Although buying off-plan has the big benefit of no transfer costs, it also holds some pitfalls of which buyers need to be aware।
Paul Henry, the managing director of Rawson Developers, has warned that there is always a danger that the final product may not be as good as the computer graphics and plans have led the buyer to expect।
He said there is also a danger that the specifications list will be vague and non-specific, thereby allowing the developer considerable leeway in his selection of the fittings and fixtures।
Another possible danger, said Henry, is that the contract can be open-ended as regards the time. “With bank finance hard to come by and banks insisting on a high percentage of sales before they advance money, projects can be held up for long periods before the first work begins on site.”
On the other hand, buying off-plan enables the buyer, in return for a small deposit, to get a fixed price related to today’s values and then to watch it escalate in value for a year or two, during which time no further outlays are called for।
“Experience has shown that this can be a highly profitable form of investment – with the huge advantage that the investor is able to gear it। This is seldom possible with the majority of other investments.”
He says the only real safeguard against these dangers is the developer’s reputation.
“If he has been in business some time and has a good track record, you can probably be confident that the final product will be on time and up to standard। If he is a new name on the scene, with little development experience, it will pay to have a good lawyer go through the deed of sale, to insist on guarantees and, above all, to ensure that your deposit goes into a ring-fenced trust।”
Three questions, said Henry, should be put to the clients of all developers।
The first is: “Did the finished product exceed your expectations for a unit in this price range?”। If the developer is good, the answer will always be “yes”.
The second question is: “Has your unit experienced capital growth?”। That, said Henry, may be a tough proposition in today’s market but many good developers can even now show significant value growth on their units over the last year or two, as well as on those due to come on stream in the next year.
The third question, in many ways the most important, is: “Did the developer attend conscientiously to the snag list?”।
All too often, said Henry, developers have been hard to contact once a unit has been transferred. "This is disgraceful behaviour because 70% of units will require some post-handover attention."
Henry added that, although some very big projects have been highly successful, he personally would always be wary of any project on which the work is likely to be ongoing for years and years।
“This type of scenario can lead people to feeling they are living on a permanent building site. Reasonably small schemes – say, with not more than 200 units – in good areas still offer the best and safest investments.”
We offer property investment opportunities throughout South Africa and Europe
Friday, 27 August 2010
Friday, 20 August 2010
Six Reasons NOT to buy property
...and why none of them hold much water।
We often hear about real estate investors who have been very successful in building wealth-creating portfolios। We may believe that they have some very special skill or ability, that there is something they know which nobody else does. At other times, we think it was pure luck or coincidence that an investor succeeded, that circumstances have since changed or that it just can't be done. Our cynicism encourages us to do nothing, to avoid the risk.
Yet history proves that doing nothing could be the most risky of all। Apart from the missed wealth creating opportunities, doing nothing translates into a lack of self-development, a missed chance to learn and grow. If we delve deeper, it is clear that most of the reasons people use not to invest are actually based more on emotion than business savvy. We rationalise our fear using calculated arguments as to why it can't or won't work. But the truth is that none of these arguments really hold much validity.
So let's discuss the top six reasons why people decide not to invest in property। And lay them to rest-once and for all.
Reason # 1: Investing in property is risky
Fact: There is a certain level of risk in every investment-and property is no exception। But investing all your money in the bank (or even worse under the mattress) may be the most risky of all as the returns barely keep up with inflation. Also bricks and mortar is more tangible than stocks and you can take out insurance against fires or floods. You can also protect your asset against your death or disability. And yes, there is now even insurance available to cover landlords for non-paying tenants!
Reason # 2: I don't have the time
Fact: We all manage to find the time to do things we really want to do. Time management involves prioritising things that are more important. Anyway, you don't need to do it all yourself. Build a team of competent management agents, brokers and mortgage originators (yes, there are some out there!) and let their specialist skills work for you.
Reason # 3: I don't have the money
Fact: You DON'T need money to make money। Even in a market where 100% bonds are not widely offered, a good below market value deal will attract finance from investors। Network with people who share your passion for property and these investment opportunities will present themselves।
Reason # 4: Below market-value properties don't exist
Fact: No matter what the stage of the property life-cycle, there will always be value for money deals। The key is to identify initially whether the seller is motivated and only negotiate with motivated sellers. As long as there is divorce, relocation or excessive debt, motivated sellers will always be out there.
Reason # 5: The property market will go down
Fact: The property market has never gone down over the medium or long term. Does that mean that it won't in the future? Probably not, simply because property prices rise in relation to income levels which increase over time. Even political factors, crime and other excuses people use not to invest, have not had a serious impact on our or overseas markets. At times, these factors often have the reverse effect-lifting prices as investors choose the safer haven of bricks and mortar.
And if prices DO go down over the next few years? Who cares! Buying for the rental yield and at below market value still ensures the investor comes out trumps।
Reason # 6: I don't know where to begin
Fact: You only learn through action. Educate yourself and when you feel a good opportunity presents itself, take the plunge. It may not be the best deal you may ever do but it will be the most important in terms of confidence. Luckily, over the long term, property is very forgiving of peoples` mistakes.
We often hear about real estate investors who have been very successful in building wealth-creating portfolios। We may believe that they have some very special skill or ability, that there is something they know which nobody else does. At other times, we think it was pure luck or coincidence that an investor succeeded, that circumstances have since changed or that it just can't be done. Our cynicism encourages us to do nothing, to avoid the risk.
Yet history proves that doing nothing could be the most risky of all। Apart from the missed wealth creating opportunities, doing nothing translates into a lack of self-development, a missed chance to learn and grow. If we delve deeper, it is clear that most of the reasons people use not to invest are actually based more on emotion than business savvy. We rationalise our fear using calculated arguments as to why it can't or won't work. But the truth is that none of these arguments really hold much validity.
So let's discuss the top six reasons why people decide not to invest in property। And lay them to rest-once and for all.
Reason # 1: Investing in property is risky
Fact: There is a certain level of risk in every investment-and property is no exception। But investing all your money in the bank (or even worse under the mattress) may be the most risky of all as the returns barely keep up with inflation. Also bricks and mortar is more tangible than stocks and you can take out insurance against fires or floods. You can also protect your asset against your death or disability. And yes, there is now even insurance available to cover landlords for non-paying tenants!
Reason # 2: I don't have the time
Fact: We all manage to find the time to do things we really want to do. Time management involves prioritising things that are more important. Anyway, you don't need to do it all yourself. Build a team of competent management agents, brokers and mortgage originators (yes, there are some out there!) and let their specialist skills work for you.
Reason # 3: I don't have the money
Fact: You DON'T need money to make money। Even in a market where 100% bonds are not widely offered, a good below market value deal will attract finance from investors। Network with people who share your passion for property and these investment opportunities will present themselves।
Reason # 4: Below market-value properties don't exist
Fact: No matter what the stage of the property life-cycle, there will always be value for money deals। The key is to identify initially whether the seller is motivated and only negotiate with motivated sellers. As long as there is divorce, relocation or excessive debt, motivated sellers will always be out there.
Reason # 5: The property market will go down
Fact: The property market has never gone down over the medium or long term. Does that mean that it won't in the future? Probably not, simply because property prices rise in relation to income levels which increase over time. Even political factors, crime and other excuses people use not to invest, have not had a serious impact on our or overseas markets. At times, these factors often have the reverse effect-lifting prices as investors choose the safer haven of bricks and mortar.
And if prices DO go down over the next few years? Who cares! Buying for the rental yield and at below market value still ensures the investor comes out trumps।
Reason # 6: I don't know where to begin
Fact: You only learn through action. Educate yourself and when you feel a good opportunity presents itself, take the plunge. It may not be the best deal you may ever do but it will be the most important in terms of confidence. Luckily, over the long term, property is very forgiving of peoples` mistakes.
Strike dashes World Cup hopes
THE strikes in the public service and automotive sectors would deter foreign direct investment in SA, a significant contrast to the global optimism about the country during and straight after the Soccer World Cup, economists said yesterday।
“The timing of the strike is problematic, considering the World Cup created such a good impression to potential investors। These hopes would be surely dashed,” said Stanlib economist Kevin Lings.
He said SA could not afford to have nationwide strikes on this scale, especially as the recovery taking place after the global recession was still fragile ।
“The bottom line is that the strikes come at a critical phase of recovery from recession। Most countries are looking at their own economic recovery so that they can gain momentum as soon as possible, Mr Lings said.
Public service unions are demanding an 8,6% wage increase, a R700 housing allowance and an equalisation of medical subsidies.
Yesterday, the South African Democratic Teachers Union (Sadtu) and the National Education Health and Allied Workers Union — together representing nearly 500000 workers — rejected the government’s revised wage offer।
Public schools, hospitals and other government administration offices are expected to close today because of an indefinite strike by public service workers।
“The disruption of services, particularly schools, comes at the wrong time, especially when the country is trying to lift up its matric pass rate,” said Mr Lings। He noted that wages could not be separated from service delivery.
Sadtu said: “The current macroeconomic policy, which is a political matter, is responsible for low wages in the public services।”
Public Service and Administration D eputy M inister Roy Padayachie said the government remained committed to finding a solution to the public service wage dispute।
“We are in the midst of trying to finalise the negotiations in the public sector dispute,” Mr Padayachie said। “We cannot allow ourselves to be compromised from meeting the obligations that we as a government have committed in our programme of action … the issues of finding an appropriate solution and ensuring that the strike is averted are very central to our commitment,” he said.
Meanwhile, the car strike entered its fifth day yesterday, with workers and employers reaching a deadlock over wage negotiations।
Both the National Union of Metalworkers of SA (Numsa) and the Automotive Manufacturers Employers Organisation (Ameo) kept mum over yesterday’s wage negotiation outcome, saying it was at a “sensitive stage”।
George Glynos, an economist at ETM, said the labour dispute might indicate to foreign investors that SA’s automotive industry did not offer the level of productivity required to justify investment capital।
“When there are significant labour problems, companies prefer to spend money on capital equipment to improve efficiencies। Of course, this is not ideal, but is often the necessary course of action.”
Mr Glynos said that investors were well aware that SA had a powerful labour movement, and this had not stopped investment from entering the country।
“Obviously the unions’ power is a deterrent, but investors realise that SA has massive potential and untapped labour reserves which can and have been used to their advantage,” he said.
However, Mr Glynos noted that the public sector and automotive industry strikes were putting pressure on an economy that was bogged down by rising energy costs and eroding infrastructure।
chilwanel@bdfm.co.za shirleyb@bdfm.co.za
“The timing of the strike is problematic, considering the World Cup created such a good impression to potential investors। These hopes would be surely dashed,” said Stanlib economist Kevin Lings.
He said SA could not afford to have nationwide strikes on this scale, especially as the recovery taking place after the global recession was still fragile ।
“The bottom line is that the strikes come at a critical phase of recovery from recession। Most countries are looking at their own economic recovery so that they can gain momentum as soon as possible, Mr Lings said.
Public service unions are demanding an 8,6% wage increase, a R700 housing allowance and an equalisation of medical subsidies.
Yesterday, the South African Democratic Teachers Union (Sadtu) and the National Education Health and Allied Workers Union — together representing nearly 500000 workers — rejected the government’s revised wage offer।
Public schools, hospitals and other government administration offices are expected to close today because of an indefinite strike by public service workers।
“The disruption of services, particularly schools, comes at the wrong time, especially when the country is trying to lift up its matric pass rate,” said Mr Lings। He noted that wages could not be separated from service delivery.
Sadtu said: “The current macroeconomic policy, which is a political matter, is responsible for low wages in the public services।”
Public Service and Administration D eputy M inister Roy Padayachie said the government remained committed to finding a solution to the public service wage dispute।
“We are in the midst of trying to finalise the negotiations in the public sector dispute,” Mr Padayachie said। “We cannot allow ourselves to be compromised from meeting the obligations that we as a government have committed in our programme of action … the issues of finding an appropriate solution and ensuring that the strike is averted are very central to our commitment,” he said.
Meanwhile, the car strike entered its fifth day yesterday, with workers and employers reaching a deadlock over wage negotiations।
Both the National Union of Metalworkers of SA (Numsa) and the Automotive Manufacturers Employers Organisation (Ameo) kept mum over yesterday’s wage negotiation outcome, saying it was at a “sensitive stage”।
George Glynos, an economist at ETM, said the labour dispute might indicate to foreign investors that SA’s automotive industry did not offer the level of productivity required to justify investment capital।
“When there are significant labour problems, companies prefer to spend money on capital equipment to improve efficiencies। Of course, this is not ideal, but is often the necessary course of action.”
Mr Glynos said that investors were well aware that SA had a powerful labour movement, and this had not stopped investment from entering the country।
“Obviously the unions’ power is a deterrent, but investors realise that SA has massive potential and untapped labour reserves which can and have been used to their advantage,” he said.
However, Mr Glynos noted that the public sector and automotive industry strikes were putting pressure on an economy that was bogged down by rising energy costs and eroding infrastructure।
chilwanel@bdfm.co.za shirleyb@bdfm.co.za
SA house prices - Some recovery signs
Although the growth in SA house prices is not stellar, it has exhibited some recovery signs since 2009 and affordability is on a good path again।
But it is still a lot cheaper to buy an existing house than build a new one.
Based on the outlook for nominal house price growth and a projected average consumer price inflation rate of about 5% in 2010, real price growth of between 5% and 5,5% is forecast for this year and 10,5% in nominal terms।
So says Jacques du Toit, property strategist at Absa, who adds that this will occur after house prices dropped by a real 6,9% in 2009 and declined by 6,3% in real terms in 2008.
“House price growth has improved markedly in the first half of 2010, based on the better economic conditions since the second half of 2009, low interest rates, banks’ less tight lending criteria as well as base effects।”
“However, taking into account house price developments in the recent past, year-on-year (y/y) price growth appears to be near an upper turning point, largely as a result of the base effects of a recovery in house price growth in the second half of 2009। This is expected to impact the trend in price growth in the second half of this year.”
He says after the affordability of housing deteriorated in the second half of 2009 on the back of rising house price growth while growth in household income remained under pressure, affordability did not deteriorate further in the first quarter of 2010. “This is based on the latest trends in the ratios of house prices and mortgage repayments to household disposable income.”
He says the ratio of house prices to disposable income was relatively stable in the first quarter of the year compared with the last quarter of 2009, which was the net result of house price and nominal disposable income growth in the first quarter।
“House prices increased by a nominal 3,2% quarter-on-quarter (q/q) in the first quarter of 2010, while households’ nominal disposable was up by 3,6% q/q in the same period। The ratio of mortgage repayments to household disposable income was slightly down in the first quarter of 2010 compared with the preceding quarter.
“This was the net result of the abovementioned trends in nominal house prices and household disposable income in the first quarter, while the mortgage interest rate was on average slightly lower during this period।”
In the affordable segment of the market (houses of 40-79sqm, priced at up to R430k) the average price of a house increased by a nominal 2,6% y/y to a level of R296,100 in the second quarter (Q2) of 2010, declining by 1,9% in real terms।
Middle-segment house price growth (houses of 80-400sqm, priced at up to R3,1m) averaged a nominal 14,4% y/y in the second quarter of 2010। This brought the average price to a level of R1,075,600 in the quarter. House prices in the middle-segment increased by a real 9,4% y/y in the second quarter of the year.
In the luxury segment (houses valued at above R3,1m up to R11,5m), the average price dropped by a nominal 1,8% y/y to a level of about R4,4m in the second quarter of the year। In real terms prices of houses in the luxury segment were down by 6,1% y/y in the second quarter.
Du Toit said at a geographical level home values increased further in nominal terms on a y/y basis in the second quarter of 2010, while in real terms prices were slightly down in some areas compared with a year ago। On a quarterly basis prices were down in both nominal and real terms in a few provinces, metropolitan areas and coastal regions.
“These trends might be an early indication of expected price developments towards the end of the year,” he said।
At a provincial level, nominal year-on-year (y/y) house price growth varied between 7,1% in Mpumalanga to as high as 24,9% in the Eastern Cape in the second quarter of 2010।
In the major metropolitan areas house price growth ranged from a nominal 3,2% y/y on the East Rand in Gauteng to a relatively strong 22,6% y/y in the Durban/Pinetown area in KwaZulu-Natal in Q2 2010।
Another encouraging trend is the fairly strong rise in house prices at coastal level, where much of the buying activity is centred on second and leisure homes। These properties are being shed by investors at an unprecedented pace as affordability comes under pressure.
Du Toit said house prices in the coastal regions increased by a nominal 7,8% y/y in the second quarter of 2010, after rising by 6,3% y/y in the preceding quarter। “This is an indication that the coastal market is recovering at a steady pace, but is still lagging in price growth compared with some other regions.
“In real terms, house prices in the country’s coastal regions increased by 3% y/y in the second quarter of 2010, after rising by 0,6% y/y in the first quarter of the year।
Moving onto building costs, Du Toit pointed out that in the second quarter of 2010 the cost of building a new house in the middle segment of the market increased by a nominal 7,8% y/y, which is up from a growth rate of 6,7% y/y recorded in the first quarter।
“Although the residential building and construction sector is experiencing tough conditions, judging from the latest trends in the planning and construction phases of new housing, the upward trend in building cost increases over the past two quarters is probably related to rising costs such as wages, transport, etc॥”
“Against this background of faster rising building costs over the past two quarters, the average value of a new house increased by a nominal 15,5% y/y to R1,396,200 in the second quarter of the year (12,9% y/y in the first quarter), which came to a real increase of 10,4% y/y (a real 6,8% y/y in the preceding quarter)।
The average value of an existing house increased by a nominal 14,6% y/y to about R1,067,500 in the second quarter of 2010 (10,1% y/y in the first quarter)। In real terms this translated into an increase of 9,6% y/y in the second quarter (4,2% y/y in the preceding quarter).
“As a result of the abovementioned price trends, it was around R328,700, or 23,5%, cheaper to buy an existing house than to have a new one built in the second quarter of 2010.”
He said land values for new housing increased by a nominal 14% y/y to an average of about R498,100 in the second quarter of 2010, compared with an increase of 7,1% y/y in the first quarter।
“In real terms land values increased by 9% y/y in the second quarter (up by 1,3% y/y in the preceding quarter)। The faster pace of year-on-year (y/y) growth in land values in the second quarter of the year is evident of improved residential property market conditions in many areas up to mid-2010.
“Along the coast, however, land values for new housing still experienced some downward pressure in the second quarter of the year, declining by a nominal 4,4% y/y and a real 8,6% y/y in the quarter। This brought the average nominal value of a coastal stand to a level of about R430,900 in the second quarter.”
More good news is that mortgage finance is now also a lot cheaper than two years ago.
Du Toit says commercial banks’ variable mortgage interest rate is currently 10%, which is at its lowest level since mid-1974।
“Moreover, as a result of the interest rate cuts over the last 18 months, monthly mortgage repayments are 28,7% lower compared with December 2008, when the mortgage rate was still 15,5%।”
Meanwhile, the Lightstone National House Price Index has continued its rising inflation path, reaching 8,3% in April 2010, up from a y/y inflation rate of 8,2% in March and 7,7% in February, it showed on Monday।
The lower inflation rate environment started feeding through earlier in the year, and while coastal properties provided something of a drag until February, those properties have caught up in April via a handsome rate of 8%। They were growing at just 5,3% in February.
The index showed an interesting turnaround occurred for Johannesburg properties as their growth dipped to 7,8% from 8,6% in March and after boasting the highest growth rates in the country for some time।
The best performing province in March was Cape Town at a healthy 9,8% click.
Affordable houses, though, ratcheted up by 14,7% from 12,6% as luxury home growth rates dipped to 7,6% from 8%.
But it is still a lot cheaper to buy an existing house than build a new one.
Based on the outlook for nominal house price growth and a projected average consumer price inflation rate of about 5% in 2010, real price growth of between 5% and 5,5% is forecast for this year and 10,5% in nominal terms।
So says Jacques du Toit, property strategist at Absa, who adds that this will occur after house prices dropped by a real 6,9% in 2009 and declined by 6,3% in real terms in 2008.
“House price growth has improved markedly in the first half of 2010, based on the better economic conditions since the second half of 2009, low interest rates, banks’ less tight lending criteria as well as base effects।”
“However, taking into account house price developments in the recent past, year-on-year (y/y) price growth appears to be near an upper turning point, largely as a result of the base effects of a recovery in house price growth in the second half of 2009। This is expected to impact the trend in price growth in the second half of this year.”
He says after the affordability of housing deteriorated in the second half of 2009 on the back of rising house price growth while growth in household income remained under pressure, affordability did not deteriorate further in the first quarter of 2010. “This is based on the latest trends in the ratios of house prices and mortgage repayments to household disposable income.”
He says the ratio of house prices to disposable income was relatively stable in the first quarter of the year compared with the last quarter of 2009, which was the net result of house price and nominal disposable income growth in the first quarter।
“House prices increased by a nominal 3,2% quarter-on-quarter (q/q) in the first quarter of 2010, while households’ nominal disposable was up by 3,6% q/q in the same period। The ratio of mortgage repayments to household disposable income was slightly down in the first quarter of 2010 compared with the preceding quarter.
“This was the net result of the abovementioned trends in nominal house prices and household disposable income in the first quarter, while the mortgage interest rate was on average slightly lower during this period।”
In the affordable segment of the market (houses of 40-79sqm, priced at up to R430k) the average price of a house increased by a nominal 2,6% y/y to a level of R296,100 in the second quarter (Q2) of 2010, declining by 1,9% in real terms।
Middle-segment house price growth (houses of 80-400sqm, priced at up to R3,1m) averaged a nominal 14,4% y/y in the second quarter of 2010। This brought the average price to a level of R1,075,600 in the quarter. House prices in the middle-segment increased by a real 9,4% y/y in the second quarter of the year.
In the luxury segment (houses valued at above R3,1m up to R11,5m), the average price dropped by a nominal 1,8% y/y to a level of about R4,4m in the second quarter of the year। In real terms prices of houses in the luxury segment were down by 6,1% y/y in the second quarter.
Du Toit said at a geographical level home values increased further in nominal terms on a y/y basis in the second quarter of 2010, while in real terms prices were slightly down in some areas compared with a year ago। On a quarterly basis prices were down in both nominal and real terms in a few provinces, metropolitan areas and coastal regions.
“These trends might be an early indication of expected price developments towards the end of the year,” he said।
At a provincial level, nominal year-on-year (y/y) house price growth varied between 7,1% in Mpumalanga to as high as 24,9% in the Eastern Cape in the second quarter of 2010।
In the major metropolitan areas house price growth ranged from a nominal 3,2% y/y on the East Rand in Gauteng to a relatively strong 22,6% y/y in the Durban/Pinetown area in KwaZulu-Natal in Q2 2010।
Another encouraging trend is the fairly strong rise in house prices at coastal level, where much of the buying activity is centred on second and leisure homes। These properties are being shed by investors at an unprecedented pace as affordability comes under pressure.
Du Toit said house prices in the coastal regions increased by a nominal 7,8% y/y in the second quarter of 2010, after rising by 6,3% y/y in the preceding quarter। “This is an indication that the coastal market is recovering at a steady pace, but is still lagging in price growth compared with some other regions.
“In real terms, house prices in the country’s coastal regions increased by 3% y/y in the second quarter of 2010, after rising by 0,6% y/y in the first quarter of the year।
Moving onto building costs, Du Toit pointed out that in the second quarter of 2010 the cost of building a new house in the middle segment of the market increased by a nominal 7,8% y/y, which is up from a growth rate of 6,7% y/y recorded in the first quarter।
“Although the residential building and construction sector is experiencing tough conditions, judging from the latest trends in the planning and construction phases of new housing, the upward trend in building cost increases over the past two quarters is probably related to rising costs such as wages, transport, etc॥”
“Against this background of faster rising building costs over the past two quarters, the average value of a new house increased by a nominal 15,5% y/y to R1,396,200 in the second quarter of the year (12,9% y/y in the first quarter), which came to a real increase of 10,4% y/y (a real 6,8% y/y in the preceding quarter)।
The average value of an existing house increased by a nominal 14,6% y/y to about R1,067,500 in the second quarter of 2010 (10,1% y/y in the first quarter)। In real terms this translated into an increase of 9,6% y/y in the second quarter (4,2% y/y in the preceding quarter).
“As a result of the abovementioned price trends, it was around R328,700, or 23,5%, cheaper to buy an existing house than to have a new one built in the second quarter of 2010.”
He said land values for new housing increased by a nominal 14% y/y to an average of about R498,100 in the second quarter of 2010, compared with an increase of 7,1% y/y in the first quarter।
“In real terms land values increased by 9% y/y in the second quarter (up by 1,3% y/y in the preceding quarter)। The faster pace of year-on-year (y/y) growth in land values in the second quarter of the year is evident of improved residential property market conditions in many areas up to mid-2010.
“Along the coast, however, land values for new housing still experienced some downward pressure in the second quarter of the year, declining by a nominal 4,4% y/y and a real 8,6% y/y in the quarter। This brought the average nominal value of a coastal stand to a level of about R430,900 in the second quarter.”
More good news is that mortgage finance is now also a lot cheaper than two years ago.
Du Toit says commercial banks’ variable mortgage interest rate is currently 10%, which is at its lowest level since mid-1974।
“Moreover, as a result of the interest rate cuts over the last 18 months, monthly mortgage repayments are 28,7% lower compared with December 2008, when the mortgage rate was still 15,5%।”
Meanwhile, the Lightstone National House Price Index has continued its rising inflation path, reaching 8,3% in April 2010, up from a y/y inflation rate of 8,2% in March and 7,7% in February, it showed on Monday।
The lower inflation rate environment started feeding through earlier in the year, and while coastal properties provided something of a drag until February, those properties have caught up in April via a handsome rate of 8%। They were growing at just 5,3% in February.
The index showed an interesting turnaround occurred for Johannesburg properties as their growth dipped to 7,8% from 8,6% in March and after boasting the highest growth rates in the country for some time।
The best performing province in March was Cape Town at a healthy 9,8% click.
Affordable houses, though, ratcheted up by 14,7% from 12,6% as luxury home growth rates dipped to 7,6% from 8%.
Friday, 13 August 2010
Is a double dip fall in UK house prices on its way?
LONDON - The London-based research group downplayed recent reports indicating the house-price recovery is fading saying "forecasters projecting a double dip have got it wrong" and have "ignored the housing market fundamentals".
Last week, there were concerns among homeowners amid news that UK House prices dropped for the first time in 15 months in July, causing the annual rate to weaken for the first time in over a year, according to property data company, Hometrack. This followed claims by Nationwide and Halifax, two of the UK's largest mortgage lenders that the robust recovery in house prices is drawing to an end.
Despite this correction the CEBR said prices will increase 4% per cent this year and continue rising until 2014, mainly due to a shortage of homes in the UK and low interest rates.
As always with all news relating to the UK property market, the sensational headlines have been appearing fast with the rational facts slow to follow.
I agree with the CEBR's view that the fundamentals point to an increase in property prices, especially in London, and adds that The majority of our South African clients are astute investors, steered by facts and not by media hype. This has been evident in the surge of new enquiries since January from high net worth South Africans looking for help in acquiring property in London for investment purposes. These investors share our view that a tight supply of new housing and an increase population on this small island will drive UK house prices upwards.
Both domestic and foreign property investors have seen the weaker Pound, lower property prices and interest rates of just 0.5% as a buying opportunity too good to miss and reports now suggest that more than 46% of all purchases in London over the last few months can be contributed to foreign buyers.
Not surprising when you consider that residential rental rates in the UK are now close to levels last seen in early 2008, before the financial crisis and fall in housing prices. The Residential Landlords Association (RLA) says the number of new tenants seeking rental properties increased markedly in June, as more than 18,000 Britons decided to rent a home. This represents a 22% rise in the number of new tenants compared to figures from May and continues a trend which began at the beginning of the year. The number of tenants renting residential properties has now increased by 16% since January, bringing more than 50,000 new tenants into the buy-to-let sector over a period of just six months, yet the number of new residential properties available on the rental market has decreased by 6% since April.
This sharp spike in demand, coupled with relatively low supply of rental properties is the main factor behind the continued rental increases since the start of 2010. Monthly rents increased by 1% in June, crowning five straight months of rental rises. This means the average rent in the UK's private buy-to-let sector has now increased by 3.2% over the past 12 months. This is equivalent to an average of £23 extra income per tenant each month, bringing the average UK rent to £673. As always London rentals continue to rise faster than in other parts of the country as first-time buyers find it difficult to afford a home in the capital. London-area landlords experienced the highest rental increases in the country - close to double the national average. Rents in the capital rose by 1.9%, bringing the average monthly rent to £942.
The property pessimists would have you believe that property in the UK is doomed, but this ignores the fact that housing is not stocks and shares. Owning a home is an emotional desire, a must-have aspiration for most Britons, and the demand for property in Britain remains high. Yes, prices may have fallen slightly, but investors in the UK and abroad will simply see this as another good purchasing opportunity.
*Mike Smuts is managing director of Smuts & Taylor, a South African investment firm based in London.
Last week, there were concerns among homeowners amid news that UK House prices dropped for the first time in 15 months in July, causing the annual rate to weaken for the first time in over a year, according to property data company, Hometrack. This followed claims by Nationwide and Halifax, two of the UK's largest mortgage lenders that the robust recovery in house prices is drawing to an end.
Despite this correction the CEBR said prices will increase 4% per cent this year and continue rising until 2014, mainly due to a shortage of homes in the UK and low interest rates.
As always with all news relating to the UK property market, the sensational headlines have been appearing fast with the rational facts slow to follow.
I agree with the CEBR's view that the fundamentals point to an increase in property prices, especially in London, and adds that The majority of our South African clients are astute investors, steered by facts and not by media hype. This has been evident in the surge of new enquiries since January from high net worth South Africans looking for help in acquiring property in London for investment purposes. These investors share our view that a tight supply of new housing and an increase population on this small island will drive UK house prices upwards.
Both domestic and foreign property investors have seen the weaker Pound, lower property prices and interest rates of just 0.5% as a buying opportunity too good to miss and reports now suggest that more than 46% of all purchases in London over the last few months can be contributed to foreign buyers.
Not surprising when you consider that residential rental rates in the UK are now close to levels last seen in early 2008, before the financial crisis and fall in housing prices. The Residential Landlords Association (RLA) says the number of new tenants seeking rental properties increased markedly in June, as more than 18,000 Britons decided to rent a home. This represents a 22% rise in the number of new tenants compared to figures from May and continues a trend which began at the beginning of the year. The number of tenants renting residential properties has now increased by 16% since January, bringing more than 50,000 new tenants into the buy-to-let sector over a period of just six months, yet the number of new residential properties available on the rental market has decreased by 6% since April.
This sharp spike in demand, coupled with relatively low supply of rental properties is the main factor behind the continued rental increases since the start of 2010. Monthly rents increased by 1% in June, crowning five straight months of rental rises. This means the average rent in the UK's private buy-to-let sector has now increased by 3.2% over the past 12 months. This is equivalent to an average of £23 extra income per tenant each month, bringing the average UK rent to £673. As always London rentals continue to rise faster than in other parts of the country as first-time buyers find it difficult to afford a home in the capital. London-area landlords experienced the highest rental increases in the country - close to double the national average. Rents in the capital rose by 1.9%, bringing the average monthly rent to £942.
The property pessimists would have you believe that property in the UK is doomed, but this ignores the fact that housing is not stocks and shares. Owning a home is an emotional desire, a must-have aspiration for most Britons, and the demand for property in Britain remains high. Yes, prices may have fallen slightly, but investors in the UK and abroad will simply see this as another good purchasing opportunity.
*Mike Smuts is managing director of Smuts & Taylor, a South African investment firm based in London.
Friday, 30 July 2010
Property markets still hibernating....
The property markets across the board are still in hibernation mode, according to the latest Rode’s Report on the State of the Property Market.
The lagged impact of the business cycle on the property market is especially evident in the offices segment. For instance, it is only the Durban decentralized areas that could attain any growth on a year ago (a nominal +5%) that exceeds the expected growth rate in building–cost inflation (at +2,6%).
For Cape Town, Johannesburg and Pretoria, growth was, on average, below that of building-cost inflation, and real rentals are currently lower than they were a year ago.Says Erwin Rode of property economists Rode & Associates: “Even in the industrial property market, where manufacturing activity and retail sales are said to be in recovery mode, the overall strength and stability of this recovery remains an uncertainty, particularly against the backdrop of both a South African economy that continues to shed jobs and a still-wobbly world economy.”Such uncertainty in the industrial property market also extends to prospects for market rentals, with these rentals continuing to contract across the country (specifically in the Central Witwatersrand, Durban, Port Elizabeth and the Cape Peninsula).Likewise, flat rentals in Durban and Cape Town could only achieve a nominal 1% growth in the first quarter, while Johannesburg and Pretoria rentals were at the same level of a year ago.
However, notes Rode, an interesting (and “premature”) phenomenon over the past few months has been the recovery in the growth of nominal house prices. “After reaching its lowest point in the first half of 2009, yearly growth has accelerated to almost 14% in April, up from 12% in March, possibly due to easing credit standards,” says Rode. But, he warns, “Once the base effects have played themselves out, one can again expect house prices – especially in the lower-priced segments – to show more moderate growth rates.
The reasons are household coffers that are still under pressure, job insecurity and house prices themselves that continue to remain high in real terms.”Capitalization rates have remained at roughly the same levels at which they were at the end of last year. “The adjective that best describes this situation,” notes Rode, “is ‘stable’”.
Capitalization rates are the property equivalent of the forward earnings yield of shares.“Nevertheless, considering that market rentals of offices, industrials and malls are shrinking in real terms, this situation could eventually lead to investors requiring higher minimum income returns to invest in property, and this would tend to depress market values.”However, because of low loan-to-value (LTV) ratios traditionally enforced by SA banks, landlords in South Africa are generally under little duress to sell.
“This explains the extraordinary stability of the premium property market”, says Rode.
The lagged impact of the business cycle on the property market is especially evident in the offices segment. For instance, it is only the Durban decentralized areas that could attain any growth on a year ago (a nominal +5%) that exceeds the expected growth rate in building–cost inflation (at +2,6%).
For Cape Town, Johannesburg and Pretoria, growth was, on average, below that of building-cost inflation, and real rentals are currently lower than they were a year ago.Says Erwin Rode of property economists Rode & Associates: “Even in the industrial property market, where manufacturing activity and retail sales are said to be in recovery mode, the overall strength and stability of this recovery remains an uncertainty, particularly against the backdrop of both a South African economy that continues to shed jobs and a still-wobbly world economy.”Such uncertainty in the industrial property market also extends to prospects for market rentals, with these rentals continuing to contract across the country (specifically in the Central Witwatersrand, Durban, Port Elizabeth and the Cape Peninsula).Likewise, flat rentals in Durban and Cape Town could only achieve a nominal 1% growth in the first quarter, while Johannesburg and Pretoria rentals were at the same level of a year ago.
However, notes Rode, an interesting (and “premature”) phenomenon over the past few months has been the recovery in the growth of nominal house prices. “After reaching its lowest point in the first half of 2009, yearly growth has accelerated to almost 14% in April, up from 12% in March, possibly due to easing credit standards,” says Rode. But, he warns, “Once the base effects have played themselves out, one can again expect house prices – especially in the lower-priced segments – to show more moderate growth rates.
The reasons are household coffers that are still under pressure, job insecurity and house prices themselves that continue to remain high in real terms.”Capitalization rates have remained at roughly the same levels at which they were at the end of last year. “The adjective that best describes this situation,” notes Rode, “is ‘stable’”.
Capitalization rates are the property equivalent of the forward earnings yield of shares.“Nevertheless, considering that market rentals of offices, industrials and malls are shrinking in real terms, this situation could eventually lead to investors requiring higher minimum income returns to invest in property, and this would tend to depress market values.”However, because of low loan-to-value (LTV) ratios traditionally enforced by SA banks, landlords in South Africa are generally under little duress to sell.
“This explains the extraordinary stability of the premium property market”, says Rode.
Friday, 16 July 2010
Property recovery still '12 to 18 months off'
The residential property market in South Africa is still coming to terms with the fallout from the economic crisis, said Auction Alliance CEO Rael Levitt on Monday.
According to SA's largest auction group, sales trading activity is increasing as home buyers take advantage of a slower recovery.
"South Africans are now seeing a repeat of the lengthy property downturn last experienced in the early 1990's. Opportunistic buyers are finding great deals which is boosting trading volume.
"What is unique about this property contraction is that low values are coinciding with low interest rates. It's thus bargain hunting season for those with access to funding," says Levitt.
According to Levitt, the outlook for the second half of 2010 is flat.
The world cup has been a great shot in the arm for local tourism and retail trading but a full property recovery is still 12-18 months off, even in a reasonable interest rate environment and even with reasonable market stability, says Levitt.
"Those who were expecting the South African real estate market to quickly recover in the second half of 2010, after the world cup, may be in for a long wait."
Alliance is predicting a flat real estate market with no increase in value through December 2010.
This is echoed by Absa senior property analyst, Jacques Du Toit, who says that year-on-year growth in house prices may peak soon.
Du Toit says house prices rose by 14,8% year-on-year last month and that Absa was forecasting slower growth at 8% to 9% until the end of this year.
Levitt concurs with this view and believes that from the beginning of next year prices are projected to increase at a stronger rate.
"Depending on global macro-economic trends we could end up running through a strong cycle only next year," warns Levitt, adding that a property contraction can last for several years and house values could move up more strongly or more weakly, depending on any number of circumstances."
"Certain sectors in the residential property market, such as leisure property, new property developments and vacant land sales may weaken over the next six months as a delayed pipeline of distressed properties begins to liquidate," says Levitt.
"Signs of stabilisation and growth in over supplied sectors cannot be hailed as part of a recovery and may soon recede as an overhang of the shadow inventory of distressed properties waits to enter the market."
The general outlook that the housing market has finally bottomed may well be "premature" optimism.
The single largest impediment to a recovery in the housing market is the large number of loans that are either in a delinquent status or are destined to liquidate.
"We have seen a slowdown in the number of distressed properties hitting the market, but this doesn't mean that the banks have not been developing a pipeline of future delinquencies due to clients who were assisted with short term bond relief.
"One must remember that many banks have assisted their debtors reschedule debt, but if property price inflation levels off for the next 6 months, these debtors will have to start normalising their loans," Levitt added.
"The distressed backlog is due to a longer timeline for loan foreclosures in South Africa", explains Levitt.
"In other words, loans continue to transition into the delinquency pipeline at a rapid pace, but are moving out at a very slow pace."
He said that many distressed loans are "destined to liquidate" and will impact on the recovery but at the same time allow cash-flush buyers the ability to go bargain hunting over the next few months.
"We are concerned that, in light of this housing overhang, the stabilisation we have seen in home prices the last few months is temporary," says Levitt.
"That said, there is a window of opportunity for investors to get into a cheap market that will recover in the medium and long term."
Source: I-Net Bridge
According to SA's largest auction group, sales trading activity is increasing as home buyers take advantage of a slower recovery.
"South Africans are now seeing a repeat of the lengthy property downturn last experienced in the early 1990's. Opportunistic buyers are finding great deals which is boosting trading volume.
"What is unique about this property contraction is that low values are coinciding with low interest rates. It's thus bargain hunting season for those with access to funding," says Levitt.
According to Levitt, the outlook for the second half of 2010 is flat.
The world cup has been a great shot in the arm for local tourism and retail trading but a full property recovery is still 12-18 months off, even in a reasonable interest rate environment and even with reasonable market stability, says Levitt.
"Those who were expecting the South African real estate market to quickly recover in the second half of 2010, after the world cup, may be in for a long wait."
Alliance is predicting a flat real estate market with no increase in value through December 2010.
This is echoed by Absa senior property analyst, Jacques Du Toit, who says that year-on-year growth in house prices may peak soon.
Du Toit says house prices rose by 14,8% year-on-year last month and that Absa was forecasting slower growth at 8% to 9% until the end of this year.
Levitt concurs with this view and believes that from the beginning of next year prices are projected to increase at a stronger rate.
"Depending on global macro-economic trends we could end up running through a strong cycle only next year," warns Levitt, adding that a property contraction can last for several years and house values could move up more strongly or more weakly, depending on any number of circumstances."
"Certain sectors in the residential property market, such as leisure property, new property developments and vacant land sales may weaken over the next six months as a delayed pipeline of distressed properties begins to liquidate," says Levitt.
"Signs of stabilisation and growth in over supplied sectors cannot be hailed as part of a recovery and may soon recede as an overhang of the shadow inventory of distressed properties waits to enter the market."
The general outlook that the housing market has finally bottomed may well be "premature" optimism.
The single largest impediment to a recovery in the housing market is the large number of loans that are either in a delinquent status or are destined to liquidate.
"We have seen a slowdown in the number of distressed properties hitting the market, but this doesn't mean that the banks have not been developing a pipeline of future delinquencies due to clients who were assisted with short term bond relief.
"One must remember that many banks have assisted their debtors reschedule debt, but if property price inflation levels off for the next 6 months, these debtors will have to start normalising their loans," Levitt added.
"The distressed backlog is due to a longer timeline for loan foreclosures in South Africa", explains Levitt.
"In other words, loans continue to transition into the delinquency pipeline at a rapid pace, but are moving out at a very slow pace."
He said that many distressed loans are "destined to liquidate" and will impact on the recovery but at the same time allow cash-flush buyers the ability to go bargain hunting over the next few months.
"We are concerned that, in light of this housing overhang, the stabilisation we have seen in home prices the last few months is temporary," says Levitt.
"That said, there is a window of opportunity for investors to get into a cheap market that will recover in the medium and long term."
Source: I-Net Bridge
Friday, 9 July 2010
Strong foreign interest in SA property
Despite the precariousness of the world’s economy, there is still a lot of foreign interest in South African property, with investors from the United Kingdom, Germany, Australia and even the USA eyeing property here.
A recent analysis of traffic on the Lew Geffen Sotheby’s International Realty website shows that the number of international visits to the website is on the up.
The French seem to be the most interested in property in South Africa, with the number of French visitors to the site up by 62%. The number of website visits from people in Australia, Canada and the UK is also up by 52%, 32% and 23% respectively.
Visits by Germans have increased by 14% and American visitors have also increased by 10%.
Properties in the bracket of between R3m to R12m get the most hits from international visitors showing that it’s mainly up-market holiday homes that foreigners are after. There is also growing interest in smaller, lock-up-and-go properties in metropolitan areas suggesting that corporate travellers want a little place to call home when they are in the country on business rather than staying in a hotel.
“There has always been significant interest in SA property from Europeans, particularly people from the United Kingdom. Generally, they buy properties here for holiday purposes or as retirement homes.
“Interest is now more widespread, with people from all over the world looking into buying property here. Where it was once primarily luxury holiday homes in coastal regions that were being snapped up by foreigners, we are seeing an increase in the number of smaller properties in the metro areas of Johannesburg and Cape Town being sold to international investors,” says Jason Rohde, CEO of Lew Geffen Sotheby’s International Realty South Africa.
Rohde points out though that while foreign interest in SA property is growing, overseas buyers are more cautious about actually taking the plunge.
“While it is only the wealthy who are able to afford to buy homes overseas, they are not entirely untouched by economic factors so they aren’t as ready to jump into actually buying property as they perhaps were two years ago. The strengthening of the rand means that the foreigners’ purchasing power isn’t quite what it was either.
“As a result, foreign buyers are more price-sensitive and are looking for value for money. As with local investors, they are also weighing up their options more carefully, taking into account other factors such as security. The home has got to meet their criteria, including price, in order for them to make a commitment.
“Generally speaking, there is an oversupply of housing stock across most price categories, so it is essentially a buyers’ market. Sellers must be realistic about the asking price on their properties if they want to ensure a sale. They must present a fair deal,” Rohde advises.
Dr Andrew Golding, CE of the Pam Golding Property (PGP) group, says South Africa remains a sought-after property investment location among high net worth German investors.
“While the Soccer World Cup has focused increasing worldwide attention on South Africa, the fact is that even amid the global economic downturn South Africa has remained prominently on the radar of German property investors as a market to watch. Over the past year, Gaby Moëssner, who represents PGP in Germany, has seen increasing interest among German investors in leisure or holiday homes in South Africa.
“During this period their main areas of interest for such homes include the Eastern Cape with its exceptional value for money, the Garden Route, and the Cape and its popular Winelands region, particularly its scenic golf estates.
"As a rule and understandably, overseas buyers do not make quick decisions regarding property investment in overseas countries, including South Africa. And the Soccer World Cup – being a once-off event – may not necessarily influence their investment decision, although it certainly is considerably raising our country's profile abroad.
"Interestingly we've noted that several PGP clients in Germany have recently sold their properties in Spain and are looking to invest elsewhere. Certainly with our beautiful coastlines, spectacular natural scenery and appealing weather conditions during the harsh European winter months, South Africa can compete with other countries, such as Croatia and Turkey, which are currently of high interest among investors wishing to acquire holiday homes," adds Dr Golding.
Eugene Brink
A recent analysis of traffic on the Lew Geffen Sotheby’s International Realty website shows that the number of international visits to the website is on the up.
The French seem to be the most interested in property in South Africa, with the number of French visitors to the site up by 62%. The number of website visits from people in Australia, Canada and the UK is also up by 52%, 32% and 23% respectively.
Visits by Germans have increased by 14% and American visitors have also increased by 10%.
Properties in the bracket of between R3m to R12m get the most hits from international visitors showing that it’s mainly up-market holiday homes that foreigners are after. There is also growing interest in smaller, lock-up-and-go properties in metropolitan areas suggesting that corporate travellers want a little place to call home when they are in the country on business rather than staying in a hotel.
“There has always been significant interest in SA property from Europeans, particularly people from the United Kingdom. Generally, they buy properties here for holiday purposes or as retirement homes.
“Interest is now more widespread, with people from all over the world looking into buying property here. Where it was once primarily luxury holiday homes in coastal regions that were being snapped up by foreigners, we are seeing an increase in the number of smaller properties in the metro areas of Johannesburg and Cape Town being sold to international investors,” says Jason Rohde, CEO of Lew Geffen Sotheby’s International Realty South Africa.
Rohde points out though that while foreign interest in SA property is growing, overseas buyers are more cautious about actually taking the plunge.
“While it is only the wealthy who are able to afford to buy homes overseas, they are not entirely untouched by economic factors so they aren’t as ready to jump into actually buying property as they perhaps were two years ago. The strengthening of the rand means that the foreigners’ purchasing power isn’t quite what it was either.
“As a result, foreign buyers are more price-sensitive and are looking for value for money. As with local investors, they are also weighing up their options more carefully, taking into account other factors such as security. The home has got to meet their criteria, including price, in order for them to make a commitment.
“Generally speaking, there is an oversupply of housing stock across most price categories, so it is essentially a buyers’ market. Sellers must be realistic about the asking price on their properties if they want to ensure a sale. They must present a fair deal,” Rohde advises.
Dr Andrew Golding, CE of the Pam Golding Property (PGP) group, says South Africa remains a sought-after property investment location among high net worth German investors.
“While the Soccer World Cup has focused increasing worldwide attention on South Africa, the fact is that even amid the global economic downturn South Africa has remained prominently on the radar of German property investors as a market to watch. Over the past year, Gaby Moëssner, who represents PGP in Germany, has seen increasing interest among German investors in leisure or holiday homes in South Africa.
“During this period their main areas of interest for such homes include the Eastern Cape with its exceptional value for money, the Garden Route, and the Cape and its popular Winelands region, particularly its scenic golf estates.
"As a rule and understandably, overseas buyers do not make quick decisions regarding property investment in overseas countries, including South Africa. And the Soccer World Cup – being a once-off event – may not necessarily influence their investment decision, although it certainly is considerably raising our country's profile abroad.
"Interestingly we've noted that several PGP clients in Germany have recently sold their properties in Spain and are looking to invest elsewhere. Certainly with our beautiful coastlines, spectacular natural scenery and appealing weather conditions during the harsh European winter months, South Africa can compete with other countries, such as Croatia and Turkey, which are currently of high interest among investors wishing to acquire holiday homes," adds Dr Golding.
Eugene Brink
Monday, 28 June 2010
What sporting events mean for Property in South Africa
28 Jun 2010
Global sporting events tend to not only significantly raise the status of the game, but also property prices in the host city and bring with them a cornucopia of associated benefits.
This is according to Ya’el Geffen, executive director of Sotheby’s International Realty South Africa, who adds that “past international sporting events have proved that being a host city brings investment in public infrastructure, urban regeneration, a significant social impact and an increase in property values”.
“On average, the previous Olympic host cities of Athens, Sydney, Atlanta and Barcelona all outperformed their national markets, with 19% higher property prices in the five years leading up to the games.
“Similarly, before and after the 2002 World Cup in South Korea, property prices increased by as much as 55% over a one-year period before and after the tournament, with properties near the stadiums rocketing by more than 100% in value.”
Geffen says that the 2010 FIFA World Cup has and is going to have a dramatic impact on the country.
“It is estimated that over 370,000 tourists will visit South Africa for the World Cup. They will stay an average 18 days and each is expected to spend around R30k (US$4,500), therefore injecting much-needed money into the economy. Thanks to the World Cup, over R40bn (UD$5,45bn) has been spent on upgrading the country's infrastructure, including roads, airports and public transport as well as the stadiums.
“The long-term benefits include the increase of tourism and the creation of thousands of new jobs. This will, in due course, translate into thousands of new homebuyers and owners.
“From a property perspective we are very excited,” says Geffen.
Charles Smith of Sotheby’s International Realty in London, host city of the 2012 Summer Olympic Games, recognises that it is not just the immediate rise in property prices that will have a positive impact on the United Kingdom capital – the legacy of the Olympic zone is also crucial.
“Global sporting events can be the catalyst to make major infrastructure projects happen, improving transport connections and leisure facilities, benefitting the city in the long-term long after the games are over,” says Smith.
The announcement that Rio de Janeiro will host both the World Cup in 2014 and the Olympics in 2016 already is having positive consequences.
“Investment in real estate has been rising in Brazil since 2008 and there have been significant increases in land speculation, which have increased residential property prices by 10% to 20%.
“The Abadi (Brazilian Association of Real Estate Management) has reported a greater impact on rising real estate values in areas where the Olympics will be taking place, such as Barra da Tijuca,” says Guilherme F.Caldeira of Brazil Sotheby’s International Realty.
Vancouver also has reported many favourable benefits due to the global exposure of hosting the 2010 Winter Olympics earlier this year.
“The spotlight on Vancouver has educated people about Canada’s sophisticated economy,” says Anna-Maria Retsinas of Sotheby’s International Realty Canada in Vancouver.
“There has been significant foreign investment in and around Vancouver and British Columbia from Europe and Asia as a direct result. In turn, we are experiencing an increasing number of inquiries for our local properties.”
Meanwhile, Grinrod Bank's chief investment officer, Ian Anderson, said the World Cup has “helped South Africa weather the worst recession in 80 years’’.
“Unfortunately, the real estate markets were at the heart of the recession and as such have a fairly bad reputation at the moment.
Anderson noted that on an international basis banks were very generous in their lending and had lent to people that probably shouldn’t have obtained loans in the first place. “The result was that when things got tough, a substantial number of foreclosures took place in the US, Europe and the UK.”
He said that in South Africa banks had been faced with a completely different set of circumstances. “We are not in the same predicament as the rest of the world.”
According to Anderson South African banks had been a lot more circumspect in their lending practices. This was mainly due to restrictions imposed by the IMF and the World Bank. “Our banks performed well from 2003 to 2008.”
He said in the last four years the South African construction industry has been focusing virtually exclusively on delivery for the World Cup, said Anderson, who believes that while there were developers who were itching to develop, they found that there simply wasn’t a construction company available to build anything of any great significance.
In addition, he said that construction costs rose significantly and while he wasn’t sure of the exact figure, he believed these were around the 40% per annum mark, putting a further damper on any development actively. As a result of this, there was a strong balance between supply and demand, particularly in the commercial sector.
There hasn’t been a significant decline in property prices and in his opinion, the South African property market was extremely well positioned at the moment, with interest rates expected to remain stable and no pressure on rentals. “Although there are certain problems in the commercial sector, this is the exception rather that the rule.”
The one area where there is significant over-capacity is hotels. He noted that a recent report predicted that 20% of South African hotels will fail within the next 18 months. The One and Only hotel in Cape Town will at no point during the World Cup be more than 40% occupied, and in fact will only have a 20% occupancy rate during most of the tournament.
It is not just the high-end hotels that will be affected, he said. “While the property market has remained balanced, hotels were the one area that hadn’t.”
FNB Commercial Property Economist John Loos has said that while an influx of foreign tourists would up the interest in the residential property market it was unlikely to be sufficient enough to make a meaningful difference to the overall market.
"One could expect some increase in foreign visitor viewing, and possibly demand too, in some of the luxury areas of Cape Town and the southern Cape for instance.
"However, I remain of the view that this number won't be big enough to make a meaningful difference to the overall residential market of the country," Loos said.
Loos painted an optimistic longer-term picture. "I am very positive about the long-term benefits of the World Cup, along with all the other international events hosted before it, in terms of gradually changing the perceptions of the country and its organisational capacity for the better.
"And insofar as it achieves this, long-term economic growth can benefit from higher interest from investors. Anything that's good for the economy is good for property," he said.
The economist said he remained of the belief that short-term direct impacts in terms of World Cup visitor residential demand would be small in the grander scheme of things.
However, agents and principals report that World Cup visitors as well as locals are indeed taking time out to view properties and enquiries for leisure properties are increasing.
Ling Dobson, Pam Golding Properties’ (PGP) area principal in Knysna, says there’s been a surge in attendance at show days over the past two weekends.
“We have had enquiries from French and Italian visitors who are here for the World Cup, who are mainly interested in properties with sea views in the R3-R5m price range, for use as leisure homes when visiting South Africa on holiday. We are also in contact with an Italian who is travelling to Knysna in two weeks’ time to view properties with a view to purchase. Even just prior to the World Cup we sold a property in Knysna to French buyers from Brenton-on-Sea.”
“However, what is interesting is that suddenly the positive sentiment generally seems to have sparked a dramatic increase in enquiries from South African home buyers from Johannesburg, Durban and Cape Town, as well as local buyers in this area. While this demand is mainly for homes, there are also enquiries for commercial properties, which is a very positive indicator,” she says.
In KwaZulu-Natal, PGP’s Umhlanga office reports strong interest from a number of German investors who are seeking leisure homes in the R5m price range, located close to the beach and with sea views. “This is a group of friends who are all interested in property here. They are very impressed with Umhlanga. In addition, we are assisting a Brazilian buyer, who says this is a fantastic place to buy property, who is looking in the price range up to R1,7m. Another visitor, a young, male UK buyer, is looking for an apartment close to the beach and in the R2m price bracket,” says Elwyn Schenk, PGP’s area principal.
PGP area principal for Rustenburg, Ian Straarup, says overseas buyers are mainly interested in properties in a tranquil, scenic environment, particularly those which have a strong African flavour, for example game farms and smallholdings. “They are looking for value for money and probably properties ranging in size from 15ha, and not necessarily in residential areas.”
Meanwhile from Germany, Gaby Moessner, PGP’s manager based in the Munich area, reports that World Cup Soccer fever is running high with considerable interest being shown in South Africa. “All over Europe and especially in Germany there is huge media exposure for South Africa.
“During 2009 and prior to this event 50% of my clients were those interested in buying a property in South Africa with a view to the World Cup, for example a guesthouse or B&B. These buyers were mainly from Germany, Austria and Switzerland, with the main focus on the Western Cape and Somerset West in particular, with the second highest interest shown in Mpumalanga in areas such as White River and Hoedspruit, with proximity to Kruger Park and value for money of key importance.”
In terms of residential property, Moessner says currently enquiries are mainly for houses and apartments initially for holiday and later for retirement use, in the price range from R2-R3,5m and situated along the Garden Route, Eastern Cape and south coast of KwaZulu-Natal.
“However, these are clients who have already visited South Africa or who are planning a trip after the World Cup. I definitely see good prospects for property sales following this event as many of our buyers first research the market, and may then consider looking at homes for leisure or retirement at competitive prices,” she says.
Eugene Brink and I-Net Bridge
Global sporting events tend to not only significantly raise the status of the game, but also property prices in the host city and bring with them a cornucopia of associated benefits.
This is according to Ya’el Geffen, executive director of Sotheby’s International Realty South Africa, who adds that “past international sporting events have proved that being a host city brings investment in public infrastructure, urban regeneration, a significant social impact and an increase in property values”.
“On average, the previous Olympic host cities of Athens, Sydney, Atlanta and Barcelona all outperformed their national markets, with 19% higher property prices in the five years leading up to the games.
“Similarly, before and after the 2002 World Cup in South Korea, property prices increased by as much as 55% over a one-year period before and after the tournament, with properties near the stadiums rocketing by more than 100% in value.”
Geffen says that the 2010 FIFA World Cup has and is going to have a dramatic impact on the country.
“It is estimated that over 370,000 tourists will visit South Africa for the World Cup. They will stay an average 18 days and each is expected to spend around R30k (US$4,500), therefore injecting much-needed money into the economy. Thanks to the World Cup, over R40bn (UD$5,45bn) has been spent on upgrading the country's infrastructure, including roads, airports and public transport as well as the stadiums.
“The long-term benefits include the increase of tourism and the creation of thousands of new jobs. This will, in due course, translate into thousands of new homebuyers and owners.
“From a property perspective we are very excited,” says Geffen.
Charles Smith of Sotheby’s International Realty in London, host city of the 2012 Summer Olympic Games, recognises that it is not just the immediate rise in property prices that will have a positive impact on the United Kingdom capital – the legacy of the Olympic zone is also crucial.
“Global sporting events can be the catalyst to make major infrastructure projects happen, improving transport connections and leisure facilities, benefitting the city in the long-term long after the games are over,” says Smith.
The announcement that Rio de Janeiro will host both the World Cup in 2014 and the Olympics in 2016 already is having positive consequences.
“Investment in real estate has been rising in Brazil since 2008 and there have been significant increases in land speculation, which have increased residential property prices by 10% to 20%.
“The Abadi (Brazilian Association of Real Estate Management) has reported a greater impact on rising real estate values in areas where the Olympics will be taking place, such as Barra da Tijuca,” says Guilherme F.Caldeira of Brazil Sotheby’s International Realty.
Vancouver also has reported many favourable benefits due to the global exposure of hosting the 2010 Winter Olympics earlier this year.
“The spotlight on Vancouver has educated people about Canada’s sophisticated economy,” says Anna-Maria Retsinas of Sotheby’s International Realty Canada in Vancouver.
“There has been significant foreign investment in and around Vancouver and British Columbia from Europe and Asia as a direct result. In turn, we are experiencing an increasing number of inquiries for our local properties.”
Meanwhile, Grinrod Bank's chief investment officer, Ian Anderson, said the World Cup has “helped South Africa weather the worst recession in 80 years’’.
“Unfortunately, the real estate markets were at the heart of the recession and as such have a fairly bad reputation at the moment.
Anderson noted that on an international basis banks were very generous in their lending and had lent to people that probably shouldn’t have obtained loans in the first place. “The result was that when things got tough, a substantial number of foreclosures took place in the US, Europe and the UK.”
He said that in South Africa banks had been faced with a completely different set of circumstances. “We are not in the same predicament as the rest of the world.”
According to Anderson South African banks had been a lot more circumspect in their lending practices. This was mainly due to restrictions imposed by the IMF and the World Bank. “Our banks performed well from 2003 to 2008.”
He said in the last four years the South African construction industry has been focusing virtually exclusively on delivery for the World Cup, said Anderson, who believes that while there were developers who were itching to develop, they found that there simply wasn’t a construction company available to build anything of any great significance.
In addition, he said that construction costs rose significantly and while he wasn’t sure of the exact figure, he believed these were around the 40% per annum mark, putting a further damper on any development actively. As a result of this, there was a strong balance between supply and demand, particularly in the commercial sector.
There hasn’t been a significant decline in property prices and in his opinion, the South African property market was extremely well positioned at the moment, with interest rates expected to remain stable and no pressure on rentals. “Although there are certain problems in the commercial sector, this is the exception rather that the rule.”
The one area where there is significant over-capacity is hotels. He noted that a recent report predicted that 20% of South African hotels will fail within the next 18 months. The One and Only hotel in Cape Town will at no point during the World Cup be more than 40% occupied, and in fact will only have a 20% occupancy rate during most of the tournament.
It is not just the high-end hotels that will be affected, he said. “While the property market has remained balanced, hotels were the one area that hadn’t.”
FNB Commercial Property Economist John Loos has said that while an influx of foreign tourists would up the interest in the residential property market it was unlikely to be sufficient enough to make a meaningful difference to the overall market.
"One could expect some increase in foreign visitor viewing, and possibly demand too, in some of the luxury areas of Cape Town and the southern Cape for instance.
"However, I remain of the view that this number won't be big enough to make a meaningful difference to the overall residential market of the country," Loos said.
Loos painted an optimistic longer-term picture. "I am very positive about the long-term benefits of the World Cup, along with all the other international events hosted before it, in terms of gradually changing the perceptions of the country and its organisational capacity for the better.
"And insofar as it achieves this, long-term economic growth can benefit from higher interest from investors. Anything that's good for the economy is good for property," he said.
The economist said he remained of the belief that short-term direct impacts in terms of World Cup visitor residential demand would be small in the grander scheme of things.
However, agents and principals report that World Cup visitors as well as locals are indeed taking time out to view properties and enquiries for leisure properties are increasing.
Ling Dobson, Pam Golding Properties’ (PGP) area principal in Knysna, says there’s been a surge in attendance at show days over the past two weekends.
“We have had enquiries from French and Italian visitors who are here for the World Cup, who are mainly interested in properties with sea views in the R3-R5m price range, for use as leisure homes when visiting South Africa on holiday. We are also in contact with an Italian who is travelling to Knysna in two weeks’ time to view properties with a view to purchase. Even just prior to the World Cup we sold a property in Knysna to French buyers from Brenton-on-Sea.”
“However, what is interesting is that suddenly the positive sentiment generally seems to have sparked a dramatic increase in enquiries from South African home buyers from Johannesburg, Durban and Cape Town, as well as local buyers in this area. While this demand is mainly for homes, there are also enquiries for commercial properties, which is a very positive indicator,” she says.
In KwaZulu-Natal, PGP’s Umhlanga office reports strong interest from a number of German investors who are seeking leisure homes in the R5m price range, located close to the beach and with sea views. “This is a group of friends who are all interested in property here. They are very impressed with Umhlanga. In addition, we are assisting a Brazilian buyer, who says this is a fantastic place to buy property, who is looking in the price range up to R1,7m. Another visitor, a young, male UK buyer, is looking for an apartment close to the beach and in the R2m price bracket,” says Elwyn Schenk, PGP’s area principal.
PGP area principal for Rustenburg, Ian Straarup, says overseas buyers are mainly interested in properties in a tranquil, scenic environment, particularly those which have a strong African flavour, for example game farms and smallholdings. “They are looking for value for money and probably properties ranging in size from 15ha, and not necessarily in residential areas.”
Meanwhile from Germany, Gaby Moessner, PGP’s manager based in the Munich area, reports that World Cup Soccer fever is running high with considerable interest being shown in South Africa. “All over Europe and especially in Germany there is huge media exposure for South Africa.
“During 2009 and prior to this event 50% of my clients were those interested in buying a property in South Africa with a view to the World Cup, for example a guesthouse or B&B. These buyers were mainly from Germany, Austria and Switzerland, with the main focus on the Western Cape and Somerset West in particular, with the second highest interest shown in Mpumalanga in areas such as White River and Hoedspruit, with proximity to Kruger Park and value for money of key importance.”
In terms of residential property, Moessner says currently enquiries are mainly for houses and apartments initially for holiday and later for retirement use, in the price range from R2-R3,5m and situated along the Garden Route, Eastern Cape and south coast of KwaZulu-Natal.
“However, these are clients who have already visited South Africa or who are planning a trip after the World Cup. I definitely see good prospects for property sales following this event as many of our buyers first research the market, and may then consider looking at homes for leisure or retirement at competitive prices,” she says.
Eugene Brink and I-Net Bridge
Friday, 4 June 2010
Threats to SA's Property Market
PRETORIA - Steep increases in municipal rates, electricity and service charges will be one of the factors to watch in the property market according to Absa's senior Property Analyst Jacques du Toit. This and possible increases in interest rates were two of the potential threats to the property market in the coming months.
Du Toit recently addressed the 2010 ARELLO District 6 meeting in Sandton about the prospects of the local housing market going forward and said it was unlikely that the property market was heading for a boom, despite the recent recovery in house prices. The Association of Real Estate Licence Law Officials (ARELLO) is an international organisation and South Africa forms part of ARELLO District 6, which consists of non-American countries.
In a post-conference interview with Realestateweb, Du Toit said he expected the recovery in the housing market to be gradual and dependent on the income position of households. "Debt levels are high. There have been job losses and large scale unemployment during the course of 2009. Also in the first quarter of 2010 the latest figures from Statistics SA show that there has been another round of job losses. This has an impact on the disposable income of households and while this situation persists the property market will remain under pressure."
Unlike some analysts Du Toit doesn't believe that we are headed for a double recessionary dip, but cautions that the situation in Europe may have a macroeconomic spill-over, which will impact on South Africa. "At this stage it doesn't look like this will have a major effect on South Africa, but as far as house price growth is concerned we are expecting somewhat slower year-on-year growth in the second half of 2010."
Du Toit notes that the leisure market has been slow to recover and that the coastal market has remained sluggish because of that. This however may present opportunities for investors who are looking for "good buys".
A hike in interest rates may also become a factor in the second half of 2011. "We feel that is when inflationary pressures will start to escalate, especially due to electricity and other service hikes and government may increase interest rates in an effort to curb inflation."
We asked how big an impact he expects electricity and municipal rate hikes to have on homeowners: "I believe this is going to play an increasing role in the choices prospective homebuyers make in the future. We'll be seeing major hikes in electricity and the resulting impact on the cost of running a household. There is also the issue of increasing rates, and buyers will take this into account when deciding on a property."
YDL Investment Property CEO Anton de Leeuw agrees with Du Toit's analysis. "From an investment perspective there has been a significant drop in the buy-to-let market. Investors are worried about returns and they are worried that prices may contract even further. What we've found with our client base is that there has been a significant shift to buying distressed properties, where properties are bought at substantial discount to market value. "
De Leeuw says despite the difficult market conditions their investors are still looking at average yields of about 10%, but agrees that profits in the property market are to be made in the long haul, as quick turnaround speculative profit opportunities are becoming harder to come by.
Du Toit recently addressed the 2010 ARELLO District 6 meeting in Sandton about the prospects of the local housing market going forward and said it was unlikely that the property market was heading for a boom, despite the recent recovery in house prices. The Association of Real Estate Licence Law Officials (ARELLO) is an international organisation and South Africa forms part of ARELLO District 6, which consists of non-American countries.
In a post-conference interview with Realestateweb, Du Toit said he expected the recovery in the housing market to be gradual and dependent on the income position of households. "Debt levels are high. There have been job losses and large scale unemployment during the course of 2009. Also in the first quarter of 2010 the latest figures from Statistics SA show that there has been another round of job losses. This has an impact on the disposable income of households and while this situation persists the property market will remain under pressure."
Unlike some analysts Du Toit doesn't believe that we are headed for a double recessionary dip, but cautions that the situation in Europe may have a macroeconomic spill-over, which will impact on South Africa. "At this stage it doesn't look like this will have a major effect on South Africa, but as far as house price growth is concerned we are expecting somewhat slower year-on-year growth in the second half of 2010."
Du Toit notes that the leisure market has been slow to recover and that the coastal market has remained sluggish because of that. This however may present opportunities for investors who are looking for "good buys".
A hike in interest rates may also become a factor in the second half of 2011. "We feel that is when inflationary pressures will start to escalate, especially due to electricity and other service hikes and government may increase interest rates in an effort to curb inflation."
We asked how big an impact he expects electricity and municipal rate hikes to have on homeowners: "I believe this is going to play an increasing role in the choices prospective homebuyers make in the future. We'll be seeing major hikes in electricity and the resulting impact on the cost of running a household. There is also the issue of increasing rates, and buyers will take this into account when deciding on a property."
YDL Investment Property CEO Anton de Leeuw agrees with Du Toit's analysis. "From an investment perspective there has been a significant drop in the buy-to-let market. Investors are worried about returns and they are worried that prices may contract even further. What we've found with our client base is that there has been a significant shift to buying distressed properties, where properties are bought at substantial discount to market value. "
De Leeuw says despite the difficult market conditions their investors are still looking at average yields of about 10%, but agrees that profits in the property market are to be made in the long haul, as quick turnaround speculative profit opportunities are becoming harder to come by.
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