Update to the proposed Property Rates Amendment Bill

The Ministry for Cooperative Government and Traditional Affairs (COGTA) came out with a very welcome media statement yesterday, 18 July 2011. This was in reply to the public outcry regarding the wording of the proposed Property Rates Amendment Bill tabled on 9 June 2011.

Property owners and the property industry as a whole can sigh a collective sigh of relief again. It will still be possible to own two or more residential properties without having to pay commercial tax rates on the second and third (and further) properties owned.

The quick response by COGTA must be welcomed. The property market is in the beginning stages of a recovery, which should be nurtured. Unnecessary distractions such as these are unfortunate.

The full media statement is quoted below:

“The draft Municipal Property Rates Bill was gazetted for comment on 9 June.  We are keen to hear from the public on the Bill. The last date for comments is 22 July.

Deputy Minister Yunus Carrim says “We understand, especially in these difficult economic times, and with increases in the cost of municipal services, that house-owners are anxious about property rates. But contrary to media reports on the draft Bill, people who own more than one residential property will not have to pay commercial rates on their additional residential properties. The intention is to ensure that guest-houses, bed-and-breakfast establishments, small hotels and the like pay commercial rates. If necessary, we will amend the draft to make this clearer before submitting the Bill to parliament.”

The draft Bill is in response to complaints from the public and some municipalities over the years about the lack of clarity of aspects of the original Act and difficulties in implementing it. There was widespread consultation on the draft that has been gazetted. Public hearings were held in April last year in all the provinces, and were attended by stakeholders such as ratepayers’ organisations, agricultural unions, business chambers, state owned enterprises, community organisations, traditional leaders, municipalities, and individual ratepayers.

“Essentially, the Municipal Property Rates Act is being amended to make property rating simpler, more transparent, more uniform and easier to implement,” says Deputy Minister Carrim.

The only policy shifts in the Bill are:

• Properties used for trading in and hunting of game will be regarded as agricultural property and subject to rates in the interests of equity and fairness.
• There needs to be greater uniformity across municipalities in rating houses owned by recipients of old-age pensions and disability grants
• Aspects of public service infrastructure will be excluded from property rates because of their contribution to the country’s developmental needs.”

 

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.

Count your blessings, South Africa. It could have been worse!

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As predicted in our last blog post the South African Reserve Bank decided on Thursday to raise interest rates by just 50 basis points against consensus and market expectations of a 100 basis point increase. The majority of experts were expecting a rate hike of 1% (100 basis points), but we felt that that would have been overkill.

The point is though, in the current cycle, which began in June 2006, rates have now been raised by 500 basis points to 12%, with the prime rate at 15.5%. This was the tenth consecutive interest rate increase since June 2006, leaving many South Africans in the lower and middle income groups struggling to put food on the table and a roof over their heads.

It doesn’t seem to be a great time for South African homeowners, does it? Point is, South African homeowners can still feel reasonably lucky. We are not the only country experiencing a rapid slowdown in house price growth. Knights Frank, a British based property group, released a report last week on global housing markets. This report 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 over the past year. SA is still currently ranked as the tenth best performing housing market among 34 countries in 2008 with growth of 8,8%. That’s down from 6th 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.

Times are tough… in most property markets. This comes on the back of the sub-prime fall-out and the global credit crunch. Our advice is to keep your credit spending to a minimum and to pull those belts as tights as possible. Free markets do go through cycles and we will get through this one as well.

As for those property investors, we expect a further decrease in the number of sales taking place, which will ultimately lead to a fall in house prices. South African homeowners’ debt burden has been made even heavier. Of course, these rate hikes are setting the scene for a booming rental market with excellent prospects for certain investors.

Make sure you work with a trusted property advisor to help you through these troubled times. Our expert consultants are waiting for your call.
*Copyright. Sun Microsystems 2003

Increasing interest rates

If you read the paper often, you’ll know that Tito Mboweni recently threatened drastic measures to increase the interest rates by 200 basis points at the next MPC meeting (which is the South African Reserve Bank’s central Monetary Policy Committee). Yes, that’s right, rates will increase by a full two percent in one go, if Mr. Mboweni sticks to his word.

Ouch!

Consumer price inflation is currently at above 10% and, of course, well above the 6% upper limit of the inflation target range. It is forecast to remain under upward pressure over the short term on the back of international oil price, food price and exchange rate movements. In other words, it doesn’t look like inflation is coming down any time soon. According to the latest projections by the SA Reserve Bank, CPIX inflation is expected to gradually decline from around the second quarter of 2008 to only reach the 6% level by late 2009.

That’s a lot of bad news to stomach. Our view is that interest rates will indeed be hiked further at the next week’s MPC meeting, but the rate hike will not be as severe as Mr. Mboweni threatened to do. Most local experts are predicting a 100 basis point “big bang” increase. Our view is that Tito and Co will hike rates only by another 50 basis points (or half a percent), which makes further monetary tightening in the months ahead a very real possibility.

News24 reports that “Higher living costs and tighter lending conditions are starting to curb household borrowing and spending. Credit growth in April slowed below 20% for the first time since December 2005, while vehicle sales dropped 23.4% y/y in May, the largest decline in more than nine years.” In other words, Joe Average is already feeling the pinch BIG TIME. Raising interest rates by 2% instead of 0.5% won’t have such a marked efficacy on normal consumers to justify such extreme measures. Tito knows this.

Mark our words. You heard it first from Terblanche Property Solutions. Of course, if you’re a property investor, you may be smiling indeed. The smart investor buys when the market is down and sells when the market is up. The property market is definitely moving into negative territory.

Call us to help you find those bargains.

How the municipality will value your property

The Municipal Rates Act will come into operation on July 2 this year, almost five years after it was first Gazetted. This Act will regulate the discretionary power of individual municipalities to value property located within their boundaries. From 2 July, all municipalities will adhere to a uniform policy in relation to property valuations and the levying of property rates. The enduring effect of this Act will be to introduce substantially more properties into the rating fold. While providing uniformity and simplicity, the Act aims to relieve the rates burden on the poor.

Rates will be levied on the market value of immovable property. The municipal value of your property is worked out by considering its market value including land and improvements, at the date of valuation. The Act determines that properties have to be re-valued every four years and that the improved value of the property would be the basis of your rate calculations. Once your property has been assessed, you can examine your assessment and appeal against it if you feel that it is unreasonable.

The proponents of the Act say it is good news. The jury is still out on that. As the number and value of rateable property is increased, municipal income from property rates should rise concomitantly, and most property owners should therefore pay less rates annually. For the first time, the Act will now also empower municipalities to impose rates on the value of improvements on land, whereas previously only the value of land was rated.

Some of the more pertinent sections of the Act that may be relevant to you:

- Sectional title units: Owners of individual units in sectional title developments will in future be liable for rates in respect of their own units.

- Rental properties: If rates on a property are paid annually, and an amount for rates is due and unpaid by the owner of that property, the municipality may recover such outstandings from the tenant on the property, despite any contrary stipulation on the contract of lease. The amount so recoverable is limited to the rental due in terms of that lease contract, but which is so far unpaid. Any amount recovered by the municipality from a tenant may be set off by him/her against any amount owed to the owner as rent. The same applies in respect of the letting agent who collects rental on behalf of the owner.

Homeowners have the right to review and challenge the valuations of their individual properties. Municipalities must give property owners at least 30 days from the time that the completed valuation roll for a municipal area is published to review — and object to — the data on record for their respective properties at public venues. Make sure you do so.

At Terblanche Thomas we can assist and advise you with your headaches and queries about new legal animals such as these. Talk to one of our knowledgeable agents. We will help you to make it work for you.

What can you expect from the property market in 2008?

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Since last year, the phenomenal growth experienced in the South African residential property market started to slow down. We have experienced double-digit growth for a number of years now and many thought the party would never stop. However, all indications are that our property market is poised for another year of slowing price growth.

Does this mean that the outlook this year for the average property investor is decidedly one of doom and gloom? Bear in mind that Tito and company increased rates eight times over the last 18 months. These increases have resulted in mortgage repayments increasing by about 25% since 2000. Couple this with price growth that will probably be in single digits for the first time in seven years and it looks like this year might not be so happy after all if you’re a property owner.

The thing with the slowdown in the price growth is that we live in a country with an inflation rate expected to peak at about 8% this year. If the value of your house increases by only 8% or 9%, it is clear to see how that kind of growth will not give you anything in the line of real growth.

Luckily the news is not all bad.

If you are a potential buyer, you will be happy to know that the slowdown in the growth of house prices is giving your salary an opportunity to catch up for the first time in seven years. Despite some fears, South Africa has also largely been spared the fallout from the sub-prime crisis in the USA and United Kingdom. This means that our banks will still be happy to provide loans to potential home buyers.

Potential buyers must bear in mind that house prices – while not growing by much this year – are not likely to fall either. Furthermore, the supply of housing onto the market is also decreasing as new building plans being passed is continuing to slow down. This should help to support both price growth and rental growth.

If you are a property owner, you will be happy to know that rentals and yields are on the increase for investment property owners. The rise in interest rates and the increase in repayments are making potential buyers jittery and they are showing signs of rather waiting it out in the rental market. Compared to previous years the property market has slowed in terms of price growth and demand.

Our view is, despite the current high interest rates, the slowing price growth is an opportunity for buyers to get into the market. At some point – probably towards the end of this year – interest rates will start to fall and prices will start to climb at an increasing rate again. Will you be ready by then or will you be forced to watch house prices sky-rocket making them ever more unaffordable?

Remember, generally it doesn’t get easier to get into the property market. It only gets harder… and more unaffordable. Talk to one of the experts at Terblanche Thomas Property Solutions for advice tailored to your individual needs. Mossel Bay and the Garden Route offer some real investment gems – if you know where to look.

*Copyright: Stefano Roddaro, from stock.xchng

Time for a sale

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Hi there,

Every now and then the property market – like any other market or store – has a sale. Some call it a “correction”, others talk about “low growth levels” and some others warn of an impending “property bubble”.

According to Absa Bank’s latest House Price Index, house prices in South Africa were up by 14,5% in nominal terms compared to 15,2% in 2006 and 22,6% in 2005. However, compared to recent years, house price growth was only 3,8%, year-on-year in November (5,3% in October). Property analyst at Absa, Jacques du Toit, said this is “the lowest real growth since the 4,2% recorded in December 2002″. The average house price is now R964 000, according to Absa’s measure.

What does this mean for you? Bear in mind that many economists are expecting the growth in house prices to taper off even further this year due to scary things like the National Credit Act, rising interest rates etc.

Well, for one this means you’ll probably get properties now for bargains you wouldn’t have seen in the last 4 years. Properties are investments with a lifespan of a number of years. If you make the right investment now, it will pay off when you sell. Of course, rental income generally is also growing again as more and more people in South Africa are forced to rent because they cannot afford to buy. This is also true in Mossel Bay and many of the other towns in the Garden Route.

Profit is made when you buy, not when you sell. Prices are growing slower now, which means that it’s becoming a buyer’s market again. The smart investor will talk to his property advisor now to find those gems. Talk to a knowledgeable agent at Terblanche Thomas Total Property Solutions for advice on finding those smart property investments now.

Don’t follow the herd.

*Copyright 2001-2008 Architel