About Me

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I am a qualified Attorney. I specialise in Property Law, Commercial Law, Corporate Law and Trusts.
Please visit our website at www.prop-law.co.za for more details.
I am an elected Committee Member of the Property Committee of the Association of Pretoria Attorneys and through my involvement, I like to ensure that I am constantly at the "sharp-end" of Conveyancing Practice.

I am the elected Chairman on the Gauteng Council of SAPOA. The South African Property Owners Association (SAPOA) is the biggest and most influential institution in the property industry. SAPOA members control about 90% of commercial property in SA, with a combined portfolio in excess of R150 Billion (about $22 Billion). I am also on the National Council and the National Legal Committee of SAPOA.
Member of the Institute of Directors South Africa and Member of the Sirdar Governance Panel.

01 November 2011

Is your title deed invalid?

Is your title deed invalid?

Court rules on whether title deeds registered in terms of an invalid underlying agreement are also invalid.

Is a Title Deed registered in terms of an invalid underlying agreement also invalid? This question was raised (and answered) in the Supreme Court of Appeal's judgment in the case of Legator McKenna Inc and another v Shea and others 2010(1) SA 35 (SCA).

The relevant facts, simplified, were as follows:- Mr Mckenna was appointed as curator bonis for Ms Shea who was severely injured in a motor vehicle accident. After his appointment, but before letters of curatorship was issued to him, he received an offer to purchase Shea's house from a Mr and Mrs Erskine. He accepted the offer but inserted the words "subject to the consent of the Master". Thereafter the property was transferred to the Erskines. Shea, contrary to expectations, recovered from her injuries and claimed the house back against refund of the purchase price, on the basis that the sale was invalid in that it was concluded by Mckenna before the master had issued him with letters of Curatorship in terms of section 72(1)(d) of the Administration of Estates Act 66 of 1965.

The court a quo decided in Shea's favour and McKenna appealed.

In its judgment the Supreme court of Appeal found that by adding the words "subject to the consent of the Master" Mckenna made a counter offer to the Erskines, and although it can be argued that the offer was implicitly accepted by the Erskines when they signed transfer documents, it still did not comply with the formalities set out in section 2 of the Alienation of Land Act 68 0f 1981 and therefore it was invalid.

Consequently it was not necessary to decide whether a conditional agreement of sale, subject to the approval of the master would constitute a contravention of section 71 of the Administration of Estates Act.

The court then examined the abstract and causal theories of transfer. According to the abstract theory the validity of the transfer of ownership is not dependent upon the validity of the underlying transaction such as in this case, the sale agreement. The causal theory of transfer requires a valid underlying legal transaction as a prerequisite for the valid transfer of ownership.

After considering a number of cases and articles the court came to the conclusion that the abstract theory of ownership applies to moveable and immoveable property alike, and that in terms of this theory the requirements for the passing of ownership are twofold, namely delivery, which in the case of immoveable property is effected by registration in the Deeds Office, as well as a so-called real agreement, the essential elements of which are an intention on the part of the transferor to transfer ownership and the intention of the transferee to become owner of the property. It is important to note that both requirements must be complied with: ownership will not pass if there is a defect in the real agreement.

The court found in this instance that, although no valid underlying agreement exists, in terms of the abstract theory that there were no defects in the real agreement and therefore the house was validly transferred.

In so far as a possible claim for unjust enrichment is concerned, the court also confirmed the so-called "rule in Wilken v Kohler" (1913 AD 135) which provides that, if both parties to an invalid agreement had performed in full, neither party can recover his or her performance purely on the basis that the agreement was invalid. However, the rule cannot apply where the purpose of the transaction is prohibited by law. Therefore, this rule will not be available against a claim brought under the condictio ob turpem vel iniustam causam.

The court found that the abovementioned condictio is not applicable in this instance since McKennna did not enter into an illegal agreement. If it is argued that he did not enter into an agreement at all, the Wilken v Kohler rule would be applicable. On the other hand, if it is argued that he entered into an invalid agreement because the formalities prescribed by section 2(1) of the Alienation of Land Act 68 of 1981 were not complied with (as the court had found) the situation is governed by section 28(2) of the same act, which provides that an alienation which does not comply with the formalities set out in the act shall in all respects be valid ab initio if the alienee had performed in full and the land in question had been transferred to the alienee.

The appeal was upheld with costs.

In conclusion:- An invalid underlying agreement does not affect the validity of the Title Deed, provided that both parties performed in full and that the lawful purpose of the transaction, common to both, has been achieved.

*Len Kruger is a Director of Real Estate Practice, at Cliffe Dekker Hofmeyr

Lew Geffen clashes with property tycoons - Property | Moneyweb

Lew Geffen clashes with property tycoons - Property Moneyweb

An ugly battle is unfolding over the Atlantic seaboard.

The beautiful Atlantic seaboard has become the scene of an ugly battle between property tycoon Lew Geffen and the operators of the Lew Geffen Sotheby's International Realty franchise owned by Hugo Jankowitz and Rob Stefanutto.

Until last week they operated the Atlantic Seaboard franchise which, according to Stefanutto, extended from De Waterkant to Bakoven. This was virtually the only sector of the SA property market to retain some life through the recession, though sales have slumped this year.

Last week Stefanutto and Jankowitz effectively had their business seized. This was after the Cape High Court ruled in favour of Lew Geffen Sotheby's International Realty Franchises in its urgent application for a ‘rule nisi’ judgement against the two operators.

A rule nisi is not unusual, but one party must demonstrate beyond doubt that unless action is taken immediately the business will suffer irreparable harm. Lew Geffen successfully argued that this franchise was under threat.

Geffen argued that Stefanutto and Jankowitz, through their company Moonstone, had secretly acquired Dogon Group Properties, a direct competitor of Lew Geffen Sotheby's International Realty in the Atlantic Seaboard area. The rule nisi was obtained in order to protect the business from sabotage by taking control of the franchise before the franchise holders were aware that their franchise agreement had been cancelled.

The order gave Geffen the right to take over the business, including the books and accounting records, office equipment, bank accounts and physical premises. Stefanutto was also interdicted from communicating with any of his agents, clients and the conveyance attorneys.

However, a rule nisi is an interim order which requires that the parties return to court to settle the issue. The parties returned to court three days later, at which point the judgement was overturned. According to Stephen Thomson, the attorney acting on behalf of Lew Geffen, this was on a technicality.

In business a lot can happen in three days when bank accounts have been stopped, proprietary information seized and staff see their boss escorted off the premises.

“Yes we have our business back, but it’s a business in tatters with nine months left on a franchise agreement that no one wants,” says Jankowitz.

Geffen has not wasted any time. He has set up shop down the road and incorporated Gail Gavrill and Rob McKee of Gail Gavrill International Properties and Brendan Miller of Better Homes in Sea Point. All the sales agents employed by the previous owners of the Sotheby’s franchise have been retained.

As far as Jankowitz is concerned, this is a travesty of justice. “Geffen lied in his affidavit. He hoodwinked a judge to obtain the court order. This franchise cost me R8m and in three days I have lost everything. Geffen has manipulated the legal system to suit his own ends. The original decision was totally wrong and was overturned – but the consequences are severe. It is unthinkable that this could happen in this day and age.”

Lew Geffen retorts that the actions were necessary “because Jankowitz and Stefanutto had committed several specific breaches of the agreement, the most serious being the purchase of a direct competitor, the Dogon Group...they were also overtly doing joint Dogon / Lew Geffen Sotheby's International Realty branding, again in contravention of the franchise agreement."

There is a history of bad blood between the franchisor and the franchisees. This particular battle was the culmination of a relationship that had soured to the point that in June this year the parties agreed to part company. As it turned out, this did not happen in the orderly fashion envisaged at the time.

Jankowitz bought into the franchise in 2007. He bought it from Rod Hemphill, who says he was forced into selling the business. “Geffen brought a number of applications to close me down,” says Hemphill, who was a multiple franchise holder at the time. “The last application he brought against me was dismissed.”

At this point Hemphill agreed to sell out. He had little choice as his franchise contract would not be renewed. Jankowitz, he says, was introduced to him by Lew Geffen.

Jankowitz remained a passive investor, while Rob Stefanutto, who had been involved with Hemphill, was the operator. Along the way they acquired Sanderman Estates in Camps Bay.

By 2009 Geffen was voluble in his unhappiness with the performance of the franchise. “"The performance of the franchise was at best pedestrian, especially considering that the Atlantic Seaboard is SA's premier property sales area,” says Geffen.

“This is a lucrative business, but we have had extensive problems with Mr Geffen,” says Stefanutto. “We were paying 13.5% of our pre-tax income; we were meeting targets and opening stores in the midst of a recession, but he told us we were not spending enough on the business.”

In March 2010 Geffen cancelled the franchise agreement, but the franchisees contested it and obtained a written undertaking from Geffen’s lawyers that the franchisor would not interfere in the running of their agency and would not contact their agents.

But still the tension simmered. In June the parties met to resolve their differences.

By this time Jankowitz had acquired the business of the Dogon Group on behalf of investors in a holding company. “This is what I do. I buy, sell and invest in businesses.”

Geffen, he says, was aware of this. “He was also aware that when the licence expired we would do something with Dogon. We discussed this with him and it is within our rights to do so,” says Jankowitz. At this meeting it was agreed that the franchisees would try to find a buyer for the business.

This meeting was recorded.

Jankowitz drew up a memorandum of understanding which was contested by Lew Geffen Sotheby's CEO Jason Rohde. “We must have exchanged at least 20 e-mails,” says Jankowitz, “but he did not revise the MOU. Next thing we knew they had found a potential buyer. I insisted that we could not go forward until we had agreed the MOU.”

The next thing the partners knew, a sheriff was serving the rule nisi order on them.

Meanwhile the Dogon Group remains within Jankowitz’s portfolio of investments, however founder Denise Dogon says she has been retained to run this business for the next three years, with an option to renew for another two.

Jankowitz and Stefanutto are pursuing a damages claim against Geffen. He, in turn, is pursuing a R3.5m damages claim against them.

Houses on sheriff auction declining

Houses on sheriff auction declining

But bargain hunters can get them for half their value – FNB.

The variety of houses on sheriff auction at First National Bank (FNB) were declining compared to the past year or two because of products that avoid the costly auction process, but FNB’s head of home loans believes customers should look at these properties to find good deals.

A sheriff auction is a public auction held by the sheriff of the court, after a bank gets a court order to attach and sell a house to recover money not repaid on a home loan.

Jan Kleynhans, the CEO of FNB Home Loans, said although he could not advise people to buy property on auction there were bargains with houses now being sold for 20-50% below their initial value. But the variety of bargains were not as wide as they use to be and some of these properties are in a bad state.

“There are bargains but I can’t advise people to buy them .... I do think that the average customer should look at these properties because there are good deals to be had but it means they will have to fix the property up, but there are opportunities”, especially for people who are prepared to invest money to fix them, Kleynhans said.

“It also depends on the quality of the area, the condition of the property. Normally the properties are run-down. The people tend to think if they can’t pay for the property why should they continue maintaining it?”

Kleynhans said FNB probably sold about 100-150 houses a month. The value of the houses under-sheriff auction ranged from R100 000 to R5m. A lot of these properties are in the lower-middle end of the market. In the upper end clients tend to use private auction rather than sheriff auctions.

But sheriff auctions have fallen partly due to the introduction of FNB’s Quick Sell product. These properties, according to Kleynhans are normally snatched up by property syndicates who intend to fix and sell them at higher prices or rent them out.

“You don’t get many people on the street,” Kleynhans said.

With the introduction of Quick Sell FNB says if the client is struggling and cannot pay for the house, the bank agrees with the customer to sell the house normally before the property’s value is distressed by the auction process. The bank also saves money on Quick Sell as it is likely to recover more of its money owed compared to the house being sold on auction.

“We have sold properties of about R4bn on Quick Sell, saving R1bn –R1.5bn if it were sold under the sheriff auction... In the sale in execution in market there is now less property being bought there,” Kleynhans added.

FNB’s non-performing home loan book is valued at about R6bn. But not all of these properties go to sale in execution.

So how does one buy these properties? Kleynhans said the properties are advertised in the Government Gazette as well as in local newspapers. FNB’s website also shows the process to be followed and the properties that might be available.

Sandton under construction

Sandton under construction

There are 30 development proposals including the redevelopment of Southern Sun Hotel.

In less than a month the landmark Southern Sun Grayston Hotel will close its doors with an application having been lodged for redevelopment of the building.

This is just one of a number of developments mushrooming in the Sandton central business district. The Gautrain station is also set to house a mixed use development to be built on top of the existing structure. It’s not yet known when construction is set to begin.

Across the road from the Gautrain, work has begun on Alexander Forbes’ new head office. Old Mutual is also planning on erecting new offices in the business hub near the Gautrain while Standard Bank is building on Alice Lane.

A newly built retail space measuring 30 000m² will be unveiled on November 12 2011 offering luxury shopping in the form of Hugo, Tag Heuer, Canterbary, Bellagio and Lecoqsportif, to mention but a few. A carbon copy of the esteemed Paul & Sharks store in Milan on Via Montenapoleone will also be opening after being designed in Italy. This is part of a R1.77bn first phase of the Sandton City shopping centre development project.

Sandton City is also upping its game with the opening of a further 69 stores on the corners of Rivonia and Sandton Drive in November 2011.  This will bring the number of stores to 360.

Sandton City's entire retail space will total 143 690m² on completion of this phase taking the complex, which includes the Sandton hotel and office component to 215 000m².

Not far from Sandton City, work has already begun on luxury penthouse apartments on Katherine Street.

Also in Sandton, Village Walk will be completely demolished in 2012 to make way for a mixed use development which will include a new hotel. The Balalaika will also close down. A nearby temporary taxi rank has also been earmarked for development.

These are just a few of the many developments underway. According to looklocal Sandton, “there are 30 development proposals for the Sandton business district alone, which includes new zoning and renovations”.

Some of the construction companies involved are WBHO and Tiber Projects.

Further interest rate cut likely

Further interest rate cut likely

And it will help lower household debt.

The South African residential property marketing sector will benefit “perhaps far more than most people realise” from a further 0,5% drop in the interest rates – and I expect this to come after the next Monetary Policy Committee meeting.

What is more, on the figures now being discussed by SA’s economists, right now is very definitely the right time to introduce a further rate cut.

The average South African’s debt to income ratio has improved, but it is still too high – I would like to see it at 60%. With bond repayments now amounting to 25% to 30% of SA’s monthly serviced debt, a lower interest rate could also lower the debt to income levels.

The lesson of the last four years’ global economic problems is that keeping the debt levels of its citizens manageable should be a top priority goal for any government operating in a free market environment.

The timeous introduction of the National Credit Act and the responsible way the banks have implemented it have saved South Africa from the unhealthy over-borrowed positions of so many Americans and Europeans.

However, once debt is at acceptable levels (as it is in SA), loan finance is absolutely essential to achieve growth. Many people in the home marketing sector are inclined to think that the banks are not really distinguishing between responsible lending and excessive risk aversion. Almost every loan, of course, carries some risk but in a well managed financial system this can be kept at low levels, while still making a healthy contribution to growth through loan finance.

If, as seems likely, the 0,5% rate drop is approved at the next MPC meeting, bondholders should try hard not to take advantage of this but to maintain their current level of repayments, if possible also paying in an extra month’s repayments once or twice a year.

We have shown time and again how paying slightly above the minimal rate reduces your debt repayment period by years. At Rawsons we have many clients who, adopting this approach, pay off their loans in 10 to 15 years – that is the way to go. Homebuyers must be discouraged from increasing their debt simply because, with a lower interest, loans will be less expensive and, possibly, slightly easier to obtain.

I and others expect a further 0,5% drop in the rates after the one he is now predicting and this could happen before Christmas.

I foresees rates rising again, my “guesstimate” puts that in the third quarter of 2012 and, he says, he anticipates rates rising steadily from then on.

I must again advise those who are now enjoying the low rate scenario to take the long view and pay off as much as they can each month now, thereby making their financial position more manageable when rates do rise.

*Tony Clarke is the MD of Rawson Properties.

24 October 2011

'Internet presence key to property sales'

'Internet presence key to property sales'

Research shows that South African internet users passed the five million mark for the first time in 2010, finally breaking through the 10% mark in internet penetration for the country.

As more and more people gain access to internet facilities, online property listings will play an increasingly bigger role in the property sale process, says Grant Gavin, owner of RE/MAX Panache.

Gavin notes that in 2010 and so far during 2011, the busiest viewing times were Mondays between 7am and 10am, with the week tailing off quite rapidly, meaning that Thursdays and Fridays are slow viewing days. "Very little property surfing is done after hours," he notes.

Majority of visitors were South Africans who accounted for around 80% of all pages viewed, with the UK providing the second largest audience with an average of 5% of all pages viewed.

The USA and Germany are always in the top 5 and account for about 4% of monthly page views combined.

Lead generation and the use of integrated technology platforms are two of the 10 trends that will drive the next five years, according to US real estate expert, Steve Murray. Gavin believes that the internet is a key component of the technology platforms that will drive the market and assist in providing agents with buyer and seller leads

"The internet provides an excellent tool for sellers to showcase their property and buyers to search for their ideal home from the comfort of their own home or office. Harnessing the technology and using it effectively will mean the difference between success and failure for many estate agents," he concludes.

* 'Internet Access in South Africa 2010' study by World Wide Worx

RE/MAX Press Release

Commercial property hit by lack of business confidence

Commercial property hit by lack of business confidence

For now, no improvement in the demand for office space is detectable, according to the latest issue of Rode's Report, which is sponsored by FNB.

Erwin Rode, property economist and publisher of the report, says uncertain economic conditions are obviously affecting business confidence and must be making firms think twice about expanding their premises or hiring new staff.

"The result will no doubt be a continued lacklustre demand for office space to rent and so, for now, moderate growth in rentals remains the most likely outcome."

He says growth in office rentals waned in the second quarter of 2011, after starting the year with vigour. On a national basis, office rentals mustered growth of 5 percent year-on-year. This comes after having recorded robust growth of 9 percent in the previous reporting quarter.

As for industrial property, in the second quarter of 2011 strong rental growth of 8 percent was observed in the Cape Peninsula, but this was the exception.

More pedestrian growth rates were notched up in Durban (3 percent), the Central Witwatersrand (2 percent) and Port Elizabeth (1 percent).

Rode says: "Wariness in the manufacturing and retail sectors - the support pillars of industrial property - now raises an amber flag on demand prospects and, consequently, market rentals.

"Lacklustre growth is also evident in buy-to-let residential property. In the second quarter of 2011, house rentals nationally mustered yearly growth of only 1 percent, and townhouse rentals remained at roughly the same levels of a year ago.

" Flat rentals performed best, with growth of only 3 percent. Some pleasant news for investors in the buy-to-let market is that, after peaking at the end of 2009, flat vacancies have since been dropping.

"Having said this, landlords might still feel hard done by, owing to the adverse impact of sharp rises in property taxes. Hikes in electricity tariffs, although normally not a direct cash outflow for residential landlords, are putting pressure on their tenants' household cash flows, and are indirectly affecting tenants' ability to afford rental increases.

"Nevertheless, for now landlords can comfort themselves with the knowledge that interest rates on their mortgage bonds are at record lows, and there is little upward pressure on rates for the time being."

Rode predicts that prospects for capital appreciation in the housing market will remain feeble, in line with the stillovervalued house market and weakness in residential mortgages.

"After peaking in the first half of 2010," says Rode, "the yearly growth in the value of new mortgage loans has turned down sharply, and the value of new loans granted in June 2011 was actually lower than a year ago. Naturally, contractions in mortgage loans granted act as a restraining factor on price movements."

John Loos, FNB property sector strategist says: "For a while we have seen the signs of global and domestic economic slowdown. South Africa's real gross domestic product (GDP) growth slowed significantly in the second quarter from a previous 4.5 percent quarter-onquarter annualised rate to 1.3 percent.

" Looking forward in the near term, weak readings in the Reserve Bank leading business cycle indicator suggest further weakness in economic growth. In addition, no further interest rate stimulus has been forthcoming in 2011.

"The recent global and local economic weakness has the ability to exert pressure on commercial property values in two ways. First, a slow economy could lead to increased vacancy rates. Second, investor flights to 'safe haven' investments has resulted in capital outflows, which have led to recent rand weakness and rising domestic long-bond yields.

"The possible combination of higher vacancy rates and higher bond yields can exert upward pressure on, especially, the income yields of listed property, and to a lesser degree on the capitalisation rates of directly-held property. These developments thus have the potential to undermine commercial property values."

Weekend Argus (Saturday Edition)

'Bleak outlook' for property sales in hard times

'Bleak outlook' for property sales in hard times

Residential properties in South Africa are selling for less and staying on the market longer - and the outlook is expected to remain bleak for at least another two years.

Samuel Seeff, chairman of Seeff properties, said that "on the whole, house prices have dropped 15 to 20 percent and properties are taking four to six months and longer to sell if they are not priced in line with what buyers' expectations".

This is backed by data in FNB's estate agent survey, released last week, which puts the average length of time a house spends on the market at 17 weeks and 1 day - up from 15 weeks and 1 day in the previous quarter.

In addition, FNB says, 91 percent of home sellers are having to drop their asking price, with the average at 13 percent. This was again up from the previous quarter, in which 87 percent of sellers were forced to drop their asking prices by, on average, 11 percent.

Seeff reported the following trends in the province:

•Very few properties in the Southern Suburbs, on the Atlantic Seaboard and in the Waterfront and City Bowl priced above R20 million are selling.

•Rondebosch East and Plumstead are showing the largest sales in the Southern Suburbs because of the value they offer.

•Prices in Camps Bay are down by about 20 percent from their pre-2008 levels. Most properties sold are below the R10m mark, with many below R7m.

•Sellers at the V&A Waterfront are accepting "cheeky" offers up to 20 percent below the asking price on apartments in the R3 to R5 million range.

•In the City Bowl, sellers are accepting offers well below asking price.

•Sectional title apartments and homes are selling well, mostly due to downsizing.

•The Garden Route is mostly a second-home market and these are not selling well, given the economic slump.

Pam Golding properties say there is strong demand for Durbanville properties in the R750 000 to R2m range, and that such properties typically sell in six to eight weeks. Meanwhile, properties on the Cape Flats, particularly in Mitchells Plain, Athlone and Elsies River are popular among first-time home buyers with a two-bedroom starter home in Mitchells Plain generally starting from around R250 000.

Anton de Leeuw, of property investment firm YDL, said: " There is an imbalance between supply and demand. The inherent demand is constrained by many factors including slow economic growth, broader economic issues and wages. Also, the National Credit Act stifled access to funding and the last interest rate cut was in November 2010 so there is no stimulus."

And the experts don't see a change soon.

Property expert Erwin Rode says he is " bearish" about prospects and he believes the market is unlikely to change in the next four years "irrespective of what is happening in the outside world".

He adds that properties are still "hugely overvalued", by up to 15 percent.

"What is happening in Western Europe and North America has the ability to worsen my prediction," Rode said.

De Leeuw said he would be " surprised if the situation picked up markedly in the next two years" while both ABSA and FNB indicate declines in nominal house price growth are likely to continue at least until the end of the year.

Absa's House Price Index report, released this month, points to low real economic growth, continued pressure on employment, consumer price inflation above 5 percent, no interest rate cuts, low levels of consumer confidence and a high number of people with damaged credit records.

According to FNB, most sales were by older home owners downsizing their homes after their children have moved out. This accounts for 23 percent of home salesn

Weekend Argus (Saturday Edition)

21 October 2011

'Property trends to watch out for'

'Property trends to watch out for'

While the global property market has taken its fair share of knocks over the past few years, it's safe to say the South African market is still emerging and opportunity is out there for property investors that look for it, says Adrian Goslett, CEO of RE/MAX of Southern Africa.

"Many buyers and sellers tend to see the market as a separate entity from themselves when in fact the market is made up of buyers and sellers. Simplified, the market can be defined as those people trying to buy at low prices and sell at high prices. Sentiment in the market and how consumers feel about the current market will largely dictate buying patterns and trends in that very environment. The secret to making the most out of the real estate market is to understand people and watch the trends and sentiment to see when buying or selling is the most advantageous," says Goslett.

According to Goslett, although technology may have changed and the tools used to search for property may differ, trends in the market have followed a very similar cyclical pattern for many decades. Knowing the pattern and seeing the signs of a changing market in a certain area will equip investors to better prepare themselves and gauge where opportunity lies.

Goslett says that predicting where housing prices will rise and where they will fall can be largely determined by watching the following trends that affect demand in the local markets:

Government policy and practice - Political unrest will have a large impact on buyers' confidence in the market as will reckless government practise that affects consumers, inflation and the interest rate. Other factors that would influence the market would be the introductions of policies and acts such as the Consumer Protection Act, Capital Gains Taxes or most recently the controversial Municipal Property Rates Bill.

Overdeveloped areas - The overdevelopment of certain areas has led to many properties in those areas standing empty, which normally leads to investors being able to buy them at reduced prices.

Overcorrection in the market - Prices that have shot up in an area too quickly and are back to boom period figures will affect demand in that area negatively if buyers know that they can get more value for their money elsewhere. Once demand decreases in an area, so will the property prices which means that opportunities will begin to present themselves.

Employment and movement - Tracking the movement of major corporations can lead to property investment opportunities. When large corporations relocate, they normally bring with them a strong demand for property in that area, which is largely due to the employees of the company wanting to reside in proximity to their place of work.

Living the life - Aside from financial gain, another factor that influences the market in an area is lifestyle choice. Nothing drives migration to an area more than the pursuit of a safe and enjoyable lifestyle. Look at the cost of living in an area, the climate and leisure trends. All of these will have an impact on where markets may shift in the future.

"While watching trends and buyer sentiment can give us an indication as to what the future may hold, it is impossible to predict with any real certainty. Perhaps the only real certainty in any market is that it is constantly changing," Goslett concludes.

RE/MAX Southern Africa Press Release

'Serious property sellers will have to accept price cuts'

'Serious property sellers will have to accept price cuts'

The fact that there are now occasional signs of an eventual recovery in the SA residential market should not lead home sellers to think that higher prices are once again possible, says Lanice Steward, MD of Anne Porter Knight Frank, the Cape Peninsula estate agency.

"Although at APKF we always try to achieve the highest price for our sellers," said Steward, "they sometimes think we can achieve the impossible - but it is still a buyers' market and those not prepared to price realistically should not put their homes up for sale.

Steward drew attention to the latest FNB Property Barometer figures which show that 87% of SA's homes sold in the second quarter of this year were unable to achieve their asking prices - often, she says, because their prices were set by the seller at a level higher than the agents would have recommended.

"In real terms," said Steward, "since the price peak of February 2008, FNB show that SA prices have fallen by 15,3%. In my view that is not excessive considering that since July 2000 they have risen 64,7% (in real terms) and 313% in cash value. However, those sellers hanging on for former peak prices are, quite simply, living in an unreal world."

Steward quoted the FNB report as saying that, as there are as yet no obvious signs of a significant growth in SA's economy, house prices, which traditionally respond to growth, are likely to remain static. A further cut in the interest rate, which Gill Marcus has now said is possible, will help but in the foreseeable future "serious" sellers will have to accept a few more downward price adjustments.

"If people think that this is poor advice," she said, "they should take note how many overpriced homes stick on the market and do not sell until they have reduced their prices."

A Hout Bay property came onto the market at R11 million. It finally sold 24 months later at under R7,5 million. Another listed at R2,985 million sold after a five month wait for R2,3 million. Yet another came onto the market at R4,8 million and sold a year later at R3,5 million - a 24% drop,

Two further facts, said Steward, are worth mentioning on this subject: in these cases mentioned, the sellers lost considerable interest on money they could have collected earlier if they had priced correctly - and it is abundantly clear that most buyers detect overpricing early on and, after a perusal of the website do not even bother to visit too-high priced homes.

Anne Porter Knight Frank Press Release

'What is fair market value?'

'What is fair market value?'

Those looking to buy or sell property have no doubt heard about the importance of fair market value. But what is fair market value and why is it important?

Adrian Goslett, CEO of RE/MAX of Southern Africa says that determining a property's fair market value is a key element of any property transaction and is a vital concept for all property sellers to understand in order for them to price their home correctly.

"Fair market value is the price that an educated and willing buyer is prepared to pay for a property. This definition assumes that both the buyer and seller are well-informed and that there is no pressure for the transaction to be concluded. When the parties to a sale are pressurised due to, for example, time pressures to move or financial reasons, then the negotiated price on the home may not reflect its true market value."

So how does a seller go about determining what would be fair market value for his property? Before starting, Goslett has the following tips:

•Take into account the factors that influence the value of your home such as its location and condition as well as general market conditions

•Find out the price that similar homes on the market sold for. It is important to determine the actual sales price, as it may differ from the price the home was marketed for. The properties should be comparable in terms of size, age and features. This will also give an overall picture of the market conditions in your area and what buyers are willing to pay for property there

•Consult a local real estate professional and request a valuation of your property. More often than not, an agent will use a comparative market analysis to determine fair market value. This analysis will include statistics from comparable recent sales and those currently for sale in your area

However, Goslett says that while a comparative market analysis is an important tool when assessing the market value of a property and then determining its ideal selling price, sellers shouldn't solely rely on this information from realtors; they should check it out themselves. "Sellers should drive around their area and look at homes for sale to see how they compare to theirs."

Goslett says that sellers should also make value adjustments for certain factors such as views, security and amenities like swimming pools and tennis courts. Other factors that influence fair market value that sellers need to take into account are whether it's a buyers or sellers market, interest rates, economic climate and availability of finance as well as the average amount of time that homes in the area spend on the market before they sell.

"While fair market value may not necessarily be what either the buyer or the seller wants it to be, it is an impartial calculation which will assist in determining a fair price for the home, no matter what the buyer can afford or what the seller wants to gain from the sale," says Goslett.

He concludes by saying that it is important for sellers to understand that fair market value differs dramatically from the personal value that they place on their property, which is based on their own memories, preferences and experiences. "At the end of the day, fair market value is the price a buyer is willing to pay and a seller is willing to accept. It's the value of the property in the current market, no matter how much the seller initially paid for it."

RE/MAX Press Release

Number of black property buyers rises

Number of black property buyers rises

Number of black property buyers rises

The number of black home buyers entering the residential property market is increasing steadily as the socio-economic tables turn, with the number of black home loan applicants already exceeding those of white applicants.

Saul Geffen, chief executive of bond originator ooba, says the number of applications by black buyers represents 45 percent of total home loan applications, and the number of applications submitted by white home buyers represents only 41 percent of the total.

Black buyers, however, represent only 39 percent of the number of the total approved home loans, whereas whites represent 47 percent of the t otal number of approved home loans. This ratio has changed considerably since last year, when blacks represented 30 percent and whites 56 percent of approved home loans.

For first-time homebuyers, the trend is clearly skewed in favour of black applicants. Currently, first-time homebuyers represent 49 percent of the total number of applications, and 44 percent in approved loans. Of these first-time applicants, 59 percent are black and 27 percent white.

When it comes to approved home loans, 55 percent of the t otal number of first-time homebuyer approved loans are for black applicants compared to 31 percent for whites. This ratio has also changed considerably since last year, when black applicants represented 48 percent and white applicants 36 percent of approved home loans.

Geffen says the higher levels and sustained increases in black buyers can be attributed t o t he changing economic demographic, as well as the fact that there are more buyers at the lower-to middle-income levels than first-time buyers. Clearly, the improved property market conditions play a role, which has resulted in more people being able to afford property.

"The shifting economic base in South Africa, largely influenced by the emerging black middle class, means the racial demographic of homebuyers is changing. The latest statistics also reveal that applications by Asian and coloured applicants remained steady year-on-year at around 8 percent and 5 percent respectively.

"The growth in first-time applications from black applicants can be attributed to improved property market conditions, a reduction in interest rates of 650 basis points since 2008, coupled with subdued property price inflation, improved bank approval rates and lower deposit requirements."

Geffen says first-time home buyers who want to take advantage of the favourable market should ensure that they have large enough deposits to put down as this will result in a more favourable interest rate, which significantly reduces the total cost over the term of the loan.

"A meaningful deposit significantly improves a buyer's chance of getting a home loan approved. Other factors that could boost the chances of a successful bond application include having positive credit profiles and stable employment histories. These reflect a pattern of consistent income, which is key when lenders assess bond applicants' risk profiles."

Geffen advises buyers to qualify for home loans through banks or bond originators before looking for properties.

"This will give buyers a good sense of the prices of properties they could get loans for. The qualification process can also pick up issues on credit records that will need to be addressed before formally applying for loans. The process streamlines the home-buying process and ensures that buyers can negotiate from a position of strength."

Weekend Argus (Saturday Edition)

20 October 2011

Gradual recovery for commercial property: Absa

Gradual recovery for commercial property: Absa

Absa says things are slowly getting better.

(I-Net Bridge) - No more booms in growth are likely to be seen in the property sector, however a gradual recovery is very much on the way according to experts from Absa.

Mike Mortimer, head of commercial property, said: "I think we have turned the corner. We're not going to see 2005-2007's exponential growth, quite frankly it's not sustainable, but things are getting better slowly."

Bobby Malabie, Chief Executive of Absa Retail and Business Bank, said that although market conditions were difficult to read, there were tentative signs of recovery in selected sectors of the South African commercial property industry.

He added that the industry, which encompassed retail, office and industrial property, should benefit from a delayed and more gradual move to higher interest rates than was previously envisaged. However, the property market was still faced with a number of contradictory indicators.

"We have seen a stabilisation and gradual reduction in our underperforming book, indicating that the distress in the market is contained, and is not as severe as we experienced a year ago," according to Malabie. "This is symptomatic of an industry on the turn."

Malabie argued that the Eskom crisis, which came to a head in early 2008, had turned out to be a blessing for the South African commercial property sector.

"A large number of developments were put on hold as a result of uncertainty over the supply of electricity. Viewed in hindsight, those decisions have potentially saved us a great deal of pain due to an oversupply that could have occurred as a result of these developments proceeding."

Absa said, nevertheless, that there were a number of thorny issues still facing investors and financiers in the commercial property sector. A particular challenge was that rental escalations were not keeping track with rising operational costs. Utility charges were increasing at a pace well in excess of inflation, which made it difficult to forecast net income with any degree of accuracy. This added to prevailing uncertainty and weighed heavily on investment and development decisions.

Mortimer stressed that South African corporates had the highest savings rates recorded since 2000, but net investment activity had been easing since 2009.
Malabie added: "Businesses are shoring up cash reserves because of a lack of confidence. For now, there is no catalyst for significant development and fixed investment."

These concerns are reflected in the SACCI Business Confidence Index, which has continued to decline steadily from March to August.

Malabie said: "Almost half of our distressed loan book comprises of residential development, vacant land and hotels. These sectors make up a very small percentage of our overall loan book and we will not be lending aggressively into them in the short to medium term.

"Outside of these areas, there remains reasonable scope for suitable investment returns, given that we see the commercial property industry as being on a gradual upward trajectory. However, circumspection is key and sustainability of property assets and related cash flows should be aggressively interrogated before any development or investment decisions are taken."

Gradual recovery for commercial property: Absa

Gradual recovery for commercial property: Absa

Absa says things are slowly getting better.

(I-Net Bridge) - No more booms in growth are likely to be seen in the property sector, however a gradual recovery is very much on the way according to experts from Absa.

Mike Mortimer, head of commercial property, said: "I think we have turned the corner. We're not going to see 2005-2007's exponential growth, quite frankly it's not sustainable, but things are getting better slowly."

Bobby Malabie, Chief Executive of Absa Retail and Business Bank, said that although market conditions were difficult to read, there were tentative signs of recovery in selected sectors of the South African commercial property industry.

He added that the industry, which encompassed retail, office and industrial property, should benefit from a delayed and more gradual move to higher interest rates than was previously envisaged. However, the property market was still faced with a number of contradictory indicators.

"We have seen a stabilisation and gradual reduction in our underperforming book, indicating that the distress in the market is contained, and is not as severe as we experienced a year ago," according to Malabie. "This is symptomatic of an industry on the turn."

Malabie argued that the Eskom crisis, which came to a head in early 2008, had turned out to be a blessing for the South African commercial property sector.

"A large number of developments were put on hold as a result of uncertainty over the supply of electricity. Viewed in hindsight, those decisions have potentially saved us a great deal of pain due to an oversupply that could have occurred as a result of these developments proceeding."

Absa said, nevertheless, that there were a number of thorny issues still facing investors and financiers in the commercial property sector. A particular challenge was that rental escalations were not keeping track with rising operational costs. Utility charges were increasing at a pace well in excess of inflation, which made it difficult to forecast net income with any degree of accuracy. This added to prevailing uncertainty and weighed heavily on investment and development decisions.

Mortimer stressed that South African corporates had the highest savings rates recorded since 2000, but net investment activity had been easing since 2009.
Malabie added: "Businesses are shoring up cash reserves because of a lack of confidence. For now, there is no catalyst for significant development and fixed investment."

These concerns are reflected in the SACCI Business Confidence Index, which has continued to decline steadily from March to August.

Malabie said: "Almost half of our distressed loan book comprises of residential development, vacant land and hotels. These sectors make up a very small percentage of our overall loan book and we will not be lending aggressively into them in the short to medium term.

"Outside of these areas, there remains reasonable scope for suitable investment returns, given that we see the commercial property industry as being on a gradual upward trajectory. However, circumspection is key and sustainability of property assets and related cash flows should be aggressively interrogated before any development or investment decisions are taken."

Investors join hands in pursuing Metsi Pepa developers

Investors join hands in pursuing Metsi Pepa developers

On Tuesday I played golf in an Investec Golf Day and was paired with some other attorneys in a fourball. One of the attorneys was Johan Botha, who is mentioned in this article. He is the attorney for the developers, although he never mentioned it during the round or at the 19th hole. He was a nice enough gentleman and so I wish him luck in sorting out this mess. -- Gareth

Four years down the line stakeholders are demanding their money back.

A group of at least 70 investors in the failed North West province Metsi Pepa development have rallied together in taking civil and criminal action against developers Nicola Prinsloo and her husband, Jaco. In an e-mail dated September 23 2011, Nicola Prinsloo informed investors that the development had been sold to Land Affairs, allegedly for 30% less than its monetary value. Her legal counsel, Johan Botha, subsequently offered investors 40c in the rand as compensation.

Moneyweb knows of at least one investor who has been reimbursed but has confirmed with Johan Botha that at least 75 of 200 investors have been paid. The investor who received 40c in the rand will continue to fight for the remainder he/she is owed. A number of investors who met in northern Johannesburg at the weekend also plan legal action.

A statement following the meeting reads: “At least 70 people have already indicated that they want to go ahead with plans to criminally and civilly prosecute the developers and all associated parties in this scheme. These investors are seeking an urgent court interdict to have assets frozen to prevent more money from disappearing.”

Attorney Spencer Tarr and advocate Robin Stransham-Ford are representing the investors. One of the disgruntled investors said at Saturday’s meeting: “We never saw anything of the promises made to us in four years come true and even at this late stage we are still being lied to and kept in the dark.” Moneyweb revealed in August that the land earmarked for the development had been sold. Investors were told as recently as July that the development was still on track and that investors would be allocated shares in land. The offer was backed up by an e-mail from Botha, but this also never materialised.

The development was dogged by controversy since its inception over the alleged breach of conditions set out by a Department of Agriculture record of decision (ROD). The ROD stipulated that no building could take place within at least 30m from wetlands on the farm which is situated near the Klerkskraal dam of the Mooi River. This condition was allegedly breached by Jaco Prinsloo when he removed reeds from the wetlands. The authorities got wind of it and the development basically came to a standstill.

In the meantime Nicola and the marketer of the development, Cherie Eilertsen of Platinum Planet, were assuring investors. Now it appears a storm is brewing between the Prinsloos and Eilertsen with each blaming the other for irregularities. After Botha made the 40c offer to investors, Eilertsen SMSed investors informing them not to accept the offer as she could negotiate a better settlement. Eilertsen’s lawyer Antoon Botha confirmed the SMS. It’s understood the two legal counsel are set to meet later this week.

FNB and Sasol plot housing iPad

FNB and Sasol plot housing iPad

Formerly-listed Enviroserv’s subsidiary to build houses but not from bricks and mortar.

First National Bank (FNB) believes it has identified an opportunity to lend hundreds of millions of rand via green housing loans in a bid to deal with the shortage of houses in the affordable space, while on the other side giving entrepreneurs an opportunity to benefit from this initiative.

According to Marius Marais, FNBs CEO of Housing Finance (a unit of the bank offering home loans to people earning R3 500-R16 000) there is a need of about 600 000 units, based on a survey done in 2007. Marais added that its book in affordable housing space is heading close to R9bn, with loans of about R2bn on an annual basis. Because of the shortages, Marais says there is more room to grow.

“Where are these families staying at the moment, they earn that kind of income, they either rent rooms or leave in a backyard room ... We need to find the housing iPad in Africa ... the piece of technology that can be working across the whole of Africa and can meet the housing needs that are out there.

“The biggest issue at the moment is to find sufficient supply to fund, meaning new houses coming into the market place. My clear cut measure is... how many families did we actually enable home ownership for in a decent home,” Marais said.

To work around this “housing iPad” which is meant to come up with an innovative way of meeting housing needs, Marais said FNB has partnered with petrochemicals giant Sasol and Tower Technologies, a subsidiary of formerly-listed Enviroserv involved in what it calls “alternative building system”.

With the “alternative building system”, the houses are not made out of bricks and mortar, but have quality equal or exceeding that of a brick, according to Tower Technologies. The houses are made from mining, manufacturing by products and have pre-built panels derived from waste streams like fly ash and gypsum. Fly ash is a by-product of Sasol’s power production, while gypsum is a by-product of industries, such as paper making, fertiliser production, desalination of acid mine water.

CEO of Tower Technologies Mike Symons said the houses had a “look and feel of traditional brick and mortar with many superior attributes in that the walls are guaranteed straight, solid and are incombustible”.

FNB’s Marais added that “conventional building methods are becoming increasingly expensive, and impact directly on the ability of banks and developers to meet the need for affordable housing, because of this, and continued increases in labour costs, we have been compelled to consider alternative technologies that will enable us to deliver affordable quality houses to the emerging middle class.

“What we would like to do is to provide the finance for the commercial entity [involved in building] and the end-user, but our primary driver is to enable primary home ownership.”

Bridgitte Backmann, MD Sasol Chemcity, Sasol’s enterprise development vehicle supporting SMMEs in the chemical, energy and related sectors, said the affordable housing solution does not have to be inferior nor should it be more expensive than bricks and mortar.

“We have joined forces as the private sector and we believe that we found a ground breaking and innovative way of dealing with shortages,” Backmann said.

Currently three housing units have been built in an emerging middle class suburb known as Cosmo City in Johannesburg, where market acceptance is believed to be very high.

“Taking this innovation from idea to market has been particularly rewarding. By supporting the development of this technology, Sasol is showing its ongoing commitment to reducing its environmental footprint. A number of entrepreneurs and private institutions are additionally starting to explore the affordable housing space, identifying it as a market which is ripe with potential. Most significantly, it has the potential to create jobs for South Africans,” said Backmann.

House price growth to tread water

House price growth to tread water

The slowdown in house price growth runs parallel with the weakening SA econ-omy.
Standard Bank’s median house price recorded growth of 0.6% y/y in September.

Standard Bank’s median house price recorded growth of 0.6% y/y in September. Standard Bank’s median house price (smoothed) posted a growth rate of 0.6% y/y in September, from 1.6% y/y in August. Growth in real terms remains negative.
The slowdown in house price growth runs parallel with the weakening SA econ-omy. GDP growth slowed to 1.3% q/q (saar) in Q2:11, from 4.5% q/q (saar) in Q1:11.
Household consumption was undermined by receding real income growth and the sluggish SA labour market.

Growth in household disposable income slowed to 4.1% q/q (saar) in Q2:11, from 5.4% q/q (saar) in Q1:11. This slowdown was mirrored by real household con-sumption expenditure growth decelerating to 3.8% q/q in Q2:11, from a robust 5.2% q/q (saar) in Q1:11.
Data from Statistics South Africa’s Quarterly Employment Statistics shows that a mere 7,000 jobs were added in the formal non-agricultural sector in Q2:11, com-pared to 38,000 jobs in Q1:11. The formal non-agricultural sector, after losing 349,000 jobs in 2009, has added just 133,000 jobs since 2010.
Consumer confidence declined, with the FNB/BER Consumer Confidence Index falling to 4 pts in Q3:11, from 11 pts in Q2:11. Survey participants are particularly pessimistic about their future financial position as well as the state of the SA econ-omy.
Household credit growth muted despite a historically low interest rate environment.

Growth in total credit extension to households eased to 5.2% y/y in August, from 6.6% y/y in July. Growth in mortgage advances mirrored this decline, registering 1.6% y/y in August, from 3.0% y/y in July.
The combination of household disposable income growth and historically low nomi-nal interest rates (the prime overdraft rate has remained steady at 9% since No-vember 2010) has contributed to the slight improvement in the ratio of household debt to disposable income, to 75.9% in Q2:11, from 76.8% in Q1:11. However, households continue to carry a sizeable debt burden, with the household debt to income ratio in Q2:11 not significantly different from its 2008 peak of 82%.
Building activity remains subdued, with house price growth likely to follow suit.

The value of residential buildings completed (in real terms) for the period January to July 2011 fell by 7.4%, from the corresponding period in 2010. Residential con-tractors, as surveyed by the Bureau of Economic Research, suffered a fall in busi-ness confidence, to 20 index points in Q3:11, from 24 index points in Q2:11. Sur-vey respondents cited deteriorating business conditions, slower building activity, less demand for new building work and negative profitability as the culprits for this slide in confidence.
The South African economy’s growth momentum has slowed. Standard Bank believes that this trend will persist through H2:11, and has revised its estimates for GDP growth to 3.3% y/y (previously 3.8% y/y) for 2011 and 3.1% y/y (previously 3.4% y/y) for 2012.
The SARB has made similar downward revisions to their GDP growth forecast. In addition, the SARB has stated that the risks to the inflation outlook were “delicately balanced”, with exogenous factors seen as the primary drivers of inflation. The SARB has also stated that there was no evidence yet of second-round effects stemming from im-ported inflation. However, inflation is expected to marginally breach the upper end of the target range in Q4:11 and peak in Q1:12 before returning to within the target range in Q2:12.
An increasingly poor domestic economic growth outlook, coupled with the sharp fall in consumer confidence and an anticipated rise in inflation, paints an uninspiring outlook for consumer spending in H2:11. With household debt still high, and fuel, electricity and food costs on the rise, consumers face testing times. We forecast Standard Bank’s median house price growth to tread water in low single digits, in nominal terms, into 2012.

*Sibusiso Gumbi is from Standard Bank.

Housing market favours first-time buyers

Housing market favours first-time buyers - report

(I-Net Bridge) - Residential home prices fell slightly from last year, but purchase prices for first-time home buyers increased by 6%, according to a new report. The mixed numbers reflected changing demographics and increased demand for small properties.

According to bond-originating firm Ooba, the average house price decreased by 2% from September last year, from about R856,000 to R839,000. The average purchase price for first-time buyers increased from R585,000 to R620,000 during the same period.

Ooba CEO Saul Geffen attributed increased activity from first-time buyers to the emerging black middle class, combined with low interest rates and decreased deposit requirements. He also said increased municipal and utilities tariffs caused home buyers to choose smaller properties.

"The rising costs of home ownership and the changing economic and racial demographics amongst home buyers are influencing demand at the lower to middle end of the housing market," he said.

More than half of Ooba-bond applicants are first-time home buyers, and nearly half of applicants are black, the report said.

Although housing prices fell overall, average bond size increased 6%, reflecting a drop in deposit requirements by one-third. The average deposit requirement fell to 12.7% of purchase price.

"This is a significant improvement from the levels seen in 2009, and opens up a considerably broader homebuyer base who can now afford the lower deposit requirements," Geffen said.

Nearly a quarter of accepted applicants were previously rejected by another lender, a drop from 30% in September 2010.

The report also found a 1.1% increase in average purchase price from August 2011. Geffen expected slight positive and negative shifts such as this for the rest of the year.

11 October 2011

`Oldies` drive housing supply

`Oldies` drive housing supply

Downscaling due to "life stage" is emerging as a major driver in residential property supply at present according to the third quarter FNB Estate Agent Survey.

John Loos, property market strategist at FNB Home Loans said that this referred mostly to those households whose children had grown up and left home, as well as to those who were ageing and for whom a large home may no longer be "practical".

"When we started questioning agents as to the reasons that people were selling homes, back at the beginning of 2008, they estimated that 14% were doing so in order to downscale due to 'life stage'. Since then, this reason for selling has steadily risen, reaching its highest level yet of 23% in the third quarter of 2011."
As the survey was only initiated in 2008, it doesn't provide much insight into whether the growth is cyclical or not.

Loos said however that it was conceivable that these households were holding back on selling in 2008 due to the extremely weak nature of the market at that stage, with a recession in play as well as high interest rates at the time. One would think that such sellers, many of whom were in no hurry to sell, may have bided their time until the market strengthened, and perhaps they were now coming out of the proverbial woodwork in greater numbers due to property times being a little better compared with 2008.

However, one would expect sellers that sell for many other reasons, barring those doing so due to financial pressure, to also possibly hold back on selling until market conditions improve, so as a percentage of total selling it isn't clear that the short term property cycle fully explains the rising percentage of "life stage sellers".

A few other factors should be considered according to Loos. Two important ones are an ageing population, especially the middle and upper income sections that drive the formal property market, along with sharply rising housing costs.

Indeed, HIS Global Insight estimates of population by age cohorts point to the 60 to 64 year old age group having been the fastest growth group over the past five years, growing by 22.2% cumulatively from 2006 to 2010. The 50-59 year-olds on 19.7% and 50-54 year olds with 18.6% growth were not far behind. The 50-and-above age cohorts are only approximately 27.5% of the total 20 year and above population. But the steadily growing percentage of "life stage downscaling" may be reflective of these cohorts being the fastest growth cohorts in SA.

"The second major possible contributor is the steadily rising costs related to housing, and by this we mean municipal rates and utilities tariffs. As at August 2011, the overall Consumer Price inflation rate was 5.3%." Loos said that by comparison, the CPI for Housing was rising by a higher 6.8% year on year.

Loos said that the combination of faster-growing over-50 age cohorts in SA relative to younger cohorts, along with more recent sharply rising home-related rates and utilities tariffs, was believed to be a key contributing factor to a rise in estimated percentage of sellers selling in order to "downscale due to life stage".

10 October 2011

50% of South Africans have bad credit records but they can get bonds

50% of South Africans have bad credit records but they can get bonds

Just under 50% of South Africans have poor credit records - but, if they take the right steps, they can still get bond finance.

According to the latest records, almost half of all economically active South Africans have some form of "credit challenge" that makes it difficult for them to qualify for home loans or other finance from the banks, says Rob Lawrence, national manager of Rawson Finance.

"We are regularly asked by bond applicants to try and sort these matters out. Fortunately, Rawson Finance and the other originators now have arrangements with organisations dedicated to rehabilitating people whose credit records would normally prevent them from borrowing again.

"Depending on the severity of the original misdemeanour, the process can take anything from three to 12 months. But the ultimate success rate is high, so it's definitely worth tackling the challenge."

He says certain issues can be quickly put right. For example, if a credit bureau's investigation reveals that clients generally pay their bills but do so irregularly or late, this implies that the problem is not so much lack of funds but poor organisation. The rehabilitation organisation can assist them to budget and plan better and so improve their credit profiles. They could then become creditworthy within six months.

If, however, clients have had court judgments against them on account of unpaid debts, this will be recorded permanently. It can then take up to a year to get recession orders from the courts and have any judgments cleared, provided the original debts have been repaid.

Certain debt defaulters have garnishee orders against them. These are imposed by the courts and make it compulsory for their employers to deduct fixed sums each month to pay over to creditors. Lawrence says any bond applicants in this situation will not be considered for loans until their debts are paid up.

" If the credit bureau's records show that at some stage applicants' debts had to be written off by creditors, it will take at least a year to get them rehabilitated - and, again, this will involve repaying the debt in full."

Lawrence says although many South Africans' debt repayment performances are not something they can be proud of, he and his team understand how it is possible for people to land up in these predicaments and are always willing to help debtors rehabilitate themselves with the help of their associate rehabilitation services organisations.

"The message we have to give is that people shouldn't despair, nor should they abandon plans to become homeowners. There is almost invariably a way out of these difficulties, especially if the original fault was due to hardship rather than a deliberate attempt to avoid payment , " says Lawrence.

Weekend Argus (Sunday Edition)

07 October 2011

Home loans for highly indebted

Home loans for highly indebted

Standard Bank is piloting a rent-to-buy housing model in the affordable home segment, an initiative that is likely to help those with impaired records to qualify for home loans in the future.

“The model that we are interested in is deferred ownership for a while. It could be 12-18 months of rent but it will be as if they are paying the bond. We are just piloting it right now. We have agreed with one developer to put 100 people on the pilot,” Standard Bank’s Director of Affordable Housing Nicholas Nkosi said.

Nkosi said the affordable housing segment covered those who earn between R3 500 and R16 000 and properties of up to R500 000. With the rent-to buy model, a client would have to prove for a good number of months that they could afford to pay rent, rates and all other responsibilities that come with a home loan before the bank approved lending. So the customer would behave as if they are paying a bond although renting.

If the customer can demonstrate affordability a portion of his rental expenses will be used to contribute towards a bond. To make this possible Standard Bank wants to enter into agreements with developers who will first rent out the property and possibly sell it if the customer can demonstrate affordability of a home loan.

Nkosi said this would go a long way in helping people to own a home. He pointed out that banks were often criticised for not giving the customer an alternative after being declined a home loan. The pilot is expected to run for about six months.

“My mandate is to have an increase in home ownerships in the affordable housing segment,” Nkosi said, adding that the bank is open for business although the challenge is availability of housing in this market segment.

With an appetite to lend more, Nkosi said the bank planned to double the size of its affordable housing home loan book within four years. Currently the size of the book is R10bn and the plan is to boost it to R20bn by 2015.

This year alone Nkosi is confident that the bank will lend over R3bn compared to about R2bn last year. According to Nkosi, Standard Bank has the biggest market share in this space of about 31% and plans to maintain its dominance.

“Ultimately the true test is how many people we are putting into homes,” he added.

“The probability of default is higher. But as much as it is higher it does not mean it is certain. A lot of people do make a plan to pay their home loans,” Nkosi said.

Asked how bad the impairments were in this segment, he would not budge, only stating that it compared favourably to the higher segment.

He did concede that affordability was an issue in this market as the average house had now increased to about R320 000 compared to R250 000 two years ago.

He said pricing is very important in this segment and the bank also needed to make sure that the customer can afford to pay his debt when interest rates rise. To further boost lending Nkosi said the bank sometimes offered home loans of up to 30 years.

Johannesburg CBD revival back

Johannesburg CBD revival back

The Johannesburg city centre could see seven new rejuvenation projects should Urban Genesis’s negotiations be successful.

Such projects felt the backlash of the 2008 meltdown as both government and the private sectors tightened their belts but efforts are now back to refurbish the Johannesburg city centre in the form of City Improvement Districts (CIDs). The approach is a holistic one whereby the private and public sectors come together in joint ventures to rejuvenate demarcated areas in the central business district.

CEO of Urban Genesis, Shrivaar Singh, says recent developments have seen retailers like Ackermans and other chain stores returning to the city. What is key is management and the strict enforcement of formal services like cleaning and maintenance, security, marketing and promotions. This is in addition to services provided by the local authority.

A tour of the Main Street Mall and the Newtown Improvement District has revealed a stark contrast between nodes being formally managed and those where only basic services are provided. What is also taking shape is the mixed use development, incorporating hawkers and retail by day while residents occupy space in former office high rises converted into residential units. Singh says around 8 000 families have made the inner city their home over the past five or so years. The revamping of the mall area cost around R100m, and included the costly process of redoing the roads in the vicinity.

This relocation brought with it the need for recreational facilities, prompting the renovation and greening of the former derelict and crime ridden Bokkie Park. After a year-long effort involving the Johannesburg city council and the private sector, notably mining entities, the square has been renamed Oppenheimer Park and comprises luscious gardens, a mini auditorium for performers, cement benches in strategic places, often in the shade and more importantly, an extremely popular basketball court. It is a perfect lunchtime retreat for city workers, but also for children, or anyone else really to enjoy the tranquillity of a safe and clean environment. Unobtrusive security guards watch over the park 24 hours a day even when it is locked between 6pm and 6am daily.

Adjacent to the park, informal traders have been allocated space where they can ply their wares under newly-erected shelters, and it all seems to work. So-called “block leaders” have been allocated portions which they manage, ensuring a clean and safe flea market experience. The difference between the formally managed areas, run by the CIDs and the local authority as opposed to the unregulated trade in parts of Jeppe, Bree and other streets is astounding. The latter are filthy, unhygienic and generally unsafe.

The CIDS have been around for about 12 years and if developments in parts of the CBD are anything to go by, they could be a viable option for landlords to protect and enhance their investments. The Urban Genesis website says “… managed environments … are a proven tool in the fight against urban deterioration and decay,” which help to offer landowners a better return on their investment.

R85m disposal of the Grace building

R85m disposal of the Grace building

Hyprop has concluded a deal to dispose of The Grace building in Rosebank to Southern Sun for R85 million. The transaction encompasses the sale of the entire building including the hotel premises and offices.

CEO Pieter Prinsloo says the sale is in line with strategy to divest from non-core assets. "We are pleased to have concluded a speedy transaction, in this instance with Southern Sun which is keen to establish their first hotel in the Rosebank node." Southern Sun is planning to re-open the hotel under their own brand in the first half of 2012.

Hyprop's future focus in Rosebank remains the planned extensions to The Mall of Rosebank and increasing its retail footprint in this high-growth node.

The Grace transaction remains conditional on Competition Commission approval.

04 October 2011

'Property sellers reluctant to drop prices

'Property sellers reluctant to drop prices'

The levels at which South African residential property prices are currently standing are debated weekly in the country's media, often with very pessimistic forecasts, but, says Bill Rawson, chairman of Rawson Properties, even now relatively few sellers accept that buyers are in a commanding position and big price adjustments are essential.

"From the figures coming across my desk," he says, "it is clear that the majority of sellers still baulk at cutting prices by over 10%. A good agent may be able to persuade them to accept that a bigger cut is essential, but generally they prefer not to sell rather than to take a big cut."

The sellers' thinking, says Rawson, appears to be that the bottom of the downturn has now been reached and from now on prices can only move up.

"Most of the banks' analysts would not agree with this view – they see price stagnation staying with us for six months or a year but that is very seldom the view of the sellers with whom our franchises have to deal. Countrywide confidence in property remains strong."

Rawson said that he himself is now cautiously optimistic about the chances of a mini-recovery becoming evident towards the end of this year.

"It is significant that our development company is finding that certain banks are now ready to talk about loans. One bank has already advanced R1 billion for new projects in Gauteng. This has not been publicised as they do not want a flood of applications but it has happened."

The tight credit controls ooba recently revealed that 46% of bond applications are still being turned down have, said Rawson, made buyers far more enterprising in finding money for property: families, private companies and syndicates have stepped into the breach left by the banks' withdrawal.

"This innovative trend is good for the SA housing market: it is noticeable that luxury non-essentials are being sold off to provide property investment funds a sure sign that those who watch the market appreciate that today's market offers them bargains."

Those contemplating which asset class to invest in money, stocks or property - added Rawson, have to bear in mind that housing is an essential product.

"Although people pull out of other assets in bad times there will always be underlying activity in property. People get married, families grow, new schools are attended, transfers take place, people die or separate these and other daily occurrences keep all but the very worst housing markets alive."

Rawson Properties Press Release

Joburg has most expensive staff, but admin and delivery problems are ongoing

Joburg has most expensive staff, but admin and delivery problems are ongoing

The City of Joburg hires twice as many top managers as any other metro and accounts for two-fifths of all metro spending on top managers in the entire country.

The City of Cape Town manages a budget slightly bigger than Joburg's, but needs less than half the managers.

Joburg's bill for the top brass is bigger than the same bills combined for the next three biggest metro spenders - eThekwini, Cape Town and Nelson Mandela Bay.

The details are in the Treasury's recent Local Government Expenditure and Budgets Review. The spending is for the municipal financial year which ended in June last year.

Joburg pays four of its top 40 staff each more than R2 million a year, and another 30 have annual salaries of R1m, excluding bonuses.

Joburg's highest paid official is the head of City Power, followed by the chief financial officer, the head of Joburg Water and the city manager.

Those top 40 staff were together paid nearly R59m in 2009/10. That included more than R5m paid in bonuses in total to the top 40. The bonuses were paid out in 2009/10 to 37 of the 40 but were delayed payments for work done during 2008/9 so they may have been paid to different people due to staff turnover.

Some of Joburg's top staff are in acting positions and changes are expected as contracts which were linked to the former mayor's term of office expire. One post listed in the report no longer exists.

The Treasury lists as filled posts two unnamed directors in the city manager's office and two heads of the mayor's office (each paid more than R1m), but these do not appear on the city's organogram and The Star could not establish who filled three of these posts.

Excluding bonuses, eThekwini pays one official, the municipal manager, more than R2m. The remaining 13 all get more than R1m.

Ekurhuleni pays 13 of its 18 top officials more than R1m each, Tshwane pays 13 of its 14 top officials more than R1m each, Cape Town pays 13 of its 14 top officials more than R1m each, and Nelson Mandela Bay pays its 13 top officials more than R1m each.

Including bonuses, Ekurhuleni spent the least of any metro on its top staff, about half of Tshwane, Cape Town or Nelson Mandela Bay's expenditure. Joburg spent six times more than Ekurhuleni.

Although Nelson Mandela Bay has the smallest municipal budget by far, its total spending on its top officials is on a par with Tshwane and Cape Town.

And while Joburg has the biggest and most expensive top staff structure, the metro has had ongoing administration and delivery problems. It is also the metro with the biggest debt.

September statistics on money owed to municipalities shows Joburg top of the list, with the metro owed R12.1 billion. It was followed by Ekurhuleni (owed R9bn), Cape Town (R5.8bn), eThekwini (R4.6bn), Tshwane (R3.8bn) and Nelson Mandela Bay (R1.4bn).

The city had a qualified audit for 2009/10, blamed largely on the migration of data to the problematic centralised billing system.

The Auditor-General report said the city did not ensure that revenue was billed correctly.

Joburg Water and City Power also got qualified audits.

A recent report to council by the municipal accounts committee on 2009/10 finances notes that the city “spends millions of rand every financial year on interest and penalties to South African Revenue Services (Sars)”. The committee report said the annual report for 2009/10 wasn't ready for council in the prescribed timeframe and the qualified audit raised questions on the competence of finance officials.

The qualified audit noted R743m in billing errors over property rates and values; city officials claimed the error involved R1.2m.

The city lost R15m to fraud in 2009/10 and faced claims totalling R171m.

The billing crisis is still not over. Related to this, the call centre had such problems that last year the city spent millions setting up a new call centre; complaints from residents have reduced but are ongoing.

Residents also complain endlessly about potholes.

Labour relations are an ongoing headache with disruptions - partly arising from wage disputes but also often blamed on failure to address management problems, corruption allegations, privatisation and in-fighting - in Pikitup, Metrobus, Rea Vaya and the emergency services.

Unions threatened disruptions at the Joburg metro police this year, partly because R30m in licensing money that went missing three years ago could still not be found.

Housing targets have not been met - the city planned 100 000 units over five years but expects to provide only 80 percent due to lack of money (the housing budget was slashed to R48m in 2009/10, which was considerably less than it spent on its top management).

The backlog is about 400 000 units.

The Star

03 October 2011

FNB Sep house price index unchanged

FNB Sep house price index unchanged

First National Bank's house price index has recorded 5.6% year-on-year growth (y/y) in September, unchanged from the revised 5.6% in August.

This "stalling", said FNB property strategist John Loos, can partly be ascribed to rising base effects, with the bout of month-on-month house price decline around mid-2010 being at its worst around August last year, and thereafter starting to dissipate.

However, it is believed that economic factors are also beginning to play a role in constraining house price growth, with the interest rate cutting stimulus of late-2010 wearing thin, and economic growth having slowed in the second quarter 2011 placing pressure on real household disposable income growth.

In real terms, adjusting house price growth for consumer price inflation, August saw a very slight +0.3% positive y/y growth rate after nine consecutive months of y/y decline, with y/y house price inflation outstripping consumer price inflation.

On a month-on-month basis, house prices showed further loss in momentum in September, with growth turning negative to the tune of -0.24%, down from a revised +0.19% in August. This is the continuation of a weakening month-on-month growth trend spanning back to the +1.34% peak of February 2011.

Looking forward to the remainder of 2011, Loos noted that were no obvious major economic stimuli for a still poorly balanced - weak demand versus supply - South African residential property market, with interest rates still on hold for now, and global and domestic economic growth currently slowing.

Metsi Pepa Developers dodge probe into fraud allegations - Property | Moneyweb

Metsi Pepa Developers dodge probe into fraud allegations

An increasing number of investors in the failed Metsi Pepa development near Potchefstroom in the North West province are contemplating criminal and civil charges against developers Nicola and Jaco Prinsloo. This after the couple sold the sprawling farmland earmarked for the development to government, allegedly for R39m, according to documents obtained from a deed search in the Pretoria office.

In return, they are offering investors 40c in the rand with a promise of further funds should their planned legal action against what they call “the professional team” be successful. The team comprises, among others, the engineers, architects and town planners that were employed to work on the project and who have been blamed for its failure.

According to records in the Deeds Office, the farm consisted of nine demarcated areas, seven of which were sold to the Department of Rural Development for the total sum of R39m. These properties were bought on June 27 2011 and were registered on August 29 2011. Another demarcated area was sold to an entity listed as MI Chiboo Farming (Pty) Ltd. According to the title deeds, this area was sold for R4m on September 13 2010 and was registered on March 10 2011.

There is a segment of the farm for which no deed of sale can immediately be traced.

Moneyweb has sent a detailed list of questions to the Prinsloos and their attorney Johan Botha of Botha Geldenhuys Incorporated asking them to confirm the sales reflected by the Deeds Office. They declined the opportunity to comment, saying only: “Should we not comment on the contents of your e-mail of aforesaid date, must it not be construed [sic] as an acknowledgement of the particulars thereof but rather seen as a denial of the entirety of contents of your aforesaid mail. Our clients reserve the right to react upon your allegations as stated in your aforesaid mail if the necessity arises.” Botha says the case is sub judice pending legal action.

Earlier this month Nicola Prinsloo informed investors she was planning to sue “the professional team” whom she blames for scuppering the project. Previously Moneyweb reported that some of the companies involved in the project included Als Roads, which had threatened to sue the development for outstanding monies. The matter was heard in the North Gauteng High Court and a settlement was reached, the details of which remained confidential. Als says its account has been settled recently upon the sale of the land.

The engineering firm Fick Hollenbach and Partners from Potchefstroom, which was also blamed for erecting tented structures that violated restrictions imposed by the Department of Water Affairs, was exonerated by the Engineering Council.

Several independent sources have told Moneyweb that the trouble began when Water Affairs and the Blue Scorpions found that the restrictions imposed in terms of the environmental impact study on the farm had been violated. It has also been alleged that Jaco Prinsloo removed reeds from the wetland area of the farm which was in violation of the law.

Initial calculations gleaned from an interim audit in 2008, revealed the money received from investors amounted to around R18m, excluding interest. At least three investors Moneyweb spoke to indicated their determination to recoup the full amounts invested with interest, saying the 40c in the rand offer is an insult. One says he/she will in the interim settle for the offer and try to recover the rest by laying criminal charges against the Prinsloos.

Moneyweb has been unable to obtain a final reconciliation of how the R18m was spent, despite asking both Cherie Eilertsen of Platinum Planet, which marketed and sold properties on behalf of the developers/ principals and Nicola Prinsloo for this information.

During a site visit to the location in February 2011, an investor said they were told by Eilertsen and Nicola that they would be issued with share certificates as a gesture of goodwill, but this never materialised. The offer was backed up by a letter from Botha.

In a letter dated September 23 2011, Botha made the offer of 40c in the rand. He also informed investors that the developers planned to proceed with legal action against the professional team, requesting permission from stakeholders to do so. The letter states that the Prinsloos hope to further reimburse investors with the proceeds of funds recovered should they succeed in successfully suing the team.

The letter further states: “You are hereby requested to accept the above mentioned offer of payment of 40c out of every rand in writing by no later than September 30 2011, and furthermore to undertake in writing your full support to institute legal action against the professional team.” The letter also undertook to start paying investors during the first week of October.

Several investors have indicated they will consider laying charges if this agreement is not honoured. Another has indicated he is not interested in pursuing the professional team as his contract was with Nicola Prinsloo who had in fact recruited the team.

On Wednesday afternoon an SMS to investors from Platinum Planet, advised them not to sign any offers on Metsi Pepa. “We have retained the services of BMV Attorneys and Adv Verster with a view to obtaining more info/better offer. A meeting with Metsi attorney Johan Botha has been set for Tues 4 October. Mr Johan Botha has given an irrevocable undertaking not to disqualify any investors whose acceptance/consent letters do not reach them by (the) 30 September (deadline). Platinum.” Eilertsen’s legal counsel, Antoon Botha, has confirmed the authenticity of the SMS. He said in an e-mail to Moneyweb: “As mentioned to you, Platinum is not claiming to act on behalf of ALL investors. There are however various investors whom have given Platinum Planet a mandate in this regard.”

In recent months Moneyweb has received numerous e-mails asking the same as investors have been unable to reach either Eilertson or her company, both of which have come under fire for their handling of the matter. At least two investors have spurned Platinum Planet’s offer to negotiate on their behalf, saying they want nothing to do with Eilertsen. Antoon Botha says the SMS was in response to a number of queries from other investors.

Eilertsen has maintained throughout that Platinum had at all times acted within its mandate in marketing the development and that the principals/developers should be held responsible for non-delivery. Antoon Botha has also indicated that Platinum is still owed a significant amount of money accruing from the development and that this will be addressed in the appropriate forum.