Many don`t qualify for home loans
At least 83% of nearly 14m households do not earn enough to qualify for bank home loans.
At least 83 percent of nearly 14 million households do not earn enough to qualify for bank home loans, according to the latest statistics released by the SA Institute of Race Relations (SAIRR).
"The income figures demonstrate the pressure on the state's housing delivery programmes with 60 percent of all households eligible for government-subsidised housing," said Kerwin Lebone from the institute's research department on Thursday.
In 2009, only 12 percent of households earned enough to qualify for an unassisted bank mortgage, the SAIRR said in a statement.
Only 700,000 households qualified for bank finance in the affordable housing sector.
These figures emanate from a 2011 report by the Financial and Fiscal Commission.
In 2009, at least 60 percent of households earned R3500 or less a month and qualified for a state housing grant.
Seven percent of households earned between R7000 and R10,500, which did not allow them to qualify for government housing programmes and not enough to get a bank mortgage.
It said the number of informal backyard dwellings rose by 83 percent between 1996 and 2010.
"People who were on the waiting list of government housing programmes, and the majority of those that do not qualify for such programmes, often migrated to backyard dwellings that offered cheaper rentals," the SAIRR said.
About Me
- Gareth Shepperson
- Pretoria, Gauteng Province, South Africa
- Property Lawyer & Conveyancer ... Lover of Life in general!! www.prop-law.co.za In this Blog we have always brought you the latest PROPERTY NEWS but now we will also bring you a Q & A SECTION, where we answer readers questions. Please e-mail your questions to gareth@propertylaw.onmicrosoft.com (The information contained in this Blog does NOT constitute legal advice. If you require legal advice, you are very welcome to contact me.)
03 February 2012
Capital Property Fund to become specialist fund
Capital Property Fund to become specialist fund
Plans to reduce its exposure to retail.
Capital Property Fund (JSE:CPL) says it is in the process of gradually reducing its retail exposure as part of its strategy to become a specialised office and industrial portfolio.
“If you look at the major listed sightings that are the most highly rated offshore, they are all specialist funds,” executive director Andrew Teixteira told Moneyweb. He added that by providing a specialised product, people know exactly what they are going to get. “If you buy Resilient shares, you’re buying into regional retail. If you buy Capital, you’re getting into office and industrial.”
Teixteira added that it had inherited a substantial retail portfolio after the acquisition of Pangbourne in 2011. “The strategy has always been to be a commercial and industrial fund with the sale of the retail.”
Asked if Capital was not concerned about the relatively high vacancy rate especially in office space, MD Barry Stuhler replied that the vacancy rate would probably deteriorate further before improving, but he believed it was part the ongoing cycle in the industry.
“We’re not building for today or tomorrow …at some point in time the vacancies are going to be taken up and we’ll be in a really good position. We will have lots of supply,” Stuhler said.
He was speaking after the release of Capital’s results in which it posted a 9.13% rise in distributions to 65.63c per unit for the year ended December.
Stanlib’s head of property funds, Keillen Ndlovu, says: “This is a good result achieved in a tough market, more so with the depressed office market, of which Capital has 30% exposure by rental income.”
On the vacancies, Ndlovu said the decline in both the office and industrial portfolios was to be expected and was a national trend, given the weak fundamentals currently in the sector.
Stuhler said historically Capital acquired properties rather than built but due to current “crazy prices” the company had decided to opt for building rather than buying. “It’s very simple, that’s the pipeline,” he added.
He said Capital had obtained quite a lot of land following its acquisition of Pangbourne, making it the third largest property group in the country. The fund had partnered with Improvon, which specialises in industrial and commercial facilities in developing land in Gauteng and the Western Cape.
The company is also currently looking at acquiring new land in Gauteng and in Durban, KwaZulu-Natal.
Teixeira says the company only builds on 50% of their sites allowing space for truck reticulation
Plans to reduce its exposure to retail.
Capital Property Fund (JSE:CPL) says it is in the process of gradually reducing its retail exposure as part of its strategy to become a specialised office and industrial portfolio.
“If you look at the major listed sightings that are the most highly rated offshore, they are all specialist funds,” executive director Andrew Teixteira told Moneyweb. He added that by providing a specialised product, people know exactly what they are going to get. “If you buy Resilient shares, you’re buying into regional retail. If you buy Capital, you’re getting into office and industrial.”
Teixteira added that it had inherited a substantial retail portfolio after the acquisition of Pangbourne in 2011. “The strategy has always been to be a commercial and industrial fund with the sale of the retail.”
Asked if Capital was not concerned about the relatively high vacancy rate especially in office space, MD Barry Stuhler replied that the vacancy rate would probably deteriorate further before improving, but he believed it was part the ongoing cycle in the industry.
“We’re not building for today or tomorrow …at some point in time the vacancies are going to be taken up and we’ll be in a really good position. We will have lots of supply,” Stuhler said.
He was speaking after the release of Capital’s results in which it posted a 9.13% rise in distributions to 65.63c per unit for the year ended December.
Stanlib’s head of property funds, Keillen Ndlovu, says: “This is a good result achieved in a tough market, more so with the depressed office market, of which Capital has 30% exposure by rental income.”
On the vacancies, Ndlovu said the decline in both the office and industrial portfolios was to be expected and was a national trend, given the weak fundamentals currently in the sector.
Stuhler said historically Capital acquired properties rather than built but due to current “crazy prices” the company had decided to opt for building rather than buying. “It’s very simple, that’s the pipeline,” he added.
He said Capital had obtained quite a lot of land following its acquisition of Pangbourne, making it the third largest property group in the country. The fund had partnered with Improvon, which specialises in industrial and commercial facilities in developing land in Gauteng and the Western Cape.
The company is also currently looking at acquiring new land in Gauteng and in Durban, KwaZulu-Natal.
Teixeira says the company only builds on 50% of their sites allowing space for truck reticulation
The risk "less" investment option
The risk "less" investment option
Investments that allow an investor to manage and mitigate the risks involved.
While no investment is entirely without risk, there are investments that not only entail less risk than most, but also allow an investor to manage and mitigate - if not eliminate - the risks involved. A superb case in point is an investment in buy-to-let property.
Once an investor understands the very simple principles of buy-to-let property investment, it becomes clear that this is an investment alternative that poses far less risk than traditional investments. A brief overview of some of the main risks investors face when investing their hard-earned money will clearly reveal why a buy-to-let property investment is indeed a risk-"less" option, and will leave investors asking why they should ever invest in more risky investments to obtain far less impressive returns.
One of the greatest risks investors face is themselves, or "investor risk", as it is termed in financial circles. This risk refers to the fact that investors are often swayed by emotion - ranging from wild optimism to panic - which results in buying high, selling low, getting the timing wrong or abandoning long-term investment strategies in response to short-term market fluctuations.
"Property is an illiquid investment, which means it cannot be acquired or disposed of in a moment of panic of euphoria. When acquiring a property, the process of obtaining finance inherently requires financial scrutiny and bank valuations, which provides a built-in risk management mechanism. In addition, if investors take a professional approach to this type of investment, using proven step-by-step systems and custom-designed software, they can be absolutely certain that they acquire the right property every time," explains Dr Koos du Toit, CEO of P3 Investment Group. "A property is not simply sold on a whim, and obtaining valuations and offers prior to a sale provides the investor with some indication of whether selling is indeed the right option, or whether letting, subdividing, renovating or improving the property may yield a better return."
Of course, investor risk has been amplified by the extreme market volatility in recent times and there is little an investor can do to manage this risk. "Buy-to-let property investment, on the other hand, is far less susceptible to fickle investor sentiment and market volatility: property values and rentals don't simply plummet over night as share prices do. Although the economic conditions do impact the property market, people need a roof over their heads regardless of stock market movements or market crashes, and over the long term, rentals as well as property prices tend upwards regardless of economic conditions," notes Dr du Toit.
Related to the risk of market volatility is the risk of poor asset management. This is the risk that a salaried asset manager - to whom individual investors are no more than numbers - may make a poor judgement call and decimate their life savings. "The reality for investors is simply that no one will ever look after your hard-earned money as well as you do," comments Dr du Toit. "When you hand your money over to an unknown third party, you face a significant risk that you simply become a pawn in the big world of investment. A buy-to-let property puts the investor in control, able to conduct their own due diligence and to make their own decisions about where and how their money is invested: in brick-and-mortar, where they can see, touch and manage their investments.
"Of course, a buy-to-let property investor can also make poor judgement calls. However, this risk can be managed very effectively by tapping into a proven system, backed up by solid training and easy-to-use software, such as the P3 Investment System. It ensures every buy-to-let investment decision is thoroughly considered according to current variables and future performance, including cash flow projections and provision for vacancies, maintenance and other contingencies. Implementing such a system removes emotion from the investment decision and creates confidence that the investor has made the right decision."
The most prominent risk associated with buy-to-let investment is defaulting tenants. But this risk too can be managed effectively by appointing a professional and reputable rental management company for a reasonable monthly fee, to thoroughly screen tenants before placing them and to proactively manage the tenant. This, along with rental insurance, which will cover defaults and even evictions, providing excellent risk mitigation.
But perhaps the biggest risk any investor faces is inflation - the risk that the performance of the investment will not keep pace with inflation, eroding capital and leaving the investor with insufficient income to maintain his or her standard of living at retirement. "If an investment is not keeping pace with inflation, what is the point of investing?" asks Dr du Toit. "Buy-to-let property offers a built-in hedge against inflation, because the rental income produced by the property increases year by year, keeping pace with inflation. In addition to providing this ongoing, inflation-linked income, a buy-to-let investment property will also provide capital growth year after year."
For taking less risk, buy-to-let investors can expect an inflation-linked, passive annuity income for the rest of their lives, in addition to solid capital growth over the years. "It is these dual returns, produced despite the fact that property investment requires investors to risk less, which make buy-to-let property investment one of the best investment alternatives for South Africans who have been deeply disappointed by the performance of their traditional investment and retirement plans," concludes Dr du Toit.
* This report was prepared by P3 Investment Group
Investments that allow an investor to manage and mitigate the risks involved.
While no investment is entirely without risk, there are investments that not only entail less risk than most, but also allow an investor to manage and mitigate - if not eliminate - the risks involved. A superb case in point is an investment in buy-to-let property.
Once an investor understands the very simple principles of buy-to-let property investment, it becomes clear that this is an investment alternative that poses far less risk than traditional investments. A brief overview of some of the main risks investors face when investing their hard-earned money will clearly reveal why a buy-to-let property investment is indeed a risk-"less" option, and will leave investors asking why they should ever invest in more risky investments to obtain far less impressive returns.
One of the greatest risks investors face is themselves, or "investor risk", as it is termed in financial circles. This risk refers to the fact that investors are often swayed by emotion - ranging from wild optimism to panic - which results in buying high, selling low, getting the timing wrong or abandoning long-term investment strategies in response to short-term market fluctuations.
"Property is an illiquid investment, which means it cannot be acquired or disposed of in a moment of panic of euphoria. When acquiring a property, the process of obtaining finance inherently requires financial scrutiny and bank valuations, which provides a built-in risk management mechanism. In addition, if investors take a professional approach to this type of investment, using proven step-by-step systems and custom-designed software, they can be absolutely certain that they acquire the right property every time," explains Dr Koos du Toit, CEO of P3 Investment Group. "A property is not simply sold on a whim, and obtaining valuations and offers prior to a sale provides the investor with some indication of whether selling is indeed the right option, or whether letting, subdividing, renovating or improving the property may yield a better return."
Of course, investor risk has been amplified by the extreme market volatility in recent times and there is little an investor can do to manage this risk. "Buy-to-let property investment, on the other hand, is far less susceptible to fickle investor sentiment and market volatility: property values and rentals don't simply plummet over night as share prices do. Although the economic conditions do impact the property market, people need a roof over their heads regardless of stock market movements or market crashes, and over the long term, rentals as well as property prices tend upwards regardless of economic conditions," notes Dr du Toit.
Related to the risk of market volatility is the risk of poor asset management. This is the risk that a salaried asset manager - to whom individual investors are no more than numbers - may make a poor judgement call and decimate their life savings. "The reality for investors is simply that no one will ever look after your hard-earned money as well as you do," comments Dr du Toit. "When you hand your money over to an unknown third party, you face a significant risk that you simply become a pawn in the big world of investment. A buy-to-let property puts the investor in control, able to conduct their own due diligence and to make their own decisions about where and how their money is invested: in brick-and-mortar, where they can see, touch and manage their investments.
"Of course, a buy-to-let property investor can also make poor judgement calls. However, this risk can be managed very effectively by tapping into a proven system, backed up by solid training and easy-to-use software, such as the P3 Investment System. It ensures every buy-to-let investment decision is thoroughly considered according to current variables and future performance, including cash flow projections and provision for vacancies, maintenance and other contingencies. Implementing such a system removes emotion from the investment decision and creates confidence that the investor has made the right decision."
The most prominent risk associated with buy-to-let investment is defaulting tenants. But this risk too can be managed effectively by appointing a professional and reputable rental management company for a reasonable monthly fee, to thoroughly screen tenants before placing them and to proactively manage the tenant. This, along with rental insurance, which will cover defaults and even evictions, providing excellent risk mitigation.
But perhaps the biggest risk any investor faces is inflation - the risk that the performance of the investment will not keep pace with inflation, eroding capital and leaving the investor with insufficient income to maintain his or her standard of living at retirement. "If an investment is not keeping pace with inflation, what is the point of investing?" asks Dr du Toit. "Buy-to-let property offers a built-in hedge against inflation, because the rental income produced by the property increases year by year, keeping pace with inflation. In addition to providing this ongoing, inflation-linked income, a buy-to-let investment property will also provide capital growth year after year."
For taking less risk, buy-to-let investors can expect an inflation-linked, passive annuity income for the rest of their lives, in addition to solid capital growth over the years. "It is these dual returns, produced despite the fact that property investment requires investors to risk less, which make buy-to-let property investment one of the best investment alternatives for South Africans who have been deeply disappointed by the performance of their traditional investment and retirement plans," concludes Dr du Toit.
* This report was prepared by P3 Investment Group
02 February 2012
SA`s richest person worth R61bn
SA`s richest person worth R61bn
The Rich List, compiled by Intellidex, was determined by looking at the super-rich and their role in growing and owning companies. Specifically, net worth information was gained from publicly traded companies, i.e. companies listed on the Johannesburg Stock Exchange.
Wealthy businessmen and women can now be found in Nigeria, Egypt and Kenya and they’re among the richest in the world.
To read more about how these moguls made their money download the digital editions from: http://www.destinyconnect.com/ or: http://www.destinyman.com/.
* This report was prepared by DESTINY
SA's richest person worth R61bn |
A list of South Africa's 10 richest men and woman.
What’s most inspiring about these local super-wealthy individuals is that almost all of them have increased their net worth from 2010 in the face of a challenging economic downturn. In addition, many of their names featured prominently on the 2011 global rich list. Further north on the continent, the richest man in Africa – for the first time - is Nigerian Aliko Dangote, whose fortune is estimated at almost R80 billion.The Rich List, compiled by Intellidex, was determined by looking at the super-rich and their role in growing and owning companies. Specifically, net worth information was gained from publicly traded companies, i.e. companies listed on the Johannesburg Stock Exchange.
Wealthy businessmen and women can now be found in Nigeria, Egypt and Kenya and they’re among the richest in the world.
To read more about how these moguls made their money download the digital editions from: http://www.destinyconnect.com/ or: http://www.destinyman.com/.
* This report was prepared by DESTINY
7 deadly sins of property investment
7 deadly sins of property investment
Avoid certain pitfalls that can impact on your return on investment.
Purchasing an investment property can be an intimidating and often risky business, but it is also a way to have a future free of financial worry for those who can master it, says Adrian Goslett, CEO of RE/MAX of Southern Africa.
Goslett says that while seasoned property investors will generally have a vast understanding of the property market, many first-time buyers or those relatively new to the property game will often make the wrong and sometimes very costly decisions. Although lucrative opportunities can be found in the current market, it is important for buyers to avoid certain pitfalls that can impact on their return on investment.
Goslett provides the seven deadly sins that property investors should avoid at all costs when purchasing property:
1. Have patience, don’t be in a hurry – Goslett notes that the first step to property investment is taking the time to do the necessary research. “Rushing into a property deal without having spent the time to complete the appropriate research could cost the buyer dearly in the long run,” he says. “As the mantra goes - knowledge is power. If a buyer has done the research they will have a greater understanding of the market and will be able to recognise an opportunity when it arises.” Don’t take the first deal on the market, but shop around. Take time to compare similar properties in an area and then see what other options are available on the market. Look at the price of the property and compare this to the value. Get an estate agent to provide a comparative market analysis of the area.
2. Location is everything – We have all heard it – location, location, location. Goslett says that the importance of buying in a prime location cannot be over emphasised. He says: “Simply put, a property in a bad location will never fetch a premium price, even in a boom period. Choosing the right location is essential when making a property purchase. Buyers should look for areas that are in proximity to a good range of amenities. Areas that consistently show steady growth in value are those that are near to business nodes, transport routes, good schools and shopping centres. While rental income is important, the primary goal should be capital growth.”
3. Don’t make assumptions - With the introduction of the Consumer Protection Act, buyers are generally quite well covered. However, it is always advisable to have a professional home inspector to take a look at the property. “A professional inspector will be able to spot any problems that may otherwise go unnoticed, such as the structural integrity of the property. It may cost money to hire an inspector, but this could save a lot more money for repairs in the long run,” says Goslett.
4. Seek help, don’t do this alone – Rather learn from other people’s mistakes than your own. Goslett says that new buyers should have an experienced property investor as their buying mentor. “A knowledgeable property investor that has been in the game for some time will be able to show a new buyer the ropes and guide them through the process,” says Goslett.
5. Keep an eye on the budget – Perhaps one of the deadliest sins is not keeping track of finances and debt. According to Goslett, investors should undertake an in-depth budget and cash flow analysis in order to ascertain their accurate financial position. “Know what you can afford and what you can’t, which can be measured by completing a personal cash flow statement.” says Goslett.
He adds that buyers should compare financing deals from various financial institutions before deciding to secure their home loan. Securing a loan will be an intricate part of the purchasing process. Buyers should also bear in mind that most banks still require a 10% to 30% deposit. This, coupled with the fact that a loan will increase the cost of purchasing property, makes choosing the right lender essential to ensuring a good return on investment.
6. Proper maintenance – A large element of purchasing a property is the ability to maintain the property to protect your investment. Whether the property is bought as a primary residence or as part of a rental portfolio, keeping the property in good order is a vital part to ensuring a good return on that investment. “Buyers should include maintenance costs as part of their budget and plan. They will also need to ensure they have the time or capacity to properly manage and maintain their property. With a rental property, a management agent can be hired to make sure that all repairs and general management are taken care of,” says Goslett.
7. Don’t put all your eggs in one basket - When buying property specifically for investment purposes, it is imperative to diversify your portfolio, says Goslett. This will largely minimise exposure to risk. Buyers should try to buy different kinds of properties in varies areas, rather than buying a few properties in one development.
“Property buyers should learn as much as possible about the environment they are trading in, consult various experts and make use of professional, reputable and knowledgeable estate agents to assist them in the sales process,” concludes Goslett.
* This report was prepared by RE/MAX
Avoid certain pitfalls that can impact on your return on investment.
Purchasing an investment property can be an intimidating and often risky business, but it is also a way to have a future free of financial worry for those who can master it, says Adrian Goslett, CEO of RE/MAX of Southern Africa.
Goslett says that while seasoned property investors will generally have a vast understanding of the property market, many first-time buyers or those relatively new to the property game will often make the wrong and sometimes very costly decisions. Although lucrative opportunities can be found in the current market, it is important for buyers to avoid certain pitfalls that can impact on their return on investment.
Goslett provides the seven deadly sins that property investors should avoid at all costs when purchasing property:
1. Have patience, don’t be in a hurry – Goslett notes that the first step to property investment is taking the time to do the necessary research. “Rushing into a property deal without having spent the time to complete the appropriate research could cost the buyer dearly in the long run,” he says. “As the mantra goes - knowledge is power. If a buyer has done the research they will have a greater understanding of the market and will be able to recognise an opportunity when it arises.” Don’t take the first deal on the market, but shop around. Take time to compare similar properties in an area and then see what other options are available on the market. Look at the price of the property and compare this to the value. Get an estate agent to provide a comparative market analysis of the area.
2. Location is everything – We have all heard it – location, location, location. Goslett says that the importance of buying in a prime location cannot be over emphasised. He says: “Simply put, a property in a bad location will never fetch a premium price, even in a boom period. Choosing the right location is essential when making a property purchase. Buyers should look for areas that are in proximity to a good range of amenities. Areas that consistently show steady growth in value are those that are near to business nodes, transport routes, good schools and shopping centres. While rental income is important, the primary goal should be capital growth.”
3. Don’t make assumptions - With the introduction of the Consumer Protection Act, buyers are generally quite well covered. However, it is always advisable to have a professional home inspector to take a look at the property. “A professional inspector will be able to spot any problems that may otherwise go unnoticed, such as the structural integrity of the property. It may cost money to hire an inspector, but this could save a lot more money for repairs in the long run,” says Goslett.
4. Seek help, don’t do this alone – Rather learn from other people’s mistakes than your own. Goslett says that new buyers should have an experienced property investor as their buying mentor. “A knowledgeable property investor that has been in the game for some time will be able to show a new buyer the ropes and guide them through the process,” says Goslett.
5. Keep an eye on the budget – Perhaps one of the deadliest sins is not keeping track of finances and debt. According to Goslett, investors should undertake an in-depth budget and cash flow analysis in order to ascertain their accurate financial position. “Know what you can afford and what you can’t, which can be measured by completing a personal cash flow statement.” says Goslett.
He adds that buyers should compare financing deals from various financial institutions before deciding to secure their home loan. Securing a loan will be an intricate part of the purchasing process. Buyers should also bear in mind that most banks still require a 10% to 30% deposit. This, coupled with the fact that a loan will increase the cost of purchasing property, makes choosing the right lender essential to ensuring a good return on investment.
6. Proper maintenance – A large element of purchasing a property is the ability to maintain the property to protect your investment. Whether the property is bought as a primary residence or as part of a rental portfolio, keeping the property in good order is a vital part to ensuring a good return on that investment. “Buyers should include maintenance costs as part of their budget and plan. They will also need to ensure they have the time or capacity to properly manage and maintain their property. With a rental property, a management agent can be hired to make sure that all repairs and general management are taken care of,” says Goslett.
7. Don’t put all your eggs in one basket - When buying property specifically for investment purposes, it is imperative to diversify your portfolio, says Goslett. This will largely minimise exposure to risk. Buyers should try to buy different kinds of properties in varies areas, rather than buying a few properties in one development.
“Property buyers should learn as much as possible about the environment they are trading in, consult various experts and make use of professional, reputable and knowledgeable estate agents to assist them in the sales process,” concludes Goslett.
* This report was prepared by RE/MAX
Auctions vs conventional selling
Auctions vs conventional selling
Which is the better option to sell your residential property?
One of the main topics currently being discussed in the property market is, "is it better to buy at auctions or through estate agents?"
The consensus of opinion among the prominent estate agents Moneyweb contacted was, commercial properties should be entrusted to auctioneers, but not residential properties.
The auctioneers contacted agree with them about commercial properties, all, however, feel they have a better chance of selling residential properties – and faster.
Some auctioneers feel auctioning is slowly gaining market share, although there aren’t any figures to prove their view.
All property transactions must be registered in the Deeds Registry, run by the Department of Rural Development and Land Reform. But all the Deeds Register web page states is:
"By September 2010 1.44m government-subsidised properties were formally registered on the Deeds Registry. This comprises about 24% of all formally registered residential properties."
That can be interpreted to mean just more than 4.3m properties were registered in that period.
Lew Geffen, chairman of Sotheby's International Realty, South Africa owns a conventional real estate business and a separate auction business, believes “the sale of residential property by auction cannot compete with sales by real estate companies.
“A property usually goes to auction when the seller is desperate. If the seller does not accept the offer it will be a failed auction.
“There is no stigma if a residential property has show day after show day.”
He describes the auction platform as “great for commercial properties. I believe commercial properties genuinely take less time to be sold by way of auction.
“In the present market, an average residential property takes about four months to sell. It is false to claim that auction properties take only 30 days to sell.”
Ronald Ennik, CEO of luxury homes marketer Ennik Estates, who helped grow the Pam Golding brand to one of the top positions at the luxury end of the Johannesburg homes market, agrees with Geffen: “the auction system is better suited to the commercial property sector, where it attracts less negative perception than in the residential sector.
“In the residential sector it is perceived as a last resort by a seller who has his back to the wall.”
Bill Hartard, a partner in Segoale Property Mart, who was chairman of the SA Institute of Auctioneers (Saia) for 14 years, and who now specialises in auctioning residential properties, takes a more holistic view.
He says it will take a long time before auctioneers can compete with estate agents on level terms, because "there are about 37 000 registered estate agents, and 160 auctioneers that are registered with Saia.
"If there is no urgency to sell it is in sellers’ interest to negotiate sales through estate agents who can include suspensive conditions, such as, 'subject to the buyer selling his own property,’ as well as arranging bond financing.
"Where the need to sell is urgent, sellers should take the auction route, where a sale can be achieved within about 21 days, with no suspensive conditions.
“This applies particularly to free standing mansions or luxury penthouses on the Atlantic Seaboard.
“Like pieces of art, they’re worth only what someone is prepared to pay for them. Which can be established only on auction."
As far as costs are concerned, estate agents pay for advertising properties, and sellers for advertising sales by auction, and the auction costs.
Rael Levitt, CEO of Auction Alliance, arguably the biggest auctioneers in SA, says: “real estate agencies may leave you waiting for prospective buyers to view your property and put in an offer to purchase.
“If a property takes a long time to generate interest when mandated to real estate agents the seller may, in desperation, be forced to accept the first offer - even if it's low.
“With auctions it can take between eight and ten weeks from the instruction to sell to the registered
transfer of a property or asset.
"The deal is done when the hammer falls: no protracted negotiations, no suspensive clauses or intermediaries."
“The seller sets a reserve price. There's no ceiling on the price, which often results in higher final prices than more traditional selling methods.
“Only serious buyers bid at auctions. If there's no sale, there's no charge, and the buyer, not the seller covers the auctioneer's commission.”
“Auctions also work for buyers. It takes three and four weeks to register the transfer of an auctioned property or asset.
"Auctions invariably secure realistic market price, and there's always the chance of a bargain."
Park Village Auctions’ director Roy Lazarus says, “auctions are less time consuming, there’s only one show day, where prospective buyers aren’t expected to make any offers.
Auctions create excitement. Buyers often pay more than they intended to.
“People often think the seller (by auction) is insolvent. That’s a complete misconception.”
Which is the better option to sell your residential property?
One of the main topics currently being discussed in the property market is, "is it better to buy at auctions or through estate agents?"
The consensus of opinion among the prominent estate agents Moneyweb contacted was, commercial properties should be entrusted to auctioneers, but not residential properties.
The auctioneers contacted agree with them about commercial properties, all, however, feel they have a better chance of selling residential properties – and faster.
Some auctioneers feel auctioning is slowly gaining market share, although there aren’t any figures to prove their view.
All property transactions must be registered in the Deeds Registry, run by the Department of Rural Development and Land Reform. But all the Deeds Register web page states is:
"By September 2010 1.44m government-subsidised properties were formally registered on the Deeds Registry. This comprises about 24% of all formally registered residential properties."
That can be interpreted to mean just more than 4.3m properties were registered in that period.
Lew Geffen, chairman of Sotheby's International Realty, South Africa owns a conventional real estate business and a separate auction business, believes “the sale of residential property by auction cannot compete with sales by real estate companies.
“A property usually goes to auction when the seller is desperate. If the seller does not accept the offer it will be a failed auction.
“There is no stigma if a residential property has show day after show day.”
He describes the auction platform as “great for commercial properties. I believe commercial properties genuinely take less time to be sold by way of auction.
“In the present market, an average residential property takes about four months to sell. It is false to claim that auction properties take only 30 days to sell.”
Ronald Ennik, CEO of luxury homes marketer Ennik Estates, who helped grow the Pam Golding brand to one of the top positions at the luxury end of the Johannesburg homes market, agrees with Geffen: “the auction system is better suited to the commercial property sector, where it attracts less negative perception than in the residential sector.
“In the residential sector it is perceived as a last resort by a seller who has his back to the wall.”
Bill Hartard, a partner in Segoale Property Mart, who was chairman of the SA Institute of Auctioneers (Saia) for 14 years, and who now specialises in auctioning residential properties, takes a more holistic view.
He says it will take a long time before auctioneers can compete with estate agents on level terms, because "there are about 37 000 registered estate agents, and 160 auctioneers that are registered with Saia.
"If there is no urgency to sell it is in sellers’ interest to negotiate sales through estate agents who can include suspensive conditions, such as, 'subject to the buyer selling his own property,’ as well as arranging bond financing.
"Where the need to sell is urgent, sellers should take the auction route, where a sale can be achieved within about 21 days, with no suspensive conditions.
“This applies particularly to free standing mansions or luxury penthouses on the Atlantic Seaboard.
“Like pieces of art, they’re worth only what someone is prepared to pay for them. Which can be established only on auction."
As far as costs are concerned, estate agents pay for advertising properties, and sellers for advertising sales by auction, and the auction costs.
Rael Levitt, CEO of Auction Alliance, arguably the biggest auctioneers in SA, says: “real estate agencies may leave you waiting for prospective buyers to view your property and put in an offer to purchase.
“If a property takes a long time to generate interest when mandated to real estate agents the seller may, in desperation, be forced to accept the first offer - even if it's low.
“With auctions it can take between eight and ten weeks from the instruction to sell to the registered
transfer of a property or asset.
"The deal is done when the hammer falls: no protracted negotiations, no suspensive clauses or intermediaries."
“The seller sets a reserve price. There's no ceiling on the price, which often results in higher final prices than more traditional selling methods.
“Only serious buyers bid at auctions. If there's no sale, there's no charge, and the buyer, not the seller covers the auctioneer's commission.”
“Auctions also work for buyers. It takes three and four weeks to register the transfer of an auctioned property or asset.
"Auctions invariably secure realistic market price, and there's always the chance of a bargain."
Park Village Auctions’ director Roy Lazarus says, “auctions are less time consuming, there’s only one show day, where prospective buyers aren’t expected to make any offers.
Auctions create excitement. Buyers often pay more than they intended to.
“People often think the seller (by auction) is insolvent. That’s a complete misconception.”
R10bn facelift for Pretoria HQ
R10bn facelift for Pretoria HQ
The Tshwane municipality will finally relocate next week as its old Munitoria headquarters, damaged in a fire in 1997, is set to undergo a R10 billion revamp.
Munitoria is to make way for a R10 billion new headquarters in the city centre.
This was announced by executive mayor Kgosientso Ramokgopa during a press briefing yesterday, He said the old Munitoria would be demolished to make way for a new building called Tshwane House.
According to Ramokgopa, the move will be funded jointly by the municipality and private partners in what is said to be a first private-public partnership of its scale in the country. The entire staff currently based at Munitoria will move to a nearby building in Van der Walt Street, where it will be based for the next two to three years. According to Ramokgopa, the council will rent the building until the new headquarters built on the existing site is ready for occupation.
Tsela Tshweu Investments, a consortium made up of Standard Bank, Nedbank, Group Five and other smaller contractors, has been awarded the project.
City manager Jason Ngobeni said the new building would place the municipality in a central location instead of the current situation in which various departments were spread across the city.
"It will allow for the municipality to interact with the residents much more easily and we will be able to group various divisions accordingly. But it will also improve the entire node where it will be located," said Ngobeni.
He couldn't give an exact amount of what it would cost the city to rent the offices where the council would be located temporarily, saying only that it was "market-related". But he confirmed that the municipality would fork out approximately R3bn for the new headquarters while the rest would come from the private sector.
Pretoria News
The Tshwane municipality will finally relocate next week as its old Munitoria headquarters, damaged in a fire in 1997, is set to undergo a R10 billion revamp.
Munitoria is to make way for a R10 billion new headquarters in the city centre.
This was announced by executive mayor Kgosientso Ramokgopa during a press briefing yesterday, He said the old Munitoria would be demolished to make way for a new building called Tshwane House.
According to Ramokgopa, the move will be funded jointly by the municipality and private partners in what is said to be a first private-public partnership of its scale in the country. The entire staff currently based at Munitoria will move to a nearby building in Van der Walt Street, where it will be based for the next two to three years. According to Ramokgopa, the council will rent the building until the new headquarters built on the existing site is ready for occupation.
Tsela Tshweu Investments, a consortium made up of Standard Bank, Nedbank, Group Five and other smaller contractors, has been awarded the project.
City manager Jason Ngobeni said the new building would place the municipality in a central location instead of the current situation in which various departments were spread across the city.
"It will allow for the municipality to interact with the residents much more easily and we will be able to group various divisions accordingly. But it will also improve the entire node where it will be located," said Ngobeni.
He couldn't give an exact amount of what it would cost the city to rent the offices where the council would be located temporarily, saying only that it was "market-related". But he confirmed that the municipality would fork out approximately R3bn for the new headquarters while the rest would come from the private sector.
Pretoria News
Business rescue procedures and their impact on property leases
Business rescue procedures and their impact on property leases
The 'business rescue procedure' now made possible by the Companies Act for 'financially distressed' companies is likely to be used with increasing frequency in the next year or two, says Garth Watson, a director of Gunstons Attorneys.
Watson explained that a company can be placed under business rescue by its board of directors if they agree to this. However, the State has to believe that the company is indeed financially distressed and that there is a reasonable prospect of rescuing it. At the same time, any affected person may apply to court to place a business under business rescue.
The business rescue procedure, says Watson, cannot by law be implemented if the company's finances are in reasonable shape or there is no real prospect of it being rehabilitated. Furthermore, the procedure may be cancelled if the requirements set out in the Companies Act relating to such procedures are not strictly complied with.
The Act does, however, place considerable power in the hands of the company's directors regarding whether to place a company under business rescue. This decision, Watson points out, can have great financial repercussions for all those with contracts with the company – and these associated entities may have no choice but to accept non-payment or partial payment of the sums owing to them during the rehabilitation period (usually three to nine months).
A question which now arises, says Watson, is where do landlords stand should one of their tenants be placed under business rescue?
The relevant clause in the Companies Act is 134(1)(c), says Watson, states that "despite any agreement to the contrary no person may exercise any right in respect of any property in the lawful possession of the (rescue) company, irrespective of whether the property is owned by the company except to the extent that the practitioner consents to this in writing".
"Without careful review and amendment of lease agreements," says Watson, "this section may effectively leave landlords without the remedies of eviction or of suing for rent if a tenant is placed under business rescue."
Typically, he says, leases provide for landlords to be able to cancel leases if the tenant is liquidated but in a business rescue case such clauses would not suffice because during that period the tenant would be in lawful possession and s134 of the Act would prevent any rights being exercised over the property.
According to Watson, it is, therefore, imperative that the lease contains a "surgically drafted" clause that renders occupation unlawful from the date that a tenant company is placed under business rescue. This is necessary because s134 applies only to lawful possession. If, in terms of a lease agreement, the business rescue itself renders possession by a tenant unlawful, then landlords will be free to exercise their rights in respect of their properties. It is thus possible to mitigate powerfully the potentially prejudicial effect of s134 of the Companies Act, says Watson.
Gunston Attorneys Press Release
The 'business rescue procedure' now made possible by the Companies Act for 'financially distressed' companies is likely to be used with increasing frequency in the next year or two, says Garth Watson, a director of Gunstons Attorneys.
Watson explained that a company can be placed under business rescue by its board of directors if they agree to this. However, the State has to believe that the company is indeed financially distressed and that there is a reasonable prospect of rescuing it. At the same time, any affected person may apply to court to place a business under business rescue.
The business rescue procedure, says Watson, cannot by law be implemented if the company's finances are in reasonable shape or there is no real prospect of it being rehabilitated. Furthermore, the procedure may be cancelled if the requirements set out in the Companies Act relating to such procedures are not strictly complied with.
The Act does, however, place considerable power in the hands of the company's directors regarding whether to place a company under business rescue. This decision, Watson points out, can have great financial repercussions for all those with contracts with the company – and these associated entities may have no choice but to accept non-payment or partial payment of the sums owing to them during the rehabilitation period (usually three to nine months).
A question which now arises, says Watson, is where do landlords stand should one of their tenants be placed under business rescue?
The relevant clause in the Companies Act is 134(1)(c), says Watson, states that "despite any agreement to the contrary no person may exercise any right in respect of any property in the lawful possession of the (rescue) company, irrespective of whether the property is owned by the company except to the extent that the practitioner consents to this in writing".
"Without careful review and amendment of lease agreements," says Watson, "this section may effectively leave landlords without the remedies of eviction or of suing for rent if a tenant is placed under business rescue."
Typically, he says, leases provide for landlords to be able to cancel leases if the tenant is liquidated but in a business rescue case such clauses would not suffice because during that period the tenant would be in lawful possession and s134 of the Act would prevent any rights being exercised over the property.
According to Watson, it is, therefore, imperative that the lease contains a "surgically drafted" clause that renders occupation unlawful from the date that a tenant company is placed under business rescue. This is necessary because s134 applies only to lawful possession. If, in terms of a lease agreement, the business rescue itself renders possession by a tenant unlawful, then landlords will be free to exercise their rights in respect of their properties. It is thus possible to mitigate powerfully the potentially prejudicial effect of s134 of the Companies Act, says Watson.
Gunston Attorneys Press Release
01 February 2012
Is the housing market 25% overvalued?
Is the housing market 25% overvalued?
FNB’s household and property sector strategist John Loos responds.
Is the housing market 25% over-valued? We don’t think it is possible to say, but nevertheless do expect some further real house price decline.
The January 2012 FNB House Price Index showed a slight acceleration entering the new year, rising from revised year-on-year growth rate of 4.7% in December to 5.6% in January. This is the highest year-on-year growth since August 2010.
In real terms, however, the recent growth rates imply that real house price decline continues. Consumer price inflation for December (January not yet available) was around 6.1%, and a 4.7% house price growth rate in that month translates into about -1.4% real decline.
This means that in real terms, the latest revised figures put the average house price in real terms (adjusted for consumer price inflation) at -15.5% lower than the peak of February 2008.
In recent times, the fluctuations in the house price index are probably not too dissimilar from those of certain key economic growth indicators.
After two very weak 2nd and 3rd quarters, South African economic growth is believed to have done slightly better in the final quarter of 2011. The Manufacturing Purchasing Managers’ Index made a mild come back out of contraction territory, while previously slowing real retail sales growth had also showed something of an unexpected strengthening late last year. Indeed, our own FNB Estate Agent Survey had also pointed to a surprising slight improvement in residential demand in the 3rd quarter of 2011, and this is believed to have been feeding through into house prices with a mild lag.
This FNB House Price Index release comes at a time when something of a mild storm appears to be raging in the residential industry as a result of the release of the recent Rode and Associates Report which claims the residential property market to be about 25% “overvalued”. This, we interpret to mean that it would require a very significant decline in house prices in real terms in order to get back to what Rode deems to be an “appropriately priced market” that would be in “balance” or “equilibrium. Needless to say, many industry players are, rightly or wrongly, seemingly unhappy with the statement. It has been the focal point of the past few days, and we have been questioned frequently about it.
Perhaps some people have over-reacted to the report a little, as Rode is not predicting a sudden downward price correction. Rather, he expects a gradual real price decline over some years. Nevertheless, the fact that it has grabbed the attention of the industry suggests that it is worth debating.
Our own opinion is that it would be extremely difficult to ascertain as to by how much the market is “over-valued” or unrealistically priced, and that in any case, the equilibrium price level (if one could determine it) is very much a moving target, fluctuating frequently as economic fundamentals change.
The Rode methodology. It is essentially what we would call a “technical analysis” as opposed to a fundamental analysis. A long term real house price time series is calculated using average house prices and average building costs.
In brief, the rationale behind the using building costs with which to adjust house prices into real terms has to do with the view that building costs drive property values over the long term. Assuming that supply of new homes can be added by developers “at will”, in other words, there are no constraints to supply due to urban planning requirements or land availability, then building costs determine house prices in the long term.
If existing house prices were above building costs, supply of newly-built homes would increase, bringing house prices back down into line with building costs, and if existing house prices move too far below building costs the new supply would slow until the demand-supply balance had been restored and house prices moved higher and closer to building costs.
Therefore, according to the theory as we understand it, real house prices, as calculated through deflating nominal house prices with building costs, should move in the broad sideways band over the long term. If the real price level is significantly above the long term trend line, as is currently the case when using 1966 as a starting point, the theory is that the market is “overvalued”, and the current Rode estimate that it is overvalued by 25.
We have some reservations about using this methodology.
Firstly, while the theory could indeed work under the assumption of totally elastic supply of new homes as required by the market, we are no longer convinced that such elasticity is a reality in South Africa any more.
Cape Town, for one, has a relative land scarcity for property development (especially around the mountain), which keeps its average property values above those of Joburg in spite of Joburg having higher average per capita income (and thus higher purchasing power).
As urbanization continues, one would expect land scarcity in our cities to increase. Theoretically the landlocked cities could continue to sprawl, but it would be the increasing urban congestion and infrastructure constraints that make this increasingly impractical.
Therefore, we believe it conceivable over the long term that real house prices can increase significantly, and that South African cities can and will become far more expensive places to live as time goes by, and indeed we believe that this is already taking place.
Our second, and key, reservation with the Rode approach, however, is that when using long term trend lines to determine whether a market is under or over-valued, one can literally pick your starting point to “prove” whatever theory you wish. A different starting point to determine the long term trend produces entirely different results. Start in 1966, as Rode does, and real house prices are indeed above the long term trend. Starting in 1995, and one could state according to this theory that the market is undervalued. If we had data for a few decades prior to 1966, who knows what the long term trend line would have looked like as a result of SA having come through an Anglo-Boer War, two world wars and a Great Depression?
The third and final consideration with regard to using a long term real average house price trend is that the average house of the mid-1960s is different to the average house of today. Real property values have risen significantly since the mid-1960s but will not necessarily wholly be seen in an index depicting the average house price. The market does not only adjust to real house price surges through a subsequent downward correction in real prices. Real per square metre existing property values can remain permanently higher if land scarcity remains permanently higher, with developers providing smaller homes on smaller stands (as opposed to flooding the market with the same sized units as in previous years).
Indeed, this has been the long term trend. As land scarcity has increased, so average stand size of new homes has diminished dramatically. Over the past decade, full title homes that our valuers have valued that were built between 1970-1974 had an average stand size of 1,063 square metres. By comparison, homes built from 2010 to date had seen their average stand size almost halve to 557 square metres. Over the same period, the average size of a home built had dropped from 203 square metres to 150 square metres. Less “frills” were also the order of the day. Whereas 69.3% of homes built from 1980-1984 had garages, this had declined to 53% by 2010. Percentage of homes with swimming pools had declined from 40.3% of those built between 1975-1979 to 7.3% by 2010+.
Therefore, when analyzing real house prices since 1966, one may well draw the conclusion that the long term real price trend line from that point is more-or-less flat, or has very little rise over time. However, if we could calculate a price index that adjusted for declining stand size/home size and level of luxuries, we would see more of a rising long term real price trend line. Because over the long term, as urban land becomes increasingly scarce, real prices are indeed rising. The real values are staying permanently higher over the very long term, and the development sector is adjusting by providing smaller and less luxurious homes as time goes by.
CONCLUSION
So are house prices overvalued by 25%? We can’t contradict the statement. All we can say is that we believe that it is not possible to say.
However, while we have stated the belief that urbanization in SA should bring about significant long term increases in real property values, we must distinguish between the long term, and the ‘shorter” term. The long term move to higher real property values doesn’t happen in a straight line, but rather in big cycles driven by shorter term fluctuations between supply and demand.
And indeed, in the near term we are also of the opinion that real house prices will decline further.
Our reasoning is somewhat different, however, and based on our perception that the market is unbalanced at present, and that the economy (and thus residential demand) looks likely to be weak in the near term, and that our own indicators of demand versus supply still point to an unrealistically priced market.
But how far the real house price decline will go is tough to call, and will depend very much on the world’s and South Africa’s ability to turn things around and get back to a respectable longer term economic growth path in the coming years.
..
FNB’s household and property sector strategist John Loos responds.
Is the housing market 25% over-valued? We don’t think it is possible to say, but nevertheless do expect some further real house price decline.
The January 2012 FNB House Price Index showed a slight acceleration entering the new year, rising from revised year-on-year growth rate of 4.7% in December to 5.6% in January. This is the highest year-on-year growth since August 2010.
In real terms, however, the recent growth rates imply that real house price decline continues. Consumer price inflation for December (January not yet available) was around 6.1%, and a 4.7% house price growth rate in that month translates into about -1.4% real decline.
This means that in real terms, the latest revised figures put the average house price in real terms (adjusted for consumer price inflation) at -15.5% lower than the peak of February 2008.
In recent times, the fluctuations in the house price index are probably not too dissimilar from those of certain key economic growth indicators.
After two very weak 2nd and 3rd quarters, South African economic growth is believed to have done slightly better in the final quarter of 2011. The Manufacturing Purchasing Managers’ Index made a mild come back out of contraction territory, while previously slowing real retail sales growth had also showed something of an unexpected strengthening late last year. Indeed, our own FNB Estate Agent Survey had also pointed to a surprising slight improvement in residential demand in the 3rd quarter of 2011, and this is believed to have been feeding through into house prices with a mild lag.
This FNB House Price Index release comes at a time when something of a mild storm appears to be raging in the residential industry as a result of the release of the recent Rode and Associates Report which claims the residential property market to be about 25% “overvalued”. This, we interpret to mean that it would require a very significant decline in house prices in real terms in order to get back to what Rode deems to be an “appropriately priced market” that would be in “balance” or “equilibrium. Needless to say, many industry players are, rightly or wrongly, seemingly unhappy with the statement. It has been the focal point of the past few days, and we have been questioned frequently about it.
Perhaps some people have over-reacted to the report a little, as Rode is not predicting a sudden downward price correction. Rather, he expects a gradual real price decline over some years. Nevertheless, the fact that it has grabbed the attention of the industry suggests that it is worth debating.
Our own opinion is that it would be extremely difficult to ascertain as to by how much the market is “over-valued” or unrealistically priced, and that in any case, the equilibrium price level (if one could determine it) is very much a moving target, fluctuating frequently as economic fundamentals change.
The Rode methodology. It is essentially what we would call a “technical analysis” as opposed to a fundamental analysis. A long term real house price time series is calculated using average house prices and average building costs.
In brief, the rationale behind the using building costs with which to adjust house prices into real terms has to do with the view that building costs drive property values over the long term. Assuming that supply of new homes can be added by developers “at will”, in other words, there are no constraints to supply due to urban planning requirements or land availability, then building costs determine house prices in the long term.
If existing house prices were above building costs, supply of newly-built homes would increase, bringing house prices back down into line with building costs, and if existing house prices move too far below building costs the new supply would slow until the demand-supply balance had been restored and house prices moved higher and closer to building costs.
Therefore, according to the theory as we understand it, real house prices, as calculated through deflating nominal house prices with building costs, should move in the broad sideways band over the long term. If the real price level is significantly above the long term trend line, as is currently the case when using 1966 as a starting point, the theory is that the market is “overvalued”, and the current Rode estimate that it is overvalued by 25.
We have some reservations about using this methodology.
Firstly, while the theory could indeed work under the assumption of totally elastic supply of new homes as required by the market, we are no longer convinced that such elasticity is a reality in South Africa any more.
Cape Town, for one, has a relative land scarcity for property development (especially around the mountain), which keeps its average property values above those of Joburg in spite of Joburg having higher average per capita income (and thus higher purchasing power).
As urbanization continues, one would expect land scarcity in our cities to increase. Theoretically the landlocked cities could continue to sprawl, but it would be the increasing urban congestion and infrastructure constraints that make this increasingly impractical.
Therefore, we believe it conceivable over the long term that real house prices can increase significantly, and that South African cities can and will become far more expensive places to live as time goes by, and indeed we believe that this is already taking place.
Our second, and key, reservation with the Rode approach, however, is that when using long term trend lines to determine whether a market is under or over-valued, one can literally pick your starting point to “prove” whatever theory you wish. A different starting point to determine the long term trend produces entirely different results. Start in 1966, as Rode does, and real house prices are indeed above the long term trend. Starting in 1995, and one could state according to this theory that the market is undervalued. If we had data for a few decades prior to 1966, who knows what the long term trend line would have looked like as a result of SA having come through an Anglo-Boer War, two world wars and a Great Depression?
The third and final consideration with regard to using a long term real average house price trend is that the average house of the mid-1960s is different to the average house of today. Real property values have risen significantly since the mid-1960s but will not necessarily wholly be seen in an index depicting the average house price. The market does not only adjust to real house price surges through a subsequent downward correction in real prices. Real per square metre existing property values can remain permanently higher if land scarcity remains permanently higher, with developers providing smaller homes on smaller stands (as opposed to flooding the market with the same sized units as in previous years).
Indeed, this has been the long term trend. As land scarcity has increased, so average stand size of new homes has diminished dramatically. Over the past decade, full title homes that our valuers have valued that were built between 1970-1974 had an average stand size of 1,063 square metres. By comparison, homes built from 2010 to date had seen their average stand size almost halve to 557 square metres. Over the same period, the average size of a home built had dropped from 203 square metres to 150 square metres. Less “frills” were also the order of the day. Whereas 69.3% of homes built from 1980-1984 had garages, this had declined to 53% by 2010. Percentage of homes with swimming pools had declined from 40.3% of those built between 1975-1979 to 7.3% by 2010+.
Therefore, when analyzing real house prices since 1966, one may well draw the conclusion that the long term real price trend line from that point is more-or-less flat, or has very little rise over time. However, if we could calculate a price index that adjusted for declining stand size/home size and level of luxuries, we would see more of a rising long term real price trend line. Because over the long term, as urban land becomes increasingly scarce, real prices are indeed rising. The real values are staying permanently higher over the very long term, and the development sector is adjusting by providing smaller and less luxurious homes as time goes by.
CONCLUSION
So are house prices overvalued by 25%? We can’t contradict the statement. All we can say is that we believe that it is not possible to say.
However, while we have stated the belief that urbanization in SA should bring about significant long term increases in real property values, we must distinguish between the long term, and the ‘shorter” term. The long term move to higher real property values doesn’t happen in a straight line, but rather in big cycles driven by shorter term fluctuations between supply and demand.
And indeed, in the near term we are also of the opinion that real house prices will decline further.
Our reasoning is somewhat different, however, and based on our perception that the market is unbalanced at present, and that the economy (and thus residential demand) looks likely to be weak in the near term, and that our own indicators of demand versus supply still point to an unrealistically priced market.
But how far the real house price decline will go is tough to call, and will depend very much on the world’s and South Africa’s ability to turn things around and get back to a respectable longer term economic growth path in the coming years.
..
Rode hits back at critics
Rode hits back at critics
Says the Rode Report is based on sound research.
Property economist Erwin Rode has hit out at his critics who have questioned his latest quarterly report saying house prices are overvalued by at least 25% and will take at about five years to recover.
Estate agents say their phones have been ringing off the hook from consumers seeking clarity since the release of the report on January 26 2012. Realtors Tony Clarke of Rawson Properties, Lew Geffen of Sothebys International Realty SA, and Samuel Seeff, the chairman of Seeff Property Services, say the report is misleading. Others in the industry say the information in it is unsubstantiated.
Rode has refuted this saying the information was gleaned from Absa Bank’s house price index and the Bureau for Economic Research.
Property analyst of Absa Home Loans, Jacques du Toit, has also questioned the 25% overvaluation after checking Absa data tracking house prices. He said house prices peaked in mid-August 2007. “If you compare the mid-August figure with our latest data point as at November last year, the real price of a house in the middle segment of the market was 14% below that peak in 2007,” Du Toit said.
Seeff has described the Rode report as one-dimensional sending the wrong message to the ordinary buyer.
On Rode’s view that renting is better than buying in the current market, Seeff said: “About 95 percent of buyers are not looking for investment returns or rental income, but want a foundation upon which to build a life. These are ordinary buyers looking to acquire their first home, expand or move closer to schools or jobs and cannot put their life on hold. No value can be put on owning the roof over your head; it is an investment in your own future and stability.”
Du Toit says there are instances where rentals are cheaper than a bond repayment as rentals have increased at a relatively slow pace. In some cases homeowners have kept rentals low to keep existing tenants as opposed to having an unoccupied building not generating any income.
Du Toit says incomes are likely to change due to variables like the economy, employment, household income, inflation and interest rates. It is up to a prospective homeowner to make provision for these when making the sums to buy.
Geffen says the current market suits especially first time buyers: “…We believe that with nominal prices and rates at their current historic lows, there could hardly be a more propitious time for potential buyers to enter the market. Opportunities like this generally only occur once or perhaps twice in a lifetime.”
Clarke says: “My prediction is no growth in real terms over the next year, two years, and thereafter slow growth starting at between two and four percent per annum.”
He adds there is going to be a slow uptake in new development property entering the market, which from a first time buyer’s perspective will retain its value. From an investor’s point of view “if you’re going to buy the property, you’re still getting rental on top of that return, then you need to calculate that in the equation.”
Clarke was also critical of Rode’s stance that prospective first time buyers would do better to rent for the next five years or so and invest the difference saved on a bond.
“Invest in what? What he [Rode] is not taking into consideration is the fact that a lot of properties are being sold at a distressed level which is rightsizing property values anyway because those properties are in competition with normal properties.
“From that perspective, yes, it’s going to be a while as these distressed properties are being emptied into the marketplace and it’s going to bring the real growth price down because they are in competition.”
However, Clarke says this should transpire over the next three years or so and not much longer as seen by Rode.
Geffen says Rode is “out of touch”. “For a start the banks continue to relax their lending criteria and are currently reducing their deposit requirements and granting more 100% loans as well as more loans overall.”
Geffen quotes figures from mortgage originator ooba that have shown a consistent month-on-month increase in home loan applications and approvals since the beginning of 2011.
Geffen says banks are willing more and more to provide 100% home loans. “Now we just don’t believe the banks would be doing this if they were concerned that home values were going to show a further serious decline – especially when one considers the losses they have faced just recently due to the over lending during the boom years…
“Demand is way up on 2009 levels in most large cities, and also in many smaller centres where a shortage of rental stock has pushed monthly rentals up to the point where it is now almost as costly to rent as to buy.”
Geffen points out that there has been little residential building activity in the past four years. “A really negligible amount of new stock has been added to the market during this time and with current supply steadily dwindling, we calculate that the momentum of price growth will pick up and that, short of a massive inflation shock, there will be a return to real growth within the next two years.”
..
Says the Rode Report is based on sound research.
Property economist Erwin Rode has hit out at his critics who have questioned his latest quarterly report saying house prices are overvalued by at least 25% and will take at about five years to recover.
Estate agents say their phones have been ringing off the hook from consumers seeking clarity since the release of the report on January 26 2012. Realtors Tony Clarke of Rawson Properties, Lew Geffen of Sothebys International Realty SA, and Samuel Seeff, the chairman of Seeff Property Services, say the report is misleading. Others in the industry say the information in it is unsubstantiated.
Rode has refuted this saying the information was gleaned from Absa Bank’s house price index and the Bureau for Economic Research.
Property analyst of Absa Home Loans, Jacques du Toit, has also questioned the 25% overvaluation after checking Absa data tracking house prices. He said house prices peaked in mid-August 2007. “If you compare the mid-August figure with our latest data point as at November last year, the real price of a house in the middle segment of the market was 14% below that peak in 2007,” Du Toit said.
Seeff has described the Rode report as one-dimensional sending the wrong message to the ordinary buyer.
On Rode’s view that renting is better than buying in the current market, Seeff said: “About 95 percent of buyers are not looking for investment returns or rental income, but want a foundation upon which to build a life. These are ordinary buyers looking to acquire their first home, expand or move closer to schools or jobs and cannot put their life on hold. No value can be put on owning the roof over your head; it is an investment in your own future and stability.”
Du Toit says there are instances where rentals are cheaper than a bond repayment as rentals have increased at a relatively slow pace. In some cases homeowners have kept rentals low to keep existing tenants as opposed to having an unoccupied building not generating any income.
Du Toit says incomes are likely to change due to variables like the economy, employment, household income, inflation and interest rates. It is up to a prospective homeowner to make provision for these when making the sums to buy.
Geffen says the current market suits especially first time buyers: “…We believe that with nominal prices and rates at their current historic lows, there could hardly be a more propitious time for potential buyers to enter the market. Opportunities like this generally only occur once or perhaps twice in a lifetime.”
Clarke says: “My prediction is no growth in real terms over the next year, two years, and thereafter slow growth starting at between two and four percent per annum.”
He adds there is going to be a slow uptake in new development property entering the market, which from a first time buyer’s perspective will retain its value. From an investor’s point of view “if you’re going to buy the property, you’re still getting rental on top of that return, then you need to calculate that in the equation.”
Clarke was also critical of Rode’s stance that prospective first time buyers would do better to rent for the next five years or so and invest the difference saved on a bond.
“Invest in what? What he [Rode] is not taking into consideration is the fact that a lot of properties are being sold at a distressed level which is rightsizing property values anyway because those properties are in competition with normal properties.
“From that perspective, yes, it’s going to be a while as these distressed properties are being emptied into the marketplace and it’s going to bring the real growth price down because they are in competition.”
However, Clarke says this should transpire over the next three years or so and not much longer as seen by Rode.
Geffen says Rode is “out of touch”. “For a start the banks continue to relax their lending criteria and are currently reducing their deposit requirements and granting more 100% loans as well as more loans overall.”
Geffen quotes figures from mortgage originator ooba that have shown a consistent month-on-month increase in home loan applications and approvals since the beginning of 2011.
Geffen says banks are willing more and more to provide 100% home loans. “Now we just don’t believe the banks would be doing this if they were concerned that home values were going to show a further serious decline – especially when one considers the losses they have faced just recently due to the over lending during the boom years…
“Demand is way up on 2009 levels in most large cities, and also in many smaller centres where a shortage of rental stock has pushed monthly rentals up to the point where it is now almost as costly to rent as to buy.”
Geffen points out that there has been little residential building activity in the past four years. “A really negligible amount of new stock has been added to the market during this time and with current supply steadily dwindling, we calculate that the momentum of price growth will pick up and that, short of a massive inflation shock, there will be a return to real growth within the next two years.”
..
Top estate agents disagree with the Rode Report
Top estate agents disagree with the Rode Report
Say the market is favouring the buyer, especially the first time buyer.
Realtors Tony Clarke of Rawson Properties and Lew Geffen of Sothebys International Realty SA have questioned the latest Rode Report that says house prices are overvalued by at least 25% and will take at least five years to recover.
Geffen says the current market suits especially first time buyers: “…We believe that with nominal prices and rates at their current historic lows, there could hardly be a more propitious time for potential buyers to enter the market. Opportunities like this generally only occur once or perhaps twice in a lifetime.”
Clarke says: “My prediction is no growth in real terms over the next year, two years, and thereafter slow growth starting at between two and four percent per annum.”
He adds there is going to be a slow uptake in new development property entering the market, which from a first time buyer’s perspective will retain its value. From an investor’s point of view “if you’re going to buy the property, you’re still getting rental on top of that return, then you need to calculate that in the equation.”
Clarke was also critical of property economist Erwin Rode’s stance that prospective first time buyers would do better to rent for the next five years or so and invest the difference saved on a bond.
“Invest in what? What he [Rode] is not taking into consideration is the fact that a lot of properties are being sold at a distressed level which is rightsizing property values anyway because those properties are in competition with normal properties.
“From that perspective, yes, it’s going to be a while as these distressed properties are being emptied into the marketplace and it’s going to bring the real growth price down because they are in competition.”
However, Clarke says this should transpire over the next three years or so and not much longer as seen by Rode.
Geffen says Rode is “out of touch”. “For a start the banks continue to relax their lending criteria and are currently reducing their deposit requirements and granting more 100% loans as well as more loans overall.”
Geffen quotes figures from mortgage originator ooba that have shown a consistent month-on-month increase in home loan applications and approvals since the beginning of 2011.
Geffen says banks are willing more and more to provide 100% home loans. “Now we just don’t believe the banks would be doing this if they were concerned that home values were going to show a further serious decline – especially when one considers the losses they have faced just recently due to the over lending during the boom years…
“Demand is way up on 2009 levels in most large cities, and also in many smaller centres where a shortage of rental stock has pushed monthly rentals up to the point where it is now almost as costly to rent as to buy.”
Geffen points out that there has been little residential building activity in the past four years. “A really negligible amount of new stock has been added to the market during this time and with current supply steadily dwindling, we calculate that the momentum of price growth will pick up and that, short of a massive inflation shock, there will be a return to real growth within the next two years.”
..
Say the market is favouring the buyer, especially the first time buyer.
Realtors Tony Clarke of Rawson Properties and Lew Geffen of Sothebys International Realty SA have questioned the latest Rode Report that says house prices are overvalued by at least 25% and will take at least five years to recover.
Geffen says the current market suits especially first time buyers: “…We believe that with nominal prices and rates at their current historic lows, there could hardly be a more propitious time for potential buyers to enter the market. Opportunities like this generally only occur once or perhaps twice in a lifetime.”
Clarke says: “My prediction is no growth in real terms over the next year, two years, and thereafter slow growth starting at between two and four percent per annum.”
He adds there is going to be a slow uptake in new development property entering the market, which from a first time buyer’s perspective will retain its value. From an investor’s point of view “if you’re going to buy the property, you’re still getting rental on top of that return, then you need to calculate that in the equation.”
Clarke was also critical of property economist Erwin Rode’s stance that prospective first time buyers would do better to rent for the next five years or so and invest the difference saved on a bond.
“Invest in what? What he [Rode] is not taking into consideration is the fact that a lot of properties are being sold at a distressed level which is rightsizing property values anyway because those properties are in competition with normal properties.
“From that perspective, yes, it’s going to be a while as these distressed properties are being emptied into the marketplace and it’s going to bring the real growth price down because they are in competition.”
However, Clarke says this should transpire over the next three years or so and not much longer as seen by Rode.
Geffen says Rode is “out of touch”. “For a start the banks continue to relax their lending criteria and are currently reducing their deposit requirements and granting more 100% loans as well as more loans overall.”
Geffen quotes figures from mortgage originator ooba that have shown a consistent month-on-month increase in home loan applications and approvals since the beginning of 2011.
Geffen says banks are willing more and more to provide 100% home loans. “Now we just don’t believe the banks would be doing this if they were concerned that home values were going to show a further serious decline – especially when one considers the losses they have faced just recently due to the over lending during the boom years…
“Demand is way up on 2009 levels in most large cities, and also in many smaller centres where a shortage of rental stock has pushed monthly rentals up to the point where it is now almost as costly to rent as to buy.”
Geffen points out that there has been little residential building activity in the past four years. “A really negligible amount of new stock has been added to the market during this time and with current supply steadily dwindling, we calculate that the momentum of price growth will pick up and that, short of a massive inflation shock, there will be a return to real growth within the next two years.”
..
31 January 2012
Luxury house prices are falling fastest in Asia
Luxury house prices are falling fastest in Asia
Although the Knight Frank Prime Global Cities Index, which tracks the performance of the world’s leading luxury residential markets, rose by 3% during 2011, the second half of the year saw the pace of growth slow considerably.
The luxury housing market is now seeing the pace of price growth slip for the second time since the 2008/09 global financial crisis. In this latest cycle annual price growth peaked at 10% in Q2 2010 but has since slowed each quarter.
After the collapse of Lehman Brothers European and North American cities were largely responsible for the index’s slump. Since late 2010 it has been the Asian cities which have dampened price inflation. In Q2 2010 prices in Asia were rising at an average rate of 23.6% each year, the comparable figure now stands at -1%.
Anti-inflationary price cooling measures implemented by Asian governments, combined with worries that the Eurozone sovereign debt crisis will affect the global economy, have created a more cautionary climate.
The Q3 results show Nairobi, Miami and Jakarta experienced the strongest price growth in 2011. Economic growth drove demand and investment in Nairobi and Jakarta while foreign demand from Brazil and its South American neighbours fuelled price inflation in Miami.
But the real story is arguably further down the table. The overall slowdown in the luxury Asian markets has highlighted the extent to which the “old-world” cities of London, New York and Moscow are outperforming the overall index.
London and Moscow have ranked highly for several quarters but Manhattan’s recovery is gathering momentum. Foreign demand for New York’s luxury homes is not only strengthening, but is also starting to diversify with Chinese nationals increasingly evident, particularly in the $1-$3m sector.
Despite cooling price growth in the second half of 2011, the world’s prime markets continue to outperform their mainstream housing markets, providing some justification for their safe-haven reputations. The flight of capital towards the world’s luxury neighbourhoods increased in 2011 as geo-political events in the Middle East and North Africa took hold and the tumultuous global economy weakened the viability of a number of alternative asset classes.
Price growth in 2012 will continue to be underpinned by this flight of capital from troubled world regions. This, combined with a desire amongst wealthy investors to target property and other real assets over financial products, will reaffirm prime property’s safe-haven qualities in 2012.
* This report was prepared by Knight Frank
Nairobi (up 25%) was the strongest performer during 2011, Cape Town sits somewhere in the middle.
The value of prime property in the world’s key cities rose by only 0.2% in the final quarter of 2011. Kate Everett-Allen examines the figures and looks at whether prime property is still the safe haven investors and the super-rich consider it to be.Although the Knight Frank Prime Global Cities Index, which tracks the performance of the world’s leading luxury residential markets, rose by 3% during 2011, the second half of the year saw the pace of growth slow considerably.
The luxury housing market is now seeing the pace of price growth slip for the second time since the 2008/09 global financial crisis. In this latest cycle annual price growth peaked at 10% in Q2 2010 but has since slowed each quarter.
After the collapse of Lehman Brothers European and North American cities were largely responsible for the index’s slump. Since late 2010 it has been the Asian cities which have dampened price inflation. In Q2 2010 prices in Asia were rising at an average rate of 23.6% each year, the comparable figure now stands at -1%.
Anti-inflationary price cooling measures implemented by Asian governments, combined with worries that the Eurozone sovereign debt crisis will affect the global economy, have created a more cautionary climate.
The Q3 results show Nairobi, Miami and Jakarta experienced the strongest price growth in 2011. Economic growth drove demand and investment in Nairobi and Jakarta while foreign demand from Brazil and its South American neighbours fuelled price inflation in Miami.
But the real story is arguably further down the table. The overall slowdown in the luxury Asian markets has highlighted the extent to which the “old-world” cities of London, New York and Moscow are outperforming the overall index.
London and Moscow have ranked highly for several quarters but Manhattan’s recovery is gathering momentum. Foreign demand for New York’s luxury homes is not only strengthening, but is also starting to diversify with Chinese nationals increasingly evident, particularly in the $1-$3m sector.
Despite cooling price growth in the second half of 2011, the world’s prime markets continue to outperform their mainstream housing markets, providing some justification for their safe-haven reputations. The flight of capital towards the world’s luxury neighbourhoods increased in 2011 as geo-political events in the Middle East and North Africa took hold and the tumultuous global economy weakened the viability of a number of alternative asset classes.
Price growth in 2012 will continue to be underpinned by this flight of capital from troubled world regions. This, combined with a desire amongst wealthy investors to target property and other real assets over financial products, will reaffirm prime property’s safe-haven qualities in 2012.
* This report was prepared by Knight Frank
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