Doucal Properties

FNB's Estate Agent Survey

2012-01-14T03:41:00.000-08:00

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

2011-12-08T05:51:00.000-08:00

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

2011-11-16T23:32:00.000-08:00

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

2011-09-12T09:52:00.000-07:00

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

2011-07-29T00:59:00.000-07:00

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.

2011-07-01T09:52:00.000-07:00

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!

2011-06-10T11:13:00.000-07:00

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.

2011-05-30T04:10:00.000-07:00

If you’re a homebuyer who has been pre-qualified for a home loan, spent weeks visiting show houses, been given a truckload of good buying advice and still can’t bring yourself to sign an offer, you may have what agents call “buyer’s block”.
And, says Harcourts Africa CEO Richard Gray, it’s not something you should ignore. “Frustrating as it may be to your family, your friends and even yourself, you should not discount your instincts when it comes to entering a transaction of this importance.
“Instead, take the time to backtrack and find out what is causing the conflict between wanting to buy and being unable to make a decision. The root cause is usually money – that is, fear that you might run into financial trouble if you take this step – and fortunately, there are several constructive ways to address this concern,” he says
You can start, for example, by asking an agent you trust to show you some more homes in a lower price bracket. "You can't go wrong buying for less and taking a smaller home loan than the one for which you pre-qualified. It's always wise to have some leeway in case of financial emergency, or in case interest rates rise faster or more than expected.
“Indeed, many financial advisors are now suggesting that clients should budget a maximum of 25% of their income for home loan repayments so that they can also save, invest, make home improvements and cope with unexpected expenses."
Alternatively, says Gray, if you’re intending to buy primarily because you plan to start a family, perhaps you need to reassess your ability to accomplish two big financial goals at the same time. "It is difficult to cope with a new home loan and burgeoning family expenses all at once.”
And finally, if what you’re worried about is the future of the property market and its possible effects on the value of your investment, you need to remind yourself of two things: Firstly, that there is always a buyer for an attractive, well-maintained home and secondly, that property is generally not very volatile.
“Consequently, if you give yourself sufficient margin when you buy to be able to keep your home in a good state of repair, and you choose an area with similarly well-kept homes, the chances are more than good that your property will increase in value and you will do well out of your investment.”

No more hiding behind the "voetstoots" clause

2011-04-11T09:50:00.000-07:00

Property developers who have in the past delivered sub-standard products and gotten away with it, relying on the protection of the "voetstoots" clause, will no longer have that shield, in terms of the new Consumer Protection Act (CPA).
This clause, which has been a part of business and contracting since time immemorial, is a common law principle which protects the seller by excluding his liability for latent defects. In terms of common law the seller will be responsible for latent defects in the absence of the clause. In the past some unscrupulous property developers have hidden behind the voetstoots clause, by saying for instance that there was no defect when the property was sold, and therefore any defect which becomes apparent later is not for his account.
Michelle du Plessis of legal firm Deneys Reitz says the implication of the CPA on the real estate sector is that if a property reveals a material defect within six months of transfer, the purchaser can choose to either return it and get a refund, to insist that the seller repair the defect, or that the seller replace it with another property. In other words, a seller can be forced to take back a property up to six months after transfer.
It is important to note that the CPA does not apply to all sales of property. A one-off sale, for example, will not fall under the CPA and therefore parties to such sales are free to continue using voetstoots clauses. "It is definitely a good idea, if you're a seller, to include a voetstoots clause in a deed of sale," Du Plessis says.
Du Plessis says there are exceptions to the rule: "If the purchaser has been expressly told that a property is offered in a specific condition and he accepts it in that condition, he can't later come back and allege the goods are defective or not suitable for his purposes". Therefore, if a purchaser has taken note of a defect in a property, he cannot change his mind three months later and tell the developer he no longer finds it acceptable.
She explains further: "The public should be made aware that if they buy a property from a developer, the developer can no longer hide behind a voetstoots clause. If there is a material defect in the product delivered, the consumer has rights. Developers will have to take stricter control over the entire construction process and also make sure they build a good product, otherwise they might find themselves being forced to take back that property and refund the purchaser."
The section in the Act which gives purchasers the right to return defective goods states that a purchaser/consumer has the right to receive goods that are reasonably suitable for the purpose for which they are generally intended, are in good working order, of good quality and defect-free. Du Plessis, says the term "defects" in that portion of the Act, is specifically limited to material imperfections in the manufacture of the goods which make it less acceptable to the purchaser. The section cannot be used against a seller / developer if the defect is minor, like a cracked tile or poor paintwork.
"The section specifically says it doesn't matter if the defect is latent or patent (obvious) or if the purchaser could have detected it before delivery... the purchaser is still entitled to expect good quality, defect free goods," Du Plessis said.
She says although the provisions of the CPA may appear harsh in how they will affect property developers, we must remember that we are all consumers, and will all ultimately benefit from the Act too.

2011-03-24T07:00:00.000-07:00

FNB Home Buying Confidence Indicator - First Quarter 2011
FNB - South Africa
Outlook - Agent expectations in the near term
The FNB Home Buying Confidence Indicator attempts to capture agents expectations of the near term. In each agent survey, we ask them whether they expect activity in the market to increase, decrease, or remain the same in the next 3 months. In order to eliminate expectations driven by seasonal factors, we use a 4-quarter moving average in which a "increase" response gets a rating of 1, "unchanged" gets a zero, and "decline" gets a rating of -1. We see that the peak of agent confidence was for the 4 quarters up to and including the 1st quarter of 2010, understandable given the huge interest rate cuts that took place from late-2008 to August 2009. The 1st quarter 2011 rating represents further decline from the previous quarters, but is not a bad rating by historic levels. More than representing weak expectations by agents, its current level arguably represents the expectation of a "settling" down of the market after the biggest improvements in demand took place late in 2009 and early-2010. To give one an idea of what we mean, the majority, i.e. 56%, of agents surveyed in the 1st quarter expected activity to remain unchanged, compared to 40% anticipating further strengthening and only 4% expecting weakening. This is still a good result, but moderated from the 3rd quarter 2009 survey when as many as 61% of respondents were expecting strengthening.

The list of factors influencing estate agent expectations of near term activity sees interest rates still ranking as most important. The currently low interest rates are overwhelmingly seen as a positive factor, as is positive consumer sentiment. Banks' credit criteria, however, continue to be seen as the "spoiler", with deposit requirements being seen as especially troublesome. Pricing and affordability appears split both ways, with some seeing prices as still unrealistic and others believing that realism has improved. The response regarding a longer average time on the market along with a higher percentage of sellers having to drop their asking price, however, still tends to point towards a lack of realism.
FNB Home Buying Confidence Indicator

The December 2010 FNB House Price Index

2011-01-17T00:52:00.000-08:00

The December 2010 FNB House Price Index completes the picture for last year, a year which proved to be hard work for those in the property industry, although it was significantly better than 2009.
For December, the year-on-year rate of increase in the FNB House Price Index was 3.6 percent, which was unchanged from the November revised rate of growth of 3.6 percent. In real terms, i.e. adjusting for a November Consumer Price Inflation rate of 3.6 percent year-on-year, this means that November saw zero percent real change.
Examining 2010 as a whole, though, the picture was better than what the weak year-end figures suggest. The average price level was estimated to be 6.7 percent higher than the 2009 average price level, which translates into a real price average that was 2.3 percent higher in 2010 than in 2009, when taking the first 11 months of 2010 into account (we still await December CPI stats).
It must be said, though, that 2010 was a "tale of two halves", with the first half of the year showing an acceleration in average price growth in response to massive interest rate cuts in 2008/9, while the second half of the year showed a deceleration in price growth in response to the SARB putting the brakes on the pace of interest rate cutting from late-2009.
And then, right at the end of 2010, there were hints at some stabilisation in nominal price growth, albeit at a very low rate of price increase.
It is too early to say whether the stabilisation in the rate of price increase is any sign of a turnaround in the price trend, and at this stage we think probably not. Rather, we believe it possible that the two successive interest rate cuts in September and November may have given the market a slight bit of impetus (on top of any seasonal factors) through the summer months, but that this will fade should there be no further interest rate cutting.
Property in 2011 mediocre at best
It is important to accept that the broader property cycles (excluding the "mini-recoveries" such as that of the first half of 2010) are generally long in duration, and the slow times following booms can last for a good number of years while the market slowly battles to eliminate past "excesses". Certain indicators suggest that 2011 will probably be another year of hard work for the residential property-related industries.
FNB’s valuers, as a group, certainly appear to believe that the situation of weak demand relative to supply continues.
The FNB Valuers’ Market Strength Index weakened further in December. When an FNB valuer values a property, he/she is required to provide a rating of demand as well as supply for property in the specific area. The demand and supply rating categories are a simple "good (+1)", "average (0)" and "weak (-1)".
The aggregate supply rating was slightly higher at +0.142, while the aggregate demand rating weakened from -0.057 (revised) previous to -0.059 in November.
After aggregating the individual demand and supply ratings, we subtract the aggregate supply rating from the demand rating. The collective opinion of the valuers is that demand relative to supply has weakened further from -0.19 in November to -0.2 in December, the continuation of a weakening trend in the Market Strength Index.
The ongoing weakness in valuers’ perceptions of the market continues to be of little surprise, with the country’s household sector still experiencing a high level of indebtedness. In December, the SARB Quarterly Bulletin showed the household sector debt-to-disposable income ratio to have been 78.5 percent as at the third quarter of 2010, which remains only marginally lower than the 82 percent all time high recorded at the beginning of 2008. The household sector, therefore, remains constrained with regard to the extent by which it can grow its borrowing of this very high base (a high base by SA standards, at least).
In addition, 2011 looks set to provide little in the way of additional interest rate stimulus to the market. Already, 2010 proved to be a year of far slower interest rate cutting by the SARB, compared with 2009. And recently, we have seen two consecutive months of mild increase in the consumer price inflation rate, from a September low of 3.2 percent to 3.6 percent by November. Factors suggesting a further near term increase in consumer inflation include upward pressure on global food prices, rising oil prices and some increase in domestic petrol price inflation recently, as well as mildly rising home rental inflation as measured in the CPI.
A 3.6 percent consumer price inflation rate is by no means a problem. However, we do not expect interest rate hiking until 2012 (although the performance of the rand this year is probably the wildcard from an inflation point of view, and another year of solid performance by the currency would be crucial to this view). But it is important emphasise that the stimulus to the market comes from interest rate cutting, not from rates moving sideways, and given the SARB’s inflation focus it would be unlikely to cut rates should inflation be rising.
And so, after starting the year with some of the mild stimulus from late-2010 interest rate cuts still to feed through into house prices, a year of expected sideways movement in interest rates leads us to believe that 2011 will see further deceleration in the rate of increase of the FNB House Price Index following perhaps an initial few months of relative stability.

Difference between a pledge and a guarantee

2010-11-14T09:15:00.000-08:00

Some South African banks have adopted a two phase method of giving approval for a mortgage bond and this is in some cases causing confusion, says Rob Lawrence, national manager of Rawson Finance.
The banks’ practice, said Lawrence, is to give the applicant a written “pledge” indicating that he has, as a result of a preliminary investigation into his financial position, pre-qualified for a bond worth so much but it should be noted that such a pledge is in no way a guarantee that the bank will grant a bond.
The buyer in most cases will inform the agent and the seller of this and will then make an offer subject to the bond actually being granted. Many people will assume that this is now a mere formality as, despite the fact that there are disclaimers on the pledge , they assume that such a pledge indicates that the bank has approved the loan in principle.
When the bond is actually applied for, the bank will undertake a second, more detailed study of the applicant’s financials and this, says Lawrence, could then – in many cases actually does –lead to a change of mind with the result that the bond is declined.
“The bank will already have checked the applicant’s credit record – but now they may reassess the nature and scale of his income. Possible fluctuations in earnings or the fact that he is in what they consider a non-core business, or other factors, could lead to their now deciding not to become involved.”
The bank may also decide on, inspection, that the house as overvalued.
This, said Lawrence, had led to a “lot of grief and some anger” among applicants, agents and sellers.
“I am not sure what the answer is,” said Lawrence, “but it is, I feel, important to warn all involved that a pledge is not binding on the bank and should not be allowed to give the bond applicant or the seller too much confidence.”
At Rawson Finance, said Lawrence, the national success rate of bond applications is still under 55% but, he said, the 0,5% additional drop in the interest rates, now widely expected, will probably raise this figure by at least 3 or 4% - not so much because of the monetary value of the reduction, but because of the positive sentiment that another rate drop is likely to create.

Improved business confidence shows the way forward

2010-10-11T00:59:00.000-07:00

According to the latest Business Confidence Index (BCI) survey by Rand Merchant Bank (RMB) and the Bureau for Economic Research (BER) released in early September, the BCI for the third quarter of 2010 has rebounded to 47. This is an improvement from the first quarter, which reported a BCI of 43, and to the much lower BCI of 36 reported in the second quarter of 2010.

Says Adrian Goslett, CEO of RE/MAX of Southern Africa: “South Africa’s BCI has seen sharp and persistent declines from the heyday level of 85 reported in the third quarter of 2006, to the low 23 reported only three years later. The latest figure of 47 is the highest BCI level seen in over two and a half years, which indicates that although there is still a long way to go, sentiment is improving.”

The RMB/BER BCI covers the building, manufacturing, retail, wholesale and new vehicle trade sectors, and it rates the percentage of respondents in these sectors who think that prevailing business conditions are satisfactory. The index can vary anywhere between zero and 100 – zero being if all the participating respondents rated the prevailing business conditions as unsatisfactory, and 100 if they all rated it as satisfactory. The latest figure of 47 shows that almost half of the participants rated prevailing business conditions as agreeable.

“Looking at the survey, it is clear to see that confidence levels in the different sectors varied considerably,” says Goslett. At the top of the pile, new vehicle dealer confidence surged by a reading of 49 in the second quarter, to an impressive 79 in the third quarter – the highest it has been in four years. Retail confidence increased from 38 to 52, and wholesalers’ confidence improved from 47 to 50. Manufacturing confidence was also up, but only marginally, from 28 to 30, and building contractors recovered from 20 to 25.

“The rise in confidence in some sectors, such as the manufacturing, building and semi-durable retail sectors, was coupled with improved business activity. Other sectors on the other hand, such as the new vehicle, wholesale and durable goods retail trade, showed a rise in confidence even though there were weaker business activity levels experienced during the third quarter. In my opinion, the improved BCI figure was not just based on better bottom-line profits, but on a genuine confidence that business prospects are looking good going forward in the near-term,” says Goslett.

All good news he says, but it is clear that although the sun seems to be coming out, so to speak, there are still a number of hurdles that need to be overcome: “Although the BCI figure has improved, there are still a number of downside risks that are currently present, including the fact that global recovery is not yet fully established, and that the relatively strong rand could impact negatively on exports and economic growth.

“Concentrating specifically on property – the BCI figures do show a marginal upturn in real estate, even if it remains low. The tempo of the revival is currently constrained by factors such as uncertainty about economic prospects, high levels of consumer debt, a strained job market with high levels of unemployment, the sharp increase in electricity tariffs planned going forward, and of course, comparatively tight lending standards. Although these are much less restrictive than we have seen them in the not-too-distant past, they nevertheless still disqualify a substantial amount of willing marginal borrowers,” explains Goslett.

Going forward, Goslett says he is expecting even better, even if marginal, improvement in the fourth quarter and in 2011: “Although there has been improved confidence shown in the property market, which is reflected in the recent recovery in house prices, it is clear that we are not heading for a boom any time soon. There will be sure recovery in the housing market going forward, but it will be gradual and largely dependent on the income position of households. With regard to this particular point, the latest rate cut, which brought the lending rate down to 9,5%, the lowest it has been in 30 years, is an incredibly good sign going forward.”

Slow down on Capital Growth

2010-09-13T10:19:00.000-07:00

As the global economic outlook remains uncertain, property investors should brace themselves for a slowdown in the capital appreciation of their existing assets.
Not even a rate cut on Thursday is expected to make much difference to the rather sad picture.
At least the slower growth in house price inflation provides other opportunities for first time investors to enter the market, or existing investors who are keen to grow their portfolios.
While house price deflation is not foreseen by analysts in the foreseeable future, the weak economic recovery concerns involving big players like the US, Europe don't augur well for the consumer confidence and the property market.
Absa senior analyst Jacques du Toit feels the 2011 growth rate in the property market could be lower than 2010 if these market uncertainties do not subside.
As the market awaits the South African Reserve Bank's decision on interest rates on Thursday, Du Toit feels that while the expected 50 basis point cut in lending rates will boost the property market in the short term, it will not stimulate much activity in the market.
There are a lot of uncertainties about the global market conditions at this stage. The integrated nature of our own economy to the rest of the world had resulted in a recession last year here in South Africa.
Its attendant consequences eroded consumer confidence as people lost their jobs. That hit the property market,? he says.
The latest Absa house price index, released on Wednesday, shows that residential property market growth eased further in August.
The average nominal value of small, medium and large houses increased by a weighted 7.1% year-on-year (y/y) in August, down from a revised growth rate of 9.4% y/y in July.
The average nominal price of a house in the middle segment of the market was around R1.036 million in August 2010.
In real terms, the middle-segment home values were up by 5.5% y/y in July after they were up by a real 7% y/y in June, based on consumer price inflation slowing down to 3.7% y/y in July from 4.2% y/y in June.
The value of small houses increased by a nominal 28.3% y/y in August, slightly down from a revised 28.7% y/y in July. The average nominal value of a home in this segment was about R837,100 in August.
In real terms, the value of a small house was up by 24.1% y/y in July, after rising by 23% y/y in June.
The house price growth rates that we saw in the second half of 2009 are tapering off, with smaller house category also coming off after registering a strong growth relative to other segments,? Du Toit said, adding that these base effects were driven by largely by the improving global market conditions.
According to a survey of 14 leading economists by I-Net Bridge, a 50 basis point cut is expected for South Africa's repo rate at the MPC meeting.
Looking ahead, the y/y house price growth is expected to slow down further towards the end of 2010, with prices forecast to grow at an average of about 10%.

2010-09-13T10:12:00.000-07:00

2010-08-23T00:27:00.000-07:00

Six reasons not to buy property

We often hear about real estate investors who have been very successful in building wealth-creating portfolios. We may believe that they have some very special skill or ability, that there is something they know which nobody else does. At other times, we think it was pure luck or coincidence that an investor succeeded, that circumstances have since changed or that it just can't be done. Our cynicism encourages us to do nothing, to avoid the risk.

Yet history proves that doing nothing could be the most risky of all. Apart from the missed wealth creating opportunities, doing nothing translates into a lack of self-development, a missed chance to learn and grow. If we delve deeper, it is clear that most of the reasons people use not to invest are actually based more on emotion than business savvy. We rationalise our fear using calculated arguments as to why it can't or won't work. But the truth is that none of these arguments really hold much validity.

So let's discuss the top six reasons why people decide not to invest in property. And lay them to rest-once and for all.

Reason # 1: Investing in property is risky

Fact: There is a certain level of risk in every investment-and property is no exception. But investing all your money in the bank (or even worse under the mattress) may be the most risky of all as the returns barely keep up with inflation. Also bricks and mortar is more tangible than stocks and you can take out insurance against fires or floods. You can also protect your asset against your death or disability. And yes, there is now even insurance available to cover landlords for non-paying tenants!

Reason # 2: I don't have the time

Fact: We all manage to find the time to do things we really want to do. Time management involves prioritising things that are more important. Anyway, you don't need to do it all yourself. Build a team of competent management agents, brokers and mortgage originators (yes, there are some out there!) and let their specialist skills work for you.

Reason # 3: I don't have the money

Fact: You DON'T need money to make money. Even in a market where 100% bonds are not widely offered, a good below market value deal will attract finance from investors. Network with people who share your passion for property and these investment opportunities will present themselves.

Reason # 4: Below market-value properties don't exist

Fact: No matter what the stage of the property life-cycle, there will always be value for money deals. The key is to identify initially whether the seller is motivated and only negotiate with motivated sellers. As long as there is divorce, relocation or excessive debt, motivated sellers will always be out there.

Reason # 5: The property market will go down

Fact: The property market has never gone down over the medium or long term. Does that mean that it won't in the future? Probably not, simply because property prices rise in relation to income levels which increase over time. Even political factors, crime and other excuses people use not to invest, have not had a serious impact on our or overseas markets. At times, these factors often have the reverse effect-lifting prices as investors choose the safer haven of bricks and mortar.

And if prices DO go down over the next few years? Who cares! Buying for the rental yield and at below market value still ensures the investor comes out trumps.

Reason # 6: I don't know where to begin

Fact: You only learn through action. Educate yourself and when you feel a good opportunity presents itself, take the plunge. It may not be the best deal you may ever do but it will be the most important in terms of confidence. Luckily, over the long term, property is very forgiving of peoples` mistakes.

*Lance Levitas is an experienced property investor. He lectures University students and presents property seminars. He graduated with a degree in finance and marketing and completed post graduate Real Estate Portfolio Management. He lives in Johannesburg. You may email him at lancelevitas@mweb.co.za

Before you renovate, THINK about the following.

2010-07-16T08:38:00.000-07:00

Some luxurious but costly improvements that are commonly viewed as value-builders are actually losers when it's time to sell.
The real dogs in terms of payback at resale are luxury items that are highly individual to the owner's taste. Things like Jacuzzis and tennis courts are very low on the payback scale. Saunas are a complete waste of money as are Koi ponds and water features.

The most definite way to recoup costs

Kitchen improvements are perhaps the most definite way to recoup your revamping costs, depending on the nature of the changes and assuming that you don't spend too much relative to the value of the home.

In the "Cost vs. Value Report," an annual survey of remodelling costs payback at resale, experts say that even a minor kitchen renovation exercise can return as much as 102 percent of costs at resale. Moreover, a renovated kitchen can make a house sell faster.

Attitudes about kitchens have undergone enormous changes in the last 30 years, so it's not surprising that renovating a kitchen has the best return. Kitchens are now much more integral to the house and the whole family is often involved in food preparation. Any changes that make it lighter, brighter and a more useful room add a lot to a home's value.

Good move to add a bathroom

Another good move is to add a bathroom. On average, this will bring back over 90 percent percent of the costs. Viewed in the right context, this is actually a bountiful return on investment. For one thing, you get a valuable intangible — the use of the improvements in the years that you remain in the house.

You can't compare renovating a home to financial investments, like unit trusts. This is disposable income we're talking about. People add a bathroom rather than going on a cruise or buying a new car. There may be better investments out there, but your new kitchen won't lose half its value the minute you make your first meal in it, the way a new car will lose a huge chunk of its value the minute you drive it off the showroom floor.

Think cosmetically

One way to avoid taking a similar hit on your renovation is to think cosmetically. Spending R20 000 to R30 000 on an outdated kitchen with improvements like new flooring, new countertops and new cabinet facings is one thing. But knocking out walls is quite another.

It's when you start altering the floor plan that the costs won't equal the payback. When the same kitchen gets a R60 000 renovation, that's when your return starts to get much lower. You just don't get the same payback on a full project.

A good idea to keep up with the Joneses

Home improvements are one instance where it's a good idea to keep up with the Joneses. The projects that have the highest resale potential are those that make the house similar to other houses in the neighbourhood. If all the other houses in your neighbourhood have two and a half bathrooms, and yours has one and a half, then adding a full bathroom is probably going to pay off for you.

A great article from Peter Davies @ supersport.

2010-06-13T08:35:00.000-07:00

Dear World Cup visitors,

Now that you are safely in our country you are no doubt happily realising you are not in a war zone. This may be in stark contrast to what you have been bracing yourself for should you have listened to Uli Hoeness or are an avid reader of English tabloids, which as we all know are only good for wrapping fish ‘n chips and advancing the careers of large-chested teens on page three.

As you emerge blinking from your luxury hotel room into our big blue winter skies, you will surely realise you are far more likely to be killed by kindness than by a stray bullet. Remember that most of the media reports you have read, which have informed your views on South Africa, will have been penned by your colleagues. And you know what journos are like, what with their earnest two thousand word opuses on the op-ed pages designed to fix this country’s ills in a heartbeat. Based on exhaustive research over a three-day visit.

Funnily enough, we are well aware of the challenges we face as a nation and you will find that 95% of the population is singing from the same song-sheet in order to ensure we can live up to our own exacting expectations.

We are also here to look after you and show you a good time. Prepare to have your preconceived notions well and truly shattered.

For instance, you will find precious few rhinos loitering on street corners, we don’t know a guy in Cairo named Dave just because we live in Johannesburg, and our stadiums are magnificent, world-class works of art.

Which is obviously news to the Sky TV sports anchor who this week remarked that Soccer City looked ‘ a bit of a mess’. She didn’t realize the gaps in the calabash exterior are to allow in natural light and for illumination at night, and not the result of vandalism or negligence.

The fact that England, the nation which safely delivered Wembley Stadium two years past its due date, is prepared to offer us South Africans advice on stadium-readiness should not be surprising. The steadiest stream of World Cup misinformation has emanated from our mates the Brits over the past couple of years.

If it’s not man-eating snakes lurking in Rooney’s closet at the team’s (allegedly half-built) Royal Bafokeng training base, then it’s machete-wielding gangs roaming the suburbs in search of tattooed, overweight Dagenham dole-queuers to ransack and leave gurgling on the pavement.

In fact what you are entering is the world’s most fascinating country, in my opinion. I’m pretty sure you will find that it functions far more smoothly, is heaps more friendly and offers plenty more diversions than you could possibly have imagined.

In addition to which, the population actually acts like human beings, and not like they are being controlled by sinister forces from above which turns them into bureaucratically-manipulated robots.

Plus we have world’s most beautiful women. The best weather. Eight channels of SuperSport. Food and wine from the gods themselves. Wildlife galore. (Love the Dutch team’s bus slogan: “Don’t fear the Big 5; fear the Orange 11”).

Having said all that, Jo’burg is undoubtedly one of the world’s most dangerous cities. Just ask those Taiwanese tourists who got out of their hire car to take close-up snaps of tawny beasts at the Lion Park a few years back. Actually, ask what’s left of them. And did you know the chances of being felled by cardiac arrest from devouring a mountain of meat at one of our world class restaurants has been statistically proven to be 33.3% higher in Jozi than in any other major urban centre not built upon a significant waterway? It’s true. I swear. I read it in a British tabloid.

Having recently spent two years comfortably cocooned in small town America, I’m only too aware of how little much of the outside world knows about this country. The American channel I used to work for has a massive battalion of employees descending on World Cup country. It has also apparently issued a recommendation to its staff to stay in their hotels when not working.

Given that said corporation is headquartered in a small town which many say is “best viewed through the rear-view mirror”, I find the recommendation, if it’s true, to be utterly astounding. In fact I don’t believe it is true. Contrary to the global stereotype, the best Americans are some of the sharpest people in the world. The fact they have bought most tickets in this World Cup proves the point.

Of course I have only lived in Johannesburg, city of terror and dread, virtually all my life, so don’t have the in-depth knowledge of say, an English broadsheet journalist who has been in the country for the weekend, but nevertheless I will share some of my observations gleaned over the years.

Any foreign tourist or media representative who is worried about his safety in South Africa should have a word with the Lions rugby fans from last year, or the Barmy Army cricket supporters (lilywhite hecklers by day, slurring, lager-fuelled lobsters by night). They managed just fine, just like the hundreds of thousands of fans who have streamed into the country over the past fifteen years for various World Cups, Super 14 matches, TriNations tests and other international events. Negligible crime incidents involving said fans over said period of time.

Trivia question: which country has hosted the most global sporting events over the past decade and a half? You don’t need me to answer that, do you?

In addition. Don’t fret when you see a gaggle of freelance salesmen converge on your car at the traffic lights (or robots as we like to call them) festooned with products. You are not about to be hijacked. Here in Mzansi (nickname for SA) we do a lot of our purchasing at robots. Here you can stock up on flags, coat hangers, batteries, roses for the wife you forgot to kiss goodbye this morning and a whole host of useful merchandise.

Similarly, that guy who runs up as you park the rental car outside the pub intends no malice. He’s your car guard. Give him a buck or two and your vehicle will be safe while you refuel for hours on our cheap, splendid beer. Unless someone breaks into it, of course.

We drive on the left in this country. Exercise caution when crossing the road at a jog-trot with 15 kilograms of camera gear on your back. Exercise common sense full stop. Nothing more. Nothing less. If you want to leave wads of cash in your hotel room like our Colombian friends, don’t be surprised if it grows wings.

Bottomline. Get out there and breathe in great lusty lungfuls of this amazing nation. Tuck into our world-class food and wines. Disprove the adage that white men can’t dance at our throbbing, vibrant night-clubs. Learn to say hello in all eleven official languages. Watch at least one game in a township. You will not be robbed and shot. You will be welcomed like a lost family member and looked after as if you are royalty. Ask those Bulls rugby fans who journeyed to Soweto recently.

With a dollop of the right attitude, this country will change your life.

t’s Africa’s time. Vacate your hotel room.

Join the party. Waka waka eh eh.

interest rates remain unchanged

2010-05-14T02:16:00.000-07:00

By Cees Bruggemans, Chief Economist FNB13 May 2010

The SARB, as expected, left interest rates unchanged today, prime remaining at 10%.

It was an interesting message that was being conveyed by SARB Governor Marcus on behalf of the Monetary Policy Committee.

Basically things are going well in the economy.

Inflation has ticked lower, is expected to average 4.7% in 3Q2010 and is expected to remain within the 3%-6% target through 2012.

The growth recovery is continuing apace, with most growth forecasts revised higher, but not excessively so, with some areas of underperformance (jobs, credit, retail) remaining.

As a bottom line, both inflation and growth are expected to perform steadily.

However, when it came to risk, an entirely different picture presented itself.

It was again mentioned that public sector charging remains the main domestic threat to the inflation outlook. Mention was also made of the exceptional wage demands being made in places of late and should this continue, with no compensating productivity gains, this could ultimately prove challenging for the inflation outlook, something to be carefully watched.

By far the greater threat concentrating the Committee’s collective mind this past week, however, turned out to be the European situation, how a near contagion nearly started to run away last week, how this also rippled through our markets as global risk aversion reasserted itself, with the Rand rapidly reaching for 7.95:$ and the JSE nearly selling off 10%.

Quite clearly, such volatility is disconcerting, and shows the exposure of the country in the event of global disruptions and this giving rise to capital flow reversals. Such events, if truly taking hold, would pose a downside danger to output (growth), in a repeat of what was seen in late 2008, but also in terms of financial flows, with the Rand capable of rapidly losing ground, and thereby ultimately forming a major threat to financial stability, but also measured inflation.

These events, the awareness of the implied risks, the apparent deep uncertainty in the MPC as to where all these things still may lead in the months and years ahead, created a willingness to remain very sensible and rather do nothing policy-wise.

Clearly the country has reason, given experiences elsewhere, especially in Europe, to move very carefully in everything it does. Fiscal policy was highlighted as following a sensible trajectory and if continued it should not be a threat to monetary policy.

When in doubt, do nothing, and clearly the MPC wants to see where things go next globally, but especially in Europe with its many imbalances and sovereign debt issues.

Once the global skies clear, there will presumably again be less risk from this important source for the South African economy and there can be little doubt that the Committee by then will take a fresh look at things, including any major other risks facing the growth and inflation performances.

But for now we remain steadily on track within acceptable parameters while being highly aware of European happenings and ever so carefully monitoring those events to see how it will play for South Africa.

Until further notice, the SARB’s MPC remains on hold.

Cees Bruggemans is Chief Economist of First National Bank.

Property Market Analysis - April 2010

2010-04-23T00:30:00.000-07:00

FNB Property Market Analytics - the good, the bad and the ugly
FNB - South Africa
Overview
The Good Economic data releases and events were the shining light for property in March. The SARB's renewing of interest rate cutting was the most noticeable economic event, taking mortgage rates to the lowest level since a few decades ago. This rate cut cameon the back of a drop in the February CPI figure, released last week too, to 5.7%. However, arguably a more important indicator was the SARB January Leading Business Cycle Indicator, whose growth rate actually accelerated, suggesting further economic growth improvement in the near term. And then, of course, we saw the release of the SARB Quarterly Bulletin, which showed a return to positive quarterly growth in real household disposable income, all very positive for residential property demand.

The Bad The SARB Quarterly Bulletin also showed us that, despite improving economic indicators, the household sector's finances are still far from healthy. Nominal disposable income growth was too weak to exceed mediocre household credit growth, meaningan increase in the already-high household debt-to-disposable income ratio, as well as the household debt-service ratio (which is a good predictor of default rates on home loans). Patience is required, as reducing the debt ratio is normally a multi-year process, but for as
long as the ratio remains so high the household sector remains at high risk to any unwanted shocks.

The Ugly Political events have turned nasty, and SA's racial past has come back to haunt it in the form of renewed focus on the "hate speech" issue. For residential property, the risk is that emigration selling of property starts to rise again, shortly after having subsided since the 2008 emigration selling surge.

But don't be despondant, now is the time to acquire good property at a very competitive price! D.Lopes

Inflation Targeting - TITO

2010-02-28T23:28:00.000-08:00

CAPE TOWN — Former Reserve Bank governor Tito Mboweni was heavily criticised by economics professor Brian Kantor yesterday for keeping interest rates too high for too long, strangling the economy.

Kantor believed the new mandate for the Bank, agreed to by Finance Minister Pravin Gordhan and its new governor Gill Marcus, represented an implicit rebuke by the Treasury of previous monetary policy, which was too rigidly focused on keeping inflation within the target of 3%-6% regardless of the source of price rises and the effect on the economy.

The new mandate, expressed in a letter sent by Gordhan to Marcus last week, gave the Bank more flexibility to consider factors such as growth, employment and the exchange rate when deciding on interest rates.

In a post-budget address organised by the University of Cape Town Graduate School of Business, Kantor — a former dean of the university’s commerce faculty — said that as the economy was picking up the Bank should avoid acting pro-cyclically. Interest rates should be kept on hold for the rest of the year, he said.

“It is too late for lower interest rates. We should have had them a long time ago. Interest rates in SA should never have got as high as they did and should never have stayed as high as they did. I think it was quite a shocking failure of judgment.”

Kantor believes his view is now shared by the Treasury.

The new mandate allowed for temporary deviations from the inflation target when inflation was being pushed up by factors beyond the control of monetary policy.

Kantor was optimistic that growth would be sustained and that earnings would rise about 25% over the next two years. However excessive wage demands would have to be resisted if the government was to rein in spending as it hoped to do, he said.

“A little less pessimism about the prospects for the South African economy in 2010 are in order. The budget does not provide any grounds at all for pessimism,” Kantor said.

The bond markets had given a mark of approval for the budget. This had positive implications for long- term interest rates and the government’s debt service costs.

Kantor accused the Bank under Mboweni of killing off consumption- led growth from 2007, when interest rates began to rise.

He said it had failed to distinguish between inflation that stemmed from the demand side of the economy, which could be addressed, and inflation shocks coming from the supply side, particularly the exchange rate, about which one could do nothing.

“The Reserve Bank has come under enormous criticism for its stance on interest rates (inter alia by the Congress of South African Trade Unions) and I think that criticism was highly justified, ” Kantor said.

2010-01-16T01:48:00.000-08:00

By Cees Bruggemans, Chief Economist FNB

15 January 2010

There remains considerable uncertainty as to where interest rates will be heading next. Even so, the cycle has its own inner logic, aside of any policy fine-tuning driven by the state of the economy, inflation performance and political considerations.

With past cycles for inflation and growth in mind, we can reasonably assume such forces to repeat themselves over time, given a fairly stable structural context.

We are currently in low performance territory for both growth and inflation. We will eventually recover and peak out anew, after which a new subsidence will occur.

If driven by moderate forces, this suggests a prime rate range of 10%-15% as a standard cyclical expectation.

Only exceptional dislocation (weak currency, high oil price, drought-related food price increases, disastrous public sector charging, strong labour action or any combination of such lethal developments) would suggest renewed inflation momentum making for an upside breakout, prime possibly exploring 15%-18%.

Similarly, different global forces making for a much stronger Rand and subdued commodity prices, with local factors more benign, could see resumption of our convergence with low OECD inflation below 2%, creating potential for a downside breakout, prime potentially exploring 7%-10%.

These tail conditions (prime rate of 15%-18% and 7%-10%) may have a lower probability than the standard range (10%-15%), but for that one is relying on institutional continuity. Yet the world is hardly stable. Instead it is evolving, gradually in an underlying sense, but at times also shock-like.

That makes the whole outlook unpredictable, and makes every cycle unique, except in one respect. There will be a cycle. There will be ups and downs. It is only timing and amplitude that are up for discussion. But will the amplitude stay within the standard range to which we have recently become accustomed (10%-15%) or will the tail risks be visiting us anew ere long?

The most recent ‘long’ global cycle (1960-2010) was characterized by a long buildup and blowout of inflation (1960-1980) followed by a persistent long disinflation globally converging on 2% inflation.

This latest disinflation started at the peak of the inflationary excesses following the 1970s decade of major dislocations. At its tailend today we are exploring the deflationary excesses and implications of the ‘bubbly noughties’ (2000s) decade.

Having successfully succeeded in undoing the inflation excesses of the 1970s, today’s global determination is to prevent deflation from taking hold (Japan so far being the only mild exception).

Does this mean the only way for global inflation is now back up, considering the supposed irresponsible vigour of central banks and governments supporting their financial systems and economies these past two years?

For some this can be the only outcome. Yet global policymakers remain grimly focused on re-establishing their long cherished goal – inflation expectations of near 2% stretching out over time (even if periodically threatened by events).

So the immediate outlook remains for a global inflation norm of 2%, policy-driven. Even so, not everyone agrees. Alan Greenspan in his book Age of Turbulence foresees an end to easy assists such as the huge reservoirs of underpriced Asian labour and facilitating globalization. And there is resource nationalism, consolidated global mining companies and the effects of climatic change, between them potentially keeping global commodity supply tight relative to demand, forcing further relative changes in commodity prices (upwards).

Countering such disruptions are strong productivity gains and restraining central bank monetary policy stances.

While many abroad fear general deflation, it is unlikely to be on the cards. The great disinflation of the past three decades is certainly at an end, having reached the vicinity of 2%. Only time will tell whether a new inflationary age lies ahead, or whether the balance of global forces will allow a benign 2% inflation environment to persist, at least for the time being.

If that fundamental question wasn’t difficult enough, the other fundamental question for us is where South Africa fits into this situation?

Are we still converging with the rest of the world, having not quite completed our disinflation (which started late, in 1986, also because of our institutional disruptions over this period)?

Institutionally we seem to be at least partially marching to our own drummers, thinking public sector charging, labour union demands and a skewed skills market. And we fear commodity price resurgence. Far at the back of beyond lurks another major Rand decline (cyclically).

But like globally, these factors must not be seen in isolation. We are an open economy, with sizeable import penetration. We are at present importing low global inflation AND our currency is in a firming phase. We are currently economically underperforming and are unlikely to outperform again soon (going by the daily omens), suggesting lingering resource slack, while we also benefit from productivity gains. These forces are all anti-inflationary.

Yet for many South Africans it is an open-and-shut case. We are a high-inflation country, unable to restrain our inflation, and therefore saddled with a depreciating currency over time.

But try telling this to the government and the SARB, whose inflation targets and inflation-targeting policy suggest something different.

It may well be that institutionally we have difficulty in converging quickly with global inflation norms. Such shortcomings are the same as those that keep our growth shackled at relatively low underperformance levels when judged by modern global standards, limiting the pace of our structural change and general uplifting.

There is nothing new in any of this. But sometimes one has to restate the obvious in order to draw the logical conclusion as to why a cyclical prime interest rate range of 10%-15% is so standard for us while most of the world sits at half that level.

As to short-term considerations, the SARB’s Monetary Policy Committee will be meeting shortly, no doubt taking into account recent inflation trends, current (and future) risks thereto, the cyclical performance of the economy, and political issues (if any).

Technically, the SARB may not be finished easing, a view expressed by a number of foreign banks. But it will be up to the Committee to take all risks into consideration and to decide what’s best. That, after all, is its role.

Cees Bruggemans is Chief Economist of First National Bank.

3rd quarter residential property barometer by FNB

2009-10-13T04:49:00.000-07:00

THIRD QUARTER – JOHANNESBURG

FNB Residential Property Barometer

Greater Joburg activity shoots up in 3rd quarter

The 3rd Quarter Joburg FNB Residential Property Barometer pointed to a further rise in residential demand activity levels in the region. It would now appear that the positive effect of

5 percentage points worth of interest rate cuts since December 2008 is increasingly being felt in

the property transaction volumes, with banking sector relaxations in lending criteria also playing a positive role. The Property Barometer is a survey of a sample of estate agents in the region regarding their personal experience of market conditions. The main Barometer question relates to the level of demand activity, and agents are asked to rate the level of demand that they experience on a scale of 1 to 10. After an initial rise in the preceding 3 quarters from 4.1 as at the 3rd quarter of 2008 to 4.9 in the 2nd quarter of this year, agents estimated that activity jumped more significantly from the 2nd quarter to a 3rd quarter level of 5.47. The 3rd quarter survey was undertaken in mid-August.

Although confidence levels are steadily improving, Joburg survey

respondents are slightly less upbeat with regard to activity levels Although the region’s activity levels are steadily improving, the agents surveyed in Joburg rated the region as having the lowest activity level of all 5 major regions, at 5.47. The three major coastal regions’ agents surveyed, KZN (5.86), Eastern Cape (5.82), Western Cape (5.82) are now more upbeat in their estimates of activity compared with Joburg, while Tshwane (5.76) also has a slightly stronger reading than its neighbouring Gauteng city.

Seller expectations appear to be becoming more realistic

The percentage of properties sold at below asking price showed a significant decline from 86% in the 2nd quarter to 77% in the 3rd quarter, while the average time of a property on the market prior to being sold declined sharply from 21 weeks and 6 days in the 2nd quarter to 16 weeks and 6 days in the 3rd. These two indicators, when read together, point towards more realistic pricing by sellers. The greater realism may not only be due to sellers setting prices lower, but

also due to the market catching up to price levels, therefore making previously unrealistic price levels now a little more realistic in a stronger market.

In 2008, there were arguably 2 key reasons for selling that were largely contributing to the oversupply of property on the market. The big one was selling in order to downscale due to financial pressure along with emigration selling.Emigration selling reached an estimated peak of 21% of total selling (admittedly in a thin market at the time) in the 3rd quarter of last year, while selling in order to downscale due to financial pressure peaked at an estimated 36% in the 2nd quarter of this year. Since a year ago, emigration selling has declined steadily to 7% of total selling by the 3rd quarter of 2009, while selling in order to downscale due to financial pressure declined significantly off its 2nd quarter high of 36%, to 27% in the most recent quarter. A further reflection of better interest rate times was a quarter to quarter rise in selling in order to upgrade, from 6% of total selling to 15% of total selling in the 3rd quarter.

Main Joburg and Ekurhuleni Metro Estimated Price Trends (using Deeds data) still reflected recent oversupplies and widespread price deflation in 2nd quarter Year-on-year price deflation was still widespread as at the 2nd quarter of 2009 in many regions of Greater Joburg.

However, there were a few of the regions that were starting to appear to be turning for the better, either in terms of year-on-year price deflation starting to level out, diminish, or in some instances a rise in price inflation.

• Soweto (avg. price = 290,611) showed y/y (yearon- year) price inflation of 1.2% in Q2 2009, but remained in mild deflation on a q/q (quarter-onquarter) basis to the tune of -0.1%.

• Lenasia (avg. price = R364,496) slipped into price deflation with a Q2 y/y decline of -1.2%.

• Randburg (avg. price = R936,478) showed price deflation of -9.8% y/y in Q2 2009

• Roodepoort (avg. price = R923,936) showed slight price deflation of -1.6%

• Midrand, an area of huge property development in the past decade, and thus probably of major oversupply, (avg. price = R893,097) showed price deflation of -7.1% y/y in Q2 2009

• Sandton (avg. price = R1.465m) showed price deflation of -2%

• Johannesburg (avg. price = R1.088) showed price inflation of +5.2%, which was an improvement on the

The Near East (Alberton, Bedfordview, Edenvale, Kemptonpark, Germiston) (avg. price = R852,888) showed price deflation of -5.8% y/y in Q2 2009.

• Middle East (Benoni, Boksburg, Brakpan) (avg.price = R785,348) showed price inflation of +2.7%, an improvement on the previous quarter.

• Far East (Nigel, Springs) (avg. price = R501,215) showed price deflation of +3.0%, also improving on the previous quarter.

• Ekurhuleni Townships (avg. price = R269,943) showed inflation of +4.4% y/y but still decelerating.

Interpretation/Conclusion

Although not expected to be a strong recovery, it is clear that a recovery in the Joburg residential market is well underway. Demand activity has risen consistently over the past 4 quarters, while other key indicators such as average time on the market and percentage of sellers achieving their asking price have also improved. Deeds data runs a bit behind, but while area price deflation was still widespread as at the 2nd quarter, one could begin to observe some of the Joburg regions’ price indices beginning to turn for the better. To date, the market improvement is largely the result of interest rate cuts, and banks’ responses to better market

conditions by relaxing lending criteria has re-inforced the trend.

John Loos: Property Strategist

Property Market Analytics by John Loos of FNB.

2009-09-07T22:45:00.000-07:00

The UK and American property markets are showing the first signs of recovery, a scenario that bodes very well for the SA market.

Gerhard Kotzé, CEO of the ERA South Africa property group, says that while the local property market has been moving sideways for the past few months, the overseas indicators certainly suggest that the worst of the market slump may be over.

“That’s good news for property markets and economies generally, although we are clearly not out of the woods yet.

“Also, a key element in this picture is tax assistance for American homeowners to retain properties or buy for the first time. South Africa is seriously lacking in this respect.”

Kotzé notes that sales of existing homes in the US have been showing consistent gains since April and that the chief economist of the National Association of Realtors in the US (the NAR) is on record as saying that buyers are being drawn into the market by improved affordability despite the recent uptick in US mortgage interest rates.

“First-time buyers are particularly being drawn off the sidelines by the $8000 tax credit which is helping to absorb inventory,” he adds.

“And I think we could very sensibly introduce something of a similar nature for our own first-time homebuyers to give our market a boost.”

Kotzé says it is also relevant to compare interest rates for mortgage bonds in the US where the rate for a 30-year conventional mortgage is still less than 5%.

“Technically, South Africa is not far off that rate after allowing for the effects of inflation, but having said that more interest rate cuts locally would be very beneficial.”

Meanwhile in the UK market, the rate of house price decline has slowed to its lowest since September 2007 and there is definite evidence of a recovery in activity, albeit from historic lows. Enquiries by new buyers have risen for eight months in a row and sales have also increased.”

the residential market, shows signs of improvement.

2009-07-31T09:39:00.000-07:00

The residential property market in South Africa appears to be coping with the global downturn although concerns about a rising number of foreclosures are increasing.
The average price of a property in South Africa increased by 1.2% year-on-year in June, according to the latest property price index.
However, the figures from Ooba, the biggest mortgage company in the country, should not be taken as a sign that the real estate market has turned for the better, its chief executive is warning.
'Rather than suggesting a recovery in the market place, this may be attributed to a shift to higher priced properties in June, given affluent homebuyers' ability to better adapt to strict bank lending practices,' said Saul Geffen, chief executive of ooba.
The average purchase price according to the oobarometer was R784,427(£59,439) in June 2009, up from R774,449 (£58,683) in June 2008. The month-on-month average purchase price has also increased nominally by 1.4% from £58,657 in May of this year.
However, the average price of a home being purchased by a first time buyer has fallen by 14.1% year-on-year, a fall of 16.8% in comparison to May 2009.
'This is a clear indication of the pressure on first time buyers where banks strict credit criteria, particularly their deposit criteria, is making entry into the property market difficult and is having a knock-on effect on property prices at this level,' added Geffen.
Research shows that property purchasers now require an average deposit of 18.9% of their purchase price in order to secure a home, compared with an average deposit of 12.2% in June last year.
'Expectations are that the property market will continue to be hindered by the current economic conditions until the end of 2009, with recovery predicted by mid 2010,' Geffen concluded.
Real estate agents in South Africa are also joining a quick sale scheme that is aimed at helping property owners who need to sell urgently to avoid foreclosure. One agent said it is working incredibly well and his firm has sold more than 62 properties around the country worth R41 million.
'It helps both desperate sellers and serious buyers. Home owners who are in trouble can avoid repossession and damage to their credit rating which means that they can get on with their lives without having to carry a debt burden they cannot manage,' he added.
The Quick Sell Plan was introduced by FNB Home Loans to set up a way that property owners could sell quickly. A minimum reserve price is established on each Quick Sell property and buyers, introduced by the FNB partner agents, are offered mortgages up to 100%.
Such buyers also receive a 50% discount on transfer costs and loan registration, while the agent's commission is paid by FNB.

Live within your Budget.

2009-07-24T00:35:00.000-07:00

Buy small – and be happy now

Sellers have repeatedly been exhorted in recent months to keep market conditions in mind when setting property prices – but now it is buyers’ turn to a swallow a spoonful of reality. “Much has been said about educating sellers to drop their prices in order to achieve sales in the current market. But buyers also need to be educated,” . Consumers who want to take advantage of the current market and buy property now, are advised to keep their acquisitions modest. This is not the time for consumers to stretch themselves financially and we suggest that buyers target properties costing about 25% less than the maximum bond they would qualify for. “Not only is it easier to obtain a home loan when you can show that you are buying well within your abilities, but it will be that much easier to keep up with your bond repayments. In the second place, a lower monthly bond instalment will give buyers the choice of paying slightly more than required.“And paying even a relatively modest additional amount on a home loan every month saves an impressive amount on interest over the lifetime of the loan. For most average homebuyers, this is probably the single most effective way of saving a substantial amount of money over the long term.”On the other hand, buyers who elect not to pay more than the minimum instalment will have the advantage of better cash flow – and reserve capacity is no small matter in the current uncertain times.“Having a bit of money in reserve every month lessens the likelihood that consumers will be wrong-footed by increases in food or fuel costs, or even rising interest rates. We are living in stressful times where everyone should reconsider their lifestyles and aim to live more simply and less expensively. “It is indeed a good time to buy small - and enjoy peace of mind.

2009-07-13T04:13:00.000-07:00

FNB loosen lending criteria

FNB are now granting 95% bonds on property up to R1.5m.

Credit Policy Changes with effect from 26th June:
Loans of up to R1.5m will now upon approval up to 95% LTV or LTP which ever is
the lesser. This LTY/LTP approved will be based on the risk profile of both the
applicants and the property being purchased.

Mortgage originator: property prices have ticked upRealEstateWeb - South AfricaBut affluent buyers are skewing South Africa's house price stats The June oobarometer price index recorded a nominal increase in year-on-year house prices of 1.2%."The latest oobarometer shows a very slight improvement in year-on-year house prices," says Saul Geffen, chief executive of ooba. "Rather than suggesting a recovery in the market place, this may be attributed to a shift to higher priced properties in June, given affluent homebuyers' ability to better adapt to strict bank lending practices."The average purchase price according to the oobarometer is R774,449 in June 2008, compared to R784,427, in June 2009.The month-on-month average purchase price has also increased nominally by 1.4% from R773,440 in May of this year.