- PRETORIA, GP, South Africa
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29 February 2012
Half-year distribution growth 10.4%.
(I-Net Bridge) - The country's largest listed specialised shopping centre fund, with 12 directly owned shopping centres, Hyprop Investments (HYP,) has declared a total distribution for the year ended December of 383 cents per combined unit, an increase of 7.3% on the previous year.
The final distribution of 137 cents, together with the special distribution of 65 cents paid on 17 October 2011, reflects aggregate growth of 10,4% compared with the corresponding period in 2010.
Headline earnings per combined unit for the half-year were 406.3 cents versus 465.8 cents previously.
Like-for-like growth from Hyprop's shopping centres in revenue and distributable earnings was 8.0% and 7.4%, respectively. Property expenses increased by 9%. Canal Walk and The Glen performed particularly well during the year, with distributable earnings growth of 9% and 10%, respectively.
Distributable earnings from hotels reduced due to a net loss at The Grace (prior to sale) as well as underperformance at Southern Sun Hyde Park.
Distributable earnings from listed property securities increased by 10% as a result of improved distribution growth from Sycom and due to the addition of 8.9 million Sycom units, acquired in terms of the Attfund Retail acquisition.
Distributable earnings in the second half include a once-off benefit amounting to 3.7 cents resulting from a deferred payment in respect of the 15 million Attfund Retail consideration units which were re-purchased by the company.
Non-core income includes Hyprop's investment in Word4Word Marketing (Pty) Limited and fee income from Vunani Property Investment Fund (VPIF).
Income from associate relates to distributions received from VPIF. This income reduced due to Hyprop selling 50% of its interest in VPIF concurrently with VPIF's listing on the JSE.
Notwithstanding the larger portfolio, total arrears at 31 December 2011 were R41 million (2010: R41 million). Total provision for doubtful debts at year-end amounted to R17.4 million (2010: R20.8 million).
Total vacancies in the portfolio at 31 December 2011 were 4,1% (2010: 3,9%).
With regards to developments, Hyprop said the planned redevelopment of The Mall of Rosebank had progressed further with the commencement of demolitions on the Rosebank Gardens site.
"Redevelopment of The Mall itself will commence once town-planning approvals have been received and letting requirements have been met. It is anticipated that construction will start during 2012. Further information will be communicated to unitholders in due course," Hyprop said.
Further extensions to Canal Walk, to meet tenant demand, and the refurbishment of Willowbridge South were also planned to commence in the next 12 months, the group said.
Looking ahead, Hyprop said it would continue to focus on the disposal of non-core assets, the expansion and redevelopment of existing centres and improvement of operational efficiencies. Attention would also be given to alternative forms of finance to further reduce the overall cost of debt.
"Hyprop will continue to invest in high quality, sizable shopping centres. The board will consider investment in shopping centres elsewhere, including in the rest of Africa.
"Taking into account the implementation of the Attfund Retail acquisition and short term dilution due to higher gearing, Hyprop expects to show distribution growth of between 4% and 6% for 2012," the group added.
Says allegations are a “well-orchestrated and well-funded” attack.
Allegations of foul play against Auction Alliance and its founder Rael Levitt are a “well-orchestrated and well-funded” attack on a company with a clean track record.
On Tuesday, Levitt stepped down as CEO of the company. In an exclusive interview with Moneyweb, Levitt spoke out on the allegations of kickbacks, ghost bidders and collusion levelled against himself and his business.
The claims stem from a Saturday Star report that a 13-year old paper trail revealed the company had paid kickbacks to attorneys, liquidators, and bank staff to ensure business went their way.
The report also stated that billionaire Wendy Appelbaum was disputing the legality of an auction where she bought the wine estate Quoin Rock.
The National Consumer Commission and the Estate Agency Affairs Board have confirmed that they are investigating Auction Alliance.
Auction Alliance’s board has also set up its own probe into claims of collusion between the firm and Levitt and banks, liquidators and attorneys.
“It is a personal attack on me. Because I started the business at the age of 20, I am the face of the brand - any attack on me is an attack on Auction Alliance. It has been well orchestrated and well-funded," Levitt said.
He added: “Three weeks ago we had an impeccable reputation and now we have been vilified by the media. It has come as an enormous shock to me that we have been dragged through the mud all through untested allegations, rumours and innuendo…
“My resignation must not be construed, in any way, as an admission or acknowledgement of any impropriety, illegality or wrongdoing on my part. I am voluntarily bowing out to allow Auction Alliance to be saved from the hysterical media scrutiny that has crippled our business with untested allegations, rumours and innuendos. I don’t think any reasonable private person could have withstood the one-sided media attention that I have over the last week – it simply was too much for me,” he said.
Levitt said that similar complaints had never been raised in the business’ 20-year history. In addition, he believes the largely anonymous sources quoted in the media are former Auction Alliance “employees now largely working in competitive auction companies”.
Referring to the recent Carte Blanche expose on Auction Alliance, Levitt said the coverage was “completely unfair, tabloid-style and selective. We are extremely disappointed with the manner in the way that Carte Blanche did not question the credibility and personal agendas of some of their sources.”
Levitt said only 15% of Auction Alliance’s business is generated from banks and liquidators and added that he was unaware of commission payments by Auction Alliance to bank employees, liquidators or court officials in their personal capacities. “… that said, we employ and have employed thousands of people and we are investigating each and every allegation through a firm of independent forensic analysts…
“We have made it quite clear from the start that vendor bidding – what many people refer to as ghost bidding – is legal. The same applies to referrals to attorneys. What we have discovered is although they are industry norm and are lawful, the public finds them distasteful. That is one of the issues that our independent report will look into.”
According to the Consumer Protection Act, advance notice need to be given if a sale by auction is subject to a right to bid by or on behalf of the owner or auctioneer (vendor or ghost bidding).
“Sellers use vendor bidders, which is 100% lawful, to protect their reserve prices. Our role is to protect the seller’s asset and we thus use vendor bidders,” he said.
Levitt added that in the Quoin Rock case, the person bidding against Appelbaum was a proxy bidder and not a vendor bidder.
“At auctions we often have people who have either never bid before or do not want to bid themselves. In the case of Quoin Rock the R50m under bidder was bidding on behalf of a wealthy investor who was registered. He saw the media at the auction and specifically asked us to arrange someone to bid on his behalf. We arranged this through someone who has acted in the past as both vendor and proxy bidder for us.
“The mistake that we have made as a business is not clearly explaining the intricacies of auction methodology. Auction systems in South Africa, at Quoin Rock and globally are no different. And because we did not explain vendor bidding and proxy bidding clearly, the public finds it unethical and distasteful. For that mistake I have personally fallen on my sword. The mission of Auction Alliance has been to professionalise auctions and make them a first choice method of sale. The events of the last two weeks have taken our business and the auction sector back 20 years. It’s a devastating time for me to witness such a media disaster.”
27 February 2012
Investigating allegations of foul play.
JOHANNESBURG - The Estate Agency Affairs Board (EAAB) has appointed independent inspectors to look into the allegations of foul play against Auction Alliance.
This comes after Auction Alliance’s board set up its own probe into claims of collusion between the firm and its CEO Rael Levitt, and banks, liquidators and attorneys.
The claims stem from a Saturday Star report that a 13-year old paper trail revealed the company had paid kickbacks to attorneys, liquidators, and bank staff to ensure business went their way.
The report also stated that billionaire Wendy Appelbaum was disputing the legality of an auction where she bought the wine estate Quoin Rock.
Appelbaum claimed she later found out she was the only genuine bidder and consequently lodged a complaint with the National Consumer Commission, citing irregularities. Levitt responded by suing her for defamation.
According to Margie Campbell, Acting HOD for marketing and communications at the EAAB, members of an independent auditing firm were appointed as inspectors.
“The appointed inspectors will, therefore, be investigating various issues that have manifested themselves from information received by the EAAB, which, has triggered the need for a regulatory inspection. The inspectors will have inspection powers both in terms of the Estate Agency Affairs Act and the Financial Intelligence Centre Act.
“The inspectors will investigate the matter without prejudice or favour and will, in due course, produce a report to be considered by the EAAB. Such an inspection is routine in any matter of this nature and will assist the EAAB in obtaining information to enable it to determine whether any further action needs to be pursued in this matter. It must be emphasised that there are no presumptions as to the outcome of the investigation on the part of the EAAB. Auction Alliance and Mr Levitt have indicated to the EAAB that they welcome the inspection and will cooperate fully with the EAAB in this endeavour,” she said in a statement.
According to reports, Appelbaum also approached the National Consumer Commission. The Commission could not be reached. – With Sapa
It’s the first comprehensive investigation into compliance notices.
The hearings between the City of Johannesburg (CoJ) and the National Consumer Commission (NCC) concluded on Friday without a verdict being handed down.
The hearings have been on-going since Wednesday with the National Consumer Tribunal (NCT) presiding over an application by the CoJ to have 45 compliance notices issued by the NCC against it set aside.
While the two parties laid down their final arguments, the hearings are viewed as being ground breaking in terms of SA’s consumer legislation. This is because the NCT’s final verdict is likely to have far-reaching implications concerning the interpretation of the CPA.
Said the chair of the NCT, Professor Tanya Woker: “We are breaking into new areas. It’s the first comprehensive investigation into compliance notices… We have to apply our minds into these legal issues; its new legislation (so) there is nothing we can judge it by.”
She had indicated that findings will have implications for all of SA’s municipalities as well as the courts.
Owing to the far-reaching implications of the NCT’s findings, Woker has refrained from providing an indication as to when a verdict will be handed down, saying only that it will consider the matter thoroughly and provide its opinion “in due course”.
The compliance notices in question relate primarily to allegations that the CoJ has failed to provide its consumers with a “quality service” in billing for water and electricity and that the inaccurate billing of consumers constitutes unfair or unreasonable pricing as defined by the Consumer Protection Act (CPA).
The CoJ has also been accused of failing to provide a quality complaints resolution mechanism that would meet the reasonable expectations of its consumers.
Although the City has admitted that it has “problems” concerning its billing systems and its complaints resolution mechanisms, it is attempting to have the notices overturned based on arguments concerning the applicability of sections of the Consumer Protection Act (CPA) in this matter and on assertions that the NCC did not follow due process in issuing the notices.
In a nutshell, the CoJ is contesting the legality of the notices although it has not contested NCC’s allegations that it has dysfunctional billing and complaints resolution mechanisms.
Advocate Michelle Le Roux, acting on behalf of the CoJ, contests that the NCC did not follow due process when issuing the compliance notices as it did not launch a full and proper investigation into the complaints upon which the notices were issued.
“What we say is that an investigation needs to ascertain the facts… If the real concern is the complaints system, then you need to find out more about how that system works.
She asked “was the City aware that it was being investigated?” suggesting that a series of meetings that took place between the NCC and the CoJ prior to the notices being issued, did not constitute an investigation as would be legally required.
“The issue here was whether the complaint resolution system of the City works,” she said, adding the meetings were not “scrutinising what’s going on”.
Should it be concluded that the NCC had entered into a sufficient enough investigations to warrant the notices, the CoJ contests that sections contained within the CPA relating to unjust pricing of goods and services and a consumer’s right to demand a “quality service” do not apply to the CoJ’s billing of consumers or its complaints resolution mechanism.
Le Roux contests that the billing of customers is “incidental” to the City’s provision of a “good” such as water and electricity.
She has indicated that unless the billing and complaints functions were outsourced they do not constitute a service.
However, the NCC’s director of legal services, Oatlhotse Thupayatlase, argues that at a meeting on April 15 last year, the CoJ had admitted that it had had problems with its systems and had agreed with the NCC on a “super-structure” of processes designed to deal with complaints directed to the NCC concerning the City.
“The system that was set-up had failed,” he said. “There was a superstructure that was set up to deal with complaints that were coming through… Either you commit to that structure or you don’t…
“There was clearly not commitment” on behalf of the CoJ, he said.
Following the failure of the City to meet its commitments, the NCC “got frustrated” and with no other avenue left to deal with the complaints, issued a compliance notice.
He argues that the NCC engaged in a “fact-finding mission” prior to issuing the notices and had engaged in a sufficient enough investigation to confirm that the City was failing its consumers as outlined by the CPA.
The applicability of the CPA to the CoJ’s billing system will be something that the NCT will have to decide, he said, although he has previously indicated that it would be “very difficult” for the tribunal to conclude that the City’s billing systems did not constitute a “service” as defined by the CPA.
Urban sprawl to the east and south of Pretoria and the trend of decentralisation from the Pretoria CBD have resulted in the formation of nine basic office nodes in the Tshwane Municipality, says Jan Oelofse, leasing and sales broker for JHI Properties.
Construction of the Podium n Menlyn is scheduled to be completed in mid-year.
"These nodes are Arcadia, Brooklyn, Hatfield, Lynnwood/menlopark - the old east as it is known - Menlyn/ Faerie Glen, Pretoria's eastern suburbs, the new east Centurion, and Highveld Technopark developed in the south.
"The office component in Pretoria's CBD has been and continues to be underpinned by government buildings and tenancies, but the private sector has to a large extent moved to the deconcentration nodes, a trend being followed by some government departments."
Factors contributing to this included poor public transport, which had encouraged private transport, which in turn had affected road congestion.
"The old town planning conditions restricted the provision of adequate parking in developments, so Pretoria CBD has insufficient parking facilities. Ageing buildings, designed for office use 20, 30 or more years ago, are inefficient compared with modern designs, and antiquated facilities including lighting are costly to maintain and incompatible with modern technology. Another factor is that CBD office rentals have been distorted by rental agreements entered into by government over the past five to six years."
Oelofse says rent for office space in the Pretoria CBD varies from R45/m 2 for C-grade space to R65/m2 for B-grade, with installation cost contributions by landlords under certain conditions. However, in the absence of new or competitive developments to satisfy the demand for space, government and the private sector are compelled to either accept rentals offered or to move to deconcentration nodes, where they can find acceptable rent in modern, economically designed buildings, with sufficient parking. And, new buildings generally provide for economical space planning and facilities designed to lower and contain operating costs.
He says Arcadia caters mainly for fring e CBD offices and embassies, with most developments comprising residential conversions.
Hatfield's main commercial activities and development centres on Pretoria University. Office developments are low-density office parks with buildings of 1 000 2 to 3 500m 2 on average, catering for 100m2 to 3 500m2 tenants, with average rentals for A-grade buildings R90 to R95/m2. He says Hatfield is relatively stable with a reported vacancy rate of about 6 percent. Industry data indicates a total of 104 476m 2 of A-grade space with 9 386m 2 vacant. However, development opportunities are restricted.
"Popular due to its proximity to Pretoria CBD, Brooklyn and surrounds provide about 162 000m2 of P- (modern, luxury space) and Agrade office space around a mall. The demand for this area is reflected in the low vacancy rate of between 2 and 3 percent for P- and A-grade space, which fetch gross rentals of R100 to R130/m 2. The average tenant profile varies from small (100m2) to medium (2 000m2) businesses, interspersed with government tenancies. Developments are low-density."
Developed in established residential areas and following retail developments, the Lynnwood/menlopark node is concentrated mainly along major arterial roads. The developments are mainly low-density office parks, for tenancies varying between 100 and 1 000m 2 on average.
However, Oelofse says with the vast improvement of accessibility and traffic flow due to major upgrading of the N1 and the on/off-ramp at Lynnwood Road, the growth of this node has been boosted with the Lynnwood Bridge lifestyle and office park being developed in phases.
This incorporates a City Lodge Hotel, 15 000m 2 of offices and 13 000m2 of retail space. The development will measure about 73 000m2.
Gross rentals for P-grade office space in Lynnbridge vary between R140 and R155/m 2, and rentals for A-grade space average around R100/m2. The latest reported industry figures indicate a total of 232 600m 2 of office space, of which 11 3316m2 is P- and A-grade, with a vacancy rate of 6.5 percent.
"Developed around the Atterbury/n1 on/off-ramps, the Menlyn/faerie Glen retail and office development node was the first real decentralised node in Pretoria, offering the potential for significant growth around the Menlyn shopping centre as a pivotal anchor. The upgrading of the N1 and the Atterbury Road on/off-ramps, and the new Garsfontein on/off-ramps to the N1 and the upgrading of the internal and arterial road infrastructure have greatly improved traffic flow and access to the node.
"The major Menlyn Main mixeduse development... provides for 2 100 000m of residential/ hotel, 44 000m 2 retail and 143 000m2 of office space. The planned developments will be high-profile modern buildings with generous parking facilities. The building design allows for the installation of most modern facilities and infrastructure which will qualify it for at least a four-star Green Star rating." A further two new developments,
2 providing for about 27 000m of space, are scheduled for completion in the second half of the year.
According to recently published figures the total P- and A-grade office space in Menlyn amounts to 209 600m 2 with rentals varying between R105 and R145/m 2. The new and planned developments will provide further 75 000m2 of P-grade space at rentals of over R155/m 2.
Oelofse says the Centurion/highveld Technopark development node has a combined supply of 817 892m2 mainly A- and B-grade office space, with a reported vacancy rate of 9.1 percent. This node was established to cater for commercial growth, so it is not subject to growth restrictions that apply to the other nodes.
However, this area has experienced difficult marketing conditions, mainly due to accessibility restrictions.
These problems have been greatly alleviated by the upgrades to the N1 and John Vorster Drive on/off-ramps, with an added advantage being the Highveld Park and Centurion Gautrain stations that serve these areas.
Weekend Argus (Sunday Edition)
24 February 2012
Complaint against ACT Solutions prompts a change of heart on clean audit.
ACT Solutions, auditor of the Sharemax syndication companies, has changed its mind on the clean audit it gave Flora Centre Holdings for the 2009 financial year.
It is doubtful whether any of the Flora Centre’s investors are aware of ACT Solutions’ change of heart.
Flora Centre is one of Sharemax’s older and larger so-called income syndications. In 2005 it took R118.5m from investors to buy the West Rand shopping centre.
In August 2010, Moneyweb asked whether the Flora Centre’s 2009 financial statements could be believed. A copy of the financial statements can be downloaded here.
The financial statements appeared suspicious because they had increased Flora Centre’s value by 89%, from R104m to R197m. There was little or no apparent reason for this huge increase.
At the time, ACT Solutions director Jacques van der Merwe told Moneyweb: “We have a detailed valuation report from a registered property valuator. These are the facts. We do not consider wild speculations in the preparation of our audit report."
After publication of the article, a complaint was laid against ACT Solutions with the Independent Regulatory Board for Auditors (IRBA). The complainant claimed that the firm should not have given Flora Centre’s financial statements a clean audit.
In order to respond to the complaint, Van der Merwe did some investigating. What he discovered is that the Flora Centre may not be worth the R197m, as claimed in the 2009 financial statements.
Van der Merwe now claims that the Flora Centre’s valuator, Waldemar Gustav Haese, lacked independence. He also says the Flora Centre’s directors were inaccurate when they wrote in the financial statements that the valuator was independent, and that a capitalisation-rate method of valuation was used.
In the financial statements, the Flora Centre’s directors wrote that Haese “is not connected to the group”. However, WG Haese is the father-in-law of Dominique Haese, the former financial director of Sharemax and current CEO of all syndication companies including Flora Centre.
Moneyweb has in its possession a letter sent by Van der Merwe to the Flora Centre directors (click here to download). It is dated 5 November 2010.
In the letter, Van der Merwe says that Flora had provided ACT Solutions with a valuation certificate which reflects a value of R197m.
“The method of valuation is not properly set out in the valuation certificate dated 25 August 2009 of Mr W.G. Haese which was made available to us for audit purposes,” wrote Van der Merwe.
“We have consulted with Mr W.G. Haese recently and he explained to us in consultation that he used a ‘brick and mortar’ alternatively a ‘replacement value’ method as basis of valuation.
“We have also consulted an independent valuator and he advised us that these methods are inappropriate for this type of immovable property where the income stream (rental income) determines the value and that a capitalisation rate method is the only acceptable basis of valuation.”
Van der Merwe claimed it had always been his impression that a capitalisation-rate method of valuation was used for the Sharemax syndication companies.
However, this excuse may be hard for IRBA to swallow.
A capitalisation rate (cap rate) is a method of valuation in which income is used to derive a property's worth. For example, a property with income of R1 000 a year, capitalised at 10%, is worth R10 000 (R10 000 X 10% = R1 000).
The Flora Centre’s financial statements reveal an operating profit of R5.1m. If this is capitalised at 10.5% (the rate supposedly used by Haese), it gives a valuation of R48.5m, which is less than a quarter of Haese’s valuation of R197m.
It is difficult to imagine that ACT Solutions, when auditing the financial statements, did not pick up this discrepancy.
Van der Merwe claims that Moneyweb’s calculation above is over-simplified. However, he declined to offer an alternative.
Van der Merwe says ACT Solutions has already dealt with its concerns “by following the appropriate audit guidelines followed by an auditor when addressing the type of concerns raised in our letter”.
In his letter to the directors, Van der Merwe refers to an e-mail exchange which took place between Flora Centre’s Matthew Osterloh and valuator WG (Wally) Haese on 24 and 25 August 2009.
In the exchange, Osterloh informs Haese: “We always base our valuation on income”.
The e-mails suggest that Haese valued the Flora Centre without even visiting it. They also suggest a willingness on Haese’s part to adjust his valuation to suit the wishes of the Flora Centre’s directors.
It is also clear that Osterloh did not believe the Flora Centre to be worth anything close to R197m. Osterloh informed Haese: “In its current state I don’t believe that the property would be worth much more than about R75m.”
Moneyweb asked WG Haese to comment on his alleged lack of independence and use of the incorrect valuation model. He declined to comment, and referred questions to Sharemax successor Frontier Asset Management. Frontier CEO Dominique Haese did not respond to a request to comment.
The e-mails can be read below.
24 August 2009, 10:36am
1.What parking is provided (either as number of spots, or as sq. meter)?
From one of the photos, there seems to be some drive-up parking in the office block. If there are indeed parking spots within the office block, as also some covered parking spots, all (or at least some) of these should be income-generating, but I do not note any lettable floor area being allocated to parking in the schedule you have provided.
1.1 Within the building (i.e drive-up parking)
1.2 Externally, in the parking area
2.Open parking provided in the parking area.
1.Over retail areas
2.Over office block
I can unfortunately not determine any of the above from the photos provided.
3.What is Sharemax’s own idea of the value of the property? I have the municipal valuation as R171 343 000.
25 August 2009, 8:51am
Wally – We always base our valuation on income. In its current state I don’t believe that the property would be worth much more than about R75 million.
25 August, 2009, 09:30am
Have a look at the attached concept valuations (municipal, insurance replacement and present market), and let me know if it meets your (i.e. Sharemax) requirements.
25 August, 2009, 09:51am
The valuation will not work for the purpose that we wanted it for.
I want to get a low value, much lower than the municipal valuation of R171 343 000.00
This is the local authority’s latest value of the property and our assessment rates payment has quadrupled in the past month.
There are a few changes to be made on your valuation:
1) ERF 35 has been sold
2) I would remove the word modern under the description of improvements
3) The entrances do not have automated doors
25 August, 2009, 11:20am
Matthew, O.K., attached docs refer, for scrutiny and comments:
I have valued Flora down to the lowest level I can realistically, using a balanced mix of present income generated, calculated replacement cost, depreciation / maintenance, etc.
It is not much below the municipal valuation however. The replacement value is just higher than the municipal value.
Bear in mind that my first draft valuations sent to you for comment reflected “true” valuations, as would still have been applicable at the beginning of this year.
If you really need to lower the valuation any further (for municipal reasons only: NOT for purposes of Sharemax share issue), I can do so, based on the purchase price escalated from 2005 to date, which will probably put the valuation at around R152 000 000 after depreciation, etc. Would this help at all?
25 August, 2009, 2:19PM
Thanks Wally. Leave the valuation as previously sent to me, that is at R196 700 180 and replacement value of R218 555 750
Can we get it signed off today?
SA listed property will become more like REITs overseas.
Wednesday’s Budget contained a passage that announced the impending elimination of one of the most popular types of listed investment: the property loan stock. Most listed property counters, including the two largest, Growthpoint and Redefine, come in the form of a linked unit. They are part share, part debenture.
The structure is done for tax reasons, so that the companies can pay rental income to investors in the form of interest on debentures.
But the Treasury said that this “dual-linked structure needs to be eliminated so that other entities do not undertake the same structure to avoid tax by relying on excessive debt.
What does it mean for the sector? Growthpoint director, Estienne de Klerk says his company has been working with Treasury to implement new listed-property legislation.
The result will have two main benefits.
The first will be greater tax certainty. De Klerk explains that there are currently tax “anomalies” in both types of listed property: property loan stocks (PLSs) and property unit trusts (PUT). For example, property loan stocks are subject to capital gains tax, while property unit trusts aren’t.
Another benefit will be a listed structure that more closely resembles the overseas norm, namely the real estate investment trust (Reit).
De Klerk hopes that the changes will increase foreign ownership of listed property. He says that Growthpoint and Redefine have the highest levels of foreign ownership but this is lower than 15% for each company. He thinks foreigners may be put off by what appears to them to be an unusual structure.
De Klerk says that PLSs and PUTs are likely to retain their respective company and trust statuses. In other words, Growthpoint, a loan stock, will remain a company regulated under the Companies Act. And property unit trusts will remain trusts regulated under the Collective Investment Schemes Control Act.
One possible way of eliminating the dual-linked structure of PLSs could be to issue new shares to investors in lieu of their debentures.
It’s really happening for the continent this time.It’s easy to be pessimistic about everything these days, with the news headlines full of the crisis in Europe, the brutalities in Syria, unemployment in America, and the growing animosity between Iran and Israel.
However, there are still some things that can serve as a source of optimism, and the economic potential of Africa is one of them.
Let’s take a look at some reasons to think that Africa could be a source of tremendous economic growth and wealth creation over the next few years. Some of these may seem strange, but taken together, they add up to a story of major economic potential.
1. Reasonably good fiscal positions
Unlike many developed countries, African nations are actually generally going OK on the fiscal front. According to data from the IMF, the average ratio of public debt to GDP in Sub-Saharan Africa is around 42%, much better than the 80% debt-to-GDP burden facing the European Union, or the almost 95% debt-to-GDP burden facing the USA (see table below for details).
In addition, fiscal management in many African nations has improved dramatically over the last few decades. Thanks to stern interventions from funders like the International Monetary Fund (IMF), most African countries have become more disciplined about their spending, and much more careful about maintaining a balance between debt and revenue. All in all, most African economies are entering the 21st century in a solid fiscal position, forming a marked contrast to the nations of the rich world.
2. Less reliance on social safety nets
This may sound a little odd, but Africa is, in a sense, fortunate that it has not yet developed the kinds of comprehensive social safety nets you see in Europe and Japan. The rich world is currently wrestling with how to manage the ballooning costs of their pension and healthcare plans; in Africa, such plans have not yet been implemented. Admittedly, this means that life is a precarious business for many Africans. However, it also means that African governments face little in the way of social spending costs (South Africa is a prominent exception to this), and that as African nations grow wealthier and start to develop safety nets, they can learn from mistakes elsewhere, and when designing their programmes, ensure that they are sustainable and sensible.
3. Many African economies have grown dramatically over the last two decades, and diversified
A large number of African countries have grown very rapidly over recent years – indeed, Angola was the fastest-growing economy in the world between 2001 and 2011 (thanks to its oil boom). Overall, African countries have grown at an average of close to 5% a year since the 1990s, according to IMF data. This growth, while coming off a low base, represents the fruit of a number of reform efforts and has been sustained even in the face of the global recession. The IMF predicts that growth in Sub-Saharan Africa will stay reasonably strong over the next few years; the organization predicts an average of 5.5% GDP growth in the region this year, and 5.3% next. This is solid, sustainable, and attractive growth, and means that there are plenty of economic opportunities in the continent.
What’s more, the growth in African economies over the last few years has come from multiple sectors, including consumer goods like mobile telephony and clothing, and not just from resources. In other words, African economies are becoming more multi-dimensional, and are no longer just simple commodity plays.
4. Demographic advantages
As we’ve discussed before, Africa has the potential to reap enormous economic benefits from its demographic profile. With its large youth population, Africa is unique in a world in which most populations are aging rapidly (including the population of China). With good policies, African nations can turn this youth boom into an economic bonanza.
There are a lot of reasons to feel optimistic about Africa’s economic future, although it often seems as if Africans themselves are reluctant to see them. However, if you still have your doubts, consider the activities of China in Africa; for the last fifteen years, China has been investing heavily in the continent, buying mineral rights, farmland, and even building manufacturing plants. Africa has the potential to be the growth story of the new century, and South Africa has the chance to benefit from this growth. Let’s hope that the country doesn’t let the opportunity slip away.
23 February 2012
We read headlines like "Property Bloodbath" and yet somehow I don't see too much blood being spilt out there, says Geoff Stroebel, principal of Stroebel Properties.
It is presumed that in this time of serious recession in South Africa, that house prices would have stagnated considerably, and been at levels stable or low enough for buyers who were previously perhaps unable to enter the market due to price constraints, to indeed find affordable homes and perhaps a few bargains.
Perhaps it is more evident in Cape Town, but this seems to be clearly not the general case, as sellers continue to expect to make unrealistic profits, even out of properties purchased 12 to 18 months ago as the market was entering its supposed decline. Yes, there are distressed sales occurring where people are forced to dispose of their asset due to financial woes, but one would naturally expect that after the rampant seller's boom of the mid-2000's, that there would be some impasse. One surely must agree with Rode that in general, house prices remain 20% to 25% over-inflated.
So the phenomenon's of the "sellers' market" and "buyers' market" need to be studied and questioned. If it was truly such a "sellers' market" in the mid-2000's, (which caused prices to virtually sky-rocket and huge profits to be made), then one has to pose the natural question; "so who was buying all the property that caused this frenzy?" Well simply put, it was indeed our fellow South Africans themselves, many of whom got caught up in the fracas and radically overpaid for their properties and who now expect to not only get their money back, but to even profit thereon!
Then there is the other problem thwarting the precious buyer. It's that of our estate agency business itself. "I truly believe that if the property market could be kick-started, then it is up to my fellow agents themselves to adopt a more professional approach and cease overpricing properties in their apparent frenzied ritual of securing mandates", says Stroebel.
"It's dog-eat-dog out there at a time when the market is stagnant, and whilst competition is always healthy, I believe that many more properties would be affordable for purchase if they were priced correctly to sell by both sellers and agents alike". We perhaps have to remind ourselves what a good (and reasonably realistic) return on a property investment is considered to be. Is 10% compounded growth per annum unacceptable? Let's get real.
Stroebel Properties Press Release
The Board of Directors of Auction Alliance has commissioned an investigation by an independent company into allegations that have been levelled against the firm in recent weeks.
"The Board considers the allegations against Auction Alliance and its CEO, Rael Levitt, to be of such a serious nature, that such a step is warranted," says Auction Alliance Board chairman Sango Ntsaluba.
He adds that in order for the investigation to be properly conducted, the Board will make no further statements until it has been concluded.
Auction Alliance Board Statement
The budget and your wallet...The budget and your wallet:
- Personal income tax relief of R9.5bn. 54% of the relief will go to taxpayers who earn less than R260 000 a year.
- General fuel levy increases by 20c a litre, the Road Accident Fund levy increases by 8c a litre.
- Sin taxes: A packet of 20 cigarettes will cost 58c more, a 750 ml bottle of liquor (spirits) R6 more, a 340 ml can of beer 9c more and a 340 ml can of cider will cost 8.84c. A litre of wine will cost 18c more.
- A new tax credit will replace the tax reduction for medical aid contributions.
- Tax incentive to encourage savings that may replace the current interest exemption thresholds.
- A 15% dividend withholding tax to kick in on 1 April. Pension funds, companies are exempted from this tax.
- Significant tax concessions and reduced red tape for small businesses.
- Electricity levy increased by 2.5c/kWh.
- Budget deficit of 4.6% in 2012/13, 4% in 2013/14 and 3% in 2014/15.
- Government spending to reach R1.1 trillion in 2012/13.
- National government’s net loan debt to reach R1.5 trillion in 2014/15.
- The national treasury expects economic growth of 2.7% in 2012, 3.6% in 2013 and 4.2% in 2014.
- The national treasury expects headline inflation to be 6.1% in 2012, 6.2% in 2013 and 6.1% in 2014.
Government spending plans
- R9.5 billion for the Economic Competitiveness and Support Package, including R2.3 billion for dedicated special economic zones;
- R6.2 billion for job creation;
- R3 billion for equalisation of subsidies to no fee schools and expansion of access to Grade R;
- R1 billion for National Health Insurance Pilot project;
- R1.4 billion for Early Childhood Development;
- R4 billion for Passenger Rail Agency of South Africa for coaches, as the start of a programme to replace the current fleet;
- R1 billion for Signalling and depot infrastructure related to this new rail transport programme;
- R4.7 billion for electricity demand side management grant: Eskom for the installation of solar water geysers;
- R1.8 billion for municipal water infrastructure;
- R3.9 billion for upgrading informal settlements.
Minister Gordhan has just given you TWO more reasons. Firstly, the rate at which Capital Gains Tax is being levied has been raised. Secondly, the threshold for exemptions has been increased.
22 February 2012
Fees of R4.3m paid on top of normal salaries. Reserve Bank’s concerns revealed.JOHANNESBURG - Directors of the Sharemax syndication companies have been well paid for their efforts to restructure the schemes. In total five directors stand to make R4.3m, mostly for consulting services billed at R1 500 an hour.
For the two executive directors, Dominique Haese and Dirk Koekemoer, this money is paid over and above normal salaries received from Sharemax successor Frontier Asset Management. Haese’s salary at Frontier is R80 000 a month. Frontier is the company that manages and administrates the old Sharemax property portfolio. For this work it collects a percentage of assets under management.
The amounts paid to directors are disclosed in rescue scheme circulars which were sent to all 34 000 investors of Sharemax syndication companies. When the circular was compiled, R2.5m had already been paid to the five syndication directors, and a further R1.8m was budgeted, bringing the total to R4.3m.
Haese had already received R1m for consulting fees. Koekemoer had received R780 000. Accountant Rudi Badenhorst, who is supposed to be an independent, non-executive director of the syndication companies, was paid R600 000 for his consulting services. For each of these three directors, a further R500 000 was budgeted.
An amount of R240 000 has been budgeted for the chairman of the syndication companies, retired judge Willem Hartzenberg. An amount of R76 000 was budgeted for independent director Koos Maartens. A portion of this amount had already been paid.
It appears that no payments were made to former independent director Dawie Roodt, who resigned in July last year.
Reserve Bank concerns
Moneyweb can reveal that the Reserve Bank-appointed statutory managers, Jaco Spies and Neels Alant, raised a number of concerns about the directors’ income flowing from consulting services. These managers were appointed to ensure the syndication companies’ compliance with the Banks Act. They were relieved of their duties earlier this month, after investors voted in favour of the rescue scheme and it received court sanction.
Initially, Haese, Koekemoer and Badenhorst used entities to invoice the syndication companies. An example of these invoices can be downloaded here.
Haese invoiced in the name of a sole proprietorship called D. Co Financial Services. Koekemoer used a close corporation called Ruwach Properties and Investments. Badenhorst used his firm, Badenhorst Auditors and Accountants.
This use of entities did not sit well with the statutory managers. In May last year statutory manager Jaco Spies instructed Haese not to “make any payments to director-related entities”.
Later that month, Spies’s co-manager Neels Alant wrote to Haese: “Based on independent advice Jaco Spies and I have identified a number of concerns relating to the remuneration of directors and which concerns require the board’s urgent attention.”
Alant continues: “We have conveyed these concerns to the Chairman [retired judge Willem Hartzenberg] and have also decided to postpone decisions on whether or not to consent to any of the payments that have been claimed by directors or their entities thus far.”
With the advice of an independent legal firm, it was later agreed that the directors’ fees were to be fully disclosed in the scheme circulars. The directors also agreed to claim remuneration in their personal capacities, and not through corporate entities. Invoices in the names of the directors’ entities were cancelled and never paid. New invoices were prepared in their personal capacities.
The invoices mentioned above show how the directors put in long hours for their work on the rescue scheme.
Haese’s sole proprietorship, D. Co Financial Services, submitted an invoice for March to the Sharemax syndication companies for R120 000. Haese billed her services at R1 500 an hour, which means she worked 80 hours. Assuming a 160 hour work month, this left just half of her available time for full-time employer, Frontier.
Haese says this indicates that she worked many late hours and lots of overtime.
Koekemoer’s close corporation, Ruwach Properties and Investments, invoiced for 69.5 hours totalling R104 250.
Badenhorst’s firm issued an invoice R103 500 in March 2011 for 69 hours of consulting services.
If you think these directors were burning the candle at both ends, spare a thought for Connie Myburgh, for whom 250-hour work months are not unusual. In just one week, 23-29 April, which included a 21-hour work day, Myburgh billed Sharemax investors a total of 102 hours. Myburgh’s rate is R3 000 an hour. (See the details of the invoice below this article.)
The rescue scheme’s piggy bank
But the statutory managers’ concerns did not stop at director remuneration. They were also worried about the manner in which the Sharemax rescue scheme’s costs were to be funded.
To pay the millions that the Sharemax rescue scheme would cost, the directors needed cash, which they sourced from one of Sharemax’s better-funded growth syndications, Country View.
Not that Country View, a proposed retirement resort, was in good financial health; it simply had not yet spent all of the R83m it solicited from public investors. This made it an attractive piggy-bank to fund the rescue scheme.
Once Country View had received the R83m from its investors, sometime in 2007, it loaned the money to a private company called Planet Waves 110. Such loans were standard procedure for Sharemax’s 12 growth syndications (see Sharemax’s black hole syndications).
Around April last year, Haese and her co-directors, with the assistance of corporate lawyer Connie Myburgh, created a R5m loan facility, which they used to borrow money from Planet Waves to fund the Sharemax rescue costs. This loan is to be repaid by all syndication companies on a pro-rata basis.
The Reserve Bank was concerned that this loan might be illegal. In May the Reserve Bank’s Michael Blackbeard informed Chairman Willem Hartzenberg that the Bank was concerned about the loan’s legality.
A copy of this letter can be downloaded here.
Haese says that the board of directors obtained external legal advice, which caused the loan to be structured and implemented in such a manner that the concerns raised by the statutory managers and the Registrar of Banks were addressed, and subsequent approval was granted for the incurring and implementation of this loan.
Blackbeard instructed Hartzenburg and his co-directors not to exceed the original loan limit of R5m. However, when it came to the Reserve Bank’s attention that the limit of R5m may be exceeded, it took the drastic step of freezing the Country View cash.
In an e-mail dated June 7 last year, Alant informed Haese that her wings had been clipped: “I have exercised stricter control over the investment account held at Mercantile Bank in the name of Planet Waves 110 (Pty) Ltd,” he wrote. “The bank has accordingly been instructed not to allow the withdrawal of funds held on behalf of Planet Waves 110 (Pty) Ltd.”
Future withdrawals required Reserve Bank approval.
Haese says that at no time was the R5m exceeded: “In fact a further agreement was entered into requesting a provision for further funding and approval was given by the Reserve Bank thereon after due consideration.”
The cost of the rescue scheme has been budgeted at R19m. The single biggest item is legal fees.
Says Haese: “One needs to consider that R19m divided by 34 000 investors equals R559 per investor, nothing in terms of potential astronomical – and now avoided – liquidation costs, where investors would have been left with nothing.”
Coenie Willemse, a lawyer representing the directors, stated on their behalf that without the Planet Waves loan it would not have been possible to implement the various steps of the Section 311 scheme of arrangement. (Click here to download Willemse's full unedited response)
“Every one of the legal entities in the Sharemax syndication group of companies, is obliged to, in terms of the approved loan agreement, contribute its share of this funding on a weighted pro-rata basis.
“This loan is based upon an approved valid and binding loan agreement, which will provide Country View with a better return as previously,” Willemse said.
A copy of this article was sent to Willemse, lawyer for Haese, Koekemoer and Myburgh last week.
Willemse’s full unedited response to the article can be read here.
A week in the life of corporate lawyer Connie Myburgh
|Saturday||Attend to drafting scheme documentation|
|23-Apr||pertaining to Income Plan project. (4 hours)|
|Sunday||Attending to further drafting of scheme|
|24-Apr||documentation. (8 hours)|
|Monday||Attend to drafting further documentation|
|25-Apr||pertaining to Villa and Income Plan documentation,|
|attend to checking documents as tracked,|
|amending same and further processing, attend|
|to numerous telephone calls with various parties|
|for purposes of collecting and checking|
|information for purposes of incorporating into|
|documentation, attend to discussing various|
|aspects of structures and documentation with|
|counsel and Mr Derek Cohen. (16 hours)|
|Tuesday||Attend to further drafting of documentation,|
|26-Apr||checking of documentation and various|
|discussions with various parties in regard to|
|various aspects of structures and documentation|
|being prepared. (19 hours)|
|Wednesday||Further preparation of documentation, including|
|27-Apr||finalising documentation pertaining to Villa|
|project, attending to Mrs Cohen, Rembe and|
|Badenhorst during consultation when financial|
|aspects of Villa transaction discussed, debated|
|and incorporated into final Villa documentation,|
|attend to arranging signature of Villa documentation,|
|finalising , all Villa documentation, including|
|pagination and the like, copies and the like, and|
|procuring dispatched to Pretoria and issuing at|
|Court for purposes of hearing the matter at 10h00|
|on Friday, 29 April 2011, attend to further intensive|
|drafting after discussions with various parties|
|providing information, and in particular, attending|
|to the checking of numerous documents having|
|been prepared and typed, attend to extreme urgent|
|drafting of documentation pertaining to Income|
|Plans project, including discussions in regard to|
|financial aspects thereof with various parties,|
|including Messrs Cohen, Badenhorst and|
|Koekemoer. (20 hours)|
|Thursday||Attend to finalising Villa documentation and|
|28-Apr||procuring filing at Court, attend to working further|
|on extreme urgent basis in regard to Income Plan|
|documentation, including discussions in regard|
|thereto, both with regard to structure and financial|
|implications. (21 hours)|
|Friday||Attend to discussing Villa transaction with|
|29-Apr||counsel for purposes of briefing counsel for|
|hearing of the Villa matter in Court, attend to|
|finalising Income Plan matters under great urgency,|
|attend to procuring the signing of Income Plan|
|matters and documentation, attend at Court when|
|counsel briefed and matter heard in Court, attend to|
|assisting counsel in Court when order with regard|
|to Income Plans transaction granted, attend to|
|travelling back to Johannesburg, attend to further|
|drafting of documentation required for Income|
|Plan matters, attending to perusing documentation|
|and finalising further drafting, attend to further|
|checking of documentation and discussing of|
|various aspects of documentation and structures|
|with Mr. Badenhorst, attend to discussing Villa|
|transaction with Counsel and finalising. (14 hours)|
In a case brought to the Constitutional Court, a group of ousted tenants claimed their right to adequate housing was violated by the owners of their building, Aengus Lifestyle Properties, which cancelled their leases and raised rents by up to 150 percent.
The tenants at Lowliebenhof in Smit Street, Joburg, argued that the cancellation was not compliant with their lease agreements. They claimed that the impact on the tenants would decrease their quality of life and leave seven of the group homeless.
The Inner City Resource centre submitted that the landlord's right to increase its profit was not a plausible reason to deprive tenants of their rights. The lease cancellation and increased rent would have a disproportionate impact on the tenants and was tantamount to unfair practice.
Aengus, a company that focuses on inner-city revitalisation and developing upmarket living spaces in Joburg, argued that its action was compliant with its contractual obligations under the cancellation clause in the lease agreement.
It also said it was compliant with the Prevention of Illegal Eviction Act, which specifies that landlords can evict tenants only if they have alternative accommodation. Aengus said it offered each tenant alternative cheaper accommodation and three months' notice of cancellation. Residents were also offered new rental amounts in new leases.
Michelle Dickens, managing director at TPN property credit bureau, says: "Eviction procedures have often been the subject of SA court cases and each outcome has the potential to inform future rulings and stipulations. If the court finds against the landlord, cancellation of leases, even when done within the terms of a lease agreement, could be set aside as unfair or unreasonable.
"As Aengus took these measures to increase its profit, this case sets the rights of tenants to adequate housing against the landlord's right to pursue profit. The big questions in this case are: who is responsible for the social costs of cases like these; do constitutional rights exceed contractual rights; and how should the rights of tenants and landlords be balanced when situations such as this one arise?"
She says that in a developing economy and industry, capital accumulation is vital to the regeneration of areas like Joburg's inner city. Although this may cause hardship for certain tenants, the long-term effect will create wealth and generate economic progress, ultimately benefitting all sides.
The tenants escalated their case against Aengus, starting at the Rental Housing Tribunal, moving on to the High Court and Supreme Court of Appeal and now to the Constitutional Court. The parties are awaiting a decision from the Constitutional Court, where judgment has been reserved.
Weekend Argus (Sunday Edition)
Joburg residents, aggrieved by the City of Joburg's billing chaos, are waiting for the outcome of the National Consumer Tribunal hearings to be held this week.
The hearings are the result of consumers having lodged complaints with the National Consumer Commission (NCC) about unfair treatment at the hands of the council.
The consumer commission upheld the complaints, and after following legal processes, including giving the city the opportunity to rectify its mistakes, issued 65 compliance notices against the council, ordering it to abide by its decision.
However, the council objected to the compliance notices and appealed to the tribunal to set them aside.
The consumer commission is opposing the application to set the notices aside.
The hearings will be heard over three days.
If the council loses and refuses to abide by the tribunal's decision, it faces fines of between R100 000 and R500 000 per matter, but the commission can issue it with fines of up to R1 million, or 10 percent of the Joburg council's turnover.
The hearings revolve around cases in which residents feel they have been unfairly charged, had their services cut off, were being charged incorrect rates, had their properties incorrectly valued or were not getting their pensioner rebates.
Last year, the commission became involved in the city's billing debacle after receiving about 450 complaints from aggrieved residents.
At the time, NCC commissioner Mamodupi Mohlala vowed to see justice done for the residents. She followed due legal processes and timeframes, but claimed the council had not co-operated.
She said numerous meetings had been held, with promises made and broken.
There had been an opportunity for mediation, but the council had not sent representation.
Mohlala said the objections the council had raised with regard to the complaints were not sound in law.
The tribunal said the hearings would be conducted "in an informal manner and in accordance with the principles of natural justice".
Spokeswoman Ruth Coggin said an "informal manner" meant that anyone can appear before the tribunal without needing to be represented by an attorney; and "in accordance with the principles of natural justice" meant that the tribunal does not allow technical barriers to unduly prejudice any party before it.
The hearings will be held at the Braamfontein Recreation Centre from Wednesday from 10am.
21 February 2012
United Kingdom - The project includes 200 affordable homes.
(I-Net Bridge) - Plans to redevelop the Seagrave Road car park site in Earls Court into a new residential quarter containing more than 800 new homes have been endorsed by Hammersmith & Fulham Council (LBHF), Capital & Counties Properties PLC (Capco, CCO) said on Friday.
Capco welcomed the decision by the Council's planning committee to resolve to grant detailed planning permission for the proposals, which will replace the existing car park with a high quality, mixed use scheme comprising 808 new homes, ranging from townhouses to apartments around a new public garden square.
The project includes 200 affordable homes that will be made available for the relocation of some residents of the Gibbs Green and West Kensington Estates in the event that regeneration of these estates occurs.
As announced in December, Capco has a conditional agreement with entities in which certain members of the Kwok family are interested to form a 50:50 joint venture in respect of Capco's interests in and around Seagrave Road.
Completion of the JV is expected upon expiry of the three month statutory period which follows finalisation of the section 106 Agreement and sign off from the Mayor of London.
Ian Hawksworth, Chief Executive of Capco said: "We are delighted by the Council's decision on Seagrave Road. It confirms our long term view of the value which can be unlocked from Capco's holdings in the area through a residential-led scheme. The site is an exciting opportunity to begin the transformation of the area, creating hundreds of new homes and jobs. We look forward pursuing our plans for the project within the joint venture with the Kwok Family Interests."
JVs and emerging markets form part of its growth drive amid Sanlam acquisition.
The Vukile Property Fund says its immediate plans post the acquisition of an R1.5bn portfolio from Sanlam is to continue looking for growth, especially in the retail sector.
CEO Laurence Rapp says while it wants the fund to be a balanced one in having exposure to retail, industrial and commercial, the focus will be on retail. Once the R1.5bn Sanlam transaction is closed, it will take Vukile’s gross assets up to around R7.3bn.
Speaking after a tour of Vukile’s malls in Daveyton east of Johannesburg and in Dobsonville, Soweto, south west of Johannesburg, Rapp said emerging markets are attracting business as suburban markets become more and more saturated.
“We are very passionate about it through our experiences over the years and we want to capitalise on that by finding more space next to strong commuter links like taxi ranks and rail links,” Rapp said.
He added that while value to spend per basket was not nearly as high as those in the regional malls, there was growing disposable income in those areas with an increasing footfall.
Anton de Goede of Coronation Fund Managers who was on the tour of Vukile’s properties said the retail assets in the form of the Daveyton and Dobsonville malls had come as a bit of a surprise as the foot traffic was impressive being on a Monday morning and mid-afternoon. De Goede said trade seemed to be doing well indicating the malls were “nicely performing assets”.
On the office front De Goede was less optimistic saying the sector was facing some vacancy and re-letting challenges, for example in the Sunninghill precinct. What does count in Vukile’s favour in terms of the Sanlam acquisition is that the fund is extremely familiar with the assets thereby reducing risk.
Director of Meago Property Investment Managers, Jay Padayatchi, concurs that Vukile’s retail offering in nodes like Daveyton and Dobsonville are doing phenomenally well and will continue to do so provided they remain dominant in the area.
In its current form, these malls are the only substantial offering within at least a ten-kilometre radius of competition like Maponya Mall in Dobsonville. The same applies to Daveyton. Currently they cater for the lower LSMs which include pensioners and people dependent on grants. Many don’t have alternatives in terms of where to shop, making them a very captive market. Commuters are another niche market in that the Dobsonville Mall is adjacent to a bustling taxi rank.
Retailers that are doing particularly well in these malls are Webbers and Studio88 which Vukile believes will soon be giving the nationals a run for their money.
While Rapp believes that its office sector has “tremendous potential” with vacancy rates coming in below national averages and in many cases better than its competitors, fund managers believe this could prove to be a challenge.
“Offices are a work in progress due to vacancy challenges and potential re-letting challenges. The office space in a tough letting environment, could cause some head wounds,” De Goede said.
Padayatchi says while the office vacancies in this acquisition are pretty much in line with the national average there is a substantial expiry of office space in the next 12-24 months which could pose a re-letting risk. He also expressed some concern over the number of B grade offices in the Vukile portfolio with increasingly high vacancies in the B and C grades.
In spite of this, Padayatchi believes Vukile is offering an “overall good quality, relatively defensive portfolio. In terms of the upside that may be generated from the Sanlam acquisition, Vukile is intimately involved with the assets and this takes a lot of risk out of the transaction.”
Rapp says Vukile is trying to dispel perceptions that Vukile has a poorer quality portfolio. “We think the quality of our retail, while not talking about regionals like Sandton, is very high given the percentage of national retailers and high footfall. Retail is the core of our portfolio.”
Office blocks included in Vukile’s portfolio in the northern suburbs include: Sandton St Andrews Complex; Sandton Rivonia Tuscany; Sandton Sunninghill Sanhill Park; Sunninghill Place and the Johannesburg Isle of Houghton.
I have been hesitant to re-post this Article because I am a fan of Rael Levitt and the Auction Alliance business model. Only about a week ago, I was in the company of several prominent role players in the Property Industry, who were (ironically) expressing nothing but admiration for Auction Alliance and Rael Levitt's business model and business acumen.
I mention that the conversation was ironic because of the headlines only a couple of days later. Take the headline of this Moneyweb Article as a prime example. At the end of the Article is an explanation of the circumstances involved in all the accusations against Auction Alliance, which is not reflected in the headline, so I will rather reserve my judgment until all the facts are revealed.
I remain a big fan of Levitt and the Auction Alliance business model but I always have reservations when people have a preferance for "cash transactions". Let's see how this plays out.
Auction Alliance is accused of colluding with banks, liquidators and attorneys.
Auction company Auction Alliance has allegedly been colluding with banks, liquidators and attorneys in a money making racket, according to reports on Saturday.
The Saturday Star reported that a 13-year old paper trail revealed that the company had paid kickbacks to attorneys, liquidators, and bank staff to ensure business went their way.
The report claimed CEO and founder Rael Levitt said in emails the kickbacks would be paid "in cash".
The paper's sources claimed two staff members at Investec were paid large sums of money to insure the company received preferential treatment.
A former Absa bank manager in Gauteng was "ousted" by employers some years back when a kickback trail revealed him as the alleged recipient.
The kickbacks were typically 50 percent of the commission Auction Alliance earned. These rose up to 75 percent during market slumps - to ensure business in bad times.
The company also reportedly trained auctioneers on how to rig an auction and told them what to do if they were caught.
The newspaper reported five insiders wrote affidavits supporting their allegations, which they said were supported by reams of documents.
Billionaire Wendy Appelbaum was disputing the legality of an auction where she bought the wine estate Quoin Rock.
Appelbaum claimed she later found out she was the only genuine bidder and consequently lodged a compliant with the National Consumer Commission, citing irregularities. Levitt responded by suing her for defamation.
Appelbaum's bid was later rejected by the estate's liquidators.
Levitt has denied all the allegations, calling them "defamatory". He said it was not uncommon for law firms to refer auctions to auctioneers and when they did, they could agree to give the attorney concerned a referral commission.
"We leave it to the attorney to make the necessary disclosure to their clients," he said.
He said the practice was long-standing and widely accepted in the industry.
Vendor bidding -- the practice of a seller bidding on their own stock to drive up bid prices -- was "internationally and nationally regarded as an acceptable and lawful auction industry practice", he said.
Levitt also published a rebuttal alongside the newspaper's story.
He attributed the allegations to the competitive nature of the industry and disgruntled former employees.
In an open letter published in a full page of the newspaper, Levitt said he had approached a High Court asking them to interdict the newspaper and prevent them from publishing the story because his side wasn't expressed in his own words.
"We do not resort to unethical and corrupt practices to secure business deals," he said
17 February 2012
The residential market adjusts to affordability challenges in 2 ways...
INTRODUCTION –THE RESIDENTIAL MARKET ADJUSTS TO AFFORDABILITY CHALLENGES IN 2 WAYS – REAL PRICES FALL, OR CHARACTERISTICS OF PROPERTIES CHANGE.
Currently, as implied in recent reports, we remain of the opinion that the residential market remains unrealistically priced, or “over-valued”, but believe that it is not possible to ascertain by how much. We argue that it is unrealistically priced based on our current perception of a weak economy which is not fuelling strong demand, and signs emanating from both our estate agent and valuers’ surveys that supply is very strong relative to demand.
Indeed, since 2008, we have entered a period of real house price decline, and the FNB House Price Index is around 17% down since February 2008 in real terms (average house prices adjusted for consumer price inflation). This is a very normal part of the residential property cycle.
But contrary to the views of some, the market adjustment to real property values does not only take place through a decline in real home values. In our steadily urbanising country, accompanied by increased concentration of economic activity around key urban centres, and along with a slow pace of government infrastructure investment, “effective” land scarcity is mounting over the long term (looking past the property cycles that come and go). By “effective” land scarcity we mean that, while there is theoretically no shortage of land in SA (with a whole Karoo at our disposal), there is a mounting shortage of land located in reasonable proximity to where the economic activity takes place, land with the appropriate level of services and infrastructure required by its owners. Transport infrastructure is key in this regard.
The result of mounting effective land scarcity around urban centres is a long term rise in real property values (again, remember, this is looking longer term than the property cycles that come and go).
This long term rise in real property values will not fully be witnessed in the long term real price growth of an average house price index. This is because a house price index measures the value of the average house that gets transacted. And over time, the average house is steadily changing in size and characteristics.
Yes, the market adjusts in 2 ways to deteriorations in affordability. The first has been mentioned, i.e. through real price declines. The 2nd way is being seen in the long run decline in average stand size, in average home size, in a shift to more sectional title, and in less luxuries such as domestic workers’ quarters and swimming pools.
Indeed, if we could construct an average house price index for the past few decades, that could be adjusted for these changes to the “average home” over time, we believe that one would see more of a long term rising trend in real house prices, than is the case when measuring the average house price regardless of changing characteristics.
We now take our annual look at how these long term changes are unfolding.
HOW THE DEVELOPMENT MARKET HAS BEEN ADAPTING TO INCREASING “EFFECTIVE” LAND SCARCITY
We would contend that effective urban land scarcity began to increase noticeably as from the late-1970s onward, exerting upward long term pressure on real urban property values. This upward long term pressure on real prices would not necessarily be witnessed in the long term real average price trend, as reflected in the country’s major national house price indices. Rather, it would be reflected in the changing long term composition of such house price indices. This is because the residential development sector adapts in various ways to any mounting affordability challenge, which results in stand sizes, building sizes and building features being adapted as affordability fluctuates over time.
Key Macro-Economic factors causing increased urban land scarcity
At what stage of our country’s modern history did land scarcity begin to increase noticeably? We would contend that it was from a stage of the 1970s onward. Whilst urbanisation was already in progress at that stage, it may not have reached the pace that it did in the 1980s, when Apartheid-era “Influx Control” measures began to fail, and were eventually abolished. Rather, the noticeable change in the 1970s was the steady stagnation in general government fixed investment, importantly in the area of construction (civils) projects.
This was due to a general deterioration in the state of government finances as a worsening the political situation caused increasing allocations to defence and national security budgets, while an increasingly isolated economy saw government revenues steadily coming under pressure.
One of the expenditure items to suffer was general government fixed investment, and for our purposes notably in the area of construction projects.
So, while theoretically SA has no great land scarcity, and we could build new Joburg suburbs all the way to Bloemfontein, in reality this has become less practical in recent decades due to limited expansion in urban infrastructure, very importantly, (but not only) in the area of transport infrastructure. This has implied increasing urban congestion to, from, in and around key business nodes.
After a few decades of broad increase, General Government construction fixed investment peaked in 1971/72 at 4.9% of GDP (gross domestic product). Thereafter, the decline was very noticeable, with construction fixed investment bottoming at 1% of GDP in 1998. It has since seen some improvement, but only as far as around 2% of GDP, seemingly insufficient to address the level of backlogs created by years of infrastructure neglect, given that the real level of government and parastatal capital stock had moved almost sideways for about 2 decades.
The resultant pressures are visible, on electricity infrastructure and generation capacity, water and sewerage infrastructure, but notably on transport infrastructure.
During the period of government fixed investment stagnation, the pace of urbanisation picked up
While government infrastructure investment was stagnating, the urbanisation process was set to pick up speed in the 1980s, as Apartheid Era “Influx Controls” collapsed, contributing further to effective land scarcity in South Africa’s cities. Whereas at 1980, the percentage of SA’s population that was urbanised was estimated at 48%, by 2010 this was believed to have risen sharply to 62% (according to World Bank data), and the end is not yet in sight.
Residential Densification, through reducing stand sizes for newly built properties, commenced around the same period that general government throttled back construction fixed investment.
From our FNB valuations data, where valuers note the estimated building date of a property each time they value one, we can glean important information regarding the size and characteristics of homes built in certain periods.
A long term acceleration in government infrastructure investment through the 1950s and 1960s to early-70s (much of the urban infrastructure investment admittedly being in and around the highly-traded former “white” suburban areas) corresponded with an increase in the average size of full title residential stands to an average peak size of 1061 square metres for homes built from 1970-1974.
With the onset of steadily declining focus on infrastructure by general government, so too we went into a long term declining trend in the average stand size of a house. This did not even really halt during the respective property booms of the early-80s and 2000s, when purchasing power rose strongly, because the reality was that urban land was effectively becoming more scarce as a result of a lack of new services and important infrastructure, and the long term real value per hectare or per square metre was steadily rising as a result., we believe. In the latest period, i.e. 2010 to date, that average size of a full title stand was 524 square metres, around half the average stand size of homes built in the early-70s.
But the adjustment to land scarcity in more recent times has gone further than merely a reduction in average size of full title stands. Average building size has also declined significantly, from a 203 square metre peak for homes built from 1970-1974, to 146.7 square petres for buildings built from 2010 to the present.
For full title properties alone, the average size declined from 291 square metres to 166 square metres over the same period. However, the decline in full title building size has not quite kept pace with the decline in average stand size. It would appear that households are more happy to compromise on land than on house space. The result has been an increase in the full title land utilisation rate (building size/stand size) from a low of 20.3% for homes built from 1965-69, to 31.7% for the period 2010 to date.
But the adaptation to growing effective land scarcity does not stop there. Since the 1985-89 period, where 94.6% of homes valued were full title homes, there has been a shift to increased sectional title living, where land is far more highly utilised, with full title homes built from 2010 to date amounting to a lesser 75% of all homes built in the period.
Households are also reducing the luxuries in order to address the long term deterioration in home affordability.
A further noticeable way in which South African households are addressing the long term rising trend in real urban property values (if one could measure them on a per square metre basis instead on the basis of average home value), is via the dramatic reduction of certain “luxuries”. Domestic workers’ quarters, an Apartheid Era institution, peaked in buildings built from 1955 to 1959, with 51.5% of homes built in those years possessing this characteristic. For homes built from 2010 to date, the percentage is a far lower 11.5%.
The late-70s appears to have been the Golden Era of the swimming pool, with 40% of homes built from 1975-79 having pools (although admittedly some pools may have been built at a later stage). Thereafter, the long term declining trend set in, and a mere 9.1% of homes built from 2010 to date have such luxuries, according to the significant sample of homes valued by FNB.
Garages are an interesting home feature in that their inclusion or exclusion from homes appears more cyclical than the other features, with an increasing percentage of homes being built with garages in the booms and decreasing in financially tough times. From 2010 to date, only 51.6% of homes valued have garages, down from the 69.5% for the boom period 2000-2004.
Declining fertility rates, and resultant long term declines in average household size, are causing bedroom numbers to diminish
Urbanisation is not the only characteristic exerting pressure on urban land availability over the long term. Households breaking up and establishing new households at an earlier average age, amongst previously-disadvantaged sections of the population, imply that the number of households should be growing faster than population growth. This implies the need for a significantly greater number of smaller units in terms of bedroom number. This is also reflected in a rising percentage of two bedroom homes, and a decline in those that have 4 bedrooms or more.
Conclusion - So how are these long term trends influencing the make-up of the average house price index over time
It is important for users of house price indices to understand what they are dealing with when using such data for analytical purposes, and to appreciate that the composition of such an index changes over long periods of time. Therefore, the average house price in the 1960s or 1970s refers to a significantly different average house to the one that is reflected in the index at the present time.
Recent statements have been made to the effect that real house prices are “mean (average) reverting”, i.e. that they always revert to the long term mean. This implies that if they are currently above the long term mean they are over-valued, and the converse if they are currently below the mean.
Such statements are very much a case of “stating the obvious”, because current real prices influence the mean. So, even should real house prices never decline again, the mean would eventually converge with the average real price (unless we have an unlikely event of real house prices continually rising further).
But it is also important to understand that, when the market has become less affordable, as it did in the recent boom years, there are two mechanisms for market correction. The first is the obvious, i.e. that real prices must decline. This has indeed been taking place recently, and more decline is anticipated in the near term. But the second mechanism is the one that we have demonstrated above, i.e. through adjustments to the stand and home size, and home characteristics, of newly built homes.
The FNB House Price Index has an 11.5 year history, so it is not possible to determine the average characteristics of homes transacted back in the 1960s for instance. However, the changes in characteristics of buildings by building date suggests that the difference would be very significant. Long term urbanisation, along with growing infrastructure constraints are believed to have led to a growing urban land scarcity, in turn leading to this change.
Viewing the average size of stand for full title properties included in the FNB House Price Index, along with the average building size (Note: not by year built but by when the homes were transacted), we have seen a significant change over the relatively short period of just over a decade. Average stand size of full title homes transacted from 2000-2004 was 925 square metres, which declined to 737 square metres for the period 2010 to date. Average building size is more cyclical, and has increased slightly in the period 2010 to date on the preceding period, but at 139 square metres is still significantly less than the 159 square metres recorded for the period 2000 to 2004.
And looking past the current stage of the property cycle, where real property values are indeed in a declining phase for the time being, the long term home densification process is expected to continue as the long term effective scarcity of urban land mounts, and as real land values resume their longer term rise.
* This report was prepared by John Loos, Household and Property Sector Strategist, FNB