Reasons to Invest in the South African Property Market

Reasons to Invest in the South African Property Market

Investing in property within South Africa is still a sound option for serious investors. The following points highlight the reasons why you should invest in property and in particular South African property.

Property Is a Relatively Stable Investment Option
Although stock market related investments can at times bring forth very big returns, it is also very unstable and there is the possibility that you can lose a portion of your capital. It is advisable that you balance your investment portfolio with a relatively stable option such as what is available in the South African property market.

Shortage of Property in South Africa 
South Africa’s political past has left the country with a shortage of good housing and the South African government has made fixing the housing problem a high priority. The housing policy of the South African government will lead to a long term structural growth potential within the South African property market with migration to better neighborhoods and better property set to continue for a long time.

Property Cycles in South Africa
Most people long to have their own property and the sense of security and comfort of having a growing asset that goes with it. As young people leave school and start to work they enter the property cycle through renting a flat, buying a flat, selling a flat and then buying a small house or townhouse. As they become more financially secure they will invest in their dream property which they are likely to sell when they go in retirement in order to move into a smaller house or townhouse. A South African property investor benefits through out the property cycle due the ever present demand for property in South Africa.

South African Property Market is Relatively Stable in an Unstable World 
Globally many countries have become targets of extremists with terrorist attacks having negative effects on the economies and stock markets of the countries affected. South Africa has a relatively balanced position within global opinion and is one of the countries least effected by extremist activities. This position of balance is causing a lot of investors abroad to start looking at South Africa for property investment opportunities.

Rental Property in South Africa
Obtain a South African home loan and invest in property which you then rent out. The rental from the tenant will help you pay off your bond and the value of the property will keep on increasing.

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Costs Involved In Selling Your Property in South Africa

Costs Involved In Selling Your Property in South Africa

So you decided to sell your property and you are dreaming of what you are going to buy with the profit you will be making. But before you start spending you need be aware of the costs involved in selling your property in South Africa and how much it will eat into your profit.

Commission by Estate Agents
The commission taken by the estate agent is usually a standard figure of 7.5% ( excluding VAT ), which is the current recommended percentage set by the Estate Agency Affairs Board. This is not a set figure and you can negotiate this figure before signing a contract with an agency.

If you want to avoid the commission on the sale of the property you can always decide to sell your property privately.

Bond Cancellation Fees
A fee for canceling your current bond will be deducted from the amount the banks pays out when your property is sold.

Tax
If your home was purchased in a legal entity other than your private name, you will have to pay Capital Gains Tax (CGT). Even if the property is purchased in your private name you will still have to pay tax if the profit on the sale of the property is more than one million rand.

Local Council Costs
The conveyancer will hold back an amount on behalf of the local council to cover rates, taxes, water and lights. In some instances the council may reserve an amount to cover up to 6 months of services. Although this money does get repaid it is an amount that will be missing from that lump sum payment you’re expecting on the sale of your property.

Other Costs
When selling your property you also need to keep the cost of moving to a new property in mind. You may have to buy new blinds or curtains, clean the carpets, obtain new furniture and the new house may need to be repainted.

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Should You Rent Property or Buy Property in South Africa

Should You Rent Property or Buy Property in South Africa?

This article looks at the pros and cons of renting property and the pros and cons of owning your own property. We will be considering whether it is better to rent or buy property in South Africa’s current environment.

The current high property prices in South Africa has the effect of property being rented out at a substantially lower amount per month then what the bond repayments on the property would be. A property worth  R800 000 could easily be rented at about R4 000 a month while bond repayments on a property of that value will be round about R10 000. The R6 000 saved on renting over buying the property makes a strong argument for renting property.

Although this equation seem to endorse renting over buying it does not take into consideration the effects of ownership or rental over a longer period of time. Renting the property in our example will most likely be subject to annual increases whilst the value of the property is also likely to increase on an annual basis. This will have the effect of increase in capital growth for the owner over a period of time while the person renting will have to increase yearly expenditure with no capital gain.

Renting can pay off if you use the extra monthly saving wisely. The extra monthly savings should go towards wise investing and not towards purchases to enhance your lifestyle. Over the long run purchasing property remain the better option as the bond will reduce over a period of time and the property will gradually turn in to positive equity.

In conclusion it can be deduced that renting property over a short period is a reasonable option but over a longer period owning a property is the sensible option. If you cant afford to buy a property right now start off renting and invest your extra expendable income so that it can be used towards purchasing a property further down the line.

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Upmarket Apartments Built in Cape Town

Upmarket Apartments Built in Cape Town

Construction at a new, upmarket 20-storey serviced apartment block on the corner of Cape Town’s Pepper, Loop and Long Streets is well underway.

A total of 233 apartments, ranging from studios to luxury duplex units and penthouses, will be built at a cost of R119m. “The amenities include a fitness centre, laundry and cleaning services, swimming pool and sun-deck, private movie theatre, 24-hour security, undercover parking and a concierge to attend to residents’ every indulgent need,” explains Mark Belman, business development director at Grinaker-LTA Building Cape.

The contractor is undertaking the construction of the apartment block’s external shell, including a traditional concrete structure, external facades and external waterproofing, as well as the internal division walls, including door frames, plaster, floor screeds and the first fix of plumbing, drainage and electrical. The complete installation of the mechanical ventilation, sprinklers, fire protection, roof construction, lift installation, swimming pool, timber deck and the fire door installation will also be undertaken.

Some 700,000 bricks will be used in the construction project, as well as 16 600 m3 of concrete and 881 tons of reinforcing.

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February Building Plans Passed Down 44,2%

February Building Plans Passed Down 44,2%

The value of recorded building plans passed at constant 2005 prices in South Africa in February fell 44,2% year-on-year (y/y) from a revised drop of 53,7% (52,4%) y/y in January, data by Statistics South Africa showed on Wednesday.

A breakdown of the data shows that residential building plans fell a massive 56,3% y/y. This was followed by drops of –31,4% y/y and –20,2% y/y for additions and alterations and non-residential buildings respectively.

The total industry value in February was R3,175bn from R2,537bn in January and R5,688bn at the same time a year ago.

This comes after the building industry receded a revised 18,1% (17,2%) in 2008 from the total drop of just 2,4% in 2007.

The seasonally adjusted real value of recorded building plans passed by larger municipalities during the three months ending February 2009 decreased by 16,7% compared with the previous three months ending November 2008. The biggest decrease was reported for non-residential buildings (-21,3%), followed by additions and alterations (-18,5%) and residential buildings (-12,7%).

Building plans reported as completed at constant prices lifted 8,4% y/y from the 12,3% y/y rise in January. They lifted 1,2% in 2008. – I-Net Bridge

 

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2,000 houses to be built in North West

2,000 Houses to Be Built in North West

wo thousand housing units are set to be built in Extension 3 and 22 in the Matlosana Local Municipality in North West.

Launching the R98,3m housing project on Friday, North West Housing MEC Howard Yawa said 559 houses are already being built as part of the project, which is expected to be completed by June this year.

Yawa highlighted that the province will continue to work in partnership with various stakeholders to accelerate the delivery of houses.

The launch coincided with the celebration of the Masizakhe Women’s Group which celebrated its 10 years of existence.

The Masizakhe Women’s Group, made up of more than 500 women, are responsible for constructing and delivering houses to communities in Klerksdorp. – Kagiso Metswamere, BuaNews

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Buy-to-let investors under strain

Buy-to-Let Investors Under Strain

Withholding body corporate levies because of personal financial strain places the building in a precarious fiscal position, while jeopardising the property investment and its long-term viability.

Andrew Schaefer, MD of national property management group Trafalgar, warns many new developments are under strain as numerous owners lack sufficient knowledge and information about body corporate levies and their purpose, and so fall into arrears.

He believes many investors are experiencing negative cash flows on their property investments compounded by the challenging economic climate. Consequently, estate agents should provide estimates to ensure buyers can accurately budget for monthly bond, levies and municipal payments.

“Developers should consult managing agents before the sales launch to prepare accurate building maintenance and operational budgets and levy schedules (calculating future budgeted expenses plus reserve requirements pro rata for individual sections),” he says.

Owners underestimate the costs associated with property ownership – transfer and bond registration fees and monthly bond repayments, municipal rates and body corporate levies – leaving them struggling financially.

Buy-to-let investors using managing agents also contract to a monthly collection commission fee for rental collections. Schaefer says vacancies, unexpected maintenance and special levies are realities for buy-to-let owners, meaning they must anticipate absorbing and sustaining intermittent negative cash flows.

“Particularly buy-to-let investors either miscalculate when investing in properties or do not secure the rental escalations or occupancies that cover their associated costs in a high interest rate phase. Yet, in skipping the body corporate levies, they jeopardise their investment by potentially throwing the body corporate into the red and initiating a ripple effect on maintenance neglect, poor service and ultimately, an unattractive rental asset,” he says.

Schaefer says owners who generate levy arrears only escalate their problems by incurring interest payments on those outstanding amounts and potential legal costs in recouping their debts as well as prompting the knock-on effect to the body corporate.

The long-term outcomes are properties that attract lower rentals due to deteriorating infrastructure as well as the risk the body corporate may initiate a sale to recoup the debt. That means the investor loses both his investment and capital as the sale falls short of input costs.

On the other hand, Schaefer urges body corporates to swiftly approach defaulting owners to prevent the problem escalating where it affects cash flows or where legal action is necessary to recoup large-scale arrears.

“Like other assets, property follows cycles and although current prices have fallen from the stratospheric levels achieved several years ago, it remains a long-term appreciating asset and making every effort to keep financially balanced in the short-term pays future dividends when the market turns and the financial strain eases,” he says.

 

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March median house prices fall 1,5%

March Median House Prices Fall 1,5%

The Standard Bank median house price index (smoothed) decreased by 1,5% year-on-year (y/y) in March, following declines of 3,6% y/y in January and 2% y/y in February, the latest Standard Bank property gauge showed on Wednesday.

“After posting the lowest annual growth rate in 12 years in 2008 when a decrease of -0,3% in the median house price of Standard Bank’s property book was reported, the first three months of 2009 extended the downward trend,” said Standard Bank’s Johan Botha.

The trend cycle of the March data confirmed that the weakness in the property market is set to continue longer.

“In real terms, using our estimate of the CPI in March of 8,3% to deflate the nominal house price, the decline in real house prices comes to approximately 9,8%,” said Botha.

He said that the smoothed growth rate of residential property prices for March 2009 shows that the value of the median residential properties financed by Standard Bank was R542k.

“The overall state of the economy early in 2009 and the medium-term outlook are such that an immediate, significant improvement in the housing market is decidedly improbable.”

Looking ahead, Botha said that it is evident that households find economic and financial conditions extremely challenging, while the tightening of lending criteria by financial institutions makes it more difficult to access finance.

“Over the short-term, economic conditions are expected to deteriorate further, but positive developments on the inflation front will lead to additional interest rate cuts in 2009,” he said.

Standard Bank expects a further 250 basis points relief in interest rates this year.

It is anticipated that house price growth will be negative over the short- and medium-term, but likely to improve somewhat towards the end of the year as the impact of interest rate cuts filter through the economy and the property market. – I-Net Bridge

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Commercial property still a good bet

Commercial Property Still a Good Bet

Despite difficult times in the property market in South Africa, fundamentals of commercial and industrial property remain strong.

“From an equity point of view, we are currently in an exciting space in the property market. Current market conditions provide property investors with good value for quality properties and auspicious investment opportunities in this sector,” said Rob Wesselo, head of equity investments at Absa Commercial Property Finance on Wednesday.

He said the rental market was particularly buoyant in industrial and commercial markets, showing strong rental growth and high tenant demand.

According to Wesselo, rising development costs, shortage of serviced land has slowed the supply of new developments, leading to spike in rental income.

“In the last 12 months construction costs of building office blocks have increased by approximately 30% and developers are also faced with increased financing costs due to sustained interest rate rises,” he said.

In addition, ten consecutive interest rate increases since June 2006 have caused commercial property prices to soften, resulting in repricing of assets.

“High interest rates and low property yields have forced many buyers out of the market in recent months resulting in a shortage of property investors. These factors, in turn, have provided equity opportunities for equity investors,” .

Authored By: Wesselo
Published By: I-Net Bridge

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Turning point in property market is close

Turning Point in Property Market is Close

The much-discussed low point in house sales and house prices could now be far closer than most people realise.

Analysing the Residential Property Price Ranger’s (RPPR) latest figures for the Cape Peninsula, Bill Rawson, chairman of Rawson Properties, said that these show that, despite much negative comment from the public and media, prices have held up remarkably well.

“The average house price in the Cape Peninsula from March 2008 to June 2008 was R1,998,874. While this was well down on the R2,565,866 average for the same period in 2006, it was significantly up on the R1,689,617 average for 2007 and also up on the 2005 average of R1,892,220. These figures are not discouraging.”

Why then does Rawson suspect that the low point (which could also be the turning point before better times begin) could be approaching?

“If we look at the RPPR unit sales, these show that the numbers sold could now have hit rock bottom – only 404 homes in the Cape Peninsula were sold in June 2008. This is less than half the 1106 units sold in June 1998, when interest rates were at 20% and many were saying that the market could hardly be worse.”

Unit sales for the last month, added Rawson, were 60% down on the same period last year – another indicator that we could be nearing the bottom of the graph.

“We are now very definitely in a new economic territory,” said Rawson.

“This, I believe, is because we are now more part of the global scene which previously did not affect South Africa so closely. In 36 years of property dealing I have never seen quite such massive fall-offs in unit sales. The consumers, many of whom are newly empowered and possibly over committed, are struggling as never before to pay their way because of rapidly rising food, fuel and other prices, all of which have hit record highs.”

In the circumstances, said Rawson, the economy, already “more or less killed off”, in his view very definitely does not need a further brake put upon on it through another interest rate hike.

He repeated, however, that now is the time to buy because unit sales are highly unlikely to go much lower than their current level and, once they begin improving house prices will respond.

“Either way, if you need to sell or buy, stay in the market as it would be a real gamble and very unwise to sell and then wait for prices to fall further before buying again.”

Authored By: Bill Rawson
Published By: Property24

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