Friday, 29 July 2011

The Wealthy still favours property

High Net Worth Individuals globally still place property at the top of their investments lists, on average 35 percent of their assets.

The 4.4ha smallholding Piedmont wine farm situated at the foot of the Helderberg Mountain between Stellenbosch and Somerset West. Asking price R25 million.
According to the Knight Frank Wealth Report 2011, property remains close to HNWI with property accounting for 35 percent of their investment portfolios.

The report suggests that the only thing these wealthy individuals would rather put their money into besides property is their own businesses.

In South Africa, HNWI at the moment are holding back from investing in almost all kinds of assets including property, said Lanice Steward, managing director of Knight Frank’s South African associate, Anne Porter Properties.

“The favoured channels for investment are gold, commodities (especially coal, steel and platinum),” said Steward.

She said there is a trend among shrewd investors to build up their portfolios by buying repossessed properties. These properties often sell at 30 percent to 40 percent below their previous values hence the boom in the auction property market.

“SA investors should therefore follow the HNWI as stated in the report and keep significant chunk of assets in property.”

Steward explained that the report indicates a growing conservatism and risk-aversion among HNWI investors. They favour already successful property investments rather than trying riskier or unproven areas.

“South African equities are attracting good capital inflows because the returns are above average when compared to those of the world and can be quickly disposed of if the market sentiment changes.”

She said they remain confident that the appeal of property investments in locations such as Constantia and Stellenbosch in the Cape and Kloof in Kwa-Zulu Natal will continue to attract foreign buyers.

Asked about the future of residential property in South Africa, Steward said the first signs of market recovery are now evident. However, this will take time and they expect a slow improvement throughout 2012 with a return to normal trading conditions by mid-2013.

Wealthy individuals have a knack for lifestyle living. They like to buy vineyards where they can not only produce wines but enjoy a unique residential appeal to suit their status.

This wine farm located at the top of the Helshootge Pass is selling for R38 million.
Steward shares the sentiment adding that previously, four big wine estates in Stellenbosch were acquired by foreign investors. The prospects of secure residential developments on wine and olive estates still appear to be reasonable with slow but steady sales, she said.

“SA vineyards currently have an average price of US$80 000 per hectare,” said Steward.

Estate agents operating in Stellenbosch say wine estates are in demand thanks to the region’s fertile soil and renowned wines.

Pam Golding Properties (PGP) area manager Louise Varga said the wine industry has helped to create some of the most spectacular real estate in Stellenbosch.

“The cost of wine farms depend on location, the size of the farm and scale of the wine making operation,” said Varga.

As an example, she said a large scale farm of about 100ha with a state-of-the-art, high volume cellar can cost approximately R30 million. A small holding of under 5ha might also sell close to the same price.

“Pricing depends on the wine label prominence, the size of export contracts, the quality of water supply in the farm and adds-on such as a restaurant, wedding venue, conference centre and guesthouse elements.”

PGP has on its book a 49ha boutique winery on the Old Paarl Road in Stellenbosch with an established vineyard and orchards. The asking price is R23 million with features such as a restaurant, wedding venue, a small conference facility catering for up to 16 people, a deli and art gallery.

Buyers can also choose from a variety of stock in the Boland and Overberg regions with prices ranging between R4.85 million and R7.8 million for 4.5ha. Investors enjoy the lifestyle of a working farm contained within the safety and convenience of a secure estate.

Located on the Old Paarl and Kraaifontein in Stellenbosch, this wine farm is selling for R23 million.
The Knight Frank report shows demand for vineyards has gathered pace in the past five years. Wealthy vineyard owners fall into two groups – the majority of buyers looking for a holiday house with a few hectares of vines and those who want to produce wine on a larger scale.

The overall prices of vineyards will be affected by commercial vineyard land values in line with bulk wine prices. Furthermore, the report states that although areas producing the best quality wines experience less volatility, bulk wine prices moves are likely to affect the property value of boutique wineries.

According to the Knight Frank Vineyard Index, the Western Cape region in SA is ranked as a developed property market with good buildings, possibly Cape Dutch-style. A 20 to 30 ha of vineyards is valued at US$82 00/ha.

The priciest in the index being Bordeaux and the Dordogne France, classic chateau style featuring six bedrooms , 2 to 20ha priced at US$642 000/ha. – Denise Mhlanga

What to ask when buying Property ?

Property remains a viable asset class in which to invest and still forms one of the most important investment cornerstones for South Africans. For those who are currently looking at investing in a property, the timing couldn’t be better.

Since buyers’ market conditions prevail, those who do their homework thoroughly and follow sound investment advice are sure to reap solid returns in the long run.

There is no doubt that South Africans are spoilt for choice when it comes to property investment options. From bachelor flats and apartments to game farms and small holdings and everything in between, buyers have a range of property types from which to choose.

However, location remains the most important factor when purchasing a property – no matter what type of property it is – and so buyers need to select the area in which they invest carefully. Buyers also need to take the time to investigate the relevant properties on offer in their area of choice and compare the costs per square metre, the fittings and finishes etc.

When looking to invest in a residential property as a primary home, buyers need to consider what their needs are and identify which accommodation options best suit their requirements. Those buyers looking to invest in leisure or rental property will have completely different requirements to buy-to-live purchasers and those who are looking to buy vacant land.

For example, first time, single buyers looking to get their foot in the door should consider investing in an apartment while townhouses, on the other hand, are an ideal property type for young couples or those wanting to scale down for retirement.

Those purchasing a property in a sectional-title scheme or apartment building should check the rules and regulations governing the building or scheme, particularly ones regarding pets, visitor access, parking and maintenance.

While single detached dwellings are by far the most common form of housing in South Africa, gated communities are another popular option of freehold property, because homeowners often have access to a range of facilities and amenities within the estate. These kinds of properties are very popular among families or young couples who want to start a family in the near future. This is because of the lifestyle elements they offer where children are free to ride their bikes around the neighbourhood, play in the communal parks or play areas with the security of the estate to ensure residents safety.

No matter what type of property buyers are considering purchasing; there are some questions buyers need to ask before making one of the biggest financial commitments of a lifetime. These include:

Why is this a good area in which to invest?

•Are property values appreciating in the area? By how much?
•Is the neighbourhood well maintained?
•Is the neighbourhood safe?
•Are more and more houses being built or bought in the area?
•Is the area mostly zoned for residential properties?
•Are roads well maintained and is there a proper infrastructure in place?
Other important location considerations include:

•Is the area zoned for heavy commercial development?
•Are there noisy highways, airports, or railroads nearby?
•Is there heavy traffic in the area?
•Are future highways or developments planned within the area?
•Are there wastewater plants or landfills nearby?
When buying vacant land, buyers should ask the following questions:

•Are sewer and water lines available?
•How much fill removal or fill replacement is necessary?
•The cost of removing large rocks and boulders in order to build?
•Is there proper drainage on the land?
•Is the soil suitable for construction?
At the end of the day, a good investment can only be assured if a buyer has done all the necessary homework and comparisons and is sure that the investment they are making is worth the financial commitment they are laying down to acquire it. While the recession has meant that property is not appreciating at the rate it once was, astute property investments still have the ability to provide investors with solid gains.

*Adrian Goslett is the CEO of RE/MAX of Southern Africa

Friday, 22 July 2011

Property investors becoming 'jittery'

The spate of comments from several of the world’s leading central bankers, including from South African Reserve Bank, warning that recovery from the financial crisis will be protracted and that there are real risks in the European banking system, which "poses a great threat to global financial stability”, is anticipated to make investors jittery says Auction Alliance CEO, Rael Levitt.

Marcus warns that even a partial debt default by troubled EU economies could trigger a “systemic banking crisis”. Her view that there are implications for the domestic economy is already unnerving investors and making them ask what the Reserve Bank will do about rising inflation.

A crisis in Greece has been temporarily averted, but according to Marcus, threats remain, not only from Greece but from other peripheral euro zone economies. "These unusually negative comments emanating from the SARB make one think that interest rates will rise sooner than originally predicted and banks may slowdown further on new funding", says Levitt.

The news about the economy seems to be worsening and people across the world are concerned that they will be personally affected by it. "When you consider how the cost of living has escalated, people have in actual fact been affected by the current economic turmoil and despite low interest rates, residential property prices have not risen".

According to Levitt, "there are many ways to stay financially solvent in bad economic times, and although it may not be easy, for some, it can be a time of great opportunity". The most important step is to curtail unnecessary spending and start investing smartly by taking advantage of volatile markets.

‘’Currently, interest rates on savings accounts are not ideal, but some gains are better than none at all. Having a savings account, or at the very least an emergency fund, is a smart decision in today’s economy and can protect you in the event of a further global financial meltdown or if a personal crisis strikes. Paying down any high interest rates debts should be a priority right now, particularly if they are draining your finances every month. If you do have a problem with a high debt to income ratio, you may want to consider a consolidation loan to keep those interest rates in check and to help you save money each month’’, says Levitt.

Levitt advises that if you want to keep growing your finances in hard times, there are several methods that can be utilised to fight rising inflation. The most common one is housing, given the current state of property values and the vast amount of distressed sales. "This is a great time to pick up an extra house if you have the funds, and this can easily be turned into a rental property that will generate income", says Levitt whose company was founded in 1992, in the midst of a global financial downturn.

Navigating the waters of uncertainty is never easy, particularly when potential sovereign debt failures are the talk of the entire world. However, if you watch your spending and take the time to see how you can make your money work for you, these are the times when real money is made. Investors in downturns take refuge in real estate which will rise with inflation and can be purchased at great prices. The golden period to get into the market comes up whenever markets get jittery", says Levitt.