Global house prices increased by only 1.8 percent in the year to March, the lowest annual rate of growth recorded since Q4 2009.
Pam Golding Properties reports that Cape Town's Atlantic Seaboard area including City Bowl, remains relatively recession-proof.
According to the Knight Frank Global House Price Index Q1 2011, in regional terms, Asia remains the top performing continent recording 8.4 percent growth over the last 12 months. This is down from 17.8 percent a year earlier.
Liam Bailey, head of residential research at Knight Frank told Property24 that overall, price growth for the countries tracked within the index has remained in positive territory since Q4 2009.
This he says has been largely as a result of the Asian housing market boom, which led in some cases to annual price inflation of between 30 and 40 percent in locations such as Hong Kong and Singapore.
“The anti-inflationary measures taken by Asian governments to cool their overheated housing markets in 2010 and 2011 have started to take effect and this has had a dampening effect on the index’s overall price growth,” says Bailey.
In Q1 2010, Singapore recorded annual price inflation of 24.1% and this fell to 10.5 percent in Q1 2011. House price growth in Hong Kong declined from 32.8 percent to 24.2 percent over the same period, he says.
Other strong performing countries where governments are fighting to pull inflationary pressures under control were India (21.9 percent) and Taiwan (14.3 percent).
The weakest region was North America which saw a fall of 0.4 percent in values in the year to Q1 2011.
House prices in South Africa fell by 1.3 percent in the year to March 2011 as recorded in the index. In March 2010, the average house price was R1 051 997 but by March 2011, this figure had fallen to R1 038 322. In the three months to March 2011, the average house price rose by 1.5 percent, explains Bailey.
Asked where the South African market is headed in the next few months to end of 2011, he says the market presents risks and opportunities.
Globally, sovereign debt concerns in US and Europe could weaken investor confidence. Secondly, interest rates in South Africa may have bottomed out and may start to rise in 2012.
“This could threaten first time buyer demand, which has been solid in recent months and an important driver of market activity.”
On opportunities, Bailey says there is growing evidence that an increasing number of homeowners are selling due to financial pressure and opting to rent. This move could boost supply and may attract more buy-to-let investors to the sales market.
“South Africa’s trade links with China (and other BRICs nations) have strengthened considerably in the past two years.”
This modern double-storey home in Mostertsdrift, Stellenbosch, is on the market exclusively through Pam Golding Properties, priced at R18.5 million. The home is set on 2000sqm, and was built in 2008. It offers six en-suite bedrooms.
According to the Department of Trade of Industry two-way trade between China and South Africa reached R119.7 billion in 2009. This means China surpassed the US as South Africa’s largest trading partner.
Bailey says the strongest performing housing markets have seen a convergence of factors such as high demand, constrained supply, significant wealth generation and benign economic conditions.
“Supply can be controlled but housing markets are also intrinsically linked to confidence.”
Government and monetary policy decisions such as maintaining interest rates at historical lows has helped to keep the momentum going in the western housing markets.
“We expect to see the current slowdown in global housing markets to continue, hitting a low point in Q4 2011 (assuming the Asian markets continue to cool and the government intervention is successful) but with a slow recovery in global house prices taking place in 2012,” adds Bailey.
Absa Home Loans property analyst, Jacques du Toit says the global housing market is very mixed. Some countries are showing growth while others are still under pressure.
“In South Africa, house price growth is very low at this stage largely as a result of the state of consumer finances,” says Du Toit.
He says household debt to disposable income is still relatively high at almost 77 percent. Many consumers are struggling with bad debt making it difficult for them to obtain credit.
Du Toit reckons the property market will continue to reflect economic and consumer finance conditions.
“I expect very low nominal price growth for 2011 with house prices expected to drop in real terms this year,” says Du Toit.
It appears that the global housing market continues to be somewhat in the doldrums and this seems likely to continue for the foreseeable future, says Dr Andrew Golding, chief executive officer of Pam Golding Properties.
Aerial view of Umhlanga coastline: Elwyn Schenk, Pam Golding Properties area principal in Umhlanga, KwaZulu-Natal says this market is resilient. Its wide appeal and strong commercial growth has attracted those moving in from other areas in the Durban surrounds. Home buyers are a mix of end users and investors across all sectors of the market.
“Our housing market started to turn down almost a year before the start of the global economic downturn and we have been in this down cycle for the best part of four years,” says Dr Golding.
He says the residential property market has held up relatively well from a pricing point of view with prices (generally) only between 10 and 20 percent down off the peak at the height of the cycle.
“The market remains subdued but resilient and this status quo is likely to remain for at least the rest of 2011 and possibly well into 2012.”
Dr Golding says they are seeing an increase in sales numbers and activity levels but the upward trend is slow rather than a rapid recovery.
He adds that key to the faster improvement in the residential market will be a relaxation of the current stringent bank lending criteria. – Denise Mhlanga
We offer property investment opportunities throughout South Africa and Europe
Friday, 26 August 2011
Thursday, 11 August 2011
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.
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.
Friday, 29 July 2011
The Wealthy still favours property
High Net Worth Individuals globally still place property at the top of their investments lists, on average 35 percent of their assets.
The 4.4ha smallholding Piedmont wine farm situated at the foot of the Helderberg Mountain between Stellenbosch and Somerset West. Asking price R25 million.
According to the Knight Frank Wealth Report 2011, property remains close to HNWI with property accounting for 35 percent of their investment portfolios.
The report suggests that the only thing these wealthy individuals would rather put their money into besides property is their own businesses.
In South Africa, HNWI at the moment are holding back from investing in almost all kinds of assets including property, said Lanice Steward, managing director of Knight Frank’s South African associate, Anne Porter Properties.
“The favoured channels for investment are gold, commodities (especially coal, steel and platinum),” said Steward.
She said there is a trend among shrewd investors to build up their portfolios by buying repossessed properties. These properties often sell at 30 percent to 40 percent below their previous values hence the boom in the auction property market.
“SA investors should therefore follow the HNWI as stated in the report and keep significant chunk of assets in property.”
Steward explained that the report indicates a growing conservatism and risk-aversion among HNWI investors. They favour already successful property investments rather than trying riskier or unproven areas.
“South African equities are attracting good capital inflows because the returns are above average when compared to those of the world and can be quickly disposed of if the market sentiment changes.”
She said they remain confident that the appeal of property investments in locations such as Constantia and Stellenbosch in the Cape and Kloof in Kwa-Zulu Natal will continue to attract foreign buyers.
Asked about the future of residential property in South Africa, Steward said the first signs of market recovery are now evident. However, this will take time and they expect a slow improvement throughout 2012 with a return to normal trading conditions by mid-2013.
Wealthy individuals have a knack for lifestyle living. They like to buy vineyards where they can not only produce wines but enjoy a unique residential appeal to suit their status.
This wine farm located at the top of the Helshootge Pass is selling for R38 million.
Steward shares the sentiment adding that previously, four big wine estates in Stellenbosch were acquired by foreign investors. The prospects of secure residential developments on wine and olive estates still appear to be reasonable with slow but steady sales, she said.
“SA vineyards currently have an average price of US$80 000 per hectare,” said Steward.
Estate agents operating in Stellenbosch say wine estates are in demand thanks to the region’s fertile soil and renowned wines.
Pam Golding Properties (PGP) area manager Louise Varga said the wine industry has helped to create some of the most spectacular real estate in Stellenbosch.
“The cost of wine farms depend on location, the size of the farm and scale of the wine making operation,” said Varga.
As an example, she said a large scale farm of about 100ha with a state-of-the-art, high volume cellar can cost approximately R30 million. A small holding of under 5ha might also sell close to the same price.
“Pricing depends on the wine label prominence, the size of export contracts, the quality of water supply in the farm and adds-on such as a restaurant, wedding venue, conference centre and guesthouse elements.”
PGP has on its book a 49ha boutique winery on the Old Paarl Road in Stellenbosch with an established vineyard and orchards. The asking price is R23 million with features such as a restaurant, wedding venue, a small conference facility catering for up to 16 people, a deli and art gallery.
Buyers can also choose from a variety of stock in the Boland and Overberg regions with prices ranging between R4.85 million and R7.8 million for 4.5ha. Investors enjoy the lifestyle of a working farm contained within the safety and convenience of a secure estate.
Located on the Old Paarl and Kraaifontein in Stellenbosch, this wine farm is selling for R23 million.
The Knight Frank report shows demand for vineyards has gathered pace in the past five years. Wealthy vineyard owners fall into two groups – the majority of buyers looking for a holiday house with a few hectares of vines and those who want to produce wine on a larger scale.
The overall prices of vineyards will be affected by commercial vineyard land values in line with bulk wine prices. Furthermore, the report states that although areas producing the best quality wines experience less volatility, bulk wine prices moves are likely to affect the property value of boutique wineries.
According to the Knight Frank Vineyard Index, the Western Cape region in SA is ranked as a developed property market with good buildings, possibly Cape Dutch-style. A 20 to 30 ha of vineyards is valued at US$82 00/ha.
The priciest in the index being Bordeaux and the Dordogne France, classic chateau style featuring six bedrooms , 2 to 20ha priced at US$642 000/ha. – Denise Mhlanga
The 4.4ha smallholding Piedmont wine farm situated at the foot of the Helderberg Mountain between Stellenbosch and Somerset West. Asking price R25 million.
According to the Knight Frank Wealth Report 2011, property remains close to HNWI with property accounting for 35 percent of their investment portfolios.
The report suggests that the only thing these wealthy individuals would rather put their money into besides property is their own businesses.
In South Africa, HNWI at the moment are holding back from investing in almost all kinds of assets including property, said Lanice Steward, managing director of Knight Frank’s South African associate, Anne Porter Properties.
“The favoured channels for investment are gold, commodities (especially coal, steel and platinum),” said Steward.
She said there is a trend among shrewd investors to build up their portfolios by buying repossessed properties. These properties often sell at 30 percent to 40 percent below their previous values hence the boom in the auction property market.
“SA investors should therefore follow the HNWI as stated in the report and keep significant chunk of assets in property.”
Steward explained that the report indicates a growing conservatism and risk-aversion among HNWI investors. They favour already successful property investments rather than trying riskier or unproven areas.
“South African equities are attracting good capital inflows because the returns are above average when compared to those of the world and can be quickly disposed of if the market sentiment changes.”
She said they remain confident that the appeal of property investments in locations such as Constantia and Stellenbosch in the Cape and Kloof in Kwa-Zulu Natal will continue to attract foreign buyers.
Asked about the future of residential property in South Africa, Steward said the first signs of market recovery are now evident. However, this will take time and they expect a slow improvement throughout 2012 with a return to normal trading conditions by mid-2013.
Wealthy individuals have a knack for lifestyle living. They like to buy vineyards where they can not only produce wines but enjoy a unique residential appeal to suit their status.
This wine farm located at the top of the Helshootge Pass is selling for R38 million.
Steward shares the sentiment adding that previously, four big wine estates in Stellenbosch were acquired by foreign investors. The prospects of secure residential developments on wine and olive estates still appear to be reasonable with slow but steady sales, she said.
“SA vineyards currently have an average price of US$80 000 per hectare,” said Steward.
Estate agents operating in Stellenbosch say wine estates are in demand thanks to the region’s fertile soil and renowned wines.
Pam Golding Properties (PGP) area manager Louise Varga said the wine industry has helped to create some of the most spectacular real estate in Stellenbosch.
“The cost of wine farms depend on location, the size of the farm and scale of the wine making operation,” said Varga.
As an example, she said a large scale farm of about 100ha with a state-of-the-art, high volume cellar can cost approximately R30 million. A small holding of under 5ha might also sell close to the same price.
“Pricing depends on the wine label prominence, the size of export contracts, the quality of water supply in the farm and adds-on such as a restaurant, wedding venue, conference centre and guesthouse elements.”
PGP has on its book a 49ha boutique winery on the Old Paarl Road in Stellenbosch with an established vineyard and orchards. The asking price is R23 million with features such as a restaurant, wedding venue, a small conference facility catering for up to 16 people, a deli and art gallery.
Buyers can also choose from a variety of stock in the Boland and Overberg regions with prices ranging between R4.85 million and R7.8 million for 4.5ha. Investors enjoy the lifestyle of a working farm contained within the safety and convenience of a secure estate.
Located on the Old Paarl and Kraaifontein in Stellenbosch, this wine farm is selling for R23 million.
The Knight Frank report shows demand for vineyards has gathered pace in the past five years. Wealthy vineyard owners fall into two groups – the majority of buyers looking for a holiday house with a few hectares of vines and those who want to produce wine on a larger scale.
The overall prices of vineyards will be affected by commercial vineyard land values in line with bulk wine prices. Furthermore, the report states that although areas producing the best quality wines experience less volatility, bulk wine prices moves are likely to affect the property value of boutique wineries.
According to the Knight Frank Vineyard Index, the Western Cape region in SA is ranked as a developed property market with good buildings, possibly Cape Dutch-style. A 20 to 30 ha of vineyards is valued at US$82 00/ha.
The priciest in the index being Bordeaux and the Dordogne France, classic chateau style featuring six bedrooms , 2 to 20ha priced at US$642 000/ha. – Denise Mhlanga
What to ask when buying Property ?
Property remains a viable asset class in which to invest and still forms one of the most important investment cornerstones for South Africans. For those who are currently looking at investing in a property, the timing couldn’t be better.
Since buyers’ market conditions prevail, those who do their homework thoroughly and follow sound investment advice are sure to reap solid returns in the long run.
There is no doubt that South Africans are spoilt for choice when it comes to property investment options. From bachelor flats and apartments to game farms and small holdings and everything in between, buyers have a range of property types from which to choose.
However, location remains the most important factor when purchasing a property – no matter what type of property it is – and so buyers need to select the area in which they invest carefully. Buyers also need to take the time to investigate the relevant properties on offer in their area of choice and compare the costs per square metre, the fittings and finishes etc.
When looking to invest in a residential property as a primary home, buyers need to consider what their needs are and identify which accommodation options best suit their requirements. Those buyers looking to invest in leisure or rental property will have completely different requirements to buy-to-live purchasers and those who are looking to buy vacant land.
For example, first time, single buyers looking to get their foot in the door should consider investing in an apartment while townhouses, on the other hand, are an ideal property type for young couples or those wanting to scale down for retirement.
Those purchasing a property in a sectional-title scheme or apartment building should check the rules and regulations governing the building or scheme, particularly ones regarding pets, visitor access, parking and maintenance.
While single detached dwellings are by far the most common form of housing in South Africa, gated communities are another popular option of freehold property, because homeowners often have access to a range of facilities and amenities within the estate. These kinds of properties are very popular among families or young couples who want to start a family in the near future. This is because of the lifestyle elements they offer where children are free to ride their bikes around the neighbourhood, play in the communal parks or play areas with the security of the estate to ensure residents safety.
No matter what type of property buyers are considering purchasing; there are some questions buyers need to ask before making one of the biggest financial commitments of a lifetime. These include:
Why is this a good area in which to invest?
•Are property values appreciating in the area? By how much?
•Is the neighbourhood well maintained?
•Is the neighbourhood safe?
•Are more and more houses being built or bought in the area?
•Is the area mostly zoned for residential properties?
•Are roads well maintained and is there a proper infrastructure in place?
Other important location considerations include:
•Is the area zoned for heavy commercial development?
•Are there noisy highways, airports, or railroads nearby?
•Is there heavy traffic in the area?
•Are future highways or developments planned within the area?
•Are there wastewater plants or landfills nearby?
When buying vacant land, buyers should ask the following questions:
•Are sewer and water lines available?
•How much fill removal or fill replacement is necessary?
•The cost of removing large rocks and boulders in order to build?
•Is there proper drainage on the land?
•Is the soil suitable for construction?
At the end of the day, a good investment can only be assured if a buyer has done all the necessary homework and comparisons and is sure that the investment they are making is worth the financial commitment they are laying down to acquire it. While the recession has meant that property is not appreciating at the rate it once was, astute property investments still have the ability to provide investors with solid gains.
*Adrian Goslett is the CEO of RE/MAX of Southern Africa
Since buyers’ market conditions prevail, those who do their homework thoroughly and follow sound investment advice are sure to reap solid returns in the long run.
There is no doubt that South Africans are spoilt for choice when it comes to property investment options. From bachelor flats and apartments to game farms and small holdings and everything in between, buyers have a range of property types from which to choose.
However, location remains the most important factor when purchasing a property – no matter what type of property it is – and so buyers need to select the area in which they invest carefully. Buyers also need to take the time to investigate the relevant properties on offer in their area of choice and compare the costs per square metre, the fittings and finishes etc.
When looking to invest in a residential property as a primary home, buyers need to consider what their needs are and identify which accommodation options best suit their requirements. Those buyers looking to invest in leisure or rental property will have completely different requirements to buy-to-live purchasers and those who are looking to buy vacant land.
For example, first time, single buyers looking to get their foot in the door should consider investing in an apartment while townhouses, on the other hand, are an ideal property type for young couples or those wanting to scale down for retirement.
Those purchasing a property in a sectional-title scheme or apartment building should check the rules and regulations governing the building or scheme, particularly ones regarding pets, visitor access, parking and maintenance.
While single detached dwellings are by far the most common form of housing in South Africa, gated communities are another popular option of freehold property, because homeowners often have access to a range of facilities and amenities within the estate. These kinds of properties are very popular among families or young couples who want to start a family in the near future. This is because of the lifestyle elements they offer where children are free to ride their bikes around the neighbourhood, play in the communal parks or play areas with the security of the estate to ensure residents safety.
No matter what type of property buyers are considering purchasing; there are some questions buyers need to ask before making one of the biggest financial commitments of a lifetime. These include:
Why is this a good area in which to invest?
•Are property values appreciating in the area? By how much?
•Is the neighbourhood well maintained?
•Is the neighbourhood safe?
•Are more and more houses being built or bought in the area?
•Is the area mostly zoned for residential properties?
•Are roads well maintained and is there a proper infrastructure in place?
Other important location considerations include:
•Is the area zoned for heavy commercial development?
•Are there noisy highways, airports, or railroads nearby?
•Is there heavy traffic in the area?
•Are future highways or developments planned within the area?
•Are there wastewater plants or landfills nearby?
When buying vacant land, buyers should ask the following questions:
•Are sewer and water lines available?
•How much fill removal or fill replacement is necessary?
•The cost of removing large rocks and boulders in order to build?
•Is there proper drainage on the land?
•Is the soil suitable for construction?
At the end of the day, a good investment can only be assured if a buyer has done all the necessary homework and comparisons and is sure that the investment they are making is worth the financial commitment they are laying down to acquire it. While the recession has meant that property is not appreciating at the rate it once was, astute property investments still have the ability to provide investors with solid gains.
*Adrian Goslett is the CEO of RE/MAX of Southern Africa
Friday, 22 July 2011
Property investors becoming 'jittery'
The spate of comments from several of the world’s leading central bankers, including from South African Reserve Bank, warning that recovery from the financial crisis will be protracted and that there are real risks in the European banking system, which "poses a great threat to global financial stability”, is anticipated to make investors jittery says Auction Alliance CEO, Rael Levitt.
Marcus warns that even a partial debt default by troubled EU economies could trigger a “systemic banking crisis”. Her view that there are implications for the domestic economy is already unnerving investors and making them ask what the Reserve Bank will do about rising inflation.
A crisis in Greece has been temporarily averted, but according to Marcus, threats remain, not only from Greece but from other peripheral euro zone economies. "These unusually negative comments emanating from the SARB make one think that interest rates will rise sooner than originally predicted and banks may slowdown further on new funding", says Levitt.
The news about the economy seems to be worsening and people across the world are concerned that they will be personally affected by it. "When you consider how the cost of living has escalated, people have in actual fact been affected by the current economic turmoil and despite low interest rates, residential property prices have not risen".
According to Levitt, "there are many ways to stay financially solvent in bad economic times, and although it may not be easy, for some, it can be a time of great opportunity". The most important step is to curtail unnecessary spending and start investing smartly by taking advantage of volatile markets.
‘’Currently, interest rates on savings accounts are not ideal, but some gains are better than none at all. Having a savings account, or at the very least an emergency fund, is a smart decision in today’s economy and can protect you in the event of a further global financial meltdown or if a personal crisis strikes. Paying down any high interest rates debts should be a priority right now, particularly if they are draining your finances every month. If you do have a problem with a high debt to income ratio, you may want to consider a consolidation loan to keep those interest rates in check and to help you save money each month’’, says Levitt.
Levitt advises that if you want to keep growing your finances in hard times, there are several methods that can be utilised to fight rising inflation. The most common one is housing, given the current state of property values and the vast amount of distressed sales. "This is a great time to pick up an extra house if you have the funds, and this can easily be turned into a rental property that will generate income", says Levitt whose company was founded in 1992, in the midst of a global financial downturn.
Navigating the waters of uncertainty is never easy, particularly when potential sovereign debt failures are the talk of the entire world. However, if you watch your spending and take the time to see how you can make your money work for you, these are the times when real money is made. Investors in downturns take refuge in real estate which will rise with inflation and can be purchased at great prices. The golden period to get into the market comes up whenever markets get jittery", says Levitt.
Marcus warns that even a partial debt default by troubled EU economies could trigger a “systemic banking crisis”. Her view that there are implications for the domestic economy is already unnerving investors and making them ask what the Reserve Bank will do about rising inflation.
A crisis in Greece has been temporarily averted, but according to Marcus, threats remain, not only from Greece but from other peripheral euro zone economies. "These unusually negative comments emanating from the SARB make one think that interest rates will rise sooner than originally predicted and banks may slowdown further on new funding", says Levitt.
The news about the economy seems to be worsening and people across the world are concerned that they will be personally affected by it. "When you consider how the cost of living has escalated, people have in actual fact been affected by the current economic turmoil and despite low interest rates, residential property prices have not risen".
According to Levitt, "there are many ways to stay financially solvent in bad economic times, and although it may not be easy, for some, it can be a time of great opportunity". The most important step is to curtail unnecessary spending and start investing smartly by taking advantage of volatile markets.
‘’Currently, interest rates on savings accounts are not ideal, but some gains are better than none at all. Having a savings account, or at the very least an emergency fund, is a smart decision in today’s economy and can protect you in the event of a further global financial meltdown or if a personal crisis strikes. Paying down any high interest rates debts should be a priority right now, particularly if they are draining your finances every month. If you do have a problem with a high debt to income ratio, you may want to consider a consolidation loan to keep those interest rates in check and to help you save money each month’’, says Levitt.
Levitt advises that if you want to keep growing your finances in hard times, there are several methods that can be utilised to fight rising inflation. The most common one is housing, given the current state of property values and the vast amount of distressed sales. "This is a great time to pick up an extra house if you have the funds, and this can easily be turned into a rental property that will generate income", says Levitt whose company was founded in 1992, in the midst of a global financial downturn.
Navigating the waters of uncertainty is never easy, particularly when potential sovereign debt failures are the talk of the entire world. However, if you watch your spending and take the time to see how you can make your money work for you, these are the times when real money is made. Investors in downturns take refuge in real estate which will rise with inflation and can be purchased at great prices. The golden period to get into the market comes up whenever markets get jittery", says Levitt.
Friday, 24 June 2011
Financial pressure as rentals improve
At least 25% of houses sold in the second quarter of this year were the result of financial pressure on the household. According to John Loos, property strategist at FNB Home Loans, financial stress and pessimism about the future had contributed to the rising stock levels for estate agents.
He says that in the first quarter, low interest rates had been cited by estate agents as a key factor that influenced the outlook for home sales but in the second quarter this changed and houses are available on the market because the owners want to reduce their monthly costs.
Loos says that when interest rates rise – expected later this year or early next year – the financial strain will be even greater for homeowners who are already hard-pressed to meet their monthly commitments.
He says that regional property demand tends to be seasonal and that generally the outlook among estate agents remains rather low in winter.
In a separate development, Saul Geffen chief executive of ooba, one of the country’s mortgage originators, says that banks are continuing to relax their lending criteria and this is having an impact on sales figures.
He says the initial decline ratio fell by 5,8% in the second quarter of the year but remained high at 47,1%.
Loos says that fewer agents see the low interest rates as being a significant factor in boosting house sales and emphasised that agents point out that there has been a significant rise in the number of people seeking to downscale their living costs.
Meanwhile credit bureau and property rental management company, TPN says that 81% of tenants are currently in good standing with their landlords. According to TPN this is a sign that residential tenants are managing their credit better than in previous years.
The rental price bracket of between R3k and R7k proved to be performing particularly well with 84% of tenants in good standing and paying their rent on time.
However, in the price bracket below R3k as well as those above R12k had deteriorated and it says that this is further evidence of the financial strains that are currently facing many consumers. Only 75% of tenants living in homes costing less that R3k a month were in good standing while the percentage of paying more than R12k had fallen to 74%.
Non-payment of rental in both these brackets was 14%. Furthermore in the R12k-plus bracket only 67% of people paid on time while those who pay late was also at 14%.
It says the residential property markets in the Eastern and Western Cape continue to out-perform the markets in Gauteng and KwaZulu-Natal.
He says that in the first quarter, low interest rates had been cited by estate agents as a key factor that influenced the outlook for home sales but in the second quarter this changed and houses are available on the market because the owners want to reduce their monthly costs.
Loos says that when interest rates rise – expected later this year or early next year – the financial strain will be even greater for homeowners who are already hard-pressed to meet their monthly commitments.
He says that regional property demand tends to be seasonal and that generally the outlook among estate agents remains rather low in winter.
In a separate development, Saul Geffen chief executive of ooba, one of the country’s mortgage originators, says that banks are continuing to relax their lending criteria and this is having an impact on sales figures.
He says the initial decline ratio fell by 5,8% in the second quarter of the year but remained high at 47,1%.
Loos says that fewer agents see the low interest rates as being a significant factor in boosting house sales and emphasised that agents point out that there has been a significant rise in the number of people seeking to downscale their living costs.
Meanwhile credit bureau and property rental management company, TPN says that 81% of tenants are currently in good standing with their landlords. According to TPN this is a sign that residential tenants are managing their credit better than in previous years.
The rental price bracket of between R3k and R7k proved to be performing particularly well with 84% of tenants in good standing and paying their rent on time.
However, in the price bracket below R3k as well as those above R12k had deteriorated and it says that this is further evidence of the financial strains that are currently facing many consumers. Only 75% of tenants living in homes costing less that R3k a month were in good standing while the percentage of paying more than R12k had fallen to 74%.
Non-payment of rental in both these brackets was 14%. Furthermore in the R12k-plus bracket only 67% of people paid on time while those who pay late was also at 14%.
It says the residential property markets in the Eastern and Western Cape continue to out-perform the markets in Gauteng and KwaZulu-Natal.
Inflation up but interest rates steady
The consumer inflation rate was higher than predicted, rising to 4,6% in May and up from 4,2% in April but economists have not yet revised predictions on a hike in interest rates by the Monetary Policy Committee of the South African Reserve Bank.
SARB’s repo rate was cut to just 5,5% in November last year, dropping interest rates for consumers to a record low of 9%. A spike in interest rates will place considerable pressure on property owners, as many of them try to downscale their costs in orderto meet their monthly commitments.
Elna Moolman, an economist at BJM Renaissance, says that the latest data is unlikely to mean that the interest rates will start to rise earlier than predicted even though the SARB has revised its estimates for higher inflation over the coming months.
The figures indicate that the inflation rate will remain within the Bank’s target range of between 3% and 6% for the rest of this year but will increase to about 6,3% early next year when rates are expected to be hiked.
The spike in inflation rates has been prompted by higher-than-expected increases in food prices, which are up 1,7% month-on-month. Food prices have a weighting of about 15% in the price basket used to calculate the average inflation rate and these rose by 6,3% year-on-year.
Moolman says that adverse weather conditions prevailing throughout the country, coupled with a fall in output from the agricultural sector were contributing to higher food prices.
Higher electricity prices, along with a sharp increase in fuel prices had also contributed to the spike in the inflation rate. Electricity prices have risen by 19% in May compared with a year ago.
SARB’s repo rate was cut to just 5,5% in November last year, dropping interest rates for consumers to a record low of 9%. A spike in interest rates will place considerable pressure on property owners, as many of them try to downscale their costs in orderto meet their monthly commitments.
Elna Moolman, an economist at BJM Renaissance, says that the latest data is unlikely to mean that the interest rates will start to rise earlier than predicted even though the SARB has revised its estimates for higher inflation over the coming months.
The figures indicate that the inflation rate will remain within the Bank’s target range of between 3% and 6% for the rest of this year but will increase to about 6,3% early next year when rates are expected to be hiked.
The spike in inflation rates has been prompted by higher-than-expected increases in food prices, which are up 1,7% month-on-month. Food prices have a weighting of about 15% in the price basket used to calculate the average inflation rate and these rose by 6,3% year-on-year.
Moolman says that adverse weather conditions prevailing throughout the country, coupled with a fall in output from the agricultural sector were contributing to higher food prices.
Higher electricity prices, along with a sharp increase in fuel prices had also contributed to the spike in the inflation rate. Electricity prices have risen by 19% in May compared with a year ago.
Buyers moving South
Cape residential property is about 25 percent to 30 percent more expensive than residential property in Gauteng; a fact, says Anton du Plessis, CEO of Vineyard Estates, that does not deter many Gauteng buyers from moving south, even though they may have to downscale quite appreciably to make such a move possible।
"Gauteng currently," said du Plessis recently on SABC’s Expresso Morning Show, "offers better value for money on plot sizes, floor areas and finishes but, of course, Cape Town has scenery, the sea, winelands and much else. If it is a lifestyle rather than financial reward that is now your priority, this is where you will probably find it."
Most upcountry buyers, he said, arrive in Cape Town with a set budget in mind. Once they discover that they cannot buy the lifestyle that they want, at the price they had anticipated, those buyers who can afford to raise their sights often do so.
"More often than not, a buyer from Gauteng who indicates a maximum spend of, say, R4-million initially will end up buying for R5-million and more."
The housing market in and around Johannesburg, said du Plessis, still has ample space at its disposal. Even in the built-up areas there is still huge scope for densification and redevelopment and whether the buyer looks north, south, east or west, land for expansion is not hard to find. In many Gauteng suburbs the problem lies not in a lack of subdivisions, but in the provision of services to accommodate the additional load.
"By contrast, the Cape Peninsula’s middle class suburbs have been crammed into the limited space between the mountain and the M5 freeway on the east and the mountain and the sea in most other areas.
"As the demand, however, is still strong, and the supply relatively limited, prices will inevitably be far higher than in equivalent sized homes in and around Johannesburg.
"Having said that," du Plessis added, "it is currently very much a buyers’ market and where sellers are distressed good properties can be snapped up for up to 25 percent less than their real value."
"This will not last forever. There are now signs that by the second half of 2012 (as I have said previously) today’s prices could look very low indeed."
"Gauteng currently," said du Plessis recently on SABC’s Expresso Morning Show, "offers better value for money on plot sizes, floor areas and finishes but, of course, Cape Town has scenery, the sea, winelands and much else. If it is a lifestyle rather than financial reward that is now your priority, this is where you will probably find it."
Most upcountry buyers, he said, arrive in Cape Town with a set budget in mind. Once they discover that they cannot buy the lifestyle that they want, at the price they had anticipated, those buyers who can afford to raise their sights often do so.
"More often than not, a buyer from Gauteng who indicates a maximum spend of, say, R4-million initially will end up buying for R5-million and more."
The housing market in and around Johannesburg, said du Plessis, still has ample space at its disposal. Even in the built-up areas there is still huge scope for densification and redevelopment and whether the buyer looks north, south, east or west, land for expansion is not hard to find. In many Gauteng suburbs the problem lies not in a lack of subdivisions, but in the provision of services to accommodate the additional load.
"By contrast, the Cape Peninsula’s middle class suburbs have been crammed into the limited space between the mountain and the M5 freeway on the east and the mountain and the sea in most other areas.
"As the demand, however, is still strong, and the supply relatively limited, prices will inevitably be far higher than in equivalent sized homes in and around Johannesburg.
"Having said that," du Plessis added, "it is currently very much a buyers’ market and where sellers are distressed good properties can be snapped up for up to 25 percent less than their real value."
"This will not last forever. There are now signs that by the second half of 2012 (as I have said previously) today’s prices could look very low indeed."
Wednesday, 15 June 2011
South African Property: Rent or Buy?
The news that South Africa has now been included in the BRIC group (Brazil, Russia, India and China) can only mean good news for property investment.
According to Maite Nkoana-Mashabane, South Africa’s Minister of International Relations and Co-operation, the inclusion, “legitimises South Africa as a future global power and as an investable country - bolstering its position as Africa’s gateway and champion.”
According to the Sage Property Report from Standard Bank in September 2010, “confidence in the South African property market is returning”.
This is confirmed by the 8.3 percent year-on-year growth rate in the median property prices in August and 7.3 percent year-on-year in July and has given rise to the prediction that the average nominal growth will be around 6 percent for the year.
So is this the time to buy? Herman Slabbert, from Ronnie Matthews Estates in Cape Town says, “The answer whether to buy or lease depends on the profile of the buyer and to what extent current market conditions dictate or influence the choice (or limit the options).
“For an investor the question may be to either invest in the share market or property or both, but after the good bull run of worldwide equity markets the past year, share analysts warn of a dangerously over-bought market and that investors should expect a medium to large correction in the near future.
Rent
Buying is naturally the preferred choice for someone or a couple starting out, but the credit crunch and resulting stricter lending criteria of the banks makes it difficult to get loans, unless you can put down a substantial deposit.
The irony for the first time home buyer is that interest rates are at their lowest level in 30 years and home prices are at very attractive levels compared to the property bubble before 2008.
One strategy proposed is to rent and then invest or save the difference between the rental payment and the monthly bond amount one would have expected to pay, in the share market. These ‘savings’ though must to be invested in the stock market. In 10 to 12 years there should be enough accumulated capital to buy a house.
Buy
Michael Bauer, General Manager of property management company IHFM,says, “The biggest resistance to buying versus renting is the mental block caused by short-term thinking. People ask themselves why they should buy when they can rent for 30 to 40 percent less than their monthly bond repayments. They are also not responsible for repairs and maintenance and can move on whenever they feel like it.
“However, the fact is that monthly rental will generally rise by 8 to 10 percent per year and by the time the property owner has paid off the bond (are debt free) the rental will be about ten times more than it was 20 years earlier when they decided to buy not rent.
“In contrast, property owners will find that their bond repayments will no longer be a major burden and will probably be less than 15 percent of their gross salary. In essence, if you pay a deposit of 20 to 25 percent on the property, it makes sense to anybody to buy.
“If you compare for example a R400,000 bond issued at an interest rate of 11 percent, the property owner would pay around R990,000 in capital and interest over 20 years, but would own an asset worth R1.06 million.
Bauer continues, “The tenant starting with a rent of R2500 a month (subject to annual increases) would at the end of 20 years find that his total rent payments have been about R1.7m. However, there would be no asset to show for his outlay.
“Rental escalations and capital growth are usually far above annual adjustments to income so it will become less and less affordable to rent in future if you continue living in an area of your choice. When you retire of course and your income is reduced by 30 to 40 percent, rental may be prohibitively expensive.
“For the buyer or investor who qualifies financially to buy, there are many options available in the market. Remember it is still is a buyer’s market coupled with the low interest rates, notwithstanding mediocre capital appreciation expectations. For the shrewd/smart investor who knows the market and the product there are opportunities in the buy to let market.”
Buy to let
Slabbert says, “Recent activity shows a positive sentiment in the buy-to-let market, which is an important segment of property investment.
“According to a report in the Financial Times (in the UK), banks in London have for the first time started to give loan packages, one of up to 85 percent of the value of the property. (Coincidentally it is a subsidiary bank of Investec, the South African bank).
“However, one dilemma for the South African buy-to-let investor is stock. Since 2008 banks and other financial institutions have ceased to provide funding for new developments, resulting in supply constraints – limitations on the ability to deliver new developments. However, the supply constraint also has benefits.
“It must also be remembered,” says Slabbert, “that a market or area where supply is constrained generally will have higher rent levels, greater rent growth and higher capital values.
“The investment strategy focusing on supply constrained areas could potentially provide more durable income and stronger capital appreciation.
“As an example, one can look at the Atlantic Seaboard in Cape Town and then at a specific area like Camps Bay/Clifton area which is considered the most expensive real estate in South Africa has a legal as well as geographic supply constraint.
“In essence local government zoning for development is restricted and geographically there simply is not any scope for extending this area.
“Lastly, local opposition to development is fierce; the Camps Bay rates payer association plays an activist role to monitor any proposed developments and take action where necessary,” Slabbert concludes.
Interest rates, investor confidence in a stable economy, high growth prospects together with some incredible bargains in the real estate market make this a good time to buy if you are able to and reap the rewards over the long term.
According to Maite Nkoana-Mashabane, South Africa’s Minister of International Relations and Co-operation, the inclusion, “legitimises South Africa as a future global power and as an investable country - bolstering its position as Africa’s gateway and champion.”
According to the Sage Property Report from Standard Bank in September 2010, “confidence in the South African property market is returning”.
This is confirmed by the 8.3 percent year-on-year growth rate in the median property prices in August and 7.3 percent year-on-year in July and has given rise to the prediction that the average nominal growth will be around 6 percent for the year.
So is this the time to buy? Herman Slabbert, from Ronnie Matthews Estates in Cape Town says, “The answer whether to buy or lease depends on the profile of the buyer and to what extent current market conditions dictate or influence the choice (or limit the options).
“For an investor the question may be to either invest in the share market or property or both, but after the good bull run of worldwide equity markets the past year, share analysts warn of a dangerously over-bought market and that investors should expect a medium to large correction in the near future.
Rent
Buying is naturally the preferred choice for someone or a couple starting out, but the credit crunch and resulting stricter lending criteria of the banks makes it difficult to get loans, unless you can put down a substantial deposit.
The irony for the first time home buyer is that interest rates are at their lowest level in 30 years and home prices are at very attractive levels compared to the property bubble before 2008.
One strategy proposed is to rent and then invest or save the difference between the rental payment and the monthly bond amount one would have expected to pay, in the share market. These ‘savings’ though must to be invested in the stock market. In 10 to 12 years there should be enough accumulated capital to buy a house.
Buy
Michael Bauer, General Manager of property management company IHFM,says, “The biggest resistance to buying versus renting is the mental block caused by short-term thinking. People ask themselves why they should buy when they can rent for 30 to 40 percent less than their monthly bond repayments. They are also not responsible for repairs and maintenance and can move on whenever they feel like it.
“However, the fact is that monthly rental will generally rise by 8 to 10 percent per year and by the time the property owner has paid off the bond (are debt free) the rental will be about ten times more than it was 20 years earlier when they decided to buy not rent.
“In contrast, property owners will find that their bond repayments will no longer be a major burden and will probably be less than 15 percent of their gross salary. In essence, if you pay a deposit of 20 to 25 percent on the property, it makes sense to anybody to buy.
“If you compare for example a R400,000 bond issued at an interest rate of 11 percent, the property owner would pay around R990,000 in capital and interest over 20 years, but would own an asset worth R1.06 million.
Bauer continues, “The tenant starting with a rent of R2500 a month (subject to annual increases) would at the end of 20 years find that his total rent payments have been about R1.7m. However, there would be no asset to show for his outlay.
“Rental escalations and capital growth are usually far above annual adjustments to income so it will become less and less affordable to rent in future if you continue living in an area of your choice. When you retire of course and your income is reduced by 30 to 40 percent, rental may be prohibitively expensive.
“For the buyer or investor who qualifies financially to buy, there are many options available in the market. Remember it is still is a buyer’s market coupled with the low interest rates, notwithstanding mediocre capital appreciation expectations. For the shrewd/smart investor who knows the market and the product there are opportunities in the buy to let market.”
Buy to let
Slabbert says, “Recent activity shows a positive sentiment in the buy-to-let market, which is an important segment of property investment.
“According to a report in the Financial Times (in the UK), banks in London have for the first time started to give loan packages, one of up to 85 percent of the value of the property. (Coincidentally it is a subsidiary bank of Investec, the South African bank).
“However, one dilemma for the South African buy-to-let investor is stock. Since 2008 banks and other financial institutions have ceased to provide funding for new developments, resulting in supply constraints – limitations on the ability to deliver new developments. However, the supply constraint also has benefits.
“It must also be remembered,” says Slabbert, “that a market or area where supply is constrained generally will have higher rent levels, greater rent growth and higher capital values.
“The investment strategy focusing on supply constrained areas could potentially provide more durable income and stronger capital appreciation.
“As an example, one can look at the Atlantic Seaboard in Cape Town and then at a specific area like Camps Bay/Clifton area which is considered the most expensive real estate in South Africa has a legal as well as geographic supply constraint.
“In essence local government zoning for development is restricted and geographically there simply is not any scope for extending this area.
“Lastly, local opposition to development is fierce; the Camps Bay rates payer association plays an activist role to monitor any proposed developments and take action where necessary,” Slabbert concludes.
Interest rates, investor confidence in a stable economy, high growth prospects together with some incredible bargains in the real estate market make this a good time to buy if you are able to and reap the rewards over the long term.
Tuesday, 31 May 2011
Are banks 'killing' the Property Market?
Has it ever struck you just how many people are property experts when you mention that you are thinking of buying or selling a property?
These well-meaning advisers – with opinions that are certainly influenced more by hearsay than knowledge – will say that now is not the time to be involved in the property sector and, as a rule of thumb, they think they’re right.
People with a little more knowledge, like estate agents, will say it’s an excellent time to buy but, if you want to sell, make sure that you’ve priced your house correctly, particularly if it falls into the upper price brackets.
Do estate agents give you a true value? Never. They give you a ‘gut-instinct’ based value that is determined by what you want and what they think they can get. If the house is slow to move, then the price is too high. It’s a pathetic basis for determining a true value.
Bankers (responsible for lending the money) often won’t say a word – except among friends. And the sad fact of the matter is that bankers are the ones who dictate the state of the property market. If they lend money, sales boom. If they don’t sales dwindle.
In years gone by, when the cyclical swings were not as great as they appear to be today, banks would look for value in a property and would grant a bond based on the value that they attributed to it.
You would expect that pattern to be cast in stone and that, today, if you were to go to four different banks, you would get a very similar valuation from all four of them.
And that’s where you’d be so wrong. Different banks have different criteria and they use different yardsticks to adjudicate value. Ask for a value from a banker and you’ll get four very different ones.
This, naturally enough, makes it incredibly difficult for property owners and for estate agents who, for instance, put in an application for a bond (based on a fair purchase price) to all four of the banks and find that some banks come back and say there is “insufficient value” in the property to the grant the bond amount applied for.
The more expensive the home, the greater variation there is. And much of that valuation process appears to be purely subjective rather than scientific.
Question a bank about the details of why the value is so low and they will come up with all sorts of subjective reasons: “It’s not the right property to be buying in this market” or “The property is over-priced for the area” or “The owners have over-capitalised and want too much money” or the “The asking price is simply too high for the home” or, mostly importantly “We won’t grant a loan of that size against that property”..
Forget the fact that the buyer has a right to decide what amount he or she is prepared to pay for the property in question. Forget the fact that the bank won’t pay a penny of the excessively exorbitant interest rates that are calculated over the next 20 or 25 years. That’s the buyer’s responsibility.
Just remember banks borrow money from the Reserve Bank at 5,5% and charge the money they’ve borrowed at prime of 9% so banks make 3,5% gratis before lending a bean. It’s iniquitous.
If that’s not bad enough then we have the other factor: banks can now stipulate what a house is worth by making a snap, subjective and often unfair value judgment.
I watched one of these valuers at work on the property that I currently rent. He had a measuring tape (on wheels to calculate the perimeter of the house) that he wheeled past the plants (not next to the house) to give him a rough idea of the outer boundary.
Then he walked through the house, taking no more than five minutes to survey the lot. Then he swaggered through to my office demanding that I drop what I’m doing and immediately let him out.
If he was here for five minutes then that was a lot.
I went outside with him and waited next to his run-down white jalopy while he searched for an address in a map book.
After I had spent more time looking at him than he had spent looking at my house, I tapped on his window and said, rather sharply, “Listen, bud, I’m busy so why don’t you leave find directions somewhere else rather than just wasting my time.”
He drove away mumbling – and I didn’t give a fig.
His few minutes here resulted in a decision worth more than a million rand. It’s totally absurd and certainly a deeply unprofessional way to determine the value of a property.
His visit was typical of all those others I have experienced when valuators come to value a house. In the course of my lifetime I have bought and sold more than 20 properties and I have never had a different experience from a bank’s valuation man.
So I was hardly surprised to read the comments from Ronald Ennik, an executive director of Leapfrog Property Group who says that banks are damaging the property market by continuing to value properties “too conservatively”.
He’s quite right. I would take it further than Ennik did: I would say that banks are killing the property market and they seem to be doing so with a smile on their corporate faces and it makes me sick.
Apart from making it really hard to qualify for a bond, the banks are now deciding the value of property and what it’s worth. How unfair is that?
Homebuyers’ dreams are smashed by a cretin who spends less than ten minutes looking at a property. The same cretin who cannot even read directions in a map book.
And the bank he represents accepts his word as gospel – the final say on what a property is worth. It’s bizarre.
Surely there must be a less subjective way of determining property values?
Professional land valuers (like my cousin) will tell you that there is a lot more that goes into compiling an accurate and realistic property value than just wandering around with a tape measure and a pair of reasonable eyes.
And it is these professionals that should be doing the valuations for banks and it is their figures that should be the basis for any bond regardless of which bank it is that’s granting the money.
Property values must surely be based on measurable criteria and not on value judgments. Value judgments are not a valuation, they’re a guess. And I wish that Standard, Absa, Nedbank and FNB would remember that.
And then stick to lending money based on the risk profile of the individual and not on whether they approve of the purchase he or she is making.
I also wish that Capitec and African Bank (and others) would step into the market and shake it up completely by adopting a more fair and reasonable approach.
Because as things go mortgage-lending banks are just a very motley bunch.
*Hartdegen writes a regular column for Property24.com. The content of his columns constitutes his personal opinion and doesn’t pretend to be facts or advice.
These well-meaning advisers – with opinions that are certainly influenced more by hearsay than knowledge – will say that now is not the time to be involved in the property sector and, as a rule of thumb, they think they’re right.
People with a little more knowledge, like estate agents, will say it’s an excellent time to buy but, if you want to sell, make sure that you’ve priced your house correctly, particularly if it falls into the upper price brackets.
Do estate agents give you a true value? Never. They give you a ‘gut-instinct’ based value that is determined by what you want and what they think they can get. If the house is slow to move, then the price is too high. It’s a pathetic basis for determining a true value.
Bankers (responsible for lending the money) often won’t say a word – except among friends. And the sad fact of the matter is that bankers are the ones who dictate the state of the property market. If they lend money, sales boom. If they don’t sales dwindle.
In years gone by, when the cyclical swings were not as great as they appear to be today, banks would look for value in a property and would grant a bond based on the value that they attributed to it.
You would expect that pattern to be cast in stone and that, today, if you were to go to four different banks, you would get a very similar valuation from all four of them.
And that’s where you’d be so wrong. Different banks have different criteria and they use different yardsticks to adjudicate value. Ask for a value from a banker and you’ll get four very different ones.
This, naturally enough, makes it incredibly difficult for property owners and for estate agents who, for instance, put in an application for a bond (based on a fair purchase price) to all four of the banks and find that some banks come back and say there is “insufficient value” in the property to the grant the bond amount applied for.
The more expensive the home, the greater variation there is. And much of that valuation process appears to be purely subjective rather than scientific.
Question a bank about the details of why the value is so low and they will come up with all sorts of subjective reasons: “It’s not the right property to be buying in this market” or “The property is over-priced for the area” or “The owners have over-capitalised and want too much money” or the “The asking price is simply too high for the home” or, mostly importantly “We won’t grant a loan of that size against that property”..
Forget the fact that the buyer has a right to decide what amount he or she is prepared to pay for the property in question. Forget the fact that the bank won’t pay a penny of the excessively exorbitant interest rates that are calculated over the next 20 or 25 years. That’s the buyer’s responsibility.
Just remember banks borrow money from the Reserve Bank at 5,5% and charge the money they’ve borrowed at prime of 9% so banks make 3,5% gratis before lending a bean. It’s iniquitous.
If that’s not bad enough then we have the other factor: banks can now stipulate what a house is worth by making a snap, subjective and often unfair value judgment.
I watched one of these valuers at work on the property that I currently rent. He had a measuring tape (on wheels to calculate the perimeter of the house) that he wheeled past the plants (not next to the house) to give him a rough idea of the outer boundary.
Then he walked through the house, taking no more than five minutes to survey the lot. Then he swaggered through to my office demanding that I drop what I’m doing and immediately let him out.
If he was here for five minutes then that was a lot.
I went outside with him and waited next to his run-down white jalopy while he searched for an address in a map book.
After I had spent more time looking at him than he had spent looking at my house, I tapped on his window and said, rather sharply, “Listen, bud, I’m busy so why don’t you leave find directions somewhere else rather than just wasting my time.”
He drove away mumbling – and I didn’t give a fig.
His few minutes here resulted in a decision worth more than a million rand. It’s totally absurd and certainly a deeply unprofessional way to determine the value of a property.
His visit was typical of all those others I have experienced when valuators come to value a house. In the course of my lifetime I have bought and sold more than 20 properties and I have never had a different experience from a bank’s valuation man.
So I was hardly surprised to read the comments from Ronald Ennik, an executive director of Leapfrog Property Group who says that banks are damaging the property market by continuing to value properties “too conservatively”.
He’s quite right. I would take it further than Ennik did: I would say that banks are killing the property market and they seem to be doing so with a smile on their corporate faces and it makes me sick.
Apart from making it really hard to qualify for a bond, the banks are now deciding the value of property and what it’s worth. How unfair is that?
Homebuyers’ dreams are smashed by a cretin who spends less than ten minutes looking at a property. The same cretin who cannot even read directions in a map book.
And the bank he represents accepts his word as gospel – the final say on what a property is worth. It’s bizarre.
Surely there must be a less subjective way of determining property values?
Professional land valuers (like my cousin) will tell you that there is a lot more that goes into compiling an accurate and realistic property value than just wandering around with a tape measure and a pair of reasonable eyes.
And it is these professionals that should be doing the valuations for banks and it is their figures that should be the basis for any bond regardless of which bank it is that’s granting the money.
Property values must surely be based on measurable criteria and not on value judgments. Value judgments are not a valuation, they’re a guess. And I wish that Standard, Absa, Nedbank and FNB would remember that.
And then stick to lending money based on the risk profile of the individual and not on whether they approve of the purchase he or she is making.
I also wish that Capitec and African Bank (and others) would step into the market and shake it up completely by adopting a more fair and reasonable approach.
Because as things go mortgage-lending banks are just a very motley bunch.
*Hartdegen writes a regular column for Property24.com. The content of his columns constitutes his personal opinion and doesn’t pretend to be facts or advice.
Subscribe to:
Posts (Atom)