House price growth still in single digits

Johannesburg - Nominal year-on-year growth in the average value of homes in the middle segment of the South African housing market remained in single digits in the first month of 2014 after tapering off during most of last year on the back of trends in the economy, household
finances and consumer confidence.

This is according to Jacques du Toit, property analyst at Absa Home Loans.

In real terms, that is after adjustment for the effect of consumer price inflation, house prices deflated further in two segments of the market compared with a year ago, while showing low single-digit growth in one segment.

These trends observed in house prices are according to the Absa house price indices, which are based on applications for mortgage finance received and approved by the bank in respect of middle-segment small, medium-sized and large homes.

The average nominal value of homes in January in each category was:

- Small homes (80m²-140m²): R764 000;

- Medium-sized homes (141m²-220 m²): R1 104 000;

- Large homes (221m²-400m²): R1 710 000

Consumers continue to experience financial strain, said Du Toit.

Growth in real household income and consumption expenditure remains low on the back of inflationary pressures and subdued employment growth, while the savings ratio does not show any significant improvement.

"In view of current trends in and prospects for the economy and the household sector, as well as recent trends in house price growth, continued single-digit nominal price growth is forecast for 2014," said Du Toit.

"Some real house price deflation is projected for this year, based on the combined effect of expected trends nominal price growth and inflation."

The Argument against Buy-To-Let Property

Many investors approaching retirement still consider buying one or two residential rental units as an additional, sometimes primary, source of income. The basis for this decision is often an emotional one, rather than a mathematical one.

No matter how hard you try to convince investors about the foolish nature of such an act, the more determined they are to become buy-to-let (BLT) landlords during their retirement. Any advice to the contrary is viewed with supreme suspicion.

More than 20 years ago I found myself embroiled in a fairly heated debate on Radio 702 where I used to host the programme Financially Speaking, an investments call-in show. I commented on the dangers about buying flats in Hillbrow and Berea, two now notorious suburbs in Johannesburg, as an investment to fund a retirement. This was in response to a question on whether such an investment was recommended.

I expressed the view that the issue of demographic change in these, and other suburbs, could not be ignored, considering the long-term nature of such an investment as well as the illiquid nature thereof.

Boy, did that cause a firestorm on the airwaves and I was accused of being all kind of things, including being stupid, ignorant and a racist.

Twenty year on, I doubt if any of those investors - urged on by those advocating the “revival of the city centre”- have been happy with their investments since then.

In fact, property values in these areas have probably dropped by anything up to 90% - assuming buyers could be found, as there is no real formal market to speak of. The banks have long ago stopped providing finance to many similar areas – following the principle of “redlining” - and any transacting is more likely to be on cash basis.

It’s very hard to find statistics for red-lined areas in SA, but I base my conclusion on the very large number of properties sold at sales in execution at sheriff’s auctions.

Sheriff auctions

In the old days you had to scour the classified pages of newspapers to find the minutely printed “Sales in Execution”- notices. That’s what the law required - one advertisement to alert potential creditors that your house is being sold without a reserve price.

For sharp-eyed property speculators, going to these auctions that took place outside the magistrate’s offices used to be a fairly lucrative activity. I myself partook in many such auctions, often buying at well-below market value and then selling before the transfer took place.

But alas, that loophole has long since been closed down by Sars and for the last fifteen years or so you have had to take transfer of any property before it could be on-sold.

The world of sheriff auctions has also come a long way; there’s now a website, with subscribers alerted to auctions in any part of SA well in advance. With the help of Google Maps you can have a thorough look at all properties going on auction.

However, you still have trouble getting into a house or property that you fancy, with the sheriffs not usually in a position to help and you buy the property voetstoots, with no guarantees regarding its state. Normally the attorneys acting for the creditor bank demand full payment of the purchase price within 30 days. Once you’ve paid your 15%deposit at these auctions you must come up with rest fairly quickly.

The website reveals that thousands of repossessed properties are being sold every month at sheriff auctions across SA - a great deal of them in Hillbrow, Berea, Sunnyside in Pretoria and other areas which have experienced demographic implosion over the last 20 years or so.

I often attend these auctions in the hope of finding bargains in other areas, and as such can say that repossessed properties in these areas are virtually worthless. Speculators are buying them up at a fraction of the outstanding bond values—those with bonds on them—and usually simply pay the arrear rates and taxes and take on the responsibility of getting tenants or owners out of the building.

BTL drawbacks

Anyone who built a retirement plan on a couple of rented properties in certain areas 20 or even ten years ago must now be financially devastated. Both their capital and income are declining but they are still obliged to pay rates and taxes and in some cases maintenance of the property.

Therefore any inducement to enter the BTL market in the local context needs to take several issues into consideration. Do not be convinced that BTL is such an easy road to riches in your retirement.

The drawbacks include:

1. Lack of liquidity. You own a specific property in a specific part of a town/city and you have no idea what the area would look like in ten, 15 or 20 years’ time. You cannot sell half, or a tenth of the property in case of emergency. You either sell the whole property or you don’t.

2. The entry and exit costs to property are very high. These include transfer fees when you buy, estate agents’ commission when you sell and maintenance, electricity and water costs in between if your tenant doesn’t pay. Everyone is making money off your capital and you are left with all the problems.

3. No diversification. Your property is in one particular area which increases your risk.

4. Non-paying tenants. It takes six to nine months via an expensive court process to have them evicted; even then your property owner rights are severally curtailed.

5. Demographic changes over which you have no control. Many smaller, formerly prosperous towns in the SA platteland, have literally become ghost towns as a result of many factors including the decline of the mining industry, shrinking rate-paying populations and younger people moving to the larger cities.

6. Dysfunctional municipalities. The role of effective municipal management as an underpin to your property values can never be over-estimated. I rate this factor as most probably the single-largest threat to long-term property values in SA. As towns and cities implode you can be certain that your property values are imploding alongside.

7. The property marketing industry in SA is very effective and incredibly powerful. Many newspapers are wholly dependent on advertising by estate agents. You will battle to find any negative news on the residential property market in these publications. In a previous career I was the editor of a financial supplement in one of these papers. It was a fireable offence to write anything negative about estate agents. To this day nothing has changed and you won’t see anything that could jeopardise the mountain of advertising by the property industry.

8. Low returns. I often calculate the net returns of rental properties for clients, and am not surprised when the returns are well below 4% per annum, when all the costs and unforeseen expenses are included. This only leaves potential capital growth to make up for this poor investment.

My advice to investors is to approach any potential property investment - especially in the rapidly changing local market - with a great deal of circumspection. Be especially aware of claims that ‘in the long run property is a great investment’, or ‘God doesn’t create any more land’. These kinds of statements all play on the ignorance of naïve investors. Don’t be one of them.

http://www.moneyweb.co.za/moneyweb-property/why-buyingtolet-in-retirement-is-a-bad-idea

Why a recovering US property market bodes well for South Africa

The United States has long held sway over the global economy and as such its welfare has had far reaching implications for the rest of the world. Cue the sub-prime mortgage crisis in 2007 which effectively crashed the US housing market, and of which the effects are still very much in evidence, particularly in America and parts of Europe.

"Due to the US's incredible economic power we've often noticed that the local property market tends to lag between three to six months behind the American market", says Bruce Swain, MD of Leapfrog Property Group. As such local estate agents and buyers are inclined to keep an eye on developments in the US. "Of course South Africa is a different kettle of fish and one would be foolish to assume all movements in the US market will be mirrored in ours but, it does often give one an indication of what could be headed our way", says Swain.

Even earlier in 2012 many still doubted as to when the US real estate market would begin recovering. Now it would seem that revival is in sight; JP Morgan & Co and Wells Fargo & Co, the principal home lenders in the States report double-digit quarterly earnings growth last week. According to Sterne Agee, a banking analyst from Todd Hargeman as reported in the LA Times, both companies "clearly expressed a view of signs of recovery, if not stabilization".

The "Improving Markets Index" as compiled by the National Association of Home Builders and First American Title Insurance indicates that a 103 housing markets across the US now qualify to be listed, up from 76 in January 2012. Barry Rutenberg, chairman of the National Association of Home Builders (NAHB), believes that; ""This is an encouraging sign that the housing recovery is proceeding at a steady pace as firming prices and employment help spur new building activity, which in turn generates new jobs and more home sales."

Whilst improving markets are still a far cry from stable or even better, growing markets, it is the first sign that the American housing market is recovering. Broadly speaking any recovery in the States is bound to filter through to the rest of the world, which should eventually lead to rallying of exports from SA to Europe and other economic corrections. These corrections will hopefully lead to more job creation, increased earnings and ultimately, the amelioration of the local property market.

That being said, there are local factors that have a greater, and more immediate, effect on the SA industry such as the recent wild cat strikes and the tragedy that took place at Marikana, the staggering level of unemployment and the downgrading of our sovereign debt. These circumstances shake investor confidence, decreases international funding, threaten our exports and ultimately culminate in an impoverished economy.

Factors that contribute more directly to the property market include the lack of household savings, the high level of household debt-to-disposable income ratio, the increase of municipal rates and the difficulty of obtaining a home loan.

Bruce Swain believes that the South African Reserve Bank has done what it can to aid the property market by keeping the repo rate at a low 5%. According to John Loos, Household Sector and Property Strategist at FNB, the greatest problem the market now faces is the lack of household savings. At present the household debt-to-disposable income ratio stands at 76.3% (an increase over the first two quarters of 2012). Loos states that: "This savings shortage is a serious structural issue not only constraining the housing market but also many people's ability to retire financially sound."

Combined with the fact that banks' lending criteria are now considerably more stringent than four or five years ago the reality is that many potential buyers cannot amass the deposit needed to secure a loan.

Of course saving isn't the only problem. Municipal rates and tariffs have increased: Loos points out that where the average house price/average remuneration ratio fell by -24.4% since 2008, the rates and tariffs/remuneration has increased by 6.54%. Savings are less and properties are costing more to maintain – hardly a recipe for a sound property market.

That being said, the local property market is still stable, if sluggish, and there are slight indications that it's picking up. Yes, South Africans need to start saving there's no doubt but, our market didn't take the hit many of its international siblings did and with the stable repo rate and banks easing their lending criteria somewhat there is hope. Sellers are still placing their homes in the market and the buyers are there. "Remember, regardless of the current global and national economic situation, property is a long term game and the industry will correct itself in time. Patience is key during this period", advises Swain.

http://www.eprop.co.za/news/item/14455-why-a-recovering-us-property-market-bodes-well-for-sa.html

Olympic Games and London Property Prices

South Africa may be scooping gold medals at the Olympic Games, but experts are uncertain of the immediate Olympic boost to London property prices.


South Africa may be scooping gold medals at the Olympic Games, but experts are uncertain of the immediate Olympic boost to London property prices.

According to Mike Smuts, managing director of Smuts & Taylor Ltd, it would seem from the available data that the Olympics have had little effect on East London property prices.

He points out that it’s a little early for judgement, but there is of course always a big debate about whether events such as the Olympics Games actually have a direct effect on property prices in the host city.

Speaking to Property24.com, Smuts explains that some earlier research has shown that the Olympics may aid property values in developing cities, but has little to no effect on developed metropolitan areas like London.

Knight Frank revealed in a report recently that prime central London property prices reached a new high in June with values almost 50 percent higher than they were in March 2009.

Engel & Völkers in Chelsea, London said at the time many landlords and buy-to-let investors were spotting opportunities for short-term rentals during the Olympic Games hence boosting the rental market.

Click here to read the article.

“One thing that is undisputed though is that hosting cities benefit from an upgrade of transport, cultural/leisure facilities and urban infrastructure, which in turn encourages house prices growth.”

He notes that all of this is true for London saying the “Olympic Legacy”, as the government has dubbed it, will lie in these infrastructure upgrades and not in the event itself.

Smuts says some of the infrastructure improvements are already complete, including parts of the £6.5 billion ($10 billion) investment in London’s transport system, as well as private ventures such as the £1.5 billion Stratford City Westfield Shopping Centre.

“Housing projects are still taking shape and until those developments are complete, it’s too soon to look for an Olympic housing boom,” he says.

Smuts says some of the infrastructure improvements are already complete, including parts of the £6.5 billion ($10 billion) investment in London’s transport system, as well as private ventures such as the £1.5 billion Stratford City Westfield Shopping Centre.

Yolande Barnes, director of Savills residential research explains that the real legacy for the housing market in Stratford will start after the Olympics, and any ripple would follow thereafter.

Barnes says transactions in the London Borough of Newham are running among the lowest in the country – at around 40 percent of their former average levels and it is difficult to discern any price rises above and beyond the background rises in London as a whole.

Over the longer term, the infrastructure improvements and general ‘speeding up’ of regeneration and management of place that has happened because of the Olympics will undoubtedly have a positive effect on local house prices, she says.

“Perhaps more importantly it will have a positive effect on the quality of the local environment,” says Barnes.

Furthermore, she says the legacy will effectively be a managed ‘landed estate’ with an eye on long-term quality, which means that some localities will have the potential to rival the more prime areas of west London.

This should attract newcomers who would otherwise not have considered the location previously, she says.

Smuts is of the opinion that the point to get across is that hosting the Olympics or Soccer World Cup doesn’t do much for house prices in itself - but the infrastructure upgrades do.

“House price increases near Gautrain stations in Gauteng South Africa in the wake of the Soccer World Cup is a good example of this,” he points out.

On home prices in East London in light of the Olympics Games, he says the housing market in the area, particularly around Stratford to the east, has under-performed in comparison to the rest of London.

Data from the Land Registry show house prices across London rose 5.1 percent year-on-year to April 2012, but in the east London borough of Newham, home to the Olympic Park, prices moved up just 2 percent.

This is in stark contrast to Kensington and Chelsea where prices have jumped 11.6 percent over the same period as wealthy foreign investors (including many South African buyers) flock to London looking for a safe haven for their wealth, he says.

Smuts says while capital growth has been lower than expected, rental prices have performed far better.

According to a rental index conducted by leasing company HomeLet, London rental prices in April were up 7.1 percent on the prior year, with those in east London (an area which includes and extends beyond Newham) outpacing the rest of the capital, rising 8.6 percent.

Wealthy South Africans are highly prudent with their investments and with the continued uncertainty around the prospects and timing of the global economic recovery, most favour the tangible and straightforward nature of residential property as an investment, according to Smuts.

London letting agents are reporting a surge in the number of advertisements placed on their websites and a record number of enquiries about properties available for short-term lets during the Olympic period, he says.

He notes that Gumtree.com, a UK-run site for classified ads, has seen 2 321 ads posted for Olympic rentals between January and May and almost 10 500 replies to such posts.

HomeAway.co.uk, the UK's number one holiday rentals site, said landlords taking bookings through their site have achieved rents between 70 and 200 percent higher than standard rates.

According to a BBC report, some landlords believe the opportunity to be so lucrative that they have asked existing tenants to leave to free up their properties for the few weeks during the games, he says.

“Still, much like the expected housing boom, I suspect the moneymaking potential of short-term rentals during the Olympics have been overstated by overzealous letting agents - especially because so many properties are coming on to the market,” he says.

Should landlords achieve higher-than-normal rates for their properties during the games, it will merely be a short-term phenomenon and hardly worth turning out existing long-term tenants, he says.

“Interestingly enough it would seem from the lettings data this short-term boost is likely to benefit other areas of London just as much as the Olympic boroughs.”

Rental companies say properties in central and west London have been equally popular as those local to the Olympic sites, with many visitors hunting out home stays closer to the city’s other major attractions, he says.

This week, Savills revealed in a report that a review of record prices achieved for residential real estate in the top 10 ‘world class’ cities reveals that London still holds gold four years after the record of £8 500 per square foot was set in 2008, making the city’s Kensington Palace Gardens the most expensive address.

The top three ‘world class’ cities closely grouped with records set at over £8 000 per square foot, with Hong Kong and New York just behind London with £8 400 and £8 300 respectively, according to the report.

View the record transaction here.

A property that transacted in 2008 in London’s Kensington Palace Gardens tops the list at £8 500 per square foot and Savills says what sets this home address apart from others is the rarity factor.

Its exclusivity, well established residential streets with extremely limited supply.

This week, Savills revealed in a report that a review of record prices achieved for residential real estate in the top 10 ‘world class’ cities reveals that London still holds gold four years after the record of £8 500 per square foot was set in 2008, making the city’s Kensington Palace Gardens the most expensive address.

According to the Knight Frank Prime Global Cities Index Q2 2012 report, the value of prime property in the world’s key cities rose by 1.4 percent and London ranked number five of the 27 global cities surveyed recording an annual price growth of 10.5 percent.

The same report saw two of Africa’s top home locations in the top 10 with Nairobi Kenya at number three (21.8 percent) and Cape Town in South Africa at number 10 (4.1 percent).

Read the article here.

Barnes says in the longer term, it is possible that to see increasing amounts of overseas wealth flowing into the area, not just from investors buying new build properties but also ‘displaced’ west Londoners taking the value of their property east and getting much more for their money.

In the end, much depends on the skills of those creating and managing the new places that are being created but it is difficult to see how such a good start could have been achieved without the Olympics, especially in the current economic climate, she says.

Barnes points out that Westfield has already had a positive impact on the area and the arrival of Crossrail in four years will certainly give a further boost.

Matt Leitch from the Savills Canary Wharf office explains that Newham, Hackney and Tower Hamlets all represent great value in the current market compared to their neighbours.

Tower Hamlets is the city’s cheapest boroughs and are significantly cheaper than, say, Canary Wharf – but have begun to see the benefits of neighbouring City and Islington prices, he points out.

Leitch says property developers are pushing east because they can’t push west due to high density existing development and this, together with huge investment in infrastructure will boost values over time.

“Individual and bulk property investors have been attracted by this potential and the outlook over the mid to long term is extremely positive.”

Connectivity is key to the redevelopment potential - the East London line extension triggered investor activity, and Stratford already has great connections to central London, the City and Canary Wharf, connected via the Jubilee and Central lines and DLR, plus the area will benefit from Crossrail by 2018.

The extended area will benefit from a great deal of residential and commercial investment over the next 20 to 25 years and this would be positive for both investment and owner occupiers, he says.

South Africans buying London homes

Tell us where many South Africans are buying property in London, prices they buy into and what is driving demand for London property from investors?

Asked where in London are South Africans buying homes, Smuts says central and south west London remains firm favourites with High Net Worth Individual (HNWI) South Africans, while the biggest employer of bankers in Europe, Canary Wharf is also fast growing in popularity.

“Most of our clients purchase in the price range of £350 000 to £500 000 for investment purposes and generate a gross yield of 5.5 and 6.5 percent.”

He says they are also seeing a lot of interest from HNW South Africans who are buying with a view to relocate or as a second property to use for when they visit their children or friends residing in London.

According to a rental index conducted by leasing company HomeLet, London rental prices in April were up 7.1 percent on the prior year, with those in east London (an area which includes and extends beyond Newham) outpacing the rest of the capital, rising 8.6 percent.

“For these buyers, trophy properties in the most desirable locations are at the top of their shopping lists and we have had a number of instructions recently for residential properties in excess of £1million.”

Wealthy South Africans are highly prudent with their investments and with the continued uncertainty around the prospects and timing of the global economic recovery, most favour the tangible and straightforward nature of residential property as an investment, he says.

Smuts says this risk aversion and the consequent trend of ‘flight to quality’ have been the main drivers for South African investors as they attempt to avoid economic and political uncertainty at home.

He points out that wealthy South Africans buyers do not seem to base their decision to invest offshore wholly on fear of the Rand’s fall in value or local political instability but rather by solid financial planning that includes diversification of asset classes and markets.

As a result South African buyers also take a very different view on the London market as a whole in that they do not see their property as a short-term investment.

In fact, some don't view it as an investment at all, but rather as a long-term asset that will stay in the family for generations to come, he says.

This is mainly due to the long-standing view that London property offers a safe haven, the enduring attractions of the city's excellent schools and the strong economic and social factors that makes it the investment destination of choice for the worlds wealthy.

London property prices have none the less vastly outperformed expectations.

Smuts notes that London was the last global market to go down in value and the first global market to recover during the global recession.

Prime London house prices are now 47.3 percent higher than the bottom credit crunch in March 2009 and that’s more than 12 percent above previous peak in March 2008.

Rents in Greater London average £1 177 per month –7.9 percent higher than average rents in April 2011, he says.

Smuts adds that while special events such as the Olympics Games and Soccer World Cup may come and go, investors will be well advised to ignore the hype and fanfare that accompany these events and instead, focus on investing fundamentally in income producing properties. –Denise Mhlanga

Rental Property - do your (Home) work

Johannesburg – If there was ever a right time to buy a house it is now, said Warren Buffett, chairperson and chief executive of Berkshire Hathaway in a recent interview on CNBC.

Buffett, who is worth around $44bn, is the second-richest man in the world, according to US magazine Forbes.

Buffett considers houses the top investment currently, but then not any old house – buy bargain homes that can be financed with 30-year loans, with the idea of letting them out.

He considers it a wonderful plan to buy a few hundred thousand such houses and obtain home loans at very low interest rates.

In the US interest rates can be fixed for long periods, which makes the low cost of finance advantageous.

This is what Buffett would have done if he knew where he would find himself over the next 10 years.

He says five years ago people could not buy houses fast enough because they thought prices would continue to rise, but now they are not buying because they think prices will continue to fall.

“This creates an attractive asset class for residential investors.”

As far as his own home is concerned, Buffett does not flaunt his wealth. According to Forbes he still lives in the same relatively modest home for a billionaire in Omaha, Nebraska, that he bought in 1958 for $31 500.

Rode & Associates property valuer and economist Erwin Rode agrees with Buffett that this is the right time to buy in the US, but he says this in no way applies to SA’s housing market.

“In the US there has been a significant correction in house prices and prices have in real terms dropped close to their long-term trend line, which makes it a good time to buy.”

South Africa’s housing market has not experienced such a correction, according to Rode.

First National Bank property analyst John Loos says that the South African housing market still has to reach the bottom of the cycle. “Although it is currently a better time to buy than four years ago, it's still not the best time.”

Magnus Heystek of Brenthurst Investments says the best time to buy any asset is when the market is down, not when it is booming and everyone is talking about it and boasting good results. “It’s like waiting for shares to reach record lows and then to buy them.”

Heystek says the best profits are generally made in the initial stages of a revival, not the final.

SA’s residential investors have still not regained the healthy appetite for buy-to-let properties seen before the recession.

The percentage of investors in rental properties was an uninspiring 8% of all buyers in the fourth quarter of 2011, as shown by FNB’s property barometer. This is a mere drop in the ocean compared with the 2004 high of 25%.

Rode reckons this shows that buy-to-let investors are probably showing good sense. “Interest rates remain a huge unknown, which is one of the reasons they have not re-entered the market.”

Baby Boomers worth their weight in gold

Although it is the Generation X population, which consists of adults between the ages of 31 and 45, that are leading the property market recovery,  baby boomers are making their presence felt in the market, says Adrian Goslett, CEO of RE/MAX of Southern Africa.

Goslett says that as more and more South African consumers reach retirement age, downsizing boomers aged between 47 and 65 years old could bring about further resurgence in the property market. “With many of these homeowners having built equity in their homes over the years, as well as other investments, boomers may be the first demographic to move in the emerging market when other ages groups are still struggling to meet the stringent lending criteria required by banks,” he says.

Goslett notes that because their children have moved out of home, the boomer generation is expected to trade their suburban homes for lifestyle options that meet their current needs. This, coupled with that fact that many boomers are looking to buy additional property as an investment to supplement their retirement income, or are assisting their children in making property purchases, makes them a valuable asset to the economy. “Many of the real estate agents have baby boomer clients who already own property and are looking to purchase an investment or retirement property. A number of these buyers are purchasing property that they can rent out to generate an income or to move into once they reach the age where they wish to retire,” says Goslett.

Statistics show that the population demographic in South Africa sees baby boomers making up a much smaller percentage of the population than Generation X.  Between the years 1950 and 1965 there were 13,5 million births in South Africa (baby boomers) compared with the 18,74 million births (Generation X) between 1965 and 1985. According to John Loos, FNB Home Loan Strategist, while the most noticeable increase in the property buying share was among the Generation X group who made up 28,1% of the total purchases in the first quarter of 2011, the Baby Boomers buying share increased to 21.17% of the total purchases in the first quarter of this year, despite being a demographically smaller group.  The FNB Property Barometer for the third quarter of 2011 stated that 22% of all buyers gave downscaling with life-stage as a reason for selling their property.

Trends show that boomers tend to favour areas that attract a wide variety of people and they generally purchase property that is close to their original homes or primary residence. Boomers seem to like open-floor plans, lots of storage space and specifically his and hers master bedroom cupboards and gardens featuring decks. Other amenities on the must-have list include fireplaces and bars.

“The baby boomer generation has driven the South African economy for years and continues to contribute towards the property market’s recovery in their retirement.  Many of these investors are looking at buying properties based on the rental income they will generate and not necessarily for their resale potential. The baby boomers are a very diverse group and cannot be described in generalities, but those boomers who are financially secure are actively seeking to buy property and they are taking advantage of the opportunities and value available in today’s market,” Goslett concludes.

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SA property value still excites expats

South Africa is among the top 20 most popular destinations in the world for expatriates, and one of the main reasons is because SA real estate still offers really excellent value for money, despite sharp house price declines in other countries over the past few years.

According to the latest Expat Explorer survey by international bank HSBC, South Africa ranks 14^th out of 100 countries included, in terms of the economic benefits it offers expats and their overall experience of life in SA.

And from our own experience we can confirm that foreign immigrants to SA and those who are posted here to work on contract for a few years are generally excited by how much real estate their money can buy here in comparison to other popular expat destinations around the world.

For example, even in the US, which was ranked 11^th in popularity among expats as against SA’s 14^th placing, the average home price at the moment is around US$170 000 - or about R1,4m at current exchange rates, while SA’s current average, according to Absa, is about R1,1m.

In the UK (ranked 27th), the average house price is currently the equivalent of about R2m and in the most popular European countries such as Germany (ranked 28), France (29), Italy (30) and the Netherlands (31), prices for average properties range between about R40 000/sqm to about R146 000/sqm, compared with the average of R28 000/sqm for a medium-size home in SA.

In the other BRICS countries – all of which were ranked well below SA in the HSBC survey – property prices currently range from around R24 000/sqm in Brazil to R109 000/sqm in Russia, according to the latest information available from the Global Property Guide, www.globalpropertyguide.com.

As for Thailand, which was ranked as the number one choice of destination by the respondents to this year’s HSBC survey, the average home cost is currently actually the same as in SA at around R28 000/sqm.

But the housing market in the country is still very underdeveloped and there are huge discrepancies between the various areas. A small three-bedroom townhouse in the coastal resort of Pattaya would cost the equivalent of about R560 000 at current exchange rates, for example, and a modest three-bedroom, two-bathroom home on the popular retirement island of Phuket would cost the equivalent of about R800 000, which compares favourably with SA.

However in the main cities of Bangkok or Chiang Mai, where most working expatriates would need to be based, it would cost anywhere between about R1,6m and R2,8m to buy a three-bedroom flat big enough for a family.

*Lew Geffen is the chairman of Sotheby’s International Realty in SA.

Top 10 property Safe Havens Abroad

The euro is in crisis. Stock markets are in freefall. Two prime ministers have been sacked. Italian debt is at record levels, and Spain faces an early election tomorrow. Across the pond, America’s annual budget deficit is measured in trillions.

One by one the traditional destinations for British house-hunters are becoming badlands. Rather than stay in the quagmire, it’s time for buyers to seek new pastures. There are always safe havens if you look hard enough.

Even when buying outside the eurozone and the United States, the best tactic is still to purchase more expensive homes in prime locations. This means you will see the best the country has to offer, and your investment stands a better chance of securing good returns.

Even at the top end, though, you have to be selective. Here is our guide to where, what and why to buy overseas to minimise your risk.

1  Canada

The US housing market is in intensive care. One-in-four homes is in negative equity and mortgage foreclosures are rising. But across the border in Canada, the story is very different. The Canada Mortgage and Housing Corporation predicts sales and prices will rise by up to five per cent next year.

Brits tend to prefer Eastern Canada, because it is only five to seven hours’ flight from the UK, and has plentiful leisure and ski resorts around Newfoundland and Quebec.

The country has a French-style buying process. A notary carries out conveyancing, and transaction costs are often 15 per cent of the price. You pay 25 per cent capital gains tax when you sell but, unlike the rest of North America, Canada is still seeing capital gains.

Because space is plentiful, the choice is vast. There are ski chalets in Mont Tremblant, Quebec, for as little as £200,000, while timber lodges in parts of the Rockies can be even less. Websites such as sportfishcanada.ca list private sales of cabins at modest prices. More flamboyant buyers may prefer Nova Scotia’s spectacular coastline.

Insider tip Offers are normally made in writing, accompanied by a deposit, so can be hard to withdraw.

2  Hong Kong

Crowded, flooded by neon lights over street markets and overlooked by sumptuous tower blocks for expats in the hills.

The local housing market is booming, because it is no longer reliant just on foreign buyers. Chinese mainland purchasers now account for a third of all deals. One-bedroom flats go from £200,000 upwards but even so, demand for homes outstrips supply by 20 per cent, according to the Hong Kong Housing Authority.

Similarly, Savills says house prices have risen 11 per cent in the past year and about 80 per cent since mid-2005. Yet experts insist this is sustainable.

“Given the continual support from mainland buyers and the limited supply of homes – especially high-end ones – we expect prices and rents to grow steadily,” says Knight Frank’s HK representative, Colin Fitzgerland.

Insider tip Best-value areas are Southside, The Peak, Discovery Bay and Kowloon.

3  Switzerland

Knight Frank says 12 per cent of buyers here are from the UK, with Russia, Germany, France and Asia close behind. They come for three reasons: to improve their skiing, for their tax status and for stable house prices. Though there were falls of 15 per cent in French-speaking parts of Switzerland in 2008, prices have been stable since.

But only some locations, such as Vaud and Valais, permit overseas purchasers and prices can be high.

“Montreux, on Lake Geneva in Vaud canton, continues to defy the market conditions of its neighbours,” says Alexander Koch de Gooreynd of Knight Frank. “It’s one of the few lakeside locations in Switzerland with permission for foreigners to buy as a secondary residence.” It also hosts a world-famous annual jazz festival.

Insider tip Each canton has different rules regarding maximum sizes of homes foreign purchasers can buy, so do your research.

4  Mauritius

Long a favourite with holidaymakers, this island is now open to foreign buyers for the first time thanks to a new scheme to encourage investment.

Most people would be happy enjoying the watersports, unspoilt beaches and charming villages that dot this Indian Ocean idyll, but now there are financial perks too.

If you pay £310,000 or more for a villa or apartment in a designated coastal zone, you will also have the right to become a Mauritian resident, and enjoy low levels of personal and business tax.

“The political situation is strong,” says Maribeth Davies of Hamptons International. “And the economy has grown at an average of 4 per cent a year for the past eight years.”

One new designated scheme is Azuri, a beachfront complex with 169 homes for foreigners and 100 for wealthy locals. Properties come with parking, boat moorings, golf membership and access to swimming pools.

Insider tip Island transport is slow, so buy near Port Louis, the capital of Mauritius.

5  Gibraltar

Little wonder Spain wants to govern Gibraltar. This tiny British colony, still reminiscent of a sunny Sixties Saturday in Surrey, is a haven of stability compared to its mainland neighbour. Better yet, the Rock has no VAT, no capital gains or inheritance tax and relatively low income tax.

As well as financial services, shipping and tourism, its economy is geared to telecoms and internet gaming. The latter is a growing sector, that now accounts for 11 per cent of gross domestic product.

Buying in Gibraltar is easy, but there are eccentricities. You pay a 2 per cent deposit when you exchange contracts. Many homes are flats, so you should budget for service charges too.

Some older houses are freehold, but most homes are leasehold.

Do not expect open space. Gibraltar’s tiny size and 30,000 permanent residents put it among the world’s most crowded locations.

Insider tip Gibraltar has complicated stamp duty rules, varying from zero to 5.5 per cent of the purchase price.

6  South Africa

This is a country like no other. Beyond its cities lies endless countryside with vast open plains, unspoilt villages and a burgeoning wine culture. All in the glow of a wonderful year-round climate. The country is also a natural destination for Britons. Cape Town is only two hours ahead of London, and everyone speaks English.

To make it even more attractive, house prices are low by global standards. One-bedroom apartments in Cape Town can cost just £60,000 and a three-bedroom house is £200,000.

What’s more, local agents say South Africa’s economy has avoided European and North American volatility.

“It’s seen as a safe haven due to exchange control regulations. Cape Town and its environs are the most popular areas for Britons,” explains Lanice Steward of South African estate agency Anne Porter Associates.

Insider tip Crime remains high, but most Britons buy in gated estates with private security systems.

7  Barbados

Barbados retains an aura of prestige and a reputation as a safe haven. This is because its legal and political systems are similar to Britain’s. There are daily international flights from the UK, Canada and the US, so tourism and rental rates are high for holiday homeowners wanting to earn a living from their investment.

Overseas buyers are welcome, and there is no capital gains tax. Mortgage availability, even for foreigners, remains good.

John Morphet owns the Royal Westmoreland resort, where British sports stars including Wayne Rooney, Joe Calzaghe and Rio Ferdinand have villas. He says: “There’s been some discounting of property, up to 25 per cent, but on the west coast this hasn’t really been the case. The market for individual beachfront villas and constructed properties on gated communities has remained strong. Purchasers are more risk-averse, so prefer to buy somewhere built rather than off-plan.”

Prices are not cheap. Two-bedroom homes can cost £400,000 or more on the west coast, but properties are truly spectacular.

Insider tip Some homes take years to sell. If you hear that a property has been on the market for a while, bargain hard.

8  St Lucia

This Caribbean island has long been popular with Britons, even though its roads are poor and some areas can be crowded with owners and cruise ship visitors. There are rugged mountains, rainforests and coral reefs. Barbados, but with lower prices. Many Britons buy by setting up a company (an estate agent will help you), which eases tax payments.

Most popular is the north-west area of the island, especially close to Rodney Bay, where more than 20 developments are underway. It’s hectic, but it means the infrastructure is improving thanks to the arrival of swish hotels and better transport links. In any case, there are plenty of quieter areas too.

Insider tip Castries, the capital, is the most popular location for cruise-ship tourists and is therefore the most crowded part of the island.

9  Kenya

Emerging holiday home locations are few and far between, but Kenya is seeing “consistent growth,” according to Bob Woodhams of Knight Frank, despite the financial crisis and fears of terrorism. There is a 40-plus week tourist season in parts of the country, making this an attractive buy for those wanting rental income.

Most land is government-owned, so foreigners buy on pre-built resorts, many of which have a mix of beachfront and interior wildlife.

Respected British estate agency brands such as Aylesford (aylesford.com) are becoming more common and will guide you through the buying process.

Insider tip Most homes in resorts have small gardens, but owners have use of vast, private and secure estates.

10  The Cayman Islands

The Caymans are home to more than 200 banks and expats from 100 countries. They also boast the world’s 14th highest GDP per capita, and the highest standard of living in the Caribbean. The country has the confidence of many from around the globe.

Little Cayman (10 miles by one mile, population 150) and Cayman Brac (11 miles by two miles, population 1,800) are relatively untouched. Grand Cayman is bigger and blingier, attracting tax haven lovers as well as those who want sandy beaches and sun.

Flights are plentiful, and it’s easy to hop over to neighbouring Jamaica and Cuba.

Some apartments, like those at the Riviera Grand Cayman scheme at South Sound, cost just £110,000 (century21cayman.com), but foreigners are charged six per cent stamp duty. Yet there is no other property tax.

Insider tip Many foreigners buy land and build their own homes, but imported construction materials attract up to 22 per cent tax.

http://www.telegraph.co.uk/property/overseasproperty/8898858/Top-10-property-safe-havens-abroad.html

Negative equity risk for owners as property prices stall

Real house prices in South Africa are declining at rates last seen 25 years ago as economic growth stagnates.

Home owners face the prospect of owning negative equity as house prices are expected to continue to decline for the rest of this year and the next on rising inflation, which is forecast to breach 6% soon.

Jacques du Toit, property analyst at Absa Home Loans, said on Thursday that, based on house price trends up to the third quarter, and prospects for the economy and household finances, nominal price growth in the middle segment of the market was forecast to be 2%-2,5% during all of next year.

Absa Home Loans, South Africa’s biggest mortgage lender, released its fourth-quarter housing review on Thursday. It warned that while the affordability of housing remained favourable to consumers for most of this year, their ability to take advantage was hampered by a high level of indebtedness, impaired credit records, the National Credit Act and banks’ resultant lending criteria.

"In real terms — after adjustment for the effect of consumer price inflation — house prices declined year on year and quarter on quarter," Mr du Toit said.

The chairman of Seeff Properties, Samuel Seeff, said on Thursday that he had not seen such a depressed property market in South Africa in 27 years.

"I see property prices staying where they are. We are seeing an abnormally long property price recession," Mr Seeff said. "This is a tough time for the industry and we need distressed stock to work its way through the industry."

Mr Seeff said the property market needed " more enthusiasm". An increase in employment would help , but it looked unlikely to happen next year.

"Employment would push up demand for houses. But as it is, there is just no impact from developers. We have seen virtually no stock coming on to the market in the last two years," he said.

Property economist Erwin Rode said real-term house prices were declining at rates last seen in the mid-1980s, but they were still too high relative to demand constraints.

"Real-term house prices are declining. Yet, they are still too high relative to people’s income levels, especially considering that consumers are highly indebted.

"Taxes are biting. The fiscus is under pressure. Economic growth drives house prices and it’s not strong right now," Mr Rode said. "I would say that, more and more, the market is coming to the realisation that house prices won’t grow for years to come."

Mr Rode said investors who buy to let right now could expect a net income yield of 4%-5%.

"Houses are currently overpriced. While I understand that people want property to be an alternative to investing in other things, I wouldn’t buy for the next four years," he said.

Mr Rode said property cycles usually lasted for 18 years. "The cycle peaked in 2007. We have a long way to go," he added.

Mr du Toit said the ratio of household debt to disposable income had dropped to about 76% in the second quarter, which contributed to containing the cost of servicing debt against the background of low interest rates.

However, many consumers were battling with impaired credit records, hampering their ability to take up credit, which was reflected in continued low growth in household credit extension.

"The continued low growth in outstanding mortgage balances in the household sector is indicative of the impact of these factors on the residential property market, and the demand for and accessibility of mortgage finance," Mr du Toit said.Negative equity risk for owners as property prices stall