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

Would you buy this Holiday Property?

The South African holiday property market is said to be suffering currently as property buyers are choosing to purchase primary residences instead.


Aerial view of Myoli and Cola Beaches in Sedgefield

According to estate agents surveyed in the FNB Property Barometer Holiday Towns versus Metros Q2 2011 report, demand for holiday property homes has declined.

The report suggests that holiday-driven property regions in South Africa are more cyclical than primary residential-driven major metro regions, reaching higher peaks in the booms and lower troughs in the tough economic times.

FNB Home Loans property strategist John Loos says after a recovery of around 1 percent in mid 2010, the estimated holiday property buying expressed as a percentage of total residential buying dropped from 3 percent in Q2 2011 to 2 percent in the third quarter.

Loos says the percentages remain below the 5 percent level recorded at the beginning of 2007.

He explains that the continued focus primarily on primary residential buying means that major metro housing markets appear to outperform those towns more strongly driven by holiday property demand.

The FNB Holiday Towns House Price Index remains in deflation territory of -4.9 percent year-on-year in Q3 2011 while the country’s six primary residential demand-driven metros showed house price growth of +3.8 percent.

Both indices are estimated using Deeds Data transactions by individuals, he adds.

Estate agents operating in some holiday towns in South Africa report an increase in buyers who seek a better quality of life away from bustling cities.

Jawitz Properties report that Ballito in KwaZulu-Natal has shed its holiday resort image and is fast becoming a popular residential town enticing many Gauteng buyers.

Keith Brown, Jawitz Properties principal franchisee says the property market in Ballito is looking up adding that although there have been fewer property sales than pre-2008, home prices have not come down as dramatically as in other areas in KwaZulu-Natal.

This luxury six bedroom, four bathroom log home (currently used as a guesthouse) is situated in the beautiful Cola Conservancy in Sedgefield and is priced at R2.3 million through Pam Golding Properties.

Brown says the market has been reasonably stable for the past year and is expected to remain steady in 2012.

“Supply and demand always plays a role in pricing as well as external factors such as the bank lending criteria and the economy.”

He says the greatest value is still in the suburbs where homeowners pay less per square metre and demand for older homes that need renovation has increased with stock shortages.

The average price for a three bedroom family home is R1.9 million while a renovated home of equal size starts from R3 million.

Properties in gated estates are priced from R3 million and two bedroom sectional title units on the beachfront cost anything from R1.5 million depending on location and age of building.

He says the lower end of the market up to R1.5 million is the most active segment fuelled mainly by first-time buyers who qualify for home loans. The middle income segment buyers in the price ranges of between R1.5 million to R3.5 million are faced with affordability issues making it difficult to access finance and sales are quite slow in the upper end of the market.

“Deals when they do occur, are usually generated by cash buyers or bridging finance,” he says.

The coastal town of Sedgefield in the Western Cape not only remains a village of choice for retirees but has recently been attracting new buyers including sports enthusiasts, reports Pam Golding Properties (PGP).

Walter Bakker, PGP Sedgefield marketing manager says this town where the pace is slow (thanks to its newfound Cittaslow status as a result of the annual Slow Festival every July) has seen increased global exposure attracting interest from buyers wanting to own homes in the area.

Bakker says homes priced from the early millions are being snapped up by investors and buyers who waited to capitalise on opportunities to finally purchase their longed-for seaside home.

He says two bedroom homes with a full one bedroom guest suite with own kitchen are priced at R895 000 and R999 000 buys one a family home.

Bakker says Sedgefield is ideally suited for those who work in nearby Knysna or George and prefer to live in a quiet village yet be within easy driving distance of these towns.

Building activity in Sedgefield has resumed with new homes being developed in suburbs such as Cola Beach in the Cola Conservancy.

This character-filled one-bedroom fisherman’s cottage is on the market in Pringle Bay, exclusively through Pam Golding Properties. The cottage is located on 600 square metres of pristine fynbos garden within walking distance of the beach. It is priced at R850 000.

Bakker adds that 60 to 70 percent of permanent residents in Sedgefield are homeowners making it a desirable place to live.The Cape coastline from Gordon’s Bay towards the southern Cape is renowned as one of the most beautiful scenic drives in the world and whale-watching opportunities.

PGP managing director for the Boland and Overberg region, Annien Borg says the Whale Coast, spanning the towns from Pringle Bay in the west to Gansbaai in the east offers a wide range of property options at attractive prices.Borg says there is something to suit every need and price range, from vacant land to apartments, compact holiday homes and luxury seaside mansions.

“The individual towns vary in size, amenities and property offering but what they all have in common is a magnificent seaside setting and a slower pace of life, ideal for holidaymakers, retirees or those who simply want to opt out of the hustle and bustle of big city living.”

PGP says Betty’s Bay is renowned for its magnificent botanical gardens and extensive network of beaches and inland waterways.

A vacant 600 square metre plot in Pringle Bay costs under R400 000, a small holiday cottage under R850 000 and larger family homes for between R985 000 and R1.4 million.

In Betty’s Bay, modern family homes with four bedrooms or more located slightly back from the seafront are available for between R950 000 and R1.8 million.

Prices increase with proximity to the sea and on the coastline itself there are a number of modern luxury homes selling for between R3.2 million and R7.5 million.

Kleinmond is the largest town in the area offering more extensive amenities including two primary schools, four shopping complexes, gyms, doctors and pharmacies.

Prices start from R250 000 for a 600 square metre plot and R550 000 for a two-bedroom apartment. Smaller homes are priced from R890 000 to R1.2 million while larger family homes cost between R1.4 million to R6.5 million.

Hermanus is now a thriving, bustling town with excellent beaches, superb sailing on its lagoon and a variety of other outdoor activities to enjoy.

Vacant land in Hermanus can be obtained from around R1 million and bachelor apartments for R450 000.

This timber-frame cottage is located close to the beach and adjacent to the green belt in Betty’s Bay. Occupying a stand of over 1000 square metres, the three-bedroom home is on the market through Pam Golding Properties for R1.1 million.

Larger apartments with multiple bedrooms are priced from R800 000, the entry level for homes is around R1.5 million and larger family homes located closer to the beach in prime suburbs can fetch anything from R6 million to R10 million.

Gansbaai and its satellite villages such as De Kelders, Franskraal and Kleinbaai are world-renowned as white shark cage-diving territory.

The growth in this niche tourism market has led to the area’s expansion in recent years offering a number of new developments with land costing as little as R400 000 for 600 square metres, says PGP.

A starter home on a sizeable plot costs less than R800 000, larger three- or four-bedroom houses are priced at R1 million and luxury beach houses are priced from R7 million to over R10 million, according to PGP

Invest In Property - Know The Rules

Booms do not last forever, and neither do recessions, says Rawson Properties Group MD, Tony Clarke.

In a series of 'Investment Advice' evenings in Stellenbosch, Clarke says that the question he is most asked is; 'when will there be a recovery'? He says a precise prediction is not available and granted, this is the worst and longest running SA property downturn since 1976 however, a recovery will happen.

Those buying now, said Clarke, will benefit from the fact that interest rates are likely to stay low for awhile, with a possibility of a 100 to 150 base point rise, but they need a longer term view. This, he said, means that they must be prepared to hold onto what they buy now until 2020. They must, he said, see themselves as investors rather than speculators, and they must avoid two of the most common errors in property buying: valuing the property inaccurately, and buying properties purely for their long term capital gain rather than for their rental potential.

Rule number one is to invest in properties where you can earn rental income all year.

"If you buy land, especially undeveloped land, your children may benefit one day, but you are unlikely to do so. Similarly, if you buy homes in 'out of the way' areas like holiday resorts, the return on your investment will almost certainly be unsatisfactory." Ideally, said Clarke, the property investor uses the bank's money to finance a large portion of the property purchase and the income from the tenant to repay the bond. "Even in today's conditions rents do rise, making property for many people the most worthwhile – and most easily comprehended – asset class."

Clarke advised investors going this route to appoint a really competent rental agent, to take out rental insurance and to shop around for the least expensive bond finance. They should also, he said, be aware of their own cash flow constraints and all the expenses that a property can give rise to.

Amateur investors have all too often been caught by high repair costs. Clarke also advised splitting the monthly bond repayments into fortnightly repayments. This, he said, will ensure one extra payment and a large reduction in interest payable over the term of the loan, without paying any more than the stipulated amount. This will reduce the term of the loan to approximately 12 rather than 20 years. On a bond of R220 000, for example, taken out at a 19% interest rate, will reduce the interest paid out from R635 735 to R327 307, a saving of R308 428. Clarke was given a warmly grateful response by the audience, several of whom said that this was the first talk that had explained the logic of property investment in a way that all could understand.

How is buy-to-let property faring?

Growing rental returns are beginning to attract property investors to the buy-to-let market, which has shown very little growth of late.

High rental yields and low valuations begin to make the buy-to-let market viable once again.

Residential rental demand has been driven to some extent by homeowners selling due to financial pressures. And a survey of estate agents recently estimates that of those homeowners selling due to money problems, 51 percent will rent rather than buy a cheaper property.

Rental returns and interest rates are key factors moving the buy-to-let market. During the boom years, when new property developments blossomed and outstanding capital gains were to be made from off-plan projects, profit was the major force driving amateur speculators and professional investors alike.

During the boom property values spiralled upwards, one sale chasing another - by 2004 the proportion of persons buying to let peaked at around 25%. This proportion has currently fallen to about 7% of the residential market. However, sharp investors are seeing opportunities again as values have plummeted while bargain buys are widely available, including a large number of forced sales and bank repos.

High rental yields and low valuations begin to make the buy-to-let market viable once again. The imponderable is when interest rates will rise, either later this year or during the course of next year. Another issue is the threat to impose commercial municipal rates on secondary or income-producing residential homes. The suggestion (that’s all it is at present) comes from the national government, but it may come to nothing and could well be simply some official tossing a pebble into the pond.

Rental yields are critical, and the current signs are encouraging. According to the Stats SA quarterly survey, rental growth moved up from 6% year-on-year as at June 2010 to 8,3% in June 2011. More recently we have seen more noticeable growth in both townhouse and house rental yields. Good yields, however, are dominant in the central urban nodes, where business activity is strong. This also applies to the buy-to-let market. According to the latest Rode Report, flat rentals in Pretoria led the board in the first quarter with 6% year-on-year growth, followed by Cape Town (4%).

Investors stirring

According to the Stats SA quarterly survey, rental growth improved. Good news for buy-to-let investors, says the report, is that, after peaking at the end of 2009, flat vacancies have since been drifting downwards. This improvement in demand obviously bodes well for market rentals. The investor market can well do with a boost in confidence. Current surveys indicate that the percentage of buyers (as a factor of the total residential market) is in the region of 8% compared with the boom years when the buy-to-let market peaked at around 25%.

In Johannesburg rentals in the middle market have been exceptionally strong, with some pressure on the high end. Shaun Groves, PGP’s rental manager at its Gauteng head office, reports: “Quality stock remains a constant challenge as we let these units faster than we can find them. Some landlords, however, are demanding excessively high rentals which means they can sit on the market for a while.”

Groves adds that July was a record month for PGP rentals in Johannesburg’s northern suburbs, with 70% of this being new business. “We have experienced strong demand, especially below R25 000 a month. This has resulted in high turnover in Bryanston and Parkhurst especially. Demand is always high in Morningside and the immediate areas surrounding Sandton City. There has, however, been pressure at the high end of the market. Only ex-pats are willing to entertain asking rentals of R50 000 a month or more. Corporates have revised their budgets and reluctant to exceed R35 000.”

The buy-to-let market in general tends to be most active in flats and townhouses. There, says Groves, is demand for 1 and 3 bedroom units and a little less for 2 bedroom units.

In Cape Town, rental activity continued to improve (July on June) says PGP Rentals Division manager Dexter Leite. The agents concluded 128 lease transactions and 86 valuations in July. Examples are a house in Fresnaye let at R59 900 a month, a home in Constantia at R55 000 and two apartments at the V&A Waterfron at R32 500 and R30 000 monthly.

Some landlords are looking to rent their properties on a furnished basis, seeking higher rentals, says Leite, adding: “Unfortunately there is not much demand for furnished properties.”

One specific aspect of the buy-to-let market which appears to be growing in popularity is joint ownership, particularly useful when gearing is required. One can assemble a group of friends, or like-minded investors, form a partnership and pool resources. One advantage is that the group can normally generate a reasonable amount of cash, which used as a deposit makes getting a mortgage easier (the banks are quite happy with joint ownership agreements as long as they are properly drawn up).

For the first-time investor there are important factors to consider in selecting a property to let. Obviously rental income and a sound tenant are paramount, but Laurie Wener, PGP’s managing director for the Western Cape metro region cautions that there are other important factors in selecting an investment property.

“These include the suburb, the location, the value based on current market conditions and the general appeal and condition of the property. Get these elements right and the medium-to-long-term growth of your investment will be assured, regardless of the overriding market climate.”

Wener encourages investors not to turn a blind eye to investment opportunities in the current market. “For example, we are marketing a 106 sqm two bedroom, canal-facing apartment at the V&A Waterfront for R4,995 million.”

Article courtesy of Pam Golding Properties' Intellectual Property magazine.

London Property ‘in crisis’ as Foreigners buy Property

Britain will soon become a nation of tenants as huge deposits, high house prices and strict lending criteria combine to leave millions unable to climb onto the property ladder. Meanwhile foreign investors are buying up large chucks of London real estate as they seek a haven for their wealth amid the increasing risk of a global recession.

Britain’s housing market is “in crisis” as millions are forced to rent and the government must urgently act to increase the supply of homes, an alarming new report by Oxford Economics warned last month.

The housing study, commissioned by the National Housing Federation (NHF) warned that home ownership in England will fall over the next decade to the lowest since the mid-1980s as property ownership remains out of reach for many. It predicts that the proportion of people living in owner-occupied homes will decline from its 73 percent peak in 2001 to just 64 percent in 2021.

In London, it predicts that the majority of people will rent property, with home ownership in the capital falling to just 44 percent by 2021. That means around six out of every 10 Londoners will live in rented accommodation.

Meanwhile, the average house price looks set to rise by 21.3 percent over the next five years. The group, which represents housing associations in England, says a chronic shortage of housing is to blame. Only 105 000 homes were built in England in 2010/11, the lowest level since the 1920s.

“Home ownership is increasingly becoming the preserve of the wealthy and, in parts of the country like London, the very wealthy,” says NHF chief executive David Orr.

Adding even more upward price pressure is the fact that wealthy foreign buyers have flocked to London in record numbers, buying up large chunks of property in the city’s most desirable neighbourhoods. The number of international buyers viewing prime central London properties increased by 23 percent in the three months through July, as the increasing risk of a global recession prompted investors to seek a haven for their wealth.

“We’ve had the US debt crisis, the eurozone debt crisis and financial market turmoil but none of these issues have touched London’s property market,” says Mike Smuts, managing director of Smuts & Taylor, a South African investment firm that specialises in helping rich South Africans buy property in London.

Smuts, who first predicted in February 2010 that Britain was fast becoming a nation of tenants, says that although Russian, Chinese, Indian and buyers from the Middle East account for most of the foreign purchases of London properties, wealthy South Africans have also been very active.

“Since the Reserve Bank relaxed exchange controls last October we have seen a large influx of clients who are looking for safe-haven investments amid the financial market turmoil and the alarming calls locally for nationalisation and the redistribution of land without compensation,” he says. “London property is fast becoming the ‘Swiss bank account’ of the 21st century.”

Investor Guide to investing in African Real Estate

Property investors believe Africa’s real estate industry offers unprecedented investment opportunities and is poised for growth going forward.

Accra Mall in Accra Ghana was completed in 2007. This mall was developed by Actis and is managed by Broll.

At the inaugural Africa Property Investment Summit held this week at Sandton Sun hotel in Sandton, property professionals shared expertise and experiences on property investment in Africa.

Hosted by Liberty Properties, one of South Africa’s top commercial real estate businesses and owners of the iconic Sandton City Shopping Centre, the summit was aimed at providing a platform for African real estate professionals to discuss investment opportunities and share experiences and challenges on how to invest in the African real estate markets.

Samuel Ogbu, Liberty Properties chief executive officer, says there is every reason to invest into the African real estate markets. There is improved governance, political stability, securitisation and maturing capital markets of all, which are driven by a population of over one billion consumers who demand attention, he says.

“Africa today is about progress and potential and the key is in knowing how to unlock the opportunities in the African property market for superior returns”, he says.

Africa’s real estate industry is reportedly booming with the retail sector set to drive demand and growth in many parts of Africa’s real estate markets, says Brett Abrahamse, business development manager at Liberty Properties.

“There is a growing appetite for retail and mixed-use developments in the continent,” he says.

He explains that Africa with 53 countries as recognised by the United Nations and with the addition of South Sudan in 2011, Africa is poised for growth in the real estate industry. There is an increased awareness of property investments throughout the continent.

“If you buy the African story then you have to buy the real estate story,” says Abrahamse.

Asked about what makes Africa a lucrative property investment destination, he says there are a few reasons which include shortage of quality property stock, high construction and professional costs, lack of infrastructure, increased demand which is driven by urbanisation, many property development projects are profitable from day one, private equity firms are eager to exit mature assets to dive into new developments with their capital, and lack of finance although this improving.

Savvy property investors and buyers are seeing good returns on property investments in other parts of Africa, he says. According to the World Urbanisation research, Africa’s urban centres are currently growing at an annual rate that is the fastest compared to other regions.

In Lusaka Zambia, Liberty Properties is developing the first fully enclosed mall, the Levy Business Park. This mixed-use development valued at US$200 million is set to open in the last quarter of 2011.

Abrahamse says property sectors such as retail driven by consumer spending and growing urbanisation is what drives property investing in Africa. Other sectors include industrial (driven by resource benefication and labour), hospitality (GDP, globalisation and tourism), office (GDP and economic stability) and the residential property market is driven by population growth and urbanisation.

“Investors and companies are mostly looking at opening shopping centres in other parts of Africa as this sector and the office markets are driving investor appetite for property investments.”

There is a growing appetite for retail and mixed use developments in the continent. For example, Liberty Properties is building the first fully enclosed shopping mall, the Levy Shopping Centre in Lusaka, Zambia valued at US$200 million. Abuja in Nigeria is another example of Africa’s burgeoning real estate landscape. In the next few years the city will attract major investments in property driven by increased consumer spending and business friendly policies, he says.

African real estate markets have huge yields and that attracts investors. According to the Knight Frank Newmark Research, countries including Botswana, Kenya, Tanzania and Zambia have seen yields of over 10 percent in the industrial sector while across all sectors, many countries have attractive and steadily growing yields.

He says potential growth in African real estate markets will be fueled by key infrastructure developments such as communication, quality of telecoms, electricity generation capacity and length as well as quality of road networks.

The research conducted by the European Real Estate Association, indicates real estate is the biggest asset class in the world with 2.4 percent of global stocks in property while 5.5 percent is listed property, he says.

While there are 1000s of listed property companies in the world, only a handful are in Sub-Saharan Africa. The report reveals that in Africa, countries such as Ghana, Nigeria, Kenya and Angola have no listed property companies.

Ikeja Mall in Lagos Nigeria is being developed by Actis and Standard Bank. This mall will open in December 2011.

The report shows that Sub-Saharan Africa listed property has a market capitalisation of $18 billion and 98 percent of that is in South Africa.

“In the past decade we have seen a tenfold increase in the market capitalisation of listed property in South Africa and this is likely to grow in the next three to four years.”

Abrahamse says some African countries including Algeria, Libya, Chad, Ethiopia, Sudan and the Democratic Republic of Congo do not have a stock exchange market.

Some sought-after countries in Africa to buy property in include Ghana (oil and stability), Nigeria (consumer story), Angola (oil, consumer story and urbanisation), Zambia (copper and stability), Botswana (high level of securisation and the CBD shifting towards the airport), South Africa (formal economy and stability), Namibia (oil and stability) and South Sudan (oil, new independence and infrastructure).

Abrahamse is confident that the African real estate markets will be formalised in the next five to 10 years and the continent will begin to see more listed property companies and funds enter the market. – Denise Mhlanga

Household Debt-to-Income improves - South Africa

Debt-to-disposable income has decreased in the second quarter, causing debt service risk to decline further from 6.18 to 6.10 according to the FNB Household Debt-Service Risk Index.

John Loos, FNB Home Loans Strategist, said that this decline implied a decline in the household sector's vulnerability to any unwanted events such as interest rate hiking or economic growth slowdown, which could impair its ability to service its debt at some future stage.

He said that the index takes into account the level of household indebtedness, as expressed by the household debt-to-disposable income ratio, the direction in which this ratio is moving (currently downward), and the level of interest rates (prime rate) relative to long term consumer price inflation (5-year average inflation).

The lower the debt-to-disposable income ratio goes, the lower the risk, and downward momentum in the debt ratio thus also exerts downward pressure on the overall Debt-Service Risk Index.

The decline in the ratio has been brought about by slow single-digit growth in the value of household sector credit in recent years, enabling nominal disposable income growth to outgrow the pace of credit growth according to Loos.

He said the pace of decline had been slow going, however, as disposable income growth since the recession in 2008 had also remained slow compared to the pre-recession boom years. Nevertheless, the second quarter did show some further rise in year-on-year disposable income growth from 8.9% in the first quarter to 9.9%. This, along with a slowing household credit growth from 6.8% in the first quarter to 6.4% in the second quarter, resulted in further reduction in the debt-to-disposable income ratio.

Loos said that reducing the debt-to-disposable income ratio further looked set to continue to be challenging, because the renewed economic slowdown of late looked set to see slowing disposable income growth in coming quarters.

"However, we believe that the downward trend will continue at a gradual pace due to simultaneous slowing in household credit growth, reaching a level below 70% during 2013," Loos said.

He said that on the other hand, the lower interest rates get, relative to long term average inflation, the higher the risk for the household sector becomes, because this implies a diminishing probability of further interest rate cuts and an increasing probability that future interest rate moves could be up.

Therefore, Loos continued, a slight rise in the five-year average inflation rate in the second quarter, brought about by a recent rise in consumer price inflation, had exerted slight upward pressure on the overall index. However, against this, a further decline in the household sector debt-to-disposable income ratio, from the previous quarter's 76.8%, to 75.9% in the second quarter, had offset increased interest rate risk and caused the Household Sector Debt-Service Risk Index to decline further in the second quarter.

This level of debt-service risk, however, remains high by historic standards, with the long term average since 1970 being 5.1 according to Loos. Further significant reduction in the debt-to-disposable income ratio would thus appear essential. The lowest level of 2.74 was achieved in the final quarter of 1998, and it was this low level that preceded the start of one of the country's great consumer and home buying booms. - I-Net Bridge

Global house prices continue to fall

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

How to manage Property Cycles anywhere in the World

The dizzying heights of the most recent property boom, when house price growth peaked at an average annual rate of 32% in 2004, as well as the protracted recovery period in which the property industry has been languishing since late 2009, are prime examples of fluctuations that obscure the otherwise clear cyclical movements in the property industry.

One of the fundamental basics of economics is that markets move in cycles. Markets experience boom times, followed by a period of market correction and a downturn, before the next boom arrives. This is a natural phenomenon evident in all markets, and whether it is called "boom and bust", "bulls or bears" or simply "peaks and troughs", investors can be absolutely certain that neither a growth period nor a downturn in any market will last forever.

What was uncertain, however, was the highs or lows that may be reached during an upturn or a downturn, and the duration of either.

"In the property industry in SA, the average cycle normally spans around seven years," says Dr Koos du Toit, CEO of the P3 Investment Group.

"But given the heady heights reached in 2004, when many analysts and experts warned of a 'property bubble', as well as the subsequent economic turmoil as the world experienced the worst recession in living memory, it is not surprising that many have lost sight of the fact that we are simply moving through another cycle.

"Yes, the market correction and downturn of this property cycle were nothing short of terrifying for speculators and those investors who had overextended themselves financially. And the long, slow recovery has been painful for even the most prudent investors. But the cycle is turning, as it always does, and the market will again experience an upturn.

"What remained uncertain wass when the upturn will commence - many predict only towards the end of 2012; what level property price inflation will reach before the next market correction; and how long the upturn will last."

The question arises: How can a property investor protect a portfolio against the ravages of the property cycle?

"Many property investors do attempt to 'time' the market, but this is akin to speculation. The 2004 boom and this long, protracted recovery provide ample proof that 'timing' the market can be a dangerous game," comments Du Toit.

"Professional - and thus successful - property investors take a long-term view of their investment and the market. They don't speculate; they are building sustainable property investment businesses. This includes keeping an eye on the property cycle, but their focus is not on 'timing' the market, but rather finding the right investment properties that will yield an ongoing passive income and capital growth over the long term. Seasoned and professional property investors know that these investment properties can be found regardless of where we are in the property cycle."

Du Toit explained that professional property investors did not simply acquire properties, they acquired property assets with long-term income-generating potential.

"In layman's terms, this approach can be compared to buying a cow. You can either keep the cow for milking over the long term, or you can sell it quickly at the highest price for slaughtering. If you acquire a cow for milking, you will have an asset, which is appreciating in value, and you will benefit from the milk it produces on an ongoing basis for years to come. If you sell the cow for slaughtering, you might make a quick 'killing' - to use the terminology speculators are fond of. But you may not, particularly if several other cow owners have the same idea. Either way, both the cow, as an asset, and the milk it would have produced over the long term, are gone."

Du Toit notes that a property should be acquired as a cash cow.

"The intention is to hold the property over the long term, milking its ability to produce a passive monthly income that keeps pace with inflation year after year.

"While the property will also appreciate in value, this is regarded as an added bonus, since the objective is not to sell the cash cow, but rather to milk it. This approach is almost immune to the property cycles, since regardless of whether property prices are rising or falling, there will always be demand for good entry-level rental properties in well-established and growing areas.

"And while capital appreciation is not the main objective, investors are richly rewarded for their patience and long-term perspective by superior capital growth over the years, as the ups and downs average out, producing a steady upward trend in property price inflation."

This, clearly, was an entirely different approach when compared to speculating, in which property investors try to "time" the market by buying at high prices, and hope to "make a killing" by selling even higher in the short term.

Du Toit says that while fortunes have been made in this way, it is a high risk approach that has certainly seen many investors lose their investments, and has given many South Africans a distorted understanding of property investment.

"Property investment - acquiring property assets that can be 'milked' over the long term for their income-generating potential - may not be as thrilling and exciting as wheeling and dealing with properties, timing the market and making a killing.

"But it is a proven, tried-and-tested recipe for virtually failsafe property investment. And it is a system that allows investors to sleep peacefully at night, knowing that wherever we are in the property cycle, whatever highs or lows may be reached during an upturn or a downturn, or the duration thereof, their properties are generating an inflation-linked passive income, and in the long term, even their most optimistic capital appreciation expectations will be realised."

This article is to inform and educate, not to advise.

The Wealthy still favours property

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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