FNB's Estate Agent Survey

FNB's Estate Agent Survey has found that an increasing number of first time buyers are able to produce the money required for deposits and transfer fees, leading them to become a more significant source of residential demand in 2011.
John Loos, household and property strategist at FNB Home Loans said that the survey showed the changing behaviour that was beginning to happen in the household sector.
First time buyers had become far less significant in the home buying market around recession time, dropping to an estimated 15 percent of total home buyers by 2008, according to the sample of agents surveyed at the time.
However, according to FNB, the past three years have seen consecutive increases in the first time buying percentage, with a very significant jump from 17 percent in 2010 to 23 percent in 2011. This was the highest first time buying percentage since 2005. However, one should bear in mind that overall home buying volumes were far lower compared with 2005/6, so this percentage still represented a far lower overall number of first time buyers compared to then.
Nevertheless, the percentage improvement over the past 3 years was partly reflective of improved first time home buyer confidence. Confidence alone was an important factor in driving first time buyer demand.
Unlike established households, for whom having a home was often a more urgent and pressing matter, many young first time buyers have had the flexibility of remaining in the rental market until such time as economic or interest rate conditions improved, or alternatively postponing their departure from their parents' home.
It should therefore not be too surprising that the recovery in the first time buying percentage lagged the overall market recovery somewhat, with a portion probably choosing to adopt a "wait-and-see approach, but were now (rightly or wrongly) more encouraged as the memory of recession and high interest rates fades.
In addition, it was true that banks had relaxed their credit criteria gradually and mildly since 2008, which was crucial for first time buyers in a country which has an extremely low savings rate that makes deposit requirements troublesome for many.
Loos did point out however, that FNB believed household saving would improve noticeably in 2012, and indeed in the housing market some agents were already starting to see signs that this was happening. Higher savings rates were a far more desirable solution to the home loan deposit constraint than merely relying on banks to relax credit criteria.

Have confidence in SA property market

The decision by the Reserve Bank to maintain the repo rate at 5.5 percent is one of the many reasons to have confidence in the property market.
“South Africa currently has much better fundamentals driving the property market than most other countries, including a still-growing black middle class and an increasing number of people with good jobs and an appetite for home ownership,” says Botha.
Rudi Botha, chief executive officer of Betterbond says homebuyers and investors can look forward to real price growth within the next 18 to 24 months.
“South Africa currently has much better fundamentals driving the property market than most other countries, including a still-growing black middle class and an increasing number of people with good jobs and an appetite for home ownership.”
Botha explains that these aspirations have been fuelled this year by above-inflation wage increases to many government employees and union members.
This has been evident in Betterbond’s statistics that revealed that the number of home purchases by black buyers, as a percentage of the total number of purchases has increased from 42 percent to 52 percent in the past 12 months.
He says the increased affordability of residential property is another major positive factor for the South African market.
Interest rates holding at a 30-year low have a large part to play because monthly mortgage commitments are reduced.
The minimum installment on an average home is currently 33.5 percent lower than in 2008 just before the global financial crisis.
Botha says home prices are currently much lower in relation to average incomes than they were three years ago and this is starting to fuel demand especially at the lower end of the market.
“Low interest rates make it easier for buyers to qualify for mortgage loans as does the fact that many households have worked hard to reduce their debt burden over the past few years and that the average debt to income ratio has now dropped below 76 percent from a high of 83 percent.”
Botha says home prices are currently much lower in relation to average incomes than they were three years ago and this is starting to fuel demand especially at the lower end of the market.
“In fact, we believe that, were it not for the current lending criteria and the requirement for substantial deposits, there would be many more home sales taking place than is now the case.
Betterbond data shows that the number of offers to purchase being negotiated by estate agents has climbed right back up since 2009 and is currently only 33 percent down on the number they were handling at the height of the property boom.
The monthly value of deals actually being registered in the Deeds Office is still only about one-third of the value that was being achieved during the boom – largely due to buyers’ inability to secure finance to go through with their purchases, he says.
Botha says demand for rental market is strong and this should bring greater numbers of investors back into the market.
“Rental yields are starting to increase in many areas and this should spur buy-to-let investors who account for about 8 percent of home purchases.”
Botha says South African consumers should be pleased by the Reserve Bank’s decision to keep the repo rate unchanged at 5.5 percent when compared to some BRICS countries which have raised rates in an effort to contain inflation.
He says South Africa is set for reasonable growth of 3.1 percent this year, with the manufacturing and retail sales figures encouraging – making it a positive factor for the property market.
In view of the continued global and domestic economic pressures and the upward inflationary trend driven by fuel and utility hikes, he believes that taking a conservative approach in the short term would benefit the economy in the medium to longer term.
This approach also contributes to stability in the property market, he says.
While a lowering of the interest rate would certainly improve affordability for bond holders, it may signal that it is time to start spending.
“Consumers need to focus on bringing down their household debt levels as this will in turn stimulate the market.”
“Consumers in South Africa are far more optimistic about the future of local real estate and the country is set to see a full recovery in the market far quicker than other markets.”
He says South Africa’s inclusion into BRICS will have a positive impact on the local market as this will attract investment and fuel both the economy and real estate market alike.
There is also a growing sector of home buyers intent on achieving more balance and quality in their daily lives through a lifestyle change – which generally includes relocation to a different area or region.
An ongoing trend is that home buyers are prepared to pay a premium to buy into affordable lifestyle estates and gated communities, where available stock tends to be limited at present.
Developers are showing an increased appetite to re-enter the marketplace. Value for money remains a key driver for prospective homebuyers.
In line with this, sellers have had to acknowledge the existing economic trading conditions and price their homes realistically and according to current market-related property values.
From a buyer perspective the prevailing market conditions continue to present sound buying opportunities for those with access to finance, cash, or a sizeable deposit, he adds.
Arguably a decrease in the repo rate would give consumers and lenders a little more breathing room but is not a viable solution at present due to high levels of consumer debt, he says.
It would seem that maintaining the status quo is the way forward for the moment. That might not be what consumers or house sellers were hoping for, but might just encourage buyers to venture out.

Consumer confidence well anchored in 4Q2011

The FNB/BER consumer confidence index for 4Q2011 barely moved, slightly up from +4 in 3Q2011 to +5 now.

Still, this maintains the step-like decline that abruptly occurred from very high confidence levels after Easter 2011, but to a level which is comfortably positive and far removed from recessionary conditions.

So the consumer remains “in good nick”, even if slightly nicked in the course of this year by rising inflation (now 5.7%) eroding real income gains, and paring household consumption gains accordingly.

Consumption spending continues to grow and remains the anchor tenant of this cyclical expansion now entering its third full year.

This latest FNB/BER confidence survey suggests that for some consumers, perhaps fearing the worst around mid-2011, the worst did not in fact happen, restoring some strength to the positive convictions still driving consumer spending onward.

Overall, consumers eroded their outlook for the economy by another two points to 0 from +18 a year ago, a clearly poor view of what is happening to the economy and possibly will still happen (fully in tune with the daily news flow).

Meanwhile, the own financial outlook overall staged a minor recovery after the major decline in 3Q2011 to +15, now ticking back up to +17 and getting back nearer the +20 plus levels prevailing earlier in the economic recovery, at the time suggesting extreme optimism about own finances.

This is in a minor way confirmed by whether now is an appropriate time to buy durable goods, improving to -2 from -4, but not really escaping the 50/50 no-man’s land around the zero-line of the past two years.

There is thus today a slightly better tone to confidence reflecting comfortable personal circumstances, though the view of economic prospects has kept fading (in line with general economic commentary).

When we dig deeper into the data, we find White consumers making most of a confidence comeback, possibly indicating they overdid the 3Q2011 declines regarding economic outlook and own financial outlook.

White consumers were deeply negative about the economic outlook at midyear, but have now slightly corrected this by moving from -15 to -11.

Even stronger is their correction of the decline in own financial outlook. This had averaged +18 since mid-2010 (a very high confidence level) but dropped to +7 in 3Q2011. This confidence level is now back at +16. Whatever bad was going to happen to own finances didn’t happen or is no longer going to happen (and mirroring global market buoyancy).

Black consumers were less quirky about their views, maintaining their slightly lower (still very impressive) confidence about own finances at +19, though marking the economic outlook further down, from +10 to +7 (from +27 a year ago).

Black consumers did boost their confidence about now being a good time to buy durables, from +5 to +10. Whatever is going wrong in the economy, it isn’t really shifting their perception of their own realities.

These tendencies are also seen in high incomes (over R10000 monthly), with the economic outlook bouncing back from -2 to +3, and own financial prospects perking up from +21 to +24 (a very robust confidence level). They also in a minor way improved their view about buying durable goods from -6 to -2 (but not really escaping the range of the past two years).

High middle income (R5000 to R10000 monthly) and low incomes (below R2000 monthly) both recorded substantial drops in confidence about the economic outlook, but this wasn’t really collaborated by their views of own finances (which remained considerably more positive).

English-, Afrikaans- and Nguni-speakers boosted their confidence about own finances noticeably by six points in each instance to clearly comfortable levels, suggesting the early markdowns were overdone (the worst did not happen).

In contrast, Sotho-speakers faded a little, but as result that ALL consumers now differ very little regarding own financial confidence (between +14 and +19).

Retailers, motor dealers, financial services, telephone providers, hotels and leisure outlets can all take some comfort from these readings.

Across the board, consumer confidence readings remain in solid positive territory, and soundly so for nearly all categories of consumers when considering their own financial prospects. It provides a solid anchor to motor the ongoing business expansion.

It is true that regarding consumer durables the willingness to buy remains mostly neutral, still suggesting some delay in replacing ageing goods and also perhaps an unwillingness to add to indebtedness (preferring to reduce it, though one notices the strong growth in unsecured debt).

The view of economic prospects, though, is jaundiced and mostly getting more so, presumably reflecting general impressions and news flow.

Only certain classes of consumers have adjusted their views of the economy higher, possibly because earlier markdowns proved to be excessive relative to what actually transpired and is now expected.

The overall impression is a favourable one. Consumers are somewhat less exuberant than a year ago, but still show high levels of confidence, especially about their own finances, which augurs well for Christmas sales this year and ongoing household consumption spending in 2012.

Have a good one!

Cees Bruggemans
Chief Economist FNB

PROPERTY - LAND REFORM - News 24

PROPERTY

Land Reform- 30% of farmland bought by Govt sold back
News24
Cape Town - Black farmers have resold nearly 30% of the white farmland bought for them by the government, often selling back to the previous white owners, Land Reform Minister Gugile Nkwinti said on Wednesday. "The government bought land and handed it over to aspirant farmers who then sold it again, in many instances back to the original owner," Nkwinti said.

Nkwinti was speaking at launch of a long-delayed new draft reform policy that aims to overhaul lagging efforts to transfer farms to the black majority, with restrictions on private and foreign land ownership. Land Reform Minister Nkwinit reaffirmed South Africa's commitment to an open market system, where only willing private owners will sell to the state, but said the state planned to act on "distorted" pricing. "There are no silver bullets to the resolution of the post-colonial land questions anywhere in the world," Nkwinti told reporters. "In our country we wanted to solve it yesterday - it's not possible, such an emotive issue. So we think it's going to take a bit of time and it will require patience."

The draft proposes the leasing of state and public land, limits on private land, conditions and obligations for foreign owners, and communal tenure on land under traditional chiefs.

National asset- "Anywhere else, foreigners do own land but on strict conditions if they actually have that privilege of owning land," said Nkwinti. "In our country as well, we have reached the point that we want to make sure that we take control of the national asset that is land. We've got to make sure that we do exactly the same as other countries are doing, to control the holdings of our land by foreigners in the interests of our country."

The state plans to keep buying white-owned farms to redistribute to blacks, but proposes tackling the sticky problem of pricing with a new land value office that will "level the playing field". "The willing-buyer willing-seller model on its own, it's a problem, because it distorts the market," said Nkwinti, pointing to above market value prices. "There will always be a willing-buyer willing-seller model working, except we want to make sure that some of the vagaries would be dealt with." Redistribution efforts have largely failed so far with only 10% of redistributed projects productive - of 6.3 million hectares transferred - and Nkwinti said land reform targets were "slippery".

A previous bid to transfer 30% of farms by 2014 was unlikely as R40bn was needed to buy farms.

Sensitive issue- The proposed restriction on private land is a concern, said Annelize Crosby, legal adviser of the commercial farmers body Agri SA. "We are very worried about the potential consequences of such a step because if you start interfering with that, there will be consequences," she told AFP. "It's a very complex issue. I can see why it would be an attractive option for the ministry and government but I don't think they fully realise the possible consequences of such a step and just the complexity of it." Last year, a quarter of the land buying budget was allocated to rescue collapsing projects, with 100% productivity now being targeted.

Municipal Property Amendment Bill

PROPERTY

Municipal Property Amendment Bill - Deputy Minister Yunus Carrim explanation
Moneyweb
It is clear from the Municipal Property Rates Amendment Bill that the intention is to change the way some residential property is rated so that more types of residential property pay higher commercial rates. In this respect the Democratic Alliance (DA) welcomes the way in which Deputy Minister Yunus Carrim has eased off from saying that all second properties will not be taxed at commercial rates. This was obviously in response to the firestorm of protest that has resulted from initial reports of the bill.

The Deputy Minister needs to go further though, and clarify exactly which properties that are used for gain he intends to rate commercially. He has said in a statement that the intention is only to change the rating of “guest-houses, bed-and-breakfast establishments, small hotels and the like..” . This does not make clear what the ANC government intends with regard to a holiday flat, for example, that is occasionally let.

That clarification will be helpful to know the Deputy Minister’s intentions, but will not change the DA’s opposition to any redefinition of residential property for ratings purposes.The risks inherent in hiking rates include raised rents, which will increase the burden on tenants, and a major drop in the property market as investors struggle to offload property that is no longer a good investment. This could potentially devastate coastal towns in particular.

Many retired people have ploughed their savings into second properties and occupy themselves with managing property they own to supplement their savings. It would be deeply ironic to destroy these investments just days after the Minister of Finance pleaded with South Africans to save more.

Questions have been raised about the constitutionality of the bill. Without pronouncing on that, it does seem manifestly unfair. Rates levied on properties should be about land use and nothing else. But the bill would change the emphasis to who owns the land, rather than how it is used.

The bill suggests that different rates should apply to two residential properties situated next to each other, both being used for residential purposes. This will also be difficult to enforce as municipalities do not have the capacity to monitor this type of usage on a regular basis.

It appears that, having allowed municipal government to become a playground for corruption, the ANC government is now looking to extract more money out of ratepayers to get it out of the financial hole it has dug for itself. There is still no guarantee that additional rates raised will be properly spent. The DA believes that the attempt to change the way residential property is defined will be bad, not only for investors, but also for tenants and those who are attempting to supplement their meagre income with rental proceeds.There are other aspects of this bill which are misconceived and we will thus oppose them and the redefinition attempts when this bill comes before parliament.

[As per our previous newsletter and newsflash we submitted our objection. Until full clarity is obtained and the bill is amended we will maintain our objection. A copy of our objection and the Bill will soon be available on our website.- RM]

The Institute of Estate Agents warns the legislation, if passed, will adversely affect the property market

The Mercury
It says that should the meaning of ‘residential property’ be redefined as the Bill
proposes, rates levied on properties not accommodating their owner will be equal to rates levied for commercial properties. In effect, landlords and tenants will have to fork out extra to provide for a hike of as much as 229%, notes The Mercury. In a draft submission which the institute has prepared for the department, the institute expresses its concern for those who have invested in property for retirement, the burden of taxation on home owners, and the withdrawal of foreign and local investment.


Municipal Property Rates Amendment Bill causes uproar
Sunday Tribune
The proposed Municipal Property Rates Amendment Bill, which would classify rented buildings as commercial businesses, has caused a furore, with holiday homes and investment properties, in particular, expected to be hit. The resulting higher rates will sound the death knell for developers and investors; Wakefields Real Estate CEO Keith Wakefield is quoted as saying in a report in the Sunday Tribune. In eThekwini, the change to commercial rates would mean a rates increase of 226%, the report notes. ‘The way the draft proposal is worded, it means you will get rates rebates only on the primary residential property in which you live,’ City Treasurer Krish Kumar reportedly told the paper. ‘It would be virtually impossible to manage because those who own more than one property would simply put a second or third (property) in the name of a spouse or offspring.’ Kumar said the SA Local Government Organisation had indicated it would oppose the draft Bill.

It's time that the tax payers voice their objections to the authorities blatant approach of SMASHING the 'GOLDEN EGG'.

Paying off your bond on retirement may not be the wisest course.

When South Africa’s baby boomers who entered the job market in the 1960s and early 1970s go on retirement (as many are now doing), their financial advisers will almost always tell them to use whatever pension fund, insurance or golden handshake money is paid to them to reduce or eliminate debts - including outstanding sums owed on their mortgage bonds.
This thinking, says Rob Lawrence, National General Manager of the bond originators, Rawson Finance, makes good sense when financing depreciating assets such as motor cars and electronic goods (which are very often bought on extremely high interest rates), but it may well not be valid on an appreciating asset with a relatively low interest rate, such as a home.
“The financial consultant will argue that now that the retiree is on a reduced income, he should cut back on his monthly savings. However, these days, given that only 6% of retirees can actually afford to retire comfortably, the retiree will as often as not find that he wants to, or has to, continue working, at least part-time – and he will do this.
“Supposing, therefore, that he had a bond of R1 million on which, say, R200,000 is still owing. If he continues to service this debt from the monthly income he derives from his part-time work and invests whatever lump sums have become available to him in inflation-beating assets such as good shares or perhaps an investment property, five to ten years from now he is likely to find (a) that he has paid off his house and (b) he has seen his lump sum investment increase significantly in value, probably doubling every five years. At the same time he will have seen his home increase in value by at least some 7% per annum.”
(The 7% figure on the home, Lawrence predicts, should be accurate because he does not foresee the current stagnation in house prices lasting beyond 2012.)
This way of looking at the finances of a retiree’s situation, says Lawrence, gains further credence when it is realised that although the official inflation rate is running at 4,2%, the rate affecting middle class people paying for food, petrol, electricity, medical insurance and possibly the education of their children will probably be closer to 9% in the coming year.
This economic scenario, says Lawrence, helps to explain why the USA is apparently not over-worried about its US$14 trillion debt.
“They will let the value of their currency depreciate. This in effect will reduce their debt by whatever percentage the dollar has depreciated, making the value of the money they owe significantly lower than it was when the money was borrowed initially.”
South Africa’s rand, says Lawrence, is also likely to depreciate in the coming years, making inflation-beating investments such as a home a very good choice as a hedge against a continually devaluing currency.

Consumer Protection Act and property sales!

East, west, the truth about your home is best
In the light of the new Consumer Protection Act, homeowners who want to sell their properties would be well advised to “come clean” about any and all defects or drawbacks they know about.

“Of course the best course of action is to correct any defect you are aware of before you list your home for sale,” says Hano Jacobs, CEO of the Realty 1 International Property Group, “but this is not always possible.

“Sometimes homeowners don’t have the money to fix whatever is wrong, and in other cases they may not have the time or the inclination. In these instances what they should do is to make full disclosure to their estate agents and mandate them to negotiate a fair price on this basis.”

This is especially important now that the CPA has come into effect, he says, since the overall intention of this legislation is to protect consumers from any misrepresentation, and to enable them to easily cancel sales where they can show that they have not been told the truth.

“We believe this means that sellers will no longer be able to shelter behind a ‘voetstoots’ (as is) clause in the sales agreement, or the old distinction between patent and latent defects – that is, those faults which are obvious and both the buyer and seller will be assumed to know about, and those that are not obvious and the seller might claim he did not know about.

“In fact, we think that sellers are going to have to go the extra mile now, not to prove that their homes have no faults, but to show that they are not deliberately concealing whatever faults there are and are negotiating transparently and in good faith.”

The best way to tackle this, Jacobs says, is to work with a professional agent who really understands that his or her job is not just about marketing your home and finding prospective buyers, but also about seeing the transaction through to the end, when the property is successfully transferred to a new owner.

“Such an agent will take the time to go through your home in detail and properly assess how it compares to others currently on the market or recently sold in your area, and then assist you to set an asking price that is fair for the property in its current condition. He or she should also be able to tell you what repairs or improvements would be essential and/ or most cost effective if you want to attract more prospective buyers and better this price.”

In addition, he notes, many top agents these days are also compiling detailed disclosure reports to be incorporated in sale agreements and signed by buyers as well as sellers, so there can be no dispute later about what was and was not disclosed.