Weekly Newsletter
Friday, 19 June, 2009
Property Search | Estate Agents | List your property

Edition 24 of 2009, Friday, 19 June 2009

Dear Reader

According to Wikipedia an economic bubble (sometimes referred to as a speculative bubble, a market bubble, a price bubble, a financial bubble, or a speculative mania) is “trade in high volumes at prices that are considerably at variance with intrinsic values”. A real estate or property bubble on the other hand is a type of economic bubble that occurs periodically in local or global real estate markets. It is characterised by rapid increases in valuation of real estate property such as residential property until they reach unsustainable levels relative to incomes and other economic elements.

Peter Boone, chairman of Effective Intervention and Simon Johnson, a professor of entrepreneurship, believes that the next global bubble is already under way. The Bubble Next Time

Author Steve Bergsman writes; “When bubbles burst, the effects almost always last a long time. When real estate bubbles deflate, it is never a short-term problem. Bergsman's message: Proceed with caution, be patient and realise that there are many kinds of real estate markets -- each with particular potentials and pitfalls. He continues with the following statements;

  • Money still can be made on real estate, but it will take time and a specific approach to types of property and their locations
  • It is not likely, nor a desirable thing, that the real estate bubble will re-inflate to its former false glory
  • Distressed property is moving slowly because it’s priced too high
  • In 2009 and 2010 more commercial properties will come on to the market
  • Sold and rented housing that is part of in-fill development, urban and suburban, will outperform stand-alone single homes that require long commutes to work
  • Industrial real estate will remain resilient and could take off if the economy sustains a recovery

Read more in After the Fall: Opportunities and strategies for real estate investing in the coming decade

Builders, interior decorators and other suppliers of goods and services in the new residential property arena can expect the tough times to continue. The number of building plans passed by local government officials is down dramatically on recent years, latest statistics show. In a note released by Absa Home Loans, senior property analyst Jacques du Toit said residential building activity is expected to remain depressed for the rest of the year. New residential property: more pain looms

Last week we placed an article written by Chuka Uroko from Nigeria in which he wrote about the measures developed countries like United States, United Kingdom, United Arab Emirate and even South Africa are taking to improve the real estate industry. Some of these measures are cuts in interest rates on mortgage lending and housing. In answer to this article we received feedback from John Fuller, principal of Chas Everitt International Property Group, Plettenbergbay. “It always brings a smile to my face when I hear comparisons being made about our finance rates and those of many other countries, and I have on several occasions had the pleasure of educating buyers from Europe when they have compared our mortgage rates to theirs. Most people are unaware that there is a vast difference between the calculation methods used to determine financing rates in most African and European countries compared to South Africa”. Read more in To the Editor

The editor


>> Real Estate news – Looking for top dollar in Africa

THE economic slowdown in South Africa has seen estate agencies scrambling into the rest of Africa.

The agencies that have crossed the borders include Chas Everitt International, Pam Golding Properties, Seeff Properties and Harcourts.

But other large agencies are exploring partnership arrangements with agents in Botswana, Mozambique, Zambia, Malawi, Namibia and Zimbabwe...

>> The Bubble Next Time

Ben Bernanke gave a great speech in 2002, mapping out exactly what the Fed should do if the United States faced a deflationary price spiral — falling wages and prices — that could wreak havoc on the economy. He outlined a series of steps: starting with lowering short-term interest rates to zero, then making purchases of longer-dated Treasury securities, then purchasing securities issued by Fannie Mae and Freddie Mac. All of this is has come to pass since mid-2007. Surely, Mr. Bernanke was well prepared for the crisis, and is a shoo-in to be reappointed as chairman of the Fed early in 2010...

>> After the Fall: Opportunities and Strategies for Real Estate Investing in the Coming Decade

Author Steve Bergsman is a real estate investment junkie much as others are political or sports junkies. His 2009 book, "After the Fall," subtitled "Opportunities and Strategies for Real Estate Investing in the Coming Decade," cogently explains where we've been, where we are and where we are going in the wake of the great economic, financial and real estate crash of 2008.

Bergsman's message: Proceed with caution, be patient and realize that there are many kinds of real estate markets -- each with particular potentials and pitfalls.

"When bubbles burst, the effects almost always last a long time," writes Bergsman. "When real estate bubbles deflate, it is never a short-term problem...

>> Real price declines make home buying affordable

OFFICIALLY in its first recession now since 1992, SA became another formal casualty of the global credit crunch two weeks ago.

However, with consumer confidence in the US having improved measurably in recent weeks, South Africans can realistically hope now that the worst of the recession will also be behind them by the end of the year.

Expectations are growing that the US will reach the end of its depression in the third quarter of the year, after Absa reported that the country had experienced its biggest monthly gain in its expectations index since April 2003. According to Absa, the increase in this particular index often signals the end of a recessionary period, which gives the rest of the world hope...

>> Is property still a good retirement investment?

The slowdown in the property market has prompted questions about the suitability of property as an investment vehicle for retirement, but it still offers excellent prospects.

That’s the opinion of Martin Schultheiss, CEO of Harcourts Africa, who says that against the returns of 20% to 30% a year that were being achieved before the slowdown, it is understandable that investors are questioning current projections...

>> Now farms are hot property

Contrary to the most of the property market, sales of agricultural land are buoyant at the moment.

Gerhard Kotzé, CEO of the ERA South Africa property group, says that this is due to a “happy confluence” of elements, including the desire of many city dwellers for an escape from increasingly pressurised and problematic urban lives, and the search by many farmers for new opportunities after receiving land claim settlements...

>> Home price turning point?

The May oobarometer price index recorded a marginal year-on-year drop in houses prices of 0.5 percent.

"The oobarometer continues to reflect declines in year-on-year house prices, but at a slower rate," says Saul Geffen, chief executive of ooba. "We believe that the recent series of interest rate cuts has provided a turning point in the property market and that we will see the market begin to stabilise by the end of the year."

The average purchase price according to the oobarometer was R777 277 in May 2008 compared to R773 440 in May 2009...

>> New residential property: more pain looms

Builders, interior decorators and other suppliers of goods and services in the new residential property arena can expect the tough times to continue. The number of building plans passed by local government officials is down dramatically on recent years, latest statistics show.

In a note released by Absa Home Loans, senior property analyst Jacques du Toit said residential building activity is expected to remain depressed for the rest of the year...

>> It’s tough, but don’t expect to pick up a cheap house

Like the rest of the economy, the climate for auctions has taken a noticeable turn for the worse. “They’re quieter, times are tougher, prices are down — and that applies to everything,” says Aucor’s Eddie Winterstein. Bill Hartard, a partner in Segoale Property Mart, which specialises in fixed property auctions, agrees, adding: “ House prices are down on last year; they’re about the same as they were in 2006.

“There isn’t much difference between the numbers who attend auctions this year and last, but there is a difference in their make-up; most people who bid at auctions this year aren’t people looking for homes to live in, they’re investors...

>> Chas Everitt Home MakeOver - A Home Makeover with a Difference!

>> Buy-to-lets for R50 000 and less

Denise MhlangaWho needs a home loan? For the price of a modest second-hand car, one of these properties could be yours. Realestateweb investigates.

Who needs a home loan, when cash property deals of bargains priced from R40 000 in some parts of Berea in Johannesburg are selling like hot cakes? Investors are reportedly snapping up these bargains and renting them out, thanks to demand for accommodation in the inner city as foreigners continue to flock to the inner city and surrounding areas...

>> Property taxes to rise by R142m

From next month ratepayers in Mbombela, Mpumalanga, will cough up a whooping R142million extra in property taxes.

In a move that could see many shops closing down, business owners will pay an average of 300 percent to 1000 percent more in property rates.

But the municipality has justified the increases, saying the goals of the budget were aligned with provincial and national budgets to accelerate growth and create jobs.

The 2009-10 budget, which is set at R2billion, has been adopted. A total of R66million of this will go towards 2010 projects.

The revenue to be generated from property rates for the 2008-9 financial year is R160million, while R302,5million will be generated in 2009-10 with the proposed tariff structure and new valuation roll .

The DA in Mbombela says businesses would be hardest hit.

“Many businesses, especially smaller ones that can’t cope with this increase, will be forced to close down,” said Gerhard de Bruin, DA councillor in the municipality.

He said despite their objection to the rates increase, the first in 15 years, they failed to carry the day after garnering fewer votes against the hike.

Meanwhile, the Mbombela Ratepayers Association said it would seek legal advice to enforce the rights of ratepayers, which it claims have been violated.

Source: Sowetan

>> Warning bells on plastics

Chemicals that can leach out of plastic products have set alarm bells ringing worldwide and homeowners need to be aware of the dangers.

For example, Bisphenol A, or BPA for short, is a synthetic form of the hormone estrogen used in hard plastics and has been linked to heart disease, diabetes, and behavioural and reproductive problems. Phthalates - additives that make plastics more flexible – have also been linked to reproductive problems...

>> Looking for commercial property bargains

Experts size up the state of real estate markets - including the US, Europe, China, South Africa.

London's commercial property market is near the bottom of the cycle; the US commercial real estate sector will start improving in 2011.

This is according to John Cushman, chairman of the board at Cushman & Wakefield, a commercial real estate consultancy firm who was speaking about the global commercial property outlook at the South African Property Owners' Association (SAPOA) Convention recently....

>> Technical Finishes CEO asks for more liaison on construction materials

Mike Grose, Chairman of Technical Finishes, the 20 year old company (which has been operating at the Cape for eleven years), said recently in a presentation to potential Cape clients that, if there is one thing that continues to surprise him about the construction industry, it is that they so regularly fail to ask for advice or help in the quarters where they can find it...

>> To the editor

Dear editor,

I read with interest the comments made by Mr CHUKA UROKO of Nigeria in your CyberProp Newsletter of 12th June regarding his comparison of interest rates in several countries, and especially his comparisons with Dubai, South Africa and the UK. It always brings a smile to my face when I hear comparisons being made about our finance rates and those of many other countries, and I have on several occasions had the pleasure of educating buyers from Europe when they have compared our mortgage rates to theirs. Most people are unaware that there is a vast difference between the calculation methods used to determine financing rates in most African and European countries compared to South Africa. As a Banker in my previous life before starting the Chas Everitt franchise in Plettenberg Bay I worked in all the English speaking African countries, plus Egypt, Mauritius, India, France, UK, and Dubai; and all these countries quoted their finance rates on a different basis to us.

South African interest rates for the financing of fixed and movable assets are quoted as Nominal Annual Compounded Monthly (NACM) Rates. Nominal Rates can be calculated and quoted for monthly, quarterly, half-yearly and annually, etc., e.g. a rate where payments are made quarterly will be quoted as NACQ. With NACM interest is calculated on a reducing balance basis, based upon the capital outstanding each month. We often hear this being referred to as the "Mortgage Redemption Method". If the NACM interest rate is 11% then interest is calculated at one twelfth of 11% per month on the balance outstanding each month. What is nice about using NACM rates is that it is easy to calculate your true cost over different periods as your interest rate stays the same regardless of the financing period. This is a particularly useful method to use where rates vary during the term of finance, or if one intends settling the transaction early.

The other countries that I have referred to use a calculation which is referred to as the "Annual Percentage Rate yield", which is commonly called the "APR Rate". This is commonly used in countries wherever there there has been a past colonial influence in their economy. APR is calculated on a simple interest basis on the Present Value (finance amount required), and the interest cost on the PV is then simply multiplied by the number of years finance required. APR rate quotes provide a lower and often misleading interest rate percentage compared to the equivalent NACM percentage rate of interest. South Africa used APR rates until 1980, when we converted to NACM and Asset Based financiers for the first time included variable interest rate clauses in their finance agreements to cater for changes in the Prime Overdraft Rate. In fact, in those days Prime was 9,5% and our Banks were financing cars at 11,6% APR over 36 months, which was actually 21% NACM. No wonder banks are squealing today! The introduction of NACM rates created transparency and consumers have been much better off since its implementation.

If the Real Estate fraternity is made aware of the differences between the two different rate methods it will help in advising clients that our mortgage finance rates are not as ridiculously inflated as is often assumed. For example, in the Nigerian article Mr Uroko refers to an interest rate of 4%. I happen to know this will be APR, and the equivalent interest rate on an NACM rate basis over 20 years is 6,58%. It is important to remember that the quoted NACM rate always stays the same, while the APR rate varies with the finance term. For example, 4% APR over 10 years is 7.11% NACM, and over 5 years the NACM equivalent is 7,42%. Where we are also very fortunate is that few countries offer home finance over 20 and 30 years. Many go no longer than 10 years. In fact, when I retired in 2005, I was trying to introduce mortgage finance to Dubai. At that stage a home could only be leased over 10 years, with a method of passing ownership being tied to the payment of 1 Dirham thereafter. Whilst our interest rates may seem high, South Africans are fortunate to have access to generous finance terms, and our monthly repayments (monthly cash flow) is still amongst the most affordable in the World.

Therefore, next time we are in London or Paris, walk past a car showroom, take a look at the sign on the roof or windscreen. It will in all likelihood say "Interest Only 6% APR". As South Africans we can walk on with a smile knowing that over 60 months this rate is equivalent to 10,85% NACM, just proving that we are not so badly done by after all! Quoting APR percentages can be extremely misleading and consumers can be easily hoodwinked by the true cost of interest, especially where finance periods are not the same. For example, if finance is quoted at the same APR rate but payments are payable monthly in advance, then the nominal yield to the financier will be higher than that for monthly in arrear payments.

I hope we will all bear in mind the difference in future when we hear or read about financing rates in other countries, and ask the question - "Is it Nominal or is it APR?"

John Fuller CEA, STSM (UCT)
Principal/ Director
Tel: +27 44 533 5250
Fax: +27 44 533 3429
Email: johnf@everitt.co.za
Web: www.everitt-plett.co.za
>> News from iafrica.com

Building faces collapse

Business conditions are tough in the building industry at present, FNB Chief Economist Cees Bruggemans said on Wednesday.

He was commenting following the release of the FNB Building Confidence Index compiled quarterly from the building, manufacturing, retail and wholesale opinion surveys undertaken by the Bureau for Economic Research (BER) at Stellenbosch University...

>> In the area...

The areas we are going to take a closer look at this week are;

  • Pretoria – Moot
  • Hillcrest
  • Cape Town
>> In the area 1 – Pretoria - Moot

Moot buyers choose older homes

Homebuyers in Pretoria’s Moot areas are shunning new developments in favour of pre-owned homes that are more affordable.

That’s the news from Anton van der Walt, principal of the local Chas Everitt International franchise who says buyers are making direct comparisons between the old and new stock in the suburbs that make up the area...

>> In the area 2 – Hillcrest

Hillcrest market ‘holding its breath’

Negative property market conditions have caught up with Hillcrest and the popular KZN town is now in a period of consolidation.

That’s the news from Clint Ellice, principal of the local Chas Everitt International branch, who says there has been a distinct drop in sales prices over the past six months, with freehold homes now selling for R1,2m on average, down from R1,5m in October...

>> In the area 3 – Cape Town

City of Cape Town issues second bond

The City of Cape Town said it has successfully issued a second bond of R1.2 billion.

"The bond was 1.5 times over-subscribed, reflecting the market confidence in the financial stability of the city," it said in a statement.

Twelve investors, reflecting a balanced spread of financial institutions, were allocated a share of the R1.2 billion bond issue, the City of Cape Town said...

>> Focus on Thabazimbi, Limpopo, South Africa

The main reason for the establishment of the town was the discovery of phenomenally lucrative iron ore reefs in the area. Hence the name of the town -Thabazimbi - mountain of iron.

As the mine's activities increased a town developed. The town is situated at the feet of the Ysterberg and is surrounded by the Witfonteinrand and Boshofberg with the majestic Kransberg in the background...

>> View Properties in Thabazimbi
>> View Properties in Limpopo

>> Property of the week

Limpopo, Thabazimbi, Leeupoort Vakansiedorp

LEEUPOORT HOLIDAY VILLAGE Leeupoort Holiday Village is situated in the Northern part of our country called the Limpopo Province. (It was previously called the Nothern Transvaal) The North Western Province is linked to the Limpopo Province by way of a secondary tarred road between a small place called Koedoeskop and Bela-Bela previously known as Warm Baths because of its well known mineral water resources...

Bedrooms: 3
Bathrooms: 2.5
Garages: 2

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>> Code to monitor building’s environmental performance launched

Monitoring the environmental performance of a building in South Africa just got easier, with the launch of the first global Environmental Code for corporate real estate in the country.

The Investment Property Databank (IPD) launched the code in Sandton on Wednesday evening, and emphasised the importance of a company’s ability to monitor buildings’ environmental performance on a consistent and comparable basis, which was applicable globally.

“Environmental issues are not a fad, they are here to stay. And building occupiers will continually be asked for measurements and data,” said IPD Occupiers international business manager Melissa Meadows...

>> Software at its best!

Cell Phone enquiries from the public

Buyers driving past your advertising boards will be able to see an unique Internet Number allocated to the specific property. They will then SMS that number to 35476 and will receive an SMS back with all the details of the property. At the same time the agent / agency will also be informed of a potential buyer. How's that for technology working for you! The cost - mahala! Free to all CyberAgent subscribers.

Here's a diagram on the way this process will work...

  1. Agent captures the details of the property and pictures into CyberAgent
  2. Agent updates the property to the Internet
  3. The Internet server sends back a unique number for that property
  4. Agent puts up his "For Sale" board together with our SMS board
  5. Potential buyer sees the "SMS" board and SMS's the unique number to the Internet server
  6. The Internet server sends back an SMS with all the property details and a link to the website where he/she can view pictures on the propert

If you would like to know more about the above features and benefits that CyberAgent offer, visit: www.cyberagent.co.za or email: sales@cyberprop.com

For Sale Property:
Eastern Cape Freestate Gauteng Kwazulu Natal Mpumalanga North West Northern Cape Limpopo
Western Cape

To Rent Property:
Eastern Cape
Gauteng Kwazulu Natal North West Western Cape