Property Strategist

Recommendations?

2009-07-05T13:42:00.000-07:00

I am looking for a rental agency to manage and let out our 3 bedroom house in the Albertville / Greymont region.

Would be ideal for student accommodation or for a family. There is a gardener and security contract thrown in to look after the place.

If anyone can make any recommendations or is interested in renting the place - R6500 + elec for the month, please post your details here and will touch base with you.

Regards,

Commercial property blowing up?

2009-05-16T23:24:00.001-07:00

I was driving through Lonehill, Fourways and Roodepoort recently and it is quite interesting to see the number of auction signs that are outside the commercial property developments. A lot of these are these trendy "strip-mall" type setups but also these smaller office complexes.

What I find interesting though is that while the developers are in trouble the tenants don't appear to be closing up shop - does this mean that the developers themselves are so far over-geared that the rental they were getting from the tenants was not covering their costs? That seems odd...

Or is it more a case that the tenants are the problem and simply paying later than they should be?

Anyone an expert on commercial property in South Africa and able to comment?

Property share and share alike

2009-03-15T11:54:00.001-07:00

A new model in property investment has hit the Cape Town market. We’re familiar with the term ‘shares’ when used alongside ‘stock exchange’, but ever thought about buying shares in property? Not ‘timeshare’ or ‘fractional ownership’, but real shares that you can buy or sell. Realcor Cape has taken a bold step in a new direction by offering buyers shares in its new hotel at the development costs.

“We’ve undertaken to create a business model that works both for Realcor as well as for the investors by going into partnership with them as a way to build up capital for the hotel and create wealth for investors,” Deonette de Ridder, Realcor’s Managing Director says of their new development The Blaauwberg Beach Hotel.

“Buying shares in the hotel is the same as buying shares in a commercial property and an income generating business. So the moment the value in the property increases, shares will in turn become more valuable. Shareholders benefit from the fixed capital which is the building itself and from the profit of the hotel business,” says de Ridder.

Recently back from its first-class launch in the United Kingdom, Realcor intends to sell shares in the hotel to both foreigners and locals. De Ridder comments, “South Africans should benefit from this hotel as well. The model was well-received in the UK. There was a lot of interest in the development of the hotel, but the idea of buying shares in a hotel is new and will possibly take time to catch on in the traditional market place.” Twenty percent of the shares offered will be on sale to the public, while the rest is on sale to listed funds. This means the public own shares together with listed funds. “Realcor is currently registering its prospectus and the shares should become available early in April,” adds de Ridder. “We are also excited that RMB has offered finance to build hotel, showing that there is faith in the project.”

The model is different from fractional ownership and timeshare in that the buyer doesn’t own a particular room or put in a lump sum never to see the return on that money. Rather, buying shares in a property is a flexible exercise. For one, you can sell shares at your own discretion while buying shares could mean earning good dividends. What’s more, shareholders will qualify for special rates and services should they ever choose to stay at Blaauwberg Beach Hotel. The idea that you are increasing the value of your shares by staying at the hotel is a marvellous advantage. This along with the fact that the hotel is environmentally-aware makes the investment an appealing one.

South Africa’s investment opportunities have necessarily been more progressive since a growing and diverse economy mean that investors need to keep thinking up creative and more appealing offers. “It’s a good climate for growth and South Africa’s property industry is benefiting from this kind of innovation ten-fold. What’s more, investors will not only benefit from the capital appreciation of the building itself, but also from the profit of the hotel as it runs”, adds de Ridder.

With the current property market boom in a slight decline, investors will benefit by buying shares now since share value is very likely to increase dramatically. “South Africa’s property market is definitely a buyer’s market at the moment. An investment now could lead to high returns later on. Buying shares in the hotel will ensure that this return is seen sooner rather than later,” ends de Ridder.

Realcor Cape is currently in the process of registering their prospectus and the shares for the Hotel should be available in early April this year. Investors will be able to purchase shares at the development costs of the project.

Contact information:
Deonette de Ridder
Realcor Cape
Tel: 083 700 4028

Source: PressPortal

Deposits

2009-03-10T13:15:00.000-07:00

Would you think it inappropriate if your bank made it a rule of thumb that you had to have a minimum of 25% deposit before they would finance your home?

Part of the problem that the "credit crisis" has highlighted is the extension of credit to consumers who could ill afford the gearing on a property portfolio.

South African consumers have long gotten used to the idea of paying between 0 and 10% deposits (which many of them grumble about).

These are the same people who are now seeing their houses being repossesed.

The flip side of that is that housing is a basic right and many people believe that banks MUST lend to them on terms that make it possible to house their families.

Do you believe it is your right to be able to get a loan without putting down a sizeable deposit? Would you be offended if your bank said you could apply for a loan by putting down a 35% deposit?

Give me your thoughts on what you believe is an appropriate level of deposit for the South African residential property market....

Review your personal balance sheet

2009-02-22T22:41:00.000-08:00

Reproduced with permission from the Bad Entrepreneur blog.

I'm definately not one of those Robert Kiyosaki "Rich Dad, Poor Dad" preachers - but I think there was one really simple concept that was in the original book, which I believe that ordinary employees or employers should remember and take out of the book...

... and that is around their personal balance sheets and being able to distinguish between an asset and a liability.

It sounds like such a simple concept - if your income producing (cash positive) assets outweigh your liabilities then you're going to get ahead in the game.

The problem comes in when you can't distinguish between an asset and a liability on your balance sheet... don't worry - the concept has managed to flummox most of the geniuses on Wall Street so you're not alone.

It is an interesting exercise - write down your assets and liabliities.

Quick question here - how many of you put your house and your car down as "assets" and what value did you attribute to them? Do you owe any money on either your car or your house? Then it's not an asset in my opinion.

You might argue that there is "equity" in your house at the moment if you decided to sell it now. If you managed to successfully sell your house for more than you owe on it, THEN it becomes an asset. Until you've sold it, there is NO EQUITY in your house... remember this idea that there is inherent equity in your house is exactly what blew out the US market and guys that are trying to sell their houses now are quickly discovering this.

If I take R660 a month and I am servicing interest on a bond - then I don't classify that as having bought an asset. If however I took R500 + R160 in trading costs and I invested in a property unit trust or share which yields say 7.5% after tax THEN I would classify that as having a R500 asset...

It becomes an asset when it generates real cash in your bank.

For me - I felt I had hit some positive landmarks when my share portfolio for instance exceeded what I owed on my major liabilities. I then have a real asset to be able to A) generate cash and B) settle the liability at any given stage and remain "ahead of the game".

Go and have a look at your personal balance sheet again and see if you can identify what is an asset and then yourself similar goals to service your liabilites as quickly as possible and try and build up real assets.

New property concept

2009-02-07T01:10:00.000-08:00

I see that estate agents Jawitz Properties has come up with a new method of selling property... Interesting method. The press release is below... What's the view on this offering?

Jawitz Properties Launch New Sales Methodology
4 February 2009

In response to the slower home sales, falling prices and the increase in the number of urgent sellers, Jawitz Properties have introduced a new method of selling property in South Africa and which is currently used internationally in countries like Australia and New Zealand - Sale by Private Tender.

Says Jawitz: ‘We are seeing more urgent sellers currently than for some time. Even though rates may be coming down, some homeowners are still wanting to move into a more affordable property or may be immigrating and the departure time is drawing nearer or have bought subject to selling their home and need to sell quickly’

Sale by Private Tender gives sellers the opportunity to meet these deadlines and still achieve a market related price within a limited time period. As compared to the normal selling method currently used in South Africa, there are limited viewing days and offers have to be submitted by a specific day and time in order to be considered. From a time point of view, this works for the seller.

While buyers may have a shorter time to make a decision, in the current market, an opportunity missed is an opportunity gone. While the limited viewing times is the same as auctioneering, Sale By Private Tender avoids the ‘firesale’ approach buyers often bring to an auction looking for bargains.

The advantage to buyers of having a specific cut-off time is that all offers are received and then submitted to the seller who then has an opportunity to look not only at the price but also at the quality of the offer. This is especially important at the moment given the banks current tough lending criteria. There may be reserve prices on some of the properties says Jawitz but the seller can then counter offer in the normal way. “We’re excited to introduce this new sales methodology to the market and we’re confident that it will work for clients who are open to the realistic price the market will pay. Even though prices have dropped in real terms over the last year to create better value for buyers in the market, there are still very few bargains. Unlike an auction, buyers are not aware what price they’re bidding against and will put forward their best offer” says Herschel Jawitz, CEO of Jawitz Properties.

Abalengani

2009-02-01T21:01:00.000-08:00

Anybody heard much about this Abalengani Property Group?

They're listing their property assets on the JSE in a reverse listing into the Kaydav shell. They're talking about dual listing of Preference and Ordinary shares with the pref shares offering an after tax return of around 15% and you get ordinary shares thrown into the deal.

Getting mixed feedback from the industry - any comments?

Creative rent collecting strategies....

2009-01-19T11:05:00.000-08:00

Aaaaahhhh the not so glitzy side of property... the non-paying tenant.

A female colleague of mine and I were chatting today and she's at her wits end. She has a male tenant in one of her properties and he is simply refusing to pay his rent. She has tried to be nice by giving him extra time to pay his arrears and tried debt collectors and lawyers letters.

The more she pushes the legal route the more aggressive the tenant gets and she's feeling completely at a loss to try and get the money out of this guy.

She's served notice on them and the tenant has disregarded the letters saying that he will leave when he has found another place...

I saw the topic came up on one of the trading websites and I saw some suggestions for a little creative pressure on the tenant:

1. Two Nigerian heavies outweigh one Sandton yuppie on steroids...

2. Another suggestion was to send the maintenance man around in the late afternoon to remove the front door or gate for that much needed coat of paint. The money might suddenly materialise when they realise you don't intend having the door back overnight....

Thought maybe I'd throw the idea out and see if anyone has got any ideas for some creative (even legal) debt collecting solutions for this kind of situation??

ApexHi

2009-01-17T02:10:00.000-08:00

As a shareholder / Unitholder in ApexHi I can't say I'm very happy with the offer from Redefine income fund to buy out the unit holders in ApexHi and Madison.

I believe shareholders are better served by staying invested in ApexHi and will enjoy stronger dividends from the ApexHi portfolio.

I intend voting against the offer.

Ouch!

2009-01-11T10:16:00.000-08:00

I went to go and get Chinese last night and pulled into our favourite takeaway place near Cresta.

The shopping centre I went in had 7 (thats right 7!) shops that had been boarded up and were listed as TO LET out of 25.

A key anchor tenant who had a double story restaurant was one of the most noticeable tenants missing.

Says a lot for the state of the commercial property market in SA... Going to be interesting to see what effect this has on SA commercial property rentals. Anyone noticed whether rental rates are coming off yet??

Do you trust estate agents?

2008-12-10T12:23:00.000-08:00

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?

The property debate

2008-11-22T22:21:00.000-08:00

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?

Word of caution!

2008-11-22T21:44:00.000-08:00

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?

Commercial property

2008-11-02T13:04:00.000-08:00

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...

100 000 homeowners behind the curve

2008-11-01T22:39:00.000-07:00

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??

TAX INCENTIVE FOR EMPLOYERS WHO TRANSFER LOW-COST RESIDENTIAL UNITS TO EMPLOYEES

2008-10-14T21:38:00.000-07:00

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.

Commercial property

2008-10-13T21:38:00.001-07:00

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....

Savings and property investments

2008-10-07T21:42:00.000-07:00

Article we posted here on a savings culture in South Africa. Maybe you have some of your own comments to add to this?

'Five months to flog a house'

2008-10-06T06:56:00.000-07:00

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

And so it begins...

2008-09-29T15:05:00.000-07:00

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!

Introduction

2008-09-29T14:53:00.001-07:00

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.