Friday, 22 October 2010

1000s of repossessed houses up for sale

Anyone wanting to buy a house right now should start by checking out the repossessed properties that all the banks have listed on their websites (or websites hosted by some other company on their behalf).

This week I was wondering what prices were like in the repossessions and auction markets because, frankly, I’m flabbergasted at just how much money people are currently spending on properties.

I regularly see sales of luxury homes costing R38-million in Constantia, R54-million in Sandhurst or a staggering average price of R11,8-million in Clifton. That’s not for some mighty mansion, but for one of those pokey little apartments with no parking that scorches under the blaze of the setting sun.

I set about researching some of the auction and repossession websites and found some interesting information lurking in the pages: first of all, if you thought that houses in the middle- and low-income groups were the only ones being auctioned or repossessed, think again.

There are screeds and screeds of properties with bonds of R3-million and more listed by the banks. There are even properties of close to R10-million listed alongside the rather quaint commentary that the estimated bond repayment is R87,973,38.

To afford that sort of bond, the monthly household income would have to be at least three times that, at about R265,000. Some people in South Africa are obviously earning great sums of money.

None of the banks’ websites give any clear indication of whether or not the offer you might make will be accepted but there are guidelines: for instance, on one property I saw the asking price was R2,5-million but the best offer received so far was R1,8-million or R700k less.

It hasn’t yet been accepted (so I guess the bank is waiting for someone to offer a bit more) but if no-one does offer more for the property then it will probably be accepted and somebody will have just saved himself or herself a fistful of money.
I tried to establish exactly how many properties in possession are listed by the banks but they clearly are not too keen to publish this information so you have to laboriously count the properties that are listed. And, predictably, some of the information on the website itself is bound to be out of date too.

My calculations reveal that there are at least 5,000 properties in possession among all the banks but that is probably a hopelessly low estimate because the banks do not provide any kind of full disclosure when it comes to these figures.
What it does tell me though are some other interesting things:

- At least 5,000 families have lost their homes and are probably living in rented accommodation or have moved back to the family home;

- The banks will have to protect these properties from being vandalised at an enormous cost to their shareholders. Any property that stands empty for more than a couple of days is bound to have its fixtures and fittings stripped out by greedy thieves;

- There are at least 5,000 bargain properties to be had in the current market in places that many people would like to live;

- The prices that are reflected on the websites are a guideline and nothing more.

Of course the range of properties on offer is enormous and, I suppose, in the main centres of Johannesburg and Pretoria, Cape Town and Mandela Bay, Durban and Bloemfontein the number of properties in possession is predictably higher than in the more remote, smaller cities such as Kimberley.
Absa, which has an unusually unfriendly website of repossessed properties provides simple guidelines on the asking price only and it lists the least number of properties in possession despite claiming to be the largest mortgage lender in the country.

I find this strange but I must admit that I find a lot of things about Absa strange and I’m not sure that the information on its website reflects the true picture. That’s academic, however, because the real point of the exercise was to establish whether there are bargains to be had from the banks directly.

And it certainly seems that there are.

Of course, some people might like to actually attend the auction sales when a distressed property is sold in a particular suburb. But for those people like me who have to work for a living, it makes sense to browse through the properties that are available and then make an offer directly to the bank (or in some cases, to the estate agent working for the bank).

Of course this was another anomaly for me: why, if the bank is advertising properties in possession would it want to pay an estate agent to market the property for them. That’s me being naïve because, I suppose, the banks are putting the house on show (via the agent) every weekend to prevent vandalism and, hopefully, to get an offer that vaguely resembles the price being asked.

And, worse than that, they’ve probably negotiated a specially low commission rate with the agent too because that’s the way the banks work.

So if I were about to buy a house I would start off with the properties in possession and then I would make a ridiculously low offer for the property. The worst that can happen is the offer is rejected and you have to revise the price.
More importantly, where there is an agent listed for the property, I’d insist inspecting the property as soon as possible. The reality is that these properties do get stripped, vandalised and damaged. And the garden, the swimming pool and those pretty ponds soon become an eyesore and you will have to pay for all the necessary repairs yourself – or insert special conditions in the purchase agreement stipulating what remedial work must be done before occupation.

The other thing to ensure is that you will be absolved of all liability when it comes to electricity, rates and taxes. While these charges are obviously not for your account, more and more councils are refusing to reconnect services or provide clearance certificates if there is an outstanding amount on the previous account.
This means, of course, that the bank would have to pay these charges and not you. But what’s the point of moving into a new house and then discovering that you can’t get the electricity supply connected until the outstanding account of R69,781 has been paid. So make sure that these things are tied up and sorted out when you sign the offer to purchase.

If you can’t find a house that you like through the properties in possession of banks then scour the neighbourhood for auction sale signs and watch the Thursday and Friday editions of the newspapers as these usually carry details of auctions that are pending or properties about to be repossessed too.

There are thousands of bargains to be had in the auction and repossessed property market and while it may seem rather mercenary, the reality is that the banks and the auction houses want to dispose of the property as quickly as possible.

So keep your eyes open wide.

*Hartdegen writes a regular column for Property24.com. The content of his columns constitutes his personal opinion and doesn’t pretend to be facts or advice.

Friday, 15 October 2010

Commercial property under pressure

The outlook for the commercial property market is bleak with developers and bankers taking a far more cautious view of this sector says property economist Francois Viruly of the University of the Witwatersrand’s School of Construction Economics and Management.

He warns that there has been a dramatic drop in the number of developments underway and even existing projects are being reassessed to avoid adding to the widespread over-supply of office accommodation.

“Office vacancy rates have increased since last year and this picture is unlikely to change before 2011 or perhaps 2012,” he warns. “Increased spending in the retail sector might have an impact on reducing vacancy rates in retail shopping centres in the short term,” he claims.

Hyprop Investment’s Mike Rodel says that the time is ripe to get particularly good rental deals from agents or developers who are keen to boost occupancy levels. Rodel says that Hyprop is expecting national retail sales growth of between 7% and 10% over the next two years with regional centres growing by up to 12%.

Rodel says that the margin of operating costs to gross rentals has continued to rise and increased from 30% two years ago to 40% now and high vacancy rates have made it difficult for owners to pass the rising costs on to the tenants.

Viruly warns that the biggest difficulty facing developers is to keep the operating costs in retail centres under control as the operating margins are too high at the moment and need to be brought back under control.

“There are likely to be some retail opportunities that do arise in the short term – such as for retail space on Gautrain stations – but the retail property market will remain under pressure until at least the second half of next year,” says Viruly.

Broll says that while there has been pressure on the retail and office market, there are still some impressive deals being done. The company recently sold two investment properties in Cape Town.

The first, 43 Bloulelie Crescent in Plattekloof sold for R13,5-million and 5 Ravenscraig Road in Woodstock sold for R33,75-million.

The Bloulelie Crescent property is let out to medical professionals while the Ravenscraig Road building is home to a large printing firm in a traditional industrial area.

According to Sean Berowsky, national property investment specialist at Broll, the interest levels from investment buyers has remained high, particularly for prime commercial and industrial properties.

He concedes that transactions have been restricted by the limited negotiability of sellers because of prevailing low interest rates and the limited stock that’s available.

“The difficult funding environment facing buyers means that there must be a substantial injection of equity,” he says. “Well-tenanted properties with good income streams are still easy to sell whereas buildings with high vacancy rates are not attracting much interest at all,” he adds.

Friday, 8 October 2010

State of the Nation: South Africa (Oct 2010)

Latest trends

Year-on-year (y/y) price growth in the value of middle-segment homes for which Absa approved mortgage finance, slowed down significantly in recent months up to September this year

The average nominal value of small, medium and large houses increased by a weighted 2,9% y/y in September, after a revised growth rate of 5,4% y/y was recorded in August.

On a month-on-month basis the average nominal value of a home in the middle segment of the market is declining since May this year, bringing the average price to R1 012 200 in September - down by R42 700, or a cumulative 4%, after peaking at R1 054 900 in April.

The real value of middle-segment homes increased by 1,8% y/y in August (4,2% y/y in July), based on consumer price inflation slowing down to 3,5% y/y in August from 3,7% y/y in July.

The current downward trend in year-on-year house price growth can to some extent be ascribed to base effects, as a marked recovery in price growth occurred in the second half of last year.

However, month-on-month declines evident in average house prices over the past few months are probably related to developments on the economic front (lower real GDP growth in the second quarter of 2010; tight employment conditions in the first six months of the year; trends in consumer finances (lower second-quarter real income and consumption growth, while the ratio of debt to disposable income remained high); interest rates dropping by only 100 basis points so far this year; and consumer confidence remaining flat in the first three quarters of the year).

In the category of small houses (80m²-140m²) the average nominal value was up by 18,6% y/y in September, down from a revised year-on-year growth rate of 21,1% in August.

The average value of a small home came to about R779 200 in nominal terms in September. The real value of a house in this segment was up by 17% y/y in August, after rising by 18,6% y/y in July.

The average nominal value of medium-sized houses (141m²-220m²) increased by 4,1% y/y in September (a revised growth rate of 5% y/y was registered in August this year), which brought the price in this category of housing to around R953 600.

Real price growth of 1,4% y/y was recorded in August, down from 1,9% y/y in July.

In respect of large houses (221m²-400m²) the average nominal value increased by only 0,4% y/y in September (1,5% y/y recorded in August after revision).

The value of a large house came to a level of around R1 411 200 in nominal terms in September.

In real terms the average value of a home in the large segment was down by 1,9% y/y in August, after declining by 0,8% y/y in July this year.


In the first nine months of 2010 the average nominal value of middle-segment homes increased by an average of 9,1% y/y, with real price growth averaging 4,9% y/y in the period January to August.

Real price growth recorded over this period is based on an average headline consumer price inflation rate of 4,7% y/y in the first eight months of the year.

Based on the abovementioned house price trends up to the third quarter of the year, nominal year-on-year price growth of about 7% is expected for the full year. Real house price growth for 2010 will be dependent on nominal price trends as well as average consumer price inflation for the twelve month period.

*Jacques du Toit is a senior property analyst at Absa Home Loans

Home buyers need 40pc higher deposit

The average deposit reached 43 per cent in September, up from 30 per cent in December 2006.

It is a fresh blow to first-time buyers as it equates to £70,000, based on average house prices. This is almost three times the average salary and £20,000 more than the deposit required four years ago.

However, it is not the highest average deposit since records began four years ago. Levels reached 49 per cent in December 2008 as the credit crisis began to tighten its grip.

It comes after the Bank of England warned last week that banks are becoming even stricter about who they will lend money to amid fears that higher unemployment will lead to home owners defaulting on their loans.

The latest mortgage research by surveyors e.surv also found that not all buyers are being treated equally. Those buying cheaper properties are being squeezed the most, typically needing a 35 per cent deposit compared to 25 per cent four years ago. It means they can borrow 11 per cent less than previously.

By contrast, those buying properties worth at least £500,000 can borrow just 4 per cent less.

Richard Sexton, business development director of e.surv said: “Tighter loan to value criteria have hurt everybody, but those at the bottom of the ladder have been hit disproportionately.

“One in five borrowers wants to buy a home worth less than £125,000. They are the classic first-time buyers, but they are still trailing far behind wealthier home buyers in their access to finance.

“Those financing homes in the £500,000 price bracket are only around one twentieth of buyers. For them, it’s as if the credit crunch hardly happened. This is a concern as first-time buyer participation is central to any sustained recovery in house prices.”

It comes after property experts warned declining house prices are “inevitable” after Nationwide revealed its latest house price index last week.

It reported typical values rose 0.1 per cent in September to £166,757 compared with the previous month. But this was not enough to halt the drop in annual house price growth, which slid from 3.9 per cent in August compared with the previous year to 3.1 per cent in September.

Mr Sexton added: “House prices today are almost exactly at the same level as four years ago, but the size of deposit needed has risen £20,000 to buy a typical home.

“Lenders are nervous about the state of the economy and the future direction of house prices, and their ability to fund their mortgage lending is constrained by the demands from regulators to bolster their capital reserves.

That means only the best quality borrowers are offered loans, and on much tighter criteria than before.”

Outlook for UK housing market bleak

House prices in Britain fell by 3,6% in September, the largest drop in prices since 1983 according to mortgage lender Halifax.

It says the figures show that the housing market there is rapidly losing steam after a brief recovery last year.

However, rival mortgage lender, Nationwide claimed last week that house prices actually rose by 0,1% and analysts point out that the drop in prices may just be a seasonal blip rather than a worsening trend for the property market.

Halifax says that for the three months to September house prices in Britain were down by 0,9% compared with the same period last year and points out the rate of decline is significantly slower than the quarterly changes of between 5% and 6% seen in the second half of 2008.

Mortgage approvals data supports Halifax’s views that the outlook for the property market in Britain remained bleak. The September data conflicts with the data released in August when house prices rose by 0,4% and showed an increase in the three-month annual rate of 4,6%.

Halifaxexpects the housing market to fall slowly for the rest of this year and it to continue to decline in 2011.

Friday, 1 October 2010

UK mortgage approvals hit 16-month low as housing market slows

Published: 10:35AM BST 23 Sep 2010

The number of mortgages approved for house purchase in Britain slumped to a 16-month low in August as activity in the housing market continued to decline.

For most of the year the number of loans approved for people buying a home has been running below 36,000 - a level economists consider to be consistent with house price falls Photo: Reuters

Only 31,767 loans were approved for people buying a property during the month, the lowest level since April last year, according to figures from the British Bankers' Association on Thursday.

It was the third consecutive month during which mortgage approvals fell, despite the fact that the property market usually sees a bounce in activity during the summer months.

The number of loans approved for people buying a home has been running below 36,000, a level economists consider to be consistent with house price falls, for most of this year.

David Dooks, BBA director of statistics, said: "Demand for mortgages continues to be weak despite more properties coming on to the market.

"Even with stable or falling house prices, the current economic climate makes it unlikely that demand will pick up in the near future."

Today's figures are the latest in a run of gloomy data on the housing market, with Nationwide reporting price falls of 0.9% in August.

The Council of Mortgage Lenders said earlier this week that lending in August fell to its lowest level for the month for a decade, while HM Revenue & Customs reported a fall in the number of homes changing hands during the month.

The drop in activity since the beginning of this year has prompted some economists to predict the market could be heading for a double dip.

But others have said recent falls in house prices are not unhealthy as the recovery in the property market had got ahead of improvements in the wider economy.

Howard Archer, chief UK and European economist at IHS Global Insight, said: "The BBA data showing mortgage approvals sinking to a 16-month low in August heightens our belief that house prices will trend down over the coming months.

"We suspect that house prices will fall by around 10pc between now and the end of 2011.
"In our view, the housing market really has not got much going for it at the moment, apart from low mortgage rates - and that is if you can get a mortgage."

But there was some slightly better news in the BBA figures, with net lending, which strips out redemptions and repayments, rising to £2.55bn - its highest level since February.

However, the figure was well down on the £3.35 billion advanced in August 2009.
The BBA attributed the ongoing weakness in net lending to the fact that homeowners were focusing on paying down their mortgage.

Credit card repayments were higher than new spending during the month, but once interest and charges were factored in, outstanding plastic debt rose by £172m.

Borrowing through loans and overdrafts contracted for the 16th consecutive month, with consumers repaying £187m more than they borrowed.

Savings levels bounced back in August to reach their highest level since March, when figures are often boosted by the approaching end of the tax year.

The amount consumers deposited rose by £2.19bn, up from an increase of £514m in July.

Airports let property markets take off

The development of airport infrastructure around SA is fuelling nearby commercial and residential property markets and while there are many who decry the effects of noise pollution, the impetus seems unstoppable.

So says Gerhard Kotzé, CEO of the ERA South Africa property group, who adds that airports and their expansion still generate mixed reactions, but there’s little doubt that the economies of surrounding areas benefit.

“South Africa, under the impetus of the Soccer World Cup and other influences, has extensively upgraded its airport infrastructure recently in terms of both international and regional feeder services.

“Unsurprisingly, the biggest investment of late has come from the Airports Company of South Africa (ACSA), which has now come to the end of a R17bn development programme, including the commissioning of spectacular new terminal buildings at OR Tambo International, Cape Town International and KZN’s King Shaka International airports among others.”

This kind of parastatal development is to be expected, he says, particularly in support of a major sporting event such as the World Cup but it’s interesting to note the private sector development of airports in recent years as well, including the major upgrades of Lanseria and Wonderboom airports.

“And new property development flows in the wake of these projects - in the case of Lanseria International for example, now Gauteng’s second biggest airport, a new R200m industrial estate with further investment of some R7bn over time is in the pipeline which in turn is expected to spark off additional residential development.

“Surrounding Wonderboom, a residential air park is being constructed along the lines of much talked-about developments of this nature in the US elsewhere in the world, while in the Welkom area a R3bn, three-phase development project including residential, entertainment, cultural and sports facilities is reportedly on the cards.”
Similarly, the development of King Shaka International north of Durban has definitely stimulated property markets in La Mercy, Umhlanga, Ballito and other north coast centres while in Mpumalanga, the Kruger Park

Mpumalanga International airport is credited with spurring all manner of economic activity in Nelspruit and beyond, Kotzé notes.

“Clearly there will always be those who avoid acquiring property in airport approach areas, but on balance it would seem the benefits of airport development for the property sector are very positive.”

Elwyn Schenk, Pam Golding Properties (PGP) area principal in Umhlanga, Umdloti and La Mercy areas, says the Umhlanga node north of Durban is firmly entrenched as the area of choice for residents, investors and commercial end users alike.

“Thus prices in the area have remained fairly stable during the difficult economic conditions. Part of the reason for this, we believe, is that the potential for the area has been enhanced by the King Shaka International Airport and the Dube Tradeport.”

Durban's north coast has all the ingredients to develop into a similar, but still different, version of Cape Town's Atlantic Seaboard.

“The mild and sunny climate year round, beautiful beaches – add to this the rapid growth of the Umhlanga node and proximity to Gauteng (one hour's flight) and you have all the ingredients for rapid future growth. While certain areas such as Umhlanga and Umdloti are heavily developed, there is significant coastal land still available for expansion, in particular La Mercy, 5km from King Shaka Airport, offers substantial potential.”

“Global trends have shown that areas in close proximity to an international airport benefit from sustained and rapid growth. Commercially the Dube Tradeport will serve as a catalyst for economic development which will see KZN emerge as a major SA business node, serving Sub-Saharan Africa and the Far East in particular.

Experience has shown that property prices, both residential and commercial, will benefit from these developments. Commercial demand will come for hotels, engineering and other industries which service the airport, such as food services and import/export companies.”

Schenk says apart from the normal infrastructural development around airports – fuel depots, catering services, maintenance etc. – history the world over has shown that a new airport in particular will bring substantial additional development in peripheral industries such as freight companies, import/export agencies and related activities. “Passenger services and hotels are also attracted to a new airport facility.”

“Thus airports bring in their wake a substantial permanent population, together with a transient population ranging from contract workers to every day tourists.”

The effects of these demographic changes on the property industry are profound, especially in the medium to long term. “The trend for big businesses to move from the CBD into the north has been evident for some years and Umhlanga has been a prime beneficiary of this.”

He says future expected trends arising from the airport area will be a demand for mid-price housing from the blue collar workers, a surge in rental demand for the same reason and an increase in investor demand.

Clive Greene, PGP principal in Ballito, says the King Shaka Airport has created positive sentiment in the market. "Rental enquiries have increased twofold."
He says enquiries on properties for under R1m in the vicinity of the airport have picked up. “Sales on these lower cost properties are selling well. Caledon estates are nearly sold out with over 100 units sold.

In Sheffield Manor Estates there have been over 50 sales in the last five months and Sheffield Manor over 100 sales in the last 10 months. Simbithi Estate continues to sell very well, offering a secure lifestyle for old and young families.

He says commercial development will definitely increase as land has been allocated around the airport for development and Ballito is starting to offer large tracts of land for commercial use. “This, in turn, will increase demand for more residential property. The future for this area in the medium to long term is exceptional.” – Eugene Brink

Strand Beach Road sales pick up

The Strand Beach Road property market has showed positive signs contrary to the general SA sectional title market during the 2008/9 period with growing sales figures since the latter part of 2009 – comparative to the depressed sales of the 2008/9 period

Benhard Wiese, principal associate of Cape Coastal Homes, says these better-than-national sectional title sales figures are attributable to the area offering much better value per square metre than the similar property offerings on e।g. the Cape Atlantic seaboard.

“The buyers interested in Strand Beach Road are also buying with a long term view – mostly viewing the property as their second home to be converted into their retirement home.”

He says only 7% of the registered sales of apartments older than three years on Beach Road have during 2010 been for less than present comparative property values per sqm – a sign of a solid market that escaped the storms of 2008/9 relatively unscathed.

“The availability and affordability of credit coupled with the surplus of available new development apartments on Beach Road since 2007 had suppressed capital growth during 2008 to 2010. According to CMA Info, there had been 46 sales in Strand Beach Road during 2008 - that is about four sales per month.”

The volume of sales, however (excluding inheritance), during 2009 grew to 86 transactions of which 25 were new developments and 61 were older complexes.

Excluding all new developments registered in the Deeds Office, there was still a growth in sales volume of about 37% from 2008 to 2009 on Strand Beach Road - totally contrary to statistics from SAPTG which indicate that nationally sectional title (apartment) property priced between R300k to R5m reported an overall decline of 39% in transfers between 2008 and 2009.

The average price per sqm for the 61 registered sales in 2009 for all apartments older than four years on Strand Beach Road (i.e. excluding the new developments which occurred at a higher average price per sq/m) was about R12,900/sqm whilst the new developments registered average prices in 2009 was R17,725/sqm.

The first semester of 2010 has seen a continuation of the growing sales trend on Strand Beach Road with 41 sales being registered according to SAPTG in the Deeds Office of which 14 were new developments built since 2008 (e.g. Hibernian Towers and Topaz).

The average price per sqm for the registered sales in the first semester of 2010 for all apartments older than four years on Strand Beach Road (i.e. excluding the new developments) was about R13,462/sqm.

The new developments average registered prices in 2010 have been ranging between R12,686/sqm for Ocean View to R23,225/sqm for Topaz.He says total registered sales for the first semester of 2010 for the 4 new developments on Strand Beach Road had been R30,524,151 at an average of R15,439 for the 1977sqm sold. That is about 13% lower than the average registered sales prices achieved for new developments during 2009 of R17,725 per sqm.

Interestingly enough, there has only been about a 13% difference in average prices obtained (registered) between older apartments and new developments (less than four years old) during 2010. The present price structure of Beach Road properties can be roughly categorised in different groups according to "age, finishes and size".

The smaller the apartment, the higher the price achieved per sqm. The quality of sea view also has a big effect on the property’s value.Prices obtained in 2008 varied between R7,600/sqm (Strandsig) to R24,700/sqm (Cape Sands). The apartment prices in 2009 varied between R8,500 per sqm (Welgelegen and Jacomahof) to R23,900 per sqm (Hibernian Towers). Beach front apartments were selling in 2003 from about R6k/sqm to about R9k per sqm.

Beach Road property in general has not been subjected to the same forces which have been experienced in e.g. the buy-to let investor property sectors where capital growth has seen fairly substantial drops. The growing foreclosure or bank repossessions trend created during 2008/9 and during the first semester of 2010 effected a strong downward pressure on prices obtained in the buy-to-let property market.

Some auctions at the entry level investor sectional title market (priced at up to R450k) have towards the end of 2009 seen prices drop by as much as 50% of what was the perceived value of the property in 2007. Auctions on Beach Road have, however, been a very small part of the transactional horizon and were therefore not a distinct negative capital growth factor at all.

Only a few distressed sales in some of the new developments took place – without any real effect on the rest of the older blocks, where most of the owners opted to keep their apartments from the market – especially if they did not need to sell.

From the 27 sales which had been registered in the Deeds Office during the first months of 2010, only two transactions took place at prices which seem to be much lower than other comparative properties per sqm – a Romilly apartment at R8,426/sqm and an apartment in Strandsig at R7,432/sqm.Only 7% of all transactions on Beach Road during 2010 amongst the older-than-4-year-old apartment blocks had been registered for much lower than comparative market value.

The last two years has been a sobering period for all property owners in the country – including Beach Road Strand. The unrealistic capital growth expectations have been tempered to pre-2003 growth levels.

Although apartment prices got far “out of touch” with incomes levels during the boom, it is to be expected that inflation will in the next few years close this gap considerably.

“Strand Beach Road has during the last few decades always operated on an eight to ten year tide pattern – with surges of new developments coming every eight to ten years. Buyers who are waiting for Beach Road prices to drop are doing it at their own peril,” he concluded.