Global house prices increased by only 1.8 percent in the year to March, the lowest annual rate of growth recorded since Q4 2009.
Pam Golding Properties reports that Cape Town's Atlantic Seaboard area including City Bowl, remains relatively recession-proof.
According to the Knight Frank Global House Price Index Q1 2011, in regional terms, Asia remains the top performing continent recording 8.4 percent growth over the last 12 months. This is down from 17.8 percent a year earlier.
Liam Bailey, head of residential research at Knight Frank told Property24 that overall, price growth for the countries tracked within the index has remained in positive territory since Q4 2009.
This he says has been largely as a result of the Asian housing market boom, which led in some cases to annual price inflation of between 30 and 40 percent in locations such as Hong Kong and Singapore.
“The anti-inflationary measures taken by Asian governments to cool their overheated housing markets in 2010 and 2011 have started to take effect and this has had a dampening effect on the index’s overall price growth,” says Bailey.
In Q1 2010, Singapore recorded annual price inflation of 24.1% and this fell to 10.5 percent in Q1 2011. House price growth in Hong Kong declined from 32.8 percent to 24.2 percent over the same period, he says.
Other strong performing countries where governments are fighting to pull inflationary pressures under control were India (21.9 percent) and Taiwan (14.3 percent).
The weakest region was North America which saw a fall of 0.4 percent in values in the year to Q1 2011.
House prices in South Africa fell by 1.3 percent in the year to March 2011 as recorded in the index. In March 2010, the average house price was R1 051 997 but by March 2011, this figure had fallen to R1 038 322. In the three months to March 2011, the average house price rose by 1.5 percent, explains Bailey.
Asked where the South African market is headed in the next few months to end of 2011, he says the market presents risks and opportunities.
Globally, sovereign debt concerns in US and Europe could weaken investor confidence. Secondly, interest rates in South Africa may have bottomed out and may start to rise in 2012.
“This could threaten first time buyer demand, which has been solid in recent months and an important driver of market activity.”
On opportunities, Bailey says there is growing evidence that an increasing number of homeowners are selling due to financial pressure and opting to rent. This move could boost supply and may attract more buy-to-let investors to the sales market.
“South Africa’s trade links with China (and other BRICs nations) have strengthened considerably in the past two years.”
This modern double-storey home in Mostertsdrift, Stellenbosch, is on the market exclusively through Pam Golding Properties, priced at R18.5 million. The home is set on 2000sqm, and was built in 2008. It offers six en-suite bedrooms.
According to the Department of Trade of Industry two-way trade between China and South Africa reached R119.7 billion in 2009. This means China surpassed the US as South Africa’s largest trading partner.
Bailey says the strongest performing housing markets have seen a convergence of factors such as high demand, constrained supply, significant wealth generation and benign economic conditions.
“Supply can be controlled but housing markets are also intrinsically linked to confidence.”
Government and monetary policy decisions such as maintaining interest rates at historical lows has helped to keep the momentum going in the western housing markets.
“We expect to see the current slowdown in global housing markets to continue, hitting a low point in Q4 2011 (assuming the Asian markets continue to cool and the government intervention is successful) but with a slow recovery in global house prices taking place in 2012,” adds Bailey.
Absa Home Loans property analyst, Jacques du Toit says the global housing market is very mixed. Some countries are showing growth while others are still under pressure.
“In South Africa, house price growth is very low at this stage largely as a result of the state of consumer finances,” says Du Toit.
He says household debt to disposable income is still relatively high at almost 77 percent. Many consumers are struggling with bad debt making it difficult for them to obtain credit.
Du Toit reckons the property market will continue to reflect economic and consumer finance conditions.
“I expect very low nominal price growth for 2011 with house prices expected to drop in real terms this year,” says Du Toit.
It appears that the global housing market continues to be somewhat in the doldrums and this seems likely to continue for the foreseeable future, says Dr Andrew Golding, chief executive officer of Pam Golding Properties.
Aerial view of Umhlanga coastline: Elwyn Schenk, Pam Golding Properties area principal in Umhlanga, KwaZulu-Natal says this market is resilient. Its wide appeal and strong commercial growth has attracted those moving in from other areas in the Durban surrounds. Home buyers are a mix of end users and investors across all sectors of the market.
“Our housing market started to turn down almost a year before the start of the global economic downturn and we have been in this down cycle for the best part of four years,” says Dr Golding.
He says the residential property market has held up relatively well from a pricing point of view with prices (generally) only between 10 and 20 percent down off the peak at the height of the cycle.
“The market remains subdued but resilient and this status quo is likely to remain for at least the rest of 2011 and possibly well into 2012.”
Dr Golding says they are seeing an increase in sales numbers and activity levels but the upward trend is slow rather than a rapid recovery.
He adds that key to the faster improvement in the residential market will be a relaxation of the current stringent bank lending criteria. – Denise Mhlanga
We offer property investment opportunities throughout South Africa and Europe
Showing posts with label south african property. Show all posts
Showing posts with label south african property. Show all posts
Friday, 26 August 2011
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.
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.
Friday, 24 June 2011
Inflation up but interest rates steady
The consumer inflation rate was higher than predicted, rising to 4,6% in May and up from 4,2% in April but economists have not yet revised predictions on a hike in interest rates by the Monetary Policy Committee of the South African Reserve Bank.
SARB’s repo rate was cut to just 5,5% in November last year, dropping interest rates for consumers to a record low of 9%. A spike in interest rates will place considerable pressure on property owners, as many of them try to downscale their costs in orderto meet their monthly commitments.
Elna Moolman, an economist at BJM Renaissance, says that the latest data is unlikely to mean that the interest rates will start to rise earlier than predicted even though the SARB has revised its estimates for higher inflation over the coming months.
The figures indicate that the inflation rate will remain within the Bank’s target range of between 3% and 6% for the rest of this year but will increase to about 6,3% early next year when rates are expected to be hiked.
The spike in inflation rates has been prompted by higher-than-expected increases in food prices, which are up 1,7% month-on-month. Food prices have a weighting of about 15% in the price basket used to calculate the average inflation rate and these rose by 6,3% year-on-year.
Moolman says that adverse weather conditions prevailing throughout the country, coupled with a fall in output from the agricultural sector were contributing to higher food prices.
Higher electricity prices, along with a sharp increase in fuel prices had also contributed to the spike in the inflation rate. Electricity prices have risen by 19% in May compared with a year ago.
SARB’s repo rate was cut to just 5,5% in November last year, dropping interest rates for consumers to a record low of 9%. A spike in interest rates will place considerable pressure on property owners, as many of them try to downscale their costs in orderto meet their monthly commitments.
Elna Moolman, an economist at BJM Renaissance, says that the latest data is unlikely to mean that the interest rates will start to rise earlier than predicted even though the SARB has revised its estimates for higher inflation over the coming months.
The figures indicate that the inflation rate will remain within the Bank’s target range of between 3% and 6% for the rest of this year but will increase to about 6,3% early next year when rates are expected to be hiked.
The spike in inflation rates has been prompted by higher-than-expected increases in food prices, which are up 1,7% month-on-month. Food prices have a weighting of about 15% in the price basket used to calculate the average inflation rate and these rose by 6,3% year-on-year.
Moolman says that adverse weather conditions prevailing throughout the country, coupled with a fall in output from the agricultural sector were contributing to higher food prices.
Higher electricity prices, along with a sharp increase in fuel prices had also contributed to the spike in the inflation rate. Electricity prices have risen by 19% in May compared with a year ago.
Buyers moving South
Cape residential property is about 25 percent to 30 percent more expensive than residential property in Gauteng; a fact, says Anton du Plessis, CEO of Vineyard Estates, that does not deter many Gauteng buyers from moving south, even though they may have to downscale quite appreciably to make such a move possible।
"Gauteng currently," said du Plessis recently on SABC’s Expresso Morning Show, "offers better value for money on plot sizes, floor areas and finishes but, of course, Cape Town has scenery, the sea, winelands and much else. If it is a lifestyle rather than financial reward that is now your priority, this is where you will probably find it."
Most upcountry buyers, he said, arrive in Cape Town with a set budget in mind. Once they discover that they cannot buy the lifestyle that they want, at the price they had anticipated, those buyers who can afford to raise their sights often do so.
"More often than not, a buyer from Gauteng who indicates a maximum spend of, say, R4-million initially will end up buying for R5-million and more."
The housing market in and around Johannesburg, said du Plessis, still has ample space at its disposal. Even in the built-up areas there is still huge scope for densification and redevelopment and whether the buyer looks north, south, east or west, land for expansion is not hard to find. In many Gauteng suburbs the problem lies not in a lack of subdivisions, but in the provision of services to accommodate the additional load.
"By contrast, the Cape Peninsula’s middle class suburbs have been crammed into the limited space between the mountain and the M5 freeway on the east and the mountain and the sea in most other areas.
"As the demand, however, is still strong, and the supply relatively limited, prices will inevitably be far higher than in equivalent sized homes in and around Johannesburg.
"Having said that," du Plessis added, "it is currently very much a buyers’ market and where sellers are distressed good properties can be snapped up for up to 25 percent less than their real value."
"This will not last forever. There are now signs that by the second half of 2012 (as I have said previously) today’s prices could look very low indeed."
"Gauteng currently," said du Plessis recently on SABC’s Expresso Morning Show, "offers better value for money on plot sizes, floor areas and finishes but, of course, Cape Town has scenery, the sea, winelands and much else. If it is a lifestyle rather than financial reward that is now your priority, this is where you will probably find it."
Most upcountry buyers, he said, arrive in Cape Town with a set budget in mind. Once they discover that they cannot buy the lifestyle that they want, at the price they had anticipated, those buyers who can afford to raise their sights often do so.
"More often than not, a buyer from Gauteng who indicates a maximum spend of, say, R4-million initially will end up buying for R5-million and more."
The housing market in and around Johannesburg, said du Plessis, still has ample space at its disposal. Even in the built-up areas there is still huge scope for densification and redevelopment and whether the buyer looks north, south, east or west, land for expansion is not hard to find. In many Gauteng suburbs the problem lies not in a lack of subdivisions, but in the provision of services to accommodate the additional load.
"By contrast, the Cape Peninsula’s middle class suburbs have been crammed into the limited space between the mountain and the M5 freeway on the east and the mountain and the sea in most other areas.
"As the demand, however, is still strong, and the supply relatively limited, prices will inevitably be far higher than in equivalent sized homes in and around Johannesburg.
"Having said that," du Plessis added, "it is currently very much a buyers’ market and where sellers are distressed good properties can be snapped up for up to 25 percent less than their real value."
"This will not last forever. There are now signs that by the second half of 2012 (as I have said previously) today’s prices could look very low indeed."
Wednesday, 15 June 2011
South African Property: Rent or Buy?
The news that South Africa has now been included in the BRIC group (Brazil, Russia, India and China) can only mean good news for property investment.
According to Maite Nkoana-Mashabane, South Africa’s Minister of International Relations and Co-operation, the inclusion, “legitimises South Africa as a future global power and as an investable country - bolstering its position as Africa’s gateway and champion.”
According to the Sage Property Report from Standard Bank in September 2010, “confidence in the South African property market is returning”.
This is confirmed by the 8.3 percent year-on-year growth rate in the median property prices in August and 7.3 percent year-on-year in July and has given rise to the prediction that the average nominal growth will be around 6 percent for the year.
So is this the time to buy? Herman Slabbert, from Ronnie Matthews Estates in Cape Town says, “The answer whether to buy or lease depends on the profile of the buyer and to what extent current market conditions dictate or influence the choice (or limit the options).
“For an investor the question may be to either invest in the share market or property or both, but after the good bull run of worldwide equity markets the past year, share analysts warn of a dangerously over-bought market and that investors should expect a medium to large correction in the near future.
Rent
Buying is naturally the preferred choice for someone or a couple starting out, but the credit crunch and resulting stricter lending criteria of the banks makes it difficult to get loans, unless you can put down a substantial deposit.
The irony for the first time home buyer is that interest rates are at their lowest level in 30 years and home prices are at very attractive levels compared to the property bubble before 2008.
One strategy proposed is to rent and then invest or save the difference between the rental payment and the monthly bond amount one would have expected to pay, in the share market. These ‘savings’ though must to be invested in the stock market. In 10 to 12 years there should be enough accumulated capital to buy a house.
Buy
Michael Bauer, General Manager of property management company IHFM,says, “The biggest resistance to buying versus renting is the mental block caused by short-term thinking. People ask themselves why they should buy when they can rent for 30 to 40 percent less than their monthly bond repayments. They are also not responsible for repairs and maintenance and can move on whenever they feel like it.
“However, the fact is that monthly rental will generally rise by 8 to 10 percent per year and by the time the property owner has paid off the bond (are debt free) the rental will be about ten times more than it was 20 years earlier when they decided to buy not rent.
“In contrast, property owners will find that their bond repayments will no longer be a major burden and will probably be less than 15 percent of their gross salary. In essence, if you pay a deposit of 20 to 25 percent on the property, it makes sense to anybody to buy.
“If you compare for example a R400,000 bond issued at an interest rate of 11 percent, the property owner would pay around R990,000 in capital and interest over 20 years, but would own an asset worth R1.06 million.
Bauer continues, “The tenant starting with a rent of R2500 a month (subject to annual increases) would at the end of 20 years find that his total rent payments have been about R1.7m. However, there would be no asset to show for his outlay.
“Rental escalations and capital growth are usually far above annual adjustments to income so it will become less and less affordable to rent in future if you continue living in an area of your choice. When you retire of course and your income is reduced by 30 to 40 percent, rental may be prohibitively expensive.
“For the buyer or investor who qualifies financially to buy, there are many options available in the market. Remember it is still is a buyer’s market coupled with the low interest rates, notwithstanding mediocre capital appreciation expectations. For the shrewd/smart investor who knows the market and the product there are opportunities in the buy to let market.”
Buy to let
Slabbert says, “Recent activity shows a positive sentiment in the buy-to-let market, which is an important segment of property investment.
“According to a report in the Financial Times (in the UK), banks in London have for the first time started to give loan packages, one of up to 85 percent of the value of the property. (Coincidentally it is a subsidiary bank of Investec, the South African bank).
“However, one dilemma for the South African buy-to-let investor is stock. Since 2008 banks and other financial institutions have ceased to provide funding for new developments, resulting in supply constraints – limitations on the ability to deliver new developments. However, the supply constraint also has benefits.
“It must also be remembered,” says Slabbert, “that a market or area where supply is constrained generally will have higher rent levels, greater rent growth and higher capital values.
“The investment strategy focusing on supply constrained areas could potentially provide more durable income and stronger capital appreciation.
“As an example, one can look at the Atlantic Seaboard in Cape Town and then at a specific area like Camps Bay/Clifton area which is considered the most expensive real estate in South Africa has a legal as well as geographic supply constraint.
“In essence local government zoning for development is restricted and geographically there simply is not any scope for extending this area.
“Lastly, local opposition to development is fierce; the Camps Bay rates payer association plays an activist role to monitor any proposed developments and take action where necessary,” Slabbert concludes.
Interest rates, investor confidence in a stable economy, high growth prospects together with some incredible bargains in the real estate market make this a good time to buy if you are able to and reap the rewards over the long term.
According to Maite Nkoana-Mashabane, South Africa’s Minister of International Relations and Co-operation, the inclusion, “legitimises South Africa as a future global power and as an investable country - bolstering its position as Africa’s gateway and champion.”
According to the Sage Property Report from Standard Bank in September 2010, “confidence in the South African property market is returning”.
This is confirmed by the 8.3 percent year-on-year growth rate in the median property prices in August and 7.3 percent year-on-year in July and has given rise to the prediction that the average nominal growth will be around 6 percent for the year.
So is this the time to buy? Herman Slabbert, from Ronnie Matthews Estates in Cape Town says, “The answer whether to buy or lease depends on the profile of the buyer and to what extent current market conditions dictate or influence the choice (or limit the options).
“For an investor the question may be to either invest in the share market or property or both, but after the good bull run of worldwide equity markets the past year, share analysts warn of a dangerously over-bought market and that investors should expect a medium to large correction in the near future.
Rent
Buying is naturally the preferred choice for someone or a couple starting out, but the credit crunch and resulting stricter lending criteria of the banks makes it difficult to get loans, unless you can put down a substantial deposit.
The irony for the first time home buyer is that interest rates are at their lowest level in 30 years and home prices are at very attractive levels compared to the property bubble before 2008.
One strategy proposed is to rent and then invest or save the difference between the rental payment and the monthly bond amount one would have expected to pay, in the share market. These ‘savings’ though must to be invested in the stock market. In 10 to 12 years there should be enough accumulated capital to buy a house.
Buy
Michael Bauer, General Manager of property management company IHFM,says, “The biggest resistance to buying versus renting is the mental block caused by short-term thinking. People ask themselves why they should buy when they can rent for 30 to 40 percent less than their monthly bond repayments. They are also not responsible for repairs and maintenance and can move on whenever they feel like it.
“However, the fact is that monthly rental will generally rise by 8 to 10 percent per year and by the time the property owner has paid off the bond (are debt free) the rental will be about ten times more than it was 20 years earlier when they decided to buy not rent.
“In contrast, property owners will find that their bond repayments will no longer be a major burden and will probably be less than 15 percent of their gross salary. In essence, if you pay a deposit of 20 to 25 percent on the property, it makes sense to anybody to buy.
“If you compare for example a R400,000 bond issued at an interest rate of 11 percent, the property owner would pay around R990,000 in capital and interest over 20 years, but would own an asset worth R1.06 million.
Bauer continues, “The tenant starting with a rent of R2500 a month (subject to annual increases) would at the end of 20 years find that his total rent payments have been about R1.7m. However, there would be no asset to show for his outlay.
“Rental escalations and capital growth are usually far above annual adjustments to income so it will become less and less affordable to rent in future if you continue living in an area of your choice. When you retire of course and your income is reduced by 30 to 40 percent, rental may be prohibitively expensive.
“For the buyer or investor who qualifies financially to buy, there are many options available in the market. Remember it is still is a buyer’s market coupled with the low interest rates, notwithstanding mediocre capital appreciation expectations. For the shrewd/smart investor who knows the market and the product there are opportunities in the buy to let market.”
Buy to let
Slabbert says, “Recent activity shows a positive sentiment in the buy-to-let market, which is an important segment of property investment.
“According to a report in the Financial Times (in the UK), banks in London have for the first time started to give loan packages, one of up to 85 percent of the value of the property. (Coincidentally it is a subsidiary bank of Investec, the South African bank).
“However, one dilemma for the South African buy-to-let investor is stock. Since 2008 banks and other financial institutions have ceased to provide funding for new developments, resulting in supply constraints – limitations on the ability to deliver new developments. However, the supply constraint also has benefits.
“It must also be remembered,” says Slabbert, “that a market or area where supply is constrained generally will have higher rent levels, greater rent growth and higher capital values.
“The investment strategy focusing on supply constrained areas could potentially provide more durable income and stronger capital appreciation.
“As an example, one can look at the Atlantic Seaboard in Cape Town and then at a specific area like Camps Bay/Clifton area which is considered the most expensive real estate in South Africa has a legal as well as geographic supply constraint.
“In essence local government zoning for development is restricted and geographically there simply is not any scope for extending this area.
“Lastly, local opposition to development is fierce; the Camps Bay rates payer association plays an activist role to monitor any proposed developments and take action where necessary,” Slabbert concludes.
Interest rates, investor confidence in a stable economy, high growth prospects together with some incredible bargains in the real estate market make this a good time to buy if you are able to and reap the rewards over the long term.
Friday, 3 December 2010
Property Predictions for 2011 - South Africa
In 2011 the greatest challenge for the auction industry will be to refocus on a buyer's market still constrained with a shortage of demand and an over supply of non-income producing properties.
As the country gets used to a long, hard and bumpy recovery, the economic headwinds will still be strong and unemployment rates alarmingly high.
While the lowest interest rates in 30 years will boost sentiment and cause a bounce in properties with reliable cash flow, the favourable interest rate environment won't be a magic pill which quickly relieves the downturn.
Finding the right buyers at auctions and getting funding will remain challenging.
Business confidence will be dependent on a host of local and international issues; including fears of a potential sovereign debt crisis in Europe.
While distress at retail level may slow with lower interest rates, and banks now well geared up to assist defaulting clients, corporate distress will grow with larger liquidations bringing higher value assets to the auction floor.
High value bankruptcies will increase throughout the year, presenting opportunistic purchasing like never before seen in South Africa.
As liquidators and banks get more desperate to offload bad debts and an oversupply of development land, a sweet spot will emerge for investors with access to financing as they pick up these assets at bargain prices.
The residential property market will remain flat for most of the year with a stronger recovery at entry level. Investors will snap up properties below R1 million, which for the first time in many years will provide stronger returns than cash in the bank.
The middle market will remain flat for some time as it deals with oversupply in newer residential areas.
The luxury residential market across the country will remain weak all year, with little help from interest rates, and a strong Rand constraining international demand.
Leisure residential properties at the coast, on golf courses and in other non-urban areas will also remain flat with many properties being sold at auction below replacement value.
Next year two pieces of legislation may have a major impact on the auction sector. The Consumer Protection Act will change a wide range of issues regarding the auction process, mandates and sales processes; these are all designed to look after the consumer's interests.
The new Companies Act will also have a material effect with the introduction of Business Recovery.
This may cause an initial slowdown in liquidations as companies go through the business recovery process.
It is possible that liquidations may increase later in the year as banks rush to secure their positions on property exposures. Either way, it will have a material impact on the auction sector.
The commercial property market will become two-tiered; good properties with strong covenants and reliable cash flow will experience a surge in demand as investors look to place their cash in areas that achieve greater returns than bank deposits.
Blocks of flats, retail property and key industrial sites will form the strongest part of the market.
The office market will remain mild but A-Grade properties in prime locations will attract strong demand on the auction floor.
An area of concern will be hotels, guest houses and leisure resorts which will battle in 2011 and may hit the auction floor with little demand.
As the country gets used to a long, hard and bumpy recovery, the economic headwinds will still be strong and unemployment rates alarmingly high.
While the lowest interest rates in 30 years will boost sentiment and cause a bounce in properties with reliable cash flow, the favourable interest rate environment won't be a magic pill which quickly relieves the downturn.
Finding the right buyers at auctions and getting funding will remain challenging.
Business confidence will be dependent on a host of local and international issues; including fears of a potential sovereign debt crisis in Europe.
While distress at retail level may slow with lower interest rates, and banks now well geared up to assist defaulting clients, corporate distress will grow with larger liquidations bringing higher value assets to the auction floor.
High value bankruptcies will increase throughout the year, presenting opportunistic purchasing like never before seen in South Africa.
As liquidators and banks get more desperate to offload bad debts and an oversupply of development land, a sweet spot will emerge for investors with access to financing as they pick up these assets at bargain prices.
The residential property market will remain flat for most of the year with a stronger recovery at entry level. Investors will snap up properties below R1 million, which for the first time in many years will provide stronger returns than cash in the bank.
The middle market will remain flat for some time as it deals with oversupply in newer residential areas.
The luxury residential market across the country will remain weak all year, with little help from interest rates, and a strong Rand constraining international demand.
Leisure residential properties at the coast, on golf courses and in other non-urban areas will also remain flat with many properties being sold at auction below replacement value.
Next year two pieces of legislation may have a major impact on the auction sector. The Consumer Protection Act will change a wide range of issues regarding the auction process, mandates and sales processes; these are all designed to look after the consumer's interests.
The new Companies Act will also have a material effect with the introduction of Business Recovery.
This may cause an initial slowdown in liquidations as companies go through the business recovery process.
It is possible that liquidations may increase later in the year as banks rush to secure their positions on property exposures. Either way, it will have a material impact on the auction sector.
The commercial property market will become two-tiered; good properties with strong covenants and reliable cash flow will experience a surge in demand as investors look to place their cash in areas that achieve greater returns than bank deposits.
Blocks of flats, retail property and key industrial sites will form the strongest part of the market.
The office market will remain mild but A-Grade properties in prime locations will attract strong demand on the auction floor.
An area of concern will be hotels, guest houses and leisure resorts which will battle in 2011 and may hit the auction floor with little demand.
Foreign buyers now few and far between.....
There was a time two or more years ago when residential property estate agencies, some with international connections, earned considerable kudos by publicising impressive figures on the number of foreign buyers to whom they had sold South African property.
That time, says Bill Rawson, Chairman of the fast expanding South African property group that carries his name, is now by and large past.
"At present I regret to say we are just not seeing foreign buyers in territories like the Western and Southern Cape where their presence previously - and their ability to buy in the more expensive brackets - very definitely did help to keep prices up."
Sales of upper bracket homes, adds Rawson, have been the hardest hit by the recession and the lack of overseas buyers here has been felt in this sector to a far greater degree than elsewhere.
In the circumstances, he says, the government's investigation some years back into the impact of foreign buying had become almost irrelevant today.
"Those who have had to sell in the upper brackets have been forced to accept fairly drastic price cuts," says Rawson. "For example, a seven bedroom Constantia home originally on the market at R17 million was knocked down recently on auction for R10 million.
"However, it is also true that in this market there are relatively few distressed sellers and those planning to sell are often able to sit back and wait for better times. Prices in areas like Constantia have, therefore, remained fairly satisfactory."
Buyers in South Africa who are not adopting a wait and see attitude (as some are), says Rawson, are currently getting exceptionally good prices - for which, he is convinced, they will later be grateful.
"This applies particularly, I think, to those buying currently in Rawson Properties' three “academic belt” (Rondebosch) multi-unit projects - Rivers Edge, Rondebosch Oaks and The Rondebosch. Buyers here are taking up units at the same pace we saw in the boom years."
Investors, says Rawson, have in recent months been able to arrange bank finance far more easily and at better rates than was possible earlier this year - "and it looks if the trend will continue".
Commending Dr Andrew Golding and his research team at Pam Golding Properties, Rawson says that their publication of the best areas in which to invest is "exactly the sort of information buyers and the whole industry needs. It will very definitely facilitate investor decision making".
The report, says Rawson, once again shows the importance of close proximity to good schools and efficient transport systems as well as upper bracket retail areas. It also emphasises the absolute necessity of increased security for private homes.
A further finding of the report, which, says Rawson, is particularly important and which has reinforced the long-held convictions of many Capetonians, is that the Southern Suburbs of Cape Town have been and are likely to remain the safest and steadiest appreciating place in SA to make a long term property investment.
That time, says Bill Rawson, Chairman of the fast expanding South African property group that carries his name, is now by and large past.
"At present I regret to say we are just not seeing foreign buyers in territories like the Western and Southern Cape where their presence previously - and their ability to buy in the more expensive brackets - very definitely did help to keep prices up."
Sales of upper bracket homes, adds Rawson, have been the hardest hit by the recession and the lack of overseas buyers here has been felt in this sector to a far greater degree than elsewhere.
In the circumstances, he says, the government's investigation some years back into the impact of foreign buying had become almost irrelevant today.
"Those who have had to sell in the upper brackets have been forced to accept fairly drastic price cuts," says Rawson. "For example, a seven bedroom Constantia home originally on the market at R17 million was knocked down recently on auction for R10 million.
"However, it is also true that in this market there are relatively few distressed sellers and those planning to sell are often able to sit back and wait for better times. Prices in areas like Constantia have, therefore, remained fairly satisfactory."
Buyers in South Africa who are not adopting a wait and see attitude (as some are), says Rawson, are currently getting exceptionally good prices - for which, he is convinced, they will later be grateful.
"This applies particularly, I think, to those buying currently in Rawson Properties' three “academic belt” (Rondebosch) multi-unit projects - Rivers Edge, Rondebosch Oaks and The Rondebosch. Buyers here are taking up units at the same pace we saw in the boom years."
Investors, says Rawson, have in recent months been able to arrange bank finance far more easily and at better rates than was possible earlier this year - "and it looks if the trend will continue".
Commending Dr Andrew Golding and his research team at Pam Golding Properties, Rawson says that their publication of the best areas in which to invest is "exactly the sort of information buyers and the whole industry needs. It will very definitely facilitate investor decision making".
The report, says Rawson, once again shows the importance of close proximity to good schools and efficient transport systems as well as upper bracket retail areas. It also emphasises the absolute necessity of increased security for private homes.
A further finding of the report, which, says Rawson, is particularly important and which has reinforced the long-held convictions of many Capetonians, is that the Southern Suburbs of Cape Town have been and are likely to remain the safest and steadiest appreciating place in SA to make a long term property investment.
Friday, 12 November 2010
Buy a house – but how?
If you buy a house that has been lived in for a number of years it will cost you about 30% less than if you buy a brand new place that has never been occupied before according to figures released by First National Bank last week.
That got me thinking about the high cost of building and the more research I did – and the more thinking I did too – the angrier I became. Angry because building materials suppliers and property developers are ripping off the South African consumers.
A brand new ‘affordable’ apartment of 30 sqm costs around R300k in different parts of South Africa. It can be considerably more if you’re buying something in Clifton or Camps Bay but the average cost per square metre for an ‘affordable’ property in reasonable suburbs (including Mitchell’s Plain or Cosmo City) is around 10k per square metre.
Talk to the developers and they say the high costs of developing a site, combined with the high costs of labour and materials determine the price of the property when it is released onto the market.
All the developers are really quick to claim that the profit levels are minimal particularly when the money is tied up for so long before the first unit is sold. So if they’re not making good profits, why are they doing it?
The answer is actually that they are making huge profits and they’re just fudging their answers to dissuade me (and you) that they’re making lots and lots of bucks.
Much the same pattern applies to material suppliers. These organisations blame everybody else except themselves for the exorbitant prices of cement, bricks, plaster, tiles, fixtures and fittings and even glass.
The manufacturers and suppliers point fingers at the retailers claiming that they are the ones who are keeping prices high; then they point another set of fingers at the high costs of transporting their products from the factory to the site (or the retail outlet). They even blame the low productivity of workers for the high prices of products made for the building industry.
Do they blame themselves or do they reduce their margins? Not a chance. In fact year after year your large material suppliers provide handsome dividends for their shareholders. So, like developers, they too are making money – and lots of it.
The final culprit in this rather depressing cycle of profiteering is the banks themselves. You see it’s the banks that are prepared to fund the developers and then grant the bonds for each pokey little flat measuring five metres by six metres into which has been crammed a kitchen and bathroom too.
Recently, Human Settlements Minister Tokyo Sexwale urged developers, material suppliers, architects and engineers to come up with innovative ways to resolve the housing problems that face South Africa.
Well, here’s a thought Mr Minister: how’s about getting the developers, the materials suppliers and the banks to stop profiteering. How’s about getting them to stop driving prices higher and higher?
How can we do that?
Well let’s look at the existing position first of all. One of the attractions for buying a new property – particularly for first-time homebuyers – is that a new property is free from transfer duty and, in many cases, first-time buyers even qualify for 100% bonds.
Sometimes buyers are supported by a developer who offers a cash-back advance to them if they sign the deal. In fact, on a 140 sqm house costing R1,4-million I was offered a R50k cash-back (to spend on new furniture or other things I was told) if I agreed to buy the home.
If I was prepared to buy a slightly bigger place, costing R1,6-million then I’d get R100k cash-back advance. Sign the deal, get the money and spend it on a new plasma TV for the lounge, curtains for all the bedrooms, new furniture for all the rooms, buy some new appliances and so on. Even spend it on having a holiday after all the stresses of moving if I choose to.
And developers tell me that they’re not making handsome profits. Pull the other leg Mr and Mrs Property Developer.
Do you ever hear about a cash-back advance on the sale of an older property? Do you get any relief on transfer duties, bond costs, legal fees or any of the other charges that are added to a property transaction? You don’t even get a discount on stamp duty.
So what we know, clearly, is that the deposit, the transfer fees and the other charges make older properties unaffordable for first-time buyers unless they have a large amount of cash in their pockets to spend on the property.
So the stumbling block that’s preventing sales of second-hand homes is the additional costs that must be covered. That being the case, Mr Minister, why don’t you and your advisers come up with a way to reduce those costs or at least make them affordable for many millions of South Africans?
Of course the argument is that developers are paying Value Added Tax on the materials they buy and because of the VAT the property doesn’t attract transfer duties.
So what about a VAT amount that gets included in the sales price of older properties (and therefore is included in the price) instead of transfer duties.
That way people could get a bond (including VAT) for the second-hand property they want to own and not pay any transfer costs at all. Sure, they’d have to cover the legal fees to feed the ever-hungry attorneys that do all the paperwork but those costs are relatively small compared with the many other charges.
Perhaps there are other ways that you, Mr Minister, can come up with to resolve the sales of property in the second-hand market and I think that there are many possible solutions too. But the reality is that the problem of transfer fees, deposits and other costs must be addressed.
More importantly than that, though, is that if you re-energise the second-hand property market the bottom will fall out of the market for new properties. Particularly so if banks come to this party and provide the bond finance required to buy older properties.
If that happened, the price of new homes would plummet.
And, if developers stop developing new properties, the materials suppliers would find that their sales levels fell sharply and they’d be forced to do something about their prices too. Like a pack of cards, the materials prices would come tumbling down too.
And so the entire cycle for reducing costs would start to work: Materials prices fall; new property prices drop correspondingly and stay there until new buyers come into the market and start buying properties that are actually affordable.
But to claim, as developers do right now, that a pokey little apartment costing R10k per square metre in a distant suburb far is ‘affordable’ is nonsense.
If you ask me, affordable is about half of that?
*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.
That got me thinking about the high cost of building and the more research I did – and the more thinking I did too – the angrier I became. Angry because building materials suppliers and property developers are ripping off the South African consumers.
A brand new ‘affordable’ apartment of 30 sqm costs around R300k in different parts of South Africa. It can be considerably more if you’re buying something in Clifton or Camps Bay but the average cost per square metre for an ‘affordable’ property in reasonable suburbs (including Mitchell’s Plain or Cosmo City) is around 10k per square metre.
Talk to the developers and they say the high costs of developing a site, combined with the high costs of labour and materials determine the price of the property when it is released onto the market.
All the developers are really quick to claim that the profit levels are minimal particularly when the money is tied up for so long before the first unit is sold. So if they’re not making good profits, why are they doing it?
The answer is actually that they are making huge profits and they’re just fudging their answers to dissuade me (and you) that they’re making lots and lots of bucks.
Much the same pattern applies to material suppliers. These organisations blame everybody else except themselves for the exorbitant prices of cement, bricks, plaster, tiles, fixtures and fittings and even glass.
The manufacturers and suppliers point fingers at the retailers claiming that they are the ones who are keeping prices high; then they point another set of fingers at the high costs of transporting their products from the factory to the site (or the retail outlet). They even blame the low productivity of workers for the high prices of products made for the building industry.
Do they blame themselves or do they reduce their margins? Not a chance. In fact year after year your large material suppliers provide handsome dividends for their shareholders. So, like developers, they too are making money – and lots of it.
The final culprit in this rather depressing cycle of profiteering is the banks themselves. You see it’s the banks that are prepared to fund the developers and then grant the bonds for each pokey little flat measuring five metres by six metres into which has been crammed a kitchen and bathroom too.
Recently, Human Settlements Minister Tokyo Sexwale urged developers, material suppliers, architects and engineers to come up with innovative ways to resolve the housing problems that face South Africa.
Well, here’s a thought Mr Minister: how’s about getting the developers, the materials suppliers and the banks to stop profiteering. How’s about getting them to stop driving prices higher and higher?
How can we do that?
Well let’s look at the existing position first of all. One of the attractions for buying a new property – particularly for first-time homebuyers – is that a new property is free from transfer duty and, in many cases, first-time buyers even qualify for 100% bonds.
Sometimes buyers are supported by a developer who offers a cash-back advance to them if they sign the deal. In fact, on a 140 sqm house costing R1,4-million I was offered a R50k cash-back (to spend on new furniture or other things I was told) if I agreed to buy the home.
If I was prepared to buy a slightly bigger place, costing R1,6-million then I’d get R100k cash-back advance. Sign the deal, get the money and spend it on a new plasma TV for the lounge, curtains for all the bedrooms, new furniture for all the rooms, buy some new appliances and so on. Even spend it on having a holiday after all the stresses of moving if I choose to.
And developers tell me that they’re not making handsome profits. Pull the other leg Mr and Mrs Property Developer.
Do you ever hear about a cash-back advance on the sale of an older property? Do you get any relief on transfer duties, bond costs, legal fees or any of the other charges that are added to a property transaction? You don’t even get a discount on stamp duty.
So what we know, clearly, is that the deposit, the transfer fees and the other charges make older properties unaffordable for first-time buyers unless they have a large amount of cash in their pockets to spend on the property.
So the stumbling block that’s preventing sales of second-hand homes is the additional costs that must be covered. That being the case, Mr Minister, why don’t you and your advisers come up with a way to reduce those costs or at least make them affordable for many millions of South Africans?
Of course the argument is that developers are paying Value Added Tax on the materials they buy and because of the VAT the property doesn’t attract transfer duties.
So what about a VAT amount that gets included in the sales price of older properties (and therefore is included in the price) instead of transfer duties.
That way people could get a bond (including VAT) for the second-hand property they want to own and not pay any transfer costs at all. Sure, they’d have to cover the legal fees to feed the ever-hungry attorneys that do all the paperwork but those costs are relatively small compared with the many other charges.
Perhaps there are other ways that you, Mr Minister, can come up with to resolve the sales of property in the second-hand market and I think that there are many possible solutions too. But the reality is that the problem of transfer fees, deposits and other costs must be addressed.
More importantly than that, though, is that if you re-energise the second-hand property market the bottom will fall out of the market for new properties. Particularly so if banks come to this party and provide the bond finance required to buy older properties.
If that happened, the price of new homes would plummet.
And, if developers stop developing new properties, the materials suppliers would find that their sales levels fell sharply and they’d be forced to do something about their prices too. Like a pack of cards, the materials prices would come tumbling down too.
And so the entire cycle for reducing costs would start to work: Materials prices fall; new property prices drop correspondingly and stay there until new buyers come into the market and start buying properties that are actually affordable.
But to claim, as developers do right now, that a pokey little apartment costing R10k per square metre in a distant suburb far is ‘affordable’ is nonsense.
If you ask me, affordable is about half of that?
*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.
Monday, 6 April 2009
Get used to the downswing, so that the upswing won’t give you Vertigo.....
Is it just me or is the world wallowing in the global economic crises?
Every time you switch the channel to Sky / CNN or BBC you hear of unemployment, negative growth, repossessions, etc. Are things really that bad? And are we really approaching the worst recession since the 1980’s when the international community shunned us because of our political policies? The simple answer is unfortunately…………….………yes.
Forecasts by Economists (here come the predictions) set our GDP growth………....sorry, our GDP decline to be in the region of -10% for 2009. And as pure economists, they always leave you with a ‘silver lining’…. but this may improve to -8% toward the end of the year. (What the hell does it matter when you’re looking at negative growth !!!)
In the property market, our commercial banks continued to restrict lending. This increased the average bank decline ratio (How many mortgage applications are declined after being submitted) to 60% !! As for deposits required to secure your property, the average deposit required was 24% compared to 16% last year. (If these figures don’t make you ill, then nothing will………)
With the potential for more interest rate cuts on the way, under such dire global and domestic economic conditions, it’s unlikely that reductions will even get the residential market out of bed. Let’s hope things improve, even though I have a sneaking suspicion that it’s going to get worse before it gets better.
In conclusion, just a few words on this month’s election:
Remember, that in our amazing democratic country, you the voter have the right to choose. No matter what the outcome, YOUR vote has power. So whatever your decision is, make sure that it’s based on what you believe to be right, as it not only affects you, but millions of South Africans worldwide.
Wednesday, 6 February 2008
Horizon Consultancy – South African Property Investment Event , 6th April 2008 - London, United Kingdom
Our South African Investment Event will be hosted at the Wimbledon Park Golf Course (http://www.wpgc.co.uk/) in London, UK on Sunday, the 6th April 2008 from 12:00 to 15:00.
For a map of the location, click HERE !!
We will have several Cape Town property developments available on the day, but our flagship Development will be the Stellendale Village in Kuils River, Cape Town.
Stellendale Village is in its 4th Development Phase, due to the success of the previous 3 phases. The 1st and 2nd phases have 100% tenant occupancy.
The Development is situated next to the Stellenbosch Arterial in Kuils River , and a stones throw from the currently under construction, Zevenwacht Mall. The Development's location allows for direct access to the N1 and N2, and is close to schools and sport amenities.
A Summary of the Development is as follows:
· 5% DEPOSIT secures unit! (No other costs until transfer)
· 3 Bedroom, 1 or 2 bathroom with optional garage
· Estimated occupation beginning 2009
· 100% financing available for qualifying clients
· Estimated levy: R380 p/m
· Estimated Rental Income R3 600 p/m
· Freehold Title
· Home Owner's Association
· Controlled Access & Security
· 24 hrs Internet Connectivity & DSTV enabled
· Automated Irrigation
· Includes Hob and Oven
For more information on Stellendale Village, click HERE !!
If you would like to attend this Investment Event, please register on our website under 'Investment Events' as numbers are limited: www.horizon-consultancy.com
Kind Regards,
The Horizon Consultancy Team
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