South African Property Monthly – January Issue

JANUARY 2012 #74

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MONTHLY

South African property and lifestyle for international investors

The best priced home in Sandhurst R9 500 000

Do you want to BUY, SELL, RENT or LET property in South Africa?

Visit www.seeff.com and view more than 33 000 properties in all areas and all price ranges and see what services we offer.

NEWS/TRENDS >>

Real estate trends to watch out for This year will be the tipping point in real estate when online marketing gains more traction than traditional print and other forms of advertising.

According to Berry Everitt, managing director of the Chas Everitt International property group, the change will be driven largely by consumers.

He explains that home sellers will become increasingly focused on greater exposure of their properties and the potential for faster sales and homebuyers looking to do most of their comparative shopping for the best value before they venture out to actually view any properties.

The process will also be facilitated by the maturity of SA’s property portals, he says.

“It is really not our belief that print advertising will disappear, we believe that 2012 will also see the property publications starting to reshape themselves to make their offerings more cost effective.”

Everitt says estate agents will play an increasing role in co-ordinating and facilitating the essential services around real estate sales, such as compliance certificates and bridging finance.

Once again, this will be driven by consumers, who will favour those agents and agencies able to deliver the most comprehensive and efficient service.

At the same time, he says, the increasing pressure on agents to increase both their professional qualifications and their use of technology is bound to fuel further consolidation in the industry.

“Smaller operations will find it difficult to keep up with the expenditure required to field top performing agents and will also find it advantageous to be part of a bigger group with a wider marketing network.”

We believe that the groups currently ranked third, fourth, fifth and sixth in the industry will grow substantially in

the coming year and narrow both the gaps between themselves and the gaps between them and the groups ranked first and second, he says.

Everitt says banks’ lending restrictions and sales volumes will be much the same as 2011.

“We believe homebuyers should not stretch themselves to the limit but give themselves some leeway to cope comfortably with future interest rate rises of three or even four percentage points.”

Young Carr, chief executive officer of Aida National Franchise expects stable interest rates and rising household incomes to further boost consumer confidence during the course of 2012.

Carr does not foresee any significant change in bank lending policies or increase in sales volumes.

Affordability is expected to increase but this will not translate into a surge in demand or home prices as many households will still be determined to

avoid any new borrowing until they’ve paid off much more of their existing debt.

“There’ll be a difference in the quality of business being done.”

As an example, he says homes are less likely to be sold two, three or even four times before someone can obtain a home loan to complete the transaction.

It also means that agents are less likely to spend their time and resources on marketing properties that are overpriced.

The main reason for this change will be that many of the agents and principals who have toughed it out over the past three years to stay in the industry have gained much in the way of training, resources and systems and are now able to look beyond basic survival to the growth of their businesses.

He adds that they are pleased that the newly-formalised real estate industry is starting to attract new entrants once more as it steadily gains back its reputation as the place to build a good career.

Property24.com

Are you a buyer or seller?

The South African property market strength in 2012 will rely on the economic growth which should pick up before the sector can realise real growth.

According to Samuel Seeff, Seeff Properties chairman, the economy would need to pick up before we can expect to see any real strength returning to the property market.

He explains that the market will experience reasonable demand with a lot of meaningful gains in clearing distressed properties out of the market, albeit with little fortune.

“No further interest rate hikes are expected and this should help consumers reduce their debt levels by 2013,” he says.

He says while consumers will still buy and sell property, they expect to see low sales volumes given the continued financial constraints and high bank decline ratios.

Seeff says 2013 will be the time that we will see a restoration of activity in the South African real estate market to levels pre-2007 when the National Credit Act was introduced.

Throughout 2012, sellers will still be competing with distressed properties and they will need to price conservatively and take heed of real estate agents’ advice of the market as to what buyers are prepared to pay.

Cash buyers will have the upper hand and time to consider their options and are likely to negotiate the best possible price and, on their terms.

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“It is my view that the pent up demand that has been in place since 2007 will start impacting on the market, assuming that the banks are able clear impairments and debt out of the market.”

Only once turnover in the market picks up, are we likely to see an uptick in prices, but this will be mild in strength and will remain as such throughout 2013 and 2014, he says.

He says Gauteng is the powerhouse of the market and usually first to feel strength returning to the market and this regional is set to improve this year.

As for coastal properties, especially the non-primary markets including holiday and second homes and leisure properties, he predicts the sustained lack of demand to continue until the primary markets across the country pick up.

Seeff believes we can look forward to: GDP growth will remain relatively flat with predicted growth of between 2.5 percent and 3 percent for 2012 Does not expect further interest rate drop, depending on inflation, he anticipates an interest rate hike House prices have already come down by between 15 and 20 percent from pre -2008 highs, no significant price drops expected. Prices and sales volumes are likely to ebb along throughout 2012 For those property owners who are not in a hurry to sell, hold on to your property but if you have to sell, price conservatively as low demand will keep

prices subdued Residential rental yields are set to increase as those who cannot afford to buy will rent instead. Rental rates are likely to increase by between 8 percent and 10 percent.

Commercial rental yields are expected to increase by 8 percent on average as per standard annual escalations and demand will remain relatively subdued.

Meanwhile, Dr Andrew Golding, chief executive officer of the Pam Golding Property (PGP) group expects the leisure property to take longer to return to its glory days and recovery compared to the residential property sector.

PGP hopes to see an improvement in foreign investment and expects that foreigners who have traditionally found South African an attractive place to invest in property will continue to do so in increasing numbers.

“We hope to see numbers of transactions continuing to increase, hopefully with approximately a 10 percent increase over this year and prices will remain flat in real terms.”

Golding explains that this year estate agents across the country will have reorganised themselves into two separate organisations.

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One will represent a labour component or employee component (the former Institute of Estate Agents) and the other represent business owners and principals (the so-called business component) REBOSA. These two organisations will be able to represent in a fully inclusive way, the constituencies that they are designed to represent.

In this way the industry will be able to be in control of its own destiny and to speak with one unified voice and will be able to interact meaningfully and credibly with all the stakeholders, both government and non-governmental, he says.

From a regulatory perspective, PGP hopes this year doesn’t have as many regulatory implications and that the full effect of the Consumer Protection Act will have been bedded down and properly understood, he adds Property24.com

JANUARY 2012

<< NEWS/TRENDS

How to buy property with your friends If you were thinking of buying property this year but cannot afford to raise a deposit to access home loan finance, there is an easy way to do it.

According to Berry Everitt, managing director of the Chas Everitt International property group, would-be buyers can pool resources together by forming an investment group with a few friends and colleagues.

He says this is buyers’ market, with low interest rates, house prices are also affordable yet many consumers and investors are not snapping up properties fast enough.

Everitt explains that it’s because most of them haven’t got the cash to pay the sizeable deposits the banks still require in most cases before they will approve a home loan – let alone enough to buy properties

BAROMETER

Slow property growth expected in 2012 Consumers will continue to demand better service, information and value for money in real estate as the Consumer Protection Act is known and applied.

Jan Davel, managing director of RealNet estate agency group, says this means there will be increased levels of professionalism required of estate agents who stand to lose out if they don’t pay attention to training and skills development on a continuous basis.

They will also lose out if they don’t become more efficient by embracing new business practices and technologies, he says.

Davel says this year, most South African households will keep very tight reins on expenditure and new borrowing as they continue to rebuild their credit records and more importantly, lower their debt exposure.

RealNet believes there will be continued resistance to taking on new credit such as a home loan - although it is important to note that real estate is always an underlying asset, unlike most of the other commodities people buy on credit.

“This resistance does not bode well for expansion of the real estate market in the shorter term, despite a huge

JANUARY 2012

increase in the affordability of property over the past 3 years.”

It suggests that both demand and home price growth will remain constrained, especially as there also does not appear to be any significant relaxation of bank lending criteria on the cards, he says.

RealNet concurs with Absa, FNB and other industry commentators in expecting the rate of home price growth to remain in single digits below the rate of inflation (around 6 percent) for most of 2012 – except perhaps in isolated pockets of the market wwhere specific circumstances cause demand to suddenly exceed supply.

He says they are positive that the market will hold excellent opportunities for both longterm investors, in the form of very competitive pricing, and real estate professionals who are prepared to go the extra mile, because they will have a rare opportunity to significantly grow market share.

He adds that they also believe that the current rebuilding of household balance sheets will be extremely positive for the market in the longer term, as it will enable consumers to better withstand future interest rate increases.

Property24.com

outright.

With a group of 10 people, for example, individuals could each contribute R12 000 to make up a 20 percent deposit on a R600 000 home (on which there is no transfer duty) and obtain a R480 000 bond.

The monthly repayment on this, at current interest rates, would be around R4 320 a month and the group should be able to let the property to cover at least this, he says.

By gearing the purchase in this way it would mean that if the value went up just 3 percent (R18 000) in the first year, each individual stands to make a 15 percent return on your initial investment of R12 000 minus the share of the municipal rates, any levies and upkeep.

Everitt points out that there aren’t many places where you could safely invest money to do better than that and urges buyers in this scheme to have an attorney to draw up a formal agreement.

He adds that enlisting the help of a knowledgeable estate agent to find suitable properties to buy is important.

Property24.com

Banks hold the reins to home buying The South Africa residential property market will continue to be driven by the banks and whatever their appetite is for lending this year.

According to Rudi Botha, chief executive officer of leading mortgage originator Betterbond, while there may be a little more competition among the banks for certain clients, the lending volumes prevailing in 2011 will be maintained for most of this year.

“Consumers should not expect too much in the way of interest rate concessions in 2012.”

Botha explains that the situation is different from that of a few years ago when borrowers in good standing could with relative ease secure a rate that was one or even two percentage points below prime rate.

These days most loans that are approved are at prime (currently 9%) and in most instances only if the borrower can pay a 10% deposit.

He says the good news is that most lenders are currently credit-scoring potential borrowers to allow for a one or two percentage point increase in interest rates in future.

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This means that those who are approved for loans should have the financial resilience to cope with such an increase without defaulting and running the risk of losing their homes.

He notes that the requirement for most homebuyers to pay a deposit of at least 10 percent offers protection against the possibility of negative equity for both individual borrowers and the real estate market in general.

“We believe this is prudent in the face of the ongoing turmoil in the world’s financial markets.”

Betterbond is not expecting any increase in interest rates until the end of 2012 and this together with even modest wage and salary increases, will further increase the affordability of home ownership for many people.

He adds that as for the real estate industry itself, economies of scale and cost savings on shared services will be some of the main drivers for further consolidation among real estate agencies.

Property24.com

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cOnstantIa

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cOnstantIa

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Bedrooms 4 Bathrooms 2 Garages 2 WEB 248351 high ceilings, wrap-around stoep, enormous lawned garden and panoramic mountain views. +/- 1100m2. covered patio with built-in braai. [O] +27 21 683 0731 dEBBIE chaLMErs +27 82 871 6278 I OtILIa harKEr +27 73 571 8968 or constantia@seeff.com

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KEnILWOrth uPPEr

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Bedrooms 4 Bathrooms 4.5 Garages 2 WEB 242407 no transfer fees payable. Luxurious main bedroom en-suite, with a lay down view of robberg Peninsula. rare 180o sea views of the lagoon, mountains, bay and robberg.

[O] +27 44 533 0311 PauL LEWrY +27 82 857 8835 or plett@seeff.com

LIFESTYLE >>

Décor trends for 2012 From raw natural materials to mesmerising murals and tantalising textures – 2012’s décor forecast is full of exciting inspirations

Focus on furniture Today’s furniture coverings are moving away from prints – instead plainly coloured coverings that are highly textured are increasingly popular.

The actual design lines of the furniture is also becoming more streamlined.

For example, yesterday’s bulky sofas are giving way to smaller styles with lower backs and sleeker looks, preferring to cluster them into conversation groups for added flexibility. All things natural remains a popular focus, but instead of the dark Mahogany and espresso-coloured woods, lighter and mid-tone woods are fast gaining popularity, such as natural Walnut, Cherry and White Oak being especially dominant.

Stunning statements Not new to the décor wall, feature walls are here to stay, being popular creations in almost any room in the home, but especially in the bedroom, living areas and office.

Feature walls can be created using a multitude of materials that vary in cost for a wide variety of different effects, including natural stone cladding, tiles, mosaics, paint, wallpaper and decals.

The most popular fabric trends include iridescent metallic, strong patterns and bold prints, modern florals, richly textured woven fabrics, velvet, silk and faux fur. Mother Nature is never far behind in inspiration, with natural fibres such as bamboo, jute, eucalyptus, cotton raw silk, wool and cork making their presence felt.

Colour contrasts As mentioned before, décor compositions comprise mainly plainly coloured items and materials, but spruced up with the addition of interesting textures, and the odd soft furnishing or piece that boasts an interesting pattern or bright colour.

As such, neutral hues, such as taupe, beige, cream, grey, black and stone, as well as a range of various off-whites remain ever popular. These are then accented with boldly coloured accessories to pack a punch – vibrant colours that are especially popular

include bright yellow, royal blue, deep teal, fuchsia, scarlet, lime green, coffee and gold.

Life light As before, lighting remains an integral part of any décor scheme – with the emphasis being on layered lighting design for a complex aesthetic result.

Popular lamps include those styles that boast linen shades, clean tailored lines and a play towards texture.

Lamp bodies that celebrate nature, such as those made from reclaimed woods that showcase the soft raw wood grain for example, remain a popular choice. Feature light fittings that add a touch of glamour, such as chandeliers for example, remain bang on trend – playing the part of the piece of jewellery in the room.

Tread lightly Currently, there seems to be a move away from wall-to-wall carpeting,

Bang on budget Times are still tough when it comes to finances, and in the light of this, people are continuously on the lookout for unique, but cost-effective ways to improve their homes.

As such, DIY decorating remains ever popular, as does upcycling old, used furniture and décor items and investing in budget décor accessories.

Property24.com

Tantalising textures Soft furnishings and fabric are at the heart of any good décor composition, and the range of fabrics set to be introduced in 2012 will not fail to impress.

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and a more towards easier to clean materials, such as tiles, laminate or wooden flooring, which are warmed up and accented using a variety of rugs.

There is renewed interest in rugs that are hand-woven or with chunky knotted textures. Popular rugs include those that make a design statement and serve as an interesting foundation for rooms with a neutral base and upholstered or casework finishings.

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JANUARY 2012

<< ASK THE EXPERT

Investing in South Africa’s magnificent coastlines I

am keen to buy a holiday home along South Africa's beautiful coastline. But how can I ensure that my investment is a good one?

S

outh Africa has come a long way since the early 1990’s Government has firmly committed itself to encouraging foreign investment, and to this end they have streamlined and implemented new policies to ensure that investment in South Africa is made easy.

South Africa is a young stable democracy with a fast growing economy and an ever increasing tourist industry, which when combined ensures that the country is in a strong

position to offer opportunities to those what wish to invest.

Coastal Properties always remain in demand due to the natural splendour and relaxed lifestyle that prevails.

When selecting a coastal property the 2 most important areas for consideration are: location and position.

It is preferable to purchase a property in one of the developed sea side towns or resorts that have access to shops, medical and entertainment facilities.

The property should, if possible, have sea views and be within walking distance of the beach and various rock pools that abound on the coastline.

The other upside of selecting a

property in a popular sea side town or resort are the rental opportunities that abound, particularly during the South African holiday season, namely July and December. It is during these periods that the rental rates are high and as such, the income derived will go a long way to offsetting the ownership costs related to the property.

The most important aspect related to the renting of a property, is the appointment of a professional rental company who will be able to oversee all aspects related to the process, i.e. screening and placement of tenants, collection of rentals and any maintenance that may be required.

In summary, a prospective purchaser

armed with expert advice and relevant, reliable information will be in a position to make an informed decision related to the purchase of a sound investment that will bring excellent returns over the long term.

Gavin O'Leary Sales Manager: Seeff Port Elizabeth www.seeff.com

Walking on your investment

I

am about to start renovating my apartment and I am not sure on what to choose, either carpets, or wooden floors. As this is South Africa, it may be cooler with wooden floors, but what is the resale value if I choose this above carpets?

Carpet would almost certainly be a cheaper option and help you stretch your budget to other renovation projects. You also need to be careful about installing wooden floors in coastal locations and other humid areas as wood doesn’t like water. Indeed, if you’re worried about heat, your best option might actually be a tiled floor.

As for the second part of your question, the “resale value” of any renovation is how much of its cost you can expect to recoup when you sell the property in the future – and that is purely a matter of its appeal at the time to potential buyers. For example, putting in a wooden floor may improve the look and boost the appeal of your flat so much that buyers will be prepared to pay more for it and you will get a better percentage return on the

cost of the project than you might have got on the higher cost of renovating a kitchen or bathroom.

This is, however, a calculated risk, as buyer preferences do change over time.

And you do need to be very careful that any renovation project does not take your total expenditure on the property above the current market value.

Berry Everitt, CEO of the Chas Everitt International property group:

Send your property questions to editor@sapropertymonthly.co.uk

Send your property questions to editor@sapropertymonthly.co.uk

JANUARY 2012

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