House prices overvalued by at least 25%

House prices overvalued by at least 25% - Rode Report

Could take at least five years for the market to recover.

The latest Rode Report on the state of the property market says house prices are overvalued by at least 25% and will take five years or more to recover.

Property economist and publisher of the report, Erwin Rode, has attributed this partly to “irrational exuberance”. The phrase was used by American economist and former chairman of the Federal Reserve, Alan Greenspan, during the Dot-com bubble of the 1990s. It has been interpreted as a warning that the market might be overvalued.

Rode explains that over the past ten to 20 years people became so enamoured with property as an investment that they lost sight of the fundamentals. “In the end they were paying and are still paying prices that are above replacement value having taken into account ageing.”

“Irrational exuberance, you had it on the stock exchange, you had it in all asset classes over the ten to 20 years. Then every now and then a correction takes place and the bubble must burst sooner or later. No-one can forecast when the bubble will burst.”




As far as office demand and vacancies are concerned, the report says moderating economic activity, a drop in business confidence is having a weakening effect on office rentals. However, office and industrial buildings are still well below the replacement value and are fundamentally good value.



It says in the third quarter of 2011, national market rentals grew only by 4%. “This comes after having achieved an unsustainable growth rate of about 11% in the first quarter,” Rode says.

The report states that building cost inflation (the cost to construct buildings as measured by the Building Cost Index), has accelerated dramatically rising to 14%. This is mainly due to contractors no longer being able to absorb rising input costs.

Demand for industrial space has shown poor to moderate growth in market rentals. In the 2011 Q4 the best performance was seen in Durban and central Gauteng followed by the Cape Peninsula and Port Elizabeth.
The report says prospects for industrials rentals remain weak as a result of the domestic economy struggling to find its feet amidst uncertain global economic prospects.

On the residential front flat rentals are still outperforming both houses and townhouses with a 2% year-on-year growth. Houses and townhouses have a 1% year-on-year growth. Rode says these rates are still well below the rate of consumer inflation which stood at 5% in the third quarter of 2011.




...

Third party was behind secret Sharemax settlement

Third party was behind secret Sharemax settlement

A mystery buyer paved the way for court to sanction rescue scheme.

A mystery “investor” has paved the way for a court to sanction the Sharemax rescue scheme. The scheme, designed to save Sharemax-promoted syndication companies from liquidation, was sanctioned by the North Gauteng High Court on Friday.

It is also expected to be a formality for the Reserve Bank to withdraw its directives to repay investors. The Reserve Bank-appointed inspectors are also expected to be relieved of their duties at the various syndication schemes.

Last year Moneyweb reported that the Sharemax rescue had hit a speed bump. Clients of attorney Chris de Beer asked the court to delay sanction of the rescue scheme. This delay was granted. De Beer argued that proper process had not been followed, and that the rescue plan seeks to legalise an illegal scheme. The directors of the syndication companies were not impressed. They issued this media release at the time.

This year it was revealed that investors opposing the rescue, including De Beer’s clients, had received a secret settlement.

It has been speculated that this settlement may have been paid from investors’ funds. However, a source close to the rescue has confirmed that the settlement was made by a third party.

This means that the objecting parties sold their Sharemax investments to a third party for an undisclosed sum.

The identity of the mystery buyer will be open to some speculation. A cynic might believe it is a person or entity with strong vested interests in the rescue plan’s success.

In theory, the identity of the buyer ought to be public information. The syndication schemes are public companies, which opens their share transfer registers to public scrutiny. However, the directors of the Sharemax syndication schemes are not known for their disclosure. Moneyweb has previously been refused unrestricted access to financial statements. The directors also went to great lengths to keep the finer details of the rescue scheme out of the public eye.

Prior to publication a copy of this article was sent to Dominique Haese, director of the Sharemax syndication companies. We received this response:

Mr Cobbett,

Your email’s of 11h38 and 14h03 refer.

All the 311 Schemes of Arrangement have been sanctioned by Court and the relevant Court Orders have been registered.

I am unfortunately in no position to comment on the content of the rest of your emails and/or the “draft article”.

In not dealing with your “draft article”, please do not assume anything as to the correctness or not of anything stated or to be stated in such “draft article” or any subsequent actual article/publication of anything emanating from yourself.

All the rights of the Sharemax Syndication Companies, as re-structures, both prior to and post re-structuring, are reserved.

All press releases are and will be exactly that, press releases, and will be provided to the press in the normal course.

Regards

Dominique Haese

Managing Director

Frontier Asset Management (Pty) Ltd

Propert survey shows High Net Worth segment is the weakling

Propert survey shows High Net Worth segment is the weakling

Propert survey shows High Net Worth segment is the weakling

The “lower priced” market segments looked the healthiest in 2011.

The FNB Estate Agent Survey suggests that the metro market segment that agents define as the Lower Income Segment showed the strongest demand-supply “fundamentals” of the 4 “suburban” income segments during 2011, while the so-called High Net Worth segment was the noticeable weakling.

The survey asks agents to place the areas that they serve into one of 4 categories, i.e. High Net Worth areas (average price = R3.7m average in 2011), Upper Income areas (average price = R2.2m), Middle Income areas (average price = R1.2m), and Lower Income areas (average price = R679,000).

One of the key questions asks agents to provide a subjective rating of demand in their area on a scale of 1 to 10. As one views the estimated demand levels in the different segments, one sees that the Lower Income segment was the only one to rise mildly in 2011, compared with average demand in 2010, thus becoming the segment with the strongest demand rating of 6.12 average for last year. The Middle Income segment follows closely with a rating of 6.04, which represents a slight weakening on 2010, while the Upper Income (5.64) and High Net Worth (5.42) segments were noticeably weaker.

Through 2010 and 2011, the High Net Worth segment’s demand rating has been significantly weaker than the other 3 segments, although the Upper Income Segment’s weakened demand rating narrowed the gap with the High Net Worth Segment in 2011.

A further question relates to estimates of the average time properties remain on the market prior to being sold. Using the average time of homes on the market prior to sale as a proxy for the balance (or imbalance) between demand and supply, the Lower Income segment once again outperformed the rest in 2011, keeping its average estimated time of homes on the market virtually unchanged at 13.8 weeks in 2011. By comparison, the 3 higher priced segments all showed a noticeable rise in average time on the market for 2011 as a whole, with the Middle Income Segment averaging 15.5 weeks (compared to 13.5 weeks in 2010), the Upper Income Segment 18.4 weeks (compared to 15.4 weeks in 2010), and the High Net Worth Segment 20.6 weeks (compared to 17.8 weeks in 2010).

It must be borne in mind that higher income areas normally do have a higher average time on the market than lower income ones, but more significant is that the Upper Income and High Net Worth segments appear to have shown a more significant increase in average time on the market in 2011 than the other two segments.

When it comes to financial strength, however, it would appear that the Middle Income Segment, with average price around R1.2m, took the honours when comparing the levels of selling in order to downscale due to financial pressure with selling in order to upgrade, between the different segments.

In terms of relative price performances, FNB has created its own area value band indices for residential-dominated areas in the 6 major metros, grouped according to average prices of areas, and using Deeds data for transactions by individuals in the 6 major metro regions with which to estimate these. These indices differ from the 4 estate agent income segment groupings, as they include the entire metro residential market, importantly what are known as former Black, Coloured and Indian Township regions. Since the “relief rally” (or mini-recovery) that we saw in 2010, estimated house price growth in all but one of our Major Metro area value band indices has shown a tapering off.

The area value band that appears to have narrowly “defied gravity” in 2011 has been the so-called Affordable Segment, which includes a group of lower-priced metro areas shoes average price was R375,460 in 2011. The Affordable Area Value Band saw estimated average price growth of 6.5% in 2011, mildly higher than the 6.1% recorded for 2010

The next 3 higher area value bands were all grouped in a very narrow price growth range in 2011, with the Lower Income Value Band (avg. price = R726,943) showing growth of 4.6% in 2011, what we deem to be “Middle Income Areas” (avg. price = R1.110m) growing by 4.8%, and our Upper End Metro Suburbs (avg. price = R1.87m) rising by 5%. Slightly higher price growth in the higher of the 3 value bands may appear contrary to what agents are saying about the Higher Income segment being fundamentally weaker. However, one should allow some room for statistical error when price growth differences are so small. In addition, the higher segments tend to lack more in terms of pricing realism, implying that while price growth may have been ever so slightly better for those properties transacting in the higher segments, much of the relative market weakness is seen in longer average times that properties stay on the market, i.e. in slower turnaround times rather than in weaker price growth.

However, at the other end of the spectrum to the “outperforming” Affordable Segment, an area of noticeable weakness is once again found in our Luxury Area Price Index (avg. price = R2.89m in 2011 with maximum price cut-off of R5m), which is similar in average price to the High Net Worth areas defined by estate agents. This index suggests a noticeable underperformance in this segment compared to the  lower priced value bands, declining on average by -7.6%, following an also underperforming  +2.9% rise in 2010.

SO WHAT TROUBLES THE HIGH NET WORTH SEGMENT?

The High Net Worth Segment appears to have been the underperformer in the major metro housing market. This is arguably not surprising. The High Net Worth segment is possibly less interest rate sensitive than the lower end of the market, being less credit-dependent than the lower end. One would thus expect the High Net Worth segment to have shown less of a mini-recovery in 2010, given that this recovery was largely driven by massive interest rate cuts. Our perception is that the High Net Worth segment is more “economy-dependent”, with high net worth households receiving greater portions of their overall incomes from business/investment income and discretionary remuneration, which perform weaker in tougher economic times such as those of the past 4 years.

Relatively tough financial times in the household sector as a whole should also be expected to drive demand towards the more affordable parts of the market, also benefiting the lower end more. On top of this, the astronomical increases in municipal rates and utilities tariffs bills is sure to be affecting the top end of the market far more severely.

The list of possible reasons for the High Net Worth segment’s apparent sub-par performance is therefore lengthy. As we look set to head into a year of slower economic growth in 2012, we would anticipate “more of the same”, i.e. for the lower-priced end of the residential market to show a better relative performance than the higher priced segments. However, we must emphasis that all segments are expected to see something of a slowdown in 2012. In addition, little in the way of further interest rate stimulus is anticipated in 2012, with the Reserve Bank having raised its consumer price inflation forecast to reflect an expectation that the consumer price inflation rate will remain above the 6% target limit for the entire 2012.





* This report was prepared by John Loos, Household and Property Sector Strategist, FNB

Residential property prices to trade sideways in 2012

Residential property prices to trade sideways in 2012

Impacted by the poor economic growth environment.

It is expected that residential property prices are likely to continue to drift sideways in 2012, impacted by poor economic growth. However, according to CEO of ooba, Saul Geffen, with interest rates remaining at historically low levels, which may drop further in 2012, home buyers and home owners will continue to benefit.

Geffen says it is expected that the South African residential property market will experience limited real growth in property prices in 2012, impacted by the poor economic growth environment.

He says that 2011’s third quarter economic growth figures have confirmed that South Africa has once again had little real economic growth, which should mean further pressure on the fragile labour market and negative real disposable income growth. “All of this will lead to limited purchasing power. Whilst possible interest rate easing is possible, interest rates are not likely to make a major difference to residential property demand in 2012.

“However, the reduction in interest rates of 650 basis points since 2008 has improved affordability and reduced the cost of servicing a bond significantly. The record low interest rates, coupled with subdued property price inflation, increased bank approval rates and lower deposit requirements, will continue to positively influence the property market.”

Geffen says that the current economic climate is the biggest challenge currently facing the property market. However, there has been consistent improvement in the bank lending criteria in 2011. “The ability to obtain financing is one of the biggest drivers in the property market, so the consistent improvements are a positive indicator for the property market going forward.

“In addition, ooba has recorded significant growth in the number of applications and approved loans in 2011 and this growth is expected to continue. The rise in applications and approvals are attributed to the continued relaxation in lending criteria by the major lenders as well as ooba’s market share growth.

“The company’s statistics reveal that the number of bond applications during November 2011 increased by 36% from November 2010. The statistics also revealed that November was a record month for the value of approved home loans, which increased by 33% in comparison to November 2010. The value of approved loans in November is the highest recorded since May 2008, over three years ago.”

He says that in today’s tough lending environment, the origination value proposition is stronger than ever. “A bond originator is able to shop the application to multiple lenders so that homebuyers are assured of a higher probability of approval and on competitive terms. According to the latest ooba statistics, nearly a quarter of applications that were initially declined by one lender were approved by another. These applications would remain declined if they were not submitted to other banks post the initial bank decline,” concludes Geffen.

* This report was prepared by ooba

Residential property industry faces another challenging year

Residential property industry faces another challenging year

Estate agencies are facing a challenging twelve months.

With another sluggish year likely for residential property in South Africa, estate agencies are facing a challenging twelve months.

“As with 2011, property prices are just holding their own which impacts on agents’ commissions,” says Herschel Jawitz, CE of Jawitz Properties. “Unlike other industries where professional fees are charged, our commission doesn’t go up with inflation each year. The only ways our earnings increase is if property prices increase, or we sell more properties.”

If property prices only go up by two or three percent in 2012 then, in real terms, commission earnings will decline. “Added to this, costs are increasing by at least 10%, and the equation becomes interesting. Normally, if you are sacrificing margins you can try to make up the numbers with higher volumes but the numbers of sales for the most part are going to be flat year-on-year and in some areas may even decline.”

The economics are simple – fewer sales, flat prices, and homes taking longer to sell equates to estate agencies spending more money with less return.

Because of these factors, 2012 will be another very competitive year for the industry, as growth will have to include taking market share from competitors. “The bigger brands should be better off by the end of the year,” he says.

The decline in the number of estate agents supports this view with the fall off in agents coming mostly from the smaller agencies that have not been able to sustain themselves in a challenging market. The number of estate agents has decreased by 60 percent since the height of the boom in 2006/7 to about 25000. Most of the bigger national franchised brands or the larger brands in the metro areas have fared significantly better in this period and while absolute market sales may not be increasing, relative market share will have grown.

In addition to market share growth, the larger franchised brands are also seeing the benefit of the smaller independent agencies realising that the support of a national brand may be key to not only growth but also survival - especially if the current market persists for a few years. Most of the franchised brands have experienced solid growth in the number of new offices opened. Jawitz Properties grew its franchise network by 35% in 2011 including opening franchised offices across the Eastern Cape and expanding into Kwa-Zulu Natal. “I expect this trend to continue this year,” he says.

Key success factors for 2012 will be similar to many industries – meeting clients’ service expectations, employing technology as a critical enabler and most importantly, upholding the integrity of the brand and the people that represent it.

* This report was prepared by Jawitz Properties

'Top 10 property investor tips for 2012' : Property News from IOLProperty

'Top 10 property investor tips for 2012'

According to research conducted by Auction Alliance, more than 8% of all South African homeowners with mortgage bonds are still underwater with their loans (where balances are higher than values), hinting that there are more distressed sales still to come.

In effect, this will continue to restrain price growth in some areas, and create major constraints for certain sellers in 2012.

"So, if it's still a buyer's market here are 5 tips for 2012 that are aimed largely at the group that needs the most advice - South African home-sellers. In addition, there are also five tips to help buyers navigate the surplus of investment opportunities available" comments Rael Levitt.


1. Price your house right from day one

The old-school strategy of real estate crossing their fingers and hoping for a better offer, whilst starting at a higher mandate, will be brushed off by most home-buyers.

For an objective gauge, have your estate agent produce the latest comparable sales, including distressed sales and sales in execution in your area as well as a recent summary of sales prices versus original list prices.

However, be aware that this information doesn't reflect the homes that failed to sell.
Also, do not rely on a small sample of one or two homes.


2. Play nice

As a seller today, you need buyers far more than they need you. The days of the arrogant seller is well and truly over if you want to sell that is - you have to be ready to not only negotiate price but offer extras such as improvements (or a cash discount), appliances, a few months of bond payments or even seller financing which is a growing trend.

Home sellers who've been quietly sitting on the sidelines advising their agents to ignore low offers simply don't have that luxury now. Instruct your agent to listen intently to prospective homebuyers' misgivings about the home and seriously consider adjusting your price accordingly.


3. Don't fall for distressed seller schemes

Fraudsters are targeting distressed homeowners with "deals" that can sound perfectly legit.
Many of these fraudsters were the same ones getting buyers into the boom market. Some offer loan modifications for upfront fees while others offer fee-based "help" in navigating bank sales assistance programmes, sometimes claiming they're attorneys.

There are also con-artist "investors" compelling desperate owners to sign over their homes with empty promises that you can remain in the property indefinitely.
Others are telling former owners they can get their homes back for a lump sum. Be forewarned: never sign blank documents or documents with blank lines. If you're unsure of an offer, have independent attorneys look carefully at these offers.


4. Buyer financing

Realise that it's harder to qualify for home loans these days. Credit records are under greater scrutiny, and lenders are often demanding a minimum 10% down payment and some pricing flexibility from the sellers, especially if the bank valuation doesn't reach the selling price.

Consider cash offers, even if they're not the highest. Reject offers that are too-low, gently and with encouragement, telling them they're close. You don't want to give away your house but you don't want to give it back to the bank either. These days, meeting halfway usually means meeting buyers on their half.


5. Get involved with your agent

Estate Agents often advise sellers to retreat from view during show houses in case they disclose something unpleasant that could ruin the deal - that's now changed.

If you can control your ego and emotions and come off as a keen, realistic and flexible seller you are a far better spokesperson than your estate agent.

Be ready to answer would-be buyers' questions about the neighbourhood and schools in the area, but be careful about making verbal promises or getting into legal discussions.



Here's some advice on how best to operate in a buyer's market.

1. Widen your market

There is still an overabundance of well-priced housing inventory out there, which means you needn't immediately narrow your search to the first house you fancy.

That's especially the case with distressed sales, which can be a nightmare to close in a timely manner. There are some for-sale deals that need only a little polishing while others need substantially more. Therefore, it is best to shop around.

Don't dismiss insolvency sales or other bank properties, sales in execution, auction homes, for-sale-by-owner or lease-to-own homes. Pick at least three favourites and work from there.

2. Be wary of valuations

Are you perplexed by the home valuation your bank or agent did when they are both reputable organizations? Or are you puzzled how that bank valuation can be 25% or more above or below a very recent valuation you've had done?

Well, value estimates can vary widely, sometimes by hundreds of thousands of Rand, even by the admission of the companies themselves. There are way too many variables in the valuation game to give too much credence to estimates that are impersonally calculated. Nothing beats a nuanced up-to-date professional valuation done by three to four highly reputable companies.

3. Buyer's due diligence done properly

Due diligence on a potential property means so much more than going through the motions with the usual contracts, financial details and electrical compliance certificates. It is possible to negate substantial risk by doing a thorough inspection of the property, and if you feel unqualified or inexperienced, it is advisable to hire a property inspector to do this on your behalf. Ask them to check for;

Unpermitted work such as illegal room additions and garage conversions.

Consider the overall energy efficiency of the home with an energy audit (a growing trend with escalating Eskom costs)

Be sure property boundary lines are accurate. If there's any question, hire a land surveyor to research the original deed and to stake out the property's lines and your neighbours' property lines to avoid future disputes.

4. Create a neighbourhood checklist

Go to the Body Corporate or Homeowners Association and ask to see their financials. (There is no point buying into a distressed building management).
Spend some time around the neighbourhood and briefly interview neighbours. Determine if there are noisy neighbours, signs of gang activity, nocturnal barking dogs, crime, frequent loud parties and/or suspicious night-time visits. Are there lots of rental homes? Is there a restrictive or difficult Homeowners Association?
Determine what types of buildings can be constructed on vacant land adjacent to the neighbourhood. This helps avoid unpleasant future surprises. Also, check if there is constant noise from a nearby highway or busy street.

5. Don't lose the right house because you are being too difficult

Most buyers know that this is their market and timing is great to get into the market, but don't forget that not every seller is desperate and many will not want to deal with you if you are too arrogant or patronising with your offers.

The ones, who don't have to sell, simply won't and you could land up being one of those people who never find a house because your offers have been too low. By all means negotiate, but there will come a point that sellers won't want to deal with you - so be smart about what you offer.

Lastly, remember that real estate is a long-term investment, and what may a financial stretch now will, over time, become insignificant if you did your homework on the property.

Auction Alliance Press Release