With the property market taking a bit of a tumble in the last few months in particular, some tough questions are being asked of estate agents and truth be told - many of them are being found wanting.
The main issue I have with estate agents is that very few of the guys and girls who show me around show houses have any idea of 'property as an investment'.
They're like used car sales people pushing properties on to you - simply because they don't know any better.
It is all good and well in a market that is rising - but what do you make of the advice that agents give you these days when prices have
A) Stopped rising
B) Started falling
?
Do you check their credentials and ask them what the last property they sold was and what they realised for it?
Do you ask them what their track record is like and how long it has taken them to sell a property?
I'm just curious - with many of the property myths including "PROPERTY ALWAYS GOES UP" - how you treat this financial advice?
Wednesday, December 10, 2008
Saturday, November 22, 2008
The property debate
Over the last three years, I have had a pretty heated debate on whether Property Unit Trusts (PUTs) are a better alternative for people looking to get into the property market than trying to buy property and 'flipping' them or using the rental income to pay off the bonds.
With the property market flying in the last few years, my views on PUT's have been shouted down. People have pointed out that they want 'real' investments where they can see the bricks and mortar.
Ja well no fine...
Now that the banks have tightened their lending regulations, PUTs have to be considered a real first option for getting into the property market. Consider this - if you want to buy an entry level property of R400 000 (REAL entry level) you need R40 000 - R80 000 in cash to put down as a deposit (assuming you don't do the 'personal loan' thing).
Not a lot of people trying to enter the market have that kind of cash available.
On a R400k bond you would be paying R 5469.72 on you your first property.... hhhmmm thinking back to my first property - that's a pretty tough pill to swallow.
(Especially if you are not deriving any rental income off it).
Now if you could take half that figure of R 5469.72 and were to invest it into the likes of Growthpoint or ApexHi - (Highly regarded property unit trusts listed on the JSE), you could buy access to properties like these featured in this blog. The pictures are of Constantia Park in Roodepoort and Fredman Towers in Sandton which form part of the Growthpoint portfolio.
No need to change light bulbs, fix toilets, fight with tenants for rent or have to do any of the credit checking - a professional team is managing it for you AND you pick up an after tax yield of around 6 - 8%.
Bear in mind that the biggest problem with 'buy-to-let' strategy is that many many players are buying on geared portfolios. Every month, they are paying a big chunk of their installment or rental income to service debt.
If investors are going to put money into a property portfolio, the PUT route may be a better starting point than extending themselves to buy property they can't afford.
Just a very quick sum to prove my point. If I take that montly installment of R 5469.72 over two years (24 months) I would have paid in R131273. The reality is that you would hardly paid off any of the capital amount after two years of paying in.
At the same time you'll be paying in say R1000 a month in water, rates, elec etc. so that figure increases to R155273. So basically your first R150k has returned nothing to you.
At the same time if I had invested that R 5469.72 into one of the PUTs I would have been cash positive to the tune of around R8000 at the same period (plus probably some capital gain in the units themselves...)
Might be something to bear in mind before young property investors go out there and over extend themselves?
With the property market flying in the last few years, my views on PUT's have been shouted down. People have pointed out that they want 'real' investments where they can see the bricks and mortar.
Ja well no fine...
Now that the banks have tightened their lending regulations, PUTs have to be considered a real first option for getting into the property market. Consider this - if you want to buy an entry level property of R400 000 (REAL entry level) you need R40 000 - R80 000 in cash to put down as a deposit (assuming you don't do the 'personal loan' thing).
Not a lot of people trying to enter the market have that kind of cash available.
On a R400k bond you would be paying R 5469.72 on you your first property.... hhhmmm thinking back to my first property - that's a pretty tough pill to swallow.(Especially if you are not deriving any rental income off it).
Now if you could take half that figure of R 5469.72 and were to invest it into the likes of Growthpoint or ApexHi - (Highly regarded property unit trusts listed on the JSE), you could buy access to properties like these featured in this blog. The pictures are of Constantia Park in Roodepoort and Fredman Towers in Sandton which form part of the Growthpoint portfolio.
No need to change light bulbs, fix toilets, fight with tenants for rent or have to do any of the credit checking - a professional team is managing it for you AND you pick up an after tax yield of around 6 - 8%.Bear in mind that the biggest problem with 'buy-to-let' strategy is that many many players are buying on geared portfolios. Every month, they are paying a big chunk of their installment or rental income to service debt.
If investors are going to put money into a property portfolio, the PUT route may be a better starting point than extending themselves to buy property they can't afford.
Just a very quick sum to prove my point. If I take that montly installment of R 5469.72 over two years (24 months) I would have paid in R131273. The reality is that you would hardly paid off any of the capital amount after two years of paying in.
At the same time you'll be paying in say R1000 a month in water, rates, elec etc. so that figure increases to R155273. So basically your first R150k has returned nothing to you.
At the same time if I had invested that R 5469.72 into one of the PUTs I would have been cash positive to the tune of around R8000 at the same period (plus probably some capital gain in the units themselves...)
Might be something to bear in mind before young property investors go out there and over extend themselves?
Word of caution!
I picked up this blog post off Gum Tree and I thought it might make for some interesting debate:
Did you know that some unscrupulous and greedy estate agents asking for up to 25% and more on top of every months rent from you?
I just inquired about the monthly rent for a house in University Estate with “Estate Agent Jawitz” and was told it would cost R 7500/month.
I also phoned the other “estate agent” sign posted on the house which quoted me R 6000 per month. Never mind what the owner in fact is asking for the house. Its most likely R4500. When I told the Jawitz agent that another estate agent is offering it for R6000/month, the agent replied bluntly that their monthly rent of R7500 is been calculated due to the companies “commission structure” policy.
Can you believe it! This so called “Commission structure” forces you to fork out 25% commission on top of your monthly rent.
The rest of the blog post can be found here.... Would be interesting to hear what you have to say if you are currently renting your premises?
Did you know that some unscrupulous and greedy estate agents asking for up to 25% and more on top of every months rent from you?
I just inquired about the monthly rent for a house in University Estate with “Estate Agent Jawitz” and was told it would cost R 7500/month.
I also phoned the other “estate agent” sign posted on the house which quoted me R 6000 per month. Never mind what the owner in fact is asking for the house. Its most likely R4500. When I told the Jawitz agent that another estate agent is offering it for R6000/month, the agent replied bluntly that their monthly rent of R7500 is been calculated due to the companies “commission structure” policy.
Can you believe it! This so called “Commission structure” forces you to fork out 25% commission on top of your monthly rent.
The rest of the blog post can be found here.... Would be interesting to hear what you have to say if you are currently renting your premises?
Sunday, November 2, 2008
Commercial property
I know some people get a little grumpy when I talk about the negative South African property market but let's be honest - say what you want about the market, but there are some bad things happening.
And it doesn't seem to be limited to the residential space either.... I walked through two of my smaller local shopping centres today.
One has 15 shops and the other has 16.
I walked through them today and the smaller centre had two shops boarded up and the other had three that had closed.
That's a pretty significant percentage, and one can't help but feel that there is some further bad news that still needs to come into the economy...
And it doesn't seem to be limited to the residential space either.... I walked through two of my smaller local shopping centres today.
One has 15 shops and the other has 16.
I walked through them today and the smaller centre had two shops boarded up and the other had three that had closed.
That's a pretty significant percentage, and one can't help but feel that there is some further bad news that still needs to come into the economy...
Saturday, November 1, 2008
100 000 homeowners behind the curve
I've just picked up the Sunday Times paper this morning and read a story that says 100 000 people are more than 2 months in arrears on their bonds. They are saying that the majority of these bonds are in the middle income classes owning properties between R1m and R2m.
That's a phenomenal figure and its grown sharply from 55 000 4 months back and 75 000 2 months back.
Looks like there might be some quality deals for patient property investors in the next year or so??
That's a phenomenal figure and its grown sharply from 55 000 4 months back and 75 000 2 months back.
Looks like there might be some quality deals for patient property investors in the next year or so??
Tuesday, October 14, 2008
TAX INCENTIVE FOR EMPLOYERS WHO TRANSFER LOW-COST RESIDENTIAL UNITS TO EMPLOYEES
If there is one thing I have learnt about being 'investment smart' is to know some of the rules and regulations that apply to your specific investment. If you can pick up some tips and tricks about managing your investment and actually making a positive return on it.
Every now and then I get press releases mailed to me from David Warneke at Cameron & Prentice which I might post from time to time as a bit of resource for those looking to understand the property sector and pick up some tips and tricks.
TAX INCENTIVE FOR EMPLOYERS WHO TRANSFER LOW-COST RESIDENTIAL UNITS TO EMPLOYEES
Included in the draft Revenue Laws Amendment Bill is a provision (section
13sept) aimed at encouraging employers to transfer ownership in low-cost houses or apartments to employees. Tax Partner at Cameron & Prentice Chartered Accountant, David Warneke, explains, that while this provision may appear to be aimed predominantly at farmers, the wording of the provision certainly does not restrict it only to these taxpayers.
Currently, where an employer transfers a house or apartment to an employee, no tax incentives exist. In the Explanatory Memorandum accompanying the Bill, the shortage of housing in South Africa and government's plans to provide an environment conducive to home ownership are cited as reasons for the introduction of the incentive.
The benefits of this incentive are similar to those in another proposed incentive (section 13sex) for employers who build residential units for employees and do not transfer ownership to the employee. Therefore, whether or not the ownership in the housing is transferred to the employee, there will be an incentive for the building of residential housing for employees, as the employer will either be able to claim an allowance under this provision (section 13sept - where the ownership is transferred to the
employee) or under section 13sex (where the employer retains ownership).
In order to benefit in terms of section 13sept, the employer will have to sell the accommodation to the employee on interest-free loan account. The employer will then be able to deduct, for income tax purposes, an amount equal to 10% of the capital of the initial loan per annum over 10 years, or as long as the loan arrangement lasts. It is probably an oversight with the current wording of the provision that if the employer were to waive the indebtedness of the employee, no further deductions may be claimed. If the employee repays portion of the capital outstanding on the loan, a recoupment will arise in the employer's hands.
The following example is given in the Explanatory Memorandum:
Facts: An employer constructs a house for R100 000 with the allocable land having cost R20 000. In Year 1, the employer transfers ownership of the house to an employee for R120 000 on a non-interest bearing loan account provided by the employer. The loan is repayable over 20 years. The employer transfers ownership of the house subject to a condition that the employee remains in the employ of the employer for a minimum period of 5 years. The employee will be entitled to the market value of the house at the date of the potential return. In Year 2, the employee repays R20 000 of the loan provided by the employer in Year 2.
Result: In each of the Years 1 and 2, the employer is entitled to a deductible allowance of R12 000 on the loan provided to the employee.
However, the employer has a recoupment of 20 000 in Year 2 due to the repayment of the loan capital by the employee.
It is required that the residential unit must be a "low-income residential unit", which is defined as a building, the cost of which does not exceed R200 000 exclusive of the land and the bulk infrastructure, or an apartment, the cost of which does not exceed R250 000. In the draft Bill no mention is made of the cost of the land or bulk infrastructure in the context of the R250 000. However the Explanatory Memorandum and the Bill appear to be at odds. In the Explanatory Memorandum the R200 000 and the R250 000 are inclusive of the land but not the bulk infrastructure for section 13sept, while these amounts are exclusive of the land and the bulk infrastructure for the purposes of section 13sex. It remains to be seen whether the Bill will be amended.
A further requirement is that the employer may not charge a rental of more than 1% per month of the actual cost of the unit (as determined above).
Also, the low cost residential unit must be part of a residential establishment that consists of at least five residential units in the same geographical vicinity. It is further required that the disposal to the employee cannot be subject to any condition, other than two possibilities on termination of service by the employee. These are for the repurchase by the employer at market value at that time or repayment of the balance of the loan amount owing.
The provision would also apply where the taxpayer disposes of a residential unit to the employee of an employer that forms part of the same group of companies as the taxpayer, for example where the property is owned by a company within a group but the employer is another group company. In these circumstances the property-owning company would claim the tax deductions.
A number of gremlins have crept into the wording of the draft which one hopes will be corrected before the Bill is passed into law. It is also interesting that the terms "bulk infrastructure", "apartment" and "same geographical vicinity" are not defined. It is also doubtful, based on the current wording of the draft, whether the recoupment of the allowance would operate as envisaged in the example above.
Every now and then I get press releases mailed to me from David Warneke at Cameron & Prentice which I might post from time to time as a bit of resource for those looking to understand the property sector and pick up some tips and tricks.
TAX INCENTIVE FOR EMPLOYERS WHO TRANSFER LOW-COST RESIDENTIAL UNITS TO EMPLOYEES
Included in the draft Revenue Laws Amendment Bill is a provision (section
13sept) aimed at encouraging employers to transfer ownership in low-cost houses or apartments to employees. Tax Partner at Cameron & Prentice Chartered Accountant, David Warneke, explains, that while this provision may appear to be aimed predominantly at farmers, the wording of the provision certainly does not restrict it only to these taxpayers.
Currently, where an employer transfers a house or apartment to an employee, no tax incentives exist. In the Explanatory Memorandum accompanying the Bill, the shortage of housing in South Africa and government's plans to provide an environment conducive to home ownership are cited as reasons for the introduction of the incentive.
The benefits of this incentive are similar to those in another proposed incentive (section 13sex) for employers who build residential units for employees and do not transfer ownership to the employee. Therefore, whether or not the ownership in the housing is transferred to the employee, there will be an incentive for the building of residential housing for employees, as the employer will either be able to claim an allowance under this provision (section 13sept - where the ownership is transferred to the
employee) or under section 13sex (where the employer retains ownership).
In order to benefit in terms of section 13sept, the employer will have to sell the accommodation to the employee on interest-free loan account. The employer will then be able to deduct, for income tax purposes, an amount equal to 10% of the capital of the initial loan per annum over 10 years, or as long as the loan arrangement lasts. It is probably an oversight with the current wording of the provision that if the employer were to waive the indebtedness of the employee, no further deductions may be claimed. If the employee repays portion of the capital outstanding on the loan, a recoupment will arise in the employer's hands.
The following example is given in the Explanatory Memorandum:
Facts: An employer constructs a house for R100 000 with the allocable land having cost R20 000. In Year 1, the employer transfers ownership of the house to an employee for R120 000 on a non-interest bearing loan account provided by the employer. The loan is repayable over 20 years. The employer transfers ownership of the house subject to a condition that the employee remains in the employ of the employer for a minimum period of 5 years. The employee will be entitled to the market value of the house at the date of the potential return. In Year 2, the employee repays R20 000 of the loan provided by the employer in Year 2.
Result: In each of the Years 1 and 2, the employer is entitled to a deductible allowance of R12 000 on the loan provided to the employee.
However, the employer has a recoupment of 20 000 in Year 2 due to the repayment of the loan capital by the employee.
It is required that the residential unit must be a "low-income residential unit", which is defined as a building, the cost of which does not exceed R200 000 exclusive of the land and the bulk infrastructure, or an apartment, the cost of which does not exceed R250 000. In the draft Bill no mention is made of the cost of the land or bulk infrastructure in the context of the R250 000. However the Explanatory Memorandum and the Bill appear to be at odds. In the Explanatory Memorandum the R200 000 and the R250 000 are inclusive of the land but not the bulk infrastructure for section 13sept, while these amounts are exclusive of the land and the bulk infrastructure for the purposes of section 13sex. It remains to be seen whether the Bill will be amended.
A further requirement is that the employer may not charge a rental of more than 1% per month of the actual cost of the unit (as determined above).
Also, the low cost residential unit must be part of a residential establishment that consists of at least five residential units in the same geographical vicinity. It is further required that the disposal to the employee cannot be subject to any condition, other than two possibilities on termination of service by the employee. These are for the repurchase by the employer at market value at that time or repayment of the balance of the loan amount owing.
The provision would also apply where the taxpayer disposes of a residential unit to the employee of an employer that forms part of the same group of companies as the taxpayer, for example where the property is owned by a company within a group but the employer is another group company. In these circumstances the property-owning company would claim the tax deductions.
A number of gremlins have crept into the wording of the draft which one hopes will be corrected before the Bill is passed into law. It is also interesting that the terms "bulk infrastructure", "apartment" and "same geographical vicinity" are not defined. It is also doubtful, based on the current wording of the draft, whether the recoupment of the allowance would operate as envisaged in the example above.
Monday, October 13, 2008
Commercial property
I have been strolling around a number of major shopping centres and the number of vacancy signs and 'closing down sales' seems to be sharply on the up.
I know a lot of the property pro's who get interviewed have said that the problem isn't as bad as it looks and residential property prices are likely to bounce soon but I think that the commercial properties losing tenants is a good indication of what is happening in the 'real' South African economy.
If there is a lean Christmas / festive season in front of us for both retailers and consumers then this is likely to get a lot worse before it gets better....
I know a lot of the property pro's who get interviewed have said that the problem isn't as bad as it looks and residential property prices are likely to bounce soon but I think that the commercial properties losing tenants is a good indication of what is happening in the 'real' South African economy.
If there is a lean Christmas / festive season in front of us for both retailers and consumers then this is likely to get a lot worse before it gets better....
Tuesday, October 7, 2008
Savings and property investments
Article we posted here on a savings culture in South Africa. Maybe you have some of your own comments to add to this?
Monday, October 6, 2008
'Five months to flog a house'
Johannesburg - SA's housing slump has deepened further in the third quarter of 2008, pushing the average time it takes to sell a house to an all-time high of five months, new data from FNB shows
Read the complete article here on Fin24.com
Read the complete article here on Fin24.com
Monday, September 29, 2008
And so it begins...
Probably the biggest reason I hate shopping around for property is .... ESTATE AGENTS!
Blech...
I'll be honest, they are my pet hate. Yesterday we looked at six or seven places and invariably we have to fill in the forms where estate agents take down all our details about what we are looking for.
Now obviously the majority of estate agents are not involved in the game of property investing so they don't really pay any attention to what you say when you are chatting to them. In fact... they'rea lot like telemarketers in that way.
You will say: "We're not actively looking to buy but we just want to get an idea of whats on the market"
They will phone back the next day and say:
- "When can we come get a mandate to sell the place you are living in at the moment?"
Or you will tell them - I am looking for a 3 bedroom property in Fourways for reason XYZ and I have R1m to spend
They will then circulate your details around their franchise and you will invariably get the call from another agent in their franchise saying:
- "We have this 2 bedroom place going for R1.5m in Kensington B - would that meet your requirements?"
And it just makes you wonder why the hell you bothered to discuss your requirements with them anyway....
We made it abundantly clear to the agents we visited yesterday:
- We are just looking
- We are not making any offers
- We are not making any property buying decisions in the next 2 months
- We are not selling our current place
24 hours later and we have had 3 agents phone us up to ask us:
- Are you going to make an offer on the places you looked at?
- Can we come and value your current place?
I probably don't speak estate agent lingo but bloody hell its a turnoff for looking property!
Blech...
I'll be honest, they are my pet hate. Yesterday we looked at six or seven places and invariably we have to fill in the forms where estate agents take down all our details about what we are looking for.
Now obviously the majority of estate agents are not involved in the game of property investing so they don't really pay any attention to what you say when you are chatting to them. In fact... they'rea lot like telemarketers in that way.
You will say: "We're not actively looking to buy but we just want to get an idea of whats on the market"
They will phone back the next day and say:
- "When can we come get a mandate to sell the place you are living in at the moment?"
Or you will tell them - I am looking for a 3 bedroom property in Fourways for reason XYZ and I have R1m to spend
They will then circulate your details around their franchise and you will invariably get the call from another agent in their franchise saying:
- "We have this 2 bedroom place going for R1.5m in Kensington B - would that meet your requirements?"
And it just makes you wonder why the hell you bothered to discuss your requirements with them anyway....
We made it abundantly clear to the agents we visited yesterday:
- We are just looking
- We are not making any offers
- We are not making any property buying decisions in the next 2 months
- We are not selling our current place
24 hours later and we have had 3 agents phone us up to ask us:
- Are you going to make an offer on the places you looked at?
- Can we come and value your current place?
I probably don't speak estate agent lingo but bloody hell its a turnoff for looking property!
Introduction
Welcome to the Property Strategist blog.
Up front this is not a blog run by some property expert who is going to tell you how to make money out of property.
Heck I am probably the complete opposite. I know very little about the property market and how it works (my game has always been shares and the stock market), but I'm always keen to learn.
I normally get excited when markets start falling or go out of favour because I personally believe that this is when the best opportunities are.
I'm going to use this blog to try and bounce ideas off South African property investors to try and pick up some tips and tricks to getting into the property market and making a success of this investment class.
Up front this is not a blog run by some property expert who is going to tell you how to make money out of property.
Heck I am probably the complete opposite. I know very little about the property market and how it works (my game has always been shares and the stock market), but I'm always keen to learn.
I normally get excited when markets start falling or go out of favour because I personally believe that this is when the best opportunities are.
I'm going to use this blog to try and bounce ideas off South African property investors to try and pick up some tips and tricks to getting into the property market and making a success of this investment class.
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