PROPERTY FINANCE

This morning, I was fortunate enough to attend the Property Finance "Power-Hour" Breakfast offered by SAPOA (South African Property Owners Association) in Sandton.

The Power Hour was presented by Gerhard Zeelie of Standard Bank and he dealt with the state of the South African Property Market. It was interesting to get his perspective on where the market is and where it may be heading. No-one can accurately predict these things BUT as Gerhard said … "At least he has charts."

Obviously an hour is wholly insufficient to cover the whole market in depth but we were afforded the opportunity to gain an oversight. Gerhard dealt with the following:

• Office Property Market
• Industrial Property Market
• Retail Property Market
• Residential Property Market

SOME MARKET SEGMENTS PERFORMING WELL
On average, the first three segments of the property market appear to be fairing quite well. Returns in the Office market are currently the best with an average return of 14.1% but the other segments are also reasonable with Industrial at 13.6% and Retail at 13.1%. In Gerhard's words, when it comes to Retail space, "Bigger is Better". In other words, neighbourhood centres are not doing as well as regional centres.
On the supply side, there is still plenty of retail space being built. This is illustrated by the following table reflecting the area completed in respect of centres over 5000m²

2008	865,048 square meters
2009	543,814 square meters
2010	394,973 square meters
2011 (provisional)	454,100 square meters

RESIDENTIAL MARKET IS POOR
However, the Residential Market is close to a disaster in terms of performance. Standard Bank's median house price has recorded a growth rate of 3.3% year on year in May and the FNB House Price Index 2.1% in May. It is clear that these increases are below the official inflation rate and that therefore in real terms, house prices are actually declining. The leisure market (e.g. Golf Estates) have been particularly hard hit. There are, however, some bright spots to this picture of adversity. Firstly, the buy-to-let market is showing good returns as a result of the "bargains" on offer. The Affordable Housing Market is still performing well.


DEVELOPMENT LOSS DRIVERS
Standard Bank have conducted an investigation into Development Loss Drivers. In other words, what factors cause financial losses to Developers. I may go into this on my Blog sometime in the future but I must say that for someone (like myself) who is interested in Real Estate Development, it provides some fascinating insights and I would have liked to engage with Gerhard on this topic for far longer than the time allowed.


CONSUMER PROTECTION ACT (CPA)
Gerhard briefly dealt with some aspects of the CPA that have particular relevance to the Property Industry. SAPOA is currently liaising directly with the relevant authorities regarding specific provisions of the Act and the Regulations. SAPOA will also shortly be presenting a workshop dealing exclusively with the CPA. I will therefore soon dedicate a detailed Blog Post to the CPA and follow it up in a series of posts as various aspects of the operation of the CPA become clearer.


Thanks to Gerhard Zeelie of Standard Bank and to SAPOA for an interesting morning (and a good breakfast)
Gareth Shepperson

Rate increases loom as inflation quickens - Economic trends

Rate increases loom as inflation quickens - Economic trends

This is BAD NEWS for a property industry that has failed to recover despite lower interest rates.

Gareth Shepperson

All housing sectors affected by recession - but estate

All housing sectors affected by recession - but estate

The latest Lightstone Review reveals that since 2003 the growth in the estate market has been almost 350%.

Standard Bank expects to payout over R50bn in new loans

Standard Bank expects to payout over R50bn in new loans

Higher than inflation increases in disposable incomes and demand for mortgages is expected to help Standard Bank (JSE:SBK) lend over R50bn in new loans this year as businesses and individual’s appetite to borrow recovers, the bank said on Monday.

Standard Bank’s head of personal and business banking, Peter Schlebusch, said the bank expects to pay out over R50bn in new loans this year mainly in the personal markets space.

Buying or selling property?

Buying or selling property?

Most property transactions in South Africa are affected by the legislation in terms of which taxes and duties are levied. This article provides a summary on some of these taxes.

Transfer Duty

Transfer duty is, generally speaking, payable when immovable property is acquired. It is payable by the purchaser and is calculated as a percentage of the purchase price. If SARS is of the opinion that the purchase price is less than the fair value of the property, then SARS will calculate the transfer duty based on the fair value.

The current transfer duty rates were announced in the Budget on 23 February 2011. They are applicable to both individuals and legal persons (companies, close corporations and trusts) in respect of properties acquired under sale agreements concluded on or after 23 February 2011. R37,000 plus 8% of the value above R1,500,000

Transfer duty is payable within six months from the date of acquisition, which is usually the date the sale agreement is signed, failing which SARS will charge penalty interest.

A purchaser does not pay transfer duty in transactions where VAT is payable. In such instances, the purchaser will pay the purchase price and VAT to the seller who is then responsible for paying the VAT to SARS.

Value Added Tax (VAT)

VAT is payable on the supply by a VAT vendor of goods supplied in the course and furtherance of any enterprise carried on by such vendor. In relation to a property transaction, this means that if the seller is a VAT vendor and the sale of the property is in the course and furtherance of the seller's enterprise then VAT will be payable on the purchase price.

Ordinarily such VAT will be calculated at the rate of 14%. However, if the property is sold as a going concern, VAT will be calculated at the rate of 0%.

In order for the sale of a property to be "zero-rated" the following main requirements must be met:

The seller and purchaser must be VAT vendors.
The seller and purchaser must agree in writing that the property is sold as a going concern and that the purchase price is inclusive of VAT at the rate of 0%.
The property must constitute an income earning activity.
The sale of the property must include all the assets required for carrying on the income earning activity.

Donations Tax

Donations tax is payable on the value of property disposed of by a resident by means of a donation. Donations tax is levied at 20% on the value of the property donated and is payable by the donor. There are certain exemptions from donations tax. It is important to bear in mind that if SARS is of the opinion that a property has been disposed of for a consideration which is not adequate, then the property will be treated as having been disposed of by donation and donations tax will be payable.

Withholding Tax

Non-residents are liable to pay capital gains tax when they dispose of immovable property situated in South Africa. SARS found this taxation of non-residents difficult to enforce and therefore introduced a "withholding tax" provision in the Income Tax Act.

In terms of the provision, when a purchaser buys immovable property from a non-resident and the purchase price is over R2 million, the purchaser must withhold a certain percentage from the amount due to the seller and pay this to SARS. In most instances, this payment will be done on the purchaser's behalf by the conveyancers attending to the transfer. The amount withheld from the seller is seen as an advance on his tax liability for that tax year.

The current withholding tax rates are as follows: if the seller is a natural person, the purchaser must withhold 5% of the purchase price, if the seller is a company, 7,5% and if the seller is a trust, 10%.

Income Tax Act - transfer of residence grace period

The grace period which was introduced in terms of the Income Tax Act in 2009, which allows for a primary residence owned by a company, close corporation or trust, to be transferred to the relevant individuals of such entity without incurring CGT or transfer duty, has been amended. The initial grace period now only applies in respect of a property which has been acquired by an individual from the relevant entity by no later than 30 September 2010.

In order to take advantage of the new grace period, the following requirements must be met:

The residence must be disposed of to a person who is a "connected person", as defined in the Act, in relation to the entity.
The person must have ordinarily resided in the residence from at least 11 February 2009 to the date of disposal and the residence must have been used mainly for domestic purposes.
The disposal must take place on or before 31 December 2012.
Within six months from the date of disposal the entity must take steps to liquidate, wind up or deregister.


* Victoria Hodgon is a director in the conveyancing department at Garlicke & Bousfield Inc.

Homeownership: Rent or buy

Homeownership: Rent or buy

I have time and again seen homeownership put a family on a new footing socially, psychologically and economically. Homeownership provides a stabilising influence and serves as an anchor for which all members of the family will be prepared to make sacrifices and endure hardship.

However in today's market we are frequently asked if this is not a good time to rent.

Property market remains conducive to new home buyers

Realestateweb - Property market remains conducive to new home buyers

Residential house prices in South Africa fell slightly in May from a year earlier, according to latest statistics recorded by ooba - South Africa's leading bond originator - however, the environment remains conducive to new homebuyers with lenders continuing to relax their lending criteria.

Realestateweb - Property Loan Stocks deliver performance - Investment insights - South Africa's fastest-growing property website

Property Loan Stocks deliver performance - Investment insights - South Africa's fastest-growing property website


Research published by the PLSA demonstrates that some PLSs are already showing around double-digit returns for the year-to-date to May 2011: Fortress B is at some 15.9% and Octodec 8.4% in the three month period to 31 May 2011, highest returns were reported by Fortress B, Octodec, and Growthpoint Properties with total returns of 18.1%, 13.0% and 10.8%, respectively.

Wendy Machanik reapplies for a Fidelity Fund Certificate

Wendy Machanik reapplies for a FFC

Although the Wendy Mechanik saga is rapidly becoming old news to everyone except Wendy Mechanik, I have posted this article because of a comment that was posted by someone using the pseudonymn Zeitgeis, who posted:
"what an idiot - she's going to jail!? is she going to sell timeshare in the eating hall?"

Gareth Shepperson