Caution in market good for rentals

Caution in market good for rentals
2008/05/29

The effects that South Africa's rising cost of living and high interest rates is having on the property market's residential sales is no secret.
Sentiment has shifted from confidence to caution, however, the effects have been positive in the residential rental market.
"Potential home buyers are renting, placing their home-buying decisions on hold due to the diminished affordability of property. They want to observe what is happening with interest rates before they consider purchasing property. Therefore, the demand for rental properties has escalated dramatically," says Marsha Haupt, sales director at Betterbond.
Marsha notes that the first edition of the FNB Residential Property Barometer for the rental market in the first quarter of 2008 shows a positive picture of the rental market when compared with the main FNB Residential Property Barometer for the home buying market.
The FNB barometer also shows that on a scale of one to ten, the activity in the home buyers market is at a mediocre level of around 4,96, whereas the rental market's activity is above average at 8,4.
According to FNB Home Loans property strategist, John Loos, monthly rental repayments are considerably lower than 100% bond repayments, which make the rental option increasingly popular during these times of rising interest rates.
Investors are now "dipping their toes" back into the buy to let market. This is resulting in the recovery of the rental market.
People who have over-borrowed to purchase homes are experiencing cash flow problems. This has led to luxury or high bonded properties being placed on the market with urgency to sell. "For this reason we are seeing a stabilisation in the property market as properties are placed on sale at more realistic price levels.
"The gap between rental and bond repayment rates in metro areas is approximately 65% of bond repayments," says Haupt.
"Therefore on a bond of R500k, the repayment would be R6,585 whereas rental would be R4,300". In non-metro/coastal areas the gap is about 60%, with reference to the same example, the rent would be R3,900.
Developers are attracting investors with a buy-to-let promise. They assure investors of rental returns, however, it will not materialise if the investor is taking an 80% to 100% bond. This approach will make the developer rich but will most definitely place the inexperienced investor in financial hardship as the rental will not cover the bond repayment.
"In spite of the high interest rates, the slowing price growth is an opportunity for investors with money to buy. Properties are reaching more reasonable price levels and at some point interest rates will inevitably start to fall and prices will once again start to climb, providing good returns for investors," Haupt concludes.

Caution in market good for rentals

Major rate hike shock

Major rate hike shock

Economy

South Africans are in for the biggest interest rate jolt in a decade, as Reserve Bank governor Tito Mboweni considers a 200 basis point hike.

Finance24
Wednesday, 28 May 2008 23:45:00

Major rate hike shock

Residential building inflation up

Residential building inflation up
2008/05/23

South African residential building costs inflation measured 10,9% in the first quarter, up from a revised 6,8% in the previous quarter, the FNB Commercial Property Finance Residential Building Cost Index showed on Thursday.
The index reflects the average building cost per square metre, as charged by building contractors when winning tenders in the formal residential property sector. It excludes affordable and so-called "RDP" housing.
The average building cost per square metre was measured at R5,864 for the first quarter.
"However, this mild rise from the previous quarter comes at a time when residential market conditions are extremely weak, and contractor pricing power must be low, leading to the belief that input cost pressures are beginning to drive building cost inflation higher," said John Loos, FNB property strategist.
He added that if the uptick was the start of a longer trend, it would add to the woes of an industry already under pressure.
"Rising building cost inflation would probably slow the supply of new stock further," said Loos. - Tiisetso Motsoeneng, I-Net Bridge

Residential building inflation up

Land claims to miss target

Land claims to miss target
2008/05/23

The department of land affairs is going to miss its target of finalising all outstanding land claims by the end of this year.
Minister Lulama Xingwana admitted this in Parliament on Wednesday when she spoke in an extended committee of the National Assembly in the debate on her departmental budgets.
She said the commission for the restitution of land claims had settled more than 95% of total claims lodged, and was left with 4,998 very complex rural claims.
"A number of challenges are still confronting us in the finalisation of the outstanding land claims," she told MPs "As a result of these challenges, between 2% to 3% of these claims may not be finalised in this financial year."
The challenges she said included cases in the land claims court, and others disputed with landowners around land prices and the validity of the claims. There are other claims held up because of disputes around traditional leadership and boundaries, and because of community and family disputes.
The commission, she said remains committed to ensuring that all land claims are eventually settled, and to that end, a memorandum and an action plan for the finalisation of the outstanding claims had been submitted to Cabinet.
"The economic models for settling forestry claims and claims with mineral rights (for example Anglo American, Sappi, and Mondi) are in the final stages and should also assist in addressing some of the more challenging claims. We are working closely with the department of environmental affairs and tourism, SANParks and other agencies towards the finalisation of co-management agreements for the claims on protected areas." - Michael Hamlyn, I-Net Bridge

Land claims to miss target

Thabo Mbeki just loves the South Coast

The President of South Africa loves visiting the South Coast, even when he s got some serious work to do.
HANNES VAN SCHALKWYK REPORTS.
IF you were somebody important, say, perhaps the President of the Republic of South Africa, the last thing you'd want to do after two days of rigorous meet¬ings is to be questioned by a couple of news hungry, dispassionate journalists.
Especially not when all those meet¬ings were held on the sunny South Coast of Kwazulu- Natal and you didn't get the chance to take in the views, mingle with locals or play some golf on one of South Africa's most celebrated courses.
During the President's International Investment Council meeting held at the San Lameer Estate last Saturday and Sunday, journalists from as far afield as Johannesburg and Cape Town flocked to San Lameer, to try and obtain the latest scoop ..
After a brief report on the meeting, the president and members of the council were inundated with questions relating to serious political and financial issues.
These ranged from projected busi¬ness scenarios to the recent horrendous xenophobic attacks in Gauteng, and kept the president on his toes for about an hour.
The Herald, in a more light-hearted vein, then asked the president whether he had enjoyed his stay and what he thought about the South Coast, easing the tension at the briefing. He answered with a broad smile, "As you can see, members of the press came down to the South Coast quite willingly. The only problem, however, is that when you come down here for work you don't really have enough time to enjoy it. But maybe one day the South Coast Herald will invite me and I might come and visit."
After this the mood lightened and questions breezed by, until a rather cocky female journalist from a well known independent news broadcaster asked the President what he and Public Enterprises minister, Alec Erwin, "get up to" when the lights go out during load shedding.
After a brief stare-down and the cessation of giggles from fellow news hounds, the president calmly answered, "I go to bed."
She asked with some disbelief, "You go to bed?" He elaborated. "Yes. You can't read, you can't write. You can't even play golf on the carpet. So I go to bed. What do you do?"


Media gathering: President Thabo Mbeki and the Interactional investment Council are quizzed at the media briefing held at the San Lameer Estate last Sunday. P1130578


Quite Smile: President ;Thabo Mbeki answers questions during the in¬temational lnvestment Council media briefing held on the South Coast last Sunda . P1130592

March build plans passed drop 18,5%

March build plans passed drop 18,5%
2008/05/22

The value of South African recorded building plans passed at constant 2000 prices in March decreased by a telling 18,5% year-on-year (y/y) from a revised down 1% in February (previously down 11,1%), Statistics South Africa (Stats SA) data on Wednesday showed.
Residential building was the culprit as it recorded a 23% fall, while non-residential building was up 2,6%, but additions and alterations fell 20,7%.
That is the biggest fall in residential building since the –19,1% recorded in November 2007 and comes after an 8% increase noted in February.
The value of recorded building plans passed by larger municipalities at current prices during the first quarter of 2008 rose by 7,3% y/y compared with the first quarter of 2007. Two of the main categories of buildings contributed positively to this figure - non-residential buildings (18,7%) and additions and alterations (16,4%), Stats SA noted.
Building activity has come under a significant amount of pressure due to slowing housing demand and electricity shortages and delays in plans passed, and this is expected to continue. – I-Net Bridge
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March build plans passed drop 18,5%

1% June interest rate rise likely

 

1% Jun

1% June interest rate rise likely
2008/05/21

With April's rate of inflation having straddled the double digit barrier and apparently still unchecked in its upward trend, expectations of a 1% rate increase at the next Monetary Policy Committee (MPC) meeting on June 12 have firmed, according to a media release on property news website www.rodneyhayter.com.
Motivation behind such MPC boldness – it would be the first full percentage point increase since September 2002 – lies in the belief that the size of increase could deliver a knock out blow to less serious credit lending, according to Jeanne van Jaarsveldt, RE/MAX of SA finance and marketing director, who believes the MPC has little left in its armoury to rein inflation back into its target band of 4% to 6%.
Efficient Group chief economist Dawie Roodt also believes the MPC is now ready to try its hand with more psychological tactics when it reviews the increasingly bleak inflation situation in June.
Roodt points out that the Reserve Bank has a double role – "firstly to control inflation and secondly to curb inflation expectations", which he believes could prove effective with a 1% rise.
Bad news definitely for a property market already wilting from nine rate rises in the last 24 months and other extraneous, but equally sentiment damaging factors, but Roodt and Van Jaarsveldt believe an iron fist approach could serve a big enough market blow for the MPC to exclude further increases for the rest of the year.
According to van Jaarsveldt the size of such an increase would further dampen the property market, "but if it proved effective in arresting the need for further hikes then we could expect to see some restoration of market sentiment toward the end of the fourth quarter".
But Roodt only expects the gloom to lift early next year with conditions getting a little worse between now and then, pointing out the inevitable time lag between rates falling and a restoration of confidence in credit-driven home buyers.
Some cheer filtering through is the gathering attractiveness of investment activity, but the real opportunities, according to Roodt, are still a few months down the line when the market tightens further and especially if the MPC breaks the trend with a 1% hike, which John Loos, property economist at FNB, strongly discounts, given the MPC's stated reluctance to increase rates further.
"In fact, the MPC were even talking about the possibility of a quarter percent rise instead of a half percentage point at it's last meeting."
Loos strongly discounts the MPC resorting to any radical interest rate adjustments even if inflation data continues to deteriorate. Supporting Loos' view is the fact that the current key inflation drivers – oil and food prices – are essentially out of the MPC's sphere of direct influence.
John Roberts, managing director of mortgage originator Bond Approve, also discounts any drastic rate adjustments by the MPC. His view is based on the historical rate adjustments by the committee and the fact that inflationary drivers are largely out of the MPC's power.
However, he does see the probability of a further rise as does Absa's economics department who notes that March's jump in Private Sector Credit Extension (PCSE) to 26,6%, while not a deciding factor for the MPC, is a further disappointment following poor inflation numbers earlier in the month, believing it is unlikely that the slowdown in the real economy will allow the inflation-targeting SARB to leave rates on hold at the 12 June MPC meeting.

e interest rate rise likely

Show days 'dangerous' for agents

Show days 'dangerous' for agents
2008/05/17

Lately show houses have been an easy target for criminals, and with the glut of properties for sale now there's plenty to choose from. An agency group has published guidelines for its agents on how to protect themselves and the seller's property.
Lately show houses have been an easy target for criminals, and with the glut of properties for sale now there's plenty to choose from.
Johannesburg estate agents have for some time refrained from publicising the addresses of show houses until the last minute, often preferring to only give out the address to potential buyers after checking them out. An indication of how serious the situation has become was seen on Wednesday, when Rawson Properties announced the launch of a new dossier for its agents that includes information on how to protect themselves. In doing so, they also protect the seller's property, and help ensure the safety of potential buyers when visiting show houses.
While it is now a concern in the real estate marketing sector that open day show houses can be a security risk, it would be a great pity if they were dropped, says Tony Clarke, MD of Rawson Properties, because show days are still effective in selling property fast. The small firms with limited advertising budgets would be particularly hard hit, he says.
Clarke has drawn up three full pages of advice to Rawson agents on how to protect themselves and "keep ahead of the bad guys" in all situations, but especially at show houses.
Some of the key pointers mentioned in the document are:
• On entering a show house for the first time, Clarke advises, the agent should check all rooms and work out the most convenient escape routes, unlocking all deadbolt locks which might slow down an exit. Back doors, although often a handy for an escape, can lead into high walled yards, Clarke warns.
• When visitors arrive, agents are advised to note their car licence place numbers and when showing them the house the agent should walk behind, not lead.
• "Watch what prospects are doing at all times. Do not become preoccupied with viewing the home – and always expect the unexpected," says Clarke.
Clarke also advises agents to notify their office or a friend that they will call every hour – if they do not the colleague should contact the police at once.
"Neighbours should be asked to keep an eye on the property throughout the day. Above all, do not be in the house on your own – have a colleague or friend with you. If you become suspicious of a prospect, leave at once," writes Clarke.
In general, he says, agents should meet prospective buyers the first time in the company offices and then should insist on identification, giving the reason that "it is company policy". He advises them to find out as much as they can about the prospects, such as where they work, what they do, and how much they earn. "Ask many questions and be a good listener."
Clarke warns agents always to use their own car for viewings and to be familiar with the area in which the property is located.
Clarke's document for Rawson agents also includes advice on office safety and harassment, whether by telephone, stalking or direct approach.
"It is regrettable that we have to be aware of these matters," said Clarke, "but it is also true that crime can be prevented by adopting simple precautions. Our industry has an unusual number of women, whom criminals and psychopaths see as soft targets because in this job they have to work away from the security of their offices."
For more information contact Tony Clarke on 021 658 7100 or send an email to research@rawsonproperties.com.

Show days 'dangerous' for agents

Transfer Duty Act briefly explained

Transfer Duty Act briefly explained
2008/05/19

Transfer duty is a form of government tax that was introduced as long ago as the 17th century and is still relevant to most property transactions today.
Transfer duty, not to be confused with transfer fees or costs, is imposed in terms of the Transfer Duty Act ("the Act") and, generally speaking, it is payable when immovable property is acquired.
Transfer duty is payable by the purchaser to the South African Revenue Service (SARS) and is calculated as a percentage of the purchase price. The rates of transfer duty are specified in the Act. If no purchase price is payable or if SARS is of the opinion that the purchase price is less than the fair value of the property, then SARS will calculate the transfer duty based on the fair value.
By way of example, using the current transfer duty rates, which have applied since 1 March 2006, transfer duty payable on a purchase price of R2m is calculated as follows:
- if the purchaser is a company, close corporation or trust, transfer duty is 8% of the purchase price = R160k
- if the purchaser is an individual, transfer duty is:
- 0% on the first R500k of the purchase price (R Nil);
- 5% on the amount from R500k to R1m (R25k); and
- 8% on the amount over R1m (R80k)
- Total transfer duty = R105k
Transfer duty is payable within six months from the date of acquisition. In most cases this will be six months from the date the sale agreement is signed. If the transfer duty is not paid within this time period, penalty interest will be charged by SARS.
In terms of the Act, the Deeds Office is not permitted to register a transfer unless there is proof that transfer duty has been paid or that no transfer duty is payable. This means that a purchaser is required to pay transfer duty prior to the transfer being lodged in the Deeds Office so that the conveyancer can obtain a transfer duty receipt or exemption certificate from SARS for submission to the Deeds Office.
A purchaser does not pay transfer duty in transactions where VAT is payable. This is where the seller is a VAT vendor and the sale of the property is in the course of the seller's business e.g. a property developer. In such instances, the purchaser will pay the purchase price and VAT to the seller who is then responsible for paying the VAT to SARS.
For more information contact 031 570 5300 or send an email.

Transfer Duty Act briefly explained

Middle segment price growth down

Middle segment price growth down
2008/05/09

According to the latest Absa house price index, released on Thursday, South African house prices in the middle segment of the market slowed to a nominal 6,8% year-on-year (y/y) in April from 7,8% y/y in March, taking growth to an eight-and-a-half year low.
This is also the fourth consecutive month of single-digit growth in nominal house prices since a growth rate of 11,2% was recorded in December last year.
The latest price is also the lowest since November 1999, when it was 6,5%, and brought the average price of a middle-segment house to about R974 in April this year.
In real terms, house prices in the middle segment of the market dropped by 2,5% y/y in March 2008, compared with a decline of 0,9% y/y recorded in February, based on headline CPI inflation.
"This was the biggest negative real year-on-year growth rate recorded in house prices since May 1997, when it was at a level of –3,4% y/y, based on nominal price growth of 5,7% y/y, and a headline CPI inflation rate of 9,5% at the time," noted the researchers.
On a month-on-month (m/m) basis, nominal house price growth was only 0,2% in April, unchanged from March. In real terms, house prices dropped by 1,3% in March from February. The real price of a middle-segment house has dropped by a total of R19,700, or 3%, from an all-time high of around R651,500 (at constant 2000 prices) in August last year to about R631,800 in March this year.
"Sharply rising CPIX inflation, currently at 10,1% y/y and mainly driven by international oil prices, rand exchange rate and food price trends, the 450 basis points worth of interest rate hikes since mid-2006 on the back of inflationary pressures, a significant slowdown in growth in real household disposable income in 2007 and the full implementation of the National Credit Act (NCA) in mid-2007, are factors having a negative effect on the affordability of housing," said the researchers.
They said these trends have caused the focus of homebuyers to have shifted from luxury, large and expensive properties to smaller and more affordable properties in recent times.
"As a result of these developments, the downward trend in year-on-year house price growth has accelerated since September last year. With inflation still under strong upward pressure, inflation expectations will remain high over the short term, which will have a significant influence on demands for higher wages this year," they say.
Against this background, the Reserve Bank's Monetary Policy Committee is expected to hike interest rates by another 50 basis points at the June meeting.
In view of these developments and expectations, house price growth is forecast to slow down even further in the rest of 2008 from current levels, says Absa.
Nominal price growth of well below 10% is projected for the full year, with real price growth expected to be in negative territory, which will be the first annual drop in real prices since 1999, when it was -0,3%. – I-Net Bridge

Middle segment price growth down

'No house price recession'

 

The residential property market faces a mild cyclical downturn, says Standard Bank. The market for cheaper properties has already picked up.

'No house price recession'