Petrol breaks through R10

 

The retail price of petrol will increase by between 75 to 81c a litre next week, says the DME.

Petrol breaks through R10

Is it time to fix mortgage rates?

Is it time to fix mortgage rates?
2008/06/27

After ten consecutive interest rate hikes, homeowners are finding it difficult to meet their repayments. Many are considering fixing their rates to hedge against future hikes. Bond Finance expert Ian Wason says one should consider all the options before going out and looking for a fixed mortgage rate.
According to Wason, homeowners have two options: hang on, or get out of the property market altogether. If you have cut your budget again and again and can't seem to make ends meet you should consider selling some assets, as one thing is for sure, your situation will get worse as interest rates, oil and food prices continue to rise.
"Debt consolidation, remortgaging and reducing other monthly expenses should be looked at before people decide to fix their rates," says Wason. "We are seeing a lot of opinions as to where interest rates are going at the moment. These are just opinions, as nobody really knows. We are seeing a lot of 'false horizons' as to where of the top of the interest rate cycle is, purely because we have no idea where oil and food prices will go, and this is now what is causing the inflationary pressure, not the demand side driven by easy credit. "
"It was the combination of negative equity and a stalling economy that sent the UK property market down 35% in the early nineties. I believe the problems in SA at the moment are on a similar scale," he says.
Homeowners must not forget that the chances are they could rent the same property for less than half of what they are paying in mortgage repayments on a 100% mortgage.
Don't follow the trend if you can counter the knock
"While rates are rising at a speed that is crippling, it is important to remember that you don't have to stick with the rate that you got at the start of your current mortgage," says Wason. "So, after you have had your mortgage for a while you may be able to negotiate a better interest rate because you could be a far less risky client to the bank. If you fix your rate now, you may be negating the benefits that a variable rate would allow in the long term. It is important that you shop around for a better rate on your current mortgage before joining the wave of fixed rate enthusiasts."
In addition to this, he says the individual should also do a complete analysis of their expenses and try to reduce their insurance, bank and medical aid costs.
Remortgaging could be a better option, so shop around
Wason argues that while a fixed rate may be worth your while for the next 18 months, it is important to remember that your mortgage is going to last at least 20 years. In that time, you may well be able to negotiate a better rate on your bond as your salary increases or your reduced risk profile starts to take effect.
"South Africans need to get far more dedicated to shopping around for a better rate – they would be surprised what they could be saving themselves."
A Fixed rate could just cost you
He adds that going out and seeking a fixed rate mortgage can be costly because nobody knows how long the rates rise is going to continue. "While the mood at the moment seems to suggest that we should all go out and fix our mortgage rates, it is important to view this in light of your own situation."
"If you could be getting a better rate on a variable bond, you are better off trying to negotiate that. Don't simply call up and ask what fixed rate the bank could offer you."
Looking at the numbers
For a R500,001 mortgage, where your loan to value is less than 80%, you can currently fix your rate for the following rates:

For the same mortgage on a variable rate you should be getting a rate of Prime less 2% = 14% (with an interest rise of 1% scheduled in on Thursday) therefore your repayments are R6,217.63.
Another option would be SA Homeloans' interest only rate of 13.5%, giving you a repayment of R5,995. This is the lowest monthly commitment, but remember that you are not paying off any capital.
What should you do?
Wason says it is important to remember that everyone's situation is different. No option is best for everyone so you need to do your own budget, establish what your priorities are and take the mortgage that best suits your situation. Also remember that you can always change your mortgage product again, as you may decide to get an interest only mortgage, ride our these stormy times and switch back to a capital and repayment mortgage once interest rates start coming down or when you can afford to pay more in.
For more information contact ian@bondbusters.co.za. Click here to visit the website.

Is it time to fix mortgage rates?

Banks 'stand up' for borrowers

Banks 'stand up' for borrowers
2008/06/27

Banks have an important role to play not only in getting people into houses, but also in keeping them there, which is why they have been prepared to make some "tough calls" lately that could quite possibly lose them a substantial amount of new business.
Such calls include the controversial decision to re-introduce the deposit requirement for home loan borrowers.
Following on the heels of 10 consecutive interest rate rises and the introduction of the National Credit Act (NCA), the deposit requirement is likely to further reduce the number of potential buyers able to qualify for a home loan, "but is still considered necessary now to ensure that our customers are not exposed to over-indebtedness", he says.
Speaking at the Homenet real estate group's national conference recently, Luthando Vutula, the new head of home loans at Absa, said the bank believed that by doing this, it would assist customers to make better buying decisions because they would have to contribute financially themselves if they wished to go ahead with a purchase.
"And while we all breathed a sigh of relief earlier this month when the Reserve Bank confirmed a 50 basis points increase in the interest rate, we can't afford to assume this is the last increase we're going to see this year. As a responsible lender, we also need to ensure that customers buying homes today have enough room in their budgets to weather the storm of possible future interest rate hikes."
Looking ahead, he told conference delegates the next two to three years would see all players in the real estate industry having to innovate new ways of making money "while protecting our customers from short-term impacts that could derail their long-term investments".
Meanwhile, he said, now was the time for serious property investors to start shopping around. "The best time to buy will be in 2009," he predicted.
"Patient investors will then be spoiled for choice and will be able to build a portfolio that will yield good results in years to come."
In addition, he said that buying a home remained the single most important purchase any individual could make.
"While the dynamics of the real estate sector may have changed since the boom years, a home remains a good investment that sets the foundation for wealth generation. At the moment, buyers may just have to adjust their expectations and start with a smaller home to ensure future affordability. Then when the cycle turns they will be in a position to upgrade to something closer to their original aspirations."
For more information contact Martin Schultheiss on 031 266 9850 or click here to visit the website.

Banks 'stand up' for borrowers

Pitfalls that can delay transfer

Pitfalls that can delay transfer
2008/06/13

Sellers should be aware of pitfalls and hidden costs which can delay the registration of the transfer of a property.
Bev Nelson of Shepstone & Wylie Attorneys property department explains that if the property is sold with the assistance of an estate agent then the agent will usually provide a general sale agreement, which is required by law. "However, if there is no agent involved, or a specialized agreement is necessary, this will need to be drawn up by an attorney at a cost to the seller, unless the parties agree otherwise," she adds. Using an estate agent also carries estate agent's commission which is normally paid by the seller.
Sellers must be aware of their responsibilities once the agreement is signed and a conveyancer is appointed, advises Nelson. These include:
• The payment of all rates up to the date of transfer If the property is conventional,
• If the property is sectional title, all levies need to be paid up to the date of transfer.
• The cost of an electrical compliance certificate certifying that the property is reasonably safe, plus the cost of any repairs necessary in order for the certificate to be issued. This certificate is a legal requirement.
• The cost of an entomologist's certificate certifying that the property is free from wood-destroying insects (not white ants), plus the cost of any procedures (e.g. tents) necessary in order for the certificate to be issued. This is not a legal requirement however it is usually required by bondholders.
If the property is bonded at the time of selling then that mortgage bond will need to be cancelled simultaneously with the transfer of the property to the buyer. The bondholder will require a guarantee from the conveyancer that any balance owing on the bond will be satisfied on registration. "Therefore the balance owing on the bond will be settled out of the purchase price by the conveyancer before paying the balance of the purchase price to the seller. The seller is responsible for the costs of the cancellation of the bond," says Nelson.
If the property was not bonded then the seller should have the title deed. If the title deed has been lost or destroyed, application can be made to the deeds office for a certified copy. Once the Registrar is satisfied that the deed cannot be found he will issue a certified copy of the title deed which will, for all purposes, be treated as if it were the original. The seller is responsible for the cost of obtaining the copy.
Nelson warns that the seller should be careful to include an occupational rental clause in their sale agreement, as if the transfer is delayed and the buyer moves in, without this clause there will be no occupational rent payable. "Especially since most sale agreements include a clause that the agreement cannot be varied unless it is in writing and signed by both parties."
The seller should also note that the general position is that they will only be paid the purchase price and the risk of the property will only pass to the buyer, on registration of the transfer. However, this will be subject to the terms of the sale agreement, adds Nelson.

Pitfalls that can delay transfer

SA housing market still 10th best

SA housing market still 10th best
2008/06/11

Property markets in UK, Canada, New Zealand and Norway are struggling, with SA still the 10th best performing market globally.
South Africa is not the only country experiencing a rapid slowdown in house price growth. A report released last week on global housing markets by British based property group Knight Frank confirms that a number of other countries including the likes of the UK, Canada, New Zealand and Norway have also slipped from double digit to single digit growth territory over the past year.
The report ranks SA as the tenth best performing housing market among 34 countries in first quarter 2008 with growth of 8,8%. That's down from sixth position a year ago when SA house prices were still rising at 13,6%.
Overall global house price inflation came to an average 6,1% in first quarter 2008, down from 9,8% a year earlier. And although global house price inflation continues on its downward trend, there have been a few noticeable exceptions. Five out of 34 countries worldwide are still fetching house price growth of more than 20%, including Bulgaria (31,5%), Singapore (29,9%), Hong Kong (28,8%), Jersey (28%) and Russia (21,7%).
Seven countries have seen house prices dip into negative growth territory in first quarter 2008. These are Israel (-0,2%), Denmark (-0,7%), Japan (-0,7%), Germany (-5,2%), Ireland (-8,8%), Estonia (-10,7%) and Latvia (-20%).
Liam Bailey, head of residential research at Knight Frank, says there is no doubt that the number of markets where prices have fallen has increased. ``A year ago, 35% of the markets covered by Knight Frank's global house price index saw house price inflation in double figures. In first quarter 2008, this proportion had fallen to just 20%.'
Bailey notes that a number of markets have seen a sharp reversal of fortune since mid-2007 on the back of the sub-prime fall-out and the global credit crunch. The UK housing market has been particularly hard hit. In first quarter 2007, the UK was still the tenth best performing market in the world. It has since slipped to 24th position.
Bailey says the UK housing market is experiencing its most significant slowdown since the early 1990's. ``On almost every measure across the prime and mainstream markets and the new build sector, the market has shown worsening performance over the last six months.'
According to Bailey, the weak sentiment in the UK housing market is reflected across the wider economy, with consumer confidence, as measured by the NOP Index, at its lowest level since April 1994. With some regional and local market variations, house prices across the UK have been falling since September, with overall price growth of only 1,1% in first quarter 2008 (11% first quarter 2007). - Joan Muller

SA housing market still 10th best

Property owners: Watch the tax

Property owners: Watch the tax
2008/06/09

Property owners will need to keep their eye on tax changes that kick in at the start of 2009.
As of January 1, 2009 the definition of the dividend paid on property assets will change and this will make a significant difference to the way the secondary tax on companies (STC) will be handled.
Tax partner at Cameron & Prentice Chartered Accountants, David Warneke, illustrates the change by way of example.
"Say a close corporation purchased a building (as a capital asset) in 1990 for R2m. The value of the building on October 1, 2001 (the date on which capital gains tax became effective) was R5m and the value today is R12m.
"If the close corporation were to sell the building today for R12m, distribute the proceeds as a dividend to its members prior to January 1, 2009 and then deregister, the STC would be worked out on the post-2001 portion of the increase in value - that is, on R7m," he says.
Were the proceeds to be distributed after January 1, 2009, the STC would be calculated on the total gain - on R10m - resulting in additional STC of R272,727, assuming that there are no other reserves in the close corporation.
Many investors have utilised trust structures as a shelter against tax.
Warneke says that properties which are directly owned by a trust will not be subject to the same legislation. However, if the trust holds a controlling interest in a company or CC, which in turn owns a property, then this will be subject to the tax.
With this change in the way that gains will be treated, property owners will need to take a decision on which way the property market is headed.
Recently released poor figures relating to the residential property market and warnings from the head of a major real estate agency may encourage highly geared investors to consider exiting these positions.
Property investors should take into account the tax implications and make a call on their exposure to the market. - Marc Ashton, Fin24.com

Property owners: Watch the tax