable time frame. Ot her incent ives wh ic h of ten at t rac t potential tenants are a rent-free period for the parking bays which the tenant may require, assistance with the tenant’s premises fit-out (between two and four months worth of gross rental) and inclusion in a prominent signage display in your building’s foyer and on your building’s exterior. Allowing a tenant not to pay a deposit or permitting a new tenant to pay its deposit off over a short period is a further incentive. Most landlords often forget that off ice tenants thrive on being accommodated in prestigious premises. This benefit assists them to attract custom and permits them to feel www.reimag.co.za
on par with the international players in the tertiary business sector. It is for this reason that off ice landlords should endeavour to create prestigious environments within their vacant office blocks and, in so doing, compare favourably with other buildings which have a less attractive or tired appearance. If you do have a funding constraint, attempt to fit out a small part of your development as suggested above and reveal this portion as a show suite. If a potential tenant is willing to take an extensive area, attempt to provide such a tenant with an exceptional incentive – such as dedicated lift or entrance. A special concierge desk or marble sign board in your building’s
foyer is an impressive benefit for a large user and can mean the difference between gaining and losing a new tenant.
External letting strategies External letting strategies involve gutting a building and starting again – with superior finishes, improved facilities and green features. Such a strategy may involve increasing a building’s bulk or purchasing an adjacent development so as to provide parking or a gym facility. By including a small coffee shop, printer or courier service on the ground f loor of a refurbished development, one creates benefits which a new tenant cannot do without. Such newly-ref urbished developments should ideally be marketed to a sub-sector of the tertiary economy: each year, approximately t went y percent of attorneys, doctors and engineers leave their respective f irms (or hospita ls) to set up their own practices and creating an incestuous environment which eventuates a co-dependence amongst practitioners not only establishes your office development as a desirable location but means that tenants shall not want to vacate for fear of losing the referral opportunities from their neighbour tenants. Competing successfully for tenants in our diff icult tenant market means establishing your location as a destination of choice. This requires some lateral thinking but can mean the difference between a low and high vacancy factor!
RESOURCES Courtwelll Consulting
October 2013 SA Real Estate Investor
45
SMART MOVES
BY ANGIE REDMOND
Your Property Plan Where are the real returns?
T
he South African rand value has dropped by more than 10% since May 2013 according to an article written by the Financial Times. With violent labour unrest in the mining sector and continued strikes and interruptions in production, the South African economy has taken some hard knocks, and the expected growth of the economy has slowed and is continuing to slow.
6.0
5.3
5.5
RGDP
5.0 4.0
Forecast
3.6
3.5
3.1
3.0
2.5
2.0 1.0 0.0 -1.0 -1.5
-2.0 2005
W hat does t h is mea n for t he commercial property market? Essentially all industries including the property industry will experience slow growth, as the slow growth of the economy filters through in the demand for rentals and new developments. Companies cannot afford higher rentals or to invest in their own properties, their ability to do so is hampered by the slow growth of the South African economy. As f inancial constraints become a reality, growth in disposable income and consumption expenditure slow down, 46
5.6
October 2013 SA Real Estate Investor
2006
2007
2008
2009
2010
2011
GDP Growth Baseline scenario % ch. 2012
2,5
2013 (forecast)
2,4*
2014 (forecast)
3.3*
2015 (forecast)
3,8*
Forecasted by Rode
2012
3.0 2.0
filtering through to the property market. The graphs to the left illustrate the slowing growth.
REITs
The R EIT str uct ure, which became available to the South African property sector earlier this year, was lauded by many who saw this investment vehicle changing the face of property. It offers diversification with strong 2013 2014 predictable returns when equities are weak and good yields compared to cash, according to Grant Alexander, Director of Private Client Holdings. But Alexander warns, “Volatility is higher with listed property than a defensive or balanced portfolio; property yields are currently lower than bond yields making property more expensive but there is more risk associated with property; the Rand is a threat to our bond market and given the close correlation, the property market is also under threat from a weaker Rand; lower economic www.reimag.co.za
COMMERCIAL growth causes increased vacancies and rising operating costs will eat into profits.” So which is better, listed or unlisted property investment in view of the economical state? Taking a look at the two graphs below, it is easy to see that listed portfolios provide a higher real return when compared to unlisted portfolios, based on historical returns. Historical property performance of listed funds 1995-2012 Mean* total
21,1
SD of mean return
19,1
Mean CPI
6,3
Real return
14,8
*Arithmetic mean
Historical property performance of unlisted portfolios 62-77 (16 yrs)
77-95 (19 yrs)
95-12 (18 yrs)
Mean total return % †
9,5
17,2
13,4
SD of mean return
2,5
5,7
7,7
Mean CPI
4,6
13,0
6,3
Real return
4,8
4,2
7,1
† Geometric mean *Arithmetic mean Source of data: Rode’s Time Series
Results Growthpoint Properties, the largest South African REIT on the JSE as of the 1st of July 2013, reported positive growth for the year end, (30th June 2013), reporting distribution growth of 7.2% to investors. “Net property income from our South African property portfolio increased by 5.7%,” reports Norbert Sasse, CEO of Growthpoint in South Africa. Growthpoint made five strategic property acquisitions during the year for R492 million and disposed of 23 non-core properties for R869 million, making a profit of R292 million on cost. It also invested R904 million in value-enhancing developments and redevelopments. Furthermore Sasse notes: “We’ll continue ref ining and growing our South African portfolio with quality assets. We also aim to increase our exposure to retail propert y.” Hyprop Investments Limited, another conversion to the JSE-listed REIT structure, also posted positive results with distributions up 7,6% to 213 cents a unit. CEO Pieter Prinsloo says: “Notwithstanding a challenging economic environment our centres performed well.” Distributable earnings from shopping centres was up 7,2% with Canal Walk www.reimag.co.za
and Hyde Park reflecting double-digit growth. He adds: “Our focus will remain on yieldenhancing expansions and refurbishments at existing shopping centres. Taking into account the short-term dilution effect of the Rosebank Mall redevelopment, we expect distribution growth of 6,5% to 8,5% for the year to June 2014.” These two sets of results show that while the economic environment is a challenging one, there are still opportunities to invest in and profit from.
Retail Retail remains a concern as subdued consumer consumption slows growth. In the last eight years new growth in the retail sector was driven by growth in household consumption but with consumers under increased pressure from rising costs and soaring levels of unsecured lending, this growth has slowed in 2013. Ian Anderson, chief investment officer at Grindrod Asset Management says, “I think that increasingly our retailers are going to struggle and therefore our retail landlords will also be under pressure.” Anderson adds, “There will be disparities in the performance of retail properties based on their size and location. The regional and superregional centres are likely to come through this unscathed, while smaller community and neighbourhood centres, which have proliferated across the country, will face fairly substantial risk”. The increase in unsecured lending has placed enormous pressure on consumers as they face soaring debts that they are unable to repay. By the end of 2012, there were over 1.6m unsecured loans on the books of South
African lenders, up from just over 700 000 at the beginning of 2010. There has also been a shift in the supply of retail centres, with rural retail centre demand overtaking that of cities. According to Urban Landmark, 160 retail centres have been developed nationally in township and rural areas of South Africa between 1962 and 2009, covering about 2-million m² of retail floor space. There is still huge demand for rural retail centres. In South Africa, people living in rural areas and townships (or second economy locations) spend more than R 308 Billion annually, representing 41 percent of total consumer spending. Research shows that South African Shopping centre development trends are moving towards an oversupply situation in urban areas, yet retailers are still cautious when it comes to considering the opportunities within township and rural areas. New supply of shop space (m2) Cities
Smaller towns/ rural areas
2010
233.065
164.823
2011
352.120
45.100
2012
227.340
259.120
2013 (tentative)
308.218
336.269
Source of data: Rode
Office sector The office sector continues to struggle due to slowing economic growth. Stan Garrun, October 2013 SA Real Estate Investor
47
SMART MOVES Managing Director, IPD South A frica, speaking after the SAPOA/IPD South Africa Annual Property Index was released said, “A real divergence in the market has occurred. Whereas we have seen a good turnaround for retail and industrial properties, concern remains over the health of the office sector, as evidenced by the high vacancies, particularly in the inner cities.” There is weak demand for office rentals, which has seen the performance remaining somewhat lethargic. Erwin Rode, CE of Rode said in April this year, “Market rentals in Cape Town and Pretoria decentralised barely mustered yearly growth of 3%. Johannesburg decentralised only managed a measly 1% while Durban decentralised actually saw rentals contract by 4%.” The vacancy rates in the graph on the right show the lack of improvement in the office rental market with Johannesburg decentralised being the city which has shown a reduction in vacancy rates from the average from 1990 – 2012. The graph illustrates the vacancy rates in the first quarter of 2013 to the average from 1990 – 2012.
“Commercial property remains a sound investment if you have the right investment plan” Industrial sector Industrial and warehouse space is linked more to the broad economy, and with a strong manufacturing sector link. The consumer remains important in this property category. A strong retail sector definitely drives the need for more warehouse space, and also for more manufacturing (industrial) space as consumer demand boosts the need for manufactured goods. But industrial and warehouse space demand can also benef it from growth in exports, and even growth in imports, while a lot of industrial production is driven by construction demand and other forms of f ixed investment. There has however been
Expected returns (%) of various investment classes Selling/maturing after 5 years Inflation assumption: 6% Initial forward yield
Income growth
Re-rating (% pts)
Total Return
Super-reginal SC
7
5
0
12
Prime industrial
9
5
0
14
Grade-A office property
8
4
0
12
5-year bond (gilt)
7
0
n/a
7
Listed property fund (REIT)
7½
6
+1
9½
Industrial/financial equity
2¾
15
+1
9
† As at 17 August 2013 Source of data: Rode
a shift away from the manufacturing sector towards warehousing and logistics. There is still demand for A-grade warehouses. One factor which is driving this demand is the rise of the Aerotropolis, seen in both Gauteng and Durban, where demand has been strong. Growthpoint Properties industrial division director, Engelbert Binedell, says he expects things to get tougher with slowing economic growth and pressure from large electricity and fuel price increases, and explains a diversified industrial portfolio is a more resistant one.
Where will property be in five years? Office vacancy rates (%) (grades A & B combined) Ave.:
2013:1
Johannesburg decentralized
8,6
7,8
Pretoria decentralized
7,3
10,6
Durban decentralized
5,7
7,4
Cape Town decentralized
5,7
6,9
Source of data: Rode
As you can see from the graph on the left commercial property will continue to be a good investment, with shopping centres and prime industrial property showing the highest total returns after five years, assuming a 6% inflation rate. Commercial propert y remains a sound investment if you have the right investment plan and despite the tough economic condition currently, with rising inf lation and rising costs like electricity and fuel, there are still great opportunities to be found. Consumers will remain under pressure and the slow economic growth does not look set to change this year. With the interest rate remaining unchanged it is a good time to borrow to fund investment opportunities, you just need the right investment plan in place, one that takes all the risks into account and allows for the slow growth we are currently experiencing. If you are already invested in the commercial property industry then now is the time to strategise and think outside the box. Innovation is a necessity for trying times and to succeed in the current economic climate requires new strategies. The bottom line remains commercial property is a good investment and one that you should be investing in.
RESOURCES
Rode, IPD, SAPOA, Growthpoint, Grindrod, Hyprop, Private Client Holdings
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October 2013 SA Real Estate Investor
www.reimag.co.za
LISTED
BY IAN ANDERSON
Thinking of Listed Property? The experts tell you how best to invest!
W
hile most investors are aware of the benefits of investing in commercial and industrial property, gaining exposure to property outside of owning one’s own home is often viewed as a daunting prospect. The listed property sector on the JSE Limited enables investors to invest in high quality commercial and industrial property portfolios without many of the obstacles associated with investing directly in commercial property. There are many options to gain exposure to listed property. The most obvious is to buy shares in listed property companies through a stockbroker or online trading platform. Although technically the initial investment could be as low as R100, there is usually a minimum fee for executing a trade and therefore a more appropriate initial investment would probably be around R 5 000. That amount could provide exposure to the rental income from tenants in the V&A Waterfront or Canal Walk Shopping Centre, two of Africa’s iconic property destinations. The total cost of acquiring that exposure could be less than 1%, depending on the brokerage rate negotiated with the stockbroker as no Securities Transfer Tax (STT) is payable on buying and selling the shares of SA REITs. The one dow nside of mak ing a sma l l investment directly in the shares of an SA REIT is that one is now exposed to just one SA REIT. For for a more diversified portfolio of SA REIT shares, there are several cost effective options available. The first is to invest in an exchange-traded fund (ETF) that tracks the performance of South Africa’s listed property sector. PropTrax SAPY (JSE code: PTXSPY) tracks the price and yield performance of the FTSE/JSE SA Listed Property Index. To gain exposure to PropTrax SAPY, the investor can buy shares
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October 2013 SA Real Estate Investor
through a stockbroker or online trading platform. An investment in PropTrax SAPY would give the investor exposure to a basket of SA REITs, weighted in terms of their market capitalisation. The second option is to invest in a collective investment scheme (unit trust fund) classified in the South African – Real Estate – General category of collective investment schemes. These funds maintain an exposure of at least 80% to companies listed in the FTSE/JSE Real Estate industry group. There are several funds available and investments can be made directly with the management company offering the fund from R500 per month (debit order) or a lump sum investment of R1 000. Alternatively, a financial advisor can be consulted on the fund to choose as part of an overall financial plan.
How to keep an eye on your listed property investment For investors currently invested in the listed property sector, the last three to four months have been an eye-opener. Accustomed to large price gains each year, the 15% price declines experienced since mid-May have shaken confidence in the asset class. Investors are now questioning the longer-term outlook for listed property, especially in light of what is happening with global bond yields and the obvious correlation between bond yields and listed property yields. This price correction was not unexpected, although the timing and magnitude of the price losses were certainly not anticipated by the market. Since 2009, listed property stocks throughout the world have benefited from low official interest rates and negative real yields on government-issued bonds in most developed markets. This resulted in historically low yields in the SA bond market and contributed to a reduction in listed property yields (resulting in
significant share price appreciation). With the US Federal Reserve expected to announce a scaling back of its bond purchase programme, bond yields around the world have started rising and listed property yields have followed suit, leading to substantial price declines. Importantly, the underlying fundamentals t h at d r i v e g row t h i n l i s te d prop e r t y distributions in the long term remain on track. Listed property companies have reported strong distribution growth throughout 2013 and this trend is expected to continue into 2014. A combination of excellent deal-making, strong asset management, a focus on quality and access to capital has enabled the listed property sector to grow distributions, on average in excess of inf lation since 2005. This trend is expected to continue over the next three years. These growing income streams should allow investors to claw back the temporary price declines experienced over the past four months (assets like listed property, with perpetually growing income streams, experience temporary price declines, while assets without income growth, like bonds, experience permanent price declines when yields and interest rates start rising). Investors in SA REITs should therefore give careful consideration to both the initial income yield and longer-term income growth prospects before making their investment decisions. The two-tier market that emerged in 2012 and exists today offers investors the opportunity to invest in the smaller SA REITs on initial yields in excess of 9% and income streams that are likely to grow in excess of 10% per annum. The larger, more liquid SA REITs continue to offer investors yields substantially below the yield on longer-dated government bonds and remain susceptible to further increases in global bond yields in the short term.
RESOURCES
Grindrod Asset Management
www.reimag.co.za
RELOCATING
RENOVATING
RE-FINANCING
COMMERCIAL PROPERTY FINANCE FROM BIDVEST BANK Whatever you have in the pipeline, get the specialist financial solution for commercial properties up to R200 million. And take your business where it needs to be. Email property@bidvestbank.co.za and your personal consultant will contact you. Call 0860 11 11 77 or visit www.bidvestbank.co.za Bidvest Bank Limited (Reg No 2000/006478/06) is a licensed financial services and registered credit provider, NCRCP17. BlastBC 123478
Namibian real estate company Springbok Properties will assist you in any property transaction in Namibia. We specialise in the property market and can assist in residential, commercial, investment and business opportunities.
Check out some of our listings that might interest international investors:
Beautiful House for Sale in Eros, Windhoek – N$7,5mil
HOTEL ON SALE Sole mandate
Windhoek Mansion set in a quiet neighborhood right in the central suburb of Klein Windhoek, in Windhoek. Total area of Erf is 1433 m² including dwellings, outbuildings, pool, 6 x small Store Rooms, full Air-Conditioning System (all floors and partly underfloor heating), Batchelor´s Flat, Double Garage, Jacuzzi, Laundry, Office, Hobby room (or workshop) entertainment areas (built-in Braai, Dover Stove and outside Toilet/shower/changing room), verandahs and Library with purpose made shelves. Main house presents itself with private entrance (including outside dwellings). 12 Bedrooms & 8 bathrooms.
INDUSTRIAL PROPERTIES FOR SALE @ N$1,550/sqm Prime vacant industrial property on sale In Lafrenz, Windhoek, Namibia Sizes vary from 4000m² to 6000m²
Fully operational and well known 3 Star Hotel on sale in Swakopmund. 30 Rooms with 72 Beds. Single, double and family rooms. Conference facilities, restaurant and bar. Excellent occupancy rates and sound business model. Only N$ 30 Million (Current valuation N$36 Million) Owner wants to retire.
WAREHOUSE, PROSPERITA, WINDHOEK FOR SALE – N$17,850mil 5162m² erf with 1684m² warehouse 701m² office space 5 year rental contract in place
For any information you can visit the website www.springbokproperties.com or contact our office at (00264) 81 124 6703 (Jaco Greeff) E-mail: jaco@springbokproperties.com (00264) 81 394 3951 (Yolanda)
E-mail: yolanda@springbokproperties.com
(00264) 81 386 4408 (Shawn)
E-mail: seong@springbokproperties.com
REI Offshore
Spain Will Grant Residency To Investors
Retail Demand In Africa
Mickey Mouse To Make New Home In Zimbabwe?
Spain is about to introduce legislation which will grant automatic Spanish residency to nonEuropean Union citizens who invest €500 000 in property. While the period of residency granted with the purchase of property is still to be finalised, the final version of the new bill is expected to be promulgated before the end of this year (2013). The Schengen zone currently comprises Spain, France, Germany, Belgium, Austria, Finland, Greece, Estonia, Denmark, Italy, Luxembourg, Malta, Hungary, Iceland, Latvia, Lithuania, Czech Republic, Portugal, Norway, The Netherlands, Sweden, Switzerland, Poland, Slovenia, Liechtenstein and Slovakia, with an EU passport, South Africans will have access to all these countries without Visa restrictions.
Sub-Saharan Africa has become the hub of retail property activity, accounting for project developments worth R30,6 billion under construction and others set to break ground before the year end. Rapid urbanisation in response to population growth and sustained economic expansion is boosting demand for good quality retail property stock in Africa.
Zimbabwe plans to build “Disneyland in Africa” at the world famous Victoria Falls to boost tourism, according to new plans unveiled by the Zimbabwean government. Zimbabwe’s tourism and hospitality minister, Walter Mzembi, outlined proposals to spend R3 billion ($300m, £193m) on a massive resort and entertainment complex near Victoria Falls. The scheme would be a flagship for rebuilding Zimbabwe’s tourism economy, which has collapsed during the political instability of the last decade. The idea for the development were announced by Mr. Mzembi, on the sidelines of the UN World Tourism Organisation ( U N W T O) g e n e r a l a s s e m b l y, w h i c h Zimbabwe is co-hosting with the town of Livingstone in neighbouring Zambia.
As SA’s commercial property market becomes saturated, retailers are look ing to other countries in Africa for expansion. Sub-Saharan Africa is also attracting European retailers struggling in their home markets. Growth in the region is forecast at 5.6% this year, faster than 3.3% globally, according to the International Monetary Fund.
Valuable Input
Dr Andrew Golding, CE, Pam Golding
Andrew Rissik, MD, Sable FX
“Spain will join other current appealing destinations such as Mauritius, Seychelles and Portugal in offering residency programmes to foreigners acquiring property at prices in excess of €500 000.”
“Control your cash, from holding it locally so it can earn interest, then the foreign exchange and international transfer to finally landing it in your own offshore account is critical.”
www.reimag.co.za
Mike Smuts, MD, Smuts & Taylor “The average London property was worth a record £438,000 in July, up £13,000 in a month and 9.7 per cent more than a year previously, data from the Office for National Statistics shows.”
Jenny Ellinas, MD, Cypriot Realty “For South Africans, investing in a property in The Med has never been as viable & attractive as today. There are numerous lifestyle attractions.”
Sandy Kelly, MD, Time Projects “Despite some views that there is a “bubble”, particularly in the Gaborone New CBD, most space completed or under development is taken. Secondary office positions are suffering.”
October 2013 SA Real Estate Investor
53
ZIMBABWE
BY SETI SHUMBA
Zimbabwe Post-Election Has the economic meltdown started?
U
p until the holding of the harmonised elections on 31 July 2013, political parties in Zimbabwe were bitterly arguing about the date of the elections, security sector reforms and voters’ registration. All that came to an abrupt end when the Constitutional Court ruled that elections had to be held by 31 July in line with the new constitution. Investors, business leaders and Zimbabweans living in the diaspora and hoping to return home after the elections followed developments with keen interest and developed their own scenarios on likely comes of the elections. As Election Day loomed, there was still debate as to whether the elections were going to be “free and fair” but there was little doubt that they were at least going to be peaceful. As the initial results started trickling in, it was clear that the outcome was going to be something of a “black swan” that few had anticipated. The emerging trend was a nightmare that the planner always dreads; the worst case scenario materialises and the planner is not sure how to react as the outcome was assigned such a low probability of occurrence as to be negligible. The Zimbabwe Stock Market reopened a day after the elections on 1 August and attained a
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October 2013 SA Real Estate Investor
peak of 233.18, the highest level it had achieved since dollarisation in February 2009. Such was the mood of optimism and positive anticipation that the elections were going to herald the start of a new era of economic growth, prosperity and investment opportunities. Stockbrokers on the Zimbabwe Stock Exchange feared a backlash if the elections results yielded an extreme result in favour of one or other of the two major contesting parties. It appeared that their fears were misplaced as the Industrial Index eked out a 0.13% gain to close at 233.18 on reasonable volume of US$1.4 million but already there were signs of selling pressure, particularly among local investors. It then dawned on investors that ZANU (PF) had won 158 or just over 75% of total parliamentary seats available, a majority which allowed them to change the constitution. At the same, as the pre-election rhetoric around indigenisation and empowerment continued unabated, foreign investors started joining the long queue of local sellers. What had begun as a trickle of selling pressure soon turned into an avalanche as investors headed for the exit. On 2 August, the Industrial Index dropped 0.84% to close at 231.21 but the writing was on the wall on what was to follow. The following trading day on 5 August saw the Industrial Index
plunge a massive 11.09% to close at 205.57. The decline in the index was largely driven by a drop of 11.54% in large cap counters with the mid-caps falling 4.51% and small caps shedding 1.3%. Big names to fall on that day included Delta which declined by 20% from 150 US c to 120 US c, Econet which fell 15% from 68 US c to 58 US c and Innscor which shed 14% from 105 US c to 90 US c. It should be borne in mind that these three counters at that time accounted for just over 55% of the total market capitalisation on the ZSE and are the prime target of foreign investors. Black Friday for the Mining Index arrived on 16 August when it fell 14.5% to close at 48.05. Unconfirmed media reports suggested that up to US $700 million may have been withdrawn from the local banking sector in the week after the election by unsettled depositors. The question uppermost on everybody’s mind since then is whether the sharp fall in industrials on 5 August and mining counters on 16 August had completed the job of realigning investor expectations to the new political dispensation or if there was more to come. Indeed the losses in industrial counters continued after 5 August but a much reduced
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OFFSHORE pace. Since then, daily losses have f luctuated between 0.4% and 2.5%. From 30 July 2013, the day before the elections, to 26 August 2013, the Industrial Index has fallen 21% and the Mining Index has fallen 28% and in the process investors have seen their aggregate wealth decline from US$ 6.6 billion to US$ 5.2 billion, a loss of 21.2% or US$1.4 billion. The composition of the cabinet to be nominated by the President in the next few days will be dissected upwards and sideways by investors to see if it portends the emergence of an investor-friendly environment. Appointment of moderate ministers to the portfolios of Finance and Indigenisation would go a long way towards calming the unsettled and nervy markets. It may yet prove to be a forlorn hope. Two key issues will have a huge inf luence in defining the investment environment in Zimbabwe over the next five years. The first one is indigenisation and empowerment where the current policy stance is that foreigners can only own up to 49% of resource-based companies and local Zimbabweans should own a minimum of 51%. As with most policies, the devil is in the detail. In practical terms, this means that foreign investors will have to be content supplying 100% of capital requirements, absorbing 100% of losses and enjoying 49% of profits of such entities. It is difficult to see foreign mining firms falling over each other trying to enter the mining sector in Zimbabwe given such a prospect. Exploration for minerals is likely to be subdued in the five years and most of it will be undertaken by local small-scale miners and Chinese mining companies. It is conceivable that mining companies could still do business in Zimbabwe under these conditions but the major concern is the selective application of the law and erosion of property rights. Indications so far are that the government will be more flexible in approaching the indigenisation of businesses that rely on intellectual property and specialist skills such as banks but it is not clear what this f lexibility will entail on the ground. As an overall comment, it should be borne in mind that the full value of assets can only be realised in an environment where property rights are enshrined in the laws of the country. The second issue relates to the re-introduction of the Zimbabwe dollar at some point in future. No date has been given for the possible re-introduction of the local currency apart from some stated benchmarks that will need www.reimag.co.za
to be achieved before such a development. One such benchmark is a recovery in the manufacturing sector and achievement of high capacity utilisation ratios. Another is the stabilisation of the mining sector and increased beneficiation and export of minerals. Given where manufacturing is with an average capacity utilisation of below 50%, this would suggest that the local currency is unlikely to be re-introduced for at least a couple of years. In any event, the Governor of the Reserve Bank of
“US $700 million may have been withdrawn from the local banking sector” Zimbabwe has stated that in the event that the local currency is reintroduced, it would circulate alongside other currencies such as the US dollar, pound and rand. Therefore, the timing of the re-introduction of the local currency remains uncertain but investors and the local population are hoping that lessons from the hyperinflation experienced from 2004 to 2009 will have been learnt and will be avoided in future. The argument that the country needs its own currency for purposes of managing the economy is partially true. However, there is a strong suspicion that the reason why politicians are keen on re-introducing the local currency is because it can be used an effective tool for eliciting loyalty through political patronage. The damage which such an approach inflicted on asset values and on pensioners from 2004 to 2009 would lead to the spread and
entrenchment of poverty across the population in Zimbabwe. At the end of it all, the question has to be asked: “What does Zimbabwe need most, indigenisation and a local currency or increased investment and creation of jobs?” Those who clamor for the former would argue that their policies would also create for the latter. Skeptics would argue that pursuing a policy of indigenisation and re-emergence of a local currency with investment and job creation as a secondary goal or afterthought is unlikely to see the economy growing at rates needed to make a dent on unemployment and alleviate poverty. Already, the Ministry of Finance has revised downwards the forecast GDP growth rate for 2013 from 5% to 3.4% on account of the deteriorating outlook for mining and agriculture. Economic growth is unlikely to reach double-digit levels until the challenges of low liquidity in the economy, a struggling manufacturing sector that is failing to service bank loans and low investment in infrastructure are addressed and all these point to more and not less requirement for foreign investment. One can only hope that political ideology will be tampered by the need to create wealth and that a more balanced approach will prevail in redistributing the wealth created in the process. It is better to argue over who gets what as long as the cake is growing as opposed to fighting over ever-shrinking slices of a dwindling cake.
RESOURCES Old Mutual Zimbabwe
October 2013 SA Real Estate Investor
55
USA
BY SCOTT PICKEN
Black Gold In The US Take advantage now
B
lack Gold has been found in USA – how do you take advantage? 1849 saw the California Gold Rush. The 1880’s saw the Witwatersrand Gold Rush. Everyone stormed to these towns in the hope of making their fortune! And in most cases they failed. Some capitalised, but most failed and their dreams turned into devastation. As is well documented, those who on average, always succeeded in any gold rush was not the miners, it was the store owners selling spades!
So what is the lesson and how does that impact property? We recently travelled to North Dakota in USA where they have discovered oil. They believe it is one of the biggest oil fields in the world and will be sustainable for over 80 years. It will allow USA to become self sufficient by 2017 in terms of their oil use and actually become a net exporter. Now considering that USA consumes nearly 55% of the world’s oil, with 3% of the world’s population, this is astounding. Ted Turner, the founder of CNN, said in his autobiography that it is ludicrous to spend over $1 trillion a year paying money to “our enemies” to get their oil! They have known about the oil fields since the 1950’s but the technology was not advanced 56
October 2013 SA Real Estate Investor
enough to extract the oil. In 2008, Continental Resource CEO, Harold Ham, launched the horizontal drilling. Now they could go vertical and then go horizontal. Where they used to drill 10 wells they would be successful only 2 or 3 times. Now they are successful 10 times. As the technology improves they are discovering more and more oil and in The Bakken, they believe there are 18 layers on oil. The average well costs $12 million to drill, takes 35 people to run and creates another 100 indirect jobs. There are 5000 active wells in the country and they need 53 000 just to access the first 3 layers and they are only able to drill 3000 a year.
However it has changed from a “energy play” to a “real estate play” Many developers have gone into these towns and tried to provide housing. There are 10 000 men staying in “Man-camps”, which are basically temporary housing. Apartment complexes which are built have 90% occupancy on a short-term basis and we could not find a hotel room. Thus developers are trying to service this demand as quickly as possible. There are massive barriers to entry as the temperatures in winter are -50 degrees Celsius and they can’t build for nearly 6 months, as the frost is 8 feet
deep. On top of this cost to build is really high due to the cost of transportation to get the materials there and also the labour costs. We looked a solid returns from 15% net yields to 46% net yields and they looked very attractive, but we had our concerns and believed there were 3 major risks. 1. Sustainability of Oil. Whether the oil price will go down? a. Based on where the world is going, even what is happening in Syria, we do not believe that the oil price will drop dramatically and to be honest it can drop substantially and fracking would still be viable. 2. Whether fracking will be allowed to continue? a. North Dakota is pro business and pro oil. They provide an environmental certificate in less than a month to setup a well. They have publicly stated they will not be dictated to by Federal government and most importantly the whole state relies on fracking (many of the state are property owners and earn 25% of all profits on the wells on their land due to their mineral rights). 3. Whether the property market is sustainable. a. In any boom, one has to be careful of the cycle and an oversupply. There are many inexperienced www.reimag.co.za
OFFSHORE developers and builders trying to provide all sorts of accommodation. We met the head of the town council planning and he said that all the “man-camps” had conditional use permitting and within 2 years they would like to get rid of all of them. (46% might look attractive now, but it is going to be shut down, is on leasehold land and is a terrible investment.) We believe there is an opportunity to buy traditional homes where people would want to live long term and they have a net yield of 15%. However we went back to the principle of the storeowners that sell spades. Upon further investigation and dealing with the most experienced people in Watford, the geographical centre of The Bakken, we found a real opportunity to sell spades. We discovered that 1300 businesses had moved to Watford in the last 2 years. We spoke to the only realtor and he said that every single week someone asks him for office space and although he has been saying for the last 2 years that the biggest opportunity is office space, no one has built one square metre. We then embarked on finding land for our office park. We met with an established master plan land developer who is building an entire town centre in Watford with medical, schools, hotels, shops and residential. We determined the best site and did a joint venture to build a 75000 square foot (7500 square metres) office building with the land owner. We have agreed to start construction in April next year, after the winter, and will have the building pre-let already 80% with 3 to 5 year leases in place, basically reducing the risk completely. We are going to offer three components in two floors of office condo’s (sectional title offices) and the third floor of executive offices. We also have under contract another site in Willesden where the airport is and basically we want to provide a reciprocal service for business people to use the serviced offices and stop having meetings in the restaurants and coffee shops. The project has limited risk and an IRR of over 20%. The exit strategy once the building is stabilised and the master plan is finished in 3 years time is to sell the building to a fund that wants to take advantage of the solid and safe income streams. The project is a $15 million project and we are currently speaking to our qualified investors to raise the $8 million required to complete the project. Rather than chasing gold, we are focusing on servicing all the businesses that have moved to the area chasing the gold, thus we are selling
ABOVE: John Chin, Hennie Bezuidenhout and Scott Picken investigating.
ABOVE: Traditional housing. This is the future as the workers want their families to join them and they want a sustainable life, with a nice house, schooling etc. spades. This is how you benefit from the biggest Gold Rush of our generation!
Just an example of how we get the right information and the right partners Ensure that you invest with confidence and create global wealth. Scott Picken is the Senior Managing Partner of Wealth Migrate, a company which allows sophisticated passive investors the opportunit y to safely take advantage of working together and accumulating the best property assets internationally. Traditional housing, pictured above, is the future as the workers want their families to join them and they want a sustainable life, with a nice house, schooling etc. Most have bad credit rating (over 80%) and so cant buy themselves and thus rent with very attractive net yields of over 15%. To the right are the ‘man-camps’ which are being sold to South African and British Investors. They are marketed as net yields of 46%, but upon further investigation, they are buying these pods for $78 000. They are selling them individually for $49 950 each or $280 000 for all 6 flats. They are on leasehold
ABOVE: The “man camps” land and so there is no asset. The town planner has said that within 2 years they want to remove all man camps and they won’t be renewing the conditional use permits. The 46% net yields are based on a rental forecast of $130 a night. We saw some great family townhouses in the centre of town, which average 90% occupancy and receive between $90 and $110 a night on average. The ‘man-camps’ are 5 miles from town, and are cardboard box with inferior finishes, there is absolutely no way they will achieve these returns. This is why IPS Invest and Wealth Migrate always travel to all our investment locations to thoroughly do the due diligence for ourselves and on behalf of our investors.
RESOURCES
IPS Invest
SMART MOVES
BY SCOTT PICKEN
Global Wealth Index South African’s wealth has decreased 77% a year
M
ost South A fricans don’t k now how to understand their wealth, in terms of Global Wealth. Therefore we have created the Global Wealth Index to understand the impact of cost escalation and the rand devaluation on our global wealth. Therefore like the CPI index and the basket of goods, we have our own Global Wealth Index. As our global wealth determines our freedom to make decisions for our futures, we have worked on the 5 most important components, which will determine our freedom in the future, no matter what we want to do for our children or us. In the table below is the Global Wealth Index basket of goods in the three major currencies (US Dollar, Pounds, Aus Dollar):
Basically in 1983 you need R555 989,05 global wealth to be able to have the freedom to make whatever decisions you wanted for you and your children. It didn’t matter where you wanted to live; your Global Wealth Index determines the wealth you require to allow you the freedom of choice. On the 1st of September 2013 this amount of wealth is R12 818 698,88. Therefore if you take the last 30 years the annual decline in wealth is 77% per year. Therefore unless your wealth is growing by 77% a year in South Africa and in rands then you are losing against the Global Wealth Index. We believe the only way to be able to counter this massive reduction each year is to invest in first world assets and first world incomes with f irst world currencies
to ensu re you ca n susta in you r globa l wealth. Our book, Property Going Global (w w w.propertygoingglobal.com) which is based on Clem Sunter’s leading global scenario planning technique and our 4 dimensional GPS Model, will show you how you can actually create global wealth and invest with confidence; not just sustain it. As you can see our Global Wealth Index shows us what has happened in the last 30 years, but more importantly where we will be in 30 years if we continue with the long-term trends. This is what we as South Africans have to plan for.
RESOURCES
IPS Invest
Globel Wealth Index - 1 September 2013 No
Index
1983
Rand
Rand Value
1993
1
A family holiday to Disney World
$715.92
R1.07
R762.60
$1 332.48
R3.07
R4088.58
$1 550.88
2
A family holiday to Val de Saire (French Ski resort)
€356.00
R0.82
R290.52
€658.00
R3.03
R1994.28
€1121.00
3
A Private School (Churchie in Brisbane which is the same comparison as St Stithians in JHB) Churchie
4
R1.05
2013 R8.68
GPI Index
R13 464.12
$2 772.00
R10.28
R28 487.84
125%
R15 478.77
€1996.00
R15.93
R31 788.89
365%
R13 077.50
$16 500.00
R2.07
R34 211.10
$26 000.00
R5.06
R131 549.60
$39 356.00
R9.15
R359 989.33
92%
R9322.63
$16 856.00
R3.07
R51 720.95
$26 066.00
R8.68
R226 294.59
$38 891.00
R10.28
R399 682.81
143%
Harvard yearly tuition in comparison with UCT for a year Harvard
5
$12 500.00
2003
$752.00
R1.07
Immigration to Australia or USA by buying your way into the country Australia
$303 197.00
R1.05
R526 444.70
$781 656.00
R2.07
R1620 685.55
$1 028 176.00
R5.06
R5 202 159.29
$1 500 000.00
R9.15
R13 720 500.00
USA
$505 658.00
R1.07
R538 626.00
$625 824.00
R3.07
R1 920 278.36
$783 525.00
R8.68
R6 802 250.64
1 000 000.00
R10.28
R10 277 000.00
Average
R532 535.80
R1 770 481.96
R6 002 204.96
R11 998 750.00
75%
TOTAL
R555 989.05
R1 862 496.87
R6 388 992.04
R12 818 698.88
77%
58
October 2013 SA Real Estate Investor
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BOOK NOW! www.usabuyerstrip.co.za
MALTA
BY ANGIE REDMOND
Magical Malta It’s investor and tax friendly
T
he Mediterranean archipelago of Malta looks set to become a major investment destination following the introduction of the Malta Global Residence programme. Consisting of three islands, Malta, Gozo and Comino, the island’s investor-friendly tax regime, reasonable cost of living and relatively affordable property make this island more than a great holiday spot.
• Option to rent at an annual minimum rent is €9,600; (€8,750 in the Southern Region of Malta and in Gozo); • Tax is at a flat 15% on a remittance basis (no worldwide taxation); • Minimum annual tax has been lowered to a family total of €15,000 (no further tax for dependents); • No Government bond required.
Unveiled in June, the Global Residence Programme offers massive benefits to South Africans who travel frequently in Europe, under tightening Schengen visa requirements. The scheme allows foreigners residence status, thereby bypassing the need for visas to travel to EU countries. Once residency is granted, foreign investors have to spend at least six months of the year in Malta.
Malta is blessed with natural resources and the modern infrastructure, political stability and a f lexible English-speak ing labour supply. It has always been known as a tourist destination; it is an international tourist resort and has nine UNESCO World Heritage Sites. It became a member state of the European Union in the year 2004 and liberalised its economy and markets. It also privatised some of its government-controlled firms.
“The Global Residence Programme offers massive benefits to South Africans”
Ma lta’s judiciar y is independent both constitutionally and in practice. Property rights are protected, and expropriation is unlikely. Foreigners do not have full rights to buy property in Malta unless they obtain Maltese nationality. The country still lacks a comprehensive strategy for rooting out corruption as well as appropriate institutions to implement and monitor anticorruption activities. Malta’s trade regime is the same as that of other members of the European Union, with the common EU tradeweighted average tariff rate standing at 1.6 percent, but non-tariff barriers raise the cost of trade. Foreign investment is welcome, and investment regulations are generally transparent. The financial sector has undergone gradual restructuring and expansion, and the banking sector has become more open to foreign banks.
Global residence programme The Global Residence Programme (GRP) is open to economically self-sufficient non-EU nationals and offers conditions of residence that position it as a foremost residence alternative within the European Union.
The salient conditions of the GRP • Malta is a full member of the Schengen Area Treaty; • Minimum purchase value of property situated in Malta is now €275,000 (€220,000 in the Southern Region of Malta and in Gozo); 60
October 2013 SA Real Estate Investor
Property prices in Malta Popular investment areas in Malta include the upmarket areas of Sliema and St Julian’s Bay on Malta’s main island, where the luxury apartments with sea views typically sell for www.reimag.co.za
OFFSHORE EURO 35 000. The table below illustrates the property prices in Malta. Before the global economic crisis, the Maltese property market experienced a progressive price growth. However, in recent years the various markets have suffered differently with the low to middle-end market experiencing drops in prices while the top-end properties have remained relatively stable. Benef icial to potential investors is that Malta waives property taxes on the resale of properties after three years. Purchasing property is subject to a 5% stamp duty and the country has identified significant niche market developments geared towards foreign
direct investment. Typically developed around historic sites, the government allows foreigners to own more than one apartment within these complexes and specifically designated areas. Outside these zones, foreigners may only purchase one property. From a South African point of view, it makes sense to investors looking to benefit from more than just a financial point of view. The GRP opens the door to more than just investing in property in Malta, allowing investors to gain freedom to move more easily within the EU. Before you invest, do your homework, make sure you qualify and that Malta is the right place for you, after all you have to spend six months a year there!
Rent Per Month
Range in Euros
Apartment (1 bedroom) in City Centre
300.00 - 400.00
Apartment (1 bedroom) outside City Centre
200.00 - 350.00
Apartment (3 bedrooms) in City Centre
450.00 - 800.00
Apartment (3 bedrooms) outside City Centre
400.00 - 579.00
Buy Apartment Price Price per Square Meter to Buy Apartment in City Centre
2,250.00 - 3,500.00
Price per Square Meter to Buy Apartment outside City Centre
1,100.00 - 1,600.00
FUN FACTS ABOUT MALTA
1
Surprisingly enough, though there is a well-known breed of dog called the Maltese, Malta’s national dog is actually the Pharaoh hound, with a sleek tan coat and a profile resembling ancient Egyptian statues.
2
Film-lovers may recall the epic battle scenes set in Rome’s Coliseum in Russell Crowe’s Gladiator. What they may not know is that those scenes were actually filmed in a replica built in Fort Ricasoli, Malta.
3
The Megalithic Temples in Malta are, in fact, older than Egypt’s pyramids and England’s Stonehenge.
4
Many people with an interest in ancient myths and legends believe Malta to be part of the Lost City of Atlantis.
5
A predominantly Roman Catholic country, Malta has over 360 churches – that’s roughly one for every 1,000 residents.
CAPE TOWN Ground floor, Liesbeek House, River Lane, Mowbray PO Box 23644, Claremont, 7735 Tel: +27 21 680 5272 | Fax: +27 86 670 6490 Official South African marketing agent for LEPTOS ESTATES | www.LeptosEstates.com
Contact: Jenny Ellinas | +27 83 448 8734 | jenny@cypriotrealty.com | www.cypriotrealty.com
REI Events
BY MELISSA PETERSEN
ABOVE FROM LEFT: Neale Petersen, Etienne Pretorius, Scott Picken and Gordon Mackay.
W
hat better way to have kicked off the Wealth Masterclass in Cape Town than by drinking coffee or tea on the deck of the Bay Hotel and watching the waves crash on the beach a mere 40 meters away. The day was busy from start to finish, with unsuspecting guests happily surprised by the speakers and the events as a whole. Everyone had the chance to have their picture taken, the speakers were more than happy to take a few with the guests. Neale Petersen the owner of the publishing company Real Estate Media welcomed everybody and kicked off the Wealth Masterclass.
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October 2013 SA Real Estate Investor
The Speakers Jannie Mouton shared his personal victories and methods on business ownership. Clem Sunter signed a couple of books and chatted to attendees, giving them some personal insight. Gordon Mackay shared his life-changing story of how a doctor damaged a nerve in his face, changing him forever and teaching him to always get a second opinion. Gordon shared with us how he overcame this, almost committing suicide twice; his inspiring and hopeful story showed that despite some failure, you can still succeed.
The speakers have all succeeded in their business and taught us their habits, how they utilized them to help them attain success. Learning from someone who has gone on to become a success in property, is the best way to attain what you want. There is a reason they are where they are today. Donald Trump Junior politely declined to do an impression of his father’s famous saying “You’re fired” but he was patient and obliging to all the attendees questions and to sharing his investing secrets, with a constant grin on his face, his easygoing manner had the audience in his thrall.
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UPCOMING EVENTS
Johannesburg The event in JHB was a constant f low of information, with attendees furiously taking notes and tr y ing to absorb ever y bit of information that was being given to them. The day was a combination of motivational encouragement, personal development and property buying and renting. Even though it was the same event there were three different speakers and the crowd created a different environment from the first event. Ryan Pinnink had all the women giggling with his lighthearted way of giving his steps to natural success. The Networking with successful and likeminded people afterwards made this hands on event a leap in the right direction, whether you were a beginner or a long time property owner, everyone learnt something new at the Wealth Master Class.
Global-Green Building Council 16,17, & 18 October
The Green Building Council South Africa and the World Green Building Council are collectively powering the Global Green Building Convention 2013 in Cape Town.
Retirement Expo ABOVE: Ryan Pinnick
Coca-Cola Dome Johannesburg 25 – 26 October 2013 09:00 – 17:00 daily 27 October 2013 09:00 – 15:00
ABOVE FROM LEFT: Neale Petersen, Clem Sunter, Nicolette Louw and Andrew Rissik.
Your life right now is multi-faceted, rich and colourful, and your retirement should be as well. The Retirement Expo embodies this three-dimensional quality of life; representing all the facets of a well-planned and inspired retirement, characterised by “Healthy Aging, Perfect Planning and Positive Living.” Tickets are R25.00 per person for seniors and R50.00 per person for non- seniors.
US Property Tour 28 October-10 November www.ipinvest.com
We have done 5 buyers trips since we decided to invest heavily in the USA in April 2012. We have acquired 251 properties to a value of $25 700 000 with capital returns from 10% to 30%. Don’t miss our next US property tour.
ABOVE: Jannie Mouton and Bruce de Gouveia.
www.reimag.co.za
October 2013 SA Real Estate Investor
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LESSONS
Trust Me I’m an estate agent
T
o most people this statement is an oxymoron. Trust and estate agents are not often used in the same sentence. You’d be more likely to hear people say the following: “If you are thinking of buying a home anytime soon then please, please remember to never trust an estate agent! “They work for the person selling the property and will say mass to get you to pay over the odds. The higher the price you pay for a property, the happier their customer (the seller) is and the more commission they get.” “Don’t let an estate agentpull the wool over your eyes. I have dealt with many estate agents over the years and their reputation for being dishonest is not a myth”. And it goes on and on … Most estate agents see this as a huge problem. Personally, I see this as a real opportunity for estate agents that really want to differentiate themselves based on relationships where they provide real value to their clients and are ethical and transparent in their dealings. There is an opportunity for those who prefer longer-term relationships and positive word-of-mouth referrals over instant gratif ication. While certain individual estate agents may employ this practice, perceptually the industry is still one of the least trusted. I work with many companies in terms of building trust and it is not only estate agents that are not trusted. Today trust has fallen to alarming levels around the world. People don’t trust government leaders and the main reason
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for this is corruption … and in South Africa, we have a big problem, as everyone knows. In the world of business in 26 countries around the world – excluding South Africa - people just don’t trust CEOs at all. In fact, CEOs ranked second lowest after government leaders*. Again excluding South Africa, where the evidence is quite different, the business sector that scores the lowest for trust is a sector in which we should have the most trust – that of financial services. It seems that people all over the world do not trust the very institutions where they put their money. That’s chronic. In contrast, we’re lucky that regulations have almost forced a trust culture of financial services in South Africa. But what I found so enlightening from all the research I have conducted together with working on some of the world’s leading brands is what I share in my presentations and workshops. And this is that trust is not some elusive, intangible concept. Trust is a basic instinct that can be taught, established, built and restored. Trust is the one thing that holds every relationship together, whether it is business or personal. Without trust, there is nothing.
So how does one establish trust in business today? In today’s world, companies and particularly estate agents need to behave according to their values and principles. These are not merely words to frame in your boardroom or place on your websites. These values and principles need to be acted on consistently and with integrity… and today, integrity is more than just being honest; it’s about doing the right thing. It’s about fair practice internally and externally.
BY ANN NUROCK Not only in the past but also currently many estateagents sacrif ice integrity in order to deliver bottom line profits … and just make that sale! If estate agents continue doing what they have always done, not only will the problem not go away but it will also get worse. While financial results are what we are in business for, the way we achieve them needs to change. Estate agents now need to care more - not just about their agents but about their clients too. In business today, if your client does not feel respected or cared for, he/she will just go somewhere else. They can switch to your competitor with just one click. In my business experience, both good and bad, I have learnt that this culture of care needs to start at the top and filter throughout the organisation. Care entails listening, engaging, communicating and having empathy with your fellow workers and clients. It means understanding their needs before your own. Results are not only the reason why we are in business but they are also one of the greatest motivators of trust. People want to work for and with people who have the competence and capability to deliver. This means people who set the vision, create the values and then act according to them consistently … people who also take accountability not only for the good but also the bad. Results create a culture of pride and collaboration, whereby referrals are made and committed relationships created and ultimately trust is built. But results cannot be achieved at the expense of integrity and care. I believe that there is a huge opportunity for estate agents to become more trusted advisors, and change the ever-present perception of mistrust. After all, a shift in perception is not going to come from the outside world … the change has to be owned and made by the estate agents themselves. They are the change that’s needed. Ann Nurock specialises in business relationships. She is the South African Partner of Relationship Audits and Management, a global consultancy that focuses on the measurement and opitmisation of business relationships. She also runs workshops on establishing, growing and restoring trust in business today.
RESOURCES Relationship Audits www.reimag.co.za