Redistribution of land

A news report on Realestateweb today states, “the land revolution was a necessary one, but South Africa was not going to go the way of Zimbabwe,” according to the ANC Youth League president, Julius Malema.

“We are not going to do it that way [like Zimbabwe]. We are going to pass legislation,” he told a “Mining for Change” conference in Sandton. Malema said the state would make an offer to land owners which they would be compelled to take. “You don’t give us an offer… you are too expensive,” he said.

He said large parts of South Africa, in the Western Cape in particular, were in foreign hands. “This country belongs to the people who live in it, black and white…. its important as we move forward that we redistribute this land to the people of South Africa. If we don’t take a radical stance to intervene, rural women will never realise economic freedom in their lifetime. ” Black women in rural areas were also denied land — ownership of which plays a critical role in participating in the South African economy.

We support the sentiments of Mr. Malema. Property ownersip is necessary for economic participation, and we need to redress the economic inequalities brought about by our divisionary historic political systems. We do wish to urge the lawmakers to exercise extreme care though. Protection of property rights is equally important for economic growth and stability. It’s our opinion that sensible policies for redistribution of land at market related values will be so much more effective than anything resembling “revolution”.

If we do not protect our economic stability, what kind of economy would previously disadvantaged individuals have to participate in?

Budget 2008 – What property investors need to know

As usual, Trevor Manuel delivered a balanced budget that, in this year of international financial crises worldwide, has to be commended. The 2009 National Budget provides for about R13,6bn-worth of income tax rate and bracket adjustments to allow for the effects of inflation as well as help put a bit more money back into cash-strapped consumers’ pockets. This, of course, provides some indirect relief to property owners who will have a little more cash in their pockets this year. Manuel acknowledged that the residential property market had come under pressure, but there was little on his annual menu for this sector.

Capital gains tax (CGT) on primary residences was tweaked, with the exclusion on the sale of primary residences lifted to a gross value of R2m from R1,5m. The capital gains tax calculation will be simpler and pose less of a compliance burden to property sellers in that the CGT calculation will be based on gross proceeds. Currently, CGT is applicable on primary residences sold for more than R1,5m and is calculated as a percentage of the gain. Further, the annual exclusion ceiling for capital gains tax and losses goes up from R16 000 to R17 500 for individuals.

We are somewhat disappointed that Minister Manuel did not ease transfer duty as many buyers can’t afford this hefty cash payment in addition to deposits now required by home loan providers. It was, however, to be expected as there is less money available for Manuel to share out due to the global financial crisis and challenges within the domestic economy.

Meanwhile, commercial property owners who embrace environmentally-friendly energy equipment will probably score from extra tax write-offs that are on the cards while those who do not will pay extra for certain items – like inefficient light bulbs.

Investors in share block schemes will soon also no longer have to figure out whether they must pay transfer duty, Value Added Tax or neither – the government will do it for them. The latest tax proposal is for the law to be clarified so that at least one form of indirect tax applies to this special form of interest in underlying real estate.

JHI – The year ahead

If you are interested in the prospects of the retail, office and industrial letting market, this press release by JHI makes for interesting reading.

“After a tough 2008, the year started on a positive note with a huge 19% drop in petrol prices and some food prices due to a good agriculture season. However, economist predicts a bleak first half of 2009 with economic growth coming very close to a recession, with the overall outlook for economic growth during 2009 predicted to be between 0.5% and 1%. Factors that will contribute to lower growth expectation include decreased disposable income, higher unemployment, unstable global economic conditions, high debt ratios and socio-political insecurities due to the forthcoming elections.

Furthermore, the Reserve Bank’s outlook for inflation has improved with predictions that inflation will be back in the target range of 3% to 6% by the third quarter of this year, with overall inflation expected to average 6.2%. Lower economic growth expectations, as well as lower inflation predictions will place increasing pressure on the Reserve Bank to cut interest rates further which would boost the property sector.

The Retail Sector
One of the biggest concerns for 2009 is increased liquidations and rising unemployment. December has seen more liquidations of companies since mid 1990’s and South Africa has been in a labour recession for a while which is predicted not to end in the immediate future. Liquidations lead to higher unemployment which means less buying power which will increasingly affect the retail sector.

Furthermore, the retail sector is increasingly being affected by high interest rates and inflation as well as a contraction in household spending. The smaller retailers in particular are the worst affected, with national retailers, especially retailers in durable goods and discretionary categories, also feeling the pinch but it is expected that they will survive the downturn. Smaller, struggling retailers would have the biggest impact on centre owners as it will increase vacancies and a loss in rental income. This situation is expected to drag well into this year, however, tightening credit controls by banks as well as the 50 basis point cut in the interest rate in December have helped improving the debt position of households. This together with further cuts in interest rates (economists predicts at least 300 basis points by the end of the year) may ease some pressure on the retail sector in the medium term as the effect of the cuts will take some time to filter through.

The Office Sector
During 2008 the office sector was characterised by rising rentals and low vacancies and this is expected to remain as rising building costs and supply constraints, due to Eskom’s quotations for developments requiring power of 100kVA and above, will continue to put upward pressure on prices and development costs. Rentals of R160/m2 to R180/m2 are currently the norm for new developments coming on stream during the course of the year.

The Industrial Sector
The decline of the manufacturing sector during the latter part of 2008 highlights the strain of factories and consumers. The global economic crisis has also put a damper on external demand for goods and the contraction in consumer spending has affected the demand for imported products. All these factors are not good news for the industrial sector, which has been the best performing sector in the SA commercial market over the last few years. However, manufacturing production will mostly affect factory space and it is not anticipated that warehousing and distribution space will be dramatically affected. It is expected that manufacturing will continue to struggle during the course of the year, but, possible interest rate relief is expected to boost manufacturing from the fourth quarter onwards which is some light at the end of the tunnel for the industrial sector. Furthermore, current lease structure pertaining to factory space (long term leases) will also cushion landlords against the possible effects of the slowdown in manufacturing.

Other Factors
At the end of 2008, cement producers announced an increase of approximately 16% for various types of cement which will put further strain on development budgets and profit margins, making marginal developments unfeasible and therefore curbing the supply of commercial space.

Continued increases in utilities, especially electricity, will continue to put owners and tenants under pressure. Larger landlords have already felt the effect of these costs as tenants are requesting better rental terms from landlords as they are struggling with higher occupancy costs.

In conclusion, the overall performance of the commercial market is highly dependant of the reduction in interest rates, positive economic growth and an upturn in the global economy. It is expected that the commercial market will take strain during the first half of the year with smaller tenants under enormous pressure, however, the effect of lower inflation, petrol prices and possible further interest rate cuts will see improved market conditions in the latter part of the year.”

JHI’ is an independent property services company with more than R31 billion of assets under management. See the full text hereof.

The end of 2008

What a year we’ve had. Worldwide and right here in (not always as) sunny SA. The year just started along the wrong lines with Escom’s infrastructural and coal supply hangover. The free-falling Rand and skyrocketing fuel prices and interest rates didn’t improve things for the ordinary South African. Then, of course, we all had to learn how to deal with the National Credit Act and its freezing effect on the banks. All along we were still importing much more than we were exporting and our trade deficit started to look really unhealthy. Couple that with political instability – remember our ex-President, a certain Mr. Mbeki who was asked to step down and Julius Malema of the ANC Youth League vowing to kill for Zuma – and it is clear that 2008 was a very challenging year for South Africans.

Ironically, it was the NCA, exchange control and our banks that insulated us from the real crisis that developed: the credit crunch and the collapse of the international banking system in 2008. When you hear names like Lehman Brother collapsing, you know things are serious. No surprise then that household consumption in SA nosedived with property prices. According to Absa’s latest figures, the real prices of most properties have been declining for about 9 months in a row now.

Goodness.

However, as with everything, so too this shall pass. The governor of the Reserve Bank, as predicted, lowered interest rates by half a percent at the December 08 meeting of the Monetary Policy Comitee. It is our belief that interest rates will be lowered at each of the coming sittings of the MPC until they’ve been lowered with another 2,5% to 3% by second to third quarter 2009. Of course, fuel prices have also come down hard and the South African consumer already felt the benefit a week ago at the fuel pumps with petrol going down by a whopping 161 cents.

2008 was a difficult year for everyone. Much of 2009 will still be difficult, that much is clear. However, one gets the feeling that there is an end in sight, don’t you? From the second half of 2009 South Africa will get the soccer world cup fever with all the optimism that it brings. Looking at the massive infrastructure spending going on currently, how could it not be positive? Even the new American President, Barack Obama, believes the answer to America’s problems is increased infrastructure spending. The point is that we’ve been here before.

Thank you to all our clients who shared their hearts, thoughts and time with us this year. We are very excited about 2009 and building our relationship with you. As always, we will serve you with integrity and honesty.

This is our last blog post for this year. Take care and God bless. See you on this blog again next year.

Should we expect an interest rate cut in December?

As things stand today, New Zealand starting easing interest rates in July this year. Australia did the same thing about a month later, despite clear policy statements against rate cuts just a short time before. The America Fed, desperate to revive a slowing economy, came down as low as 1%. In England, the BoE aggressively cut rates by a surprising 1,5% and should also play in the 1% arena by 2009, according to Cees Bruggemans, chief economist of First National Bank. Add to the list also the European Central Bank, the Bank of India and even Turkey.

Yes, our policymakers are worried that cutting interest rates might weaken the ailing Rand even further. However, Tito Mboweni recently said that South Africa is moving into a lower inflationary environment. Add to that the rapidly slowing economy and the effect thereof on the labour market and it is clear that we need something now to get some movement back into the economy. This may even outweigh any fears of a weakening Rand. In fact, Mister Mboweni also recently stated that the Rand took a beating merely for being the currency of an emerging market.

Our view is that the South African Reserve Bank will probably cut the repo rate by no less than 50 basis points at the next MPC meeting in December. Who knows, we may even see a 100 (or 1%) cut. This will probably also be the first of a series of rate cuts to follow.

Of course, if you’re a serious property investor, now is the time to talk to your property consultant to get those bargains. Activity in the property market is picking up and prices usually follow suit – upwards.

Have we reached the peak?

There certainly are many good signs to suggest that things are looking up for the average South African household. The South African Reserve Bank did not hike interest rates in August, which kept interest rates level for two MPC (monetary policy committee) meetings in a row, oil prices are declining and global food price inflation seems to be coming down as well. Bear in mind that the inflation targeting policy of the MPC (and we can debate the efficiency hereof at another stage) attempts to look ahead and not to the short term. Monetary policy over the short term has a limited impact on the economy in any event. So the MPC has been assessing the inflation outlook, as it sees it, next year and the next. And the signs look encouraging.

The Governor of the Reserve Bank, Tito Mboweni, said the bank expects inflation to be down significantly in the first quarter of next year and that the inflation rate should creep down within the target level of 3%–6% by the time the Soccer World Cup hits South Africa (2010). The big question now is whether interest rates will also turn and go down, bringing some much needed relief to the South African consumer.

While Mboweni did not say anything specific about this, a number of respected economists now suggest that rate cuts are definitely on the cards. Of course, this will be great news for the residential property market. Mortgage repayments have increased by 35,6% since June 2006, when interest rates started to go up. Some economists like FNB’s Cees Bruggemans think relief could come as early as December 11, when the MPC meets again. Many other economists predict that rate cuts will commence by the second quarter of next year. For now, though, the prime and mortgage lending rate from the banks stays at 15,5%, which is generally good news for the household market.

We have seen an uptick in buyer activity over the past few weeks and it seems that people are coming back to the market. Our view is that the next six to nine months will prove to be the best time to buy property. In the last year property prices have generally increased very little in nominal terms and there are many bargains to be found. Sellers are now generally also much more willing to accept realistic offers from serious buyers.

Talk to one of the friendly property professionals at Terblanche Total Property Solutions to help you find your dream home.

Why people are moving to the Garden Route

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Mossel Bay was South Africa’s Town of the Year in 2007. There, I said it. I am bragging with my new hometown. All you Gautengers, eat your heart out. I know you’d love to live here down by the sea. How do I know that? Oh, it’s quite simple. I used to be a Jo’burger myself until very recently.

One of South Africa’s big daily newspapers, Die Beeld, recently reported that The Garden Route (Southern Cape) is currently experiencing a major immigration from the major metropolitan centres in South Africa. Of course, it isn’t called the Garden Route for nothing. The scenery is breathtaking, the quality of life is great and the pace is laidback. It’s perfect for someone who wants to escape the breakneck pace of city life.

The whole region has been experiencing fantastic economic growth during the past five years. In fact, the real economy of the Eden towns, which include Heidelberg, Riversdale, Mossel Bay, George, Oudtshoorn and Knysna, has been growing at an average of more than 9% from 2003 to 2007. Compare this to the real economic growth of the Western Cape and Gauteng during this period, which increased at an average of 5% during the last 5 years.

Furthermore, at a time when the general South African property market is experiencing a crunch, the Garden Route is still doing somewhat better than the national average. Nationally, about 83% of properties were sold for less than their initial asking price during the first quarter of this year. In the Garden Route this figure stands at 72%. George, the biggest metropole in the area, is still showing average house price growth of 27% year-on-year, even though the number of sales reduced by 38% year-on-year. Mossel Bay is still showing average house price growth of 16% year-on-year, even though the number of sales reduced by 35% year-on-year. Sedgefield shows similar figures. Knysna is the only town in this region that shows negative house price growth.

This all shows that, even though you might have your property on the market for somewhat longer than before, the Garden Route is still a very good place to be if you’re a property owner. Talk to one of our knowledgeable agents to help you find your dream property.

*Image from gardenroute.com

A buyers’ market

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Look, if you are a seller, you’re probably not going to like this post. In fact, you probably haven’t had too many things to smile about the last few months. However, if you’re looking to buy property as an investment, read further by all means.

Nominal house price growth slowed to 8,7% year-on-year last month, the lowest growth recorded in almost nine years, according to the latest Absa house price index. This was a further reduction from the 9,9% recorded in January and the lowest growth since the end of 1999 when house price growth was 9,3%. Higher interest rates, the effects of the National Credit Act and pressure on housing affordability were all factors influencing the continued slowdown. In a sense, we find ourselves right in the middle of a perfect storm.

Some of the experts believe that house prices could start declining in real terms if inflation continues to rise and nominal house price growth continues to slow down. The residential property situation is in line with other interest rate-sensitive parts of the economy, such as the motor vehicle sector. Retail sales are also showing negative growth. Still, in South Africa we have so much more to be thankful for than our American and even some of European counterparts.

If you are a property investor this may be a good time to invest because price growth is not strong and should pick up over the next three to five years. However, if you are an ordinary home buyer, bear in mind that this is more of a buyers’ market than a sellers’ market. Buyers are selective, taking their time to consider their purchase and looking at a wider range of options. For the first time in a while buyers are spoilt for choice. Many are only putting in offers on well-priced properties, while others are negotiating price. Increasingly, sellers have to price more realistically and competitively and these properties will find buyers quickly.

At Terblanche Thomas Property Solutions we believe sellers in the top-quality estates can still find willing buyers, provided they price realistically. There is also still a lot of activity in other trend-setting areas like the townships and entry-level areas where properties are priced from about R400 000. Buyers now have a wider range of options and should take their time before putting in offers. While it is harder to obtain finance these days after the NCA, putting down bigger deposits will definitely speed up the process considerably.

As always, our doors are open. If you’re a seller or a buyer in the Garden Route, call or e-mail us for relevant advice.

*Gatty Images

Perspective

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You know, after one too many candle-lit dinners – thanks Eskom – in the past few weeks, it becomes quite tempting to buy into the general feeling of doom and gloom in our country. Add the effect of high interest rates, rising petrol prices and leadership questions and one can understand why some South Africans are considering emigrating. In times such as these it is all too easy to give in to emotion rather than reason. The question on everyone’s lips, “What next?”

However, it is exactly in times such as these that one needs to keep some perspective. The reality is that there are still a lot of things worth celebrating in this beautiful country of ours. Sometimes a number of things just converge at the same time and create a picture that looks darker than it really is (pun probably intended).

I came across a wonderful message by Allan Knott-Craig, the MD of iBurst. For some good old perspective you cannot do better than read it.

Full text of his message:

“Hi guys,

2008 has certainly started with a bang! The future was rosy on 31 December 2007, but suddenly everyone is buying candles and researching property in Perth!

A combination of recession in the USA, global equity market negativity, high interest rates, the National Credit Act and power outages have combined to create the perfect storm.

But don’t panic!

This is not the first time there’s been doom and gloom. Every few years the same thing happens. We experience massive economic growth, everyone is optimistic and buying Nescafe Gold, and holiday homes, and Merc’s. The positivity gets ahead of itself and the economy overheats, and then panic sets in because the economy seems to be collapsing when in actual fact it’s simply making an adjustment back to a reasonable level.

It happened in 1989, when SA defaulted on its international loans and the stock market and Rand crashed, it happened in 1994 when the ANC took power and everyone thought war would break out, it happened in 1998 when interest rates hit 25% and you couldn’t give away your house, and it happened in 2001 when a fairly unstable guy by the name of Osama arranged for 2 Boeings to fly into the tallest buildings in New York!

On each of those occasions everyone thought it was the end of the world and that there was no light in sight. And on each occasion, believe it or not, the world did not actually end, it recovered and in fact things continued to get better.

I think 2008 will be a tough year, but I also see it as a great opportunity to seize the day whilst everyone else is whinging and get a front-seat on the inevitable boom that we’ll experience in 2009, 2010 and beyond.

Make sure you make a mental note of everything that is happening now, because it will happen again and again, and if you don’t recognize the symptoms you’ll be suckered into the same negativity, and forget to look for the opportunities.

It’s easy to be negative. Subconsciously, you WANT to be negative! Whenever you open the papers they tell you about the goriest hi-jacking and the most corrupt politicians. Why don’t they dedicate more pages to the fact that Joburg is the world’s biggest man-made forest, or to the corruption-free achievements of the vast majority of public officials? Because bad news sells. Good news is boring.

SA still has the best weather in world! We’re lucky enough to possess a huge chunk of the world’s resources, i.e.: gold, platinum, coal, iron. The growth in India and China will continue to accelerate (India and China sign 10mil new mobile customers every month), and so will their demand for our resources. The government has already embarked on massive infrastructure projects (some of them a tad late, i.e.: electricity), and this will pump money into the economy.

We are all lucky enough to be a part of the birth of a massive and all-encompassing industry. The Internet has and will continue to change the world. The enormity of its impact is up there with the wheel, electricity, TV, telephones, and possibly man’s greatest ever invention, coffee. Not only does it open up an entirely untapped world of commerce, but it is also the ultimate disseminator of information and news. Apartheid would not have lasted 40 years if the Internet had existed! And you’re part of it!

I’m looking forward to another year of ASA complaints, IR issues, Plug & Wireless parties, BTS roll-outs, billing runs, irate customers, happy customers, orange bubbles, faulty elevators, etc, etc. The nice stuff makes me feel good, and the challenges remind me why we can beat the competition. Most importantly I’m looking forward to having fun and making memories.

So ignore the doomsayers, install a timer on your geyser, and buy Ricoffee for a couple of months.
Cheers”

*Copyright Dr Seuss