Reim June 2013 issue by Combustion Publishing

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Exposed! Teetering House of Cards The truth about your financial debt GET OFF THE BLACKLIST Follow the simple steps inside

INSIDE THE CYPRUS MELTDOWN Property, banks & bailouts

SECURE YOUR BUSINESS Get serious about safety

TO BUY OR NOT TO BUY? Is now the right time?

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MASTER INVESTOR JAN LE ROUX

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CONTENTS June 2013 COVER STORIES

8 Master Investor

12 Exposed! Teetering House Of Cards

28 Get Off The Blacklist

32 To Buy Or Not To Buy?

50 Secure Your Business

58 Inside The Cyprus Meltdown

UPFRONT

RESIDENTIAL

COMMERCIAL

5 Investor Talk

22 Emotional Decision-Making

42 The Best Of Both Worlds

6 INBOX

24 Capital Growth

44 Property Broking

26 Removing The Mystery

46 What Do The Numbers Say?

32 Is Now The Right Time To Buy?

50 Secure Is Business Savvy

Responsibility At The Forefront

Ask The Property Experts

A recipe for disaster

Not the crux of property investment

The property market

8 Master Investor

The conservative property maverick

12 Exposed! Teetering House Of Cards The truth about your financial debt

18 News Alerts

The Good, Bad & Ugly

From property management Property experts say yes!

34 Secure Your Home

Stop intruders in their tracks

38 From Garage To Granny Flat With these simple steps

High income yield & long-term capital

Is it a dying art?

About the commercial property market

Key elements to a better commercial building

52 Hotels & Hospitality

Arthur Gillis on growth, the future & innovation

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June 2013 SA Real Estate Investor

THE TEAM

OFFSHORE 56 Transport For London

New Crossrail project creating property hotspots

57 Investing In The USA For Income Where should you be buying now?

58 Where Is Cyprus Now?

Neale Petersen Publisher

Angelique Redmond Editor

James Clark Designer

Brent Fisher Designer

Amy Little Designer

Juanita Heilbron Traffic

Marisa George Financial Manager

Russell Krynauw Sales Director

Roy Lategan Sales Team Leader

Renier Lombard Sales Executive

Russell Bennett Web Administrator

Melissa Petersen Office Assistant

Our expert Jenny Ellinas talks property, banks and bailouts

60 Investing In Kenya

The domestic market demands more

62 Emmigrating or Immigrating Brain drain versus a strong currency

LIFESTYLE 66 Get Your Golf Gear On

Golf estates: a must-have investment!

70 Put Public Spaces First And watch communities succeed

72 Get More For Less

CONTRIBUTORS

With open access networks

74 Team Players Take Second Husband and wife duo, Tertia & Nico

76 What’s Hot This Month Events, news & views

78 Socially Switched On Go digital or go home

Dr Andrew Golding

Monique Terrazas

Jonathan Smith

Koos du Toit

John Roberts

Scott Picken

Mike Smuts

Gordon Mackay

Michael Dryden

Ian Anderson

Samuel Seeff

Lanice Steward

79 A Micro With Soul

The new 0.9-litre turbocharged Renault Clio 4

80 Creating Miracles

Through your habits and thoughts

Printed by

Distributed by

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

BUYING PROPERTY?

Know the numbers RETIRE IN STYLE

Investing in retirement villages

PROPERTY Spot Checks What to look out for

THE 2013 BUDGET

Heavenly Tenants

How will you be affected?

How to find them

IRELAND & CANADA

Rent killing you!

Overseas investing made simple

How to save

April 2013 R50.00 (Incl. VAT) R43.86 Other Countries

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MASTER INVESTOR JANNIE MOUTON

Autumn 2013

LESSONS FROM A BILLIONAIRE INVESTOR

www.stanlib.com Z

Just

www.justpropertygroup.co.za

STANLIB Direct Property Investments manages the Liberty Property Portfolio which owns the Eastgate Shopping Centre and is the majority shareholder of Sandton City. We are in the process of registering and launching the STANLIB African Direct Property Fund which aims to invest in retail-led real estate developments with a focus on opportunities in Nigeria and Kenya.

JUST PROPERTY MAGAZINE

June 2013 SA Real Estate Investor

Politics, Policy & Property The road to a brighter future

APRIL 2013

Where investment and excellence meet STANLIB Direct Property Investments

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11th Annual IPD Property Investment Conference 18 & 19 July 2013

PROPERTY ON THE RED CARPET Westin Grand Hotel, Cape Town, South Africa

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June 2013 SA Real Estate Investor

INVESTOR TALK

BY ANGELIQUE REDMOND

Responsibility At The Forefront What image comes to mind when I say “f inance”? When I think of the word “finance”, the first thing which springs to my mind is debt, because with the rising cost of living, most people have debt in some way or another. Last month we examined where this ‘debt’ comes from, and this month we are looking at responsible debt. And I am not talking about spending only as much as you can afford, rather we look at good practices in the finance industry and how we can all be more responsible. Being responsible is also about taking control and if your f inances are out of control then our article on getting off the ‘ black ’ list will help you stop runaway spending and get your finances fighting fit. Money is a tool, a means to an end, but it is also a tool that needs to be respected, because misusing it can have serious consequences. Another aspect of life is South Africa that one simply cannot forget is crime, the newspapers are full of it; the billboards announce it every morning. So how can you keep yourself safe? With proper security measures! That is why this month we are looking at residential and commercial security: a safe property has more value than less secure properties.

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As always we look forward to your comments and your questions, and if you have a story you think people should hear, email me on angie@realemedia.co.za. And without further ado, here is the June edition of Real Estate Investor, enjoy!

Angelique Redmond EDITOR

Keep an eye on the Apple Istore for the launch of our new app!

FOREWORD

Investing your money wisely is probably one of your toughest decisions especially now in the current economic climate. Even with that being said, bricks and mortar still remains a top choice for many buying property in South Africa in particular. Property in whatever form from residential, commercial, offshore to listed is viewed as a relatively stable and secure place to stash the cash. Study and discipline are the prerequisite to any form of accomplishment. Unfortunately however, studying is much like paying taxes for most of us - we only do it when we have to. If you’re serious about developing greatness in your life, study the lives of great men and women and follow their advice! Benjamin Franklin was one of the giants. He was certainly a great leader and left anyone, who was eager to learn, an abundance of advice. One bit of advice Franklin gave, if followed, will virtually guarantee you a brilliant future. “If a person empties their purse into their head, no one can take it away from them. An investment in knowledge always pays the best interest.” That is excellent advice for personal growth. Neale Petersen PUBLISHER

“ You cannot escape the responsibility of tomorrow by evading it today.” Abraham Lincoln (1808 - 1865) www.reimag.co.za

June 2013 SA Real Estate Investor

INBOX Managing Your Property

Gordon Mackay The Streetwise Millionaire www.gordonmackay.co.za

Aidan Motseng Asks:

With all the properties you have bought and invested in, did you manage them yourself or did you delegate to proficient companies and surround yourself with qualified professionals?

Gordon Mackay Answers:

“Nobody cares more about your money than you do,” never, ever forget this statement. In other words you need to take total responsibility for your own money and have total control. I have always managed my own properties until I reached a stage where I needed help as the workload was too much. I then employed people whom I trained to use my systems. I also continually improve on my systems to make them more efficient and effective. I have my finger on the pulse at all times and have total control. By delegating to other companies you lose a certain amount of control plus you still need to double-check them. It has taken me many years to find the right people who are street wise to handle my other affairs such as estate agents, attorneys, accountants, service providers etc. I highly recommend you self-manage and create systems for everything, so it is easy to have total control. A lso, always keep improving on your systems.

A PTY LTD Company

Michael Dryden Finserve Trust & Accounting www.finserve-trusts.com

Scott Cundill Asks:

If I create a PTY LTD company, and sign an agreement that the property belongs to the PTY until it’s formally transferred, and agree to sell the property to the company at a price that covers no less than all the costs, including the full bond, is this legal?

Michael Dryden Answers:

I certainly would advise that the respective investors own their shares in a trust as this minimises (or eliminates) the impact on the Pty Ltd should an investor be declared insolvent or be sued for some reason. The trust will also fulfill other advantages to the investor such as risk mitigation and estate planning. The only issue is in terms of the amount, it seems the property will not be sold at its market value. If the amount is less than the actual market value at the date of sale, then the difference could be recognised as a donation and taxable at 20%. SARS might also deem the sale to be at market value and therefore additional Transfer Duty / VAT / Capital Gains Tax will be payable (with penalties and interest). If the amount is above the market value of the property, then the investors could deem the transaction as fraudulent. I do not think that it is possible to transfer the risks and ownership of the property to the company without doing an actual transfer.

The Property Market

Samuel Seeff Seeff www.seeff.com

Faye Ann Roberts Asks:

What are the biggest challenges facing the propert y market right now? As someone looking to invest in residential property, what should I be thinking about or know before I consider investing?

Samuel Seeff Answers:

The biggest challenge facing the real estate market is the ability of consumers to secure mortgage finance. Given that about 90% of home buyers require bonds, this has had a significant impact on the market since the introduction of the National Credit Act (NCA) in 2007. The banks’ appetite for mortgage risk despite the security on offer in bricks and mortar certainly is bearing heavily on the market. Since about 2010, mortgage bond levels have remained flat at just over 174,000 bonds annually, still about 48% below the over 330,000 granted in 2008. While the banks’ ability to grant mortgage finance is compounded by the high household debt levels and lack of consumer liquidity, we believe there is room for some relaxation of the tight credit criteria. We see for example that growing numbers of consumers are self-employed or in small businesses and getting a bond is difficult, arduous and onerous for the consumer. The golden rule of property investment has always been location, location, location and this is as true for the South African market as for the biggest global markets.

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

June 2013 SA Real Estate Investor

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MASTER INVESTOR

BY NEALE PETERSEN

Success Is Always About Putting People First End every day with something you really enjoy

June 2013 SA Real Estate Investor

www.reimag.co.za

an le Roux is a veteran in the residential property game, with almost 30 years of experience in the business. Jan is the founder and CEO of Leapfrog Property Group, which he built from scratch in 2007 with ex-RE/ MAX CEO, Bruce Swain, who is now the MD of Leapfrog. Jan is originally from Klerksdorp, where he completed his schooling. He left Klerksdorp in 1971 after he obtained a law bursary to study at Rand Afrikaans University (now the University of Johannesburg). After three years of studying law, Jan became a prosecutor. He resigned at tea time on the first day. Jan says that after two and a half hours on the job, he realised that a career as a prosecutor was not for him. Nevertheless, he had to work for government for three years to pay back his

UPFRONT The Leapfrog story The result of a collaboration between Jan and Bruce Swain, former CEO of RE/MAX South Africa, Leapfrog has a truly unique value proposition in the South African real estate industry. It is South Africa’s first empowered residential real estate group, 70% owned by The New Deal trust (the object of which is the empowerment of black estate agents in South Africa), with former Scorpions head, Bulelani Ngcuka, Nazeem Howa and Jan acting as trustees. Jan says they set out to shake-up the predominantly family-owned real estate agency industry in South Africa. Leapfrog offers it agents a radically improved earning potential over the current industry status quo, as well as financial security in the long term, which has been sorely lacking in the industry.

“Leapfrog focuses on enticing the best agents in the country by offering them an opportunity to build their own wealth” bursary, after which he worked for Santam for a year in project finance.

The property bug bites

Always an entrepreneur at heart, Jan started his own estate agency business in August 1983. Megaland Properties operated in the Northcliff, Weltevreden Park and Rand Park Ridge areas in Johannesburg and presented Jan with a major learning curve. In the same year he and 19 other estate agents formed The Property Association, which became known as the PA Group. In 1986, he became chairman of the PA Group and converted it into the PA Group Limited. In 2003 PA Group merged with BetterBond and became known as the PA Betterbond Group, since then the country’s biggest bond originator. It owned and published magazines and newspapers and had an interest in the Property Guide (now Property) through The Star newspaper. The company also launched Homefinder, which is now published under the name Property Junction, and acquired the Property Professional. In 2006, Jan sold his shares in the business. www.reimag.co.za

Given Leapfrog’s aim to be one of the top national agencies selling real estate in South Africa within a few years, the company needed a strong team. As a result, it focuses on enticing the best agents in the country by offering them an opportunity to build their own wealth with a commission and incentive structure that is unparalleled in the real estate industry. Additiona lly, Leapfrog agents have the opportunity to acquire shares in the company. Jan says that much of the success Leapfrog experienced stems from their ability to find good people who can be trusted. “I believe in partnerships,” he says.

Plying the property trade Jan says all his personal assets are directly held in real estate and he has always held property in his investment portfolio. He first started investing in property when he was just 21 years old. After completing his studies, he served as an officer in the army in Pretoria for two years. It was during this time that he teamed up with an auditor friend in the

JAN LE ROUX Personal Statistics Age: 59 Qualifications/Experience: Law degree at Rand Afrikaans University (now called University of Johannesburg) Marital status: Married with two daughters. They both live in Cape Town within 500 metres of Jan’s home.

Close-up Mentors: Jan believes you can learn from successful people, such as Warren Buffett, whose unique investment philosophy suggests that buying a stake in a company can be your best investment. When Jan was Chairman of the PA Betterbond Group, he worked closely with MD, Rudi Botha, and learnt much from Rudi’s business skills, despite Rudi being younger. Books: Jan is an avid reader of books and enjoys biographies, novels and political books. He is the proud owner of around 2 500 books, excluding his library of iPad book downloads. He has read countless stories of men and women who had great purpose and high ideals, and reached incredible goals, despite obstacles or circumstances that would deter the average person. Motto: It always about people. If you have the right people with the right attitude, you can teach the skills.

June 2013 SA Real Estate Investor

MASTER INVESTOR army, who became his investment partner in his first property venture.

out properties in Pretoria and Johannesburg and, later, in Cape Town.

They received financial assistance from his father, as well as bank finance, to get the project off the ground. Together they built seven apartments, called Roodeberg, in Pretoria, which they subsequently sold for a handsome profit. This allowed them to pay all the money back to his father and still earn a great return. Jan says this was his first great success. Most of his investments after that was buying and renting

Jan says that in the current market his investments have not performed as well as he would have liked, but he still believes that buying a property is a sound base that can set you up financially for life.

Future

Jan does not foresee an upswing in the market over the next two to three years. He advises

“Obtaining a home loan might become harder in future, both due to the banks’ strict lending criteria and the increasing pressure on household disposable income”

others not to hold back and wait for the market to turn around – instead, we need to learn to make money in the current market. Jan says that it is comparatively easier to get a bond now than it was two years ago, although buyers still need to have their ducks in a row to obtain a mortgage. Obtaining a home loan might become harder in future, both due to the banks’ strict lending criteria and the increasing pressure on household disposable income. Jan believes that purchasing a home to live in is always a good investment – everyone needs a home and, in time, the property will appreciate in value. “There are, however, a few things to keep in mind when looking to purchase. Location is important: a property in a good area with access to amenities and schools will likely increase more in value, and will be easier to sell later,” he says. Jan also suggests keeping unforeseen costs in mind and making provision for them. “Most people prepare for buying a home by saving for a deposit and calculating their monthly bond repayments. However, many neglect to take into account the conveyancing fees, legal fees and, later, the monthly municipal costs. Being unprepared for these costs can place a lot of pressure on a new homeowner,” he says.

JAN’S ADVICE FOR PROPERTY INVESTORS

“Location, location, location” remains an age-old success factor

Buy the cheapest property in the best area

Buy in close proximity to employment hubs

Buy where public transport is easily accessible

Don’t buy investment properties based on emotions

Jan’s Best Financial Advice: Don’t live with debt. Only borrow to secure a solid investment such as property. Everything else must be bought with cash. Enjoy life but don’t borrow to live well.

RESOURCES Leapfrog 10

June 2013 SA Real Estate Investor

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COVER STORY

BY MONIQUE TERRAZAS

Exposed! Teetering House Of Cards The truth about your financial debt

June 2013 SA Real Estate Investor

www.reimag.co.za

UPFRONT

hen our parents and grandparents told us to stay out of debt, they probably d id not re a l is e t he impossibility of the task, because in the days when money was backed by actual, real gold reserves, they would not have been able to conceive of the shaky house of cards the global financial system has become.

The US government debt amounts to about 75% of their GDP. If intra-governmental hold ings ( gover nment bor row ing f rom federa l tr ust funds – such as the Socia l Security Trust Fund) is included, the total US public debt amounts to $16 trillion - or $50 000 for every man, woman and child in the US, according to the Associated Press.

It is a house of ca rds bu i lt on debt. Governments are trillions of dollars in debt. Banking institutions have lent billions of dollars they do not have. And individuals across the planet are drowning in debt.

In countries such as France (90%), the UK (91%), Ireland (118%) and Portugal (119%), the debt-to-GDP ratio is so high that these economies are in danger of collapsing. And Japan has recently launched the largest money printing exercise in its history.

So where does all the money that is being borrowed come from? As we saw in the May 2013 edition of REIM, money is no longer backed up by gold reser ves, it is simply “created” out of thin air through the ‘fractional reserve’ banking system used by governments, central banks and financial institutions across the globe. This system allows these institutions to “create” the money borrowed through a “deposit entry” which is based on a borrower’s “promise to pay” the loan back over time, and involves no actual deposit anywhere or at any time. So, the banks do not actually lend out money they already possess, but rather “create” the money loaned to borrowers – whether that is a government or an individual – through electronic book entries based solely on the borrower’s “promise to pay”. In simple terms, “money” is created through debt. The interest burden caused by this fractional system is inherently unsustainable, extremely dangerous and has sparked the financial crisis. It has also buried governments, f inancial institutions and people across the globe under mountains of debt.

Bottomless pit This is clearly evident in figures that are widely available (have a look, for example, at www. economist.com/content/global_debt_clock), but poorly understood. Government debt (money owed by a government to its creditors) is at an all-time high. In April 2013, the debt held by the US public amounted to a staggering $12 trillion – that is $12 000 000 000 000. Because the figures are so mind-blowing, government debt is often expressed as a percentage of Gross Domestic Product (GDP), known as the debt-to-GDP ratio. www.reimag.co.za

In South Africa, the picture is perhaps less terrif ying, but it is certainly deeply concerning. According to ratings agency Fitch, national government debt rose to 41% of GDP (around 43% including local authorities) at end 2012, from 27% at end 2008. The Democratic Alliance claims that government debt over the medium term - and when contingent liabilities are included - now extends beyond 50% of GDP. According to the Economist’s September 2012 f igures, South Africa’s public debt amounts to R1.4 trillion (R1 431 104 244 620 to be exact) or R29 335 for each South African citizen (calculated at 48,7 million people). Meanwhile, countless financial institutions around the world are perched on the edge of f inancial collapse – an outcome that is not unlikely, given the number of banks that have already failed or had to be bailed out by governments. And the people, too, are in debt. Last year, the International Monetar y Fund (IMF) reported: “Household debt soared in the years leading up to the Great Recession. In advanced economies, during the f ive years preceding 20 07, the ratio of household debt to income rose by an average of 39% points, to 138% . In Denma rk , Iceland, Ireland, the Netherlands, and Norway, debt peaked at more than 200% of household income. Household defaults, under water mortgages (where the loan balance exceeds the house value), foreclosures, and fire sales are now endemic to a number of economies. Household deleveraging by paying off debts or defaulting on them has begun in some countries. It has been most pronounced in the

United States, where about two-thirds of the debt reduction reflects defaults.” The Federal Reserve Bank of New York ’s 2012 Q4 Quarterly Report on Household Debt and Credit indicated that outstanding US consumer debt stood amounts to $11.34 trillion. Household debt as a percentage of disposable income rose from 68% in 1980 to a peak of 128% in 2007, prior to dropping to 112% by 2011. Household debt as a % GDP stood at 86% in 2011! While our financial system is strong and highly regulated, South Africa has not been immune to this global debt trap. The value of outstanding credit balances in the South African household sector stood at R1.311 trillion at the end of February 2013. Of the 19.69 million active credit consumers owing this money, 46.9% - almost half - have impaired credit records. This is not surprising, given our 75.8% debt-to-disposable income ratio, which is extremely high at this time of prolonged low interest rates. A 75.8% debt-to-disposable income ratio means that for every R100 South Africans earn, R75.80 goes towards debt repayments, leaving just R24.20 of each R100 for day-today living costs, which are soaring. But this is not the worst case scenario: in his Budget Speech earlier this year, Finance Minister Pravin Gordhan, noted: “We are concerned by the abuse of emolument attachment orders that has left many workers without money to live on after they have serviced their debts every month. We are in discussion with the National Credit Regulator, the Department of Justice and banks, to ensure that the lending market remedies its behaviour.”

“Bad” debt What is even more concerning is that this mountain of debt is not the “good” kind of debt that allows people to acquire assets that increase in value over time, such a mortgage bonds. In fact, Minister Gordhan mentioned this too in his 2013 Budget Speech: “The share of new mortgage lending has fallen rapidly, and is now less than or almost equal to both new vehicle credit and new personal loans.” This means that most of the debt South Africans face is “unsecured credit” - short-term loans such as personal loans, micro finance, credit card debt and overdrafts that are not backed June 2013 SA Real Estate Investor

COVER STORY up by security of any kind, allowing the banks to charge high interest. This high interest may not seem so high right now when we have enjoyed the lowest interest rates in decades for a prolonged period of time. But many experts are deeply concerned about the level of debt defaults that could occur if interest rates begin to rise, given that half of credit consumers are already unable to service their debts.

The buck stops where? Don’t believe for one moment that government debt is not your problem. Don’t think that mass debt defaults – that could be triggered by interest rate increases – will affect only the financial institutions, without affecting each one of us. And don’t believe that a 75.8% debtto-income ratio is a concern reserved for the experts. As the people of Cyprus recently discovered, the buck stops with the citizens of the country – and that is you and I. How exactly does all this debt become my problem and yours? Firstly, government debt attracts interest costs, which is paid with our tax money – money that could be used to provide roads, health care, safety and security. A government’s debt-toGDP ratio is used by investors to measure a country’s ability to make future payments on its debt, thus affecting the country’s borrowing costs and government bond yields. The higher the debt, the higher the interest cost associated with that debt. In South Africa’s case, the interest cost of state debt is projected to rise to almost R100 billion in 2013/2014. Over the past three years the cost of state debt has

June 2013 SA Real Estate Investor

risen by an average annual rate of almost 16%, making it one of the fastest rising expenditure items in the Budget. If government’s borrowing, which is clearly on the rise, is left unchecked, government debt will quickly become a major hindrance to achieving many vital policy objectives. In fact, the cost of debt already exceeds the total budget allocation to our police services. The buck stops with us – the victims of a crime rate that is among one of the highest in the world. Understand, however, that “government” is an institution run by a transient group of people, who have been authorised by a majority vote among the country’s citizens to manage the affairs of the country on their behalf, for a few years. In addition to giving “government” the power to act on our collective behalf, we also fund the “government” through taxes to fulfil its mandate. So when “government” borrows money, it does so on our behalf, and the debt will belong to all of us, long after this “government” has served its term. For this reason, a government’s total debt is often expressed as an amount per capita – currently R29 335 for each South African citizen. The buck stops with us. Thirdly, it is the taxes we pay that allow governments to “borrow” money that does not exist, but is “created” through the fractional

reserve system. A government’s “promise to pay” is underpinned by projected tax revenues that can be collected from future generations of workers in the country. Based on this, a government can “promise to pay” vast amounts of money in the future (when they will no longer be in power!) and the central banks use this “promise to pay” to simply print more money – or, in our modern era – create vast amounts of “money” via electronic entries. Because this “created” money has no intrinsic value, it must derive value by taking value from the money already in circulation, and that is what we call, naïvely, “inflation”. And who bears the brunt of inflation? The buck stops with us. More concerningly, the people are also ultimately responsible for the actions of the country’s financial institutions. If mass debt defaults among the country’s citizens bring down the financial institutions, or if they bring themselves down through reckless lending practices, it will be up to the government, as the guarantor of the country’s banks, to bail them out. But as discussed above, the “government” is a transient group of people running an institution on behalf of the people of the country, and if the “government” cannot bail out the banks, because it is so deep in debt itself, the people are ultimately held responsible – through a newly coined term: “bail in”. It is a hard lesson the people of Cyprus just learnt.

www.reimag.co.za

UPFRONT Cyprus What happened in Cyprus? Essentially, the big banks in Cyprus took huge bets on Greek sovereign debt, and lost. The government, as the guarantor of the banks, had to bail the banks out, but could not, since it was bankrupt itself. To salvage the situation, a 10 billion euro loan from the European Union, European Central Bank and International Monetary Fund was negotiated as part of a debt settlement deal, with one significant condition – Cyprus had to raise 5.8 billion Euros to qualify for the loan. And where does a bankrupt country get 5.8 billion Euros? By dipping into the accounts of those who hold accounts with the country’s two largest banks - deposits held safely, supposedly, in trust! The buck stops with us. Thankfully, this time round, the lower and middle income groups, which are invariably also heavily indebted, were not the main targets of the “appropriation” of bank deposits. The target is depositors in the upper middle and upper income groups, with more than 100 000 Euros in the top two banks - Bank of Cyprus (BoC) and Laiki or ‘Popular Bank’ - who face losing a large chunk, up to 40%, of their money. Thereafter, the second target will be the bank accounts of small and medium sized firms, not to mention substantial Russian deposits in Cypriot banks.

Dangerous precedent It sets a dangerous precedent. What stops a government from including the low and middle income groups at a later stage? And as George Friedman of Stratfor Global Intelligence commented: “If Russian deposits can be seized in Nicosia, why not American deposits in Luxembourg? The proposal ... undermines a formerly sacred principle of banking in most industrial nations, the security of deposits – setting a new and possibly destabilising precedent in Europe.” Friedman notes that the point of the global banking system is that money is safe wherever it is deposited. If foreign depositors in European banks view Cyprus as a template for the future, foreign corporations – and even European corporations – could start pulling at least part of their cash out of European banks, putting it nonEuropean banks and transferring it as needed. If these withdrawals occur, it could create a massive liquidity crisis in Europe. “At the very least, every reasonable CFO (chief financial officer) www.reimag.co.za

will now assume that the risk in Europe has risen and that, in Europe, depositing money in a bank is no longer a no-brainer,” he says. In light of this, a statement from the International Institute of Finance (IIF), which represents more than 400 leading banks worldwide, is truly disturbing. It warned that “investors would be well advised to see the

of South African citizens and the decline of the financial system are not “government’s” concern: the buck stops with you and me. Our tax money and our “promises to pay” underscore the entire system, and when things go wrong, it is us who bear the brunt. Corporations cannot sign promises to pay. Only people, or those authorised to act on their

“We don’t have to wait for the global financial system to collapse to realise that it is you and I who will ultimately pay the price” outcome of Cyprus ... as a ref lection of how future stresses will be handled”.

behalf, can sign promises to pay. And when things go wrong, it is us who bear the brunt.

It is disturbing because major f inancial institutions around the world are in trouble. And while this is the first time that a “bail-in” for creditors, including deposit holders, was practically implemented, legal frameworks exist for it in a number of developed countries.

We don’t have to wait for the global financial system to collapse to realise that it is you and I who will ultimately pay the price. Just ask the hundreds of thousands of South Africans who have lost everything to the bottomless pit of debt that is the modern financial system.

In New Zea land a “ haircut plan” was envisaged as far back as 1997, during the time of the then Asian financial crisis. There are also provisions in place in both the UK and the US to facilitate the confiscation of bank deposits. Our government, using the authority and power we have bestowed on it through our vote, has also already ensured access to our bank accounts to collect taxes – through what is called an “agent’s appointment”. This allows SARS to implement a type of garnishee order against your bank account if you are an individual, or if you are a company, to “collect” their share from your account, even if that means cleaning it out. Furthermore, in Europe, depositor savings up to €100 000 are guaranteed to be secure should the institution fail/collapse; in South Africa, our banks do not offer this insurance, so should one of our banks collapse, all depositors will be at risk of losing all their savings.

If the financial institutions cannot honour their “promises to pay”, government will bail them out. If a government can’t honour its “promises to pay”, its citizens will be responsible for a “bail-in”, Cyprus-style. But if you can’t honour your “promise to pay”, well, then it’s a different story...

As Leadership Online concludes its article on the subject: “It can be expected that history will describe the events around Cyprus as the start of the final phase in the decline of the financial system that has been in place since the Great Depression of the 1930s.”

If you can’t pay your debts, there is no one to bail you out. Perhaps in an effort to maintain the house of cards, and to shift the focus away from their reckless lending practices, financial institutions have resorted to some seriously quest ionable debt col lect ion pract ices. Hundreds of thousands of South Africans’ lives have been destroyed as their homes and assets have been repossessed, possibly illegally, given the practices of securitisation, reckless lending and flouting the law, not to mention the legal and moral issues regarding the validit y and the interest charged on “loans” created through the fractional reserve system. These financial institutions also do not only repossess their “valued” customers’ possessions, but also ensure that they remain in debt for years afterwards and are blacklisted until they have cleared this “debt”.

So, the government’s debt, the lending practices of the financial institutions, the debt

But surely we are protected against such practices? What about the National Credit June 2013 SA Real Estate Investor

COVER STORY Act (NCA)? The National Credit Regulator’s ( NCR) i nve st ig at ions have u ncovered signif icance evidence of reckless lending by credit providers, to the extent that the NCR has found unconstitutional the Credit Industry Code of Conduct to Combat OverIndebtedness in terms of section 48(1) (b) of the National Credit Act (NCA). “The mismatch between sky-high debt and the credit industry codes speaks to the credit providers’ lack of enforcement of their code and the NCA. The banks have refused to accept law such as the in duplum rule, which prohibits interest charges that exceed the amount of the principle debt,” says Deborah Solomon a registered debt counsellor and founder of The Debt Counselling Industry portal, theDCI.co.za. Debt counsellors around the country concur that when the banks start to respect, apply and abiding by the law, it would solve at least 80% of all industry problems. So a re we simply at the merc y of the shak y house of ca rds that is the globa l financial system? Are we to resign ourselves to bear the brunt of the debt created by governments, f inancia l instit utions and uninformed individuals? Are we powerless against governments that act unilaterally and contrary to the will and the benef it of the people, and f inancial institutions that blatantly flout the law? Absolutely not. In fact, the entire system d e p e n d s o n t h e i g n o r a n c e a n d n o ninvolvement of the people – and that means you and I. We hold the power in our hands, but it is power that we have yet to exercise. A “government” is appointed by the people of the country collectively, voted into power and then funded by the people. But through ignorance and non-involvement, we give government power w it hout demand ing accountability. We allow government to act unilaterally, to the detriment of the country and all of our people. It is up to us, the citizens of the country, to hold the government we have voted into power accountable for its actions, by being informed and involved. Only in a country where the citizens are ignorant and divided can the government can abuse the authority given to it by the people. Firstly, and most crucially, empower yourself with knowledge. Understand the function 16

June 2013 SA Real Estate Investor

of government, how it works and what the consequences are of its actions. As most of us are not legal experts, there are organisations such as the Free Market Foundation and the Law Review Project, as well as experts, analysts and intellectuals in private companies and political parties who raise red flags and explain the implications of government’s actions. If you cannot get involved actively, at least contribute to the important work these organisations do to prevent government from taking advantage of our ignorance and our non-involvement. Secondly, realise the importance of your vote. The people of this country hold the power to decide who will be authorised to manage the affairs of this country. Exercise this power by

the power, but – again – only if we act as one. We need to stand together against financial institutions that blatantly f lout the laws created to protect us – their “valued” customers – from their reckless lending behaviour, for which we will ultimate bear the brunt. When organisations such as theDCI.co.za, NewEra and the Ubuntu Party take legal and civil action to ensure the big banks abide by the law, we – collectively - need to support them in every way possible. And as an individual, realise that you can extract yourself from the bottomless pit of debt and reclaim the power of your “promise to pay”. Educate yourself to understand the system and the laws that are in place to protect us from unscrupulous financial institutions.

“We hold the power in our hands, but it is power that we have yet to exercise” voting, and by voting for the party you believe is best qualified to act on behalf of all of us collectively. Don’t undermine the power of your vote by simply voting for the party your friends vote for, or based on emotions roused by passionate but meaningless campaigning. Read the part y manifestos and do some research to ensure that when you cast your vote, it will be for the party best positioned to run the affairs of this country, for the benefit of all of us. Thirdly, we need to keep government accountable. We can only do this if we are informed and act as one people. A divided nation is weak, and a government can take advantage of that. A united nation, standing together as one to demand accountability and responsibility from its government, for the good of all its people, tips the balance of power back to the people. And no attempt at dividing us makes any sense any more: 20 years ago we, the people of South Africa, collectively decided that we would move forward into the future as one Rainbow Nation. It doesn’t matter whether you are black, white, male, female, young or old, we – South Africans - all essentially want one and the same thing: fair, equal opportunity to create a better future for all our children. Also, we are not powerless victims of the financial institutions. As the consumers of their financial products and credit, we hold

Know your rights and stand on them. Respect the power of your “promise to pay” and honour your “promises to pay”, because it underscores the entire financial system. The house of cards is shaky. But, if we become informed and involved, we can responsibly and intelligently react to the harsh reality that the buck stops with us. Because the buck not only stops with us in future when the house of cards tumbles, the buck stops with us right now to prevent it from happening. If we – collectively - become a solid foundation, if our promises to pay become valuable again, because we make intelligent promises to pay and keep them, if we understand the game and demand that our government and our financial institutions play the game responsibly, intelligently and within the law, we can take back our power and transform the financial system from within and from its very foundation, for the greater good of all of us. *Don’t miss the next edition of Real Estate Investor magazine in which we will look at some practical ways in which you can reclaim the power of your “promise to pay”, and use it to contribute to a solid foundation for a financial system based on responsible lending and accountable government.

www.reimag.co.za

Be informed before you build or buy your house. Ensure that your home builder is registered with the NHBRC. Ensure that your home builder enrols your home with the NHBRC. When you enrol your home the NHBRC will: Conduct a minimum of four (4) inspections on your home; and Deal with complaints of non-compliance during construction. Your enrolled home will be covered for five (5) years by the NHBRC warranty scheme on major structure defects, from the day of occupation.

Quality is our Priority The National Home Builders Registration Council (NHBRC) is a statutory body with the responsibility to provide protection in terms of the Housing Consumer Protection Measures Act, 1998 (Act No 95 of 1998). It is mandated to provide protection for housing consumers and to regulate the home building industry.

Toll free: 0800 200 824 For more information go to: www.nhbrc.org.za www.reimag.co.za

June 2013 SA Real Estate Investor

NEWS ALERTS

BY MONIQUE TERRAZAS

Judgements, E-tolling & Guptagate The Good

The Bad

The Ugly

Claims against negligent conveyancers

E-tolling: this is just the beginning...

Guptagate

A recent judgement by the Supreme Court of Appeal (SCA) in the case of Margalit v Standard Bank of SA Ltd (883/2011) [2012] ZASCA 208 has been welcomed in the property industry, because it permits claims for damages against negligent conveyancers. The case involved the sale of immovable property, with two Standard Bank mortgage bonds held over it, which had to be cancelled before the property could be transferred. The bank had reportedly misplaced the title deed and mortgage bond documents, and proceeded to make a number of errors in lodging the application for transfer. The conveyancing attorneys mistakenly prepared for the transfer as if only one mortgage bond was registered over the property. As a result, it took more than a year to cancel both bonds. Due to the delay in Margalit receiving the purchase price, he instituted an action for damages in the Magistrates’ Court against the bank and attorneys, alleging that at least a portion of the delay was caused by the attorneys’ unprofessional conduct. The court held that it was clear that the attorneys were in possession of a copy of the title deed from the outset and that it reflected the two bonds registered over the property. Taking this into account, it concluded that the conveyancing attorneys were negligent and that their conduct did not meet the standard of care expected of a reasonable conveyancer, whose mistakes can cause adverse financial consequences to the parties. The judgement serves as a stern warning to attorneys who negligently allow undue delays.

June 2013 SA Real Estate Investor

While government is bulldozing ahead with tolling in Gauteng, despite massive opposition, and the City of Cape Town is fighting in court against the N1/N2 Winelands toll project, the South African National Roads Agency (Sanral) has announced plans to build another five toll roads across South Africa. Sanral is studying the feasibility of building new toll roads on the stretch of the N3 between Durban and Pietermaritzburg, on the N12 from Kimberley to Johannesburg, the N1 ring road at Musina, on the N1 between Kroonstad and Winburg, and on the N1 Botlokwa Interchange in Limpopo. The Eastern Cape has previously been earmarked for a new toll road. The agency says it is increasingly forced to look at implementing tolls as it did not have suff icient funds to upgrade and maintain national roads. This is despite the fact that the fuel levy of 29.6c /l on 93-octane petrol and 30.3c /l on diesel is expected to generate R46 billion this year, according to Treasury’s forecast. Unfortunately, for the past 19 years, the fuel levy has not been used for road maintenance, but proceeds have gone into the “general revenue pool”. If the fuel levy, portrayed as a road maintenance fund, is actually used to maintain and build roads, the tolls would be unnecessary. This is a matter of national concern! Support organisations such as OUTA as a matter of urgency: if we do not stop this injustice against our already overtaxed and overburdened people now, there is no telling how far government will go.

In the most extraordinary display of flagrant disregard for the citizens of this country, most of whom are struggling just to survive each day in crime-ridden communities, the ANC government flouted national security considerations to allow the wealthy and politically-connected Gupta family to land a private aircraft with wedding guests at a key South African military air force base. Worse yet, Police Minister Nathi Mthethwa has ordered an investigation to determine if any South African Police Service rules were violated in providing VIP protection - including 20 flying squad members, 10 high-powered flying squad cars, and 40 members of the police counterassault team and VIP protection unit - for guests attending the Gupta family wedding in Sun City! Perhaps we should demand that the “inquiries” into this abuse of power should be led by the people who were paying the price during the Gupta’s lavish two-day wedding celebrations: the impoverished workers earning their meagre minimum wage; the 8-year-olds in child-headed households trying to feed their hungry brothers and sisters; the women of this country, one of which is raped every few seconds. Let these victims of government’s unspeakable greed and arrogance decide whether government practiced Batho Pele (“People First”) when they allowed the Gupta’s to use our state resources for their private pleasure. It is a blatant abuse of power that should enrage any South African – regardless of race, colour, sex, age or political affiliation. South Africans need to stand together now against this abuse of power that is turning our Rainbow Nation into a banana republic. www.reimag.co.za

REI Residential

Capital Gains And Other Taxes W hen de a l i n g w it h ne w mor t g a g e b ond applications there is often a fear in buyers minds (as a result of being wrongly advised) that when theyvenetually sell their home, they will lose much of their profit on this, their primary asset, as a result of Capital Gains or other taxes. “A great deal of ‘education’ is still required on this subject,” says Mike van Alphen, National Manager of the Rawson Property Group’s bond origination division, Rawson Finance, “because less informed members of the public hold back from becoming property owners through fear of loosely defined taxes.” The Capital Gains Tax system, said van Alphen, is, in fact, slanted in favour of those who buy an inexpensive property in which their family will live.

Valuable Input

Adrian Goslett, CEO RE/MAX “Taking a proactive approach and using the right strategy can vastly reduce the term of the home loan, and therefore the interest payable on the loan as well as fast-track financial freedom for the homeowner.”

www.reimag.co.za

Andrew Schaefer, MD Trafalgar Property Group “Current low interest rates and the move of mortgage lenders like SA Home Loans into the sector will have a positive impact on affordability. However, as prices inevitably rise, the pressure on rentals will continue.”

June 2013 SA Real Estate Investor

SMART MOVES

BY KOOS DU TOIT

opportunities available. They take the time and make the effort to gain a thorough understanding of the risks and rewards and rigorously implement proven risk management techniques. And, they remain patient as they steadily and responsibly build up a solid portfolio.

Verifying the numbers

Emotional Decision-Making A recipe for disaster O ne of the greatest investment pitfalls property investors face is their own human nature which, in financial circles, is referred to as “investor risk”. It refers to the fact that investors are often swayed by emotion - ranging from wild optimism to sheer panic - which results in buying high, selling low, getting the timing wrong or abandoning long-term investment strategies in response to short-term market fluctuations. And propert y investors are certainly at risk of this pitfall, simply because property investment is exhilarating, the returns are exciting and the rate and speed of success is thrilling. As a result, many property investors get carried away and burn their fingers due to sheer overexcitement, overconfidence and emotional buying decisions.

Built-in protection Fortunately, a number of characteristics of the property investment game provide some protection against emotional decision-making. Firstly, the propert y market is far less susceptible to fickle investor sentiment and market volatility than, for example, the stock markets. Property values and rentals don’t plummet overnight as share prices or markets do, shielding property investors from the erratic stock price movements and market bubbles and crashes that often trigger investor euphoria or 22

June 2013 SA Real Estate Investor

panic. While economic conditions and market sentiment do impact the property market, the effect is lagged, and over the long term, rentals as well as property prices tend steadily upwards, regardless of economic conditions. Secondly, property is an illiquid investment, which means it cannot be acquired or disposed of in a moment of panic of euphoria. When acquiring a property, the process of obtaining finance inherently requires financial scrutiny and bank valuations, which provides some measure of protection against an emotional decision to buy a property which may not be what it seems. Similarly, a property cannot be sold on a whim, and obtaining valuations and offers prior to a sale provides the investor with some indication of whether selling is indeed the right option, or whether letting, subdividing, renovating or improving the property may yield a better return.

Steady and responsible Nevertheless, professional property investors – understanding the importance of making investment decisions devoid of emotion - use proven step-by-step systems and customdesigned software to ensure they acquire the right property, place the right tenant and make the right decisions, every time. This protects investors from acting irrationally, even when they are excited by the returns property investment yields and the many

Professional property investors also invest systematically according to a thoroughly considered and well thought through game plan. They don’t rush out and buy just any property. Instead, they do a thorough due diligence on each property to ensure it fits into their game plan and use custom-designed software to ensure the numbers add up. This entails making provision for maintenance costs, interest rate increases and vacancies in their cash f low projections, building and maintaining a buffer fund or a “war chest” to cover any unforeseen eventualities, and taking out rental insurance to cover any rental defaults.

Prudent gearing It also entails prudent and responsible gearing. Regardless of how exciting an opportunity may be, professional property investors don’t overextend themselves by over-gearing, given their cash f low positions. They carefully manage their available cash flow resources, ensuring the properties bought can be comfortably afforded at any given time, and only acquire further properties once their cash flow normalises as monthly shortfall payments reduce. Even though the property investment system is simple and streamlined, not to mention exciting and thrilling, professional property investors avoid emotional decision-making, exercising caution and prudence. This allows them to build up and pay off a portfolio of quality properties over the years, maintain these properties meticulously and rent them out only to well-screened tenants on a water-tight lease. And the result of this type of unemotional investment decision-making is nothing short of spectacular: solid financial independence within a few short years, and - once this has been secured - the ability to amass vast wealth, with virtually no limit.

RESOURCES P3 Investment Group

www.reimag.co.za

June 2013 SA Real Estate Investor

STRATEGIES

BY KOOS DU TOIT

Capital Growth W

Not the crux of property investment

hen making decisions regarding which asset classes to invest in, many so-called experts – focussing solely on capital growth - simply look at the current house price inf lation f igures, and dismiss buy-to-let property investment as a viable investment alternative, based on the current muted capital growth f igures that are a blanket average across various property segments throughout the country. In doing so, they ignore a number of crucial aspects - the very features of buy-to-let property investment that make it such a powerful tool for wealth creation: long-term growth trends in property values; capital growth variances across different property segments; and, most importantly, the ability of buy-to-let property to create an annuity income for life, in addition to the capital growth it produces.

Long-term capital appreciation Year-on-year and month-on-month house price growth data are published regularly in the media. Because the data - and its interpretation - is focussed on the short term, the longer-term picture is often obscured. In the case of property prices in South Africa, short-term data indicates that house price growth is currently slow if not stagnant. The house price growth in year-on-year terms for 2013 is expected to average lower single-digit growth of between 4-5% for the year as a whole, slightly below consumer price inflation and thus negative in real terms. But if the long-term data is considered, there is no doubt that house prices in South Africa have continued to rise, steadily but surely, even when the data is adjusted for the effects of inflation. In fact, historically, property values in South Africa over the past 20 years have risen 10.5% on average a year. 24

June 2013 SA Real Estate Investor

The “average” is just that: an average The average house price growth across all property segments spanning the entire country is also just that: an average. It obscures the reality that certain property segments are performing significantly better that the “average”. For example, according to Absa’s figures, the middle-segment house price growth came to 11.8% year-on-year, and this still does not reflect the even more impressive growth in specific areas, such as Lephalale (Ellisras) in Limpopo, to mention just one example.

The real power But the real power of buy-to-let property investment is not the capital growth – it is the ongoing, inflation-linked passive annuity income it produces.

“The real power of buy-to-let property is the ongoing, inflation-linked passive annuity income.” For this reason, professiona l propert y investors do not simply acquire properties with the hope that they might appreciate in value, they acquire property assets with long-term income-generating potential.

Milking the cow A useful analogy comparing a cattle farmer and a dairy farmer illustrates the difference between speculating with property for capital growth and investing in buy-to-let property to build an annuity income. A cattle farmer acquires cattle with the intention of selling them at a higher price. Many factors, most outside of the cattle farmer’s control, will influence whether this is possible. On the other hand, dairy farmers acquire cows with the intention to milk them over the long term. Of course, while the milk continues to provide the farmer with an income, the

cow is also appreciating in value. But the farmer’s intention is not to sell the cow to make a quick profit, but rather to milk the cow over the long term and to earn an ongoing, sustainable income. Similarly, the intention behind an investment in buy-to-let property is to hold the property over the long term, ‘milking’ its ability to produce a passive monthly income that keeps pace with inflation year after year.

Ongoing, inflation-linked income A well-chosen property in a good area with solid rental demand, which is maintained properly over time, will keep generating a monthly rental for the owner for as long as he or she owns the property. This passive monthly income keeps pace with inflation year after year, as the rental increases in line with inflation or the percentage stipulated in the lease agreement. In fact, if a property is acquired in the right structure, such as a trust, a well-chosen rental property can continue to generate income for an investor’s family beyond the investor’s life time. And this approach is almost immune to the property cycles, since regardless of whether propert y prices are rising or falling, the property produces an ongoing and passive inflation-linked income. While capital appreciation is not the main objective, property investors with a long-term investment horizon do not sacrifice capital growth to obtain the ongoing annuity income from the property that is the true objective of buy-to-let property investment. In fact, they are richly rewarded for their patience with superior capital growth over the long-term, as the ups and downs average out, producing a steady upward trend in property price inflation.

RESOURCES P3 Investment Group

www.reimag.co.za

VISUAL PROPERTY CLUB

ADVERTORIAL

Benefit by Contributing to Property Development in SA The Visual Property Club’s investment package is designed to save you time as well as tax. Section 13 sex of the Income Tax act was created to incentivise the private sector, through impressive tax benefits, to invest in South Africa’s housing needs. The Visual Property Club streamlines adherence to the Section’s rules and handles the selection of suitable properties, all property transfer administration and rental income on your behalf.

dequate housing in SA, in terms of quality of living standards and quantity, remains a critical concern.There is a severe lack of housing, especially rental accommodation, for low-to-middle-income families who want secure, accessible homes in areas close to key cities. In 2008,Treasury issued an amendment to the Income Tax Act, an incentive to motivate the private sector to assist with providing more affordable housing opportunities for the rental market. The underlying rationale behind these tax provisions is to encourage the building of more rental accommodation to supply the ever-growing housing needs in the country. Known as Section 13sex of the Income Tax Act, the tax rebate has a multiple effect, contributing to government’s housing plans while benefiting property developers, high-end property investors and ultimately the tenants who can rent in safe, secure surroundings for their families. Developers who qualify under the new 13sex will be able to write off the building costs incurred of all new and unused residential units, at an annual rate of 5%, for developments

that were built after 21 October 2008. Purchasers of buy-to-let residential units are also entitled to the tax write-off. This tax incentive is aimed at top-end investors as it is only available if the taxpayer owns a property portfolio of at least five residential units within SA, all for renting purposes. Four years after 13sex came into effect, the impact of proactive property developers is starting to show. Visual International is a developer who has designed and built the kind of property that this tax legislation requires. Stellendale Village is an award-winning development in the northern suburbs of Cape Town. It is a joint venture agreement between International Housing Solutions, the South African Workforce Housing Fund and Visual International. Stellendale Village provides a variety of housing solutions to low-to-middle income families and for buy-to-let investors. It is a solid investment with good rental yields, plus views of Table Mountain and the Helderberg Mountain. Visual International also decided to take the SARS-endorsed tax incentive one step further by creating an attractive and hassle-free investment package for potential investors. In partnership with law firm and 13sex tax specialists, Van der Merwe & Robertson Attorneys, they formed the Visual Property Club, an opportunity for investors to maximise their property investments and build

a long-term asset base. “Not only does the Visual Property Club assist with mortgages, registration and transfer of units at Stellendale Village, the club also provides additional benefits that guarantee that the rent is covered for the first two years as well as offering legal and property management services,” said Roelf van der Merwe, director of Van der Merwe & Robertson Attorneys. Amidst this 1500-unit development, 10% of the properties will be sold at discounts of more than R90 000 below the other units. These socalled ‘GAP houses’ are to attract first-time buyers who generally fall short on the income criteria for units at market prices or unsubsidised units, yet whose income is too high for government subsidised RDP housing. To qualify, the monthly household income of a typical GAP buyer would be between R3500 and R16 000. “In addition to providing quality living options to people who would otherwise struggle to find decent accommodation, this sector is also a huge job-creation vehicle, providing much-needed employment opportunity in the communities where affordable housing development takes place,” said Peter Grobbelaar, project director of Visual International.

WANT TO KNOW MORE Contact Roelf Van Der Merwe (practising attorney) on 021 976 4663 or roelf@vrincorporated.co.za The Visual Property Club is a joint initiative between Visual International Property Developers and Van Der Merwe & Robertson Attorneys. For more information please visit:

www.thevisualclub.co.za www.reimag.co.za

June 2013 SA Real Estate Investor

MANAGING

BY JOHN ROBERTS

From property management

OU know property managers exist, but the precise realms of their responsibilities remains a mystery. The irony is their work is fundamental to your property investment. In essence, property managers are third party players handling the daily operations of a real estate investment and their skills range across single family homes to large apartment complexes. It has emerged as among the most popular real estate specialities with some agents shifting away from selling to only managing properties. In an environment where buy-to-let property has become a key element in wealth creation, the role of property managers has grown exponentially in value. Their first responsibility is the rent, from setting the original level to collecting payments and adjusting those levels in the future. Their experience provides insight into the appropriate rental to attract tenants to your property. They can also become the rent collector, ensuring an optimal cash flow by setting the date by which rent is due and enforcing late penalties. When time comes for renewal, they are sufficiently aware of comparable rentals to adjust up or down in line with market demand. Property managers are responsible for tenants, from finding and screening those appropriate, to dealing with complaints or initiating evictions. They know where to advertise and can recognise the cosmetic changes that would boost a property’s selling point. Screening tenants requires credit checks to avoid future problems and then handling the leases - setting the length, ensuring the necessary provisions are in place to protect the owner and determining the deposits required. Given municipalities are now refusing to accept utility bills in tenants’ names, that deposit

June 2013 SA Real Estate Investor

also includes an amount against defaulting on electricity and water bills. If the agreement between owner and manager covers monthly responsibilities, property managers are responsible for dealing with maintenance requests, noise complaints and have the contacts to handle emergency situations. When tenants leave, they may be responsible for inspecting the unit, checking for damages and determining how much deposit is returned. In large complexes, property managers are responsible for the regular maintenance, emergency repairs and preventative maintenance including checking for leaks, landscaping and rubbish removal to keep the property in peak condition on the owners’ behalf. Good property managers know the laws pertaining to their jobs - Sectional Title Act, Law of Property and Real Estate law - such that they can apply correct procedures and comply with property safety standards. They are responsible for managing the budget for building and maintenance and retain the necessary records including income and expenses, inspections, signed leases, maintenance requests, complaints, repairs, rent collection and insurance costs. That leads on to the next issue - as a property investor, have you asked the right questions of your propert y manager to ensure the most appropriate care will be taken of your investment? What questions should you ask before embarking on that relationship?

The principle question is the level of fees charged Property management companies will charge fees based on their responsibilities. If owners only require the company to find and screen the prospective tenant, the percentage of annual rental charged will be higher as a once-off payment than if they are also responsible for the monthly collection and operating.

Typically the fees are 4-10% of gross monthly income, but owners should ensure the fee is based on rent collected and not on rent due. This protects them against paying the property manager on vacancy. However, as with everything in life, paying peanuts attracts monkeys. Do not be dazzled by low management fees, but be prepared to do your homework and establish a relationship with a property management company with a sound track record. Ensure you know what responsibilities they will undertake on your behalf - will they only collect the rentals and wash their hands of management until the following month’s rentals are due or will they provide a full range of services from tenant placement to maintenance requests and other issues? Knowing exactly what your management fee covers prevents nasty surprises when you ask for assistance with something you believed was part of the service only to find it is not. When your property investment falls within a complex or block of flats, ask questions about the finances relating to that entity. Where are the funds held; are levies paid into a separate account from which the costs are paid; who has access to the account and what are the reserves? You w i l l a lso need to establ ish t heir experiences on specific property investments make a judgement call on whether you believe someone who has only managed single property units has the skills to manage a 10-unit block - and their legal knowledge. The outcome will determine whether you believe the relationship between you will work.

RESOURCES Just Property Group

www.reimag.co.za

CUS T

CE VI

www.justresidential.co.za •

R SE R ME O

PROPERTY GROUP

EXCELLENCE

June 2013 SA Real Estate Investor

FINANCE

BY NEALE PETERSEN

How To Get Yourself Part Off The ‘Blacklist’ Your step-by-step guide

he global financial crisis has taken its toll on economies and on individuals all around the world, many of whom are struggling to make ends meet. Many over-indebted homeowners and investors had properties repossessed, as they could no longer meet their mortgage bond requirements. This eventually resulted in many banks taking legal action on thousands of over-indebted companies and individuals, which has resulted in many people having judgments, bad credit records and administration orders against them. Almost 50% of South Africans have bad credit listings today and this can be detrimental for them going forward in terms of getting a mortgage bond, renting a property, getting a personal loan or any type of credit for that matter from any financial institution or registered financial provider. In addition to that, getting a job can be difficult as well as your dream of running a company can be halted due to your bad credit record. REIM has partnered with

June 2013 SA Real Estate Investor

credit repair specialists My Budget Fitness to help indebted individuals and investors to get themselves back on their feet from a credit perspective. We show you a detailed step-bystep guide of how to get yourself back into creditworthiness. Understand that the process of credit worthiness is a fairly lengthy process and that will only be successful if all the steps are followed thoroughly. Should you wish to speed up the process it is always a good idea to get an attorney with experience to represent you. Here are the detailed steps to start your journey back to a clean credit record. It is important to follow each step carefully. Meyer de Waal, a practicing attorney who created the programme of Budget Fitness, represents one company that specialises in getting their client’s credit records clean. It is best to use attorneys such as them that specialise in this area to rehabilitate you to credit worthiness.

Step 1 - Source your credit report a. Get your credit report. By law you are allowed at least one free credit report per year from each of the credit agencies. b. Assess the state of your report and your financial profile. Understand and know which listings are tainting your name. c. Check for errors on your report and apply to have these errors rectified before you apply for credit, as a lender may reject your application and this may cause a delay with finance application.

Step 2 - Focus on the 4 main credit bureaus first There are a number of credit bureaus in South Africa, but you should focus mainly on the top 4 namely: • TransUnion • Experian • XDS • Compuscan www.reimag.co.za

Thinking beyond!

Consumer protection through effective industry regulation. Ensure you use the services of a registered estate agent. Tel: 011 731 5600 / www.eaab.org.za.

www.reimag.co.za

June 2013 SA Real Estate Investor

RESIDENTIAL It is important to get separate reports from each of them, because their databases differ.

Step 3 - Clear the small listings first Start off with removing the easiest and smallest listings f irst before moving onto the more complex ones. This is generally good advice, however, one should probably also take into account which of your credit providers charge the highest interest. By tackling those debts f irst and settling them as quick as possible you could be saving a substantial amount of money. Adverse information such as default payments That one small payment you missed and forgot about – such oversight will have a negative impact on your payment profile Generally this type of listing can be removed without any court involvement and it may take you up to six months of clear trading to re-establish a good trading record and payment profile. What you need to do is pay the amount outstanding and make sure that you do not have any late payments in the future or, if the amount is incorrectly deemed as owing, then you need to challenge this default listing directly with the credit bureaus. If you do decide to cha l lenge adverse information on your credit report, and lodge a dispute, remember that the institution to which this challenge has been made, has to take steps within 20 business days to resolve the matter. Furthermore, if the information has been removed, the credit bureau must inform you and the credit provider and all parties to whom the information on their system has been reported during the last 20 business days.

Step 4 - Identify and understand the major black listings

a. Defaults Defaults occur when a debtor has not met his or her legal obligations or failed to make a payment according to the agreement. The number and record of defaults or non-payment now reflect in your account history. The credit bureaus call this “adverse” information and are allowed to ref lect this information for a period of one year on your credit record if it remains unresolved, uncontested and unpaid. However, information about how you make your payments, meaning your “payment profile” may be retained for a period of five years. b. Judgments A judgment is a court order granted against you by a specific creditor when you have not paid your debt. A legal process is followed before a judgment is issued. The judgment is held on the system of the credit bureau for five years and then is automatically removed.

c. Administration orders (Notices) An administration order application is lodged in the Magistrates court and is designed for individuals who could not be sequestrated and may be placed under debt counseling. A third party may be appointed to manage your debt payments. Although not a typical “black listing” it has the same effect.

Your financial reputation is harmfully affected by any bad listings or black listings on your profile. If these listings are not removed from your credit profile you will technically be frozen out of the credit-granting world. No one will give you credit, and even if they do it will be given at crippling interest rates.

d. Debt counseling Debt counseling is when you are unable to pay your debt and you apply for relief under the National Credit Act. Through a process, a debt counsellor is appointed on your behalf to arrange a distribution of a certain amount of your funds to your debtors over a period of time. Certain debt may be excluded from the debt counselling process.

There are three types of key listings that could make your credit record “black” namely:

e. Sequestration If you are unable to meet all your payments

June 2013 SA Real Estate Investor

and can show that the distribution of your assets, once liquidated, will be to the benefit of creditors, your estate can be sequestrated. Until your estate is rehabilitated, you will be unable to enter into any debt agreement, unless done with the consent of your liquidator. Information on administration orders may be retained for the earlier of ten years or until the order has been rescinded by a court. The same applies to information on sequestration.

Step 5 – Identify which listings to look for and attend to first? Knowing how bad these listings are and which ones apply to you is a crucial step towards clearing your name. Apart from incorrect entries against your name, the most crucial listings are: Payment profile problems These are the easiest of all to repair as it will depend entirely on yourself and how you can manage the payments and conduct of your accounts. It may take you however up to 6 months to repair and restore a negative payment profile and during this 6 months of repair – make sure that you pay all your accounts on or before the due date, never miss any payment, not even your Telkom account and if possible – pay your accounts a few days earlier as it sometimes takes a few days for your payment to be processed from one department to the other. Administration orders (Notices) It is fairly easy to rescind an administration order either by yourself with the help of a Law Clinic, Legal Aid or the assistance of the Clerk of the Court; or with the assistance of an attorney. More often than not, it is found that debt administration is the type of solution to lower income groups and usually these consumers don’t have assets or don’t have sufficient assets for sequestration to be a viable solution to them. b. Judgments Judgments are one of the most severe listings. It is the official decision of the court at the completion of the lawsuit. It generally stipulates a monetary reward to the winner. Enforcement of a judgment is left in the hands of the parties of the lawsuit. Don’t miss part two of ‘how to get off the blacklist’ in our July edition

RESOURCES Budget Fitness Gerstner Attorneys www.reimag.co.za

www.reimag.co.za

June 2013 SA Real Estate Investor

ACQUIRING

BY ANGELIQUE REDMOND

Is Now The Right Time To Buy? T Property experts say yes!

he most obvious answer to that question is that there is never a bad time to buy property, there are times when it is simply easier or less expensive to buy property. So why should you be investing in property right now? Because of the low current interest rate. Here is a basic explanation of an interest rate: a country’s central bank is responsible for setting interest rates. The interest rates that banks charge make loans more expensive. When interest rates are high, fewer people and businesses can afford to borrow. This lowers the amount of credit available to fund purchases, slowing consumer demand. At the same time, it encourages more people to save (if they can) because they receive more on their savings rate. Higher interest rates also reduce the capital required to expand businesses, strangling supply. This reduction in liquidity usually slows the economy down. As you would expect, low interest rates have the opposite effect on the economy. Low mortgage interest rates have the same effect as lower housing prices, stimulating demand for real estate. When savers find they get less interest on their deposits, they might decide to just spend more. They might also put their money into slightly riskier, but more profitable, investments - thus driving up stock prices. Low interest rates make business loans more affordable. This encourages business expansion, and creates new jobs. Why this is important is because in South Africa the South African Reserve Bank has kept its benchmark repo rate unchanged at a fourdecade low of 5.00 percent since last July. And with interest rates stable barring any unforeseen disasters, this means that the housing market is a good investment, with lower mortgage interest rates. In the long–term this will see house prices go up as more people buy property now with a lower interest rate. “The historically low interest rate combined with subdued demand has brought about the ideal buying market conditions,” says Seeff Randburg managing director, Tony Ketcher. The more people who buy, the less the availability

June 2013 SA Real Estate Investor

www.reimag.co.za

RESIDENTIAL and the more the demand, meaning as demand outweighs availability the price for property goes up. “The resilience of South Africa’s residential property market continues to demonstrate the potential for sound capital growth in the medium to long term, particularly given the prevailing low interest rate environment. As many investors will affirm, real wealth is created by property ownership,” adds Dr Andrew Golding, CE of Pam Golding. Another stimulant to the property market will be the affordable housing sector, currently a major segment of the property market, and one that has not been previously serviced. With the entry of SA Home Loans to the home loan market, house hunters who earn less than R18 000 have a reason to celebrate. Now lower income earners will have the same access to housing as their higher income peers. “Our competitors make much of the fact that providing loans for affordable housing plays a crucial role in nation-building by allowing more of our citizens to get onto the property ownership ladder. We take this as a given and aim to treat them as we would any other customer,” says SA Home Loans Chief

Executive, Kevin Penwarden. Mindful of the fact that many lower income buyers find it extremely difficult to save up for large deposits required by many mortgages, SA Home Loans is offering 100 percent loans to qualifying customers, with a 20-year term variable interest rate loan.

as depicted by building plans approved for new housing, contracted by a small margin up to February, while the construction phase benefitted from double-digit growth in the categories of houses smaller than 80m² and flats and townhouses.

One signif icant effect of the affordable housing mortgage boost is a possible change in the composition of building activity. Flats and townhouses could become a larger portion of the residential property market. The residential building statistics released by ABSA in March 2013 showed the real value of plans approved for new residential buildings came to R1,89 billion in January 2013, up by just more than R50 million, or 2,8% y/y, from R1,84 billion twelve months ago. The real value of residential buildings constructed was R1,47 billion in the first month of the year, which was R280, 7 million, or 23,6%, more than a year ago. The residential building statistics in the first quarter of this year highlighted building activity in the segment for flats and townhouses showed some strong growth in the first months of 2013, with low growth evident in the segment for larger houses. In general the planning phase,

The stable interest rate will bring about renewed interest and confidence in the property market, Adrian Goslett of RE/MAX says, “the market continued to show improvement in 2012 in terms of both sales volumes and property prices and while lending criteria remained tight, 2012 was a solid year for the property market in South Africa. Steady interest rates will bring about opportunities for home buyers in 2013 while house prices will continue to see a measured increase, would-be buyers who are creditworthy and have access to finance will be able to find property investment options that meet both their criteria and their pocket.” So now is the time to buy, and if you are a low– income earner, there is now more choice in terms of mortgages and bonds for your property needs.

RESOURCES ABSA

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

www.reimag.co.za

June 2013 SA Real Estate Investor Toyah Gawne +27 11 745 5901

STRATEGIES

BY ANGELIQUE REDMOND

Secure your Home Stop intruders in their tracks

he reality of life in South Africa is often a slightly bleak one; the newspaper headlines are littered with stories of crime and murder. Crime statistics are up, the crime rate is not dropping and as the unemployment rates rise, so it would seem do the crime rates. The end result of this cycle has made household security an absolute must. In the past burglar bars and alarms systems would have made your house a less attractive buy for a property seeker, but in today’s climate, the more secure your home, the more attractive to a potential buyer. While this doesn’t mean building a panic room or an underground bunker, there are a few safety precautions that will keep you safe and your property value where it should be.

or pulled off the window frame. Ask the sales rep to show you how they fit on and how they come off, there is no point getting bars if they can be easily removed.

The first thing a burglar looks for is easy access. The harder your home is to burglarise, the less likely you are to receive an unwelcome visit from a person with a ski mask. Windows are the easiest access point into your home; never leave them wide open or unlocked. Burglar bars can be unscrewed, so when you are choosing burglar bars for your house ensure that they cannot be simply screwed off

Your front door is the first line of protection, use a solid core door that is fitted with good quality deadbolt locks, ask your locksmith for door locks with an ANSI grade 1 rating. Some locks will also have additional measures such as an anti-saw pin or anti-drill feature. The casing of the lock should be made of hardened steel and be bevelled. A hardened steel casing makes the lock more resistant to impact, and

June 2013 SA Real Estate Investor

Your front door is another easy target; never leave the front door unlocked unless you have a safety gate, either a slam lock or solid metal gate. Many people are safety conscious and yet feel it’s OK to hide a key in their garden, either for another person’s use or in case their key is lost. You may as well just leave your front door open with a banner saying ‘please come in’, the price of cutting an extra key or having a friend or family member keep an extra set for you is far less than the price of your life or replacing the contents of your house.

the bevelling helps prevent a burglar from using a pipe wrench to twist the lock free. It’s not just the front door you have to worry about but also other interleading doors in your house such as garage doors or back doors. Any door, which allows direct access to your house, should be treated as you would the front door to your home. If all else fails and they gain access to your property you will want to have measures in place so that help will respond in the shortest time possible. To that end a burglar alarm system is one thing you do not want to skimp on. Research all the security companies in the area that will provide armed response in the event your alarm goes off. Find out about response time and whether they are proactive or re-active. There is a major difference between the two; a pro-active response team will actively attempt to stop an intruder before he has entered your home, whereas a reactive response team will only respond to your alarm once the burglar is on or in your property. You also need to inquire what type of weapons they carry, whether they are armed and how intensive their training is. www.reimag.co.za

RESIDENTIAL You cannot just rely on the police to respond, their average response time in comparison to a private company is worse. When you have decided, the alarm must be installed and include windows and doors, as well as motion detectors and panic buttons placed in easy locations. You can also request mobile panic buttons. Almost every home is surrounded by a wall or fence. If yours has any holes or damage, get them repaired as soon as possible. Electric fences are always a good idea. Placed at the top of your wall or fence they are a major deterrent for would-be burglars. Post signs on the fence that your house is monitored 24 hours a day. Another option is to have a guard dog, and to post a sign that your house is protected by a guard dog who will bite on sight. Parking is a major plus to any property. A car on the kerb is not ideal and presents a security threat from break in or outright theft; it will also increase your insurance premiums exponentially. A garage or even a carport will not only increase the value of your actual house but also protect your car and lower your

car insurance premium. If this option is not available to you, consider finding out about garages in the area that are for rent, the need for property goes hand in hand with the need for parking. If you do have a carport or garage, then you should consider installing an electric gate or door, this way you will not have to step out of your car when entering or leaving your property. At some point you are going to go away and leave your property unattended, whether it’s for one night or ten. There are measures you can put into place to ensure the home you left is the one you come back to. Don’t advertise you’re away. A home with no one in it is an ideal target for a burglary. If you make it look as though your house is occupied while you are away, burglars will pass it by and look for an easier target. One option of course is to have someone look after your house while you are away but failing that there are things you can do to mimic an occupied home. Automatic light timers that turn on and off will simulate your normal routine. Look for timers that have battery back up so the timer will not

stop if there is a power failure. You can also use a timer for your radio or TV. Either have your calls forwarded or turn the ringer down so it’s not audible. Arrange to have your lawn cut or trees trimmed while you are away so the garden doesn’t look like a jungle and give away the fact that the house is empty. Ask a neighbour or friend to pick up all your mail daily, a full mailbox is a clear sign that the house is empty. Always park your car in a garage, that way someone looking for patterns will not know your car is gone. Never leave notes on your door, you are leaving a note that may as well say ‘come in’ to a burglar. In the event of your home being burgled while you are away ensure the security company knows you are not there are has a second person to alert that the alarms have gone off. Safety and security are essential. It is the one avenue that you do not want to skimp on, not when the end result might save you life or save you thousands in stolen goods.

RESOURCES ADT

Q&A With Lanice Steward

Q&A Lanice Steward is the managing director of Knight Frank Anne Porter. She has over 25 years experience in property and has been with Knight Frank Anne Porter since 1998. As the vice-chairman of the Institute of Estate Agents of the Western Cape she is actively involved in the industry and assists with training and transformation.

What is your best property tip?

My best property tip would be, if buying as an investment, to buy two or three smaller units rather than on one larger property.

Would you buy property right now?

Yes, I would. I believe the property market in South Africa has shown every indication that it is coming out of the down market that it has experienced since 2008 and this is evident in the activity and the stock shortages the Knight Frank Anne Porter agents are experiencing now.

And, in full title property, always buy the worst house in the best area – get into the best area possible, but remember, wherever you buy, be careful not to overcapitalise.

How important is security in property?

If you are a buyer it gives a sense of comfort and assurance that there won’t be extra money spent on making the home secure. If you are a seller, it will definitely make the property more attractive to buyers. It is an important factor as everyone nowadays is aware of their security.

What is the best location to buy in right now?

Look for the areas with the most growth. The reality is that the City of Cape Town is going to be putting a lot of infrastructure into areas that can be built up as alternative CBD areas as the city centre is as developed as it can be, and the areas around those will become a sought after areas in which to live.

How do you invest your money?

Your best investment is to pay off your mortgage bond as quickly as possible. This is tax free and is a direct investment. One thing to remember though is that property is a long-term investment.

What is the one consistent factor in property that you must never disregard? What is your best life lesson? There are two factors that should never be disregarded: in a sectional title property, a buyer must always look at the financials of the body corporate and the condition of the block, not necessarily the unit itself.

My best life lesson was to realise that in order to achieve anything, you have to be well organised and have written goals. Realising that 15 minutes wasted a day is just under a working week a year. Time is precious, be aware that it can’t be taken back.

June 2013 SA Real Estate Investor

IMPROVING

BY ANGELIQUE REDMOND

From Garage To Granny Flat With these simple steps

any 1940’s and 1950’s era style houses have single car garages that are just begging to be turned into a living era. Whether you need a playroom for the kids, a flat for Mom or your university-going child, a home office or just want to make some extra income, garages are an ideal candidate for conversion. Granny f lats are different to main dwellings insomuch as they must be designed to exist in harmony with the main dwelling. They should not dominate or detract from the front house, nor should they be unsightly. Granny flats must also share the infrastructure with the rest of the main house. This means that sewer; electricity, water and telephone lines need to be run from the main dwelling to the new cabin. The most

June 2013 SA Real Estate Investor

important aspect of a granny flat is that it must be sited to create privacy form the house. This means promoting separate open spaces plus adequate acoustic and visual privacy. It’s vitally important that experienced people who are genuinely interested in the end result design these dwellings. Will your new granny flat be attractive to tenants, today and forever?

So where do you start? The first place to start is with municipal laws and building codes. What are the laws in your municipality about converting a garage into a living space, what building codes need to be met and do you need to apply for a permit? To find out about this phone your municipality

and check what you need to do to get the ball rolling on your project. Each municipality has it’s own building inspector who will be able to advise you on whether your conversion requires building plans and approval.

Raising the floor More often than not the existing garage floor is sloped and slightly lower than the house floor. So to convert your garage into a living space you will need to install a new floor structure. There are several options when doing this, one is to build up a wood framed floor that aligns with the floor in the main house. Another is to install a wood framed or concrete floor that is a step or two down from the main house. An advantage www.reimag.co.za

RESIDENTIAL while maintaining the original garage look on the exterior. Another approach is to have large windows or doors fill the opening. Large folding glass doors are a great option if they fit the overall aesthetics of the exterior. What you choose will all depend on the amount of space you have to work with and your budget, so talk to a professional and get their input on what type of doors and windows will work best and what they will cost.

Finishing touches

Pipes and plumbing

If you outsource the construction and building work, make sure you use a professional, there are two associations that offer protection to you the consumer should you feel your contractor has ripped you off.

Adding a kitchen or a bathroom to a conversion can be tricky, as you need to tie them into the existing plumbing lines. An electrician will need to be called in to wire for additional lighting and electrical outlets, especially where appliances will be introduced into the space. Water supply will need to be added so that a bathroom or kitchen area can be created. The number of necessary lines will also depend greatly on what additional appliances that use water will be installed. That being said it will greatly up the price of your garage conversion but in the long run it will add value to your property if and when you decide to sell. Along with pipes and plumbing comes rewiring so that you have electricity and light fixtures, this must be done by a qualified electrician, as incorrect light fixtures can cause electrical fires.

Hitting the right height

to installing a concrete, ‘topping slab’ over the existing floor is that a radiant heating system can be installed within the concrete.

The type of framing used at the garage roof will dictate what can be done economically, but if you can, increasing the height of the ceiling will add to the room’s spaciousness. If the garage has a pitched roof, it may be possible to alter this and create a vaulted ceiling, insulating the roof between the rafters. If the roof is flat, or forms the ceiling of a room above, it may have to be removed and raised up to create the necessary headroom.

Where is the door?

Running hot and cold

When you convert a garage into a living space, there is always the issue of what to do with the garage door opening? Because this opening and the garage doors have a large impact on the overall look of the new living space it makes sense to think of something timeless and elegant, like sliding glass doors or French doors. You can even opt for a solid wood door and use the extra space for large windows. You could also do standard carriage-style doors; they can be a featured element on the interior,

Temperature control is very important, your new living space may need to be heated or cooled, and will need insulation. Depending on the size of the area and its location, you may not be able to use existing ‘central’ heating and cooling system. Mini split systems can be a great alternative if this is the case. Hand in hand with this is insulation and dry wall, insulation needs to be installed in the roof area, and depending on how finished the walls are, you will need to insulate and dry wall and damp proof the walls.

www.reimag.co.za

Now comes the fun part it’s time to get covered in paint! If the walls are roughed, brush on stucco compound and use a nap roller to make a raised design on the surface. If the walls are smooth, then you have a wide range of possibilities you can explore with colour and design. One neat trick for your new granny flat is to paint the window frames a different colour, as this will make them stand out.

National Home Builders Registration Council By law, all homebuilders have to be registered with the council, and have to comply with its building quality standards. Check the website to see if your builder is registered, or whether he has been suspended or deregistered. There is also a warranty scheme in place, which covers “major structural defects” caused by poor workmanship. Noncompliance and deviation from plans and specifications are also covered. The council has offices in all provinces. You can lodge a complaint via the council’s website, www.nhbrc.org or call the tollfree number: 0860 200 824.

Master Builders Association The association offers a range of services to the public, either free or for a reduced fee. If you feel a builder has provided you with unsatisfactory workmanship, the association offers advice, inspections and mediation. The website, www.mbsa.org.za carries impartial contractual documents, as well as details for provincial and regional partners, some of which carry member directories. Once your conversion is complete you will have added value to your property and have another room or separate granny flat, either for personal use or profit.

RESOURCES South Africa Info

June 2013 SA Real Estate Investor

REI Commercial

New CEO For NHBRC

No Load-Shedding

Listed Property Outperforming Equity And Bonds

SAPOA (South African Property Owners Association) have welcomed the appointment of the new Chief Executive Office for the NHBRC (National Home Builders Registration Council). Neil Gopal, CEO of SAPOA says: “It is our earnest wish that Mr Mnyani’s tenure at the helm of the NHBRC will usher in a new dawn of innovation, inclusivity, efficiency and development of the homebuilding industry.” He adds: “We have no doubt that Mr Mnyani’s professional experience as the former Head of Department for Local Government and Housing in Gauteng, will promote and stimulate the inclusionary holistic vision that organs of State must embrace with other functionaries and State policies to ensure progress and effectiveness and to ensure that policy and operational issues pertaining to the NHBRC remain part of strategic conversations between the two entities.”

Government says there are no plans for loadshedding this winter, but officials have urged South Africans to save as much electricity as possible.

South Africa’s listed property sector advanced 2.4% during the week ending 3 May 2013, outperforming the local equity and bond markets which both returned 1.3%, Grindrod Asset Management said. The listed property sector has returned 18.8% for the year-to-date, significantly outperforming both the bond and equity markets. It is becoming increasingly clear that investors are actively seeking out securities and asset classes that offer an acceptable level of income, given the fact that official interest rates are expected to stay lower for longer. The forward yield on the listed property sector has now declined to 6.0%, with distributions forecast to grow at approximately 7.3% per annum over the next three years. The yield on listed property is approximately 25 basis points lower than the yield on a 10-year government bond.

South Africans will be informed of any plans for load-shedding in the future, but government warns the nation to save as much electricity as possible. “Cabinet reiterates that the precarious energy situation is due both to essential maintenance as well as unintended technical issues including cable theft,” says Minister in the Presidency Collins Chabane. Speaking at a media briefing, Chabane said South Africans will be informed in advance if the need for such action should arise, so that sufficient plans can be made.

Valuable Input

Mongezi Mnyani, CEO NHBRC “Engaging with stakeholders in the built environment and tackling issues of common interest is critical for the growth of the industry. We also welcome feedback from stakeholders so that we can also improve how we, as the NBHRC render our services.” www.reimag.co.za

Shiraaz Hassan, Director, Asrin “The way that many consumers react to any industry is largely affected by international feed from the news and economists, although global issues will always affect South Africa, it is the local economic stresses that need to be addressed.”

James Templeton, CEO, Emira Property Fund “Cash flow management is imperative for businesses, it is hugely attractive if property owners can aid new tenants to reduce pressure on cash flows with incentives like rentfree installation periods. This helps accommodate expenses like moving costs.”

Grant Lewington, Executive, Improvon “Our new generation industrial parks are often surrounded by older, cheaper rental spaces but the key driver of our strategy is to capitalise on the trend towards paying more but getting much more.”

Dylan Bradford, Attorney, Garlicke & Bousfield Inc “Joint owners of a piece or pieces of land may want, or need, to redistribute the land among themselves and so become individual owners of a defined portion of that land in their own names.”

June 2013 SA Real Estate Investor

LISTED

BY IAN ANDERSON

THE BEST OF BOTH WORLDS High income yield & long-term capital

outh Africa’s listed property sector gained 7.4% in April and is now up 17.2% since the start of the year. The sector has rallied since June last year, posting a return of 42.9% and significantly outperforming both the bond and equity markets in South Africa. An investment in listed property offers investors three key benefits: a high starting income yield, inflation-hedged income growth and, as a result, inf lation-hedged capital growth over longer investment horizons. The relationship between income growth and capital growth is important and has often been overlooked by investors when assessing the merits of an investment in listed property. If an investor only focused on initial income yields when comparing the attractiveness of South Africa’s higher yielding asset classes, the small pick-up in initial income yield from listed property would appear insufficient when compared to the risks associated with an investment in property. But the income an investor receives from their listed property investment will grow over time and as a result, the capital value of their investment will show a similar level of growth. Listed property therefore offers investors the best of both worlds: a high income yield comparable to bonds and long-term income and capital growth, similar to equities. As official interest rates and the yields on bonds and listed property have reduced to historically low levels, the growth characteristic has taken on more significant proportions.

June 2013 SA Real Estate Investor

The current one year forward yield on South Africa’s listed property sector is now just 6%. Given the significant changes that have occurred in the sector over the past decade, most companies are capable of growing their incomes above inflation (those changes include higher gearing levels, access to multiple sources of capital, improved property portfolios and internalised management teams). This suggests that from this point, more than 50% of the longterm return from listed property will come from capital growth (a function of income growth). However, in the short-term, capital values are influenced by other factors, most noticeably the change in bond yields. A significant portion of the 40%-plus return generated by the market over the past year has come from listed property yields following bond yields lower. In April, bond yields fell by more than 50 basis points (0.5%). The yield on listed property fell by a similar level, resulting in prices rising more than 7%. Lower bond yields are pricing in the prospect that central banks, including the South African Reserve Bank, will cut official interest rates further during 2013. It’s easy to build a case for lower interest rates in most countries, given the slowdown in economic activity and lower inflation, but while South Africa shares some of the world’s growth problems, our inflation rate is running close to the upper end of the targeted range and is likely to move above 6% during the third quarter. This may mean that South Africa doesn’t follow the lead of the European

Central Bank and many other central banks around the world which lowered interest rates in May. However, the market believes there’s at least a 50% chance that the Monetary Policy Committee will vote to cut interest rates at either the May or July meeting. In the short-term, South Africa’s listed property sector may be vulnerable to increasing bond yields if inf lation remains elevated and the South African Reserve Bank doesn’t cut official interest rates or, worse still, talks about increasing interest rates early in 2014. This would result in short-term capital losses and probably wipe out most of the past year’s impressive price gains. It’s therefore not surprising that many fund managers are issuing warnings about the short-term prospects for listed property. However, for long-term investors, listed property continues to offer an attractive income yield (relative to other asset classes in South Africa), and the potential for long-term capital gains in excess of inflation. It’s the ideal asset class for investors both saving for retirement and already in retirement. Prior to retirement, investors are able to reinvest the income into an asset class with growth characteristics, thereby growing their capital base. In retirement, investors are able to enjoy a high level of income (relative to other asset classes) – and growth in that income stream in excess of inflation.

RESOURCES Grindrod Asset Management

www.reimag.co.za

SMART MOVES

BY JONATHAN SMITH

Property Broking Is it a dying art?

The function of a property broker is to act as the intermediary between willing sellers and willing buyers or willing lessors (landlords) and willing lessees (tenants) of fixed property. Ty pica l ly, proper t y brokers a re ma nd ated by a c l ient (ter med a ‘principal’) to source a buyer, seller or user of premises or to source premises, all in respect of fixed property. The client invariably specif ies certain parameters within which the broker (also known as an agent) must function. The terms of the mandate will vary from appointment to appointment and it is absolutely imperative that brokers agree the terms of their mandate before conducting negotiations on behalf of a client in order to avoid disputes at a later stage.

he recent recession may have seen a reduction in the number of property brokers w ithin South A frica and diversification into auctioneering has also seen some prominent property brokers move into this alternative manner of moving property stock from seller to buyer. How e v er, prop er t y brok i n g a nd t he complementary services which are associated with this core practice are a critical service within commercial property and remains an excellent choice for business-orientated people with a flair for deal-making.

June 2013 SA Real Estate Investor

Proper t y brokers fulf il a number of important roles within the economic arena. Inter alia, they: • source users and premises on behalf of their principal, whilst permitting their principal to focus on his or her own business activities; • promote growth of the economy through their development-related activities; • provide valuable property-related advice to their clients and to other professions. Brokers typically earn their remuneration through charging a percentage of the deal capital value, known as a commission.

Service excellence in property broking Property broking is not quite as simple as waiting for a telephone to ring and taking an order from a client. Successful brokers are those individuals whom are able to perform the different operating components of the broking function pro-actively, comprehensively and in an innovative manner. Competition within the global economy in which we operate requires that brokers apply their minds to developing a service which is so excellent in characteristic that clients are not only satisfied but look forward to using the broker’s services again. Inter alia, this means that property brokers should provide a service against the backdrop of service excellence. Market leaders are commonly expected to provide their services against the backdrop of the following characteristics: • operational excellence, • product leadership, • customer intimacy, Such characteristics of performance mean the difference between playing ‘competitive catch-up’ and being a market leader. Every organisation relies on its staff to contribute towards these three characteristics and brokers who engage these qualities are more likely to succeed at all levels.

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COMMERCIAL Brokers provide the following services: • Assisting their client to identify the correct optimisation strategy to implement in respect of their client’s property. • Helping their client to develop the correct tenant mix in respect of their client’s property. • Assisting their clients to market their properties at the correct market value or rental level. • Assisting their client to choose the correct marketing channel and in selecting the correct target market and marketing strategy. • Procuring offers from clients and assisting clients in negotiating the optimal price and value for their property. • Assisting clients in signing the correctlyformulated and worded documentation in respect of the premises being let or the property being sold. The various components of the broking function Canvassing Canvassing is the process of initiating relationships with users or suppliers of fixed property space in such a way that they become aware of the broking service on offer. D u r ing t he cou rse of t he ca nvassing interaction, it is necessary to obtain as much information from the user or supplier of space as in offensively as possible. Canvassing prospects is done via the telephone or in person and includes encouraging the prospect to consider space in a particular building or allowing you to let or sell space on their behalf. Marketing Marketing comprises conducting promotional and advertising activities in order to make the public and private sector aware of properties which are available to let or for sale. Stock listing Stock listing is the researching and recording of data within the propert y market on a database from which clients and users can be determined. Taking enquiries Taking enquiries is the process of listening to a user or supplier while he or she provides you with information about the property which he requires or wishes to supply to the market. www.reimag.co.za

Contracting Contracting is the conclusion of a contract with clients as to the terms, procedures, parameters and remuneration under which you will provide your services. Viewing premises Viewing premises is the process of taking clients to suitable premises in order to show them what is available to them. It is important to show clients only those premises which can potentially match their needs and, therefore, brokers should research the market extensively and pre-visit premises in order to facilitate the match.

“ Property broking is not quite as simple as waiting for a telephone to ring.” Negotiating This is the effective negotiation of agreements of lease or sale between landlords and tenants or sellers and buyers in accordance with the requirements set by the client and the subsequent liaison bet ween the relevant parties in order to ensure that such agreements correctly reflect the terms and conditions agreed to by the parties. It is common practice that each party will require different results from the negotiation and the broker’s skill in obtaining a mutually beneficial agreement is often the decisive factor in ensuring a satisfactory conclusion. Development broking Development broking is the sourcing of land and co-ordination of activities required to develop and tenant property developments. Project leasing and sales Project leasing and sales is the sourcing and subsequent co-ordination of activities of development projects and the conclusion of agreements of lease between landlord and individual tenants in accordance with the requirements of clients. Consultancy Consultancy includes providing clients with the correct information and sound advice in property related matters.

The functions of a property broker As with any other profession, the legal and fiduciary duties upon a property-broker are extensive and include both duties of conduct and duties of trust. For example, a property broker may not in the conduct of his business do (or omit to do) any act which will or may damage the good name, standing or integrity of property brokers in general. Property brokers are bound by a code of conduct contained in the Estate Agency Affairs Act and to transgress this code of conduct is violate the responsibility that property brokers accept when they register as an estate agent. If a property broker conducts his business on a franchise basis he must disclose this in his mandate form and state his own name as well as the name of the franchisor and, where a property broker conducts his business under a trade name or style other than his own name, his full names must be disclosed in the mandate. A property broker’s mandate may not contain a clause to the effect that the property broker is entitled to commission whether or not any suspensive or resolutive condition in the contract which may eventually be concluded has been fulfilled unless his or her mandator has expressly agreed to pay the broker a flat fee for marketing a property or premises. A property broker may not enter into a sole mandate which contains a provision conferring upon him or her : • a sole option to extend the sole mandate for a certain period after its expiry; or • a mandate to continue to render the same broking service referred to in the sole mandate, after expiry of the sole mandate, unless his or her client has expressly agreed to this extension and the reasons for this are included in the mandate. A property broker may not accept a sole mandate which also confers upon him a power of attorney to act on behalf of the person conferring the mandate, unless the intention and effect of such power of attorney is fully explained in the document embodying the sole mandate.

RESOURCES Courtwell Consulting June 2013 SA Real Estate Investor

SMART MOVES

BY ANGELIQUE REDMOND

What Do The Numbers Say?

About the commercial property market

here has been very little change in the industrial property market in the greater Cape Town area in the past 12 months according to Andy Beddow, a director of Baker Street Properties. Beddow says, “The market remains tenant driven with a slight improvement in rentals. The average gross rental for existing space has marginally grown to R32.00/m from R30.00/m where it has languished since 2009.

Survey results “Our current records reflect an overall vacancy of ± 611,500 m² in the greater Cape Town area, 69% of which is in industrial buildings over 1,000 m² in size (or 418,000 m²). (See accompanying pie-chart) “Development of new facilities for the larger users, although limited, is being driven by redundancy of existing space and a lack of available modern A Grade facilities. With the drivers of the Cape Town industrial market being predominantly the retailers and 3rd party logistics – their requirement is for high volume distribution centres with raised loading and extensive yard areas to accommodate large commercial vehicles. However new development gross rentals average R60.00/m plus, double the existing property rentals.” 46

June 2013 SA Real Estate Investor

“Tenant driven new development continues in Airport City, at Sheffield Park (bordering Lansdow ne Road and the N7) and Brackengate off the R300, while Improvon have been successf u l de veloping la rge warehousing on risk in Montague Industrial Park (bordering Plattekloof and Koeberg Roads),” adds Beddow.

During the period surveyed by Baker Street there was no discernible manufacturing take up – even perhaps some shrinkage. There is however interest from developers wanting to take positions in the older central industrial areas, such as Epping, Parow and Bellville, where prices are reasonable for older almost redundant properties, that can be held until

INDUSTRIAL PROPERTY VACANCIES MARCH 2013 UNDER 500 M2 17.4% 106,124 M2

OVER 1000 M 68.5% 418,635 M2

500 M2 - 1000 M2 14.2% 86,721 M2

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STANLIB

ADVERTORIAL

African Real Estate Opportunities Abound

he S TA N L I B D i r e c t P r op e r t y Investments team stands at the forefront of Africa’s real estate revolution. It plans to raise an additional $100m to fund the construction of an African property portfolio, with seed capital provided by Liberty. CIO of STANLIB Direct Property Investments, Amelia Beattie, believes the Fund could be the catalyst for further infrastructure development across the continent. It also comes at a time when demand for quality retail and office space in Africa is surging. The Fund will spearhead 6-8 predominantly retail developments in the economic nodes of Kenya and Nigeria - both countries offer the spending power and critical mass sought by retailers. The team has eight years to implement the Fund – four to commit to opportunities and another four for completion. The asset manager will then extend its property investment into Ghana and Uganda. “The biggest opportunity in Africa is the growing emerging middle class which remains chronically under-serviced,” says Beattie. “They’re very aspirational and want to live and work in quality environments. That’s why we see huge potential in quality retail and office space in Africa – there is less supply than demand. Currently, Lagos has just two quality shopping centres servicing an estimated 20 million people.”

rise to $38 billion by 2020. Rapid urbanization has increased the potential consumer base for many retailers. Supermarkets and hypermarkets are set to see 21% and 16% outlet volume CAGR respectively during the next 5 years. Nigeria is Africa’s most populous nation with 162.4 million people. This number is expected to expand to 400 million by 2050. The swift growth means that Nigeria’s population is exceptionally youthful with a mean age of 18. The population increase creates opportunities, one being the emergence of a robust consumer base. Rising incomes in Nigeria suggest a maturation of its middle class. Additionally, investors should be attracted to investing in Nigeria on the back of ambitious economic projections; Morgan Stanley expects the Nigerian economy to become the largest one in the African continent by 2025, surpassing the South African economy due to higher oil prices and the expansion of consumer spending in Africa’s most populous country.

Beattie says the team have established successful partnerships with local landowners to develop real estate. “You have to be absolutely sure that you’re partnering with the legitimate landowner on a long-term basis in order to mitigate against ownership risk, which is probably the biggest concern of any prospective property investor in Africa. It’s also crucial that you partner only with Kenya and Nigeria are compelling investment a landowner who is willing to partner with you for destinations for property developers. The Kenyan the long-term, as well as a reputable construction population is 37 million and 18% of households firm with an established track record of delivery.” are classified as middle class indicating more disposable income is being spent on non-essential STANLIB research shows that an estimated items. This is the largest percentage of middle class 400m people in Africa are expected to migrate households in sub-Sahara Africa outside South from rural areas to cities by 2050, a factor that Africa. Consumer spend in Kenya is expected to will put enormous strain on existing urban

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infrastructure. Yet this emerging middle class is also why South African companies ranging from Shoprite and Massmart to Famous Brands are boosting their footprints across Africa. “The retailers are all telling us they can go into Africa provided they can find enough quality properties to give them the critical mass they need to make entering a new market viable,” says Beattie. “Most of the retailers say they need about five sites per country in order for it to be worth their while. If you consider the logistical effort it takes for retailers like Shoprite and Massmart to get their products into Africa it’s easy to see why they’d rather be supplying several stores rather than just one.” With Africa’s growing population and surge in middle class consumers, the retail sector is set to boom over the coming years. The STANLIB Africa Direct Property Fund will capitalise on this trend and aims to revolutionise shopping – and living – habits across the continent. For more information, contact Amelia.beattie@stanlib.com

June 2013 SA Real Estate Investor

SMART MOVES it becomes viable to redevelop the site for a large tenant. The sur vey a lso revea led that annua l escalations remain 7,5% to 9% although the latter only for shorter-term leases. Longer -term leases attract more favourable escalations. Average land values have shown a marginal increase to around R1,050/m² (excl. VAT). The more popular areas being Airport City, Brackengate and Sheffield Park. There has also been renewed interest at Capricorn Park in the Southern Suburbs. Beddow concludes, “Despite the vacancies in the market we have minimal industrial buildings for sale. Reasonably priced buildings tend to sell quickly. “

Optimistic growth This statement is echoed by comments made by Erwin Rode about commercial property market growth. “The South African Property Market reveals a modicum of good news for the industrial property market,” says property valuer and economist Erwin Rode of Rode & Associates. On a national basis, the yearly growth in industrial rentals is slowly heating up, seemingly benefiting from the lagged impact of declining vacancy rates. “In fact, such has been the acceleration in the growth of market rentals in this sector that in the fourth quarter of 2012, prime rentals recorded a nationally averaged growth rate of 7%, with the strongest yearly growth of 9% being achieved in the Cape

Peninsula.” Disappointing, however, is that the national average still failed to be in excess of building-cost inflation. “Hence, we are not yet out of the woods,” cautions Rode. The news was bleaker for off ice rentals, still lethargic as a result of generally weak demand. Notes Rode: “Market rentals in Cape Town and Pretoria decentralised barely mustered yearly growth of 3%. Johannesburg decentralised only managed a measly 1% while Durban decentralised actually saw rentals contract by 4%.”

Growing the market through SMEs Business Partners executive director Gerrie van Biljon speaking at the Business Partners seminar in a discusion on how to unlock wealth through commercial property investment in South Africa, announced that the company has allocated R500 million of its annual investment budget to commercial property. The investment allocation to properties will de-risk the company’s investment portfolio. “The current environment continues to provide opportunities to acquire commercial property investments offering reasonable returns,” says van Biljon. The company plans to invest predominantly in neighbourhood retail and industrial properties, as well as select office space valued from about R5 million up to R85 million per investment.

INDUSTRIAL PROPERTY VACANCIES MARCH 2013 Southern Suburbs 14.1% 86,451 m2

Montague Killarney & Surrounds - 16.6% 101,539 m2

CBD & Surrounds Incl. Paardeneiland 8.6% 52,489 m2

Bellville, Parow, Airport - 17.4% 106,273 m2

Business Partners also invest in joint venture deals with other property investors in the same property categories and continue to finance SMEs with up to 100% of the purchase price for owner occupied properties valued up to R30 million. Keynote speaker, Marius Muller, CEO of retail investment property company Pareto, said that government spending provided an opportunity for the property sector. This expenditure would “assist the property sector in terms of filling vacancies, stimulating new development and activit y”.“ We therefore believe that commercia l and industria l property remains an attractive investment for entrepreneurs, either as a sound long-term investment or to secure tenure for their own business operations.” Van Biljon says that New York-listed global commercial property firm Jones Lang LaSalle recently released research that supports this view. “Their research shows that there is a shortage of assets within the South African commercial property investment market because mature funds were holding onto prime assets.” He says that SME owners often believe that renting premises offer greater flexibility than ownership. “However, long-term tenancy may not be secured and the investment made in improving rented premises may be lost if the lease cannot be renewed.” “Property ownership offers not only security of tenure, but also enables entrepreneurs to grow their equity. Calculations show that, by purchasing a property or properties for their own use, SME owners can save up to 50% on premises costs over a 10-year period, without compromising the business’s own cash resources.” There are still sound investments available in the current market. “When purchasing commercial property, research into the location as well as the funding structure is required for a business owner to reap the benefits of ownership,” concludes van Biljon.

Outlying Areas 16.8% 102,712 m2

June 2013 SA Real Estate Investor

Epping, Maitland% N’dabeni - 26.5 162,016 m2

RESOURCES Baker Street Properties Rode www.reimag.co.za

SMART MOVES

BY ANGELIQUE REDMOND

Secure Is Business Savvy

Key elements to a better commercial building

ne important question you should ask yourself as a commercial builder, owner or developer, is how secure is your commercial building? In a world of rising crime rates, security is one aspect you cannot afford to overlook whether for your safety or that of your tenants; a safe building is a desirable one.

Three areas of safety in your commercial building Outer perimeter security The outer perimeter security is your actual property lines. You want to control who can walk or drive onto your commercial property. You want your property to be inviting to your customers and at the same time a deterent to intruders. Criminals like to move about unnoticed. By clearly marking public versus private access to the property, you can create a sense of the people who belong and those who are intruding. Outer perimeter security could involve fencing in various forms. Landscaping features such as hedges can also serve this purpose. In deciding what type of perimeter security to implement, you need to weigh the risk of an intruder entering your property with the cost of the available physical security measures. Two security concepts involved in perimeter security are Natural Access Control and Territorial Reinforcement.

in control, they have a low perception of risk, since they believe they are able to move about unnoticed. However, limiting and clearly marking the approaches to buildings and properties, thereby channelling visitors into a defined area, can deny this sense of control. Natural Access Control is the use of building and landscaping features to guide people as they enter and exit a space. When applying Natural Access Control, both entrances and exits should be taken into consideration. Not only do you want to discourage intruders, but you also want to close any of the potential escape routes.

Territorial reinforcement The purpose of Territorial Reinforcement is to prevent unauthorised entry and to create a clear distinction between public and private property. This distinction is important for two reasons: legitimate occupants have a sense of ownership and will notice people who donâ&#x20AC;&#x2122;t belong; intruders, on the other hand, will have a hard time blending in. Territorial Reinforcement is not the same thing as perimeter security, but the goal of both is the same: keeping intruders off of your property.

Natural access control Criminals like to feel that they are in control as they enter and exit an area. When they are 50

June 2013 SA Real Estate Investor

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COMMERCIAL Your inner perimeter security Your inner perimeter security involves doors and windows of your commercial building. Locks, keys and alarm systems are your tools for inner perimeter security. An electronic access control system works well for many businesses. An alarm system can tell you when your inner perimeter security system has been breached. When designing any perimeter security system, be careful not to lose control of your keys. If an unauthorised person can make copies of your keys without your knowledge, then you have a serious security weakness. Your interior security Interior security involves the inside of your commercial building. Security cameras and motion detectors are great tools for monitoring your valuable resources as well as providing evidence should a break-in occur. Access control systems can be used to control access to key spaces within your business, including the valuable information on your computers systems. What do you need to know about security cameras? 1 Preventing internal theft, drug use and violence; these are all valid reasons for surveillance in the workplace. Such activities can cost your business plenty in terms of lost inventory, decreased productivity and injury. But while you are responsible to protect your company’s bottom line, you also need to respect your staff’s right to privacy. 2 In order to realise maximum investigative and deterrent value from your cameras, you need to carefully choose where you place them. 3 Bright light, such as direct sunlight, can ruin your video images. 4 Recording your the images from your video cameras allows you to investigate crimes or accidents after the fact. 5 Even though the market is flooded with DIY video equipment, an experienced professional is well worth the added expense. Electronic access control systems How Does an EAC System Work? In its simplest form, an EAC system consists of an electronic door lock, a reader (such as a card reader), and some form of electronic controller. Almost ever yone has had the experience of being “buzzed in” to a controlled area. The process goes something like this: after recognising your face, a receptionist presses a www.reimag.co.za

button and you hear a buzzing sound telling you that the door is now open. This experience can help you get a mental picture of the inner workings of an EAC system. A basic EAC system consists of a reader, a controller, and an electric lock. More about readers Readers are mounted on the outside of doors, and are the only part of the EAC system most people see. In a modern EAC system, the readers are designed to recognise codes (something you know) or credentials (something you have). If the system uses a code reader, you a Personal Identification Number (PIN) into a keypad to identify yourself to the system. With a credential reader, you would present a card or key fob. Keypads Keypads are the simplest and least expensive form of access control readers. Key pads provide a simple method of entering your code. However, keypads have two drawbacks: codes can be easily shared and easily stolen. Because of these two drawbacks, keypads should not be used in a high-security building unless they are combined with a credential or biometric. This “two factor authentication” is a very secure approach to access control.

parking lot is not going to inspire confidence in your business skills. So keep your parking lot clean and well maintained. Lighting is another important thing for your parking lot, as well as ensuring that accidents are kept to a minimum, lighting will discourage crime. You can also take advantage of natural light using the same strategies as you would with any building project. Uncluttered layouts, plentiful outside views, transparent interior walls, open stairwells, and glass elevators will bring natural light deep into the space. Another lighting strategy is to use paint. Dark colours may have been popular in the past, but they also absorb light. A new coat of bright paint on the walls and support columns will reflect light and is an inexpensive solution that can simultaneously give the interior a facelift. Use an eye in the sky to monitor parking spaces, entrances, and narrow areas such as stairwells and corridors. Not only can surveillance catch a crime in progress, but documentation of a vehicle accident, assault, or even a slip-and-fall incident can be valuable. Beyond the benefits of monitoring, the mere presence of security cameras are sometimes enough to ward off an aggressor, prompting them to seek a less secure target. Surveillance also sends a message to occupants and visitors that their safety is a priority for building management. Don’t overlook the human element of surveillance either, parking attendants are a great indirect security measure and a popular one in South Africa, having someone in the parking structure 24/7 adds a level of comfort to employees and clients. If you don’t want someone there 24/7 then frequent patrols should be scheduled, especially in the evening.

Parking and security Parking is not a luxury but a necessity, and it does no good to make your entire building secure and not secure your parking area. So how can you make your parking lot secure? There are a couple of things you can do; one important aspect in your parking lot is maintenance. A parking lot sets the tone for your clients’ impression of you. Before they even set foot in your building they park their car, and a dirty, poorly laid out and unsafe June 2013 SA Real Estate Investor

SMART MOVES

BY ANGELIQUE REDMOND

Hotels & Hospitality

Arthur Gillis on growth, the future & innovation

rthur Gillis is the Group Managing Director of Protea Hotels, a hotel owning, management and franchise company which was formed in 1984. The company’s growth has been rapid and Protea today has some 120+ hotels in 14 countries across Africa under its umbrella. Protea has been rated the largest hotel group in Africa by the prestigious international magazine, Hotels. The group has an annual turnover of approximately US$100 million.We sat

down and chatted to Arthur Gillis about the hospitality industry and South Africa. 1.You are quite intimately acquainted with the hospitality industry, how is it faring this year in terms of previous years? Nationally we’re looking reasonably bullish. The industry is certainly on firmer footing than previously, although some regions are outperforming others.

2. Where do you see the hospitality industry going in the next few years? We’re on an ascending J-curve and the future for the industry is bright in this country if we take cognisance of the fact that the global economy is still far from mended and we work within that frame of reference. 3. How does growth in hospitality and tourism touch other sectors? In provinces like the Western Cape the industry contributes about 10% of the entire province’s GDP, so it by extension it arguably affects every business sector. 4. Tell me a bit about your background and how you got into hospitality? I am a graduate of the Johannesburg University School of Tourism & Hospitality. I’ve also studied at Cornell University in the States on several occasions, completing Cornell’s first Advanced Management Program. I’ve been managing director and CEO of Protea Hotels since 1988. In that time we’ve launched the luxury African Pride Hotels brand and created the Protea Hotel Fire & Ice! concept. Protea Hotels has twice been voted Africa’s Leading Hotel Brand at the World Travel Awards. The company has also twice

June 2013 SA Real Estate Investor

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COMMERCIAL been voted South Africa’s Top Hotel Brand in the South African Sunday Times/Markinor Top Brands Survey as well as three time winner of the Sunday Times coolest hotel brand award. 5. What is the Protea/African Pride Hotels business model when it comes to South Africa/ and Africa? The Protea Hospitality Group is the largest hospitality company in Africa, with some 130 properties in nine African countries. The model differs from property to property, country to country. Among the roles that the Protea Hospitality Group fulf ils are hotel management, hotel marketing, franchising and shareholding. We’re extremely flexible, which we find works best in a hospitality environment. 6. With a lot of foreign uncertainty in investing in South Africa, would you say SA is still a good investment option and, besides SA, where is the next best investment option? Most of Africa presents wonderful investment opportunities. Countries like Ghana and Nigeria in West Africa have economic growth rates predicted to top 7% this year, and moving eastwards countries such as Uganda aren’t far behind. They have stable political leadership that is very keen on foreign investment and they’re creating policy at government level reflecting that. South Africa’s growth rate is a little more conservative because of our historic trading ties with a fairly beleaguered Europe, but we’re still faring a lot better than most of the rest of the world. 7. It is no exaggeration that crime in South Africa is a very real problem and in terms of hospitality and tourism, what effect does this have? Commentary on crime statistics in any country fortunately doesn’t fall within our area of expertise and we certainly don’t have a crystal ball that will accurately predict whether there will be less crime or more or more going forward. 8. Have you or any of your family been tempted to emigrate? Our family is proudly South African. 9. What is the best thing about SA to you? There is beauty in every part of the country if you look. I also like our “can do” spirit that has fostered relative economic stability.

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10. What feedback do you receive from guests who stay in your hotels in SA? We receive thousands of guest comment cards each month, considering we have more than 80 hotels in South Africa. We’re very grateful for the fact that the majority are positive, which tells us our staff understands the Protea Hotels ethos of exceeding guest expectations. 11. Tell me a bit about how Protea Hotels started and reached where it is today? Protea Hotels was formed on 1 July 1984, with an initial base of four managed properties which were controlled by Otto Stehlik and his partners. These properties were the Heerengracht and Capetonian Hotels in Cape Town, the Protea Gardens Hotel in Johannesburg and the San Lameer resort on the KwaZulu-Natal South Coast. A rapid expansion programme followed and within a few years, Protea Hotels offered accommodation right across the three-, four- and five-star spectrum. Every hotel was refurbished and upgraded and a higher stargrading obtained. Bankrupt hotels were turned around and put on a profitable financial footing. Today Protea Hotels is the largest hotel group in Africa with the most extensive network – more than 130 fine hospitality establishments in nine countries on the African continent! 12. What are some of the designs and innovations that you have seen in the hospitality and tourism industry? Technology has fundamentally changed the world, but it’s also the most significant thing that is changing what corporate travellers

expect from hotels. In years gone by, hotels were a “treat”; because they were always so much more luxurious and advanced than most homes, but nowadays people have so much technology around them that hotels are having to constantly upgrade to maintain their sense of luxury to a far more sophisticated traveller. Last year Hotels.com released the results of an international survey of both guests and staff about their expectations and perceptions of hotel amenities. According to the survey, the single most important thing to an overwhelming majority of guests is free, fast wi-fi. Not docking stations, surround sound, 200 TV channels or gaming consoles. In fact, nearly 40% of respondents said they make booking decisions based on free wi-fi, hence we offer free wi-fi across our network of hotels. 13. What are some of the negative things you have seen in the hospitality and tourism industry? Every industry faces challenges in terms of performance and the hospitality industry is no different. At Protea Hotels our focus is on constantly striving to exceed guest expectations and working harder to ensure that we do. 14. What overseas countries would you consider investing in? As a company we have a presence in nine African countries and we intend to double that number within the next 5 years.

RESOURCES Protea Hospitality Group June 2013 SA Real Estate Investor

“VALUE INVESTING TECHNIQUES FOR BUY TO LET PROPERTIES IN LONDON” Investing in London can be an expensive affair. Many South African investors have been caught out in the past with over priced and difficult to tenant properties with many of these purchased during the last property cycle in 2007-2008. Anthony Doyle, director of UK-based property company Propwealth, has a clear strategy on investing in London. “ Its not rocket science,” says Doyle. “ As investors ourselves we follow eight simple steps and advise anyone you wishes to enjoy property investing in London to do the same.”

EIGHT KEY FACTORS WHEN INVESTING IN LONDON 1. When one invests in UK buy to let property especially in London, you need to first look for value. Always buy at a discount initially or buy off plan for completion in two years or more. The prices of the property will be set at current market values so you will get incremental capital growth until you actually take transfer of the property. 2. Stay well clear of existing London properties as your competitor will be the emotional or first time buyer who will push up the price. London property prices are back to the same level as before the crash of 2008. 3. Buy in areas of regeneration. London space is at a premium so keep a look out for new train stations, transport hubs or local councils spending on neighbourhood upgrade schemes. 4. The property must offer lifestyle options that will attract good tenants. Concierge services, in-house gyms, and convenience shops on site all increase rental income. 5. Watch your gross yields. Don’t touch anything below 5% gross as you will then need to contribute every month after general expenses like levies and any mortgage bond repayments. 6. Always allow for management and collection fees of around 10%. You will be investing long distance and don’t want the hassle of day-to -day issues. 7. Invest to hold, not to flip or sell on. Property is a slow wealth creation process so has a 10-15 year outlook in London.. 8. Lastly, trust but verify everything anyone tells you, from rental incomes to regeneration plans. A current development that has good inherent value, in a regeneration area and has very strong tenants demand with 5% to 6% yields is:

PRIME PLACE – CENTRAL GREENWICH LONDON This imaginative mixed-use scheme right next to Greenwich train station will bring many benefits to the local community and result in a considerable economic investment in the town centre. It covers a two-acre area of 181 high quality new homes as well as a 104-bedroom hotel. As part of the regeneration scheme 650 square metres of space for start-up businesses will be made available. There will be an extension to the existing Greenwich West Community Centre with further education and administrative space. Lifestyle aspects include a health and fitness club, a convenience food store as well as a retail facility and a pedestrian-friendly boulevard. Completion of the development is expected to be mid to end 2014 and prices of the units start from £ 260 000 for a one bed flat.

The directors of Propwealth are in South Africa for Investor Meetings on London and Liverpool from 5 to 17 June 2013 and can be contacted via their website www.propwealth.co.uk

REI Offshore

Look To Offshore Opportunities

Global Commercial Property Market

No More Restrictions In Mexico

S o ut h A f r ic a n i n v e s t o r s l o o k i n g fo r opportunities in the current world of low yield should consider global property funds as part of their portfolios. Global property has been a hot topic over the past couple of months. Interest in the asset class has not only been driven by stellar returns, but also by the attractiveness of global valuations relative to that of its local counterparts.Giving an outlook of global proper t y f u nds, Ur su l a Ma r it z , Ch ief Investment officer at Southern Charter says that the good performance of these funds is expected to continue throughout the course of the rest of 2013. Maritz says although the global listed property market as a whole isn’t cheap, it isn’t at a premium to Net Asset Value, unlike in 2008, and there are of plenty of regional opportunities.

Commercial real estate continues to rank high on the list of acquisitions for investors around the world as preliminary global real estate investment volumes in the first quarter of 2013 reached R838 billion (US$94 billion). That’s according to Jones Lang LaSalle capital markets research from 60 countries. The real estate investment volumes in Q1 2013 represented an 8 percent increase over the same quarter in 2012. Improving confidence in the global economic recovery and a continued demand for direct real estate exposure continue to push volumes higher with Germany, Japan, and the United States all finishing the quarter strong. All regions show increases over a year ago with the Americas, Europe, Middle East and Africa (EMEA) and Asia Pacific (AP) all between 7-8 percent higher than one year ago.

Mexico is on course to change the rules that restrict foreign buyers from buying property on coastal plots and its borders. The lower house of congress has voted to loosen the longstanding restrictions but change still needs to be approved by the Senate and by Mexico’s 32 state legislatures. Currently the only way foreigners can buy much sought after beachside property is through front companies as Article 27 of the Constitution prohibits non-Mexicans from directly owning land within 31 miles of the coast and 62 miles of the nation’s borders. The change would allow foreigners to buy beachside property for residential purposes but they would not be allowed to buy commercial property. The aim is to encourage more foreign investment, draw more overseas visitors and boost the real estate sector. There are already a large number of foreign owned holiday homes in the country.

Valuable Input

Ursula Maritz, Chief Southern Charter “Currently offshore property, which is a well diversified asset class, offers yields of around 4.5% which is far more attractive than 10 year bonds yields in most major developed countries and should attract investor flows in their search for yield.” www.reimag.co.za

Dr Andrew Golding, CE, Pam Golding “Apart from its ideal climate and spectacularly scenic setting, the island of Mauritius is globally acknowledged as a successful financial, business, information, communication and trading hub in the Indian Ocean region.”

David Fischel, CE, Intu Properties “Although the UK retail environment remains difficult we have strong momentum across the business‚ with the rollout of our digitally integrated customer experience and our £1bn pipeline of development projects.”

Mike Smuts, MD, Smuts & Taylor “When you are considering international investment and wondering where to put your money, you know that London is the new “Swiss bank account”. You know your money is going to be safe.”

Scott Picken, CEO IPS Invest “Offshore property seems to get more and more complicated. Bottom line is there is so much to consider when investing offshore and you have to have the right information and the right partners to succeed.”

June 2013 SA Real Estate Investor

LONDON

BY MIKE SMUTS

New Crossrail project creating property hotspots

ondon, which holds the status of “the world’s most important city”, has always been a place of change and reinvention. As its population has grown, the city has undergone a relentless process of change to keep up, not least in its transport system. Ten million people a day rely on it to get to schools and offices; to do business and enjoy their leisure. If transport fails, the city cannot operate properly. Crossrail, the east-west rail link through London, and Europe’s largest infrastructure project, will not only revolutionise travel across London and the South-East, but also have a dramatic effect on residential property prices along its route. According to new research released by Jones Lang LaSalle, Crossrail is set to cause more property ripples, and have a bigger impact on London, than even the latest Tube extensions to the Jubilee and East London lines. Transport-led regeneration is the single most important factor in boosting the value of London homes. Unlike South Africa, car ownership in London is a luxury for most and the vast majority of Londoners rely on the public transport system to get around. Because of this, people have a tendency to congregate around areas with good transport links and are often willing to pay a premium to be within walking distance from a station. Propert y investors who want to ensure that their London propert y appeals to a large market of potential tenants, while also benefiting from good capital growth, would be well-advised to invest in an area with good public transport. In key places along the route, prices are likely to outperform the rest of London and rise by up to 44 per cent between now and when trains start running in 2018. Such trends have been evident in the past residential prices in Canary Wharf and Tower Hamlets around the time of the Jubilee line extension in 1999 rose by more than 60% in

June 2013 SA Real Estate Investor

the four years running up to the opening of the extension. While neighbourhoods around the five new central London stations may see the greatest price lift, outer London locations and homes in Berkshire and Essex will benefit too. Ealing in the west and Woolwich in the east are also tipped for strong growth — as is Canary Wharf, which for the first time will have a direct link to Heathrow.

“Neighbourhoods around the five new central London stations may see the greatest price lift.” The cross-London railway will make a significant contribution to the transport needs and economic development of London and the South East region. This 37-station stretch of railway will seamlessly join up west and east London and have a profound impact on London by bringing an extra 1.5 million people within 45 minutes’ commuting distance of London’s key business districts. Travellers will be able to travel direct from Padding ton to Canar y W harf, through stations at Bond Street, Tottenham Court Road, Farringdon and Liverpool Street, in just 16 minutes. Busy stations like Bond Street will see an estimated 40% increase in the number of people passing through – rising from 155,000 to 220,000 a day. This will have a direct impact on the capital’s economy, enabling employers to draw from a deeper pool of talent. The Mayor of London, Boris Johnson, said: “Crossrail is vital to support London’s growing population and to ensure our city’s future economic prosperity in an increasingly

competitive world. These latest f igures demonstrate the impact of this ambitious project is already taking hold, creating jobs and sparking regeneration across the capital. This is good news not just for Londoners but for the nation’s economic health as a whole.” Progress on the Crossrail project is steaming ahead with a new Network Rail Director already appointed and over 9km of tunnels now excavated for the capital ’s f lagship transport scheme. But maybe even more exciting are the discussions already underway for a second Crossrail project, connecting the congested southwest of London to the more deprived northeast. A London First taskforce, chaired by former transport secretary Lord Adonis, recently put forward a Crossrail 2 proposal. Initial costs are estimated at £12bn and the line could be open by the early 2030s. The two main route options for Crossrail 2 are a major suburban and regional line running under Central London via a new tunnel connecting Wimbledon to Tottenham, or a shorter automatic tube line contained within the urban area, but either would provide much-needed relief to London’s south-western commuter congestion. London is facing extraordinary growth, with its population set to increase by around a million over the next decade and another million by the 2030s – all of which will put added pressure on the city’s public transport system. Crossrail will therefore become even more important, both in terms of getting people quickly and safely from A to B, but also in the regeneration opportunities brought by the new railway and new stations. Crossrail will support the delivery of over 57,000 new homes and 3.25 million square metres of commercial space along with significant public realm improvements, which will leave a lasting legacy for London.

RESOURCES

Smuts & Taylor

www.reimag.co.za

USA

BY SCOTT PICKEN

Investing In The USA For Income

Where should you be buying now?

ost people think that buying a propert y is about the propert y, but we believe it is 20% about buying the right property and 80% about the management solution, so that you can execute on the opportunity and make a real return! The biggest lesson I learnt from the Global Financial Crisis is those, from the biggest funds to the individual investors, who focus on capital growth came short and those who focused on income, not only survived, but actually thrived. Income is the life blood of any investment and it is why it is so critical to have done a thorough due diligence on the demand and the partners on the ground.

Metro

Atlanta doesn’t have as good a yield, but it has capital growth and equally good partners.

cash flow from renting such a property is $719 per month. Divide a year’s worth of cash flow by the purchase price of the house and you get The research, based on the Wall Street Journal an annual yield of 9.59%, the eighth-best in the (4th April 2013), reveal the best places to invest country. That’s 2 to 4 percentage points higher in USA for Income. than what most large institutional investors, including Blackstone Group LP BX 10 Top Markets For Buying Single-Family Rentals +0.88% and Colony Capital LLC, have projected in the way of returns for their Madium Average Estimated Cash Cash Sales Rent Monthly Purchase Purchase single-family rental portfolios. Price 3-Bedroom Mortgage Cash Flow Cup Rate 3-Bedroom Home

Home

Payment

Memphis, TN

$72, 605

$1, 047

$277

$628

10.38%

Saginaw, MI

$63, 240

$907

$242

$544

10.32%

Toledo, OH

$67, 617

$963

$258

$578

10.26%

Ocala, FL

$75, 357

$1, 070

$288

$642

10.23%

Las Vegas, NV

$115, 000

$1, 575

$439

$945

9.86%

Palm Bay, FL

$91, 950

$1, 248

$351

$749

9.77%

One shortcoming in Realt yTrac’s research on this subject, however, is that it doesn’t examine how much supply is available to investors in the markets it rates for landlord profitability. Over the last year, investors have gravitated towards markets with lots of supply and a legacy of foreclosure problems, because they know they can easily generate prof its if they buy at a low enough prices. But what if the inventory drops or there are large price increases?

9.70% The other massive lesson we have learnt over the years is that the most Jacksonville, FL $90, 000 $1, 198 $344 $719 9.59% successful and sustainable model for Deltona, FL $94, 000 $1, 225 $359 $735 9.39% investment is where you are dealing Springfield, MO $75, 102 $969 $287 $581 9.29% with one company, who provides a full solution. You see you don’t want an agent selling you a property and telling you Where can you make the most money as a The answer, says RealtyTrac vice president the expected returns and then they hand you rental-housing landlord? Not California, Daren Blomquist, is that the rental cap rate over to their “mate” the management agent according to a st udy released today by calculation helps individual investors who are once the property has transferred and then foreclosure-tracking firm RealtyTrac. buying homes one or a few at a time, rather you are told there is no way that those returns than large institutional investors looking to can be achieved. This is why it is critical to Using a formula that calculates cash purchase buy hundreds or thousands of discounted deal with a company, which provides the full capitalisation rates—or the annual net cash homes in a single market. solution – sourcing, renovation, management flow an investor can get from a rental property and maintenance. If this happens then they if it is purchased with cash—Realt yTrac “We created the report with our customers in are accountable throughout the transaction to found that Memphis, Tenn.; Saginaw, Mich.; mind-the mom-and-pop, individual investors,” ensure that the returns are achievable. Toledo, Ohio; and Ocala, Fla. were the most Blomquist says. “The folks I’ve talked to who are prof itable places to rent out single-family acquiring these in bulk or in larger quantities Our most sustainable income models in homes. Each of these markets has an annual are saying that because foreclosures are starting the USA at the moment are in Memphis cash purchase cap rate of more than 10%. to dry up, more and more they’re buying homes and Atlanta. On three buying trips to USA off the MLS,” he added, referring to multipleeveryone has agreed that the Memphis team The calculation goes something like this: listing services, the local databases of homes for – who offer a full solution – are the most the median price for a three-bedroom home sale used by realtors. professional they have seen in USA. It is no in Jacksonville, Fla., is $90,000, according to surprise we are investing there heavily, as RealtyTrac’s numbers. The average rent on a RESOURCES the research below shows it is the best rental three bedroom is $1,198. After setting aside market in USA and we have the best partners. money for taxes, fees and maintenance, the IPS Invest Atlanta, GA

www.reimag.co.za

$84, 000

$1, 132

$321

$679

June 2013 SA Real Estate Investor

CYPRUS

BY JAMES COLBY

Where Is Cyprus Now?

Our expert, Jenny Ellinas talks property, banks and bailouts

yprus is a desirable destination for South Africans to invest but now Cy prus is facing bank bailouts similar to what Greece, Ireland, Spain and Portugal faced. Cyprus has not only reminded us that the crisis in the Eurozone is far from over, but that the world bank ing system as a whole still remains fragile. There is also the unprecedented step being taken to tax depositors to effectively help save the banking system and there are fears that what is happening in Cyprus might very well unfold elsewhere in the Eurozone system.

We asked Jenny Ellinas of Cypriot Realty 10 questions, which investors are all asking Was Cyprus not doing quite well before the global financial crisis? On 01 January 2008 Cyprus adopted the Euro after coming off the very strong Cypriot Pound. Cyprus’ economy was flourishing and they were in the peak of their property boom. It took a couple of month’s lag after the Lehman Brothers’ bankruptcy on 15 Sept 2008, for the effects of the global economy freefall to hit the island. But where they were fortunate is that the Cypriots had - and continue to have - a very high GDP per capita (in 2009 the IMF ranked them 30th at $29,427 p/p). So what went wrong? In 2010 the IMF & EU announced they would assist Greece (and other EU countries) from financial collapse/difficulties; and despite its small size, Cyprus stood by its EU partners in 2011 to bail these countries out. All EU countries were forced to take a haircut on Greek private sector debt; as well as to assist 58

March 2013 SA Real Estate INVESTOR

in the bailout of other European countries. Two of Cyprus’ largest banks were the highest exposed and gave away almost €5Bn in Greek Government Bonds in an EU-led effort to restructure the Greek National Debt. This of course had direct knock-on effects as these banks were then themselves faced with financial difficulties which affected the normal financial arrangements of the government; forcing it to request a loan from Europe until its natural gas and oil reserves are realised in the next 2 to 4 years. Where we are now. The Troika (IMF, ECB and EU) responded positively – although harshly! – and in March agreed to a ‘bail-in’ which included lending Cyprus €10Bn to refinance its debt; as well as to provide as much liquidity to the Cypriot banks as is needed during this period : €2.5bn will recapitalise the Cy priot bank ing sector, €4.1bn will

redeem maturing g ov e r n me nt d e bt and €3.4bn will cover the government’s f iscal needs in the next 3 years. The Cypriot president has been commended by European finance ministers on the government’s swift reaction to restructure Laiki Bank (one of the affected banks) being split into 2 banks – a “good bank ” taking the good loans and deposits up to €100,000 (guaranteed by the Cypriot government) and a “bad” bank which will go into liquidation. The Bank of Cyprus will be recapitalised using a percentage of the money from deposits over €100,000 in exchange for shares in the bank. The government also imposed capital controls (which are now virtually lifted) to ensure there was not a run on the banks thereby preserving Cyprus’ reputation as a reliable banking hub. Can Cyprus survive this? Absolutely – the Cypriots reacted with calm and diplomacy when the bailout discussions were happening, despite this being a calamitous and uncertain time for them. There were no www.reimag.co.za

OFFSHORE riots, there was no malicious destruction of property and no run on the banks when they opened. Even the Archbishop of the Greek Church of Cyprus offered all of the church’s assets to be bonded in favour of raising much needed capital. What happened to Cyprus with the bail-in is NOT bankruptcy of the country as the current predicament is the reality of 2 banks being affected by Cyprus’ involvement in assisting other European countries in their bailout requirements. And with the bailout requirements being f inalised and the f irst tranche of the bailout expected in May, this crisis is already on the road to recovery. Is this cause for major panic? Categorically no. There are many opportunities for investment in various fields, such as shipping, tourism, large infrastructure projects, research and innovation, and of course the energy sector – all which will accelerate economic growth. The newly elected president has announced that the country is embarking on numerous employment efforts eg building casinos and also expediting the issuance of golf course and marina licenses – resulting in stimulating the construction, finance and real estate markets. He has also passed a number of initiatives to br ing dow n publ ic e x pend it u res to sustainable levels which all adds up to a positive environment for investors. What will the implications for investors who have invested in the country already? Bricks and mortar investors have enjoyed peaceful nights as there is still a high demand for property in Cyprus : as long as there is cold winter in Europe, there will ALWAYS be a demand for property there. Investors who have business interest are also secure in the knowledge that it’s back to business as usual in Cyprus. The lesson that many people have learnt is that to invest your money in a bank is not a sure-fail guarantee that your money is safe. In Europe, depositor savings up to €100,000 are guaranteed to be secure should the institution fail/collapse; and because of this, most seasoned investors diversify their risk and have multiple bank accounts where these limits are assured. Out of interest, in South Africa, our banks do not offer this insurance, so should one of our banks collapse, all depositors will be at risk of losing all their savings.

www.reimag.co.za

What can investors do to protect their assets? The old adage of location, location, location has always been and will always be the true identifier that will test any cyclical bear and bull market in the real estate industry. Cyprus’ recent bank exposure and depositor insurance (or lack thereof ) has raised the alarm that it’s better to diversify your risk in multiple institutions/accounts/plans rather than in one institution. What are the fundamental effects to them if any? Using a reputable and credible company from the onset is a guarantee that an investment will be solid. And by doing the upfront homework in researching historical performance/returns

coupled with actual credential checking of any service provider should be assurance enough that you are dealing with the right individuals. It pays to take your time in any investment decision. Are banks still in a position to offer investors finance? Right now the banks in Cyprus are very cautious with their lending and require a higher deposit especially from non-EU clients. The minimum deposit is now 50%; and the banks in Cyprus require extensive proof of income, expenses and exposure to both South African and offshore debt.

RESOURCES Cypriot Realty June 2013 SA Real Estate Investor

KENYA

BY GAYE DE VILLIERS

Investing in Kenya

The domestic market demands more

xisting and new residential development properties are currently in demand in Kenya, reports Kunaal Samani, a director of Pam Golding Properties in Kenya, which has an office in Westlands in Nairobi, and is looking to expand soon in the Mombasa area.

“The most sought after properties are located in areas such as Muthaiga, Kileleshwa, Runda, Gigiri, Loresho, Lavington and Kitisuru, and are mainly in the price range from approximately Kes (Kenyan shilling) 20 million to 100 million (approximately US $235 000 – US $ 1.2 million). Positively, the development sector is presently experiencing the most growth in demand as many apartments and townhouses are now coming to fruition and becoming available for purchase, helping meet a high pent-up demand from the domestic market,” he says. Samani says there is a high demand among business executives and young professionals who seek to boost their standard of living and experience a more luxurious lifestyle.

Good buying opportunities “At present, f rom a loca l home buyer perspective, areas such as Athi River and Syokimau, which are located in the outskirts of Nairobi, offer affordable prices for two to three bedroom apartments starting from about Kes 5 million (approximately US $ 58 000).” He says middle income buyers are attracted to areas such as Nairobi west, Langata and South C, where prices range from Kes 10 million to 20 million (approximately US $ 117 000 $235 000), while for higher income buyers, 60

June 2013 SA Real Estate Investor

areas such as Lavington and Brookside are popular, with a price range of Kes 25 million 50 million (approximately US $ 295 000 – US $ 588 000). High net worth buyers purchase in areas such as Runda and Muthaiga, where properties start from Kes 50 million upwards (ie from approximately US $588 000). Samani says areas with high appeal for South African home purchasers are those such as Gigiri, Muthaiga, Runda, Nyari, K itisuru, Brookside and R iverside. Says Samani: “These are the most suitable for South African purchasers due to their vibrant, upbeat neighbourhoods with access to international schools, shopping malls, restaurants, bars and other amenities. In addition, rental yields on residential apartments range up to 7.5 percent for buy-to-let investors. Foreigners can acquire property or land on a leasehold basis (99 years) in Kenya and mortgages are easily available.

“Activity in the property market is gradually picking up as most buyers and investors had put on hold decisions until the aftermath of the elections. We expect to see prices rise now that the elections have taken place, and already we note an increase in stock coming onto the market as well as a good demand for property. “From a development perspective we have sold out two projects namely, Trident Park Langata which comprises 45 very appealing maisonettes, each consisting of four en suite bedrooms priced at Kes 20 million, and Trident Heights Riara, which is an apartment complex consisting of 24 units in three- to five-storey blocks with each unit comprising three bedroom apartments priced from Kes 21.5 million and four bedroom

penthouses with en suite master bedroom priced from Kes 37 million.” Commenting on the market in general, Samani says key factors which are currently impacting on market activity and the demand for homes include the following: • Location - this is the most important factor driving the property value and determines how much appreciation would take place to attract investment and other buyers. • Infrastructure - well-maintained road networks are attracting purchasers of property. Properties that have been developed with access to good road networks experience a strong demand from buyers as opposed to those without such access. • Construction - construction of the building impacts on the value of the building, and elements such as architecture, design and materials used determine the worth of the property. Buyers seek properties with a long life span and sound and appealing architecture. • Land availability - if there is scarcity of land, the value of properties will increase in specific areas. Areas situated in the heart of the city are much more expensive than those on the outskirts. Most buyers are therefore more inclined to acquire land that costs less. • Amenities - properties that have amenities such as swimming pools offer a better price appreciation as they mostly attract new buyers who want to experience a luxurious lifestyle.

RESOURCES

Pam Golding Properties

www.reimag.co.za

SMART MOVES

BY JAMES COLBY

Emmigrating or Immigrating Brain drain versus a strong currency

ape Town has long been top of the list for visitors, attracting 4.2 million last year and winning the ‘Best City Worldwide’ accolade. Combine this with prestigious awards for everything from natural beauty and conservation to business and design, and you have a property hot spot. According to Knight Frank’s wealth list, Cape Town ranks in the ‘Top 10 most affordable luxury destinations’ in the world. With such international affordability and a weak rand, not to mention excellent weather, a rich cultural heritage and a cosmopolitan lifestyle, foreign investors have made up over 10% of property purchases this year. Heralded as the Saint Tropez of Africa, Cape Town is home to a number of blue flag beaches, a New 7 Wonders of Nature site (Table Mountain), breathtaking coastline, sensational sunsets and world class vineyards; all major draw cards for property buyers. The City also offers a variety of home choices to suit the individual needs of any discerning buyer or investor alike. From sprawling oceanview homes, Mediterranean villas, and art-deco beachfront apartments, to Victorian mansions, and luxurious vineyard homesteads. Cape Town has always been popular with the Europeans, and more recently attracted purchasers from the Middle East to the Far East and beyond, propelling Cape Town to become one of the most sought-after property markets worldwide.

June 2013 SA Real Estate Investor

So what are the official statistics of people emigrating to and from SA? M r D i rk Me i s s ne r, t he M D of I BN Immigration Consulting says: “There are no clear statistics. Papers presented to the courts speak of about 20 000 temporary residence permit applications submitted to Home Affairs per month and 20 000 permanent residence applications per year. As there is no obligation to register in South Africa, there is no official statistic. This also applies for people leaving the country, as most do not really declare themselves as emigrants in order to keep one foot in the door. Many also return after a stint abroad, as the grass is not always greener on the other side...” Factors which make South Africa popular include the weather, lifestyle and our great outdoors and of course the ocean. Many Europeans are making their home here in South Africa, predominantly people from countries such as UK, Ireland, Germany and Holland, while South Africans are heading for countries such as the USA, Canada, Australia and New Zealand. For many the decision to stay or go is largely influenced by their education and their country of origin’s currency versus the Rand. If you are emigrating here from the USA or countries which use the pound, then life and property in South Africa will see your money go further. Crime is still a major concern but this is often over-ruled by the lifestyle South Africa offers to people from a stronger currency country.

But does the influx of people into the country make up for the brain drain South Africa is still suffering? South Africa has been suffering from a pronounced “brain drain” in recent decades, however the movement can be credited more toward the healthcare infrastructure and systemic racial tensions, instead of the quality of education. The universities in South Africa are on par with those in the Western world. But, a history of poor relations overshadowed this. Beginning with the fall of apartheid in the 1990s, South Africans have been leaving the country en masse, however that trend seems to be reversing of late.

People are returning home but why? Homesickness, the desire to provide a higher standard of living for their children, and an increased interest in reconnecting with extended family and friends all come into play. Other factors include the global economic downturn, extreme weather conditions in more northern climes, and political tension in some South African expats’ countries of residence. While the job market for young college graduates remains daunting in South Africa, the South A frican government has also recently begun offering incentives to encourage educated people to remain in the country. But with unemployment figures sky high and unequal hiring practises, many young educated South Africans are still leaving for countries with a more robust economy.

RESOURCES IBN Immigration Consulting

www.reimag.co.za

Specialising in Immigration Services and Residence Permit Applications for South Africa: • • • • • •

All permit types: Work, Own Business, SA life partner, Retirement… Temporary and Permanent Residences Individual and Corporate Services Specialised in Migrations from the UK, Germany and the Rest of Europe Permit Applications submitted internationally Free Assessment without any obligation

SEAMLESS MIGRATIONS TO SOUTH AFRICA – FOR YOUR PEACE OF MIND

info@imcosa.co.za www.imcosa.co.za IMCOSA Gauteng: Tel (011) 326 5131 IMCOSA Western Cape: Tel (021) 462 3184 Enquiries from overseas: Tel +27 21 462 3184

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People buy and sell property, which is why we’re working hard to put a face to every name, introducing buyers to sellers and tenants to landlords.

We strive to publish quality content. Our property adverts are so real that you’ll fall in love with your new home at ﬁrst sight while veiwing it online.

Like any move, there are still boxes to unpack and a few unﬁnished areas but we’re working hard to get settled in. In the meantime have a peek and tell us what you think...

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REI Lifestyle HOUSE AND GARDEN SHOW

MY BUSINESS EXPO

The International Convention Centre Durban 28 June - 7 July 2013

Southern Sun Elangeni Hotel Durban Thursday, 27 June 2013

The East Coast Radio House & Garden Show is a not-to-be-missed event. Last year saw organisers pulling out all the stops,with total prizes valued at over R500 000 up for grabs at the Show. Entrants won anything from a SAMSUNG prize ‘every hour, every day’ including flat-screen TVs, to plants and gardening must-haves to the value of R20 000 daily courtesy of The Gardener Magazine or walked away with a show stopping designer kitchen valued at R110 000, by Kitchen Studio.

The My Business Expo kicks off at 09:00 and continues till 17:00, allowing you the opportunity to take full advantage of all on offer. Experience an array of the most powerful and unique solution driven exhibits. Throughout the day you can attend world class seminars that deliver practical and interactive information, strategies and ideas, that can immediately be applied to your future, startup or growing business.

THE HANGOVER 3

And this year promises to be just as exciting!

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GAUTENG MOTOR SHOW

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Make free voice and video calls to anyone else on Skype, whether they’re on an Android, iPhone, Mac or PC, as well as IMs to your friends and family, no matter where they are. 4. Twitter Zwartkops Raceway Pretoria 1-2 June 2013

The Annual Gauteng Motor Show, now featuring Atomic Junkies Adrenalin Sports Fest, is one of the largest; most action packed motoring and adrenalin events in South Africa and promises to bring you more action packed excitement in the years to come. Now proudly brought to you by Thebe Exhibitions & Projects, Southern Africa’s most forward thinking and successful organisers of worldclass exhibitions and events.

www.reimag.co.za

Release Date: Friday 31st May

If you’ve seen The Hangover 1 & 2, then you must know that June will see Hangover 3 hit the big screen. This time, there’s no wedding. No bachelor party. What could go wrong, right? But when the Wolfpack hits the road, all bets are off, as friends Phil, Alan and Stu hit the road, breaking someone out of a mental institution along the way. Rating [ R ] Director: Todd Phillips Written By: Craig Mazin, Todd Phillips Cast: Bradley Cooper, Ed Helms, Justin Bartha, Zach Galifianakis

With the official Twitter app for Android you can watch the world unfold like never before. Get real-time stories, pictures, videos, conversations, ideas, and inspiration all in your timeline. 5. Adobe Reader

The global standard for reliably viewing and sharing PDF documents on your Android tablet or phone. Easily access, manage, and share a wide variety of PDF types, including PDF Portfolios, password-protected documents, fillable forms, and Adobe LiveCycle® rightsmanaged PDF.

June 2013 SA Real Estate Investor

PROPERTY MONITOR

BY GINA MEINTJIES

Get Your Golf Gear On Golf estates: a must-have investment!

hile the national average house price is predicted to continue its meagre growth rate of between 2,5% and 3% according to bank property economists, Seeff â&#x20AC;&#x2122;s major metropolitan branches report significantly better growth for urban lifestyle and golf estates. Although sales volumes on the whole are still about 30% to 40% down on the pre-2007/8 highs, 25 top estates in the country boast an average price growth over the past five years of well above 20%, says Seeff chairman, Samuel Seeff. The top attraction of these estates is the top class security and safe lifestyle that residents enjoy. The estates are generally enclosed with

June 2013 SA Real Estate Investor

electrified perimeter fencing, have controlled access points and 24/7 guards that patrol the estate. Additionally, there is a quality lifestyle on offer and it is for these reasons that buyers are prepared to a premium of between 20% and 40% for an estate home, he says. Average prices range between R2,5 million and R7,9 million and upwards of R10 million for a luxury home. Aside from a top class golf course and amenities on offer in golf estates, many of the estates also come with shared facilities such as a clubhouse, restaurants, a gymnasium, swimming pool and some even boast shopping facilities and a private school on site. The added luxury of wide open spaces interspersed with greenery, often with

water streams and dams and walking and cycling trails where residents and especially children can move around freely in a secure environment add to the attraction for buyers, says Seeff. While coastal and Garden Route estates continue to struggle to find buyers, especially at the top end and primarily as they are second home markets, Seeff says that residential estates in the greater Johannesburg and Cape Town metropolitan areas are showing good turnover and capital growth for sellers, says Seeff. Clouds End, located in Morningside, Sandton for example now boasts an average selling price of around R13 million, up by about 30% from R10 million five years ago. Dainfern has seen similar www.reimag.co.za

www.reimag.co.za

June 2013 SA Real Estate Investor

PROPERTY MONITOR growth with its average price now well above R4 million, says Seeff Sandton principal, Charles Vining. On the western side of the city, Eagle Canyon Golf Estate boasts similar growth with the average house price here now around R4 million, up from under R3 million five years ago, says Seeff Randburg principal, Tony Ketcher. Facilities here for example include a Camelot Spa and Senshi Wellbeing centre with a gymnasium along with tennis courts, a Pro-Shop, restaurant, bar and lounge, function and conferencing facilities and a terrace with stunning views over the estate. The average sales price in the Ruimsig Country Estate has grown by 25% from R2 million to around R2,5 million while Featherbrook Estate has seen about 30% growth in its average price which is now just over R3 million, says Seeff’s area principal, Brian Franklin. Last year, 77 properties sold in the estate, three of which were priced above R5 million. Seeff Pretoria East principal, Gerhard van der Linde says that while average house prices in the area has increases by between 3% and 10% in the last five years, security estates have shown growths of between 15% and 22%. The average price of homes in Silver Lakes for example is up from around R2,4 million to almost R3 million now; an improvement of over 20%, he says. In the Woodhill Golf Estate, buyers are now paying an average price of around R3,7 million, 16% more than the R3,2 million five years ago. In Centurion, the demand for security estates has seen values of homes spike by up to 38% in the last five years, says Seeff principal, Steve van Wyk. In the Blue Valley Golf estate for example

June 2013 SA Real Estate Investor

homes are now selling at an average price of just over R4 million, up from R2,95 million. In Southdowns Estate, the average price has more than doubled to over R4 million with about 60% of sales over the past year topping the R5 million mark. In Midstream Estate, the average price has grown by more than 60% from around R1,5 million to almost R2,5 million. In Irene Woods, homes are now selling for around R2,5 million on average, up by 25% over the past five years. Similar strong growth rates apply to Centurion Golf Estate, Zwartkop Golf Estate, Copper Leaf Golf Estate and Cornwall. In Irene Farm Villages for example, the average price is now upwards of R2,5 million, 60% more than five years ago. In Cape Town’s southern suburbs, the average sales price in Stonehurst Mountain Estate is up by about 20% from under R2 million five years ago to around R2,4m. In the same period, the average price in Steenberg Golf Estate has grown by around 29%; up from R9 million five years ago to over R11 million now. The average sales price in Silverhurst Estate is now around R14 million, up by 45% from under R10 million, says Seeff Southern Suburbs principal, Andy Todd. Hout Bay boasts a number of stunning eco, equestrian and other lifestyle estates including Kenrock Country Estate situated on the slopes of the 12 Apostles Mountain and boasts indigenous vegetation and natural streams and dams stocked with fish. The estate backs onto the Table Mountain Nature Reserve with direct access for residents for walks and hikes. The average sales price here is now just over R5 million, up from around R4 million five years ago. In Cape Town’s northern suburbs, Welgedacht Estates has seen a price growth of about 33% with homes now selling for around R4 million on

average, up from just under R3 million. On the western side, the beach golf estate, Sunset Links has seen an average price growth of over 50% in the last five years from around R3 million to well over R4 million now, says Seeff Blouberg agent, Steve Dawson. In the winelands, a number of security and golfing estates also continue to buck the price growth trend says Seeff’s Winelands principal, Pierre Germishuys. In Franschhoek, La Ferme Chantelle for example has seen its average sales price more than double from around R3 million five years ago to around R7,9 million now. Pearl Valley Golf Estate has seen growth of about 57% in the average sales price from around R3 million five years ago to almost R4,7 million. In the Stellenbosch area the average price in De Wijnlanden is now close to R2 million, up by about 50%. In De Zalze, homes now sell for R6,7 million on average, also about 50% more than the R4,2 million average five years ago. Seeff says that we are seeing a dual market in operation, an interesting dynamic with some areas showing above average demand and growth while other areas are still reporting subdued conditions. We have in the last few years seen a definite drive towards a more secure lifestyle and while some estates especially those in the price band above R15 million, still struggle to find buyers, the average price growths should serve as real encouragement for investors and buyers. Having said this, Seeff urges buyers to do their homework and ensure they buy and invest in estates that are well managed with strong financials and that they pay fair market value for the property.

RESOURCES

Seeff

www.reimag.co.za

APPROACH IS

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CONTACT DETAILS: www.pvprop.co.za +27 (0) 21 419 2808 www.reimag.co.za info@pvprop.co.za William Wallace: +27 (0) 82 410 8274 Anton McElhone: +27 (0) 83 506 7829

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GREEN MONITOR

BY ANGELIQUE REDMOND

Put Public Spaces First

And watch communities succeed

N-HABITAT Executive Director Joan Clos i Matheu says, “What defines a character of a city is its public space, not its private space. What defines the value of the private assets of the space are not the assets by themselves but the common assets. The value of the public good affects the value of the private good. We need to show every day that public spaces are an asset to a city.” The greatest challenge facing countries today is building healthy, functional and productive cities. And at the heart of that puzzle are public spaces. Healthy public spaces are the steppingstone for revitalising communities; even the most downtrodden and poor communities can become successful with the right public spaces. They are a vital ingredient of a successful city, they facilitate social capital, economic development and community revitalisation. Every community has public space, whether it is a dirt patch in the middle of an informal settlement or walk ing paths in-bet ween bu i ld i ng s. T he bac k-a l le y s, neglec ted courtyards and stairways can escape notice but they are underutilised and potentially valuable assets. It is these neglected public spaces that are key to strengthening and enriching communities, in instilling pride and care in a community where there is none. In the informal spaces in South Africa, where running water and bathrooms are a luxury, a public space can be considered nonessential, but they provide

June 2013 SA Real Estate Investor

the fabric for a community and economic opportunity. By boosting the well being of the people in a community with limited resources, the effect is an enrichment of the community, providing them with a sense of community and belonging, and happy communities are more productive. “Urbanization is the defining trend of the 21st century; by 2030, 75 percent of the world’s 9 billion people will be living in cities. And urbanization is occurring most rapidly in places with the greatest lack of planning for urbanization,” says Joan Clos i Matheu. W it h c it i e s a n d t o w n s g r o w i n g a t unprecedented rates in countries all over the world, the infrastructure is falling behind the growth and this can be seen in the rise in the number of informal dwellings all over South Africa. In 1950, one-third of the world ’s population lived in cities. Just 50 years later, this proportion has risen to one-half and is expected to continue to grow to two-thirds, or six billion people, by 2050. In many cities, especially in developing countries, informal settlement dwellers number more than 50 percent of the population and have little or no access to shelter and other basic services like electricity, clean water, and sanitation. In the City of Cape Town, Capetonians, through a community garden project, has tackled this issue. The Community Gardens Project creates user-friendly and aesthetically

pleasing parks and promotes gardening of various types, detail and designs. “The project is in keeping with the City’s commitment to building an Inclusive City, and is a part of our policy of redress in which previously neglected areas are upgraded,” said Alderman B el i nd a Wa l k er, M ayor a l C om m it te e Member for Community Services and Special Projects. In the past year, R300 000,00 has been dedicated to the development of 12 community gardens. This brings the number of community gardens up to 15, including the pilot gardens established in 2011. The project is rapidly gaining momentum as neighbours and adjacent residential areas are seeing the positive impacts of the project and wanting to replicate it in a manner that adds value to their own neighbourhoods. “We know that when people have beautiful spaces in which to live, work, learn and play, a true sense of community, shared ownership and pride can form. In light of the many social ills that communities around our city face, gardens like these are ever more important,” said Alderman Walker. And with urbanisation continuing at a rapid pace and informal settlements growing at an alarming rate, communities need something to tie them together.

RESOURCES UN-HABITAT

www.reimag.co.za

RO E N O

ED L W O

D E R R A DIG M S N U GE F T PA

y HI abilit S n i o a h t w us aders s in s r e l e t d h a oug edge d le h n e t a v l i y t a i r t et loc indus comp f bal & o a o l s n g i n g ta tai main spirin h cap o n t i t i s w N s E IO ce RK M L IN OVAT • Ac O T WO N T E N T N I ND EEN ND r BO A R A u o G T S y E A L D d R EN s an NTI A r in S • ME T s e E f e v U o n e i L e F ead bus st tim ost IN 1 your ep ah m e e n h e o K t • or f th CT nes f ing o t IMPA e e v n e n a o c fm ke ce-of world • Ma n e o h t a as ce ORK erien p W x T E • NE D IN G L I U B

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t o: o g , t e v en .co. z a l a R n tio TO on p i t e n c x e nv se at thi g b c s a - co . www

V E SER

Principal Sponsor

SMART LIVING

BY ANGELIQUE REDMOND

Get More For Less With open access networks

mart Village, the Multichoice-owned company specialising in large-scale deployments of high-capacity “Fibreto-the-Home” multi-service networks, will soon be promoting an open access network to ISPs in their 56 residential estates throughout South Africa. As the only company currently able to provide a truly converged multimedia and telecommunication service solution via a single access point to the residential and commercial sector, Smart Village is considered to be a pioneer in the field.

What is an open access network? As the name implies, Open Access Networks (OAN) refers to telecommunication networks that is open to allow suitable and authorised Independent Service Providers (ISPs) to deliver services to end-users. “Opening our networks will allow other players such as Telkom, Neotel, MWeb etc. to provide telephone or broadband Internet services to residents making use of our network architecture,” explains Smart Village Managing Director, Chris Van der Walt. One of the benef its of an Open Access Network is creating a genuinely competitive environment in the market for end user broadband services. “Our customers will now also enjoy the benefits of choosing their own services and service vendors”, Van der Walt says, adding that the Waterfall Development in Gauteng is the first open access network operated by Smart Village on this basis. “Our other residential estates are soon to follow this trend”. 72

June 2013 SA Real Estate Investor

In contrast to traditional municipal networks where the municipality owns the network and there is only one service provider, the open access model allows multiple service providers to compete over the same network at wholesale prices. This allows service providers to make money in the short-term, and the municipality or cooperative to recoup its costs over the long-term. The build-out and infrastructure is typically financed through low-cost bonds. Open access networks have proven successful in parts of the United States, Europe and Asia. One of the best-known and most mature OANs is in Västerås, Sweden, a city of about 40,000 homes. The Västerås OAN has dozens of providers, and more than a hundred services available to users. During the past years a large number of OANs have spread all over Sweden, especially in smaller municipalities (see e.g. Säffle and Hudiksvall). In the US, open access networks like municipality owned The Wired Road[1] in Virginia have been able to attract both local and regional service providers quickly. This has resulted in the cost of Internet access and telephone service for business users in The Wired Road service area to decline by fifty to seventy percent due to the increased competition between providers. This OAN provides open access transport to any service provider that meets minimum technical and financial qualifications, including allowing existing providers to supply enhanced services, however it does sell services itself and therefore does not compete with private sector providers. Australia and Singapore also have open access

networks based on f ibre to the home. In Australia, the leading open access provider currently is Opticomm,[2] who have been delivering services to over sixty communities since the mid-2000s. Australia also has the recently formed government owned corporation NBN Co Limited, who are creating the National Broadband Network to provide open access fibre to the node at one gigabit per second for more than ninety-three percent of homes and businesses in the country, and fixed wireless and satellite technologies with a minimum speed of twelve megabits per second to the remainder of the population. “We have a strong national footprint in lastmile infrastructure, with over 11 000 homes and businesses already connected and enjoying our fully integrated multi-media, telecommunication (voice and data) and IP based solutions,” explains Van der Walt. Customers living in residential estates that are on the Smart Village networks, will continue to enjoy Quadra-Play® range of value added services, such as telco-grade VoIP telephony services, high speed broadband access, TV and video services and including rich multi-media IP services. Want to know more about how you can enjoy an open access network? Don’t miss the July edition of REIMAG, where we explore the world of networks and access tailored to you.

RESOURCES Smart Village

www.reimag.co.za

June 2013 SA Real Estate Investor

MY STORY

BY ANGELIQUE REDMOND

Team Players Take Second Husband and wife duo, 74

June 2013 SA Real Estate Investor

Tertia & Nico

www.reimag.co.za

LIFESTYLE

his dynamic duo make up the husbandwife team who claimed second prize in the Investor of the Year 2013 competition. With a net worth of R10 000 000 excluding their own residential property, Tertia and Nico have built up a solid portfolio and they have done it together. So what is the secret to their success? Tertia explains, “We target onebut mainly two-bedroom entry level units in security complexes, not exceeding R500 000. This limits our risk and guarantees return on investment and permanent occupation due to affordability. Location is also important. Our properties are near medical facilities, police stations, schools, shopping centres as well as easy access to main routes.” As business people they saw propert y investment as a means to build their own pension. They started with a conservative approach and limited themselves to transactions and financing that was close to break even. But as time went by they became more conversant and relaxed and started to enjoy the property game. They then took the equity from the growth in the market value of their existing properties and applied gearing in order to enlarge their portfolio, “The value of our portfolio is rapidly catching up with the value of our business,” says Nico.

What about seed capital? “I would like to say ZERO because our first 10 properties we got 100% loans from the bank, six of which were bought from developers with all costs included. The other four properties we had to pay the transfer and bond costs ourselves

which were minimal since they were all below the R200 000 price range. The properties we bought since 2009 the banks granted loans of only 85% of the purchase price and only then did we start to contribute to our portfolio,” says Tertia. Having this many properties, currently 19, must present quite a challenge but the Truters have it under control. They credit lender diversification and asset protection as part of their management strategy. The lender diversification built up their record, trust and relationship with major banking groups, with the aim of future transactions. While their use of recommended agents, who apply the rules and do the necessary screening of tenants and keep the Truters informed, helps ensure their 19 properties are earning them money. “We try to keep up to date with what is going on in the market and do continuous research. Given the current market tendencies we try not to do transactions exceeding the R500 000 price level,” says Tertia, “and we try to obtain loan offers from different financiers where we negotiate for best rates as close to the prime rate as possible. We don’t always accept first offers if we are not completely satisfied with the interest rate. We found that banks are more than willing to negotiate their interest rates, periods of the loan; etc provided you have good and reasonable argument.” Knowledge is precious and the Truters are passing theirs on to their children. “We are teaching our children at the age of 20 the lessons we learned at the age of 40 to 50. They

are eager to follow the principals of building a property portfolio,” says Tertia. They are 100% responsible for their own income stream, with no corporate safety net; they have made their own opportunities. Tertia explains, “We attend seminars at own cost and on our own time, do a lot of reading and researching and apply the knowledge in practice. As a husband and wife team in all aspects of life, we always encourage and motivate one another to enter the next level which is never easy and takes a lot of hard work, time and team effort. We have regular brainstorming sessions after which we always return with new fresh ideas to expand and stretch our abilities.”

And if they could do it all over again, what would they change? Tertia answers, “When starting to buy property in 2001 we still had that ‘play safe’ mentality and bought the minimum properties. Thinking of the enormous capital growth we made on our first properties and the fact that I cannot recall that they ever were without tenants, we definitely should have been more aggressive in our investment by buying more during 2001-2006, by buying at least 5 properties per year. Instead, we bought insurance annuities and invested in 5-year plans which all had a negative growth. We lost quite some money on insurance. Our first properties are still our best performers. We would definitely invest more and earlier in fixed property which offers a guaranteed return in the long run and exploit the market trends in our favour to speed up momentum.”

Investor Of The Year prizes proudly sponsored by

www.reimag.co.za

June 2013 SA Real Estate Investor

EVENTS

Do Not Miss The Knysa Oyster Festival

Enjoy the top South African wine available at the festival

Some festival goers enjoying the oysters

e sure to wear your party hat when you head down to Knysna between 28 June and 7 July this year, as the Pick n Pay Knysna Oyster Festival will be celebrating its 30th anniversary – and with more than 100 events on the programme, there will be fun for everyone. “Knysna has long been regarded as the pearl of the Garden Route,” said Festival Manager Nicci Rousseau-Schmidt. “And with pearls being the traditional gift for 30th anniversaries, the 2013 Pick n Pay Knysna Oyster Festival is sure to shine as it presents attendees with a wide array of activities and events.”

Some of the oysters you can sample

The Big5 Challenge will have you cycling and running on both the road and breathtaking trails

June 2013 SA Real Estate Investor

“On the menu is a smorgasbord of events to thrill and delight the most discerning of gourmands, wine aficionados and those who appreciate the finer things in life, such as the Admiral’s Ball with the SA Navy Dance Band - the perfect opportunity to display your own pearls and dance the night away. The Festival enjoys a wonderful relationship with the South African Navy, who are attending once again and, along with the Admiral’s Ball, the Navy Band performance is not only an event not to be missed, but the perfect grand finale to the Festival.” “Showcasing over 40 top South African wine producers as well as bubbly from the Cap Classique Association, the Knysna Wine Festival & Night Food Market invites you to meet local winemakers, taste their current releases and learn more about the latest trends in wine making,” said Nicci. “And it only makes sense to pair this extremely popular event with the Night Food Market which is sure to offer tasty titbits to enjoy – and line the stomach!” www.reimag.co.za

REVIEWS READ THIS The Little Book of Real Estate Investing in Canada By Don R Campbell

Invest In Apartment Buildings Profit Without The Pitfalls By Theresa Bradley-Banta

Canada’s bestselling author on real estate draws back the curtain on real estate investing. Investing in real estate has often been viewed as the poor second cousin to the stock and bond markets. To help provide a new perspective to Canadian investors, Canada’s bestselling real estate author speaks about his relationship with real estate as the asset that has consistently delivered value for himself and the Real Estate Investment Network community across the country.

WATCH THIS

A must read for property investors.

LISTEN TO THIS Build Your Wealth

Let’s Talk Property

Dr Demartini is considered one of the world’s leading authorities on human behaviour and personal development. He is the founder of the Demartini Institute, a private research and education organisation w ith a curriculum of over 72 different courses covering multiple aspects of human development. If you want to learn how to build wealth check out this youtube video from Dr Demartini.

Want to know where to invest in property? Then why not listen to Clem Sunter in this invaluable webinar with Scott Picken and Clem Sunter on investing in property. It is part of the Let’s Talk Property series, why not give it a listen?

Check it out here http://www.youtube.com/watch?v=6Rh4A6QKUdE

Check it out here: http://www.youtube.com/watch?v=TeP41kPzxy8

GO TO THIS

It’s app-ening right now!

Cleantex 2013

Want to read Real Estate Investor Magazine on your tablet, iPod or iPhone? Then head to the Apple app store and download it.

A highly specialised trade exhibition focusing on the latest in cleaning technology, industrial cleaning, hygiene solutions, laundry solutions, sanitation and professional cleaning, pest management, waste management, env i ron ment ma na gement & washroom hygiene management. Africa’s 9th hygiene, cleaning, maintenance, pest control & facility management services exhibition takes place on 30 June - 2 July 2013 at the Gallagher Convention Centre, Johannesburg.

No more waiting for your magazine in the mail, now it can be yours in a matter of seconds. The app will be available soon, keep an eye on the app store.

www.reimag.co.za

Theresa Bradley-Banta’s Invest In Apartment Buildings Profit Without The Pitfalls is a no-holds-barred guide to successfully investing in multifamily properties. This Bradley-Banta compendium includes everything you need to know: The good deals and the “don’t go there” ones; Real estate investment exit strategies-and the fact that you must have more than one.

June 2013 SA Real Estate Investor

TECH TALK

BY RUSSELL BENNETT

Socially Switched On Go digital or go home

n May 1, 2013, self-diagnosed “burntout” tech writer Paul Miller ended his self-imposed 1 year hiatus from the Internet. After 365 days of stepping away from the digital lifestyle which today we all see as “normal life”, Miller was ready to conclude the series of articles he’d continued to write for The Verge, with what many hoped could be damning evidence of the dramatically negative effects of digital living on the human body and soul. That didn’t happen though. Instead of returning to the fold with trepidation at being plugged back in to the Web, Miller appears to be quite keen to dive back into the overflow of information and social interaction and pressure that the Internet represents. And while the man writes lucidly and with impressive insight into the human condition, his wrap conclusively fails to highlight the evils of the Web with newfound and certain k nowledge of precisely how this globa l resource impacts our every day existence. For a year, he had disconnected all his devices from the Web, and even switched back to a non Internet-enabled ‘phone to avoid the rising surge of mobile as a Web medium’. He’d expected this freedom from his perceived digital shackles to allow him a chance to discover the tr ue Pau l Mil ler cowering inside his information-overloaded mind, to dramatically develop his “real-world” persona, perhaps even have the time to write a couple of books in his newfound spare time. But in the end, none of this really happened.

June 2013 SA Real Estate Investor

To summarise, Miller found that it isn’t the everyday practicalities of life that are most affected by disconnecting. The ability to just search for contact details and fire off an email to the discovered party, or to price-check every product or service against its competitors for the best deal of the day, or even to find directions to your next meeting with a quick browse through Google Maps. All of that, he found, still worked just as well using regular paperor voice-based mechanisms. A touch slower at times of course, but not a real hindrance. Contrary to popular belief, the one aspect of Miller’s life which did suffer was his social circle. While he may have become better at connecting with members of his direct family and even strangers on the street, his actual circle of friends steadily dwindled as geographical distance grew and the ability to circumvent this separation through digital channels remained out of bounds. This real-world account f lies in the face of ever y thing which so-called “common wisdom” surmises the digital age is doing to us as a species. We’re told the Internet has (with particular reference to our kids), in no particular order: systematically eroded our social interaction capacity, increased our average weight due to the sedentary lifestyle it enables, disconnected us from the “real world” of fresh air and the great outdoors, and dulled our minds by bombarding us with useless information and by the availability of a worlds’ worth of knowledge just a Google search away.

Miller’s findings, on the other hand, paint a far more realistic picture. It’s true, for the first few months, this subject did lose weight by leading a more active and outdoor-oriented lifestyle, but as the novelty faded and boredom set in once more even this change receded and the old couch-potato that he’d been hoping to escape emerged again. As for social interaction, Miller himself concludes w ith a single line of digita lage wisdom. “Facebook friends might not necessarily be real, but they’re a whole lot better than no friends at all.” The fact is, our society has migrated to the digital realm. To be a part of this society, with all associated benefits and drawbacks, is to live a digital lifestyle. Where a youth of sitting in isolation playing computer games used to be the quintessential definition of antisocial behaviour, today’s society all but dictates that a digital medium is required to participate in modern societal circles. While the world ’s best researchers have wasted their time examining the effects of the digital explosion on our old lifestyles and the perceived norms of this lifestyle, a new lifestyle has taken over global society, and without digital communications participating in this modern society has become all but impossible. Not quite the much-anticipated outcome of this intriguing experiment, but nevertheless an emphatic one.

www.reimag.co.za

MOTOR TALK

BY RUSSELL BENNETT

A Micro With Soul The new 0.9-litre turbocharged Renault Clio 4

ver since I was old enough to drive, or more specifically to own my own cars, I’ve always stuck to a particular credo. Each new car I bought would have to have an engine larger and therefore more powerful than the vehicle being replaced.

firm’s F1 power train team in its development - it manages just 66kW. Which on paper puts it substantially below the level of the 1.0-litre Ecoboost unit, and in a different league to the racespec 1.6 of the Deltawing, which apparently ran comfortably more than 220kW for its laps.

Increasingly, however, the manufacturers have actively dogged my efforts to stick to this pledge. Let’s just say “downsizing” is not a trend I appreciate, even with the cost of petrol being as concerning as it is now.

But the three variants of the new Clio is a different animal. Yes, the 0-100 times will support the naked power outputs, but depite the Fiesta Ecoboost running quicker against the clock, the Clio 4 is the one that gives the most enjoyment in the process.

Lately, however, a few of the products spearheading this drive have actually managed to impress despite my personal prejudice. It wasn’t Fords 1-litre Ecoboost engine being crammed into a flyweight racing kart and posting competitive times around a track, nor was it the Nissan DeltaWing performing a similar feat with the turbocharged 1.6-litre motor also found in the nose of the love-it-or-hate-it Juke crossover. In fact if anything it’s more extreme than either of these efforts. It was the new 0.9-litre turbocharged Renault Clio 4 launched in SA last month. This three-cylinder motor doesn’t make all that much power despite the close involvement of the French

It develops a fine, purposeful tune right across the rev-range. It responds to throttle with noticeable lag but then once the boost pressure is peaking commendable enthusiasm. It generally makes light work of what is a fairly lightweight little car, and it’ll breach 180kph on the speedo in top without making very much of a meal of it at all. In short, it’s the first of these drastically downsized cars to have a proper, passionate soul. Although the Micra from alliance partner Nissan comes pretty close too, and is let down only by its naturally-aspirated three-cylinder unit being just a touch too gutless even in a sub-1000kg car.

PRICING Clio 4 - 55kW Authentique 5-door

R149 900

Clio 4 - 66kW Turbo Expression 5-door

R169 900

Clio 4 - 66kW Turbo Dynamique 5-door

R179 900

OPTIONS Manual Air-Conditioning

R10 000 (Authentique)

Fixed Glass Roof

R8 000 (Expression & Dynamique)

Climate Control

R5 000 (Dynamique)

Rear Park Assist

R2 000 (Dynamique)

Metallic Paint

www.reimag.co.za

R2 500 (Range)

It also helps that the Clio 4 is so charming a car on the whole. It doesn’t rely purely on the unexpectedly capable little motor to impress, it’s also sharply styled and features a fairly straightforward but special-feeling interior. Simple, but suitably gadget-laden for our techdriven epoch of course. As well as the right heart and soul, and likeable styling both inside and out, the new Clio also delivers an impressive ride in typical Frenchhatchback tradition. This vehicle has been deliberately kept as light as possible, yet the tyres seem to remain resolutely in contact with the road even at speeds comfortably over our national limit. It can also both float softly over the largest bumps without losing all composure and continuing to feel positively tied-down to the tarmac and ready to react to the next input. But possibly the most impressive aspect of the new Clio 4 isn’t the technical which I’ve enjoyed so much, but the aggressive prices set by the French firm. Ignore the entry-level naturally-aspirated 1.2 and head straight for the 0.9 Turbo, and your entry point to Clio 4 ownership is only R169,900. For R179,900, you get this impressive little engine as well as choice upgrades, such as larger and flashier alloys, plusher but still fabric upholstery, electric windows for the rear as well as the front, automatic headlights and wipers, and keyless-go. In short, an impressive list of kit for the reasonable price. And that compact motor which may have convinced me that my lifelong car-buying credo is, shall we say, a little juvenile? Well, apparently, it’s going to receive a modest bump in power soon. Which will surely make it even better still. As is the case across Renault’s entire product range, the three new Clio variants come standard with a 5-year/150 000km mechanical warranty, a 3-year/45 000km service plan and a 6-year anticorrosion warranty. June 2013 SA Real Estate Investor

LESSONS

BY GORDON MACKAY

Creating Miracles W

Through your habits and thoughts

hat is a miracle ? It’s any amazing or wonderful occurrence, happening or natural event.

Excuses for failures are everywhere “I had to close the business because of the economy.”

Have you ever thought of someone and suddenly you get a call from the person you thought of ? Have you ever sent an SMS to someone or are about to send one when you receive an SMS from that particular person? I am sure most of us have had the above experiences without even being aware of how this happens.

“I am not buying investment properties because tenants give trouble.”

You can take this phenomenon to another level and be “conscious of creating the things you want”.

H o w e v e r, w h e n y o u d i s a g r e e w i t h explanations and find the truth, the solutions become obvious.

It takes discipline and focus NOT to go into agreement with all the negative things happening around us.

Your business didn’t fail because of the economy. It failed because you didn’t know what you were doing.

If you want to be hea lthy, happy and prosperous you can start immediately creating “health, happiness and prosperity” by changing your thoughts and habits. Many people have “f ixed ideas” and “limiting belief systems” which are holding them back from having anything they want and creating miracles. Take responsibility for your life and find out “the truth”.

• Did you invest in yourself and learn the skills for running your business? • Did you advertise? • Did you deliver what you promised? • Did you add new products or services that people wanted to buy? • Did you take good care of your existing customers?

One of the most important elements in creating miracles is to “count your blessings” everyday. Get into the habit of finding all the things you are grateful for, before you go to bed and when you wake up in the morning. This is an extremely powerful exercise. Start a gratitude journal. The act of writing things down you are grateful for is very effective in creating more of what you want. At the end of this article write down five things you are grateful for and do this every day.

Start practising

Don’t be one of the masses that go into agreement with things like problems, failures or excuses. In other words, don’t accept problems, failures or excuses. 80

June 2013 SA Real Estate Investor

“Sales are down because there is a recession.” If you go into agreement with these statements and accept these excuses, you cannot solve problems.

People are buying investment properties all over the world on a regular basis and becoming very wealthy. • Have you invested in yourself and learnt how to handle tenants effectively? • Have you read about other successful property investors and copied what they are doing? • Have you stopped listening to other people’s negative comments about tenants, because in many cases they probably don’t even own investment properties? In many cases sales are booming even though there is a recession. • I personally doubled my sales in a major recession because I never went into agreement

with the general mass opinion that there was a recession. The barriers to your success are excuses and faulty explanations. As soon as you decide not to go into agreement with these barriers, you will find the solutions you need to become successful.

DO THIS EXERCISE

Write down a failure you have had in your life.

Write down all the excuses and faulty explanations you invented or accepted for this failure.

3 4

Disagree with all of them.

Turn the failure into a success.

Accept full responsibility for the failure and find what you did or did not do that caused it.

If you continue to NOT go into agreement with excuses and faulty explanations, you will make it go right and turn the failure into a success and become a miracle creator. In conclusion don’t go into agreement with others negative opinions. Find out the truth for yourself by investing in yourself so you learn the skills to be in total control of your life and activities. Get in the habit of being thankful for all the good things in life. P.S. “A formal education will make you a living; self-education will make you a fortune.” Jim Rohn To your health, wealth, success, abundance and happiness.

RESOURCES

Streetwise Millionaire