About Me

My photo

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.

14 November 2011

Massive new CBD for Soweto’s Jabulani

Massive new CBD for Soweto’s Jabulani

JSE’s top performing share behind the integrated development.

Calgro M3 - the JSE’s top-ranking share for the first ten months of 2011 - is behind massive developments in Jabulani, Soweto in an attempt to turn it into a fully-fledged central business district, such projects a property analyst believes is the future.

A 300 bed hospital, a state of the art performing arts theatre and an integrated residential housing development form part of the mix to upgrade Jabulani in conjunction with the Gauteng government and other stakeholders.

Calgro M3, as an unusual mass housing developer and the best performing share on the JSE (JSE:JSE) in the ten months to October, has identified Jabulani as one of the growth nodes in Soweto as it is within walking distance of the Rea Vaya rapid transport system , the train station, the Jabulani Mall and other amenities.

Another part of the upliftment of the area is the demolition of the dilapidated Jabulani hostels originally built to house migrants who once worked the mines along Johannesburg’s reefs decades ago. Over the years the workers’ families have joined them in the hostels where there are no ablutions and sewerage runs freely through the complex.

Also in the development is what people in the business of property call “walk ups”. These are two and three storey apartment blocks without lifts and form part of the RDP element of the development.

Developers Calgro M3 Holdings (JSE:CGR) are working on making sure the development is aesthetically pleasing, with shrubs and greenery dotted along the grounds. While the units are generally compact, the structures are sound with the basic necessities to accommodate any family as a start-up.

CEO Ben-Pierre Malherbe says this kind of development is the face of the future to cope with the ongoing influx of South Africans into cities.

Property consultant Francois Viruly says an estimated 10m people are expected to flock to Gauteng by 2014. Malherbe says these mixed=income housing developments are set to become an important benchmark in managing urban population dynamics in Gauteng.

In Meadowlands another development known as Fleurhof is under construction. It comprises sectional title units ranging in price from R279 000 to R299 000. Free standing units also form part of the mix costing between R289 000 and R296 000.

Fleurhof is also a fully integrated development in terms of government’s 2007 policy for RDP housing to form part of any new housing initiatives. Provision has been made for the building of crèches, churches, a community centre and other amenities within the development. The location ensures easy access to transport and the Johannesburg CBD. It’s also close to an industrial hub where many Soweto residents work.

This is also in line with government’s new thinking on housing developments that they must be close to places of work and transport. This node is also serviced by Rea Vaya.

Calgro says its model allows it to sell in the open market and to institutional buyers. Malherbe explains that unlike some traditional developers, Calgro buys the land, develops it and at the end of the day provides a turnkey product that cuts out town planners, civil engineers and contracting contractors. This in turn helps cut costs, enabling it to add value to the development.

Calgro has 30 developments in the pipeline in various areas over the next seven to ten years.

Vukile acquires R1.5 billion portfolio from Sanlam

Vukile acquires R1.5bn portfolio from Sanlam

And the PIC will acquire 70.2m Vukile linked units from Sanlam.

Johannesburg, Nov 14 (I-Net Bridge) - Property loan stock company Vukile Property Fund (VKE) is to acquire a portfolio of 20 properties, worth nearly R1.5 billion, from Sanlam Life Insurance.

The acquisition is expected to be effective in June next year, once a number of conditions precedent have been fulfilled, and will be funded through a combination of debt and the issue of new linked units. It said on Monday.

Vukile chief executive Laurence Rapp said the acquisition is in line with Vukile's new strategy of growing a quality portfolio of properties with strong contractual cash flows in order to achieve meaningful capital appreciation and sustainable growth in distributions.

"It will enhance the quality of our current property portfolio and will strengthen our presence in the Western Cape."

Rapp said Vukile has been managing this portfolio on behalf of Sanlam for some time and, therefore, has an in-depth understanding of the properties being acquired, making this a low risk acquisition opportunity for the company.

"The buildings being acquired are well located with good quality specifications," he said.

At the same time, the Public Investment Corporation (PIC) has reached an agreement with Sanlam, in terms of which it will acquire 70.2 million Vukile linked units from Sanlam.

Following the transaction between Sanlam and the PIC, Sanlam's holding in Vukile would decrease to 13.6%, of which 7.6% would be held by Sanlam policy holder funds and, as such, constitutes an institutional holding. The PIC's stake in Vukile will be around 20%, it said.

The introduction of the PIC as an investor is a positive development for Vukile as it will broaden its shareholder base and should lead to an increased JSE free float, it said.

"The PIC is one of the largest property investors in South Africa and the introduction of such an esteemed property investor is an affirmation of Vukile's new strategy," said Rapp.

The properties being acquired are: Bassonia Office Park, Bellville Barons, Bellville Santyger, Bellville Tijger Park 1, Bellville Tijger Park 2, Bellville Tijger Park 3, Bellville Tijger Park 4, Bellville Tijger Park 5, Bloemfontein Trador Cash & Carry, Durban Westville Surrey Park, Durban Workshop, Johannesburg Empire Road Offices, Johannesburg Houghton, Pretoria Sanlynn, Midrand IBG, Pretoria Rosslyn Joshua Doore Warehouse, Pretoria Sancardia, Sandton Ascot Offices, Sandton Rivonia Tuscany and Sandton Sunninghill Park.

10 November 2011

Is it the right time to fix your home loan?

Is it the right time to fix your home loan?

Here is what the big-four banks say.

The demand to fix interest rates on a home loan has been subdued according to the majority of the big-four banks, but Standard Bank says it has fixed over R1bn in loans in the past five months and believes it is a great idea to fix if a client wants to ride out volatility.

“We have obviously been doing a campaign where we have actually said to the people that interest rates are at the lowest level in 36 years. Yes there is a risk that interest rates will go down based on what is happening in the world economy, but there is also a risk that interest rates will go up,” Standard Bank’s director of home loans, Funeka Ntombela said.

“For the customers, to the extent that they want to protect themselves, we think that it’s a great idea ... Previously if you wanted to fix the rate it would be prime plus but now it is hovering around prime to fix for about two years. If you are a customer and you are already on prime or prime minus 50 basis points is not such a giant leap. You might just say I am going to give up this to get a 24 month protection.”

A Reuters poll posted last week showed analysts see the Reserve Bank leaving the repo rate unchanged at 5.5% on Thursday. Reuters said almost half of the 26 polled forecast rates to start rising in the second half of next year.

Ntombela said although Standard Bank had fixed loans over R1bn in the past five months, the take up rate for the customers phoned was not 100%. But there were clients who thought it was not as expensive to fix now. She said for those who had a rate of prime minus two in their rate it was difficult for them to give that away by fixing.

Earlier in the year Moneyweb reported that Standard Bank was the only big-four bank that was not fixing. But after the report the bank backtracked on its decision and started awarding its customers the opportunity to fix.

Absa, FNB and Nedbank said the demand to fix was currently subdued. managing executive for Absa home loans, Sifiso Shongwe said the total value of loans fixed since April was about R60m. He added the majority of fixed rates taken up over the last six months were for a period of 24 months and in the range of 9% to 12%.

“The decision to fix or not will be influenced by, the term available for fixing, the initial difference between the fixed and variable rates offered to the customer – and the immediate impact thereof on the free cash flow of the customer,” Shongwe said.

He added that the customers interest rate expectations over the term available for fixing were also a factor.

Head of product, marketing and pricing at First National Bank (FNB), Praven Subbramoney, also shared the view that if customers fixed they would benefit from maintaining certainty of cash flow.

Subbramoney said at FNB clients were mostly taking up the 36 and 60 month fixing options. On top of the current interest rate, Subbramoney added the average premium to fix at FNB was 0.15% for 12 and 18 months, 0.20% for 24 months, 0.25% for 36 months, 0.55% for 48 months and 0.85% for 60 months.

Nedbank’s general manager of sales and customer service, Pat Lamont said although fixed rates protected people from unexpected additional monthly expenses a potential customer needs to consult widely before fixing.

“Clients need to take cognisance of the fact that fixed rate contracts carry financial penalties should one opt to cancel the contract. Dependent on the term, and the value of the bond amount, this may constitute a substantial amount. Hence, we would suggest that clients consider their options carefully and consult widely prior to entering into long-term fixed rate contracts,” Lamont said.

At Nedbank people can fix from 12-60 months and on average clients have been fixing for a period of 12-36 months.

Sluggish economic fundamentals subdues housing market outlook

Sluggish economic fundamentals subdues housing market outlook

Samuel Seef remains upbeat, but cautions that recovery of the property market will take longer than anticipated.

I remain upbeat, but the recovery of the property market will take longer than anticipated given the sluggish underlying macro-economic fundamentals. Following the robust pre-2007 levels he says, there has been more than four years of slowed activity and market adjustment. As with all markets, real estate is cyclical and I believe that we are now near the bottom of the curve and that prices and sales volumes are likely to ebb along for at least the next eighteen months before any noteworthy uptick. This would however, need to be driven by an economic pick-up, underpinned by positive employment growth.

There has also been significantly low levels of new developments and new stock brought to the market. This is likely to lead to a stock shortage once the market turns.

The volume of distressed properties continues to weigh on the general performance of the market. Only once there is a significant clearance of these can we look to return to normal activity levels he says. On the upside, the Bank deposit requirements will serve to bring more stability to the market in the long term. When home owners have some of their own money invested in their homes, they would generally work harder to keep up their mortgage payments. This will enable owners to better withstand some of the up-down effects characterised during this down-swing and will result in fewer foreclosures. The exception, should be first time home buyers where I would encourage the introduction of a formalised policy that enables them to acquire hundred percent bonds to encourage home ownership.

I do not believe that consumers can look forward to any further interest rate reductions. The South African Reserve Bank has been conservative in their monetary policy and given the upward inflationary trend and continued fuel and utility cost hikes, this would send the wrong message to the market. While a rate cut will improve affordability and help reduce consumer debt levels, it is unlikely to stimulate any significant demand push. The historically low interest rate has done very little to encourage any significant participation in the market by investors and top end buyers this year.

That being said, it is business as usual and activity continues in the market. There are still and keen buyers out there, but sellers need to be mindful of what buyers are prepared to pay and price correctly if they hope to conclude a successful transaction. Buyers are negotiating strongly and on their terms. The upshot is that as a result of the slow turnover, there is real value to be gained at the top end of the market. Now is indeed a good time to buy, but buyers should be aware that these conditions are unlikely to continue indefinitely.

09 November 2011

Unravelling China versus Europe - Myths and Misunderstandings

Unravelling China versus Europe - Myths and Misunderstandings

… provides parallel insights for SA.

Commentators – along with many investors - have taken to questioning the ability of democracies to compete with authoritarian China. The case gaining credence is that Europe’s leaders are innately incapable of taking sufficient action to remedy the deep flaws of the euro experiment. But even if most of Europe is destined for a generation of meagre growth, the core problems are not inherent to Western-styled democracy or capitalism. The core problem is that managing the intersection of democracy and capitalism requires transcending cultural differences.

The rapid changes and hyper competitiveness due to globalisation and advancing technologies raise the bar faster than poorly congealed multi-cultural societies such as the eurozone or SA can adjust.

In difficult times pain needs to be distributed by governments between various groups such as, workers and investors. Authoritarian regimes have an advantage when a tiny group of people behind closed doors can quickly decide. The Chinese approach also appeared advantageous earlier this year during Japan’s nuclear reactor melt down. Nuclear power became a radioactive discussion in democracies whereas China’s policymakers were much less overwhelmed.

Self interest is at the heart of both capitalism and democracy. But so is managing factional conflicts. China’s governing apparatus reeks of corruption but its overall track record of managing factional conflicts for the greater good has been exceptional for over 30 years. The legitimacy of the Chinese ruling elite however rests upon being able to maintain approximately 7% economic growth thus maintaining considerable employment momentum. A prolonged slowing of economic activity risks an Arab Spring with Chinese characters.

Moving beyond the typically wafer-thin analyses of brief TV commentaries, to right the European ship involves distributing pain. Lower benefits and pay must be distributed among various worker groups and voter factions while many investors must also be made to suffer. Haircuts on sovereign debts must be negotiated alongside recapitalising banks and concessions from unions and voters.

It is frequently pointed out that China foreign reserves and investments exceed $3trn. But for this reason and the fact that China cannot maintain 7% growth if its export markets are sliding into a deep recession, they have a deep vested interests in seeing the euro challenges being successfully resolved. As a substantial holder of euro denominated assets and a funder of the IMF, China is also directly at risk of having to share in the pain to be allocated.

The ideal scenario for China is that it gains political advantages while more aggressively weighting its European holdings at or near the bottom of asset prices. However, when seeking to manage holdings of distressed assets such greed-induced styles of thinking can be very dangerous. When commentators eye China’s cash hordes as a source of solutions they routinely overlook the generally bleak relationship between China’s overall balance sheet and its income statement.

China’s latest five year plan calls for shifting from extreme reliance on infrastructure investments and exports to a more normal economic mix with domestic consumption playing a rising role. There are reasons however that so many Chinese save so aggressively despite yields on many investments being less than inflation. Life expectancy in China has been expanding at a rapid clip while pension benefits remain scarce. As nearly 7% of the population starved to death half a century ago there are broad fears of old age misery. China’s long-term balance sheet is further diminished by the greatest demographic time bomb of all time brought on by its one child policy.

The income statement desired by China’s five year plan is threatened by Europe’s woes and its starvation-induced savings culture which can’t be overcome without huge pension fund investments. Three trillion dollars sounds like a lot but it works out to less than R20 000 per person.

Nor can China liquidate its accumulation of overseas investments without provoking currency appreciation and thus a contraction in its export income. European leaders would be able to negotiate aggressively with China and all their key investors if only they had a vision for a dynamic Europe.

In SA the key factional divides are among government, business and unions. Just as in Europe there is some alignment of interests and cooperation but not enough to be globally competitive. In Europe the core disconnects are among the higher savings countries in the North versus the deeply indebted nations on the periphery.

On the current path, countries that slip into Greece’s predicament will suffer for a very long time. Instead, four or five like-minded, higher savings countries should exit the Euro in favour of a new currency union supported by formidable fiscal unity. Of course this would be extremely difficult and expensive but it would lead to higher growth across the continent while providing an example for those countries which remain in the euro.

By comparison, SA’s challenges are much more manageable. Government should commit to becoming genuinely pro business. They will know they have become successful when SA becomes a popular destination for foreign direct investment including and beyond extractive industries.

*Shawn Hagedorn is an independent analyst

My thoughts echo the majority of what is stated here. In particular, I agree that SA will not be able to compete with China in any sector of the economy while the playing field remains uneven. The article points out that as an autocrisy (rather than a democracy), China is in a position to quickly implement decisions, especially when compared with Europe and SA. What the article does not point out clearly is that China can also quickly put down any hint of dissent and this puts them in a superior position vis-a-vis the trade unions and other civil society. There is no doubt that lower wages makes China more competative. From a purely economic point of view this puts China in a vastly superior position. The contrary is, however, also true from a humanitarian point of view. The question would therefore appear to me to be: "How much civil liberty are you prepared to sacrifice in exchange for economic superiority." I agree with the writer that ALL role players will need to take a "haircut" including government, shareholders, finacial institutions and workers in order to become more competative.

Gareth Shepperson

08 November 2011

Nominal house prices edge higher: ABSA

Nominal house prices edge higher: Absa

While small houses continued its downwards trend.

(I-Net Bridge) - Nominal house prices continued to improve in two size categories (medium-sized and large) in October, while small houses continued its downwards trend according to Absa Home Loans.

According to Absa's calculations, the nominal value of homes in the medium-sized (building area of 141 square metres-200 square metres) increased to 404.1 index points from 386.7 a year before and large sized homes (building area of 221 square metres-400 square metres) improved to 405.2 index points from 397.3 for the comparative period a year ago.

Small houses (building area of 80 square metres-140 square metres) declined from 380.8 points for October last year to 368.9 points for October this year.

In real terms (after adjustment for the effect of inflation) annual price deflation continued across all three segments of housing up to September 2011, impacted by rising headline consumer price inflation, which reached a level of 5.7% year-on-year (y/y) in September.

The average real price (at constant 2008 prices) of houses in the middle-segment of the market was in September this year about 13% below its peak of mid-2007. This was the result of average nominal house price growth being below the average headline consumer price inflation rate during this period.

The average nominal house price was R734,800 for small homes, R1,009,500 for medium-sized homes, and R1,475,800 for large homes in October 2011.

Pinnacle Point liquidated, to be probed

Pinnacle Point liquidated, to be probed

Section 417/418 inquiry to be initiated.

Ailing property firm Pinnacle Point, a company in which union workers invested over R200m, has been liquidated following an order granted in favour of one of its shareholders Cape Point Vineyard.

Sybrand van der Spuy, the owner of Cape Point Vineyard, told Moneyweb that Pinnacle Point had been liquidated late last week. He said the next step would be to initiate a section 417/418 inquiry, which would investigate how Pinnacle Point monies were expanded and how the company got to a financially appalling mode.

“Yes Pinnacle Point has been liquidated ... A liquidator has been appointed already. I am seeing the liquidators later this week. We will be asking for a section 417/418 inquiry,” Van Der Spuy said.

Van Der Spuy’s company Cape Point Vineyard owns 80m shares or just under 1% of the Pinnacle Point Group. Cape Point Vineyard won a business rescue in July, appointing Mike Lane as a practitioner. But because of issues and allegations of some who failed to support the business rescue, the circumstances pushed Cape Point Vineyard to convert its business rescue application into a final liquidation.

Initially Van Der Spuy felt there were prospects to rescue Pinnacle Point and potentially help recover millions of rands of workers money invested in the ailing company.

About R260m of Southern African Clothing and Textile Workers Union (SACTWU) monies were invested in Pinnacle Point Group (PPG). Referring to the liquidation Van Der Spuy told Moneyweb two months ago that:

“It’s not a disaster for myself I am losing a bit of money but if you look at the poor pensioner they are losing R260m and the chances of shareholders getting any money back I think it’s zero ... I have lost R5m. It’s one thing for me to lose R5m and other people to lose R260m.”

Another source confirmed the final liquidation was unopposed, but there were plans to push for a business rescue in spite of the final liquidation.

Pinnacle Point has been suspended from the JSE and could be delisted.

07 November 2011

Concourt to rule when landlords may cancel leases

Concourt to rule when landlords may cancel leases

Concourt to rule when landlords may cancel leases

The Constitutional Court was due to hear argument today on whether a landlord may cancel leases and evict tenants to get higher rentals.

The matter will be brought by Ntombizodwa Yvonne Maphango and 14 others against Aengus Lifestyle Properties, with the Inner City Resource Centre as a friend of the court.

Aengus specialises in fashionable inner-city apartments and lofts developed in refurbished old Joburg buildings and office blocks. Its buildings include Tribeca Lofts and Fashion Lofts.

The company bought Lowliebenhof in Braamfontein and terminated existing residents' leases in order to put up rentals over amounts allowed by the escalation clauses.

Some of the residents objected to being evicted and took the matter to court.

The Johannesburg High Court and Supreme Court of Appeal held that the landlord was allowed to do this.

The 15 applicants will apply for leave to appeal to the Constitutional Court.

They argue they cannot be evicted, even if the leases were lawfully terminated.


Analysts challenge property pundit`s call not to buy

Analysts challenge property pundit`s call not to buy

Say it is a buyers’ market.

Interest rates are low, property is in abundance and distressed homes are going for a song, so if you are in the market, now is the time to buy. At least that is the view of realtor Engel & Völker and property specialists Lightstone.

In fact, CEO of Engel & Völker, Craig Hutchinson says with interest rates at the lowest it has been in years and with an abundance of property to choose from, now is the perfect time to buy. “It is very important to enter the property market as soon as possible as property should form part of any balanced financial plan and the sooner you own rather than rent, the sooner you start enjoying the capital appreciation which property gives,” Hutchinson said.

He maintains that property is the one asset that remains one of the best inflation beating vehicles over the long term.

In October 2011 the Rode Report for the third quarter advised first time entrants to rather rent for the next four to five years, rather than buy, adding not to expect any capital growth in the residential sector during this period.

Hutchinson says it is expected that there will be a month-to-month decline in the seasonally adjusted house price index in the near team which is good news for new entrants or those who are upgrading.

On first time buyers, the Rode Report said people buying now could expect a much higher instalment than if they were to rent. Erwin Rode maintains if you were to save the difference between what you would be paying if you rented as opposed to what you would be paying if you bought with four or five years in mind, you would actually be better off.

Engel & Völker hold a different view saying renting for less than you can buy and investing in something else only makes sense if you rent with the intention to buy. “Buying a property now would mean a buyer can negotiate a very good deal as this is very much a buyers’ market. At this stage there are also a lot of distressed properties available at below market value that means you will receive better value for your money.”

It says bond mortgages are 30% lower now than two years ago due to the current interest rates. “Even if you pay a premium for a fixed rate loan, it is highly unlikely that rates will be this low again. All these facts indicate that the time to buy is now.”

A Lightstone report has said house prices were particularly attractive in places like the KwaZulu-Natal south coast. Lightstone property analyst, Hailey Ivins, says: “If you look at annual inflation coast versus non coast, your coast is still going down, which means the value of property is going down – they are selling for values that are lower than what they were previously sold for, whereas your non-coastal is going up.

“That’s key to the economics and the pressure people are under… having to sell their holiday homes while still not getting what they want. Now is the time to buy because you’ll be getting property for really good value in terms of what you pay,” Ivins said.

House prices will sink further: Absa Home Loans - Property | Moneyweb

House prices will sink further: Absa Home Loans - Property Moneyweb

On the back of rising headline consumer price inflation.

(I-Net Bridge) - House prices in real terms are expected to continue to decline for the rest of the year and in 2012 on the back of rising headline consumer price inflation, which is forecast to marginally breach the 6% level by the end of the year and for part of 2012 according to Jacques du Toit, property analyst at Absa Home Loans.

Du Toit said that based on house price trends up to the third quarter, and prospects for the economy and household finances, nominal price growth in the middle segment of the market was forecast to be well within single digits for the full year, projected at between 2% and 2.5%.

Absa Home Loans released their fourth quarter housing review report on Thursday, outlining trends in South African house prices and other property market related indicators up the third quarter of the year.

The report pointed out that SA's real economic growth came to a seasonally adjusted annualised rate of 1.3% in the second quarter of 2011, after rising by 4.5% in the first quarter.

Growth was influenced by global and domestic demand trends; the Japanese earthquake and tsunami, which negatively affected the local manufacturing sector as a result of supply shortages; and labour action in some sectors of the economy, which impacted production and service delivery. Real economic growth of 3.1% is projected for 2011, marginally higher than growth of 2.8% achieved in 2010.

Household income and consumption expenditure continued to grow in real terms in the second quarter, although at a slower pace as a result of rising inflation, which impacts consumers' spending power. The ratio of household debt to disposable income was somewhat lower at around 76% in the second quarter, which contributed to contain the cost of servicing debt against the background of low interest rates.

Du Toit said that many consumers were still battling with impaired credit records, negatively affecting their ability to take up credit, with this situation being reflected in continued low growth in household credit extension.

Trends in nominal house prices varied on an annual as well as a quarterly basis in the different segments of the market and geographical areas in the third quarter. In real terms, i.e. after adjustment for the effect of consumer price inflation, house prices declined year on year and quarter on quarter in the various regions and categories of housing during the quarter. Recent trends in house prices are believed to be affected by various factors related to the macro economy and the state of household finances.

The ratios of house prices and mortgage repayments to household disposable income, depicting the affordability of housing, were virtually unchanged in the second quarter. This was the net result of trends in house price and income growth during the quarter, while interest rates remained unchanged during this period. As a result, the affordability of housing remained favourable up to mid-2011.

Du Toit said that many households' ability to take advantage of these affordability trends was however still hampered by a relatively high level of indebtedness, impaired credit records, the impact of the National Credit Act and banks' resultant lending criteria.

The continued low growth in outstanding mortgage balances in the household sector is indicative of the impact of these factors on the residential property market, and the demand for and accessibility of mortgage finance.

Property leviathan pulls millions from SA

Property leviathan pulls millions from SA

Bribery is driving Redefine out of SA; CEO says he is voting with his chequebook.

Marc Wainer, CEO of one of SA’s largest property listings – Redefine – has lashed out at “administrative practices” of local authorities. He has also come out strongly against bribery and corruption saying he is voting with his chequebook.

Redefine has a market cap of R22bn and total assets under management of about R37bn

In a chilling special report podcast with Alec Hogg on Redefine’s year end results for August 31 2011, Wainer said the giant property fund is not investing in areas where it has concerns about “administrative practices” of local authorities.

This decision was not taken lightly, says Wainer: “We are really committed to job creation but we are sick and tired of being used as the milking cow for some local authorities who simply increase our rates and taxes by astronomical amounts: 15, 16, 18% and there is either no improvement in services and in many instances a deterioration”.

This approach says Wainer is only being tolerated for properties it owns, because “we don’t have an alternative service provider.

“For the properties we are going to construct, we have a choice and we are now going to vote with our chequebooks and say enough is enough”, especially in the case of commercial and industrial properties.

He is also not going to invest in areas where bribes are expected, he cites Kopanong, the former Hammanskraal, as an example, where two years ago Redefine took a decision to expand one of its properties.

It wanted to build a free standing supermarket, add 26 shops plus a China Town and a new taxi rank, worth about R120m.

The first phase, the supermarket worth R40m has been completed but it came at a high cost. During construction in February, Wainer says the local community wouldn’t allow Redefine’s contractor on the site because it wanted the property leviathan to employ more people at three times the price of its current labour.

The local community were also divided in factions and threatened to destroy the buildings if necessary, reveals Wainer.

About ten days ago, as Redefine handed over the supermarket for beneficial occupation, a Redefine employee reported that nine local councillors had asked for R20 000 each or they would disrupt the site and not let Redefine back to complete construction.

Wainer said he would not pay 1c and the rest of the project has been canned, meaning that about R70m to R80m will now not be spent in Kopanong.

“I am voting with my chequebook.

"I don’t have the time and I can’t spend my people’s time in going through long and lengthy processes, laying charges, court cases, they come to nothing at the end of the day,

“We will simply spend our money elsewhere,” he said.

In fact the movement out of industrial and commercial properties has seen the fund’s exposure reduce to 4-5% of its portfolio from 20-23% before the unbundling of Arrowhead agreed to on Friday.

Wainer however says “it is not so much what we are left with - it’s the fact that we are not going to go into it anymore.”

Wainer says it can do this because its fund is “fortunately big enough and we don’t have to buy locally we have offshore alternatives. We are certainly not going to be blackmailed to pay people bribes corruption in order to expedite a process so we will rather just call it a day.

“We have just got to the stage, we have tried, we negotiate, we try to do things, we act in accordance with the law, the by-laws, the town planning and we are just frustrated and the tragedy is we are not creating jobs in the areas that need it”.

Wainer is however not completely dismissive of South Africa he says it may still consider investing in the Western Cape, which is the only local authority that has an “open for business sign”.

The Eastern Cape, North West and Northern Cape are “totally out”, he says.

Other provinces may be considered depending on the area, he adds.

He also suggests that local authorities should give companies like his that pay “R80m to R90m a year in rates and taxes a relationship manager... If we want to spend R500m or R1bn, don’t make us stand in the same queue and go through the same processes as someone who is spending R500 on bathroom alterations”.

Redefine’s full year headline earnings per linked unit were down 27%. The share price fell 0.9% to R8.

More township malls on the cards

More township malls on the cards

Major developers are increasingly targeting sprawling townships which are seen as the development nodes of the future for both the residential and retail sectors. Many of these developments are concentrated around transport hubs like taxi ranks which by their very nature attract tens of thousands of commuters daily.

Country manager of International Housing Solutions (IHS), Rob Wesselo, says on the residential side 97% of the market is in under developed areas. Massive urbanisation has also contributed to increased demand for affordable housing. Two of IHS’s largest developments are in Soweto south west of Johannesburg.

On the retail side the Pan African Shopping Centre in Alexandra north of Johannesburg is but one example of a successful mall which is in the process of expanding due to increased demand from retailers and shoppers.

Entrepreneur and owner of the centre Tebogo Mogashoa of Tebfin Property, says major tenants seem less nervous about investing in areas like Alex with a sometimes dubious reputation as being unsafe. Mogashoa says Tebfin Property has similar projects in the pipeline in places like Eden Park and Daveyton on the East Rand. “We see ourselves as an upcoming developer in this space… focusing on retail development in under-serviced areas with the specific focus on emerging markets,” Mogashoa says.

He attributes the success in Alex to the buy-in from the community and local players like the taxi associations who are shareholders in the project. The centre’s focus is the bustling taxi rank which attracts people from near and far. “The development responds to the needs of the communities.”

Several reports have been written saying the mushrooming of malls is threatening small business – a sector seen as key in the creation of jobs. Mogashoa disagrees, saying small business and informal traders were consulted extensively prior to the launch of the development and came to realise how they could trade successfully alongside the more formal sector.

Mark Stevens, the MD of Fortress, says his company is focusing on the market that has large volumes of feet moving through it, whether it be the Johannesburg CBD, Diepsloot or the bustling Louis Botha Avenue close to the city, or anywhere close to a taxi rank. “It might be the township where there’s a taxi rank, but it might be a commuter point where we know there’s a train or a bus.”

Fortress’s market is the lower LSM which is commuter orientated. “This is the market we’re chasing wherever that market may be,” Stevens said.

He added that their market now had more disposable income and had high aspirations. “They want better quality and brands. A lot of the tenants that we deal with, you can see from their trading how they are doing, I’m talking your Shoprites, the Capitecs, Pep (and) Cashbuild (JSE:CSB)”.

And, according to Stevens, the future looks rosy: “Going forward we see a lot of growth in that market, the rentals are off a low base… as opposed to some of the shopping centres in Johannesburg with very, very high rentals.” He says while their trading densities might be larger, getting good growth out of them going forward will be difficult.

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.