REIM August 2013

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Mega Trends In Commercial Property

Shaping the future of investors GET THE RIGHT FINANCE Jason Lee tells you how

ENSURE YOUR RETURNS In a volatile economy

COME OUT ON TOP

With Africa investments

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MASTER INVESTOR JT FOXX


The iconic WesbankFairland development

Joburg Property Company

turns 13 in 2013

As an agent of the City of Johannesburg (CoJ) Metropolitan Municipality, JPC is contributing to the objectives of the Growth and Development Strategy articulated by the Mayor and by utilising council-owned land assets to leverage private sector investment in public infrastructure. The City of Joburg Property Company (JPC) services include: • Management of council property portfolio • Selling and buying of property • Facilities management • Property planning and advise • Property management • Property development and facilitation • Property maintenance • Property register maintenance • Letting/leasing of council property portfolio, including • Outdoor advertising • Servitudes, encroachments and access rights control

an opportunity to participate in the economic development of the World Class African City.

JPC Objectives The JPC objectives are to harness the City’s property portfolio transactions to increase economic growth and Broad-Based Black Economic Empowerment (BBBEE), while creating jobs and economic opportunities for the disadvantaged communities and businesses.

Achievements Since its inception JPC has been responsible for iconic developments such as the Orlando Towers in Soweto, Soweto Theatre, the Newtown development, Huddle Park Golf Course in Linksfield and most recently the Jabulani Precinct in the Jabulani CBD in Soweto.

JPC does not use agents or brokers when leasing or selling property as legal requirements directs for an open tender system that allows all interested parties

Key projects The Land Regularisation Programme is the first of its kind in City history and unique to any major

JPC Background The Joburg Property Company was established in 2000 and as the only mandated agency of the City of Johannesburg to manage and develop land and property on behalf of the City. It currently manages a property portfolio worth over R8, 8 billion with 64 000 properties covering at least 39 000 hectares. Since the 1st of November 2012, JPC has merged with the Facilities Management Unit and Metro Trading Company, in effort to consolidate key functionalities in providing excellent service delivery to our stakeholders


The award-winning Soweto Theatre in Jabulani

City in South Africa where the long term/leaseholders of property are given title to their homesand business places that were council owned. “The Land Regularisation Programme is unique to the City of Johannesburg, forming the basis of a sustainable property economy through expediting the transfer of properties to beneficiaries, as well as releasing vacant sites on public tender,” says Ms Helen Botes, Managing Director of JPC. “Over the next three to five years, the program seeks to transfer and/or release approximately 3700 properties in Alexandra, the Greater Soweto Area, the Greater Orange Farm Area, Ivory Park and surrounds.” Property Incubation The programme is aimed at transforming the property industry through accelerating the entrants of new players, especially SMME’s and BEE companies. JPC will identify, allocate and make ready for development a number of commercial properties that will be used to fast track the entrants of SMME’s and BEE in acquiring and sustaining property. Other key projects • Property Academy • Property Bulletin • Rissik Street Post Office • Newtown Potato shed • Orlando ekhaya • Holocaust museum

Redefining the Sandton skyline The Kgoro Sandton Development

Tel: 010 219 9000 Email: clientservicingunit@jhbproperty.co.za Website: www.jhbproperty.co.za


CONTENTS August 2013 COVER STORIES

8 Master Investor

12 Mega Commercial Trends

24 Get The Right Finance

42 Ensure Your Returns

54 Come Out On Top

FREE Offshore Handbook

UPFRONT

RESIDENTIAL

COMMERCIAL

5 Investor Talk

22 To Gate Or Not To Gate

38 What’s The Secret

6 INBOX

26 Your Success

42 Riding Out The Risks

28 Buy-To-Let

44 Behind The Development Process

Women, Nkandla & land reform

Ask The Property Experts Evictions

8 Master Investor

The world’s No. 1 Real Estate Coach

12 Shaping The Future

Mega trends in commercial property

18 News Alerts

The Good, Bad & Ugly

Is community life for you?

Starts with the right finance

Is it risky business?

To commercial investment success?

Of investment in a volatile economy

Your journey begins here

30 Get Curb Appeal

And your house will shine

32 Settling Disputes What do the rules say?

46 It’s Not Just Window Dressing

Listed investment takes home the prize

34 Outstanding Municipal Debts Are you liable?

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CONTRIBUTORS

OFFSHORE

RUI MARTO is the Director of Marto Lafitte & Associates, he specializes in property, commercial & consumer law.

50 Opportunities In The USA Don’t miss out

IVAN ZARTZ

52 Beat The Boom

Is a sole practitioner with 40 years experience with a B.A. Degree from Rhodes

Invest in funds in Africa

University, and a L.L.B Degree from Wits University.

54 Getting To Grips With investing in Africa

IAN ANDERSON Is the Chief Investment Officer at Grindrod Asset Management he has 15 years experience in specialist listed property portfolios.

LIFESTYLE

ALEXANDRA BURGER

58 Reviews

Is the Director of Amicorp South Africa, with both brains and beauty, she is a fount

60 Welcome To Arabella

SCOTT PICKEN

What to look out for

of financial & investment knowledge.

You may not want to leave

Is the CEO of IPS Invest & Wealth Migrate, he is an offshore investment specialist.

62 The Wintell Whirlwind Rises

JASON LEE

Intel is back

Has a BA LLB degree from the University of Cape Town & is a bestselling property author.

63 The Downsizing Dilemma Does it work?

JONATHAN SMITH

64 Selecting Innovative Leaders For Success

is the Director of Courtwell Consulting, he has extensive experience in property & education.

Is a matter of consciousness

TONY COLLINS Is a Commercial Property Valuer and Quantity Surveyor at Absa Capital Investment and Wealth bank & a well-known author. MARK BRADFORD

Printed by

Distributed by

Is the Chairman at Jones Lang LaSalle for Sub-Saharan Africa.

MONIQUE TERRAZAS Is a former winner of the Property Journalist of the Year at SAPOA, Monique is our treasured freelance writer. KOOS DU TOIT Is the CEO of P3 Investment group, he is an invaluable source of education and information on investing in property.

Published by REALE MEDIA Neale Petersen (CEO) B. Taylor

JOHN ROBERTS Is the CEO of The Just Property Group, he is one of the property industry leaders.

Tel: 021 674 5026 Fax: 086 627 2400 Email: info@realemedia.co.za Physical: Bizmall, Shop 3, Heritage House, 20 Dreyer Street, Claremont, 7700 Postal: PO Box 858, Howard Place, 7405

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Politics, Policy & Property The road to a brighter future

BUYING PROPERTY?

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Investing in retirement villages

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Heavenly Tenants How to find them

IRELAND & CANADA

Rent killing you!

Overseas investing made simple

How to save www.justpropertygroup.co.za

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INVESTOR TALK

BY ANGELIQUE REDMOND

Women, Nkandla & Land Reform This month is Women’s Month, a time to commemorate the freedoms we enjoy thanks to the brave women who refused to settle for anything less than equal rights! One particular property has certainly been making headlines: Nkandla. The long-awaited Nkandla documents have been made public and their political ramifications will be felt in the 2014 elections. The new Economic Freedom Front led by Julius Malema will certainly be making use of the giant white Nkandla in the room when it comes to trolling for votes. But will the President’s sore spot be enough to see votes heading the opposition’s way or does South Africa have a big enough rug for this to be swept under? Other breaking property news is the Expropriation Bill of 2013, which will allow the courts to decide the compensation payable for expropriated property. While this bill is better than its 2008 predecessor, it is certainly nothing to celebrate. The issue of land reform hangs in the air, having been a key point in the State of the Nation Address, as the Restitution Amendment Bill, which will see land claims prior to 1913 open, has been passed by the Cabinet, according to rural development and land reform minister Gugile Nkwinti. The property landscape seems to be on shifting ground and many are anxiously waiting to see the outcome of the new Bills and regulations. But, whichever way you slice it, South African property remains a vibrant, ever-changing industry and one that offers long-term wealth creation and financial independence in an economically uncertain time.

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Angelique Redmond EDITOR

PUBLISHERS FOREWORD According to our Property Professor, Francois Viruly, a property boom occurs around every 20 years and each boom is always bigger than the previous one. We have experienced one of the biggest economic slowdowns in history, but the good news - according to Viruly - is that it is time to prepare for a massive upward trend - albeit a slow but sure one. Viruly’s real estate clock indicates that we have moved out of recession into recovery mode and now we are on a slow road to market expansion. Some of the key trends driving future growth include the massive urbanisation and industrialisation in areas such as Burgersfort, Lydenberg and Saldanha, which have become important future growth markets. Major transport trends, including the growth of specific transport corridors in Gauteng as a result of Gautrain, as well as the MiCiti busses in Cape Town, are bringing massive changes to where people live and work. 2017 could be the year that we are sitting on top again, so prepare yourself to capitalise, otherwise you might miss out on a big party. Neale Petersen PUBLISHER

The most difficult thing is the decision to act, the rest is merely tenacity. The fears are paper tigers. You can do anything you decide to do. You can act to change and control your life; and the procedure, the process is its own reward. Amelia Earhart 1897- 1939 www.reimag.co.za

August 2013 SA Real Estate Investor

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INBOX Evictions

Buy-to-let

Commercial Renting

Meyer de Waal Oosthuizen & Co Meyer de Waal Attorneys www.oostco.co.za

Adrian Goslett RE/MAX www.remax.co.za

Peter Collins JHI www.jhi.co.za

Q

Duarte Longuinho Asks:

After taking four years to get an eviction order and executing it, the police ordered my body guards out the house after the eviction and the illegal occupiers were allowed back in, what do I do?

A

Meyer de Waal Responds:

After having obtained an eviction order from the court at great cost, in the event of the occupier(s) not vacating the property as ordered, the court may further issue a warrant of eviction, which must be served by the sheriff of the court. This must be done properly, failing which the whole process may be frustrated. The process to be followed is the following: The owner delivers the warrant of eviction to the sheriff, together with instructions to give effect to the warrant. The sheriff, at his discretion, may request assistance from the SAPS. When the sheriff evicts the occupiers, the owner (or someone trustworthy on his behalf) must immediately occupy the premises, armed with his proof of ownership and all the legal documents, of which the eviction order and warrant of eviction are the most important. Anyone (including any member of the SAPS or any other government body) who then attempts to deprive the owner of possession must then be confronted with the documentation and a refusal to vacate the property. The owner must have the number of his attorney at hand, to phone him/her should it prove necessary.

Q

Julia Barnard Asks:

When looking to buy a buy-to-let property, what questions should I ask before signing the offer to purchase?

A

Adrian Goslett Responds:

As with any investment, when purchasing a rental property, it is important to take your time and do your research to ensure that the property you are buying suits your requirements perfectly. Look at the property’s location. This is one of the most important factors to consider, along with the type of property you are purchasing. The area in which the property is located will have an influence on the rental income it can generate, as well as the property’s long-term appreciation. Neighbourhoods that are close to amenities such as schools and shopping centres will generally fetch a higher price. If you are unfamiliar with a development or neighbourhood, it would help to speak to tenants or owners who are currently renting and living there, as they will be invaluable in providing you with important information on the area. The type of property is also important as in some areas sectional title properties are more popular with tenants than freestanding houses, for example. This differs from area to area.

Q

Mike Ferrier Asks:

I am looking at renting a commercial building and I want to make sure that I end up with a good deal, before I sign a lease what questions should I ask/ clauses should I have in the lease? It’s for an office block.

A

Peter Collins Responds:

The first step is simple: do your homework! Research vacancies of similar grade properties in the area of your choice and periphery areas to establish the market rentals in the area. This information is available from most major commercial property management companies, commercial brokerages and landlords, or you can consult the latest Rode Report to see what the actual rentals are. Also check the ratio of operational expenses (common area security, cleaning, maintenance etc) which are passed on to the tenant, as well as the rates and taxes for the property which are also payable by the tenant. Ensure that rentals are quoted at a “gross” rate which should include operating costs and rates/ taxes. Parking rentals are quoted separately per basement bay, covered and open bay. Carefully inspect the Offer to Lease schedule which sets out the financial obligations of the tenant for any hidden costs, eg storage rental, refuse disposal, signage rental, additional charges. Ensure that the total capital outlay, including the rental deposit, is within your budget and affordability.

Do you have a property question you would like answered by our experts?

If so, post it on ASK THE EXPERTS on www.reimag.co.za or email editorial@reimag.co.za 6

August 2013 SA Real Estate Investor

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MASTER INVESTOR

BY NEALE PETERSEN

Meet JT Foxx – The World’s No. 1 Real Estate Coach And yes, he is already making deals here in SA! 8

August 2013 SA Real Estate Investor

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O

n meeting JT Foxx for the first time I was mislead into believing that he was an impatient young upstart who was all talk and little action. Well I was proven wrong almost immediately thereafter, as the more I got to know him, the more I saw the difference he is making in the world. JT is the real deal and is clearly an action man who is making an impact all around the world by showing people to invest in real estate immediately. JT does not enjoy idle note takers who will eventually take action instead he wants to help you to partner up and do deals immediately. In a matter of 4 to 5 visits in South Africa over the last 3 and half months JT has already made an impact here. He has already hosted a successful Mega Partnering event in Johannesburg recently for over 500 high quality people, and is holding real estate events around the world including here in South Africa but more importantly he is doing the deals. JT hails from Canada originally but now resides in the United States but spends most of his time his time doing real estate and business deals all around the world. Not everything has always gone JT’s way and he certainly was not born with a golden spoon in the mouth. He was a considered a misfit, a loser and troublemaker and a stutterer according to his introduction on his website. J.T. started investing with nothing more than a rusted out Ford pick-up truck, $974 dollars and one cheap suit. In just 8 years, he has already acquired and sold over 500 properties, closed over $50 million in real estate deals. He has turned into a serial entrepreneur and started several multi-million dollar companies all over the world. He has also become one of the most sought after motivational speakers and is recognized as one of the top wealth and real estate coaches in the world. He did this all by mastering the art of partnering, branding, networking, and marketing. J.T. is the syndicated weekend radio personality of the “J.T. Foxx Show” in the US and Canada and soon South Africa. Even though his recognition and success in business, real estate and radio continues to rise, J.T.’s true passion is coaching and reaching out to those who dream of achieving their goals by www.reimag.co.za

UPFRONT creating differentiation and thinking differently. J.T. teaches the same practical applications he utilizes daily that actually get results in today’s rapidly changing marketplace. The bottom line is his wealth techniques do actually work. J.T. is also the founder of Mega Partnering, the world’s # 1 Wealth Networking Conference which takes place all over the world and features celebrities, industry leaders, millionaires, and ordinary people looking to do extraordinary things in today’s market. It is the ultimate WOW of conferences; as people from all walks of life get together, network and try and do business together. JT Foxx is highly regarded as one of the Top Wealth Coaches in the world not because of his multiple successes in various industries but because of the results he has achieved for his clients and students. JT and his highly qualified coaches are full time entrepreneurs themselves and know that their legacy is dependent on your success. JT has 8 personal coaches that he uses for the growth of his own businesses and endeavours. JT never makes any decisions regarding his businesses unless he runs the idea by all of his coaches first. That is why he has made so few mistakes in building his businesses. He says a wise man learns from his mistakes while a genius learns from other people’s mistakes. Believing in that statement fully, JT often offers his personal coaches to his students when he feels they can help to take their lives and businesses to a higher level. JT’s philosophy is that “if it’s good enough for him then it is good for you.” JT is also good friends with Eric Trump and George Ross Donald Trump’s right hand man who is his personal coach. He met them through his first appointment on ‘The Apprentice’ but could not make the show due to unforeseen circumstances. One day he arrived at Trump Tower in New York without an appointment. He managed to negotiate his way from reception into George Ross’ office. The result was that George Ross eventually became his coach.

Real estate investing is back JT’s real estate philosophy is a simple but practical one and it goes with one theme “Buy Below market value”, not difficult to understand even for the first time investor. He says it is time to stop learning and start doing. He wants to interrupt

JT FOXX Personal Statistics Age: 33 Achievements: In just 8 years, he has already acquired and sold well over 600 properties, closed over $50 million in real estate deals and one of the highest paid wealth coaches in the world and also owns over 45 companies and brands

Close-up Mentors: George Ross, Donald Trump’s right hand man Books: Billionaire Lessons for the Small Investor Hobbies: Golf and doing deals Motto: The choices you make determine the reality of your outcome. The less excuses you have the more successful you will become. Success is all about speed of implementation and your surrounding yourself with people that are more successful than you. In the end you are who you hang around with.

“JT Foxx is highly regarded as one of the Top Wealth Coaches in the world”

August 2013 SA Real Estate Investor

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MASTER INVESTOR the entire real state seminar world and he says he best way to do that is to learn is to do deals. You need to know how to talk to them and how to deals. He says there are 2 types of real estate investors, one that works in their business and one that works in their business. He teaches anybody to work on their business invest in their local market. Many people’s wealth right here in SA and the world was wiped out either through the global financial crisis or through following bad investment techniques. Many people lost their retirement and were foreclosed upon even in SA where foreclosures were at an all time high here in SA. Real Estate was JT’s saving grace and he believes it is the only business where you can amass a small fortune without any of your money. He says that if it were not for real estate investing, he would not be the success and entrepreneur he is today. He has continued to invest aggressively for a number of years.

JT approach’s to teaching his students to JT FOXX SAYS HE EQUIPS INVESTORS WITH invest is totally action based. Most property THE FOLLOWING BEFORE THEY INVEST guru seminars usually have people sitting in a room the whole time, getting spoon-fed with 1 More knowledge than they ever outdated information and taking pages and imagined. pages of notes, and then what? He says all you did was kill a few trees and convince yourself that you must have got your money’s worth because your hand is hurting so much. But the next day or two, you wake up, and that’s when reality hits . Most real estate investors learn to be transactional where they learn “How” to make money in real estate rather than focusing on the “Why”. JT only spends around 10 minutes on a deal. While most so-called “experts” would debate amongst each other whether it was a good time to invest, whether there was a bubble, or if the market had hit, I ignored all the talk and simply followed Warren Buffet’s advice; “Up or down market conditions are irrelevant. You must create your own market.”

2 3 4 5 6 7 8 9

10 11

A predictable income blueprint. Predictable clients, leads and deals. Profitability from day one. Skills to build the brand, grow the brand and negotiate masterfully. Mentoring to do live deals based on facts and statistics. Holding yourself accountable. Learning how to get family support. Learning how to grow partnerships with capital. Becoming absolutely focused on the goal. Becoming more organised, efficient and in control.

RESOURCES www.buyingbelowmarket.com



COVER STORY

BY MONIQUE TERRAZAS

Shaping The Future Mega trends in commercial property

The world we live and work in is transforming rapidly, bringing about sweeping changes in the commercial property sector. We asked the experts in the commercial property industry to assist us in identifying the most important trends in the industry and found six mega trends that are shaping the future of the commercial property landscape. Six Mega Trends in Commercial Property 1. Efficient buildings 2. Future infrastructure development 3. Urbanisation 4. Technology shaping new consumer / employee dynamics 5. New hotspots arising 6. Expanding into Africa

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UPFRONT 1. Efficient buildings The mega trend towards more efficient buildings encompasses two distinct elements: the shift to “greener”, more resource efficient buildings, as well as a distinct move towards advanced facilities management. Property owners and landlords on the cutting edge of this trend enjoy a competitive advantage in a tough market: the ability to offer tenants reduced operating costs and streamlined, efficient building management that controls ownership costs. Such a competitive advantage is particularly important in the current market, with rising utility costs becoming a major issue for tenants, while owners also face property costs that are increasing well in excess of inflation rates. Property owners will soon also face a new cost challenge: carbon tax. Given that buildings contribute 38% of all human greenhouse gas (GHG) emissions, the property industry will be among those industries most affected by the introduction of carbon taxes. And, as buildings consume some 40 - 50% of the world’s energy, commercial property owners will certainly feel the impact of carbon taxes directly as Eskom passes the carbon tax imposed on it through to the end users, at an estimated 5c/kWh. Even if landlords pass this additional cost onto their tenants, the repercussions can be significant in a tough rental market. Commercial property developers will also be affected in terms of building materials – notably cement, on which the carbon tax cost will be an estimated R1.50 to R3 per bag, depending on the grade.

of the Green Building Council of South Africa (GBCSA) has not only highlighted the benefits of this trend but has helped the property sector to align themselves with it. Over many years of research across many buildings which we value and assess, we have found a significant difference between the operating costs of standard and green buildings.” BUILDING TYPE

STANDARD OPERATING COST (per square metre)

GREEN-BUILDING OPERATING COST (per square metre)

Regional retail

R47

R33 - R38

Community retail

R36

R27 - R31

High-rise offices

R27

R15 - R20

Low-rise offices

R19

R12 - R15

Industrial mini-factory

R14

R8 - R11

Source: Courtwell Consulting Smith adds that while this trend is most noticeable among premium listed and private equity property funds, smaller property funds can become part of the trend towards greener buildings by taking cognisance of the information published by the GBCSA and engaging professionals aligned to green principles.

Given these realities, the generally accepted three to five percent premium on building a fivestar green building, as well as the costs involved in retrofitting existing buildings with resource efficient technologies, is certainly starting to make financial sense.

Similarly, facilities management is rapidly emerging as a key contributor to containing costs and achieving savings – while enhancing the value of commercial property. According to Marna van der Walt, CEO of Excellerate Property Services: “The integration of effective facilities management in the commercial property sector has an increasingly relevant role to play, not only in addressing energy saving, waste recycling and minimising the use and pollution of water, but also in regard to green issues during both the construction and use phase of a building. By reducing operating costs landlords have the potential to achieve a higher rental rate while keeping the tenant’s occupation costs unchanged and also helping retain tenants.”

“The additional capital outlay to develop more energy-efficient buildings, or to convert existing buildings, is recouped within the first two to three operating years and, thereafter, landlords, tenants and the environment benefit from the savings in costs and emissions,” comments Jonathan Smith of Courtwell Consulting. “Our findings are that property funds and major developers are including as many green features as possible within their new and existing buildings and that tenants are acutely aware of the benefits of housing their businesses in a green or semi-green building. The establishment

“The current emphasis where facilities management can add significant value is in helping property owners and tenants to address wasteful and unnecessary practices which have a negative impact on the environment,” says Sulayman Abdullah, CEO of Excellerate Facilities Management (EFM). “This provides a tremendous opportunity for the astute facilities manager. Action steps with regard to energy saving, waste recycling and minimising the use and pollution of water are simply no longer sufficient. Facilities managers are expected to

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provide guidance and to implement action steps on the full spectrum of green issues during the construction and use phase of a building.” He says the starting point is the acknowledgement that during their lifecycles, buildings use a significant amount of natural resources, and the ‘use’ phase of a building’s lifecycle accounts for as much as 85% of its total impact on the environment. As a result, facilities managers have the opportunity to implement strategic plans for buildings under management, partnering with landlords to compile appropriate action plans in regard to energy savings - which in turn will effect savings for landlords as well as tenants.

2. Future infrastructure development Government ’s focus on infrast r uct u re development will also significantly change the landscape of the countr y. Propert y owners and investors will do well to take note of the long-term effects these new infrastructure developments will have on the spatial development of cities and rural areas, particularly in relation to mass transport. Faced with rising fuel costs, ongoing traffic congestion and the proposed new tolls, Johannesburg’s business sector continues to focus on office accommodation which enables tenants to meet their requirements for secure, quality space coupled with convenience of location for easy access for staff and clients, says Jonathan Klimek, leasing and sales broker for JHI Properties in Gauteng. “Increasingly we see that the emphasis, particularly among businesses with a large staff complement, is on buildings situated in convenient locations with good infrastructure and access to public transport. This is becoming more evident amid rising fuel prices and the proposed toll system,” he says. Johann Boshoff, MD of JHI Properties says: “In the industrial property market, transport issues are having a significant impact on the choice of location, and easy access to major transport routes are even more imperative bearing in mind high fuel costs and Gauteng’s e-tolls. Certain nodes remain sought after, especially traditionally popular industrial areas with good infrastructure and access to transport routes.” “Public infrastructure development is a recognised economic stimulant for private sector investment in an area. This is particularly August 2013 SA Real Estate Investor

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COVER STORY true in the property development sector. Although there are a number of other factors such as location, population, catchment area and a local economy, strategic public infrastructure investment can stimulate development in the medium and long term. A case in point is the Gautrain, where commercial nodes around the Gautrain’s stations have seen intensive mixeduse redevelopment taking place in the immediate areas around the stations. Proximity to the Gautrain stations has been a major component of the demand for office space in the areas close to the stations,” comments Paul Barrow of The Barrow Group. According to Courtwell Consulting, while government has in recent years announced several infrastructural upgrades, the roll-out of the entire programme seems to remain very slow. “Unless government employs more skilled decision-makers within its ranks – a process which in itself will take several years – the implementation of its ambitious infrastructure plans will be thwarted by the lack of skilled personnel,” comments Smith. “This means that infrastructural roll-out could remain very slow for at least five years to come which will, in turn, curtail our private sector’s ability to establish and grow new nodes. Our private sector can, however, anticipate eventual infrastructural roll-out by building land banks of virgin land surrounding the intended roll-out areas and, as time and funds permit, procuring the necessary town planning and development rights, so they are ready to act when new infrastructure comes on stream.” “When looking at the nodes around the Gautrain stations and the impact this recent infrastructure development had on property prices, we observed that when combined with an already positive buoyant market, new infrastructure had a positive effect and that these areas outperformed the surrounding areas when comparing price per square metre. But in other areas, the infrastructure development did not translate into the same outperformance. Property investors should therefore evaluate all the other factors that will interact with the new infrastructure development when making investment decisions,” cautions PaulRoux de Kock, Analyst Director: Lightstone.

3. Urbanisation The fast-growing middle class is quickening the trend to rapid urbanisation across Africa, and the influx of people into the cities not only poses major challenges for authorities, but will also significantly alter the urban landscape. 14

August 2013 SA Real Estate Investor

The Barrow Group believes that rapid urbanisation offers great opportunities for property development as the influx of people generates greater commercial activity which then drives the demand for retail, industrial and commercial office space. “However, other pressures arise in managing growing populations in confined urban areas,” says Barrow. “Improved public infrastructure and facilities are needed to handle both the growth and densification of the urban population. Decisive and positive government involvement in the provision of adequate baseline infrastructure and services is needed to provide a stable economic setting in which property development in the private sector can flourish.” Coutwell Consulting notes that the most recent census conducted in 2011 indicates that the rate of urbanisation locally – especially within the greater Johannesburg and Cape Town precincts - is of such significance that this mega trend has been underestimated by a long shot. “From the available statistics, it is immediately evident that Gauteng is the most attractive economic destination in South Africa, followed by the Western Cape, and that our largest population group consists of children. As urbanisation continues, therefore, more children will reside in and near the economic hubs. They will require housing, schooling and tertiary education. This creates an obvious opportunity for commercial landlords to develop private schools and colleges and to encourage the establishment and housing of small businesses in the secondary and tertiary business sectors.” According to Lightstone, a related trend that is internationally apparent is the move towards urban regeneration and renewal. “South Africa is no exception. If urbanisation happens in conjunction with successful urban renewal projects it can pose a unique opportunity for property investors if they can invest ahead of the curve,” comments de Kock.

4. Technology shaping new consumer/employee dynamics As advances in technology changes the way we work, play and shop, property owners and investors need to understand the longer-term implications for retail, industrial and office property. According to Cour t wel l Consu lting, this mega trend has created two noticeable opportunities. “Firstly, this mega trend has made

working from home a very real possibility, with employees working remotely while maintaining communications via email, Skype and mobile. In our experience, it results in an immediate rise in productivity, as employees avoid spending hours in the traffic and are less involved in office politics. Secondly, it has spurred the development of mixed-use precincts, such as Melrose Arch and the V&A Waterfront, although the opportunity for commercial property developers is to establish middle-class mixed-use developments so those within the LSM 5 - 8 range can live and work within close proximity as well,” comments Smith. Courtwell Consulting believes that this trend will change the dynamics of commercial property, as offices become meeting venues rather than production venues, with extensive environmental benefits. It is already happening - traditional offices are morphing into new concepts as employees are increasingly mobile, the trend of Bring Your Own Device (BYOD) reshapes how offices are configured and furnished, and office sharing becomes popular. The office sharing trend is evident in the results from the Global Coworking Survey, the largest annual authoritative survey around office sharing, which noted an 83% increase in the amount of office sharing spaces compared to 2012. In line with this workspace revolution, Cube Workspace has announced two more multi-million rand investments in Woodstock, Cape Town and Bryanston, Johannesburg in 2014 on top of an existing R82 million spent in providing fully serviced office villages in the Cape Town CBD and in Kyalami, Gauteng. These contemporary, custom work environments provide convenience as well as economic benefits to business owners, who can save up to 52% on their operational costs by lowering overheads through sharing amenities such as a welcome area, group receptionist and office concierge, as well as state-of the art meetings facilities and canteens, and enjoy the cost benefits of a combined utility bill for electricity, Internet, air-conditioning and telecommunications. On the other hand, The Barrow Group notes a requirement for smaller office space in the A-grade sector. “Not many developers cater for this, however there’s a demand among many wellestablished smaller businesses to entirely lease an office building for themselves alone, to give them a presence that is not diluted by sharing with other www.reimag.co.za


UPFRONT companies. Some older office buildings that were designed for a single tenant are currently being divided because it reduces risk and increases the likelihood of finding tenants sooner.” The new “live, work” concept is driving mixeduse environments with secure residential estates and office parks developed together in lush, green spaces. “As the pace of life seems to relentlessly gather momentum, traffic congestion persists and time is a highly valued commodity, the trend towards living in close proximity to work continues to increase. In line with this, says Klimek, businesses are placing a growing emphasis on providing a secure work environment in pleasant and easily accessible surrounds for staff and clients. “We are seeing a new trend towards a lifestyle where one can reside in a lush and secure residential estate or area but with offices in an equally appealing, leafy environment close by. In this way the live, work concept is not limited to the more densely inhabited urban areas but is transported to a more tranquil environment offered by office parks with sprawling lawns, landscaped grounds and soothing views – away from the hustle and bustle of busy city life with its heavy traffic and constant noise,” says Klimek. The Barrow Group concurs: “The demand for office space in decentralised, safer and more upmarket suburbs continues, and is a global phenomenon. Proximity has always been crucial and continues to be so. The demand in Bryanston, where lower-rise offices are the norm, is to be located in a hub that has easy access to the surrounding residential area. It’s about working in close proximity to where you live.” Selwyn Sharon, leasing, sales and investment broker for JHI Properties, comments: “Looking back over the past two decades, it’s evident that requirements for office accommodation have changed considerably. Businesses want to be located in a pleasing environment with secure parking for their staff and clients. Considering that these days, many people spend a great deal of time at work, often outside what were previously considered conventional working hours, these added comforts become even more important in retaining quality staff.” Klimek adds that a growing desire for cost efficiencies may see businesses increasingly gravitating towards refurbished buildings or modern buildings which allow f lexible www.reimag.co.za

configurations which enable the most effective utilisation of space. But technology is not only driving change in the office market. Online shopping and omni channel retailing is changing the face of shopping centres, as well as industrial properties such as warehousing and distribution.

development of a number of new transport corridors, open up opportunities for commercial development in the surrounding areas, creating new investment hotspots. While Johannesburg was traditionally regarded as the investment hotspot and the business hub of Africa, this is changing as cities such as Cape Town and Durban, and even areas such as the Eastern Cape, step up their game to offer investors some interesting alternatives.

“Shopping is evolving rapidly,” says South African Council of Shopping Centres CEO Courtwell Consulting notes that these new corridor Amanda Stops. “Malls and shops are becoming developments act as a catalyst for other new real more showcase and less stockroom. Imagination estate development, which typically follows the and innovation are driving the latest advances nodal development pattern detailed below. in the competitive and A catalyst presents property development opportunities changing retail landscape.” This is also evident in the global trend towards a new retail paradigm: omni channel shopping. The Limited residential development then follows growth of retail ecommerce continues unabated with global sales exceeding $1 Limited social development (including schools, medical centres and places of worship) trillion in 2012. While South Africa lags behind in the online retail stakes, Retail development follows as vast numbers of local consumers use the Internet as a storefront to look at the products they wish to buy, but still purchase in store, More extensive residential developments are then practical ecommerce is growing rapidly locally and experts predict a shift in its favour More extensive retail development then becomes feasible by 2014. Examples of new transport corridors which have And as online retailing grows, so will the given rise to new property hotspots include the demand for distribution and warehousing Gautrain corridor; the road link network between space. JHI Properties are already reporting an Pretoria and Nelspruit; the road link to Richards encouraging trend evident in the commercial Bay along the north coast of KwaZulu-Natal; and property market: an increasing number of the Rustenburg Rapid Transport system. The new enquiries for distribution and warehousing space. King Shaka airport on the north coast of KwaZuluKlimek notes: “A noticeable trend of late is a Natal, as well as the proposed iDube trade port (in concerted drive among larger distribution users line with international development trends) and to modern, dust-free space with good lighting, all associated the multi-billion rand Wewe Driefontein of which is conducive to the storage and handling mixed-use development, is considered the most of goods. However, this is coupled with the key significant catalyst for future property development imperative of being well positioned and easily in the area. accessible to key transport routes and off-ramps, as this has a significant impact on travel time and Durban itself is also being recreated to become again transport costs - all critical factors in terms of the beautiful and vibrant beachfront destination it logistics. They also seek generous yard space, for once was – following a multi-million rand investment ease of handling and transportation.” and intensive focus from the eThekwini Council.

5. New hotspots arising Infrastructure development, including the

Many new opportunities will be opened by future planned transport and infrastructural developments August 2013 SA Real Estate Investor

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COVER STORY between Durban and Johannesburg, such as the development of Cato Ridge on the eastern coast as a dry port; the construction of a dug out at the old Durban airport site; the extension of commuter rail network to reach Pietermaritzburg; the development of Harrismith as a logistics hub and the setting up of several logistics hubs throughout Gauteng. In addition to being a renowned tourism destination, Cape Town’s reputation as a global business destination is being boosted by the new IRT (Integrated Rapid Transit), a major expansion of the highly successful Cape Town International Convention Centre, a host of urban regeneration projects as well as the city’s infrastructural investment in new fibre optic cabling which will make Cape Town a top technologically attractive base for new business ventures and will encourage further investment in the city’s CBD. In the Eastern Cape, Coega is attracting business to the region. Outlying towns in the Eastern Cape such as Sterkspruit, and Mthatha and Tsolo in what was formerly known as the Transkei, are experiencing an increased demand for retail space, reports Amanda De Lange, portfolio manager of JHI Properties, based in Port Elizabeth. “It appears that national retailers, who may perhaps have saturated the market in major centres, are now looking at outlying areas with potential,” says De Lange. “All this provides many value creation opportunities for investors in the property sector but, where long-term profit and value remain the motive, it is imperative for us to ensure that our financial models are accurate,” comments Smith. “Also remember that private sector participation in nodal development is the significant factor that eventuates its success. But while public sector involvement is necessary to facilitate harmonious township development, the private sector is the source of both capital and skill, the two injections which real estate craves.” This trend is also being fuelled by the rejuvenation of decaying suburbs and the creation of vibrant, thriving nodes within city areas. “Obvious success stories include Maboneng Precinct and Melrose Arch in Johannesburg, Century City in Cape Town, Gateway’s Newtown centre in uMhlanga, KwaZulu-Natal and St Georges Mall in Cape Town’s CBD,” comments David Reid, investment sales broker for JHI Properties in Gauteng. He adds that these new 16

August 2013 SA Real Estate Investor

hotspots or precincts may grow from natural town planning parameters such as Rosebank, Newtown and the Johannesburg CBD, but it could also be consciously superimposed on an area, such as Melrose Arch, Canal Walk and Century City. It may arise from a particular requirement, for example, student accommodation in proximity to educational facilities, such as in Braamfontein in Johannesburg and Hatfield in Pretoria. Or it may arise from an assembling of land opportunities or the purchase and redevelopment of old properties, but with a central vision and the creation of a unique identity. Very often the development of a hotspot is driven by developers who recognise the potential positive aspects of a precinct and that development land is earmarked and gradually triggered by incoming trends.

6. Expanding into Africa Africa is undoubtedly the new investment frontier. Africa’s population of 1 billion people, and along with those in China and India, will comprise 56% of the global population by 2050, with young people dominating. Poverty on the continent has also fallen, so consumers have more money to spend. This new African consumer market presents the business opportunity of the future as some experts expect African consumer expenditure to rise to US$1 trillion by 2020. Given the many challenges the country currently faces, the focus in Africa no longer falls on South Africa. Many retailers, developers and landlords are looking north to new opportunities in African countries with exciting growth rates, rapidly growing middle classes and fast expanding cities. According to RMB’s Global Markets Research Report ‘Where to Invest in Africa 2012’, the four most attractive investment countries on the continent, based on market size, market growth and operational ease, are in North Africa - Egypt, Tunisia, Morocco and Libya. Courtwell Consulting notes that while both expensive and risky, property development within Africa remains a definite mega trend. “My own consultancy interacts on a weekly basis with African countries enquiring about local companies who wish to participate in developmental ideas across Africa. The recession of 2008 and 2009, as well as the subdued investment climate that has prevailed since then has, of course, dampened this spirit extensively, but countries such as Namibia, Ghana, Mozambique and Kenya actively seek South Africa’s involvement in their commercial property environment,” says Smith.

“Some of the major players have developed a model for retail developments in African countries which combine finance, construction, shopping centre development and tenant mix strategy and are able to replicate this model with relative ease. Nevertheless, it remains a very difficult market to enter for small to medium landlords, as the initial capital required is very high and a single act of corruption can claim one’s investment overnight. The opportunity for small to medium investors, therefore, lies in approaching the existing players and becoming equal partners - under a watertight and soundly-drafted joint venture agreement which permits a buyout in time to come.” While there are different types developments, the big focus in most of Africa is retail. In response to the great demand for formal retail, the best formats in Africa currently are convenience centres with small lifestyle components ranging from 10 000m² to 30 000m² and a focus on basic needs - food, furniture and clothing. Some markets are seeing an increasing introduction of leisure components and luxury offerings as consumers become wealthier, more sophisticated and tastes evolve. South African retailers, notably leading retailers including Shoprite and Massmart, recently acquired by Walmart, are driving commercial development in Africa. As they expand so does the need for retail and office space in cities across the continent. The retail boom across Africa is also driving the demand for distribution warehouses. During a presentation to a recent global retail conference in London, organised by the International Council of Shopping Centres (ICSC) and Thompson Reuters, Belinda Clur, managing director of Clur Research International, said the demand will accelerate, based on business feasibility studies she has conducted in Africa and interviews with a spread of retailers, shopping centre and hotel investors and shopping centre service providers in the rest of Africa. While there are many tough challenges in Africa, such as the lack of proper land registries in many countries, which makes it difficult to acquire land for new developments, as well as the vast work that remains to be done to improve the business and economic environment and transparency levels across the continent, South African property developers will soon face stiff competition from global players that also want a piece of the pie. www.reimag.co.za


CAPITAL PRESERVATION AT ITS CORE Prescient Investment Management is a leading quantitative asset manager, headquartered in Cape Town with additional offices in Dublin, Windhoek, Johannesburg, Pretoria, Durban and Stellenbosch. Prescient also has a representative office in Shanghai and we were the first asset manager in Africa to be awarded a QFII (Qualified Foreign Institutional Investor) licence to invest directly into China. Founded in old stables, Prescient has evolved into a global player. It has been 15 years since we opened our doors for business, offering to the market our unique quantitative approach to asset management. With capital preservation at the core, Prescient’s investment philosophy is simple: PEACE OF MIND. At Prescient Investment Management we aim to give our clients a level of certainty around their investment outcomes, with a commitment to achieve no less than the agreed risk benchmark, and thereafter to look for opportunities to add value over and above this benchmark. We do not merely diversify risk: risk is measured and managed holistically using proven quantitative techniques. Our systematic approach to managing risk is scalable and enables us to replicate our investment process across all markets. When it comes to implementing our process, we adopt a team-based approach and consistently work together in a streamlined manner. Each of us understands our clients’ risk tolerances and this knowledge helps us to meet their expectations of not losing capital. Prescient aims to deliver only the highest quality of service, and hence we do not outsource our portfolio administration. Retaining our own administration provides us with full control of our service delivery and allows us to monitor service quality across all areas of business, thus remaining fully accountable to our clients. Prescient Investment Management has been named Absolute Returns Manager of the Year at the 2013 Imbasa Yegolide Awards for Professional Excellence, hosted by the Principal Officers Association (POA) to acknowledge outstanding service delivery and leadership in the industry. Prescient previously won the Overall Investment Manager of the Year Award at the 2011 Imbasa Yegolide Awards.

RANGE OF INVESTMENT PRODUCTS Unit trUsts Local Funds Offshore Funds retirement solUtions Living Annuities Retirement Annuities Preservation Funds Umbrella Funds Private WealtH manaGement Email: info@prescient.co.za

The animal sculptures were created by visionary South African artist, Beth Armstrong. Never deviating from formation, geese always stick to their flight path. That way, they manage to migrate successfully year after year. Prescient doesn’t zig or zag either. When it comes to investing, we consistently work together, allowing our clients’ investments to grow successfully. Like geese, we also adhere to a team-based approach, working together to reach new heights in the most efficient streamlined way.


NEWS ALERTS

BY MONIQUE TERRAZAS

In Property News This Month The Good

The Bad

The Ugly

SA House Price Growth Ranks 3rd Globally

The New Expropriation Bill

Construction Sector Collusion

According to a recent analysis in The Economist, South Africa now ranks in third place in terms of global house price growth, with 11.1% yearon-year growth over the last 12 months and 18% growth since the fourth quarter of 2007. South Africa’s year-on-year growth performance is exceeded only by Hong Kong with 24.5% and Brazil with 12.8%. In terms of growth since the fourth quarter of 2007, South Africa’s performance is on par with that of Canada (18.3%), and is exceeded only by Hong Kong (109.4%); India (88.8%); Singapore (24.8%); and China (20.4%).

The Expropriation Bill of 2013 is better than its 2008 predecessor, in allowing the courts, rather than the state, to decide the compensation payable for expropriated property. However, according to Dr Anthea Jeffery, Head of Special Research, South African Institute of Race Relations (SAIRR), in practice this improvement is likely to be negated by other aspects of the Bill, in particular, that it allows hundreds of organs of state to take ownership and possession of property by simply giving notice to the owner, before the state has shown that all relevant constitutional requirements have been met and before any compensation has been paid. In addition, it fails to recognise that, where expropriated property includes a person’s home, any eviction requires the express authority of the courts. Hence, the option of applying to court to decide a different measure of compensation is likely to benefit only those with deep pockets, who, despite the loss of their property to the state, can afford lengthy litigation with no guarantee of success. As such, the Bill undermines the right of access to court.

The Competition Commission has fined 15 major construction firms a combined R1.46 billion for ‘rampant’ collusive tendering in projects between 2006 and 2011. In a fasttrack disclosure process, the Commission had applications for settlement from 21 companies, revealing collusion at meetings to inflate the price of tenders and to allocate contracts among themselves, or anticompetitive behaviour relating to more than 300 projects. The total value of these projects is an estimated R47 billion, R28 billion related to public sector contracts and R19 billion related to private sector projects. Three firms which did not accept the settlement offer - Group 5, Construction ID and Power Construction - will reportedly be prosecuted.

The analysis reviewed 18 countries of which 12 have experienced growth in prices, including Britain, with a 0.9% year-on-year increase and the US, where house prices are up by 9.3% yearon-year. The six countries that have experienced negative growth are France, Japan, Ireland, Italy, the Netherlands and Spain, where prices are down by 7.7% year-on-year. To judge whether prices are at sustainable levels, the analysis also considers the price-torent ratio (analogous to the price-to-earnings ratio used for equities) and the ratio of prices to disposable income per person (a measure of affordability). If these gauges are higher than their historical averages, property is overvalued; if they are lower, it is undervalued. In relation to rents, South Africa’s residential property is undervalued by 2%, indicating room for further growth. In relation to incomes, it is overvalued by 10%, but this still compares favourably to those of Australia (24%), Canada (32%) and France (34%), all of which are likely to see big downward adjustments in the coming year.

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August 2013 SA Real Estate Investor

While government claims that the Expropriation Bill is needed to speed up land reform and correct a great historical injustice, 92% of successful land claim beneficiaries have opted for cash rather than the return of their land, as they have no wish to farm. In addition, between 50% and 90% of land reform projects have failed. By its own admission, government has spent billions in taxpayers’ money to take hundreds of farms out of production, costing thousands of jobs and billions more in lost revenue.

“Collusion represents a negative impact for our members in the form of escalated development costs and reduced yields, with knock-on impacts for demand in the economy and the growth of the property sector,” says Neil Gopal, CEO of SAPOA. He adds that SAPOA is unable to remedy the losses potentially suffered by its members but will continue to lobby regulators to ensure these practices are eradicated. Nevertheless, companies involved are bound to face a litany of civil actions claims. Government intends to institute civil claims and Economic Development Minister Ebrahim Patel stated that government departments that had suffered losses were entitled to take this up with companies involved. Durban, which, like other cities, paid a huge price for its World Cup stadium, has already said it will seek to recoup what it has lost. Patel said that the claims could amount to almost R2 billion.

www.reimag.co.za



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REI Residential

Building Communities Together

No Profit From Electricity Allowed

Cost Of Living Dampens Property Market

Government will in future involve beneficiaries in the planning and building of the communities in which they live, says Deput y Human Settlements Minister Zou Kota-Fredericks. Census 2011 revealed that over 1.2 million households were living in informal settlements. This was an increase of almost 20 percent since 1996. Addressing a National Upgrading Summit in Khayelitsha, the Deputy Minister said government would change its approach in providing communities with housing. “We are now changing our approach to allow for more f lexibility, more creativity and more humanity in the way in which we work with communities around shelter.” She said this meant that government needed to become more flexible and creative in its responses to informal settlement upgrading.

Johannesburg landlords have been warned that they are not allowed to profit from electricity sales and they are not allowed to pass on City Power’s service charge of R385 to tenants. In a landmark ruling, the Gauteng Rental Housing Tribunal found that landlords charging tenants an electricity “service charge” violated the Gauteng Unfair Practices Regulations and the practice amounts to a profit that they were not entitled to make. The Socio-Economic Rights Institute of South Africa (Seri) represented 80 tenants of a block of f lats in Hillbrow called Plettenberg who were being charged R385 each for the electricity service fee. This meant the landlord, Young Min Shan, was raking in a profit of R27 000 a month.

According to the latest statistics released by BetterBond, the national average home price has shown positive growth of 9,3% in the year to end-June, compared with just 3,7% in the previous 12 months. However, the BetterBond statistics also show that the average home price increased by just 1% in the June quarter, compared with a 6,6% increase in the first quarter of this year. “This clearly illustrates the dampening effect that high cost-of-living increases are having on the real estate market,” says BetterBond chairman Rudi Botha. “In the past three months, the extra funds injected into household budgets by January salary increases and February personal ta x cuts have been absorbed by sharp increases in the cost of transport (especially fuel) and utilities (especially electricity).

Residential Views

Adrian Goslett, CEO, RE/MAX

Johann le Roux, Executive Director, Propell

Michael Bauer, General Manager, IHFS

“It only takes potential buyers a few minutes to decide whether they like a property or not. As with most areas in life, selling a property is all about making a good first impression.”

“While being elected a trustee of a sectional title scheme is often seen as an onerous and time consuming job, those who do take up these positions should be commended.”

“Many people who apply for bonds do not know the full process involved nor do they have a full understanding of the banks’ lending criteria and why they are so stringent.”

www.reimag.co.za

Sean Liebenberg, Executive, Excellerate Facilities Management “Over the past decade, ‘green’ building has emerged as a growing trend among a vigorous interest group to create high-performance, energy-efficient structures that improve tenant and/or owneroccupier comfort.”

Michelle Dickens, MD, TPN “It’s the first week of a new month. Rent is usually due on the first, which can lead to tension. We’ve been seeing quite a bit of excitement on Twitter, with tenants reporting using words that aren’t suitable for sensitive readers.”

August 2013 SA Real Estate Investor

21


GETTING STARTED

BYJOHN ROBERTS

To Gate Or Not To Gate...

G

Is community life for you?

ated communities have become the accepted, and often desired, form of homeownership in the 21st century with buyers increasingly prepared to pay the premiums associated with living behind guarded security or access-controlled gates. Consequently, gated residential communities and garden apartments are the t ypes of developments most likely to be the new ones coming to the market. While composite South African figures are not as easily at hand, US statistics show these types of properties have grown from only 2000 in the 1970s to more than 50000 by the new millennium. That equated to around 6% of that country’s households living behind walls or fences with about half of them in communities where access was controlled by gates, entry codes, key cards or security guards. In essence, gated communities have several common elements. Gates and fences provide the perception of security, safety and privacy - and in affluent neighbourhoods, privacy means exclusivity and thus higher property values. Adding weight to the argument is that a automatic gate system or private security access boosts the property value regardless of whether or not it actually impacts on crime in that area. Facing facts, everyone wants to feel proud of their environment and including the element of a gated community to the home address can offer prestige akin to a private club where access privileges are required and the real benefits of crime prevention are a bonus. To a lesser extent, gated communities may also offer buyers the opportunity to purchase a more modern home than those found in established areas, simply because the homes found in those communities are newer than the freestanding ones in the neighbourhood.

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August 2013 SA Real Estate Investor

There is also the opportunity for sharing the costs associated with expensive facilities - tennis courts, swimming pools, convenience centres and stables and equine facilities are ones that come to mind. These are items many property owners would be unable to afford individually, but in pooling resources and opting for communal living, can become accessible. Not often considered is that gated communities also aid safety measures for the neighbourhood. The body corporate can erect speed bumps and enforce lower-than-typical speeds on the roads as

“Gated communities and garden apartments are developments most likely to be the new ones coming to the market” measures for residents’ safety, particularly children. They also foster a sense of togetherness - a feeling of unity and the unspoken understanding that neighbours will look out for their peers, standing aside one another in times of need or fighting together for common causes. Those luxuries come at a price with levies generally covering communal water, rates and taxes, security, common property maintenance expenses and community employees should that be applicable - working out higher than the individual costs associated with a freestanding home. The municipality may also deem the road infrastructure within the gated community as private property, meaning the onus for repairing potholes and maintaining the network falls to the residents as a cost above the taxes already collected for upkeeping the country’s streets. Homeowners in both freestanding properties and gated communities or f lats are billed individually for their rates, lights and water use

in line with recent changes to the Sectional Title Act and local municipalities’ requirements. The question then is just how much more homeowners are prepared to pay for living in gated communities against those opting for freestanding properties. While not backed by qualified, independent data, the figures emerging from estate agents show a property within a gated community can command a 10-15% premium on a similar freestanding home. That equates to roughly R50000 on a threebedroom house, yet for a buy-to-let investor, there is the possibility of recouping some of that higher capital outlay in higher rentals. On average, rental income is around 20% higher in gated communities with the tenants gaining a sense of value for money, security and the assured serenity made possible by the relevant rules applying to that community. However, the elephant in the room (or the gated community) is the perceived security. Reality has shown security in gated estates is not as efficient as projected or perceived with many of the crimes committed undertaken by the residents themselves. In high-end property developments, the issue of bored, drug-taking youths has become something many have had to tackle while hoping it does not rear its head too high as to be noticed. Essentially, while in most cases it is possible to minimise and control crime in gated communities, it can never be wholly removed. Developers put into place every conceivable means to limit crime from external sources, but the inside responsibility becomes that of the owners and the body corporate. That means there is still place for locking motor vehicles; not leaving valuable items exposed on car seats; locking the house doors and installing burglar alarm systems and burglar bars.

RESOURCES Just Property Group www.reimag.co.za


CUS T

CE VI

R SE R ME O

PROPERTY GROUP

EXCELLENCE


FINANCE

BY JASON LEE

Simple Steps To:

Negative gearing and negative equity

T

he truth about the buy-buy-buy-andnever-sell philosophy is that it could make you catastrophically poor before it ever makes you wealthy. Most property investors start off by investing in a buy-to-let property, such as a flat or a townhouse. Given that interest rates in South Africa are high in comparison to most First-World countries, it is very difficult to find deals in which the tenant covers the bond repayments from the start of the investment. This is particularly true if the investor gears the property highly through a 90 to 100 per cent bank loan. This means that the investor is in a negative cash flow position, which becomes even more dire once rates and or levies and maintenance costs are deducted from the monthly income. The investor may be short on the deal by one to two thousand rands per month. Then he or she decides to buy investment property number two. Once again, the rent is usually not sufficient to cover the bond repayments and property expenses, so that the investor finds himself one or two thousand rand short on the second property, too. The investor may repeat this a third time, and then a fourth time, and so on. The net effect of this investment approach is that the investor may be able to brag about owning five or ten properties, but in reality he or she is living mere seconds away from disaster on a day-to-day basis, because he or she is asset rich, but cash flow poor. This investment approach is what is known as the negative gearing approach to property investing. Negative gearing is the term used to described deals in which your income does not cover your bond repayments each month. Investors who follow this approach do so because they believe that the eventual capital appreciation of the property will far outweigh the cash-flow shortfalls and constraints in the interim. They also argue that tax write-offs mean that the government is assisting them in the ownership of the property.

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August 2013 SA Real Estate Investor

A belief that capita l apprec iat ion w i l l out weigh cash f low shortfalls may be well founded, as histor y shows that property prices always exhibit an upward trend over the long term. The problem is that there is a school of piranhas out there that is viciously attacking your cash f low every month and, as in any other business that has a cash flow problem, it usually doesn’t take long before the piranhas win. Besides cash flow issues, there are a myriad of other problems that can present themselves in the property ownership business. True disaster strikes when they all hit you at the same time. These problems can range from non-paying or absconding tenants to interest rate rises, to property owners losing their jobs or their business getting into f inancial diff iculty. Suddenly the shortfalls become unmanageable and unsustainable. If hard times strike in the middle of a depressed property market, investors who bought properties based on a negative gearing approach have a massive new problem to contend with – something called negative equity. Simply put, negative equity occurs when the value of a property that is used to secure a loan in the form of a bond over the property is less than the outstanding balance on the bond. Once this situation arises, the bank owns you, because they can prevent you through an interdict from selling the property for an amount that is less than what they are owed. They can also foreclose on the property, recover what they can on public auction, and hold you liable for the shortfall on this property, although you no longer own it or receive income from it. This is the ugly face of negative gearing, which has crippled thousands of property investors when times get tough. So, holding on to property for the medium to long term is a sound strategy if you are looking for solid capital

growth, but you will only enjoy capital growth if you are able to weather the short- to mediumterm consequences of property ownership. Unfortunately, this is where many property investors get it horribly wrong. However, gearing can be your best friend and help you on the road to unprecedented wealth if you are able to manage it properly. I would like to reiterate that I would not be in a position today to write books on property investing if it were not for the banks and the money they lend investors for buying property. I have been at the coalface of doing property deals in the best and the worst of markets. I have tasted the joys of positive gearing and the absolute despair of negative gearing,.

This excerpt has been taken from Jason Lee’s new novel, Ten Simple Steps To Property Wealth.

RESOURCES 10 Simple Steps To Property Wealth Zebra Press www.reimag.co.za


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FINANCE

BY KOOS DU TOIT

Your Success Starts with the right finance

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any investors, realising the power of gearing (borrowing money to invest in an asset) and the spectacular returns that it delivers, step into a common, but entirely avoidable, pitfall: failing to find the right finance. This includes the failure to get a mortgage bond approved and thus abandoning t heir investment pla ns, or accepting any finance offered, even when this finance comes with a high interest rate and unsuitable terms and conditions.

What is the right finance? While gearing is a powerful force in creating wealth, the right gearing or, in the case of propert y investment, the right mortgage f inance, is absolutely crucial to property investment success, because the finance terms have a significant impact on both the investor’s cash flow and the return on investment. So what is the right finance? Preferably, it is a 100% bond at the prime interest rate or lower, offered with suitable terms and conditions. The prime interest rate currently stands at a 30-year low of 8.5%. At such a low, an offer of prime + 2% may not sound too bad, but when interest rates increase – as they inevitably do – this interest rate may well leave an investor with bond repayments that are simply unaffordable. And interest rates, like all economic variables, rise and fall in relatively predictable cycles. While the time period it takes to complete a cycle and the extent of the interest rate hikes and cuts may vary from one cycle to the next, depending on a host of economic variables, long-term data clearly shows how the cycles inevitably turn over time. In fact, the average fluctuation during normal interest rate cycles is 600 basis points.

Build in a buffer Whatever the current interest rate, smart 26

August 2013 SA Real Estate Investor

investors calculate their cash flow projections on a 12% interest rate (the long term average) before buying a property. This allows them to build a buffer against interest hikes without impacting their cash flow and jeopardising the long-term success of their property portfolios.

Getting the right finance As a result of the global credit crisis and the implementation of the National Credit Act, it is not as easy to obtain mortgage finance as it was some years ago. But it certainly does not mean that it is impossible. Unfortunately, many investors simply give up when their application for 100% mortgage finance is rejected by a bank and, subsequently, discard their property investment plans. Or, perhaps even worse, they accept finance at high interest rates or unsuitable terms and conditions.

Reality check The latest statistics show that the monthly home loan approval rate now stands at around 70% of applications, although only around 35% of applications for 100% home loans are being granted by the banks. This is because the banks’ deposit requirements remain steep at an average of around 17% of purchase price. However, there is some good news. Statistics also reveal that almost 30% of home loan applications declined by one bank are approved by another. Over the last year, there has also been an increase of around 25% in the number of applications being approved by another

financial institution after being declined by applicants’ own banks. This means that investors should not simply abandon their property investment plans if their own banks or another institution declines their application for finance. The banks are still lending, but investors must ensure that their applications comply with the banks’ stringent criteria in terms of affordability and acceptable security, that their cash flow can indeed support the repayment of the loan and that the value of the property – as the security for the loan – will cover the outstanding loan should the investor default or sell.

The shortcut In doing so, investors will find the services of a professional bond originator that specialises in buy-to-let property, such as P3 Bonds, indispensible. Such a bond originator will assist an investor to obtain the right finance, by approaching multiple lenders with a viable proposition that is thoroughly and accurately motivated, neatly and correctly presented, and respects the banks’ different lending criteria, and will also assist investors to scrutinise and compare different offers, to negotiate where necessary and to ensure that only offers that contribute to their property investment success – at the right interest rate and terms and conditions - are accepted.

RESOURCES P3 Investment Group

www.reimag.co.za



SMART MOVES

BY KOOS DU TOIT

Buy-To-Let Is it risky business?

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any so-called “investment experts” – and even those who dispense “investment advice” around the fire – simply dismiss buy-to-let property investment as being “too risky”. Of course, all investments entail risk – there is no such thing as a risk-free investment. However, it is a myth that buy-to-let property is a high risk investment. This is because, unlike many other investments, buy-to-let property investment allows investors to manage – if not eliminate – all the major risks involved.

Managing tenant risk Bad tenants are undoubtedly perceived as the single biggest perceived risk when it comes to buyto-let property investment.

But, again, this risk can be managed very efficiently by: • doing thorough research before investing in an area to ensure a strong and ongoing demand for rentals for the type of property; • factoring in a vacancy rate of 5% into their cash flow calculations, even if the vacancy rate for the area is lower; • reducing rentals on a short lease basis when market conditions demand it.

Interest rate hikes Many investors who quite easily obtained 118% bonds at the height of the property boom, which coincided with low interest rates, faced severe cash flow strain when the interest rates increased rapidly and dramatically.

But this risk can be managed eff iciently with just a few simple and affordable risk management techniques, such as: • doing thorough background checks and obtaining referrals from previous landlords; • signing a water tight lease and collecting a deposit to cover potential damages; • collecting a separate deposit for utilities or installing pre-paid electricity and water meters; • doing proper inspections with the tenant before, during and after occupation; • taking out rental insurance to cover late or non-payment of rentals or evictions; or • appointing a reputable and professional rental and property management company to take care of all the above.

In the current low interest rate environment, this is again a major risk but, nevertheless, it is a risk that can be managed efficiently by: • building in an interest rate “buffer” by calculating your cash flow projections on the long-term average interest rate before buying a property to ensure you can absorb future interest rate hikes without impacting your cash flow; • fixing your own interest rate by paying a few hundred Rands extra a month into the bond, instead of paying a higher repayment for a fixed interest rate through the bank - the extra payments will reduce the interest payable, and will build up a reserve of funds that can be used to cover the increased bond repayments when interest rates do rise.

Vacancies

Maintenance

Perhaps less terrifying than a bad tenant, but still a scary prospect for an investor, are vacancies, which will require the investor to subsidise all the costs related to the property from his or her own pocket.

Rout ine ma intena nce a nd pa r t ic u la rly unexpected repairs, as well as damages caused by tenants, can place an investor’s cash f low under severe strain.

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August 2013 SA Real Estate Investor

These risks can be managed by: • taking out the insurance to cover damages caused by tenants; • budgeting for and implementing regular and ongoing maintenance; • budgeting for unexpected repairs and maintenance.

Poor buying decisions A buy-to-let property investor can also make poor judgement calls. However, this risk can be managed very effectively by: • using a proven system, backed up by solid training and easy-to-use software, such as the P3 Investment System, to ensure you buy the right property in the right area, with solid rental demand and good prospects for capital growth, at the right price and with the right finance; and • ensuring every buy-to-let investment decision is thoroughly considered according to current variables and future performance, including cash flow projections and provision for vacancies, maintenance and other contingencies. Buy-to-let property investment, like any other investment, entails risk. However, what sets buy-to-let propert y apart from other investment options is the ability to manage – if not eliminate - the risks involved through tried-and-tested risk management strategies that are simple and cost-effective to implement. As a result, the myth that buy-to-let propert y investment is a high risk investment is a complete fallacy. In fact, buy-to-let propert y investment is a virtually risk-free investment if prudent risk management is applied.

RESOURCES P3 Investment Group

www.reimag.co.za


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IMPROVING

BY ANGELIQUE REDMOND

Get Curb Appeal And your house will shine

D

oes your home have a positive, striking character, with charm that adds value to your neighbourhood, or it the neighbourhood eyesore? Your home is a reflection of you and one of the most important aspects of your home is the outside appearance, effectively what people see when they walk past or first arrive at your house. When it comes to curb appeal, keep it simple. It might sound like something small and quite basic but this one rule will prevent your home from being the neighbourhood eyesore. When you start off think of classic but simple ways to ensure your home looks elegant and attractive. Your garden is key to this, grass should be kept neat and tidy, and trees should be trimmed and if you are going to have flowerbeds, they must be kept neat and tidy. Hedges can be a great addition to any walls or fences you have but if they are not kept trimmed and tidy, your house has lost its first battle. Another thing which can add appeal to your garden is by adding artwork, things like bird feeders, bird baths or fountains, small ponds and stone pathways, can make an average garden look extraordinary. Once you have your garden looking smart its time to think about the outside of your home. What’s the first thing you notice about a house, the front door? The front door says a lot about you, it is the focal point of your home. Make a statement by giving your front door a blast

30

August 2013 SA Real Estate Investor

of colour, with paint or by installing a custom wooden door. Clean off any dirty spots around the door handle or knob and use metal polish on the door fixtures. Your entry should also reflect the home’s interior, so choose a doormat that reflects your personal style.

QUICK TIPS

House numbers, the entry door lockset, a wall-mounted mailbox, and an overhead light fixture are all elements that can add style and interest to your home’s exterior. These elements should work in harmony; so if they are broken or dirty and outdated, think of following the same style or theme for these elements, depending of course on the architectural style of your home. Is your house a traditional or modern house? The worst thing you can do a traditional house is to try and incorporate contemporary elements, which clash with the aesthetical style of your home. Another thing you can do to the front door or any windows in the front of the house is add mouldings to it, white mouldings on red brick really make the front door and windows pop. If your home has an older gutter system, odds are it’s also suffering from peeling paint, rust spots, or other problems that can convey a sense of neglect. Replace old systems with newer, snap-fit vinyl gutter systems that go together with few tools and require no painting. Copper systems, while pricier, convey an unmistakable look of quality.

1

Kill mold and mildew on the house, sidewalks, roof, or driveway.

2

Stow away unnecessary garden implements and tools.

3 4

Clean windows and gutters.

5

Edge sidewalks and remove vegetation growing between concrete or bricks.

6 7 8

Mow the lawn. Get rid of weeds.

Pressure wash dirty siding and dingy decks.

Rake and dispose of leaves. Trim tree limbs that are near or touching the home’s roof.

Complement the architecture

An appropriate paint colour palette will complement the architecture of your house. There is nothing worse than a house painted in garish colours, which stands out but for all the wrong reasons. Two or three paint palettes in appropriate colours will provide variety and enhance the curb appeal of your home. Colour can be a means of creating an interesting façade, just make sure you use good quality paint, as paint which chips off or fades will detract from the appearance of your home. www.reimag.co.za



MANAGING

BY IVAN ZARTZ

Settling Disputes In Sectional Title What do the rules say?

I

n the event of a dispute bet ween the registered owner of a unit and the body corporate, are the parties compelled to go to arbitration or must the dispute be adjudicated by a Court? In essence, if an owner challenges certain charges on his account and the body corporate disagrees with the basis of the owner’s argument, must the dispute be referred to arbitration or must the trustees of the body corporate issue summons? The legislative framework relating to the management and control of sectional title schemes provides that a scheme shall be controlled and managed by means of rules comprising, inter alia, management rules prescribed by regulation. Rule 71 of the prescribed management rules provides as follows: “Any dispute between the body corporate and an owner or between owners arising out of or in connection with or related to the Act, these rules or the conduct rules, save where an interdict or any form of urgent or other relief may be required or obtained from a Court having jurisdiction, shall be determined in terms of these rules.”

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August 2013 SA Real Estate Investor

“If such a dispute or complaint arises, the aggrieved party shall notify the other affected party or parties in writing, and copies of such notification shall be served on the trustees and the managing agents, if any, and should the dispute or complaint not be resolved within 14 days of such notice, either parties may demand that the dispute or complaint be referred to arbitration: Provided that, if an owner declares a dispute with the body corporate, it shall be sufficient notice if notification is served on the trustees and managing agents, if any, and such owners will not be required to serve notice on each of the other owners.” Section 35 (1) of the Sectional Titles Act 95 of 1986 (the Act) provides that a scheme shall be controlled and managed by means of rules as from the date of establishment of the body corporate, subject to the provisions of the Act. Section 35 (2) reads as follows: the r ules sha l l prov ide for the control, ma na gement, ad m in ist rat ion, use a nd enjoyment of the sections and the common property, and shall comprisea) M a n a g e me nt r u l e s , pr e s c r ib e d b y regulation, which rules may be substituted, added to, amended or repea led by the

developer when submitting an application for the opening of a sectional title register, to the extent prescribed by regulation, and which rules may be substituted, added to, amended or repealed from time to time by unanimous resolution of the body corporate as prescribed by regulation;...” In Ba lmora l Heights No 39 Bk v The Trustees for the Time Being of the Baumoral Heights Body Corporate CPD (A698/2001) [2002] ZAWCHC 54 (4 October 2002), the court expressed the opinion that ‘arbitration is compulsory in all matters where a dispute ex ists, un less the rel ief c la imed is not competent through arbitration’. In the case of Body Corporate of Greenacres v Greenacres Unit 17 CC and Another 2008 (3) SA 167 (SCA): the Supreme Court of Appeal held that in order for the rule (rule 71) to operate, there must be a dispute. The court held further that in the absence of a dispute – for example, where an owner ignores a demand for payment of levies or simply refuses without reason, to pay them, there can be no arbitration, as there is nothing for an arbitrator to determine. www.reimag.co.za


RESIDENTIAL T he que st ion whet her a rbit r at ion is compulsory under management rule 71 was left open in Greenacres. The issue in that case was whether a dispute as to the liability of an owner to pay levies is excluded from the operation of the rule. This court held that it is not excluded and that it is arbitrable. In the case of Body Corporate Pinewood Park v Dellis 2013 (1) SA 296, the respondent was the registered owner of Sectional Title Unit 7 (the property) in the Sectional Title Development Scheme known as Pinewood Park No 202 (the scheme). The property was situated in Pinetown, KwaZulu-Natal. As owner of the property the respondent was obliged, in terms of s 44(1) (b) of the Act, to pay levies in respect of the property to the applicant, the body corporate, which managed the scheme. For convenience I shall refer to the applicant as ‘the body corporate’ and to the respondent as ‘the owner’. On 2 November 2006 the body corporate issued summons aga inst the ow ner for pay ment of a rrea r lev ies in the sum of R123 101.00, which the owner had allegedly failed to pay ‘despite same being due, owing

and payable’ to the body corporate. The body corporate also sought orders for payment of interest on the amount claimed at a rate of two percent (2%) calculated from 1 August 2006 and for costs of suit on the scale as between attorney and client. The owner admitted in his defence that he was obliged to pay levies ‘imposed in accordance with the Act, as read with the rules governing the Scheme’, but denied he was obliged to pay the amount claimed. He pleaded further that any entitlement to claim the levies that had arisen more than three years prior to the institution of this action had prescribed and that the body corporate had from time to time appropriated payments received from him towards debits which were unauthorised and to which the body corporate was not entitled. He was entitled to be credited on his account with the payments, which were previously appropriated towards unauthorised debits. At the pre-trial hearing, the owner’s legal representative contended that the jurisdiction of the High court to determine the claim was ousted by the judgment in the Greenacres case,

referred to above, which, in the owner’s view, compelled the resolution of the body corporate’s claim to be determined by arbitration. The court resolved that only if the disputing parties consented to arbitration at the time of the dispute, could a dispute be referred to arbitration and in addition, that the provisions of the Act and the regulations did not prescribe an arbitration procedure for inclusion in the rules; and the management rules were not an Act of Parliament that could exclude the operation of the Arbitration Act. It is not the object of this article to comment on the merits of the parties consenting to Arbitration in disputed matters or taking the disputes to court. It is suffice to state that it is the writer’s view, that given the time it takes to obtain a trial date today and the fact that there are arbitrators who specialise in Sectional Title disputes, it is generally far better to refer the disputes (particularly complicated disputes) to arbitration.

RESOURCES Ivan Zartz Attorneys


STRATEGIES

BY RUI MARTO

OUTSTANDING MUNICIPAL

s

M

On A Property

ost purchasers of immovable property would be forgiven for accepting that once they are in possession of a rates clearance certificate, they are guaranteed that there are no further municipal debts outstanding over the property, once they take transfer of same. There have been increased incidences of municipalities writing back or charging historical debt not covered by the rates clearance certif icate to new owners, either after they take transfer, alternatively at a time when they seek to re-sell the property. Municipalities are also charging owners for historical debt beyond the two year period covered in a S118 clearance certificate. What is the legal position of an owner or the purchaser in this instance?

Conveyancing process - clearance certificate As par t of the conveyancing process, a conveyancer is required to obtain a clearance certificate contemplated by Section 118(1) of the Local Government: Municipal Systems Act 32 of 2000 (“the Act”), in respect of the property. The certif icate conf irms that all amounts due in terms of Section 118(1) in respect of the property have been paid in full.

Section 118(1) of the Act states:“Section 118(1): A registrar of deeds or other registration officer of immovable property may not register the transfer of property except on production to that registration off icer of a prescribed certificate (a) issued by the municipality in which that property is situated; and (b) which certifies that all amounts due in connection with that property for municipal service fees, surcharges on fees, property rates 34

August 2013 SA Real Estate Investor

Are you liable?

and other municipal taxes, levies and duties during the two years preceding the date of application for the certificate have been fully paid”. In the circumstances, Section 118(1) specifically includes a time limit of amounts incurred during two years preceding the date of the application for the certificate.

Historical debt Municipalities are, at times, not only charging for amounts incurred within this two year period but include indebtedness for the period preceding those two years. For purposes of this article, I am going to refer to this older debt as “historical debt”. In practise, municipalities are either charging for historical debt included in the amount claimed for clearance certificates in terms of Section 118(1), alternatively, they are issuing clearance certif icates for a two year period and once transfer goes through are debiting the historical debt to the new purchaser. We are currently attending to a matter where in fact the historical debt has only been raised for the very first time when the purchaser has re-sold the property, four years after initially taking transfer.

Case law The Supreme Court of Appeal recently delivered judgment in the matter of City of Tshwane Metropolitan Municipality v Mathabathe &

Nedbank. In this matter, when a request was made for a clearance certificate, same included historical debt. The attempts by the conveyancers to convince the officials at the municipality to exclude the historical debt were unsuccessful, causing Mathabathe and Nedbank to launch an application ordering the municipality to provide a Section 118(1) clearance certificate limiting the amounts due over the property to two years preceding that of the application. After the applicants succeeded in the initial application to court, the municipality took the matter on appeal. In the Judgment, the Court examined the effect of Section 118(1) and Section 118(3). S118 (3) states that: “S118 (3): An amount due for municipal service fees, surcharges on fees, property rates and other municipal taxes, levies and duties is a charge against the property in connection with which the amount is owing and enjoys preference over any mortgage bond registered against the property.” The Court concluded that the effect of the two provisions is different. Section 118 assists municipalities in the collection of monies payable to them in respect of property rates and taxes. Firstly, they are given security for repayment of the debt in that it is a charge against the property concerned (Section 118(3)) and secondly, they are given the capacity to block www.reimag.co.za


RESIDENTIAL transfer of ownership of property until debts have been paid (Section 118(1)). The two sub-sections thus provide the municipality with two different remedies. Section 118(1) is an embargo provision whilst Section 118(3) is a security provision. What is especially important in relation to our query, is that whilst there is a time limit specified under Section 118(1), Section 118(3) is an “independent, self-contained provision”. The security provided by sub-section (3) amounts to lien having the effect of a tacit statutory hypothec and no limit is placed on its duration. As stated by the court, “Its effect is to create in favour of a municipality a security for payment of the prescribed municipal debts so that a municipality enjoys preference over a registered mortgage bond on the proceeds of the property”. In the circumstances, it does not matter when the component parts of the secured debt became due. Whilst the municipality lost the appeal for technical reasons, the wording of the judgment has lead to some confusion and much debate. Unfortunately, the judgment stops short of providing a fuller explanation of the practical implications of its determination and clarifying what debt municipalities can charge and to whom within the framework of the conveyancing process.

ultimately does a clearance certificate guarantee? Who remains liable for historical debt? Who can the municipality hold liable for the historical debt? The question of the validity of the clearance certificate has significant consequences and has created great concern amongst conveyancers.

Who is liable for historical debt? As stated in the aforesaid judgment, a municipality has two separate remedies. Should a municipality seek to enforce its rights and sue an owner for arrears, in terms of Section 118(3), a municipality is entitled to claim for full arrears, including historical debt. In terms of other Court decisions read together with by-laws (which may differ per area) owners are jointly and severally liable for the consumption charges of occupiers of property, should same not be the owners. It is important to note that a municipality enjoys preference over any mortgage bond registered against the property. In the circumstances, if a property was sold in execution by a bank, the municipality would be paid first. In circumstances where an owner seeks to sell a property and requests a clearance certificate, then Section 118(1) applies. The court confirms and the municipality concedes that an owner is entitled to a Section 118(1) clearance certificate on compliance of the requirements.

Confusion

Can a municipality hold a purchaser liable for historical debt of a previous owner?

This judgment has raised many questions regarding the validity of a clearance certificate. What

If a Section 118(1) clearance certificate only covers debt incurred two years preceding the application,

Martin Goodman, CEO, Rentshield

because if the estate agent’s do not do their job properly, they are exposing the landlord to rules of Consumer Protection Act (CPA), which can result in big fines for the landlord. If landlords do not go through an estate agent, I would advise them to make sure they do their homework thoroughly in terms of who they let through their door as a tenant. Don’t just do credit checks– do reference checks, make sure the potential tenant is stable at work and that their previous landlord was happy with their payment history. The challenge is that, once you let a tenant through the door, they have rights which sometimes exceed those of the landlord. It is for this reason that the vetting process is critical.

1) What is the most essential piece of advice you can give to a landlord? I would advise landlords that, if they working through an estate agent, to select that agent very carefully,

www.reimag.co.za

2) What is the biggest problem facing landlords right now? If the relationship with a tenant turns sour, if the landlord is not protected/does not have the right

can a municipality hold the new owner responsible for a historical debt incurred by previous owner? The debate arises as a result of the fact that

Section 118 states that the debt attaches to the property and not to the owner or to the creator of the debt. Unfortunately, the Mathabathe judgment has created much confusion in answering this question. If one were to solely examine the judgment together with the provisions of Section 118 it would appear that a municipality could proceed against a new owner in these circumstances. However, in my opinion, unless fraud was committed by the parties to the sale, this cannot be the case. The Constitutional Court decision in the matter of Mkontwana vs Nelson Mandela Metropolitan Municipality and Others, the Court had to determine the constitutional validity of various provisions, including Section 118. The Court focused on the link between the debt, the owner and the property. The Court ultimately ruled that Section 118 was constitutionally valid. However, in its findings, it required sufficient proximity between the three. In my opinion, a transfer to a new party breaks that nexus. There is also neither a contractual nexus nor enrichment on the part of a purchaser.

RESOURCES Marto & Lafitte

systems in place, he will be exposed dramatically. The landlord has to ensure that he has practical systems in place that govern his relationship with the tenant, especially if he does not go through an estate agent. 3) What do you think the secret to a good tenant/ landlord relationship is? The secret to a good tenant/landlord relationship is, without question, communication. The landlord is sometimes viewed as the enemy, but if he embraces the tenant, and vice versa, through communication, their relationship is likely to be a positive one. 4) What is the one thing the tenant market needs the most? Zero deposit. A hefty deposit can often act as a deterrent to a potential tenant and can sometimes take a property that the tenant could have afforded entirely out of their price range.

August 2013 SA Real Estate Investor

35



REI Commercial

New Method For Measuring Floor Areas

Private And Public Sector Meet

Green Is In

SAPOA’s new method for measuring f loor areas is a far more accurate means of measuring f loor areas for off ice, retail and industrial space is recommended for both existing and new buildings in order to achieve national uniformity in regard to the measurement of rentable area. “In general, landlords benefit from the fact that the remote common areas are now allocated on a proportionate basis to tenants. On the other hand, total rentable areas decrease because supplementary common areas now come out of the total rentable area of a building and are listed separately and charged at a rate or cost at the landlord’s discretion,” explains Sean Liebenberg of Excellerate Facilities Management.

Thulas Nxesi, Minister of Public Works, recently held an open meeting with the South African private sector property owners to iron out challenges and discuss issues of mutual interest. The meeting comes in the light of his keenness to boost transparency in government property leasing activity with all property stakeholders. In the first meeting of its kind since the dawn of democracy, the Department of Public Works and property owners gathered at the Park Hyatt in Johannesburg.

It’s inevitable that South African property developers and businesses are embracing sustainability development as the number of buildings achieving Green Star SA ratings has increased. June proved a bumper month for green building certifications with a total of six new buildings receiving a Green Star SA rating from the Green Building Council South Africa. This upsurge further substantiates that the green building movement is rapidly gaining ground in South Africa as developers and progressive businesses increasingly embrace sustainable building practices. These new ratings take the total number of Green Star rated buildings in South Africa to 36, and include some impressive and significant developments.

The department, which is a custodian of state assets and signs leases on behalf of government departments, has never held a meeting with private property owners, even though its protracted challenges are well documented.

Commercial Views

Stefano Contardo, Executive, Improvon “If we cannot eliminate our environmental impact entirely, we must at least try to mitigate it. For some tenants, this means a whole brace of technologies and practices, for others it translates into the bare minimum.”

www.reimag.co.za

Oscar Siziba, Head of Enterprise Business, Absa “As a bank we have a huge interest in the survival of a small business across the country; they are a key driver of so many things, we pretty much look for a business that is well supported financially.”

Marc Edwards, CEO, Tower Property Fund “Tightly managed and controlled operational costs mitigate pressure on headline rentals allowing for predictable, sustainable, growth into the future.”

Keillen Ndlovu, Head of Listed Property Funds, Stanlib “It’s important to note that in the medium to long term listed property is a better bet compared to bonds, because it offers growing income whereas bonds do not.”

Amanda Stops, CEO, South African Shopping Council “Shopping is evolving rapidly. What shoppers want is for their actual shopping experience – browsing, selecting, trying, buying – to be entertaining. To meet consumer needs, retailers must focus on customer experiences.”

August 2013 SA Real Estate Investor

37


STRATEGIES

BY MARK BRADFORD

What’s The Secret To commercial investment success?

O

n the face of it, commercial property is an easy and attractive asset class, guaranteeing returns for the duration of the tenant’s lease. Unlike equities, property is a tangible asset against which finance can be raised and which should yield capital growth in addition to rental yield. The world’s population continues to urbanise and consequently, cities to grow. People need spaces from which to work, places in which to shop, and clearly occupier demand for commercial property will predictably increase. And with increased demand, property values can only rise, so how can any prudent investor forgo an opportunity to acquire commercial property? Biomimicry is one of this centuries most innovative and relevant engineering disciplines, utilising natural strategies to evolve sustainable solutions to complex problems. The most attractive of natural creatures are inevitably the most dangerous, particularly in the hands of novices. Property investment the world over has evolved in its complexity, and as a result, despite its obvious visual attraction, can have disastrous consequences for the undercapitalised and inexperienced. The gap bet ween prime and secondar y proper t y ma rkets is w idening. Broad ly speaking, the requirements for property to be regarded as prime are focused around locational superiority, design efficiency and technological relevance. Tenants are targeting reduced occupation costs and increased facility efficiencies. Premium rentals will continue to be paid for modern buildings where high staff occupancy ratios can be accommodated, where consumer traffic is high or the latest distribution technologies employed. Owners of older buildings where current occupier demands cannot be accommodated without compromise are increasingly being faced with a choice of either having to reduce rentals or face vacancy. As tenant requirements are unlikely to ever revert to past inefficiencies, owners of older buildings can reliably predict an ever widening gap between prime rentals and those which they are capable of achieving.

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August 2013 SA Real Estate Investor

W h i lst bu i ld ing s ca n be ref u rbished with varying degrees of success, shifting demographic changes are brought about by factors beyond the scope and control of the property owner. Tenants remain relatively f lexible in their ability to move from one location to another, conversely the property owner’s only prudent response to declining demand for location is to disinvest. With limited supply of prime investment opportunity and intense rivalry between cash rich investors for these relatively expensive assets, it is natural to turn to new or secondary markets for opportunity. There are indeed rich pickings to be had in these markets though the unreported stories of sometimes dramatic failure are equally prevalent. Success in these more liquid and affordable markets is only possible with a clear understanding and mitigation of risk. Entry into secondary markets is arguably cheaper and consequently tends to attract a broader class of investor including private individuals. It is also a market where investors irrationally look to “self-perform”, without clear strategy or local knowledge, to save costs by not employing advisors, and in so doing to add to an already loaded balance of risk weighing against their success.

Against this background, what advice for property investors? Strateg y - The development of a clear investment strateg y is imperative. Given that investment in property seldom produces

yield and capital growth in equal measure, particularly within a short - to medium - term time frame, grade opportunities in line with anticipated expectations. Secondary property may well return higher initial yields and prime property stronger capital growth. Active Management - Investment in the property sector, whether direct property ownership or via the listed sector requires active management. Knowledge of local conditions, market trends, competitive offerings, tenant requirements and operating expenditure trends are imperative to proactive risk management. In the South African context, increasing municipal and utility charges are combining to form a cocktail of above-inf lation costs which are having a toxic impact on achievable net rentals, particularly in non-prime assets. Increasing costs above thresholds affordable to tenants, will result in downward pressure on rentals; lower rentals translate directly into lower yields and adversely affect the income valuation of property assets. Prudent and informed investors may under these circumstances wish to divest of their directly held property or of their investment in listed entities with substantial exposure to secondary markets. Tenancy - All too often, the importance of the tenant’s contribution to the success of any property investment is overlooked. With the absence of rental income, property is in most cases not an asset but a liability as operational costs continue to be incurred without the benefit of revenue. Tenancy is a critical cog www.reimag.co.za



STRATEGIES in the workings of the commercial property market and investors should dedicate sufficient priority and resources to maintaining good communication with tenants. Knowledge of tenant positions and operational requirements is paramount to any successful propert y investment strategy. Listed Sector – In most major markets across the globe, prime property is generally held by the listed sector and South Africa is no exception. Private investors looking to enter the market or expand upon their holdings are best advised to consider the listed sector as a viable alternative to buying direct property. Buying into a listed vehicle, affords even the most modest of investors an opportunity to partake in this exciting asset class. Funds are generally well managed and the scale of portfolios allow the effects of a single underperforming property to be smoothed over. Again, investors should conduct due diligence on their selected fund, with particular attention paid to the management team, its strategy and underlying property assets. Many funds have both local and offshore investments in their portfolios providing the added security of a Rand hedge. Perhaps the greatest advantage of investing in a listed fund, is the flexibility to disinvest at short notice should the need arise. Fixed Property – There is an understandable attraction to investing in directly held property,

not least of which is an ability to raise capital and gear the investment via mortgage bond finance. Given access to capital, a solid investment strategy, the right property, solid market knowledge and time to actively manage the asset, fixed property acquisition is a recommendable course of action and investment security. The success of direct investment in commercial property is evidenced by the fact that despite the economic climate of the past few years, there have been few “fire sales”. Commercial property in South Africa has continued to perform well and values have generally held. Contrary to speculation there are few bargains to be had and property has since 2008 continued to trade at fair value. If there is to be an alert sounded in the direct property ownership space, it is that the sale of property takes time, particularly with currently protracted transfer procedures. Direct property is relatively illiquid. Sectoral Opportunity – Commercial property is broadly divided into Retail, Off ice and Industrial sectors. Retail rentals have witnessed continued increases in regional and super regional centres. It could be argued that the super regional market is saturated given the current economic climate. There is however significant scope to further develop and invest in decentralised local convenience centres , particularly in rural areas of the country.

The prime office markets in all major cities continue to be a desirable investment. Existing buildings in good locations do however trade at well below replacement value and there is signif icant upside to be had upon refurbishment, providing the resulting product meets with modern tenant requirements. Industrial and logistical warehousing is perhaps the only sector, which until now has been somewhat overlooked by the listed sector. By implication, this represents the most interesting opportunity for private investors although it is not anticipated that this window will remain open for long. The proposed deep water port terminal in Durban combined with the inevitable tolling of Gauteng’s major freeways will result in some demographic shifts as distributors look to reposition their facilities accordingly. Wel l-informed investment decisions should provide both yield and capital appreciation in the medium term. Investors would be well advised to look to midi to maxi sized facilities rather than mini-units which are the most susceptible to economic volatilities. International Investment – Investment in direct property beyond our borders should remain the preserve of the larger investor and listed sector for the foreseeable future. Any apparent bargains should be thoroughly interrogated as it is unlikely that local capital would have overlooked opportunity without good cause. Again, the listed sector and private equity funds would be the most recommendable route to entry into global markets. Investors are strongly advised to retain appropriate advisors prior to sinking hard earned Rands into the vast and ofter complex foreign markets, even if this investment is via REITs. There is every reason for commercial property investment to retain its reputation as a highly desirable and rewarding asset class. At the start of my career in the world of commercial property, a mentor advised “never to get emotionally attached to property”. Don’t let ego or personal bias cloud any property investment decisions. Property is after all just a commodity, there is a right time to buy and most definitely a time to sell. What distinguishes success from failure, is timing, patience and most importantly, knowledge.

RESOURCES Jones Lang LaSalle

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August 2013 SA Real Estate Investor

www.reimag.co.za



FINANCE

BY JONATHAN SMITH

Riding Out The Risks Of investment in a volatile economy There are several risks which we face in this regard but I would like to explore what I believe to be the most pertinent to our current circumstances, as follows: • Political risk • General economic risk • Trading risk • Consumption risk • Property sector risk

Political risk

T

he recent volatility within the South African economy has caused many an investor to question the future of our commercial property’s investment potential. Commercial property has always been a longterm investment opportunity and (apart from a very lucky few), most investors in this sector know that they are in this asset class for the long haul. The long haul, as it now turns out, appears to have extensive risk and investors want to know whether their money shall be safe beyond a year or two, given that the average investment horizon for commercial property remains approximately eleven years at present. The answer to our concerns lies in being able to predict and interpret the political and economic trends that present themselves. Sometimes these trends can be matched to historic circumstances which have played out so as to see when the economic might improve. This, in turn, permits us (as investors) to invest at the commencement of the upward-bound cycle. However, as has happened frequently in the recent past, external events (termed marketshocks by economists) have presented themselves to the detriment of our predictions, establishing an unpredictable and volatile environment for us. The economic future is largely unpredictable but it is possible to recognise certain trends and factors that will influence our ability to obtain a sustainable (and, yes, meaningful) return from commercial property. 42

August 2013 SA Real Estate Investor

I am by no means being Afro-pessimistic when I suggest that we do not live in the most predictable of political environments at present: it is absolutely true that our national government remains committed towards maintaining an healthy free market environment in South Africa but it is their ability to implement the National Development Plan and encourage business confidence that provides their most difficult challenges. We have noticed several recent commitments from our national government to improve skill levels within the various departments and to root out and prevent further corruption but the implementation of these ideals still remains vague: this, in turn, leads to a level of mistrust within the private sector and, consequently, a lack of business confidence. A meaningful way to determine whether our incumbent national government – and, most probably, the government for the next ten years – will encourage a suitable environment for our property sector is to monitor and take cognisance of the following key issues: 1. The national government’s tolerance for robust and publicised public debate and constructive criticism: if, for example, the Protection of Information Act is signed into law and used to curtail investigation into government activity, then our future suggests a marked level of distrust and both local and foreign investment shall decline as the blanket of darkness covers state activity; 2. The national government’s ability to implement the various national infrastructure and construction capital expenditure projects which it has identified as being necessary to

our continued growth: these include Eskom’s continued roll out of additional power stations, the new port networks to be constructed along our coasts and the new rail networks under plan by Transnet; 3. The national government’s improvement of services through education and training of its personnel: readers of this magazine would have noticed the exemplary service which we obtain from the Department of Home Affairs of late – a marked difference from a few years ago. This level of improvement needs to permeate throughout all of the various government departments and local authorities. If by, say, 2014, we do not see a marked improvement, it would quite reasonable of us to assume that we shall never establish an environment conducive to sustainable commercial property development.

General economic risk Some unfortunate news is that neither the world economy nor our local economy is growing at a meaningful rate at present. Since the credit-induced crisis of 2008 and 2009 and the following European Sovereign crisis which has prevailed since 2009 (and still endures today), foreign investment into our local economy has been subdued. Most recently, we have seen a distinct selling off of our local bonds and equities, including property shares. Our economy, at present, lacks a catalyst which can reignite the meaningful growth that we experienced during the period 2003 to 2008 (confidence and world economic growth) and 2010 (the Soccer World Cup). Our economic growth has hovered around at a slow 2% in recent quarters and inflation has threatened to transgress the 6% boundary that we have set ourselves. Our saving grace has been that our prime and linked interest rates have remained comfortably low at 8,5% which has helped to induce some property sector growth. Our rand exchange rate to the major currencies in which we trade has fallen significantly in recent months. This has partly been as a result www.reimag.co.za


COMMERCIAL of the developed nations adjusting their diversification strategies but some blame must also be apportioned to the lacklustre outlook presented by our own national government following the problems within our resources sector. What will determine our property sector’s future includes the following key outcomes: 1. Whether our general economy grows at an average rate in excess of 3.5% per annum for 2013: readers are asked to note that a current growth rate of approximately 2% is anticipated during 2013 but that 3.5% is required for the property to encounter meaningful organic growth (please see diagram 1, below);

The three key factors which would bode well for increased take-up in commercial property are (1) a decrease in the number of liquidated companies during 2013, (2) an increase in the number of new firms entering the market and (3) a decline in unemployment.

Consumption risk For the purposes of this article, I mean to refer only to private household expenditure: growth in this regard has slowed to a very low of 2.3% in recent months with expenditure on durables (that which lasts longer than one year) declining to 5.4%. An household debt-level (measured against disposable income) of 75.5% is entrenched in our

Diagram 1: South Africa’s GDP growth in recent years

16.00% 14.00% 12.00%

8.00% 6.00% 4.00% 2.00% 0.00% 2005

2008

2009

2010 2011-Q12011-Q22011-Q32011-Q4 2012 2013-Q1

GROSS DOMESTIC PRODUCT

PRIME

INFLATION

2. Whether our resources and agricultural sectors stabilises in the immediate term and begins to contribute meaningfully towards our gross national product. A growth rate in resources of 6% and in agriculture of 12% is required to support our overall growth rate; 3. Whether our manufacturing sector posts meaningful growth of around 6% this year; 4. Whether the improvement in plans passed continues to register at above 5% per month. Although plans passed is a measurement directly related to the property sector, it is also a sign of revived confidence in our economy.

society and this means that private household consumption expenditure shall remain under pressure for many years to come.

Trading risk

Property sector risk

An improved economy delivers an environment conducive to improved trading conditions for our local businesses. This results in fewer liquidations and less unemployment.

Investment Property Databank indicates that the recorded commercial property sub-sector returns for 2012 (across their collated data) were as follows:

www.reimag.co.za

TOTAL RETURN

All property

15.20%

Retail property

17.10%

Office property

11.90%

Industrial property

15.90%

You will immediately notice that despite our slow growth rate in the general economy (please see diagram 1), commercial property continues to remain strong – provided, of course, that you are invested in the correct property and manage the property optimally. The positive news emanating from our property sector is that non-residential building plans passed have increased by some 33% year on year (an average of 11% per month) for the first quarter of 2013. The significance of this is that developers have perceived the increased need to obtain approval for new (commercial) buildings and this means that they have anticipated improved demand for such space. An interesting trend in South Africa is the growth in our citizens who now shop online: 54% of South Africans use the Internet for online shopping of some sort, according to a Mastercard 2012/3 survey. Although this compares favourably to, for example, Egypt at 36%, Morocco at 18.5%, Nigeria at 18% and Kenya at 8.5%, it indicates a trend towards reduced shopping centre activity in favour of online retail activity.

10.00%

2.00%

PROPERTY TYPE

The principal significance of this is that, if consumption expenditure remains subdued, so will manufacturing growth (and the associated demand for factories and warehouses) and even the tertiary sector’s take-up of office space. The key variable to watch in this instance is retail sales growth which was most recently recorded as 1.9% (in April, 2013) and as 2.7% (in March, 2013). A desirable level of growth in this regard is above 6%.

The risk of fixed property is whether demand for this commodity remains as strong as it is now. And, so, the benchmarks to monitor as far as our property sector is concerned are: 1. Growth in building plans passed (which should be at least 5% per month) and growth in building plans completed (which needs to eventually equate 5% per month); 2. The income yields being achieved throughout commercial property and which currently averages at 10.6%; 3. The vacancy levels within our property developments which are close to 20% within the office sub-sector but measure, on average, close to 0% in the retail sub-sector 4. The level of take-up vs new or additional space available throughout our land. It is our considered opinion as this article goes to publication that commercial property remains a very, very good investment opportunity.

RESOURCES

Courtwell Consulting

August 2013 SA Real Estate Investor

43


DEVELOPING

BY TONY COLLINS

Behind The Development Process Your journey begins here

T

he development process is seen as a self initiated proactive process of procuring work with the tendering / bidding for work seen as a possible alternative. We will therefore cover the steps in the development process and discuss risk at various stages in the development process. In addition, because of the magnitude of this subject, the practical aspects on how to speed up the decision-making process for developing a property will be emphasised. A rational approach to feasibility analysis is recommended with a total approach view of the feasibility process using analysis by computer spreadsheets.

The necessity for investment analysis According to Greer and Farrel (1988, p. 4), prior to 1970 real estate investors paid little attention to property investment analysis. Profitability was virtually assured by remarkable growth and expansion in the housing, office, industrial and commercial accommodation industry that experienced few financial difficulties and an almost insignificant failure rate throughout 44

August 2013 SA Real Estate Investor

the period. Furthermore, the back-log in housing demand from the war years, combined with persistent inf lationary increases in the value of real property, led to even the most poorly planned projects being reasonably successful. This was also a period represented by unbounded enthusiasm on the part of investors. In the United States of America this situation altered in the 1970’s when a great demand for borrowed funds on the part of the federal government, coupled with increasing demand for capital from rapidly expanding foreign industries, created competition driving interest rates to record levels. The failures of real estate related companies and financial institutions that followed were expensive and painful experiences. Furthermore, during the same period, existing properties also came under pressure from escalating operating costs that were not cushioned by slow increases in rental rates. The consequent reductions in net operating income caused many investors to be unable to meet their

mortgage debt obligations, therefore, pressurising investors to restructure their portfolios. In South Africa, institutional investors without exception are now insisting on a professional approach when being offered properties for purchase in order to avoid the pitfalls so common with wrong decisions concerning property investment. This attitude should be adopted by all developers to avoid the rollercoaster ride they often experience, earning good profits on some projects interspersed with losses on other projects. However, in South Africa we are fortunate to have good publications that assist with macro and micro economic decisionmaking such as the “Rode Report” and the “Stellenbosch University Bureau of Economic Research Report”. “Figure 1” illustrates some of the controllable and uncontrollable economic factors to consider. Fortune magazine also sounded a warning against injudicious over-development of the property market, by reflecting vacancy rates averaging www.reimag.co.za


COMMERCIAL Micro And Macro Economic Factors Affecting The Property Market Figure 1

Maritz's Steps In The Investment Process a)

Figure 2

Analysis of the needs, requirements, objectives and resources of the investor

UNCONTROLABLE FACTORS World Economic situation National Economic factors

National socio-political factors

b)

c)

Property type Property & quality location CONTROLABLE FACTORS Price, Rent & Costs

Timing & Promotions

Government legislation

Legal factors

Physical inspection of a selected property, or selected properties

different angles: an idea in search of a site (as per “figure 3”) and a site in search of an idea (as per “figure 4”). In this stage you formulate your objectives and prepare a feasibility study.

Use Known / Site To Be Determined Market Analysis

d)

e)

18,8 percent in the United States of America, whereas in 1981, the average vacancy rate was 4,8 percent. In isolated cases new office complexes had individual vacancy rates of between 50 and 100 percent. Investors and financiers would do well to heed the warning signs and do their homework properly with respect to market analysis. “Figure 2” is a diagrammatic representation by Maritz (1983, p. 288) of the steps in the investment process.

A rational approach to investment analysis Of utmost importance to all investors in this process is that the investor is faced with an array of alternatives that differ according to amount, timing and certainty of receipt and therefore, the determination of relative values of investment alternatives also differs. Approaches of investors to investment a na ly sis va r y f rom being caut ious a nd analytical, to seat of the pants / gut feeling

g)

Decision-making

t ype management decisions. The market study is perhaps the most important single element in the planning process, which is often neglected and is also the most difficult element to conduct, and the one element which should be dealt with most thoroughly, si nce prop er t y de v elopment s mu st b e market driven. Therefore, what is required is a rational approach to investment analysis incorporating a series of steps for the gathering of information, the analysis of the information and the taking of a decision on the basis of this analysis. The result is that the characteristics of an investment property are considered objectively and related directly to an investor’s needs. The first step in the development process is an initial plan. Think of the 5 P’s of planning: property planning prevents poor performance; a well thought out plan will give you a solid basis from which to work. The initial planning stage will be initiated by an idea that the developer has on how to make money and can take on two

Site selection within sector

Quantify demand / supply within a trade area

f)

Town Planning & local building legislation

Identify (delineate) Demand sector

Estimate capture penetration

Establish a trade area

Estimate absorption

Marketability

Financial feasability after tax

Use Known / Site To Be Determined Market Analysis

Quanitity demand / supply in trade area & alternative uses Marketability capture / penetration absorption

Figure 3

Site study / (physical feasability) Trade area analysis (alternative uses)

Financial feasability after tax

Figure 4 Preliminary highest & best use study Examination of alternative uses

Highest and best use analysis

You have now completed the first phase of your development, in the next edition we will cover the next step in the development process, looking at the objectives.

RESOURCES

Tony Collins

www.reimag.co.za

August 2013 SA Real Estate Investor

45


LISTED

BY IAN ANDERSON

It’s Not Just Window Dressing

S

Listed investment takes home the prize

outh Africa’s listed property advanced 4.4% during June, despite investor fears that global bond yields could rise further as the US Federal Reserve ‘tapers’ its bond purchases. The South African equity market declined 5.7% in June and, as a result, listed property is now the top performing major asset class in South Africa in 2013, having risen 8.8% since the beginning of the year.

Before investors get too excited about the prospect of a rapid recovery in the listed property sector, it should be noted that the prices of Growthpoint Properties (+5.2%), Hyprop Investments (+5.8%) and Redefine Properties (+4.9%) were all pushed in the final hours of trading in June, most probably as a last-ditch effort by fund managers to ‘window-dress’ their quarter-end performance. Historically, the listed property sector has bounced back quickly from rapid price pullbacks. Since the start of the new millennium, South Africa’s listed property sector has corrected on three previous occasions, each in response to unexpected increases in official interest rates, ie increases in the repo and prime overdraft rates. On each occasion, the listed property sector has declined by approximately 20% over a three month period, before recovering those losses in the next three months. The unexpected increases in official interest rates that sparked the previous sell-offs were always in response to an increase in consumer inf lation above the South African Reserve Bank ’s (SARB) targeted rate, or to cool a rampant economy to prevent inf lation from 46

August 2013 SA Real Estate Investor

moving above the SARB’s targeted rate. Higher inflation and higher economic growth are positive for the listed property sector as they lead to higher rentals and distribution growth over time.

This time around, the reasons for the increase in bond yields are not linked to an increase in inflation or growth expectations. Rather, bond yields are rising to more normalised levels due to the imminent withdrawal of monetary stimulus by the US Federal Reserve, which has kept global bond yields artificially low in an effort to stimulate economic growth. It therefore stands to reason that the recovery in the listed property sector may take longer to materialise, or may never materialise if bond yields remain at these higher levels or continue to move higher. Since the listed property sector peaked on 17 May 2013, prices have on average declined by 10.8%. However, on 24 June 2013, they were down as much as 19.4% before being pushed higher in the final week of June. Most of the price volatility was experienced in the larger, more liquid listed property companies that have attracted a significant foreign shareholding over the past f ive years. From the peak in May, the price of Growthpoint Properties fell as much as 22.9%, Hyprop Investments declined 16.0%, Redefine Properties declined 21.5% and Resilient Property Income Fund dropped as much as 18.7%. All four stocks recovered strongly in the final week of June. These companies remain susceptible to further foreign selling on the back of higher local and global bond yields and

investor nervousness about the prospects for emerging markets. The current forward yield on the listed property sector is 6.8%, which is approximately 90 basis points below the yield on a 10-year government bond. Historically, the listed property sector has traded on forward yields far closer to the 10-year government bond yield. Current pricing therefore provides little downside protection should local bond yields rise in response to higher global bond yields or a further bout of Rand weakness. The average yield on the sector masks the fact that there is still a number of smaller listed property companies offering investors extremely attractive initial income yields in excess of 8%, as well as attractive distribution growth prospects in excess of 9% per annum over the next three years. A diversified portfolio of smaller listed property stocks is likely to deliver returns of between 15% and 20% per annum over the next three to five years, despite the expected increase in both bond and listed property yields. Notwithstanding the short-term risks posed by higher bond yields, listed property in South Africa continues to offer investors an initial income yield in excess of inf lation, as well as inflation-beating growth in that income stream. In the long term, inf lation-beating income growth translates into inflation-beating capital growth and long-term investors would be well served by maintaining a healthy allocation (15% to 25%) to listed property in their portfolios.

RESOURCES

Grindrod Assett Management www.reimag.co.za


MANAGING

YOUR PROPERTY

ONE PIECE AT A TIME Catering for both Property Owners and Agents, Nikita is an extremely powerful yet easy-to-use application that is geared to manage your Property Portfolio in the most efficient manner, every step of the way.

www.nikitasoftware.com

Toyah Gawne +27 11 745 5901



REI Offshore

Sicily Beckons With Low Prices

Do You Qualify For Exemption?

Looking Towards The Gulf States?

Mr Leavy is part of a growing band – a few hundred pioneers, mainly from Britain – who have quietly discovered a very cheap corner of paradise in Cianciana, a hidden town of 3 500 tucked up against Sicily’s Sicani mountains. I thought Italy would be too expensive,” said the YMCA housing manager from Southend. “But prices haven’t gone up, and people are so friendly, it reminds me of how Britain once was.” Here, town houses boast roof terraces with sea views, and old men chat idly in the piazza while their wives dry tomatoes under the Mediterranean sun, and it is downright difficult to spend more than €40 000 (about £34 000) for a bolt-hole. They are part of a wave of buyers discovering that Europe’s economic crisis is pushing house prices down and making this an ideal moment to shop around.

Expats in France can breathe a sigh of relief after the French government backed down on its tax grab on second homes.

Gulf States such as Qatar and Ras al Khaimah are becoming increasingly popular with expat investors and professionals relocating from overseas.

From September 1, those owning a second home in the country for more than 22 years will have complete exemption from capital gains tax (CGT). The previous French government doubled the amount of time before second home owners could claim exemption, raising the bar from 15 to 30 years in February 2012. However, amid concerns that the policy slowed down the property market, current French President François Hollande said extending the time frame had been a mistake. It has now been reduced to 22 years from September onwards.

The expat powerhouse of Dubai has seen its recovery hampered by a ‘build now, pay later’ approach, with an estimated US $150 billionplus in new development projects since changes to legislation in 2002 allowed foreigners to purchase property on a freehold basis. Meanwhile, slower-burn rival Gulf economies - underpinned by rising employment levels and increased state funding - are forging their way into the real estate market.

Offshore Views

Scott Picken, CEO, IPS Invest “Having just spent the weekend with George Ross, Donald Trump’s righthand man, I am more confident than ever that the US recovery is sustainable and based on the fundamentals of the economy and the property market.”

www.reimag.co.za

Mike Smuts, MD, Smuts & Taylor “Figures show that the UK service sector, manufacturing and construction all improved in June. This improved confidence, combined with a shortage of properties available for sale, continues to push UK property prices higher.”

Jenny Ellinas, MD, Cypriot Realty “In Cyprus a property investment of only €300 000 gives you permanent residency in Europe for life, without you ever having to live there!”

Dr Andrew Golding, CE, Pam Golding Group “London has an extraordinary track record of rental and capital growth which makes it an ideal longterm investment - and inflation hedge, not to mention potentially a currency hedge.”

Alexandra Burger Director, Amicorp “There are a myriad of international property investments available and the the requirements of the investor are paramount.”

August 2013 SA Real Estate Investor

49


USA

BY SCOTT PICKEN

Opportunities in the USA Don’t miss out

O

n our recent trip the sentiment has changed so fast and the market is now in a full recovery. Even though many of the economic problems remain, the American’s are a lot more positive that the economy was recovering. The job numbers have recovered (best since 2008), the Dow Jones has gone above 15 000 and most importantly the economy is growing. It is certainly the leading developed economy at the moment and is leading the optimism in the markets at the moment. According to the Wall Street Journal more than 50% of Americans believe that property prices will now rise and that the worst is behind them. The Case Shiller Index is up over 10% across the whole country for the last 12 months. However, the most important thing, which has changed the market, is that Wall Street has moved onto Main Street. The hedge funds from Wall Street have now moved into buying US property in a big way and are really driving the demand,driving prices up and yields down. Funds like Colony Capital and Blackstone have deployed billions of dollars into residential property in the USA.

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August 2013 SA Real Estate Investor

Atlanta continues to deliver the best overall returns, Orlando has the best capital growth and Memphis is the best income market for returns. Our partners in these markets are world class and continue to impress our clients with their professionalism. The interesting thing is that we have researched over 14 markets including Las Vegas, New York, Phoeni x, San Diego, Chicago, Detroit, Orlando, Miami and Boston, to name a few. We have spent over R1.5 million on travelling to all these markets, but the greatest thing is that along with our partners, our research has stood up as the markets we are investing in are getting the best returns in USA, and continue to be the best performing markets in the whole country. This is the advantage of working with the company who has helped more people in South Africa invest internationally than any other company (over 2000 international investments to a value of over R1.6 billion) and also working with the best partners in the USA. Unfortunately many people have been caught by surprise by the quick weakening of the

Rand. We find this so frustrating. We only work with the best partners and in March we organised the biggest American event ever in South Africa. We had all our partners out from the USA and also the best from South Africa. James Paynter, our expert on the Rand and someone who has had an accuracy of more than 80% of where the Rand is going since 2005, explained to all our clients what was going to happen to the Rand. He told people in March that the Rand would be between R9.38 to R9.90 in the next few weeks, R9.50 to R10.50 in next few months and R14 to R21 to the dollar in the next few years. At the event it was below R9 to the dollar and now it is R9.83. Those that took action are really smiling, but unfortunately as most often happens, most procrastinate and have many reasons why not to do something and they have lost out massively! Bottom line is the USA is the best opportunity in the first world, there is a massive opportunity in the USA, but it is fast disappearing.

RESOURCES IPS Invest

www.reimag.co.za



AFRICA LISTED

BY JULIE ETHERIDGE

Beat The

Invest in funds in Africa

A

frica features prominently on asset managers’ radars for its emerging market growth and return prospects. There are myriad investment opportunities in the continent’s 50-plus country markets that offer yields way in excess of those on offer in the developed world. Property is one of the asset classes singled out by Sanlam Investments with potential to deliver double-digit dollar returns. The group’s Africa Core Real Estate Fund – launched in February 2013 and listed on the Mauritian stock exchange in May – is paving the way for retail investors to potentially gain a foothold in 52

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a market typically reserved for institutions and ultra-high net worth individuals. The fund is similar in nature to locally listed proper t y companies and operates as an income fund, better understood by international investors as a Retail Estate Investment Trust (REIT). REITs invest in and own properties and generate revenues from rentals on these properties. The fund allows local and international investors to invest in high quality retail and commercial real estate assets across select sub-Saharan African countries (excluding

South A frica). Initia l investments have been made in Ghana and Tanzania with transactions being evaluated in Nigeria, Kenya and Mozambique. “There is a massive supply and demand imbalance for quality real estate across the subcontinent,” says Johan van der Merwe, CEO of Sa n la m Invest ments.Grow ing populations and rapid urbanisation combined with improved per capita income has ignited an Africa-wide retail property boom. The demand for quality office space is also on the rise as large multinationals chase oil, gas and commodity opportunities across the region. www.reimag.co.za


OFFSHORE Investing in Africa property does not come cheap. Large institutional investors – the guys who manage your pension and provident funds – have already committed nearly US$ 100 million to the fund and high net worth individuals who participated in the first round of capital-raising would have parted with lump sums of US$ 5 million or more. From an institutional perspective the investment case is strengthened by the fact that the fund is structured to international standards and that it provides the first acceptable platform for investors to tap the growth potential of the subSaharan African real estate market with minimal development risk. You can participate in Africa’s property dream by investing in an appropriate private equity fund or, for example, by purchasing shares in the Africa Core Real Estate Fund directly on the Mauritian stock exchange. South African residents will have to obtain the necessary SARS approvals to take their funds offshore.

to deliver double-digit dollar-based yields to investors. High returns often go hand in hand with high risks and an investment in the fund must be considered against the backdrop of the unique challenges Africa property investors face. The property rights issue is held up as one reason why even high net worth individuals should not attempt to “go it alone” when investing in commercial property in Africa. “Property rights is often considered as one of the biggest risks to the portfolio we are building,” says Reilly. “We address this risk by being very specific about the due diligence elements surrounding both the assets and regions we’ll consider investing in.” T here a re some cou nt r ies t hat have comparatively poor property and land rights track records and Sanlam will not consider investing in them. Others have land registries and title deed offices that are arguably on par with those in South Africa.

“The secret to success in Africa is to be thorough with regard to your level of diligence concerning land and property rights,” says Reilly. “We spend a great deal of time getting the necessary comfort that our investments are safe – and further mitigate risk by applying ‘core fund’ principles of only investing in established properties rather than new developments.” This ensures an ‘edge’ over so-called ‘greenfield’ developers in that most issues have typically been resolved by the time the Africa Core Real Estate Fund makes its purchase. “The Africa Core Real Estate Fund compares favourably with the private equity development funds on a risk return basis,” concludes Reilly. “We are very confident that we will hit and hopefully even exceed our return targets.”

RESOURCES Sanlam

Sanlam decided to list the fund in Mauritius because many of the fund targeted assets and leases concluded on these assets are denominated in US dollars. It also expects a large percentage of future inward investment to the fund to come from international investors. “South Africa’s exchange control regulations mean that it is impossible to list a dollar denominated fund locally,” says Thomas Reilly, CEO of the Fund’s advisor. Retail investors who purchase shares in the first pan sub-Saharan Africa real estate fund must do so with due consideration for liquidity constraints. Liquidity is a measure of the supply and demand for a listed entity or, in layperson’s terms, the ability to find a buyer for your shares when you wish to sell your investment. “At the moment we are a relatively small listing but as we grow liquidity should improve and we will become a feasible option for the lay investor,” says Reilly. Sanlam will manage the fund with low levels of gearing and high levels of income distributions and hopes www.reimag.co.za

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AFRICA

BY ALEXANDRA BURGER

Getting To Grips With Investing In Africa

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OFFSHORE

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nvesting in property in Africa, a continent with 54 sovereign states, is a topic more suited to an encyclopedia and a constantly updating one at that. With recent articles on Africa’s growth surge in Time, The Economist and the “Lions on the Move” report from McKinsey Global Institute that the “rate of return in Africa is higher than any other developing region”, investment interest has piqued. African countries have such widely diverse political, economic and social systems that investments in each country require a fair amount of research and taking local advice is paramount. Accordingly, this article seeks to highlight a few interesting factors which could play a role in deciding whether to make an investment in a country, the process required to acquire the propert y and the ongoing management issues. Some countries, eg Nigeria and Ghana, are enjoying a rapid expansion and increase in property values and rental yields. Ironically these increases may be driven by other factors such as increased cost of doing business, goods and services. Lack of infrastructure, including poor roads, transport systems, power and basic amenities, is still a significant barrier to growth in many countries but foreign investors such as China and India and international corporations have been actively developing some regions. Political factors remains to many the primary concern when considering investments in the continent.

Legal system African countries’ legal systems generally emulate their colonial history, for example, the former British colonies are common law legal systems while the former French and Portuguese colonies’ legal systems are civil law (ie based on the Napoleonic Code). In East Africa the countries have a combination of Islamic and civil law. In fact, many countries combine elements of both and there is a notable movement to include common law aspects, which are considered as more favourable to foreign investors. In addition, A frican governments are increasingly accepting and encouraging arbitration as an alternative to court process. 16 African countries including Nigeria, Botswana, Zambia and Zimbabwe are signatories to www.reimag.co.za

the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“New York Convention”).

varying, for example in Ghana they are low while in Zimbabwe rental income is taxed at progressive rates up to 35%.

Right to own land

Exchange control

In many countries there are absolute and limited restrictions on the rights of foreigners to own land. For example, foreigners cannot acquire farmland in Zimbabwe and Namibia. Many states in Nigeria only permit foreign ownership on approval by the Governor with certain conditions and the payment of prescribed fees. The Kenyan constitution and the Kenya Land Act 2012 has restricted investors to holding only leasehold land for a period not exceeding 99 years.

Exchange control is still a feature in certain countrie, for example, exchange control approval is required to own propert y in Zimbabwe and Namibia and endorsement of the title deeds as “non resident” are required to allow the foreign owner to freely transfer the property proceeds.

Swaziland, as one of the last remaining monarchies, is an interesting case in point. The King, on behalf of his subjects, holds all the land in the Kingdom in trust. Male citizens can acquire a lease over land by pledging allegiance to one of the 350 chiefs. Women can only apply to hold land if married in community of property. Foreigners may, with government approval, apply for a lease through land holding corporations controlled by Swazi directors.

Investment protection There have been over 400 bilateral investment protection treaties signed between African countries and developed countries. Nigeria has entered into over 20 treaties with countries such as the UK, France, Germany, the Netherlands, Italy, Russia, Turkey and China. Some treaties have similar provisions but the scope of each treaty should be considered as some have only limited application. Cer ta in count r ies have enac ted loca l leg isl at ion (for e x a mple t he Nig er ia n constitution) protecting people’s right to own property and forbidding compulsory acquisition. In Zimbabwe, foreign investments are not really encouraged with current laws mandating that businesses cede 51% of shareholding to Zimbabweans.

Financing and taxation Finance for properties in African countries can be difficult to obtain or severely limited. A s w it h a l l proper t y invest ments, t he applicable acquisition costs, rental income tax, estate duties, capital gains tax should be considered. Taxes of rental income are widely

Land registration W h i l e s o m e A f r i c a n c o u nt r i e s h a v e sophisticated title deed systems, in others (eg Kenya), not all land is registered thus a thorough title deed search is essential.

Transfer process Certain countries such as Zimbabwe and Namibia have similar transfer processes to South Africa while Ghana has a very long process involving seven procedures, which can take around a year to completion.

Landlord rights Some countries have enacted a fair amount of legislation regulating the relationships between landlords and tenants. Landlords in Kenya and Ghana are afforded strong rights in relation to their tenants. In Ghana the landlords can charge six months’ rental in advance but, in practice they charge one to three years in advance. The Distress for Rent Act in Kenya allows landlords to auction the possessions of defaulting tenants for compensation. Evictions can be a lengthy process in certain countries, for example The Rent Act in Kenya protects tenants by giving them at least three months to find a suitable alternative for relocation. Whichever country you choose to invest in, there is no denying that Africa has seen an upsurge in foreign investment and this is only set to increase as more countries invest in better infrastructure and both political and economic stability increases throughout Africa. The best piece of advice you can heed is to do your homework, every country has different and changing legal laws and the best way to ensure your African investment is a success is to know the ins and outs of investing in that particular country.

RESOURCES

Amicorp

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REI Lifestyle WORLD GREEN BUILDING COUNCIL CONFERENCE

RODE EVENTS 2013

Cape Town International Convention Centre Cape Town 16 – 18 October 2013 This is no ordinary year for the green building industry in South Africa – as this year heralds the once-off occasion of rallying the largest international network influencing the green building marketplace, comprising of 92 global councils, under one roof. The World Green Building Congress will be hosted as part of the Green Building Council South Africa’s premier annual Convention.

Retirement Expo

Coca-Cola Dome Johannesburg 25 – 26 October 2013 09:00 – 17:00 daily 27 October 2013 09:00 – 15:00 Your life right now is multi-faceted, rich and colourful, and so too should your retirement be. The Retirement Expo embodies this three-dimensional quality of life; representing all the facets of a well-planned and inspired retirement, characterised by “Healthy Aging, Perfect Planning and Positive Living.” Tickets are R25.00 per person for seniors and R50.00 per person for non- seniors. Discounted parking for pensioners available @ R10.00 in parking Block D

www.reimag.co.za

SACSC CONGRESS

Cape Town (Conference): Tuesday, 20 August Spier Wine Estate, Stellenbosch Sandton Convention Centre Johannesburg 11 - 13 September 2013 Aptly themed “Un-Cover”, this year’s 17th Annual Congress of the SA Council of Shopping Centres (SACSC) brings together retail masterminds from across SA and the globe in September to delve into the latest sector trends and research. One such global retail mastermind is Mark Faithfull. As editor, co-founder and joint owner of the UK’s Retail Property Analyst, a weekly online newsletter for the global retail property community, Faithfull is uniquely placed to speak on worldwide trends.

Port Elizabeth (Breakfast): Thursday, 22 August Protea Hotel Marine, Port Elizabeth Johannesburg (Conference): Friday, 23 August Emperors Palace, Kempton Park Rode & Associates (Pty) Ltd. is a 25-yearold firm specialising in real estate economics, property research and property consultancy. It is also one of the largest independent property valuation (real estate appraisal) firms in South Africa.

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REVIEWS READ THIS Successful Property Letting: How to Make Money in Buy-to-Let By David Lawrenson

The Principles of the Law of Property in South Africa: Oxford University Press

The Principles of the Law of Property in South Africa provides a rich source of expertise and a lively and approachable introduction to the principles of property law.

Whether you are a new or experienced landlord, this best selling and fully up-to-date book by private rented sector expert and consultant David Lawrenson will show you how to buy the right property in the right location (including abroad) for high rents and capital growth, whatever the state of the market. Get great property deals from developers and private sellers. Decide whether to use a letting agent or find and manage tenants yourself.

WATCH THIS

Integrating the common law, statutory law, constitutional perspectives, and the related customary law principles, the text provides all of the essential material within a comprehensive source.

WATCH THIS Now You See Me

Jimmy In Pienke

Now You See Me pits an elite FBI squad in a game of cat and mouse against “The Four Horsemen”, a super-team of the world’s greatest illusionists. “The Four Horsemen” pull off a series of daring heists against corrupt business leaders du r ing their per formances, showering the stolen profits on their audiences while staying one step ahead of the law. A cat and mouse thriller, not to be missed.

Jimmy Bester is a rugged seventh generation mielie farmer who can give an accurate five-day weather forecast by simply sniffing the wind. He lives out his creative impulses by shearing sheep on the neighbouring farms, something he has to hide from his father who believes that men are not creative. When his father suddenly dies, Jimmy must save the farm and quirky comedy ensues.

WATCH THIS

GO TO THIS Master Investor video

Wealth Masterclass

Sisa Ngebulana is the Founder and Executive Chairman of the Billion Group Limited and the CEO of Rebosis Property Fund.

Don’t miss the Wealth Masterclass with guest speaker Donald Trump JNR. The seminar will show you how you can benefit from wealth creation strategies and property investment strategies that guarentee success. Cape Town - 5th September, Crystal Towers, Century City. Johannesburg - 10th September, Convention Centre, Sandton.

http://www.youtube.com/watch?v=jjCf YuIIl9c

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www.reimag.co.za


Win A Weekend Away Worth R4690

One Lucky reader stands the chance of winning a two-night stay for two people in a deluxe poolside room at the Arabella Hotel & Spa. Included in your stay is buffet breakfast & access to the Arabella Spa facilities. Answer this simple question: Where is the Arabella Hotel & Spa situated? Log onto the Arabella Country Estate site to find the answer: www.arabellacountryestate.co.za <http://www.arabellacountryestate.co.za> Correct answers will go into the prize draw for the two-night stay. Send all your answers to competitions@realemedia.co.za with your name, surname & contact details. Please note the closing date is the 31st of August, winners will be announced via our Facebook & twitter pages, so if you haven’t liked our Facebook page, please do. The prize is non-transferrable & validity to be subject to availability, and not valid between 20 December to 4 January.

Central Reservations Office: Tel: 0861 50 50 50 or +27 21 430 5302 Email: reservations@africanpridehotels.com www.reimag.co.za

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AREA REVIEW

BY ANGELIQUE REDMOND

Welcome To Arabella You may not want to leave

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ocated just 110 km from Cape Town lies the Arabella Country Estate, a tranquil and breathtaking lifestyle estate. Driving into the Estate, the friendly and smiling staff greeted me and directed me to the Arabella hotel, where I was to be taken on a guided tour of the Estate. My tour guide was one of the estates residents, Steve, who after visiting the hotel for a conference when he was working for Cadbury fell in love with the peaceful and opulent estate. A short while later, Steve had his hands full, renting a house on the estate while supervising the building of his own on one of the vacant plots. Today Steve was showing me what life on the estate was like. The very first thing that struck me while whizzing around on the golf cart (a much more economical and faster way to get around the estate) was the sounds of nature. Without a background of traffic or sounds of the city hustle and bustle, the birds were creating a song that spoke to the heritage of Arabella. The area is home to more than 1600 fynbos species and abundant bird and animal life and is set on 113 hectares of land with a 1.6km frontage of lagoon. When looking out over the land, you could almost forget that you are in fact looking at a housing estate. The homes are nestled into the 60

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natural surroundings and the delicate balance of man-made property and nature has ensured that the estate is in harmony with the plants and trees. Steve explained that although some houses are ready built in a very organic style of architecture, you can choose to build your own, but the Homeowners Association responsible for the overall look and concept of Arabella must approve the plans to ensure that the natural look and feel of the estate is not compromised. Sur prisingly this plays out rather wel l aesthetically, as individual characteristics of the houses emerge, but the overall style of the houses with natural materials, slate roofs and subdued earth colours retains the integrity of the estate as a whole. Inside the houses, the eye is teased with stunning views of the estate, the golf course and the lagoon, there are no bad views at Arabella. Natural lighting floods the houses, large glass windows, skylights and walls of glass create a look that is modern, light and airy. Each home has its own individual style, some very modern with large open plan space and different levels, and some more traditional in look and feel. One thing most have in common is that you or your guests need never share a bathroom again, with each room having its own en-suite bathroom. As a girl I highly approve of this, you can never have too many bathrooms.

Another worrying factor you will not find here is crime, 24/7 security and a fully fenced and a guarded environment ensure your peace of mind. As with every estate there are rules and you must abide by the homeowner’s association rules, but they are far from draconian and instead simply enforce that the estate retains its integrity and you don’t end up with a pink house next to your home. If you are a golfer, welcome to heaven, outside your door lies the fourth best golf course in South Africa, and an interesting thing to note is that the golf course came first followed by the estate and hotel. This goes a long way towards explaining how the homes and the golf course work so well together, with homes nestled into the natural beauty and the golf course stretching the length of the estate. Should you not be a rabid golfer, (and I certainly am not) you can still enjoy the views, benches are tucked away on each tee, so you can sit and simply enjoy nature. At certain times of the year you can use the benches to spot the celebrity, with esteemed players such as Ernie Els, Gary Player and celebrities like Jodi Foster and Samuel L. Jackson having graced the golf course. It’s easy to try and pigeonhole the estate as a retirement resort, but that is not the case, an www.reimag.co.za


LIFESTYLE eclectic mix of both working, retired and workfrom-home families live on the estate, along with foreign holiday homeowners. And if you happen to have some adorable ankle biters, there are schools not far from the estate in the neighbouring town of Hermanus. Both public and private, they have excellent reputations and offer schooling from nursery right through to high school. After my tour of the estate, I am sold, the views alone make me want to sell some organs and put down a deposit on a house. Steve returns me to the hotel and after a quick coffee and exchange of numbers should I need any guidance on places to visit, I am at the reception desk checking in to my room at the Arabella Hotel. The 5-star treatment has me feeling quite pampered and I head down to the spa, I have heard wonderful things about the indoor heated hydro pool and it certainly doesn’t disappoint. Body temperature water buffets my tense muscles and I start to slowly relax, the stress of the week before receding as I simply lie and let the water do it’s magic. My next stop in search of stress relief is a neck, back and shoulder massage at the Spa. Ronald rubs and pounds my stubborn knots into submission, after ten minutes he tells me he doesn’t even have to ask if I have a stressful job, but lying on the massage table with scents of jasmine and soothing music in my ear, I am truly in heaven, and if I could steal Ronald and take him back to Cape Town with me I would, his massage was that good! And what better way to end a massage than a good steam and then sauna? Back in my room I order a cheese board and sip a chilled glass

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of Waterford Sauvignon Blanc, it’s one of those moments you simply want to freeze, sipping wine as the sun sets over the lagoon, I am truly humbled by the natural beauty and 5-star experience Arabella offers. With the sun truly set, and a quick change of clothing I am off to dinner at Premier, and I have heard some great things about this restaurant so I am eager to try it out. The menu is straight from the cordon bleu and fashion cookbooks and the food is like a work of art. The staff are truly happy and create an enchanting atmosphere to sip a glass of wine and sample the amazing cuisine. Never have I had a foie gras crème caramel, and the richness of the foie gras is cut by the sweetness of the caramel, creating a heavenly dance of ingredients on my palette. Next up is a taste of the peppercorn beef fillet and the meat is cooked to perfection, my knife simply sliding through the meat. The rich flavour of the pepper doesn’t overwhelm the taste of the fillet and the natural jus makes this dish a winner. Feeling about 5 kg heavier and sated, it’s time to head back to my room and the fairies have been hard at work placing water and chocolate next to my bed and putting blackout lining behind the curtains, ensuring that no matter what time I wake up, in my room it’s like midnight. It is with a heavy heart that I check out the next morning, my experience has left me relaxed and I feel like I could take on the world right now. The Arabella Estate offers something for everyone and offers the highest quality of life and will give you a truly unforgettable experience, as for me, I am off to play the lotto, more than a destination, I want to call Arabella home.

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TECH TALK

BY RUSSELL BENNETT

The Wintel Whirlwind Rises Intel is back

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f you thought that the tablet and smartphone wars may have been starting to settle, prepare to have your mind blown over the last half of this year. This, ladies and gents, is really where the battle gets started... Apple may have arrived in the market first, and have been enormously successful too, make no mistake. But that didn’t stop the upstart OS made by none other than the gatekeeper of how the world views the Internet today, Google, coming in and turning the market upside down with sales volumes easily outstripping the pioneer’s efforts. Apple alone, after all, can only produce a finite number of products in any given month. For real volume, spreading the platform around over a variety of huge global electronics brands will always win. Google is only now actually releasing its own hardware design, but already Android is easily the strongest player. User experience debates aside. The two biggest guns in technology for the last two decades, however, have been conspicuous in their relative silence. With Microsoft only officially releasing Windows 8 late in 2012, and tablets sporting the new Microsoft flagship only hitting shelves early this year, one of these monoliths had showed its hand. However this, too, was only the initial warning shot. The really large cannons had yet to even be loaded. Windows 8 tablets are lovely to use, but the real trick of this environment is the ability to run not only the new breed of Windows Store apps, but “legacy” software as well. 62

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Any application which the desktop version of the software will run, the tablet iteration can handle too. The only drawback being that this version of Windows 8 runs best on Intel architecture, resulting in tablets which are quite pricey even compared to the Apple competitors. Trickily enough, Windows 8 also comes in an RT flavour, which happens to be the only version that supports the more popular ARM processors. So you could either have pricey but appealing, or cheaper but limited to a level of functionality not all that superior to an Android-powered device. Which is probably why Windows 8 tablets haven’t really had the impact we might have expected as yet, and is stuck struggling to catch up. The old Wintel alliance is a force which cannot be counted out early though. In June this year, Intel demoed its own reference tablet designs built on the brand-new Bay Field SoC (System on Chip) architecture. In short, quadcore Intel Atom CPUs running at 2.1 GHz backed up by some major GPU f irepower replacing the PowerVR SGX 544. Intel’s own 7th-gen Ivy Bridge GPUs in fact, which deliver graphics horsepower of between 3 and 4 times the performance of the older part. This means the new architecture has the juice to power screens with a much higher pixel density (PPI) than before, without any performance concerns whatsoever. A hiccup which even the mighty Apple had to face up to with the iPad 3, and the reason why this generation was so quickly sidelined and updated.

The high resolution the Retina display of iPad 3 is capable of asked too much of the chipset it was first paired with, causing both performance problems and quite severe battery drain. Apple could counter the latter by squeezing in a larger cell, but the former was only fixed with an upgraded hardware architecture. Windows 8 with Bay Field SoCs will have no such hurdles to overcome. What’s more, these latest parts are also built using the latest fabrication techniques, a move to a 22nm die size means more power with even less power consumption, less heat to manage, and an even more compact package to design around. The huge network of partners this formidable alliance has built in the desktop space over the years are having a field day with designs around this architecture right now, and we’ll be able to buy the first results very, very soon. Which brings me to the killer. Not only will these tablets be superb in terms of performance and responsiveness, they’re going to be driving the prices down too. Expect to be able to pick up a Retina-matching display backed by this latest Intel architecture and running a full version of Windows 8 for Christmas 2013 in the R4000 price bracket. The Wintel alliance is rising again, in the mobile space this time. This pair of giants hasn’t dominated the desktop PC environment for going on three decades now for no reason. Don’t think it beyond them now that they’ve teamed up once more to become just as dominant in mobile, regardless of the success of the iOS and Android systems. www.reimag.co.za


MOTOR TALK

BY RUSSELL BENNETT

The Downsizing Dilemma Does it work?

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n our next issue of REIM, we look at several new cars which effectively embody the modern trend of downsizing to evaluate just when this approach works, and when it doesn’t. Like any new approach to minimising costs while simultaneously reducing carbon footprint, the various considerations have to be balanced in order to provide the customer with a compelling reason to make the adjustment, as change is a state which most people around the world are only happy to deal with if forced to do so or at least convinced by the positive aspects. A heavy-handed and dictatorial approach is not going to be accepted. In this scenario, a motoring manufacturer foisting a new product which is in all the old quantitative metrics inferior to more traditional products but does provide superior fuel efficiency and produce fewer emissions, won’t sell in huge numbers purely on the strength of the argument that “everyone has to reduce their carbon footprint if we’re to reverse the effects of human-induced climate change, therefore you must pay more for this new product even though it’s not as appealing a vehicle using the judgement criteria of yesterday”. Sure, the general public understands that climate change is an issue, or at least is going to be an issue at some unspecified point in the future. However this same general public is also perfectly aware that the companies at the top of the economic food chain pay little more than lip-service to the problem while boosting their profits selling this so-called solution. www.reimag.co.za

That’s not to say these same manufacturing giants aren’t investing capital and going to some lengths to drive down their own carbon impact. In recent years the major players have taken great strides in reducing their output of pollution as well as increasing their utilisation of renewableenergy alternatives compared to the dirty, traditional sources.

And how is this value passed down to the consumer? In higher prices for less desirable products. Today, purchasing a car which is greener and more environmentally efficient than previous generations comes at a substantial price premium, the most ludicrous example of which is the Ford Fiesta 1.0 Ecoboost which forms a part of this article series.

However even these steps have not been taken in the interests of global philanthropy. No, despite the initial capital costs, these actions are justified by increasing profits through reduction of costs. Manufacturing plants drawing the bulk of their energy needs from their own supply generated by vast solar banks might cost a lot to initially build, but over the years they represent a significant reduction in input cost which quickly amortises the initial expense and ultimately turns into an invaluable ongoing asset.

Not only is it the most expensive Fiesta on sale today (bar the nicely spicy ST model now added to the range), it’s comfortably the most expensive Fiesta ever released. And it can’t justify this price tag by claiming to include a raft of all-new efficiency-boosting technology the development costs of which have to be carried by the consumer, like for instance a hybrid vehicle can. All Ford has really done is reduce the engine size by dropping a cylinder and boost the power output of the result by adding a turbo. Not rocket science at all in the field of automotive engineering.

What’s more, these expenses yield carbon credits for the corporation which they are able to profit from immediately by trading the long-term reduction in CO2 output on the global carbon exchange. A mechanism which itself makes a mockery of “reducing our carbon footprint for the good of future generations” as the PR pieces will spin it. Driving down your own megacorporation’s output of harmful greenhouse gasses is itself an enormous business opportunity, as it enables other companies unwilling or unable to comply with the emissions output restrictions prescribed to become compliant simply by purchasing these carbon credits. So the capital expense generates immediate, real value.

Any consumer putting an iota of thought into their new car purchase can recognise the cognitive dissonance this reasoning introduces to the purchasing decision, and isn’t likely to appreciate the sentiment. There are however several ways in which selling the concept of downsizing as a positive does actually work, but trying to force the customer to sacrifice the motoring pleasure they’ve become accustomed to enjoying for a higher price based purely on fear mongering is tantamount to simply not contributing to finding a solution. August 2013 SA Real Estate Investor

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LESSONS

BY VANESSA CUSENS

Selecting innovative leaders for Is a matter of consciousness

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hen Michael Jordaan announced that he would be leaving his position as CEO of First National Bank (FNB) in May this year, he reminded the media that he was “stepping down”, not “retiring”. “There are 193 countries in the world and I haven’t seen all of them. I want to visit places where there are great ideas around technology and innovation,” he told a press conference. His choice of words is telling: under his tenure, FNB gained a reputation for always being at the front-end of banking innovation. In October 2012, FNB was named the most innovative bank in the world at the BAI-Finacle Global Banking Innovation Awards – recognition of the company’s ability to track and respond to customer needs and evolve continuously. “The importance of innovative leadership in business has become even more apparent in the 21st Century environment,” says Georgina Barrick, CEO of executive search firm Humanity Search & Select. “We’ve seen a radical change from the 20th-century paradigm, which concentrated on market share and efficiency as the drivers of profit. As Adrian Slywotzky, David Morrison and Bob Andelman put it back in 1997, in their ground-breaking business book The Profit Zone, ‘market share is dead.’ In fact, under certain conditions a company holding a majority market share can be less profitable than businesses with smaller market share.”

Successful leadership explores all potential profit streams In their analysis, Slywotzky, Morrison and Andelman examined companies – and leaders – that had moved beyond market share as a yardstick, and seen increases in profit as a result. Michael Eisner increased profitability at Walt Disney by 3 000%, for example, by creating multiple profit channels spun off from the company’s core business: family movies. Films now generate a soundtrack album, a DVD, a Broadway show, a theme park ride and a range of souvenir merchandising. Around Disney theme

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parks, the introduction of Disney-owned hotels, restaurants and merchandising saw the company profit rise from 20% to 75% of a family’s holiday spending. General Electric (GE) has been a business giant for more than 50 years – The Profit Zone points out that this continued ascendancy is thanks largely to former CEO Jack Welch’s foresight. When he saw a decline in profits from the company’s core business – manufacturing aircraft engines and appliances – despite the fact that it commanded considerable market share, he reinvented the company to take advantage of new profit zones: in financing, servicing and maintaining these products. “Reinvention is central to innovative business, especially in the information age,” says Georgina Barrick. “Instead of market share, Slywotzky et al talk about identifying ‘profit zones’ and ‘nonprofit zones’. The key to sustained success is doing business in the profit zones and not committing company time and resources to non-profit zones. They provide 22 different business designs; all of them showing how different criteria will identify different profit zones, involving everything from niche marketing to brand reputation. But what they all have in common is innovation: these businesses have leaders who have an intuitive understanding of evolving needs and desires within the market. They also understand how changes in society and technology can allow new interventions that multiply profit streams.”

Innovation requires high-conscious leadership If constant innovation is the secret of success, how does a business find the creative leaders it needs – at all levels – to drive that innovation? Traditional

search tools only assess candidates’ functional competencies, but to identify innovators, candidates’ “consciousness” must also be assessed. Consciousness is a concept backed by scientific research. It refers to eight important behaviours – namely creativity, openness, trust, courage, self-awareness, confidence, intuition and instinct – shared by top leaders. “The biggest shift business is undergoing at present is a move away from assessing performance purely in terms of the bottom line,” says Barrick. “Instead, a more holistic trend is emerging – with companies like Apple, Microsoft and Google realising that they have a responsibility for the social and environmental consequences of their actions – the so-called ‘triple bottom line’. Tycoons like Bill Gates, Warren Buffett and Patrice Motsepe also understand that philanthropy is not merely an act of charity – it’s an investment in the future. Ambitious businesses need leaders who intuitively know that they need to swell their ranks with innovators; they know that the triple bottom line is not a ‘tick box’ exercise, but rather a focus that attracts a real return on the philanthropic or CSR investment. It takes high-consciousness individuals to implement this all-encompassing approach.” The research is unequivocal – whether it’s a multinational organisation or a small business, the only way a company can stay successful in an ever-changing environment is constant innovation; innovation that demands teams rich in CQ™. Humanity Search & Select has developed the only tool to assess CQ™ as a 360° application, and have verified it on a sample of more than 15 000 South Africans.

RESOURCES Humanity Search & Select www.reimag.co.za


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