South African Property Monthly – February Issue

FEBRUARY 2012 #75

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MONTHLY

South African property and lifestyle for international investors

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NEWS/TRENDS >>

Cape Town property: four good value areas Despite some gloomy predictions for the property market there are still pockets of good value for those looking to buy homes in Cape Town.

Property analysts operating on a national footprint have an unfortunate tendency to create pessimistic and negative perceptions which may not be applicable to “special” areas, says Lanice Steward, MD of Anne Porter Knight Frank.

Steward says the Cape Peninsula, in her opinion, has a higher concentration of such “always popular” suburbs than almost any other precinct in South Africa - and she is not referring to the high-priced suburbs which have always been and always will be in demand, and to an extent are able to buck economic trends.

“Many Cape Peninsula ‘special’ areas can be seen now undergoing a transformative phase and moving up in the public’s estimation, but can still offer really good value.”

In this category Steward lists the following Cape Town hot spots: Lynfrae This area attracts 25% more hits on the APKF website than any other, she says, and adds it is still possible to buy a home for R2.2 to R2.8

million. Typically it would be on a 500sqm to 600sqm stand and it would be well built. It would have three bedrooms, two reception rooms and a study and although a little “old fashioned”, would be welcoming, comfortable and not in need of extensive repairs.

Steward says Lynfrae has the advantages of being within cycling distance of some of the Cape’s best schools and reasonably close to the city, retail centres and top-level sports stadia.

PropStats figures, adds Steward, reveal that in 2011 Lynfrae homes sold on average only 8.5% below their asking prices and were on the market for an average of 46 days.

Both these statistics are a big improvement on average SA figures.

Pinelands She says in Pinelands it is still possible to buy a “solid” well-built home of the type found in Lynfrae, possibly 30 to 40 years old, with four or five bedrooms, for a price of R2.5 million. Average stand sizes in Pinelands are 800 to 1 000sqm and, again, there is a relatively small gap (7.4%) between the list and achieved prices. The average selling time in 2011 was 98 days.

“Pinelands’ big attractions are that it is only 12km from the city and on a major suburban line and it is largely self-contained, with its own schools, shopping centres and sports clubs – and it has a great community spirit,” she says.

Hout Bay Steward says here there is such a diversity of property values in all price ranges that it is not possible to talk of a typical home for this region

– but the valley can still offer excellent value in its Beach and Scott estates.

She says last year the average selling price in Beach Estate for a three bedroom home on a 450sqm stand was R1.9 million (12.9% below the asking price), while in Scott Estate three and four bedroom homes can still sell for under R3 million. Sales here, on average, take 71 days.

Those looking for a Hout Bay home in a security estate,

BAROMETER

Expect further house price deflation House prices, in real terms after adjustment for the effect of inflation, are set to deflate further in 2012, according to Absa Home Loans.

The bank says this is based on expected low nominal price growth and headline consumer price inflation which is set to remain above the 6 percent.

Nominal price growth in the middle segment of the housing market was expected to remain relatively low in 2012 after coming in at 2.2 percent in 2011.

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Absa says the continued subdued performance expected from property prices would be the result of developments and forecasts with regard to the macro economy and the household sector.

The affordability of housing, as represented by the ratios of house prices and mortgage repayments to household disposable income, improved only marginally in the third quarter of 2011 from the second quarter.

This was the net result of trends in house price and

income growth in the quarter, while interest rates remained unchanged during this period.

Many households’ ability to take advantage of the improved housing affordability, however, continued to be hampered by a still relatively high debt-to-income ratio, a sizeable number of creditactive consumers having impaired credit records, the impact of the NCA, and banks’ lending criteria.

After having expanded by an estimated real 3 percent in 2011, Absa Home Loans says the South African economy

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was forecast to grow by 2.8 percent in 2012.

The lower growth expected this year would largely be the result of a slower pace of expansion projected for the world economy, which would affect South Africa’s export performance.

A weaker rand exchange rate in 2012 compared with last year would, however, support the country’s export earnings.

Trends in domestic inflation and interest rates would also impact the economy during the course of the year.

I-Net-Bridge

with excellent protection round the clock, says Steward, should visit Avignon/Berg en Dal and other Hout Bay gated estates. Here excellent homes are available at ±R 4 million, often half of what is paid for similar security estate properties in Constantia.

Sea Point/Green Point In early 2011 Steward identified this as an area on the up and now, she says, everything she predicted for freestanding homes in this area is becoming a reality.

“Many parts of this precinct are catching on, especially those on the mountain slopes with sea views”. Green Point in particular appeals to the upwardly mobile, “with it” set who seek a cosmopolitan, boulevarding lifestyle, she says.

“Average home prices here are R1.7 million for a two bedroom house – on a 300sqm stand and typically they will sell in 43 days at 6.7% below the asking price.”

Prospective home buyers should be patient and do their homework carefully. A good way to determine value is to get an online property valuation, which will allow buyers to establish what other similar homes in that street, complex or suburb have recently sold for.

Property24.com

FEBRUARY 2012

<< NEWS/TRENDS

Affordable homes sought after in 2011 In 2011, South African home buyers were reportedly looking for affordable homes, according to FNB Home Loans.

The bank notes that growth in residential property transactions broadly slowed as 2011 progressed, as did growth in residential mortgages registered.

The FNB Segment House Price Review Q4 2011 report reveals that home affordability from a price relative to average employee remuneration saw a major improvement in home affordability for the average income earner from the second quarter of 2008 until the end of 2010.

This was due to the combination of average wage growth outstripping growth in house prices.

Writing in the report, John Loos, FNB Home Loans property strategist says affordability in the housing

market compared to pre-boom times still remains significantly worse despite improvements post the boom.

Home transaction statistics of late have been pointing to slowing growth, being interest rate sensitive and feeling a slowing in affordability improvements as measured by the loan instalment/average wage ratio during 2011.

Loos says high and rising consumer price inflation through 2011 as experienced by the consumer was a further constraint on affordability for would be home buyers.

Home affordability according to the bank continued to be reflected in the relative performances of different housing segments in the latest FNB house price figures for the fourth quarter of 2011.

The small-sized segment’s home price growth mildly outperformed the more

expensive medium- and largersized home price growth rates.

With regard to full title versus sectional title, the full title segment’s house price growth of 6 percent year-on-year as at Q4 2011 remains significantly better than the sectional title market’s 0.1 percent growth rate in the same quarter.

The average full title home value of R895 692 is higher than the R686 993 sectional title segment’s average, when one compares apples with apples - breaking down the segments by room number, one sees that homes with comparable room numbers in the full title segment are cheaper on average than those in the sectional title segment, says Loos.

He explains that the full title segment’s major sub-segment is the three bedroom market, whose average price was measured at R926 771, lower

than the sectional title three bedroom sub-segment’s R953 067.

“The affordability drive view still holds, with the cheaper full title three bedroom average price growth of 5 percent outperforming the sectional title three bedroom rate of 1.3 percent.”

Loos says it is questionable whether people do their sums correctly with regard to home operating costs and the rates and tariffs bill, when searching for the best value for money.

If that was the case, sectional title may have been viewed more favourably when making buying decisions, he says.

He says other cost factors may be supporting the full title segment more than the sectional title market.

Much of the last decade’s building boom focused on suburban sectional title homes and these were often located

where land was more freely available and not always in ideal locations.

Older established full title dominant suburbs often have the established government schools, good infrastructure and are better located relative to major employment nodes.

The sectional title segment may still be suffering from a greater degree of over-building in the boom years having been a major target for the more cyclical first-time buyer and buy-to-let demand.

This may imply a still greater oversupply waiting to be mopped up.

He adds that the bank believes these factors continued to contribute to an ongoing better performance from the full title segment in the fourth quarter of 2011 compared to that of the sectional title segment.

Property24.com

Five things to ask before buying a home As the biggest investment decision many South African consumers will ever make, purchasing property is not one to be taken lightly and it is important for buyers to ask the right questions before committing to such a large investment.

This is according to Adrian Goslett, CEO of RE/MAX of Southern Africa, who highlights the most important factors that buyers need to think about when searching for property in which to invest: 1. What does the future look like?

Property investment is a longterm commitment, so know what the plan is for the future.

A property that may meet the requirements of a buyer now, might not in a few years time.

Consider the property’s location and the size and shape of the stand. A young couple may be happy with a small home for now, but they may want to build on at a later stage and extend the size of their home for children.It is also important to consider the home’s proximity to amenities such as good schools, medical

FEBRUARY 2012

facilities and business districts.

2. Is the home structurally sound?

While there are good valuefor-money homes that require some attention, certain fixeruppers can be an investment nightmare if the structural integrity has failed.

Some cracks in the walls might be insignificant.

However, structural cracks, which are deep and appear on both sides of the wall, can indicate that the foundation has failed or that there is severe structural damage to the home.

Once a property has been built, it is a very costly affair to rectify structural damage, if it can be rectified at all, says Goslett. “Buyers should look out for heavy filler work on the walls, diagonal cracks running from the corners of window or door frames and deformation along roof lines.”

If in doubt, he advises potential buyers to ask a structural engineer to inspect the property to make sure.

3. Are the plans of buildings legal?

Buyers can make an enquiry with the local municipality to ascertain whether the buildings on the property are legal and built to the required standards.

Any building that has not been approved through the necessary channels will not appear on the database and will be deemed illegal and could very well be built to substandard criteria.

The records of the property will also show the current zoning of the property and its development potential if the buyer would like to add on at a future date.

4. Is there a leaking roof or water damage?

Having water in places it shouldn’t be is never a good thing for a home and water damage or rising damp can also be a costly exercise to repair, says Goslett.

“Look out for areas in the home where the paint is scaling or bubbling, as these are usually indications that there is damp in the walls or ceilings.”

If buyers are unsure, he says they should get a plumber to

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check the property or they can request the seller to provide them with a certified plumber’s certificate, although it is not required by law.

5. Are all features of the home in good repair?

While a home with a swimming pool is appealing, if the pump is not working or the pool is leaking, it will only cause headaches for the buyer in the long term.

“Inspect all aspects of a home such as the electrical wiring, although the seller is obliged to provide the

buyer with an electrical compliance certificate, it might be worthwhile getting an independent electrician to go over the home,” he says.

Goslett says buyers must always do their research and take their time to ask themselves whether they are making the best possible investment decision.

“The old adage that ‘knowledge is power’ has never been more appropriate than when investing in the future and one’s home.”

Property24.com

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LIFESTYLE >>

Top five

kitchen trends Traditionally, a new year is a time of change and reinvention for all of us. The beginning of the year is also a time where we look at our homes and inevitably feel that they need a bit of a makeover, looking to décor magazines and the internet for inspiration.

“Many of us like to renovate or redecorate at the beginning of the year, as we feel that by giving our homes a new look, we are also ‘making a fresh start’ on a personal level,” says Trevor King, Marketing Director for Caesarstone South Africa, manufacturer of fine quartz surfaces.

The kitchen is one area which we tend to pay more attention to as it is often seen as the focal point or ‘heart’ of the home, he says.

Unlike fashion, kitchen décor trends tend to have more lasting power due to the fact that redecorating or renovating one’s kitchen requires more time, effort and expense.

“By putting a little thought into what look you are trying to achieve, you are able to

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make a change that is likely to remain fresh for years to come,” says King.

With many years experience in the kitchen surface industry, King is perfectly positioned to offer his views on what the likely trends for 2012 will be – he lists them as follows: 1. Iconic space At the top end of the market, kitchens are beginning to be viewed as iconic design spaces and representative of taste.

What this means is that the emphasis is being placed on quality, not quantity, in terms of textures, designs, and the incorporation of a colour palette that will not date.

“How this relates to kitchen countertops is that homeowners are now seeking highly durable, premium surface materials and placing them strategically for maximum impact,” explains King.

2. Greening the kitchen If the ‘80s was about conspicuous consumption,

then 2012 is all about conspicuous conservation.

There is strong focus on preserving the environment and reducing one’s carbon footprint, but we also want to be ‘seen’to care.

Eco-friendly products and appliances will proclaim the fact, either through their marketing efforts or their very design. Energyefficient refrigerators and ovens will advertise their eco credentials. Materials that are well-known to be environmentally responsible will be a popular choice for kitchen surfaces and splashbacks.

3. Practicality In our time-poor world, practicality is another key consideration. Although the desire for beautiful design is stronger than ever, the durability of materials utilised is an essential requirement.

Materials selected will first and foremost need to be easyto-maintain, hygienic, as well as being stain and scratch resistant. The focus is shifting

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more and more to function over form.

4. Experimenting with colour In South Africa, we tend to be more conservative when it comes to kitchen colour palettes, but 2012 will see greater experimentation in this hub of the home.

Monochromatic colour tones will remain popular, but will incorporate exciting new elements in the form of textures and patterns within the colour itself. For example, Caesarstone’s Motivo range allows for a crocodile or lace motif to be embossed on a black or white surface, adding a further dimension of allure.

Homeowners will become more adventurous in terms of bright and bold colours, with splashes of sunny yellows, dark reds and teal being seen in many kitchens. While it is unlikely that entire kitchens will be one bold colour palette, bright accents on dish towels and feature walls will be seen, says King. “Neutrals and natural grey tones will become more saturated and rich.”

5. Natural finishes The decorative materials predicted to be strong for 2012 include natural finishes like wood and stone, but these are complimented by modern elements such as glass, shiny metallic, crystal and stainless steel, with special attention to ambient lighting.

We do not need to completely renovate our kitchens to give them a striking new look for 2012, says King. “Minor adjustments in the form of colour accents or a new coat of paint may be all that is required to reinvigorate this area.”

However, he adds, areas that experience more traffic, such as a countertop surface, should be of a high-quality, durable and timeless material, as it is these areas that experience greater wearand-tear.

“By choosing a premium surface with a comprehensive warrantee, you can be assured of the longevity of your investment.”

Property24.com

FEBRUARY 2012

<< ASK THE EXPERT

Selling or renting your SA home while abroad I

'm planning to move to the UK for a few years. Does it make more financial sense to sell my house in SA or to rent it out while I'm away?

T

here is no easy answer to your question given the current market conditions in the property market, both locally, and abroad. As we know, since 2008, the global property market has been in significant decline and this is not expected to improve significantly for 2012. This would mark the end of a 5 year cycle and we would expect the market to start showing signs of recovery from 2013 – although, of this we cannot be 100% certain.

The current market favours “buyers”, so sellers looking to gain the best price for the property are needing to lower their price expectations to what the market dictates.

Given that you say you are moving to the UK for several years, it may be a smart move to rent your property out on

a 12 month lease basis so that you can assess the market each year and sell once it improves.

With this in mind, here are some general pointers that could hopefully assist: Being a Landlord Are you ready to become a Landlord? In order to do so you will have to become emotionally detached from your home.

Prepare yourself that tenants could treat your home like a rental and there is a good chance that you will see some degree of wear and tear on your home.

Tenants never take care of your house the way you do and you can say goodbye to your perfect garden. You will most likely have to do some repair to your home when you eventually return or decide to sell it.

Do some research to establish whether your neighborhood is conductive to attract a renter and if it would be long term or short term renters? For what amount would you be able to rent your

home? Some of your local estate agents specialising in your area can assist you with this.

Financial consideration Once you have an idea of how much your home would be rented for, you can try and calculate affordability. Will the amount that you receive for the rental be enough to cover your expenses and if not will you be able to sustain your bond repayment, insurance and repairs as well as municipal accounts? Tenants might not always pay on time and there will be times that your house is vacant for some extended period. Would you be able to afford the cost of two homes (remember you will also need a place to stay in the UK)? You would not like to end up in a situation whereby you end up bankrupting yourself and lose everything.

Compare the rate of return of the rent of your property to other investment options if you would sell the property.

A lot of factors influence the real estate market at any time; there is no

The Eastern Cape and Garden Route The Eastern Cape lies on the southeastern coast of South Africa and is a region of great natural beauty. It offers it all - rugged cliffs, rough seas and dense green bush on the stretch known as the Wild Coast. The province's diverse climates and landscapes range from the dry and desolate Great Karoo to the lush forests of the Wild Coast and the Keiskamma Valley, due to the great Drakensberg Mountains which blocks rain moving in inland from the coast.

The city of Port Elizabeth is situated 260 km from Knysna and 800km from Cape Town. It is known for its sunshine and safe sandy beaches.

For the tourist wanting a total South African experience, Port Elizabeth is the perfect complement to the Eastern Cape. The area also now boasts the beautiful Nelson Mandela Bay stadium, which is one of the largest stadiums in South Africa, and hosts international sporting events like the annual HSBC Rugby World 7’s series. The area is also the hub of South Africa’s automotive industry. Port Elizabeth has a very diverse property market with apartments selling from R350 000 up to R700 000 and house prices in the region currently ranging from R900 000 to R3 million.

Approx 280 km from Port Elizabeth, you will find East London. It is nestled between the Nahoon River in the north and Buffalo River to the south. The city is about 1000 km from Cape Town on the South East coast. The shores

FEBRUARY 2012

are lapped by the warm waters of the Indian Ocean and with its subtropical climate it is a sought-after tourist destination for local South Africans and international tourist alike. Properties in East London are becoming more and more in demand. With such a vast diversity of property, you are sure to find either your dream home or the perfect investment opportunity.

Moving west towards Cape Town you reach the Garden Route, where some of the most majestic forests in the world can be found. The name Garden Route says it all – an area with lustrous green vegetation in abundance, stretching from Plettenberg Bay to Oudshoorn.

The area of Plettenberg Bay thrives on the tourism industry, which takes a steep increase from November, when teenage school leavers are the first to descend upon the small town, followed thereafter by various waves of arrivals from abroad as well as other parts of South Africa. Properties in the area range from R800 000 for a small home or apartment, to R3 million for an upmarket home. There is always a demand for property in the area, especially for buyers looking to buy holiday homes, or those looking to retire.

Plett’s neighbouring town, Knysna, is one of South Africa’s most intriguing holiday destinations. It plays home to the awe-inspiring Knysna forest that is in abundance of very old and majestic trees that cannot be witnessed anywhere else in the world. The house

guarantee that your property would continue to appreciate in value neither that it would depreciate.

I would say if you can afford your property, believe that the property market is going to improve in the future generating a better return on investment than other investment ventures and if you have the temperament to become a landlord; keep it. If you are not sure, it might be better to sell it, but with the understanding that you will need to be realistic in terms of your price.

Gerrie Nieuwenhuis Licensee / Principal Seeff Jeffreys Bay www.seeff.com

<< ADVERTORIAL

Wilderness Beach can be found along the scenic Garden Route. Photograph courtesy Fabulous Fab.

prices here really do suit anyone’s pocket, with older three bedroomed homes selling for R900 000, to upmarket homes for around R3,5 million. Knysna also attracts thousands of tourists from all over the world not only for the magnificent forests but because it is also a view point for some astonishing aquatic life such as whales and dolphins which feature here.

Situated approximately 60km from Knysna and 430 km from Cape Town is George. The area of George is widely regarded as the hub of the Southern Cape Region, and an ideal base from which to explore the Klein Karoo.

George is easily accessible with a good road network and the George Airport

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which links the Southern Cape and Klein Karoo hinterland to the major centres of South Africa. Houses in this area range from R900 000 to R2,5 million and is perfect for investors looking for a holiday home or new developments.

With such a vast number of amenities, investment opportunities and wildlife, the Garden Route and Eastern Cape is definitely an area to take into consideration when buying or investing in property in South Africa.

If you’d like to find out more about buying or investing in these areas, please contact Engel & Völkers at +27 12 346 7777 or southafrica@ engelvoelkers.com.

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