Friday, 31 July 2009

Rolling with the punches......

A few months ago the subject of property was the latest buzzword around any braai or lunchtime table. Every person from the local dominee to the gardener wanted to get on into the action & when this was before the New Credit ACT (NCA) many people did.

But then ask yourself the question: When the gardener has 5 properties & he gives you advice on how to sublet your flat in Clifton, shouldn’t you think twice?

And then out of the blue, the NCA is introduced, bank credit dries up & invariably property growth goes into decline. Couple this with an increase in interest rates by a staggering 30% with rental income remaining constant, and you suddenly have a situation where buy-to-let has swine flu & you cannot get rid of it soon enough. And to top it all, we currently sit in a recession which is like the Boks losing to England………it affect all of us!!

So who in their right mind is going to look at property when they’re living day to day?

Here’s some food for thought on why real investors would consider buying in a tough market:

1) In property, you make your money when you buy:

The whole point of property is to buy so that your rental income covers the mortgage pay. And where does the rental income come from? The tenant! So look at what your tenant wants first, then go out and buy the property. You wouldn’t buy a property in De Aar & then expect tenants to fall over themselves wanting to sign the rental contract. (No offence to the people from De Aar, but rental demand might prove to be a little stronger in Joburg or Cape Town)

2) More interest rate reductions, more breathing space for the Landlord:

Since December 08, there has been a cumulative decrease of 4.5% in the interest rates. On a R1m property, this decrease is a saving of more than three thousand Rand per month! So more cash for the owner, means less chance of having to increase the rent which in turn decreases the chances of the tenant of leaving.

3) Property is a good investment – if you have the patience for it:

My personal strategy is to buy property, and never sell. The reason for this is the replacement cost of selling and then having to buy a similar or better property is very rarely achieved. You also have to factor in capital gains tax when you sell & if SARS decides you were speculating, you have to hand over 40% of what you made from the transaction. Building Materials & Labour also keep increasing, so an equivalent property will only get smaller, thereby decreasing the rental which in turn affects your bottom line.

4) Bargain, Bargain, Bargain – but do your homework:

Just because there are more people wanting to sell their properties, doesn’t mean that anything you buy now will net you millions. Markets are imperfect things & due to the flow of information, there is still a competitive advantage of one party over another. So just as word of warning, when supply far outweighs demand, remember to do the calculation ! Does the rent cover the mortgage? No. So move on to the next one.

5) In the long run, property will outperform all other assets:

59% of the world’s wealth is held in property. When Ray A Croc, the owner of McDonalds was asked what business he was in, he didn’t reply with the ‘burger business’. He just smiled and said the ‘property business’. So maybe (and I’m just throwing it out there J), if you stick to property it might not be as easy as selling shares, but at least you know that the chances of a receiving a steady stream of passive income, looks a whole lot better.

So in keeping in mind the points mentioned, remember the words of Warren Buffett, the most successful private investor in the World:

Put your eggs in one basket, watch that basket closely !!

Thursday, 30 July 2009

NEW PROPERTY LAUNCH: 'Kelvin Manor', Johannesburg, South Africa

Horizon Consultancy & IPS have joined forces to bring you the 'Kelvin Manor' in Sandton, Johannesburg, South Africa.

This is an up market development on the doorstep of Sandton with units at R699 900 for a 2 bedroom, 1 bathroom apartment. With rental yields above 9%, this is definintely something to consider.

There are 2 ways in which you can become involved:Watch a video for 'Kelvin Manor' This video sets out the development visually & will answer any initial questions you may have.

You can also register for this property launch online so that you may be helped from the comfort of your own home.This registration will allow investors to interact directly with the developers so that any queries are dealt with immediatley.

Points of Consideration for 'Kelvin Manor':
  • 5.7km from Sandton.
  • Very little affordable accommodation in Sandton, yet demand for 5000 units.
  • Sandton is the Financial Capital of Africa.
  • Lifestyle Estate with club house, gym, swimming pool, tennis court, laundry, crèche and within a gated community.
  • Walking distance to the Gautrain Station.
  • Situated in leafy and green residential neighborhood.
  • 2 bedroom, 1 bathroom & 2 parking spaces - R699 900, including costs.
  • 100% financing is available.
  • R15000 deposit secures !!

If you are interested in buying any unit(s), I will assist you with the entire purchasing process, including the rental management of the unit if you so require.

Eric S Doms
Managing Director

E-mail: eric@horizon-consultancy.com

Mobile: +44 (0)79 0630 9038

Fax no: +27 (0) 86 5292 395

PS: Join us on Twitter or Facebook for the latest property news !!

Wednesday, 8 July 2009

Into the Light - The State of the South African Economy

After months of denials, clever word play & sidestepping the question, Trevor Manual & Tito Mboweni have finally relented that South Africa is in a recession. So what exactly does this mean? In short, it means that we experienced negative growth for the first time in 17 years.

So why the sudden change in mood? Whatever happened to ‘We will weather the storm’ or ‘South Africa will be resilient against the credit crisis’ or ‘Our banks are world class & didn’t buy any toxic assets’. When Europe & the US are our biggest trading partners, isn’t it ignorant (or stupid if you like) to think that we won’t be affected by the fall out? (The fact that the SA economy is approximately 6-8 months behind UK is no excuse for the turnaround from our esteemed financial leaders)

The Economy – Who is steering the ship when there’s no rudder?

According the Cees Bruggemans, chief economist for FNB, the economy grew by 3% in 2008 and contracted by 1-2% in 2009. This was mainly due to the global banking and credit crisis and its impacts on SA’s mining and industrial exports. But a rebound of 2-4% should be seen by 2010.

Our inflation outlook remains positive with signs of further decline from a height of nearly 14% in 2008 to 8.5% in 2009. The expected average in 2009 is 7.5%% whilst 2010 will see it fall into the SARB’s target range of 5%. But a lot of assumptions are taken into consideration for this outlook !! Assumptions such as a global deflation during 2009, coupled with mild inflation in 2010 as well as the ‘small chance’ of oil price fluctuations. (In Summary: Let’s get out the dartboard & have a fat stab at what things might be like)

The Property Market – All pain, No gain?

The inescapable truth is that the worst and most widespread economic recession since the 1930s continues to batter the housing market not only in the UK and SA, but in markets across the globe.

According to Knight Frank, a major player in the international property market, there are a combination of factors that have contributed to the current decline in house prices. These include affordability, an increase in unemployment which in turn affects consumer confidence. With the recent 3.5% reduction in interest rates since December 08, South African banks have still decided to tighten their lending criteria ,as their outlook has changed from a national level to one of global sentiment. (So they’re actually comparing apples with pears……I hope Tito gives them all a fat klap !!)

Even with the current market perfectly suited to bargain buyers flushed with cash, the sales remain inconsistent proving that even these buyers are playing a waiting game for a clearer sign that the market has reached ground zero. The biggest problem that still remains is that houses are still highly unaffordable due to previously rapid property growth, low interest rates & high disposable incomes. In light of all that, maybe it’s not a bad thing that the tables now have turned from the heady days of rapid property growth. Otherwise, things could’ve been a lot worse than they are now.

The Upturn – What is that?

But is the doom and gloom we’re currently experiencing the start of things to come, or will an improvement be seen any time soon? (I’m hesitant to use the word recovery)

For the UK, the recession has slowed & according to Alistair Darling, Britain’s Chancellor, an improvement is expected by late 2009. He goes on to say that a 1.5% growth is expected provided that banks ease lending criteria to consumers as well as companies. (Those silly banks again !)

If you take the 6-8 months that SA lags behind, we could see an improvement by the World Cup in 2010. Coupled with the continued investment in our country’s infrastructure & the international exposure gained from hosting the biggest event on the planet (Don’t forget the projected R21 billion cash injection that will be generated by the event) I therefore think it safe to say that the economy will be due to jumpstart back into action, by middle to end 2010.

As for now, remember that any recession is part of a cycle. Even when things seem to be at its darkest possible point, the cycle will turn & take us back into the light.

Do not go gentle into that good night. Rage, rage against the dying of the light – Dylan Thomas