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PRETORIA, GP, South Africa
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15 December 2011

Special Report Podcast: Niki Vontas – CEO, Bonatla

Special Report Podcast: Niki Vontas – CEO, Bonatla

Niki Vontas cries foul says communication process to shareholders is flawed.
ALEC HOGG: It’s Tuesday December 13 2011 and in this Boardroom Talk special podcast, Niki Vontas, chief executive of Bonatla Property, joins us now. Niki, good to have you on the programme, there’s been big developments in the Sharemax saga. From your perspective though, you did propose a rescue scheme and walked away, why? What was the background to that?

NIKI VONTAS: I put together a proposal that was originally accepted by the directors of Sharemax and they circulate it to the constituencies. Unfortunately, if you remember, there were a lot of public debates and public analysis in the Financial Mail or the Finance Week in which I commented and obviously I commented on controversial findings of my due diligence and they invoked this disclosures to the press for canceling the transaction summarily for disclosure of, for a breach of non-disclosure, which I find very funny because the press knew almost as much I knew already.

ALEC HOGG: So, you didn’t really walk away it was more a question of being kicked out.

NIKI VONTAS: I need to tell you I still haven’t walked away, there could be still some surprises but I cannot comment on that yet.

ALEC HOGG: But at the moment shareholders or investors, 35 000 of them, at Sharemax have actually voted in favour of a rescue scheme that’s being decided on right now. You don’t think it’s such a good idea?

NIKI VONTAS: Well, first obviously I wouldn’t like to comment on the process but from the little I’ve seen, if you visit the Sharemax website you’ll see that there’s less than 200 people visiting that website a day, there’s very little visits. What you find generally speaking in this doomed [UNCLEAR] syndication schemes like Bluezone that we salvaged or Sharemax or [UNCLEAR] or Realcor, you’ll find that the investors are generally older investors, generally Afrikaans, they haven’t got an email address, they haven’t got proper communication skills and they really rely on [UNCLEAR] communication to get decisions or information passed onto them. So, what I dispute really is that the process is completely flawed. I don’t believe that proper documentation has been circulated to investors to allow them whether or not they will get the investment of such a long period as [UNCLEAR] ten years and what Magnus Heystek, in fact, commented on the Business Report is absolutely right. It’s a total circus.

ALEC HOGG: It’s a circus you say?

NIKI VONTAS: It’s a total circus…[UNCLEAR] a total circus because if you want to put a proposal to 30 000 or 40 000 people on most probably the biggest failure in physical property in South Africa, you at least make the owner of at least the proper analysis of the merit or the pitfalls, you give feasibilities, you give time value of money, your present value, the returns over such a long period. You give them some form of information to ponder about and you don’t give them such a short time basically. Basically to me it’s a little bit of a hit and run operation that’s basically the way I consider it.

ALEC HOGG: From a business perspective though, can this rescue plan that has been proposed work?

NIKI VONTAS: I don’t think so. You’ll find that the Sharemax [UNCLEAR] is not finished, you’ll find some further applications for liquidations, further litigation. Obviously by now the investors are desperate and therefore they are going to consider anything but I still believe that in property there is always a solution. Sometimes if the difficulties are extreme, like in Sharemax, the solutions are more extreme but I still believe its investors deserve proper information in order to make a proper decision. They should, I think…if you want to talk to shareholders you can work like in the old Company Act, [UNCLEAR] to get special resolutions, you conduct meetings, you’ve got quorums and things like that. I haven’t seen anything of that sort. It looks like a bosberaad and the next day you basically announce a 99.9% approval. Last time I’ve seen that it was 1938 and 1939 in Hitler’s referendum. So, my feeling, you need to apply corporate governance, the new companies act, you need to apply proper process to give the time and information to investors to decide whether or not these solutions be good for them an what applies for them, applies for anybody. If I do that transaction, they should also call special meetings and give information and give analysis and ask the press to comment. This thing is a little bit of an occult operation.

ALEC HOGG: Do you know Connie Myburgh, the lawyer who’s behind this rescue scheme?

NIKI VONTAS: Yes, I’ve heard about him, yes.

ALEC HOGG: I believe our investigation journalist, Julius Cobbett, says that he was one of those who vigorously defended the Garek disaster. Lots of people lost much money there as well. What is his motive in this? Are you saying that his motive perhaps is questionable?

NIKI VONTAS: I believe Mr. Myburgh was involved also, if I remember, with Colin Barnard and the fiasco on the Melrose Arch deal with the mine pension fund in 2004, on which I think the late Ian Fife put some very nice article on them, so there must be a bibliography on the SM available if [UNCLEAR]

ALEC HOGG: So, if the courts are to sanction this, would you then try to go to court to get it reversed?

NIKI VONTAS: No, we’ve got other things pending but I cannot believe a court, looking at the way this process was handled, is going to sanction it. I don’t believe a proper judge is going to sanction a process like that. It’s the biggest failure in property in South Africa with 40 000 or 45 000 victims that are asked to give the money over and most of them, I can guarantee you, will be dead before the last payment because they are generally - the syndication investors in all these schemes – are generally retired people, who unfortunately invested their life savings in a property investment with obviously a property and a financial risk and therefore they lost their investment and now ask to receive the return on the investment through their estates because a lot of them won’t survive that [UNCLEAR], I can tell you that.

ALEC HOGG: Niki, outside of Sharemax there’s another controversial property issue going on at the moment, where the shareholders in a company called Accentuate or 26% shareholders there are tackling the management on a lease that was signed by the management before the property was sold. Do you have any insight into this?

NIKI VONTAS: Well, no, I’m quite aware of that transaction, all I can comment from what I…and I pursued it over the last year as well, all I can comment is that first if you as a director are involved in a property company and you’re obviously a director of the operating company, which is listed on the AltX I think, you should technically, if you sell that property company or the property you should have a related party circular, whereby you recuse yourself from any voting on your shares and you allow your shareholders to decide if this deal is good or bad for the company. I don’t think this process was followed and the other comment that I have is that if you do a leaseback, industrial leaseback, traditionally the operating company sells its property by signing a lease and obviously receives the proceeds from the sale of the property. In this case the property went into a ten year onerous lease but without receiving any proceeds from any sale. The proceeds of the sale went obviously to the shareholders of the property company or the directors, I suppose, and therefore there’s no merit whatsoever. If I was in the property company I would have only signed a three or four year lease or five year lease because it doesn’t help you to be on the [UNCLEAR] for ten years for the benefit of somebody else who’s unrelated to your operations.

ALEC HOGG: You call it an onerous lease, is it above market rates?

NIKI VONTAS: It is, I would say it is. There is obviously, although it’s an industrial area, they could argue that the ratio of non-industrial space to office space is not the same because traditionally in industrial property you find that 80% of your space is industrial and perhaps 15% to 20% of the gross lettable area is offices, in this Steeledale property you’ll find the ratio of office is higher but still I believe Steeledale is Steeledale, it’s not a prime area anymore. It used to be a good industrial area in the olden days of apartheid but for the new change of…since 1994 a lot of the old industrial areas, which are very largely your areas in the south were generally created to separate the white townships from the black townships. Now it’s not anymore the case. Your new industrial areas are created just for the economic value, not anymore for a demarcation between racial groups. I think all the…I visited, in fact, two or three of these industrial areas like Troyeville and Booysens, all these areas are basically declining quite substantially at the present moment because there’s an exodus of these industrial tenants towards your Lindor Parks [UNCLEAR], your Medowdale, all your new generation industrial townships.

ALEC HOGG: How did you get involved in investigating the Accentuate deal?

NIKI VONTAS: I put an offer two years ago, I put an offer last year, which obviously didn’t succeed.

ALEC HOGG: Because you were…for what reason?

NIKI VONTAS: Well, I was not satisfied with the transaction.

ALEC HOGG: Oh I see, so you actually had the opportunity to see the transaction and you felt that it wasn’t fair?

NIKI VONTAS: Well, I’ll tell you want makes me nervous. In a similar transaction what you should do technically if you want to be really fair the director should engage with the company in which they’re also directors, I suppose, the listed company, and say, listen guys we want to get out of this property transaction, we want to sell back the property to Accentuate, so the tenants must buy the property at a market related price so there’s no conflict of interest. So, suddenly now Accentuate is the owner of the property company, okay at a market related value, so the directors obviously take the proceeds, cash the proceeds. But now Accentuate at least can sign the ten year lease after having received its proceeds from the sale. So, the correct way to do it would be to sell back the property to Accentuate and allow Accentuate to do the ten year lease with the new buyer. That would have been much more fair.

ALEC HOGG: What would the difference in value be for this property without a ten year lease and with a ten year lease?

NIKI VONTAS: Well, what counts is not the length of the lease, it’s the confident of the tenant. [UNCLEAR]. My argument is that your lease is first as good as the tenant, the property is really a pretext. In property investment you could have a big tent in the Kalahari desert with Microsoft as a ten year tenant, it’s better to have that and have the cash flow than having a beautiful marble building in Steeledale with Accentuate as a tenant for ten years.

ALEC HOGG: So, in other words it’s the ten year lease that’s the important part here. What would that be worth on this…?

NIKI VONTAS: What counts is the discounted cash flow of this lease, basically it’s all the ten year income streams, which your present value at a discount rate, which is your [UNCLEAR] rate, which takes into consideration the risk free, let’s say the total return from the bond market, which is a risk free rate, plus a little risk premium attached to the risk of this property, its location, its age, the Accentuate financial covenant. So you could discount anywhere at around I would say 16% to 18% discount rate. If you discount this cash flow of this ten year lease at this rate you will arrive at a net present value, which will give you the value of the property.

ALEC HOGG: And roughly, this property, what would the deal have gone through at?

NIKI VONTAS: I would hesitate to give you my comment on that.

ALEC HOGG: But what were you prepared to pay for it with a ten year lease?

NIKI VONTAS: Me, I took the income and, if I remember, I capitalised at around 13% yield. If I can give an example at the present moment, prime property transactions are arrived at at capitalising the first year net income from rental at around 9%. The Accentuate deal I would have capitalised at 13% because I would have expected a much higher initial return, taking into consideration the risks. So, I touched around the 13% return. But obviously my deal didn’t arrive because it was not acceptable.

ALEC HOGG: But in rand terms what would that make it worth?

NIKI VONTAS: Try to remember, to tell you the truth…

ALEC HOGG: Is it a R5m deal or a R20m deal?

NIKI VONTAS: No, no, no, it was, if I recall, it was a R7m or R8m deal, if I recall.

ALEC HOGG: All right, so it’s not a huge deal then.

NIKI VONTAS: No, it was not a major consideration because ultimately it was a B grade industrial property in a B grade industrial area. Also, if I recall, there were other tenants in that property [UNCLEAR], if I can remember.

ALEC HOGG: Niki Vontas, the chief executive of Bonatla.


Sharemax rescue hits speed bump

Sharemax rescue hits speed bump

Court decision will take place next year, giving dissenters time to argue their case.

Investors in Sharemax’s syndication companies will have to wait at least another month to hear if a proposed rescue plan will receive court approval. The North Gauteng High Court has delayed its decision until late January to allow dissenting investors time to argue why they believe the plan is flawed.

This means that the immediate threat of liquidation has not yet been removed. It is generally agreed that a liquidation would crystalise billions of rands worth of losses for Sharemax’s 35 000 investors. These investors, many of them elderly, have placed roughly R4.5bn in Sharemax’s various syndication schemes.

The rescue plan was presented to Judge Bert Bam this week for court sanction. According to those familiar with the process, court approval would have been virtually guaranteed, provided the plan was unopposed. However, an advocate representing a small handful of investors arrived in court and opposed the plan.

Attorney Chris de Beer, who represents the dissenting investors, explains it is not their intention to liquidate the Sharemax syndication companies. They argue, however, that proper process was not followed, and that the rescue plan seeks to legalise an illegal scheme.

The Sharemax rescue plan has been accepted by the vast majority of investors who voted. It has been reported that of the investors who voted, more than 99.9% were in favour of the scheme. Voter turnout is estimated at nearly half of all Sharemax investors.

If the rescue plan receives court sanction, the directors of the syndication companies will be free to begin the hard task of returning money to investors. If it fails, the Reserve Bank has indicated that it may have no option but to liquidate the various syndication schemes. If the Reserve Bank does not apply for liquidation, it is almost certain that someone else will.

But if the court approves the rescue plan, investors are by no means out of the woods. The scheme would provide Sharemax investors with a “clean”, legal structure, but it does not remove their financial problems.

The rescue plan proposes that investors are issued with new debentures that comply with the Banks Act. The repayment terms of each debenture will depend upon the health of the underlying syndication. The repayment terms, which are not open to public scrutiny, have been based on a fair and reasonable opinion obtained from BDO Corporate Finance. This opinion is, in turn, based on valuations and financial projections performed by DP Cohen Consulting.

If the syndication companies fail to meet their debenture promises, it may open them to fresh liquidation threats.

In the case of Sharemax’s two largest syndications, Zambezi and The Villa, much funding is necessary to complete the projects. These schemes together account for about R2.5bn of investors’ funds,

Investors have received half of the ownership of Zambezi, but must pay tens of millions to developer Capicol to receive the other half. With The Villa, investors have acquired just 30% of the massive unfinished shopping centre. Developer Capicol has 20%, and the remaining 50% has been reserved for anyone brave and rich enough to commit funds to finish the project.


New Retail Trading Density Index launched

New Retail Trading Density Index launched

Shows foot traffic at shopping centres has declined, but spending has increased.

An IPD (Investment Property Databank) Retail Trading Density Index has revealed that foot traffic in shopping centres across the country has declined in the past three years but that shoppers have been spending more over the same period. The IPD index has been compiled in collaboration with the South African Council of Shopping Centres. It tracks the performance of shopping centres based on information gleaned directly from the retail outlets’ owners and managers.

The index will be released quarterly. The IPD’s Jess Cleland says while footfall has declined slightly shopping centres across the spectrum are showing higher turnovers. The index took into account super regional, regional, small regional and community shopping centres. The table below illustrates the turnover of the various shopping centre types for the year end to September 2011.

Cleland says smaller centres have performed particularly well which can be partly attributed to the global economic crisis as shoppers pop in for groceries and other necessities rather than frequent the malls with their luxury goods items in addition to the food offering.

The IPD said in a statement: “Stronger than expected retail sales growth in the third quarter of 2011 has helped to maintain the robust performance of South African shopping centres.” It said while turnover growth of shopping centres had recovered from the downturn in 2009 and 2010, the momentum had now slowed and dropped below inflation for some centres. “It is the larger centres where the growth in trading density, which is measured as turnover per square metre, has been the most muted.” “For the year to September 2011, trading density increased by 5.2% for super regional centres, by 5.5% for regional centres and just 3.8% for small regional centres when compared to the previous year.” The smaller community and neighbourhood centres in turn increased their trading densities by 10.2% and 15% respectively.

The smaller centres rely more heavily on necessities such as groceries to drive their sales compared to larger ones with more specialised tenants catering for more discretionary spending.

New property income fund lists on the JSE

New property income fund lists on the JSE

Plans several acquisitions and the Spar connection.

Synergy Income Fund has listed on the Johannesburg Stock Exchange (JSE) with a view to raising capital for possible acquisitions in 2012. CEO William Brooks says the company needs access to the capital markets “for further acquisitions that are well progressed and will be coming through early next year”. Most of Synergy’s properties are anchored by retail giant Spar or SuperSpar as part of a formal co-operating agreement between the fund and the Spar group. “We think that’s a real competitive advantage going forward,” Brooks says.

Synergy’s portfolio includes Sediba Plaza Shopping Centre in Hartebeespoort, the Nzhelele Valley Shopping Centre in Makhado, Hubyeni shopping centre in Elim, Richdens Village Centre in Hillcrest, the KwaMashu Shopping Centre outside Durban and the Taxi City Shopping Centre in Newcastle. Brooks said the company was concentrating on the lower LSM segment of the population due to its growth potential for disposable income. Around 70% of Spar’s growth is also coming from this segment, which Brooks believes is likely to offer investors good returns.

On Synergy’s link with Spar, Brooks said the group was owned by independent retailers who had no retail property assets in their portfolio, they don’t own any shopping centres nor do they have a property development team. This, together with the fact that Spar does not invest group capital in terms of retail property investment, provided the perfect opportunity for Synergy to align itself with the group.

It also gave Spar a chance to expand its retail footprint by having strong relations with a property investor and developer. “It’s about driving growth of new centres as well as expanding and improving existing centres and managing them more effectively.”

Asked how Synergy had raised the capital to list, Brook explained the company had raised R300m through a private placement last year while R240m came from the Liberty Group. Another R50m had come from RE:CM and the company’s founders put in R20m. “This gave us an initial capital base of R300m which enabled us to buy shopping centres at the beginning of the year. We got to the stage where we needed to finance some lumpy acquisitions, hence the decision to go to market to raise additional capital,” Brooks said.

He added he could not elaborate on Synergy’s pipeline as yet but that an announcement would be made “fairly soon”. In a statement the company said the listing would make Synergy the first specialised convenience retail property fund on the JSE, comprising 12 properties with a gross lettable area of more than 130 000m², valued in excess of R1.1bn. “The properties range in size from 5 000m² to almost 23 000m² and are focused on the high-growth low LSM sector of the consumer market.”


Re-zoning delays killing businesses

Re-zoning delays killing businesses

 Johannesburg’s processing of re-zoning applications is taking twice as long as it should, severely hampering the small businesses sector.

According to a wide range of experts and professionals interviewed by Moneyweb, the processing of applications to re-zone residential land for commercial use has become excessively slow and is getting progressively worse. “Even if it’s a straight forward rezoning application, if it’s in line with the municipal policy, namely the regional spacial development framework (RSDF) … and there are no objections … you would be lucky to get it through in 12 months,” says George Van Schoor, a professional town planner at C-Plan consultants. Straight forward applications should take around six months according to Van Schoor.

This is echoed by Jean-Luc Limacher, the CEO of SA’s biggest town planning consultancy Urban Dynamics. While “there is no question that there is a bottleneck,” Limacher notes that the processing times for applications will vary markedly depending on the nature of the application.

The problem seems to have arisen from a lack of experience and capacity at Johannesburg’s administrative branches charged with processing the applications and extends to the transfer of property ownership.

Johannesburg’s billing crises has worsened the situation, the experts say. With these slow processing times, businesses are finding it more difficult to set-up shop in new areas, reducing their potential access to market. “Each time a small business can’t get re-zoned, he’s losing money, he can’t get set-up,” says Keith Brebnor, CEO of the Johannesburg Chamber of Commerce and Industry (JCCI).

Van Schoor has 21 years of experience in his field and believes that the problem is getting worse despite the introduction of the RSDF which is designed to fast-track applications that comply with its guidelines. “There have always been undertakings from the top management of town planning that they will improve, but it’s not happening,” he says. “The whole philosophy behind the regional spacial developmental framework is to simplify the process. If an applicant submits an application … the idea is that it should be fast tracked, but that is not happening.”

Van Schoor, Limacher and Brebnor believe that the route of the problem is a lack of experience and capacity at Johannesburg’s municipal departments tasked with handling rezoning applications. This under-capacity has resulted from a loss of experienced staff, high staff turn-over rates and a collapsed mentorship programme, say the experts. As administrative bottlenecks delay the processing of applications, Johannesburg’s billing crises has worsened the plight of those seeking to re-zone.

Brebnor says the billing crisis means that it takes an extremely long time to receive rates and utility clearances: “So even before it gets to the planning [stage to re-zone the property] … you are stuck at first base. “You have a problem where they don’t know who paid rates, who paid for the water and who paid for the land.”

In response to Moneyweb’s queries, Johannesburg Metro’s Deputy Director of Communication Nthatisi Modingoane, said that “Depending on the configuration of the property, geological circumstances, engineering services and number of objections received it is difficult to give an exact time frame for the completion of a rezoning. “In as far as the City's Land Regularisation Programme is concerned, we are looking at legal ways to assist in vesting zoning as expeditiously as possible,” he said.


13 December 2011

Joburg set to stop cut-offs after group goes to court

Joburg set to stop cut-offs after group goes to court

The City of Joburg is set to halt its spate of electricity and water cut-offs after it was served with an urgent interdict this week.

The Property Owners and Managers' Association (Poma) an organisation representing the majority of property owners in Joburg's inner city, obtained an order from the Johannesburg High Court calling for, among others, the suspension of cut-offs where there are legitimate queries on the city's chaotic billing system.

And now it has emerged that after a meeting between Poma and council officials this week, an out-ofcourt settlement is likely to be reached.

Maurice Crespi, managing partner at Schindlers Attorneys, which represented Poma, did not want to discuss the details of the settlement but said they were likely to be announced next week.

"All I can say for now is there will be an outcome which will extremely beneficial to consumers," he said. "They (the city) have committed to meeting their legal obligations and our discussions were not only about a solution but dealing with the overall problem."

Crespi said his expectations were that the city would agree to the residents' demand on suspension of cut-offs, where there were legitimate queries.

The group of inner-city property owners applied for the interdict following the spate of disconnections over the past few weeks which have affected thousands of people, despite most of them having valid queries on their accounts.

The interdict called on the city to: ensure that it issues correct accounts; gives proper readings and not estimates for more than six months, as per its by-laws; issue regular and accurate accounts; post or deliver the accounts to correct addresses; gives owners a reasonable time, or 20 days, in which to pay; gives a proper 14-day notification of cut-offs; and, not cut off water completely.

Poma members claimed the council's chaotic billing system was destroying efforts by private investors to rejuvenate the inner city.

Chairman Renney Plit told the Saturday Star's sister newspaper, The Star, this week the interdict was not only being applied for on behalf of about 250 000 tenants in the inner city affected by cutoffs but for other residents of the city.

"We are simply asking the council to adhere to its own by-laws. Our tenants in the inner city have been badly affected by the workings of the council.

"We have had services cut off in buildings where the council claims that there are huge amounts owing", Plit said. People had been forced to climb 16 flights of stairs because there was no electricity to power the lifts.

"Our tenants have also been without water for days because of disputes on the accounts. We have been appealing to the council to work with us – we are trying to rejuvenate the inner city by offering decent accommodation to lower-income earners, but it has been thwarting our efforts at every turn," Plit said.

The city had until next Monday to submit its answering papers to Poma's urgent application for the interdict.

City spokesman Nthatisi Modingoane said he would only comment once he had spoken to the council's legal department to hear the latest on the matter.

At the time of going to print he had not responded to the Saturday Star's inquiry.

Saturday Star

12 December 2011

Sharemax: Liquidation averted?

Sharemax: Liquidation averted?

Not quite, say critics, who think the rescue scheme may not get past a court.

Sharemax investors have reportedly voted overwhelming in favour of a rescue scheme. The scheme aims to prevent the liquidation of syndication companies sold under the Sharemax banner.

All that remains is for a court to sanction the scheme. But some believe this won’t happen.

Approximately 35 000 investors, many of them elderly, have placed about R4.5bn in the various Sharemax schemes. Virtually all of these investors were acting on advice received from brokers who received generous commission from the sales.

One of the most outspoken critics of the rescue scheme’s process is Niki Vontas, CEO of listed property stock Bonatla. Bonatla once proposed its own rescue scheme for Sharemax, but subsequently walked away from the deal.

Vontas describes the Sharemax scheme as a “joke”. He says: “A competent judge will not validate such a ridiculous scheme.”

Vontas is no stranger to rescue schemes. His company successfully saved troubled Bluezone syndications from liquidation. The Bluezone syndications had already been provisionally liquidated, which makes the rescue all the more remarkable. Companies placed under provisional liquidation are almost always liquidated permanently.

It remains to be seen how successful Vontas’s Bluezone rescue will be, but most experts agree that there are few fates more damaging to property syndication investors than liquidation.

The Sharemax rescue plan has been led by corporate lawyer Connie Myburgh, who readers may remember for his aggressive defence of Garek, a scheme that cost its investors untold millions.

The scheme is not cheap; documents (click here to download) estimate the total cost at R11m, the bulk of which comprises legal fees. These fees are paid regardless of whether the scheme is successful. The fees are paid from those syndication schemes that have cash available, incurring further debt for those that don’t.

Vontas says that for the scheme to be properly put together, each company in the Sharemax stable should have voted separately. This was not the case; votes were pooled. Vontas also claims that shareholders were not given proper notice.

Chris de Beer, an attorney representing Sharemax investors, agrees that the process is flawed. He says that the rescue plan, if approved, will serve to legalise Sharemax’s illegal structure. His clients have instructed an advocate to attend court in a bid to prevent the scheme’s sanction.

De Beer has previously applied to the North Gauteng High Court for the judicial management of a handful of Sharemax syndication schemes. The matter is due to be heard on May 7 2012. However, De Beer concedes that if the Sharemax rescue scheme is sanctioned by the court, it would mean that his judicial management application is less likely to be successful.

De Beer says that it has never been his intention to liquidate the Sharemax syndication companies. “We just want to make sure a proper process is followed.”


09 December 2011

Joburg’s town planning blunder

Joburg’s town planning blunder

“Disastrous” scheme to be delayed for years as it goes through appeal process.

The implementation of Johannesburg’s new consolidated town planning scheme is likely to be delayed for up to a further two years as industry professionals take it on appeal to the townships board.

The move to appeal, which will see as many as five separate industry bodies filing to have the scheme reworked, comes on widespread dissatisfaction with the quality and practicality of the key document.

Industry bodies have accused Johannesburg of failing to properly consider submissions made during the consultation processes prior to the drafting of the document, resulting in inconsistent and contradictory definitions.

Currently, Johannesburg has 14 separate town planning schemes which cover historic town council jurisdictions around Johannesburg, such as Sandton, Roodepoort and the CBD.

In drafting the new legislation, Johannesburg has attempted to consolidate the rules and regulations of the 14 existing schemes into a single document.

The inconsistencies in the new document are likely to impede property development in the city. This is because ambiguous or contradictory definitions will create confusion during the planning phase of developments. It is also understood that the definitions for alterations and rezoning may create further confusion as every aspect of the building will be regulated. Valuations would also be affected.

As a result the published scheme, promulgated in late November, has been labelled by industry professionals as a “disastrous”, “unworkable” and “legally incompetent” document.

The South African Association of Consulting Professional Planners (SAACPP) on Thursday confirmed that it will be filing an appeal to prevent the scheme from entering into effect as law.

“The industry is very much in favour of a consolidated scheme but the way it’s been drafted is simply unworkable,” said SAACPP Johannesburg Chairperson, Lloyd Druce.

“It wasn’t just a consolidated scheme; there where all sorts of clauses added. There where changes in definitions; there where all sorts of issues … They [Johannesburg] nevertheless went and published the scheme without considering what had been submitted as objections,” he said.

“If left to proceed into law … instead of creating a new, simple, understandable and coherent document to manage land use in the city, it will create a document embroiled in confusion,” said Druce.

The scheme was expected to become law 56 days following its promulgation on November 23. According Druce, four other bodies are believed to be preparing appeals which must be filed by December 21. The appeal process is likely to delay implementation for at least two years, he said.

The planning scheme is seen as a fundamental, legally binding, document designed to guide all future property development in the city while defining the zoning and guising alterations of existing properties.

Adv Douglas Shaw examined the document for the South African Property Owners Association (Sapoa). The organisation said that the scheme in its current form “will have significant negative effects on the property industry”.

According to Shaw, the importance of the document should not be underestimated: “It is a very important document. Any development at all in the city will use the document as a guide.

“It’s that fundamental; no development can take place without looking at the document…

“The reason why you go to consultation for comment is that when you put any document to other people, they see the flaws in the document and they give you good ideas … If people point out things which are glaringly inconsistent, or they contradict themselves and you don’t correct them, it defeats the whole point of the exercise,” said Shaw.

“If it’s a point of consistency or logic then not to change just means that you have not really applied your mind to it, you have been lazy.”

“It’s become an unholy mess at the moment,” said Keith Brebnor, CEO of the Johannesburg Chamber of Commerce and Industry (JCCI). He added that key submissions made by industry stakeholders “have been ignored”.

Johannesburg had not replied to a request for comment by the time of going to print.


World`s priciest streets (with SA comparison)

World`s priciest streets (with SA comparison)

The most expensive address in the world is not in London, Paris, or New York.

“The most expensive address in the world is not in London, Paris, or New York, as might be expected, but in Hong Kong,” says luxury home marketer Ronald Ennik, CEO of Ennik Estates (an affiliate of Christie’s International Real Estate).

“Homes on Severn Road in Hong Kong come with the highest price tag of US$78 200 (about R625 000) per square metre on a recent Wall Street Journal list of the 10 most expensive streets on the planet.

“Named after Claude Severn, Governor of Hong Kong when it was a British colony, Severn Road was followed in second place by Britain’s most expensive street – London’s prestige Kensington Palace Gardens (a private road), which is priced at R605 000 per sqm,” says Ennik.

“New York’s Fifth Avenue (R495 000 per sqm) came in at number five on the list, followed by Quai Anatole in Paris (R352 000 per sqm).”

The rest of the Journal’s Top 10 streets are:

Avenue Princess Grace (3) in Monaco, at R550 000/sqm; Chemin de Saint-Hospice (4) on the French Riviera’s Cap Ferrat peninsula (R495 000/sqm); Rue Bellot (7) in Geneva (R341 000/sqm); Via Romazzino (8) in Porto Cervo, Sardinia (R187 000/sqm); Wolseley Road (9) in Sydney Australia (R165 000 per sqm); and Ostozhenka (10) in Moscow (R143 000 per sqm).

“The fact that Severn Road topped the Journal’s list for the second year running speaks volumes for the strength and resilience not only of the economy and property market of the city of Hong Kong but also the greater Asia Pacific region,” says Ennik.

“So much so that it came as no surprise when, in June this year, Christie’s International Real Estate established its Asian Regional headquarters in Hong Kong.

“The Asia Pacific region has a passion for real estate that is unparalleled globally,” Neil Palmer CEO of the company, said at the time.

It was not long after a home was sold in the city, on 10 Pollocks Path, for US$12 327 (just under R100 000) per square foot!

“From our knowledge of luxury sales worldwide, we believe that this sale achieved the highest price ever per square foot,” said Palmer.”

To put this in perspective,” says Ennik, “prices of top end properties on South Africa’s priciest streets – such as Nettleton Road in Cape Town’s Clifton (listed by Wikipedia as Africa’s most expensive street), and Coronation Road in Sandhurst, Sandton (Johannesburg) – are about R100 000 per sqm!”

“Hopefully, given the weaker Rand and the uncertainty still surrounding the eurozone debt crisis, foreign investors may soon start looking deeper at what the luxury homes market in South Africa has to offer right now,” says Ennik.

“Perhaps visiting delegates to the COP17 indaba in Durban will do just that before they return home,” he concludes.

* This report was prepared by Ennik Estates

How to fix Africa - China perspectives

How to fix Africa - China perspectives

Revealing insights from a key Chinese leader.

African countries are getting the cheap goods they deserve and are forcing Chinese companies to keep prices so low that other operators can't compete on the continent. What's more, businesses in Africa pay their workers too much money, who also don't work as hard as the Chinese.

If poor quality goods get through border posts, we should blame our own officials for failing to enforce controls - not Chinese manufacturers. And, while we are pondering China's successes in Africa, we may as well come to terms with the fact that China is indeed hugely interested in cushy resources deals and extra money-making opportunities for itself and its citizens.

Of course, it sounds very unPC to set out the facts in this way. This is in an era in which China wants to be seen as the developing world's benevolent big brother, and its growing band of supporters across Africa shudder at the mere mention that the world's emerging superpower may be little more than a self-interested neo-colonialist.

But that's pretty much the way one of China's most influential political figure in Africa, Lu Shaye, Director-General of the Department of African Affairs explained the Chinese viewpoint in a recent interview with Jeune Africa.

China's propaganda commissars were so pleased with the outcome of his chat with Jean-Louis Gouraud that they had the full text translated and posted this week on the Chinese government-sponsored Forum for China Africa Cooperation website, for all China's followers across Africa to digest.

Usually the Focac website makes for bland reading. It carries blatantly biased articles aiming to paint China as a benign operator in Africa and endless pieces involving African political leaders shamelessly flattering the world's new emperors in the east.

China censors the news and has a highly effective system to monitor its citizens' reading habits and activities in cyberspace. The Jeune Africa article seems to have slipped through the state censorship net.

It makes for fascinating reading for anyone with a hint of concern about the traction China's state machinery is gaining in Africa. Lu's comments provide rare insights into what Chinese leaders really think about Africa.

It will be interesting to see how long the piece it remains posted; if past controversial articles about China's motives in the world are anything to go by, it won't be available for long. After all, China is working hard at enhancing its image in Africa as part of its overall move to build its soft power in the developing world.

So, while it is up, let's have a look at what Lu thinks about China's friends in Africa.

Although Lu is at pains to state that China doesn't expect African countries to follow it as a model in any way, he gives a glimpse of what the Chinese think African countries are doing wrong or need to fix. Here are some pearls, starting with his ideas on how African companies and enterprises can improve their lot:

Competitive labour costs: Treat ‘em mean

Citing the example of government assistance projects in Africa, Lu says Chinese companies are competitive because they scrimp on labour costs, spending 95% on the project compared to western companies' 80% on "on their own staff".

"It is true that the Chinese workers work in harsh working conditions. The Chinese employees work in tougher conditions than the employees of western companies. The Chinese have a spirit of enduring hardship," says the Chinese leader candidly.

"They live a hard life, eat simple food and live in simple domiciles so that they can send home the money they earned to raise their families and improve their living conditions. The Chinese workers can endure hardship.

"They work in three shifts a day and work all day and all night to speed up project schedules. That is why the Chinese companies are competitive. They spend less on the workers," he says.

China's under-cutting strategy benefits local government

Low labour costs are among the reasons Chinese companies can out-bid local companies in the African market, says Lu. The others are low materials and equipment costs and high labour productivity.

"With the respect to the claim that the Chinese companies take a low-cost strategy in the contract market of Africa, the advantage of Chinese companies is actually low cost...This is good for the local government, because the local government can spend less in constructing a project."

Lu says this strategy does have a "big impact on local companies of the same trade" and that "Chinese companies have no other purpose than making more money".

He notes that "the free economy is about free competition" and says that African companies "need to increase their competitive power".

Low pay for Africans: a better deal than in China

Responding to criticism that Chinese companies exploit local labour in African countries, Lu points out that Chinese wages and salaries aren't just low compared to norms in Africa - they're low back home, too.

Look at this issue objectively, he implores China critics. Comparing the ¥4 000 (roughly the same equivalent in South African rands or about US$700 to $800) being demanded by Zambian workers of their Chinese employees, he notes that pay is much lower in China.

"The minimum wage of Shanghai, the most developed city in China, is ¥1 100. The average wage of construction workers in Shanghai, Guangzhou, and other developed cities in the east of China is just over ¥2 000.

"The wage of manufacturing workers is between ¥2 000 to ¥3 000. What does ¥4 000 a month mean? It is the wage of an ordinary white-collar (worker) in China," explains Lu.

Labour laws in Africa are too strict

Although Lu says it is basically not China's business to comment on government policy, he reckons countries in Africa shouldn't raise wages and salaries "beyond reality" or they will "scare off investors" to the detriment of economic development.

"In some African countries, the labour laws are very strict. The governments even copy the laws of western countries. With such labour laws, companies are afraid of recruiting staff, including the western companies. They will not easily recruit employees because they cannot fire employees," he says.

Good deals for Africa's resources

A major criticism about China's intentions in Africa is that it is largely interested in getting its hands on natural resources at attractive prices. Lu says that in this regard China is no different from the West.

He says: "China's investment in Africa is mainly concentrated on resource-rich countries. Maybe you are right. Aren't the western countries the same? We should be realistic.

"Resource-rich countries do have more business cooperation opportunities and investment opportunities. Capital is always profit-driven. Where there is no profit or no return on investment, I don't think the west will go.

"In the African countries that China has invested in, there are always a lot of western companies, far more than Chinese companies. China's investment only accounted for a small part of foreign capitals in these countries. Most of foreign capitals still come from the west," says Lu.

Thanks, Mr Lu, for finally setting us straight on some contentious issues. At least we can't accuse Mr Lu of speaking to his friends in Africa about our problems with a dagger between his teeth - or saying one thing and meaning another - as the Chinese proverb goes.

Is it time for African countries to rethink their labour laws so that African businesses can become more internationally competitive? Are Chinese companies doing governments a financial favour by undercutting local operations? Share your views below this article.

08 December 2011

The Investment Case – Redefine Properties Ltd. - 101: For beginners

The Investment Case – Redefine Properties Ltd.

A liquid property option.

Listed property has become an increasingly popular investment in recent times. It has been one of the top performing asset classes of the past decade, offering good income returns as the sector's defensive qualities have stood up through the economic upheaval since 2008.

Offering lower risk than equities and generally higher returns than bonds, listed property has become particularly attractive to more conservative investors looking for a growing income stream. As property funds pay out almost all of their income, they also serve as protection against inflation, since rental incomes generally increase in line with or slightly above inflation.

While some analysts believe this performance from listed property funds is unlikely to continue, this sector continues to attract investor interest. As the second biggest local property fund on the JSE, Redefine has been one of the beneficiaries.

Redefine's portfolio comprises nearly 400 properties across the office, retail and industrial sectors. In addition, it owns 29.4% of listed retail property fund Hyprop and a controlling stake in London-listed business Redefine International plc (which it holds through JSE-listed Redefine International Ltd.).


The Redefine Income Fund was launched in 1999 and listed on the JSE the following year. Its initial portfolio consisted of 50% direct property interests, and 50% listed securities.

The company made its first offshore play in 2006 by acquiring an 18% interest in London-listed Ciref plc. This move made it the first JSE-listed property fund to take on overseas assets.

In 1999, Redefine acquired all the units of listed property fund ApexHi (which had absorbed Ambit earlier the same year) and its management company Madison Property Fund Managers. This led to a merger between the three entities.

During 2010, Redefine increased its interest in Ciref plc to a majority holding and effected the name change to Redefine Properties International. As it was unable to gain approval from the South African Reserve Bank for an inward listing for this subsidiary, Redefine elected to transfer this entire shareholding into a new local listing called Redefine International Ltd.

Earlier this year, Redefine International plc completed a reverse takeover of property investment company Wichford, which gave it a listing on the main board of the London Stock Exchange.


For the financial year ended 31 August 2011 Redefine paid out 68 cents per linked unit. This followed distributions of 66.5 cents per linked unit in 2010, 56.55 cents per linked unit in 2009 and 56.63 cents per linked unit in 2008.

The counter offers a yield of 8.5%.

Which funds hold this stock?

Redefine is the second largest holding in all three of South Africa's top performing listed property unit trusts over the past three to five years. It makes up 18.5% of the Prudential Enhanced SA Property Tracker Fund, 17.0% of the Stanlib Property Income Fund and 15.7% of the Investec Property Equity Fund.

Only one of the five leading general equity funds holds Redefine stock. The Prudential Equity Fund gives the counter a weighting of 0.3%.

To see which funds are buying and selling the counter, visit Moneyweb's Unit Trust Portfolio Tool.

Why would an individual consider investing in this company?

Due to its size, Redefine offers investors a degree of liquidity in a sector that is often illiquid. It therefore offers a good entry point into the property sector.

Redefine is also able to spread its fixed costs across a wider portfolio of properties than most of its peers, which should increase its yields. This has been further enhanced by the company bringing its property management functions in-house rather than outsourcing them.

“Redefine's size allows scale in negotiating borrowing rates from lenders,” notes Efficent Select analyst Stuart Sinclair. “With a forward yield of close to 9%, the counter is trading at a significant discount to the sector despite its size and liquidity.”

Through Redefine International, the stock also offers investors exposure to properties in the UK, Germany, Australia and Switzerland. While its foreign operations only accounted for marginally over 5% of Redefine's net property income in the last financial year, this has the potential to grow significantly. Redefine International owns 184 properties with a value exceeding £1bn, and the group has indicated that it has intentions to focus more on international expansion.

What risks does this company face?

Redefine's direct property portfolio has the highest exposure to the office sector of any of its peers. As a result, the fund is most susceptible to downturns in this market.

“The office sector is facing oversupply in many nodes and continues to lag the retail and industrial sectors,” says Sinclair. “The high exposure to the office sector in particular has led to an overall vacancy rate of close to 9%.”

Like all property companies, Redefine is also facing pressure from tenants to keep rental increases to a minimum. This is primarily due to the impact of the higher costs of water and electricity.

Furthermore, Sinclair believes that Redefine's large portfolio can present challenges to management. With close to 400 properties to look after, the fund could struggle to keep a handle on all of its assets. The group is however taking steps to reduce this number.

Investor trust in Redefine was also dented by the company's failure to meet its own forecast for distributions in the 2009 financial year. The fund will be acutely aware that it cannot afford to damage this confidence any further by missing future targets.

Where does this company’s growth potential lie?

In the short-term, Redefine's growth prospects remain modest, as economic conditions remain mostly unchanged.

“In the past, the group has been reliant on development and non-recurring revenue streams to boost growth,” Sinclair notes. “But given the current environment, many of these streams have dried up.”

The group is however in a process of disposing of a number of its lower grade properties, valued at about 10% of its portfolio. It hopes to replace these with fewer properties of higher quality.

In this regard, it is in talks to acquire between seven and fourteen properties owned by Zenprop Property Holdings. It has also announced that it will be unbundling Arrowhead Properties and its 98 properties into a separate listing. This will simplify the Redefine portfolio and make it easier to manage.

In Namibia, Redefine is looking to achieve control of Oryx Properties through increasing its stake in that business. Oryx has a portfolio of 26 properties, including Windhoek's premier retail site, Mearua Mall.

It is also possible that Redefine may at some point make a bid to acquire all of Hyprop, which is primarily focused on retail properties. A number of analysts believe that this would make it a more balanced portfolio and make it comparable to the JSE's largest listed property fund, Growthpoint.

For more, visit Moneyweb's click-a-company profile on Redefine Properties Ltd.

07 December 2011

Rebosis to acquire several properties

Rebosis to acquire several properties

In line with its strategy of acquiring large quality properties.

Johannesburg, Dec 7 (I-Net Bridge) - Rebosis Property Fund (REB) the first black-managed and substantially black-held property fund to have listed on the JSE, announced on Wednesday that it had concluded agreements for the acquisition of letting enterprises and properties from several vendors.

These vendors were listed as being Square Peg Properties (Proprietary) Limited and Rymer Trading CC (the Capital Towers acquisition"); Ziningi Properties (Proprietary) Limited (the "Revenue Building acquisition"); Swish Property Four (Proprietary) Limited (the "First Avenue acquisition"); Dream World Investments 374 (Proprietary) Limited (the "Harrison Street acquisition"); and Trifecta Prop 11 (Proprietary) Limited (the "SASSA Campus acquisition"); (each "a transaction" or "an acquisition" and together the "transactions").

The fund said that the acquisitions were consistent with Rebosis' strategy of acquiring large quality properties with a strong sovereign or blue chip underpin. The property portfolio was dominated by national government, with an element of blue chip corporate, with Standard Bank as a major tenant in one of the buildings.

It said that these strategic acquisitions would improve the geographic spread of the company's government tenanted properties resulting in less concentration in, and exposure to, Pretoria.

The total purchase consideration payable by Rebosis for the property portfolio is R734 million. Payment of the purchase consideration for each of the acquisitions will be secured by separate finance guarantees for 50% of the purchase consideration payable per acquisition. The balance of the purchase consideration will be settled through a vendor consideration placement.

05 December 2011

Joburg`s new town planning scheme spells disaster

Joburg`s new town planning scheme spells disaster

SAPOA says the city needs to go back to the drawing board.

Johannesburg, Dec 5 (I-Net Bridge) - The City of Johannesburg's new town planning scheme is unworkable according to the South African Property Owners Association (SAPOA).

The City of Jo'burg implemented a new town planning scheme last week - The Consolidated Johannesburg Town Planning Scheme 2011 - intended to combine over a dozen different planning schemes or zoning regulations in the municipal area of Johannesburg into one set of uniform zoning provisions, without altering existing zoning or development rights attached to any particular property.

However, SAPOA argued that instead of streamlining town planning in this growing city, the errors and inadequacies of the scheme were so severe that the city needed to go back to the drawing board.

SAPOA also pointed to a number of alarming bombshells buried in its fine print.An effective appropriation of rights without compensation arose from a clause that provided for approved rights which were not exercised within 24 months to become "null and void".

The scheme also stated that the municipality was not bound by its own town planning scheme.

Neil Gopal, CEO of SAPOA said, "We acknowledge that there is a need for a town planning scheme that ensures the regulation of land is uniform and more efficient throughout the municipal area, but this is not what this document does".

According to SAPOA's professional and legal advice, the 2011 Jo'burg Town Planning scheme contradicted itself in numerous places, referred to schedules and annexures not in the document, contained an abundance of inadequate and confusing definitions, and even contradicted other legislation, such as its definition of an "erf" which doesn't conform with the Land Survey Act.

"In general the new scheme is poorly compiled. The meaning and interpretation of many provisions is impossible to understand - either logically or legally," according to Gopal, who elaborated that this was the conclusion reached by a large number of professionals and practitioners in the field of town planning.

"In fact, three full sections were missing from the copy supplied to SAPOA and despite repeated efforts requesting this information, we have yet to receive it".

"The lack of interaction in terms of acknowledgement of letters, submissions made, requests for information, and so forth, from the City of Johannesburg is a worrying trend".
He noted that this was only one in a long chain of events where the city had switched off to the needs of its commercial property owners and homeowners, who were the largest rates payers.

He said: "We, and other professionals, intend to lodge an appeal to the Townships Board".

R4.6bn Pickvest rescue hinges on property billionaire

R4.6bn Pickvest rescue hinges on property billionaire

Rescue practitioner says the choice is simple: Accept Georgiou’s deal, or liquidate.

Pickvest investors stand to lose an estimated R3.8bn, or 81% of their capital, unless they accept a rescue offer proposed by controversial billionaire Nic Georgiou. This is the message from business rescue practitioner Hans Klopper who filed his plan to save the Pickvest property syndications on Wednesday. The rescue plan can be downloaded here. It was Georgiou who, through his companies, “guaranteed” the generous returns offered by Pickvest syndications. But these guarantees turned out to be worthless when problems started to emerge at the syndication giant earlier this year. Klopper was appointed to the eight Pickvest schemes in a bid to prevent their liquidation. His appointment provides the syndications with temporary protection from their creditors. This protection gives Klopper time to decide if the syndications can be saved.

In the 62-page rescue document, Klopper effectively tells investors they can choose Georgiou’s offer, or face the liquidation of their investments. Says Klopper: “It is evident that the prospects of the investors recovering their capital without the [Georgiou] offer being accepted are bleak whereas the recovery prospects, should the offer be accepted, are considerably improved.”
Klopper adds that the Georgiou proposal, known as the Orthotouch offer, is the “only realistic opportunity” for investors to recover their capital.

The Orthotouch offer is nothing new. It was proposed to investors in April. The deal would see Orthotouch, a company controlled by Georgiou, buying all of investors’ buildings, and paying for them after five years. They will also earn an income, starting at 6% in year one, increasing to 7% by year five.

However, Klopper has renegotiated the original transaction with clauses and safeguards that he says are to the benefit of Pickvest investors. He says the deal will be underpinned by property worth more than R4bn, and that investors can appoint two directors to the Orthotouch board. Further, Georgiou’s company, Zephan, will transfer buildings worth approximately R1.5bn into Orthotouch for added security. Orthotouch may not lend any money to or invest in third parties while investors remain unpaid.

Klopper says there has been a “groundswell of optimism” from financial advisers, some of whom were steadfastly opposed to the Orthotouch offer in its original form.

Investors are scheduled to meet on December 14, where they can propose amendments to Klopper’s plan and vote to approve it. The plan amounts to the acceptance of the renegotiated Orthotouch offer.
A key feature of the Orthotouch deal is that it is dependent on its acceptance by investors in all eight property syndications. Those in the Highveld 19-22 might feel they have nothing to lose by voting for Georgiou’s proposal. But those invested in the healthiest syndication, Highveld 18, may be less inclined to invest another five years with Georgiou.

Bleak liquidation scenario

Klopper provides investors with estimates of what they can expect to receive in the event of liquidation. It is no surprise that those invested in the older syndications, Highveld 15-18, are expected to fare considerably better than the others. This is because the older syndications actually own property. The others do not.
In April Moneyweb reported that Highveld 18 is the healthiest of these four syndications, and that 16 was in the most trouble. Klopper arrives at the same conclusion in his business rescue plan.

According to Klopper’s estimates, an investor in Highveld 18 might hope to recover 61% of their capital. An investor in Highveld 16 might get 35c. Klopper’s estimates are based on the orderly sale of assets at market value. He estimates that the return could even be 50 percent lower if the assets are sold at auction prices.

For the investors in the newer syndications, Highveld 19-22, the situation is considerably bleaker. These syndications do not own any property. Their only asset is a claim against a company called Bosman & Visser, which has no assets to speak of. For more on this perilous situation, see this article.

Klopper describes the difficulties of pursuing the claim against Bosman & Visser (B&V) in his rescue plan. He says that at least R10m will be needed to sue B&V. In turn, the liquidators of B&V would need money to sue Georgiou’s company Zephan, which has so far failed to deliver investors’ buildings.

Klopper says that Zephan “will undoubtedly defend such action and institute a counterclaim for damages against B&V.”

If the syndications Highveld 19-22 are liquidated, Klopper expects investors to recover no more than R250m out of a total of R3.5bn invested. He also warns that this recovery could take years. Investors in Highveld 21, the largest, are the worst off, with an expected recovery of only 2% of their capital. The best is Highveld 22 with an expected recovery of 17.6%.

 A summary follows:

Syndication name
Expected distribution to investors (Rm)
Cents in the Rand
Highveld 15
Highveld 16
Highveld 17
Highveld 18
Highveld 19
Highveld 20
Highveld 21
Highveld 22

Global housing markets struggling

Global housing markets struggling

* Please see my page in Global Property Guide. www.globalpropertyguide.com/Africa/South-Africa/Lawyers

** This article was prepared by Global Property Guide: http://www.globalpropertyguide.com/

House prices fell in 25 countries, South Africa included. See comparison table on the
Global Property Guide Website.

The world’s housing markets had a weak third quarter of 2011, according to the latest survey of world-wide house price indices prepared by the Global Property Guide. During the year to end Q3 2011, house prices fell in 25 countries, of the 44 countries for which quarterly house price statistics are available, and rose in only 19 countries.

Moreover, 26 housing markets performed more poorly during the year to the third quarter than last year, while only 18 countries performed better.

The Global Property Guide’s statistical presentation uses price-changes after inflation, giving a more realistic picture than the more upbeat nominal figures usually preferred by real estate agents.

What is most remarkable this quarter is the wide variety of outcomes:

The BRICs’ two spectacular outperformers

India and Brazil’s housing markets have continued their spectacular outperformance, with Delhi house prices up 22.68% during the year to Q3 2011, according to National Housing Bank (NHB) figures. There were strong house price increases in almost all India’s major cities, reflecting the country’s current high rate of consumer price inflation, despite a drop in demand resulting from the repo rate hike in October (currently at 8.50%), the 13th since March 2010, making home loans costlier.

The NHB Residex only started publishing quarterly figures in 2010; from 2008 to 2009, the Residex was updated semi-annually.

Brazil’s Sao Paolo had the second highest house price rise in the world during the third quarter, with house prices up 5.88% during the quarter, according to the FIPE- Zap price index. Sao Paolo had an astonishing year, with house prices up 20.26% during the year to Q3 2011. The country is experiencing an unprecedented boom, not least because it is the host country for the World Cup in 2014 and the Olympics in Rio de Janeiro in 2016.

Europe’s housing markets mixed

The world’s second strongest quarter-on-quarter house price rise occurred in an unexpected city - Vienna, where house prices surged by 5.44% during the quarter (and +4.25% on the year), continuing 6 years of nearly unbroken price rises for Austria’s capital.

The Baltics have also performed strongly. Latvia is the third best performer among all reporting countries in our survey over the twelve months to Q3 2011. In Riga, standard type apartments rose 13.31% year-on-year, a quick comeback after a fall of 5.40% in the second quarter.

Following Latvia was Estonia, whose housing market is rallying after three years of terrific losses that began during the onset of the global financial crisis. During the year to end Q3 2011, house prices in Tallinn were up 12.30% with a quarterly rise of 2.71%.

And though prices in Lithuania’s five largest cities were down on the year to Q3 (-4.44%), their momentum is up compared to last year. During the latest quarter Lithuania’s house prices rose very slightly (+0.22%). Generally Lithuania follows the pattern of Latvia and Estonia, with a lag, so the latest quarter’s house price rises may be a precursor to a house price recovery in the new year.

Other European markets which have enjoyed satisfactory increases were Norway (+6.74%), France (+4.80%), and Switzerland (+3.35 %).

Modest house price increases were seen in Slovenia (+0.82%), Iceland (+0.76%), Germany (+0.66%) and Luxembourg (+0.55%) in the year to Q3 2011.

The Irish housing market remains the world’s weakest performer. House prices were down 15.61% year-on-year, the steepest decline since 2008. Quarter-on-quarter, Ireland’s house prices slid 4.25%.
Several other European housing markets experienced accelerated downturns during the year ending in the third quarter of 2011, includingNetherlands (-5.20%), Portugal (-6.77%), Slovak Republic (-7.94%), Warsaw, Poland (-7.95%), Spain (-8.41%) and Bulgaria (-9.65%).

Conversely, European countries which saw slower house price falls this year than the previous year include Turkey (-0.50%), Russia (-3.47%),Croatia (-4.59%), Hungary (-4.67%), Athens, Greece (-6.57%) and Kiev, Ukraine (-7.02%).

Asian housing markets now cooling

In Asia, several countries had house price increases during the year to end Q3 2011, albeit less strong than last year, following the government measures to curb the heat in their respective housing markets.
In Hong Kong, house prices were up 12.07% year-on-year, after a rise of 19.30% the previous year.
In Malaysia, house prices rose by 3.15% year-on-year, after a rise of 5.76% during the same period last year.

In Singapore, house prices rose by 2.73% year-on-year, a big drop from last year’s 18.96%.

In Taiwan, house prices were up a mere 0.46% year-on-year, after a rise of 6.97% during the same period the previous year. During the latest quarter, house prices were down 7.02%.

However, housing markets in South Korea and Philippines (Makati CBD) improved from a year earlier with price rises of 1.55% and 0.89%, respectively.

In Japan (Tokyo) and China (Shanghai), housing markets have been deteriorating since Q1 2011, and during the year to end Q3 2011, house prices dropped by 1.99% and 4.16%, respectively. House price declines are being reported across China, indicating the success of government measures during the past year. The country's skyrocketing housing prices have been blamed for social tensions and other economic problems.

Patchy progress for North America

The Canadian housing market has been a notable performer in the year to Q3 2011, with house prices in the six cities rising by 3.25% year-on-year, according to Teranet – National Bank Composite House Price Index. Record-low interest rates and a fairly stable Canadian economy have bolstered consumer confidence in the housing market. During the third quarter, house prices were up 3.46%.

In the United States, the housing market drifted lower as house prices plummeted by 7.22% (seasonally-adjusted) year-on-year to Q3 2011, according to the Federal Housing Finance Agency (FHFA). However, the number of homeowners who owe more than their homes’ worth decreased modestly in the third quarter, though levels remained high.

The seasonally-adjusted Case-Shiller index was a bit more negative, as it fell by 7.42% from a year earlier, and by 1.61% in the latest quarter.
"I don't know what will happen, but I don't see any reason to predict the recovery now," said index co-founder Robert Shiller to Reuters on November 29.

Israeli house price boom now over

House prices in Israel fell 0.58% in the year to Q3 2011, the first drop since 2009. During the latest quarter, house prices were down 3.65%.

The moderation in home prices comes against the background of the continued increase in the number of building starts, the lagged effect of the increase in the interest rate, measures introduced by the Bank of Israel affecting mortgages, and steps taken by the Ministry of Finance in real estate taxation. The effect of these moves is expected to continue and be evident going forward.

Pacific housing markets heading down

In New Zealand, median house prices were down 4.30% from a year earlier, with a quarterly house price fall of 2.26%. However, there is optimism in the housing market buoyed by low interest rates and recovery following earthquakes in Christchurch.

High interest rates and global economic uncertainty have continued to impact the Australian housing market, and it slumped 5.55% in the year to Q3 2011, the third quarter in which annual house price falls were reported this year.

Accordingly, the Reserve Bank of Australia (RBA) lowered the benchmark interest rate in November, the first time since April 2009, moving to boost the nation's economy amid uncertainty stemming from Europe's debt crisis. The benchmark rate is currently at 4.50%.

** This article was prepared by Global Property Guide: www.globalpropertyguide.com