Z
©
Discovering The Money Tree Creating wealth on a “promise to pay” INVESTOR OF THE YEAR
Karl Landman takes home the prize
LAND OWNERSHIP
Should foreign owners worry?
PROPERTY VALUATIONS Are you being ripped-off?
NEW TRUST TAXATION Embrace it or avoid it?
REITS
Uplifting the listed sector
May 2013 R50.00 (Incl. VAT) R43.86 Other Countries
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MASTER INVESTOR LEW GEFFEN
CONTENTS May 2013 COVER STORIES
8 Master Investor
12 Discovering The Money Tree
30 Inconsistent Valuations
36 The New Trust Taxation
60 Land Ownership Under Fire
68
UPFRONT
RESIDENTIAL
Investor Of The Year
COMMERCIAL
5 Investor Talk
24 The Truth About Trusts
40 REIT Legislation
6 INBOX
26 Manage Your Tenants Right
42 Paper Begone
28 From Ordinary to Extraordinary
44 The Sky Is The Limit
30 Inconsistent Valuations
48 The Reality Of REITs
34 A Stitch In Time
50 Savings For Your Business
In the headlines this month
Ask The Property Experts
What benefits lie behind the tax?
Reap the benefits of long term capital
Interest Rates
8 Master Investor Lew Geffen The conservative property maverick
12 Discovering The Money Tree Money grows on “promises to pay’
18 Case Studies
The Good, Bad & Uglyl
Remodelling your home
Are they creating rip-off rates?
Will save a homeowners association nine
Increase your growth and income
Converting to modern software
For Gauteng’s airport city
With Marius Fenwick
Eskom’s Andrew Etzinger talks rebates
36 The New Trust Taxation Should you embrace it or avoid it?
INTERACT WITH US find us on facebook
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find us on twitter
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find us on youtube
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May 2013 SA Real Estate Investor
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THE TEAM
OFFSHORE 54 Investing In Europe Is the crisis over?
56 Land Ownership Under Fire Should foreign property owners be worried?
58 Fertile Ground In Botswana For listed property investment
Neale Peterson Publisher
Angelique Redmond Editor
James Clarke Designer
Brent Fisher Designer
Amy Little Designer
Juanita Heilbron Traffic
Marisa George Financial Manager
Russell Krynauw Sales Director
Roy Lategan Team Leader
Russell Bennett Web Administrator
LIFESTYLE 60 What’s Hot This Month Events, news & views
61 Reviews
What to look out for this month
62 Meet Our Master Investor Of The Year Karl Landman takes home the prize
66 The V&A Goes Green
Acheiving a six-star green rating
68 Events
CONTRIBUTORS
Master Investor 2013 awards
70 The Rise Of The Bitcoin
Quircky crypto-currency experiment full of lessons
71 Drive Test: Infinity EX 37 EXemplary?
72 10 Life Lessons From 10 billionaires
Printed by
Dr Andrew Golding Contributor
Monique Terrazas Contributor
Jonathan Smith Contributor
Koos du Toit Contributor
John Roberts Contributor
Scott Picken Contributor
Mike Smuts Contributor
JP Farinha Contributor
Ivan Zartz Contributor
Ian Anderson Contributor
Marius Fenwick Contributor
Andrew Etzinger Contributor
Distributed by
Published by REALE MEDIA Neale Petersen (CEO) B. Taylor
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Politics, Policy & Property The road to a brighter future
BUYING PROPERTY?
Know the numbers RETIRE IN STYLE
Investing in retirement villages
PROPERTY What to look out for
Heavenly Tenants How to find them
IRELAND & CANADA
Rent killing you!
Overseas investing made simple
How to save www.justpropertygroup.co.za
APRIL 2013
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
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Spot Checks THE 2013 BUDGET
How will you be affected?
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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.
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All rights reserved. No portion of this publication may be reproduced or used in any form without prior written consent and permission from Reale Media. The publisher gives no written guarantees or assurances and makes no representation regarding any goods or services written or advertised within this edition. Prospective investors should always consult their attorneys, advisors or accountants. Copyright © Real Estate Media
www.reimag.co.za
WHAT IF THERE WAS A WAY THAT YOU COULD TAKE THE RISK OUT OF RESIDENTIAL PROPERTY LETTING? Today, some 2.3 million people rent property in South Africa. There is huge potential in the rental property market – but every landlord or estate agent will tell you that there are also risks associated with letting residential property.
What if there was a way that you could take all the legwork out of the letting process, and alleviate the risks at the same time? Rentshield has introduced a new, first-to-market, “zero deposit” residential letting tool that helps landlords and estate agents manage their property portfolios more efficiently and effectively.
Benefits to landlords:
Benefits to real estate agents:
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Eviction costs: Rentshield covers legal costs up to R50 000 for the eviction of a non- paying tenant. They also manage the eviction process.
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Business growth: Rentshield offers rental agents a competitive edge, enabling them to grow their rental property portfolios.
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Loss of rental income due to eviction: In line with the Consumer Protection Act, tenant eviction is a lengthy process, often taking as long as three months. Rentshield protects the landlord against loss of income during this time, offering coverage of up to three month’s rent.
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No extra costs: The rental agent incurs no additional expense by using Rentshield.
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Increased rentals: Without the need for a deposit, potential tenants’ interest will be increased, translating into more rentals and fewer unoccupied properties.
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No trust accounts: No deposit means no trust account administration.
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Protection of agent commission: In the event of a claim, the rental agent will still be entitled to their rental commission for those months covered by Rentshield.
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Less administration: Fewer hours spent on administration means more time to manage properties and source new business.
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Credit vetting costs: Rentshield has a nocost service for agents to credit vet potential tenants. Their credit vetting facility is superior to any other similar facility currently used in the South African property market.
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No more inspections: Rentshield takes care of in- and out-inspections at no cost to you.
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Loss of rental income due to absconding tenant: In the event of a tenant absconding from the property before the stipulated rental period is complete, Rentshield will cover up to one month’s rent. Unpaid accounts and malicious damage: Utilities payable by the tenant that are in arrears, such as electrical bills, as well as malicious damage caused to the property by the tenant, will be covered by Rentshield up to a combined amount of one month’s rent.
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Damages caused to property: Rentshield will cover up to one month’s rent for damages to the property caused by the tenant.
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Peace of mind: You can rest assured that Rentshield will take care of all the legwork associated with property letting.
The cost of Rentshield is included in the total monthly rental paid by the tenant. To qualify, tenants must be South African citizens and be able to afford the rent. All leases protected by Rentshield must be a minimum of 12 months.
For more information, visit: www.rentshield.co.za or call 0861 DEPOST / 0861 376748.
INVESTOR TALK
BY ANGELIQUE REDMOND
In The Headlines This Month
T
his month we take a look at a number of important issues that affect property owners, including property valuations and trusts. We chat to Marcus Fenwick of Mazars Financial Services about the introduction of REITS and to Andrew Etzinger of IDM, Eskom, about the electricity price increases. Each month we will be asking property professionals hard questions to give you the best information. If there is anyone you want to hear from, or a particular topic you want addressed, we welcome your input. Should you be investing in residential property right now? The simple answer is yes. A recent survey published in The Economist showed that South African home prices performed significantly better in 2012 than 85% of the world’s developed countries. Also outlined in the survey was the price-to-rent ratio index, which revealed that South African property is undervalued by 5%. This means we can look forward to further rental growth and steady capital growth. With the interest rate remaining unchanged, it is a good time to consider investing in residential property, to weigh up the pros and cons of fixing your interest rate and to work on servicing and lowering your debt. With the introduction of REITS, we can expect the South African listed property sector to become the eighth largest in the world. The JSE has already introduced the new regulatory framework for both property loan stocks and property unit trusts. In order to list as a REIT, a company must own property valued at more than R300 million and have debt levels below 60% of its gross asset value. It must also earn 75% of its income from rental, from property owned or from investment income. Lastly, a South African REIT must pay at least 75% of its taxable earnings available for distribution to its investors each year. Land ownership is another hot topic right now, with the issue of land reform rearing its head again. Should property owners be worried? The Green Paper on Land Reform sets out a four-tier system of land ownership. While it has not yet been passed into law, it is something that property owners should take note of and voice their opinions about. And without any further ado, here is the May edition of SA Real Estate Investor magazine, Happy Reading!
Angelique Redmond EDITOR
Publishers Foreword By Neale Petersen The Outside World vsThe Inner World The bombings at the Boston Marathon in the US rocked the world, again highlighting the uncertainty and instability that have become the hallmarks of the 21st century. But this uncertainty and instability is not only playing out on the social and political fronts, it is also increasingly a feature of the global financial system, as the Eurozone remains fragile and depositors in Cyprus watch helplessly as deposits in their accounts are “appropriated”. Indeed, many questions are being asked about the global financial system and our cover story takes a look at the practices that are cause for grave concern, and the impact thereof on South Africans. It was Mark Twain who once said: “A banker is a fellow who lends his umbrella to you when the sun is shining, but wants it back the minute it begins to rain.” It is now a well-known fact that the banking and legal system are inseparable twins. If you take out any loan or line of credit from any registered credit and for whatever reason you hit hard times and you cannot payback the creditor you can expect the legal system to take its toll.
“It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.” Henry Ford (1863-1947) www.reimag.co.za
May 2013 SA Real Estate Investor
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INBOX Interest Rates
Dr Andrew Golding Pam Golding Properties www.pamgolding.co.za
Q
Jeanne van Jaarsveldt Asks:
Holiday Property
Investing In Property
Neale Petersen South African Real Estate Investor Mag www.reimag.co.za
Q
Caj van Zyl Asks:
JP Farinha Property 24 www.property24.co.za
Q
Conti Maletsiri Asks:
How long can we expect rates to remain unchanged, as we are seeing good recovery, 5% year-on-year growth for 2012? Are stable rates vital for sustainable recovery?
Is it better to buy or rent holiday property for accommodation which will only be used for only a few times in the year? Do they make good investment sense?
I would like to start investing in property but I am not sure where I should start. What are the first steps I should take to become a serious property investor?
A
A
A
Dr Andrew Golding Replies:
Neale Petersen Replies:
With interest rates at historic lows, the fact is that consumers remain beset by rising energy, fuel, food and other costs as well as increased municipal tariffs - all of which contribute to inflationary pressures and are of concern to the general economic outlook.
There are different reasons for investing in a second property. Is it for an investment option or just lifestyle? Is it solely for your use or should you rent it out for a few months? These are the logical questions but here are some of the things you should consider.
This is seen against the backdrop of a somewhat volatile global economy. Although South Africa’s economy remains resilient, it is naturally subject to international impacts, whether positive or negative.
Most people believe in investing in a holiday property will one day be their retirement nest egg. Others believe that the property will bring good returns. If you end up renting it out in the off season or when you are not there, you will certainly struggle to find tenants and there is also the cost of wear and tear to furniture. Rental incomes during peak times can generate short-term high returns but you will have to evaluate if it can generate enough to cover for the year.
While market commentators appear to be indicating that a rise in the interest rate may be anticipated in 2013, the Monetary Policy Committee is held every two months in order to take cognisance of changing economic factors and conditions which ultimately result in the final decision regarding the repo rate. Having said that, the general consensus seems to be that the interest rate will inevitably resume an upward trend - making sound investment in solid bricks and mortar, ie property, all the more compelling.
It is a known fact that all the major cities yield higher investment returns than holiday destinations. However there are certain towns that achieve high capital growth, notably towns with high tourist appeal. The best value for money available at present in holiday properties is in bank-assisted sales.
JP Farinha Replies:
There are many ideas and expert tips on making a sound property investment. And while these may all be correct, what lies at the heart of them all is knowledge and research. Making a good investment and being able to discern a good opportunity from a bad one, is only possible if all the relevant details are known and understood. With this in mind, the best advice is to research. Ask for advice from an experienced estate agent, and take advantage of the wealth of information made available through technology. Research cities and suburbs online. For an investment property, ask yourself questions when investigating. Can it offer you the necessary return in rental? If renovations are needed, will the investment ultimately be profitable, increasing the property’s value, or is there a risk of overcapitalisation? Is the area likely to appreciate in value with many desirable amenities in close proximity? Along with this, bear in mind that buying propert y is a long-term investment, and prof iting from this opportunit y requires patience. So make the most of your investment, and do your homework.
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
May 2013 SA Real Estate Investor
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FINANCIAL INTELLIGENCE CENTRE ACT
ADVERTORIAL
Estate Agents Must Report Suspicious Transactions
T
Examples of transactions that could be suspicious within the estate agency environment include:
he Financial Intelligence Centre (the FIC) reminds estate agents of their obligations to report any suspicious or unusual transactions which they may be aware of in their businesses. The FIC is the national centre for developing and disseminating financial intelligence to law enforcement and intelligence agencies, the South African Revenue Service, and other local and international agencies.
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The FIC uses the financial information it receives to identify the proceeds of unlawful activities, with a view to combat money laundering activities and the financing of terrorism. Suspicious and unusual transaction reports (known as STRs) are an essential element in helping the FIC to identify suspected criminal activity and the potential proceeds of crime.
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The obligation to submit STRs to the FIC, in terms of section 29 of the Financial Intelligence Centre Act, No. 38 of 2001, as amended, applies to all businesses in South Africa, including estate agents.
• •
The obligation is imposed on any person who: Carries on a business Is in charge of a business Manages a business Is employed by a business. While STRs are being submitted by some businesses, the FIC is concerned that some estate agencies are not meeting their obligations in terms of filing STRs. This requirement applies to both estate agents trading as sole proprietors as well as group estate agents.
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• • • •
Paying a large cash deposit without disclosing the source of the funds Poor explanation for the early redemption of mortgages The using of false identity when buying or selling property The buyer insists that the property be registered in the name of an unrelated third party The buying price is paid by an unidentified third party The buying price is paid into a foreign bank account Inconsistent or weak reasons for paying cash Use of cash coupled with a speedy sale A purchase made without the property being viewed Immediate resale of the property Any other activity which does not make business sense.
Submitting an STR does not mean that you cannot continue with the transaction or that you will lose your commission on the deal. The FIC Act protects persons who submit reports to the FIC. In addition to protection against legal liability, the identities of those involved in making a report to the FIC remain confidential. Failure to comply Failure to report suspicious or unusual transactions could lead to action being taken against the
offending estate agency and employees of the estate agency, amounting to imprisonment of up to 15 years or a fine of up to R100 million. By reporting suspicious and unusual transactions to the FIC, estate agents are helping in the fight against crime. This will contribute to a safer and more stable business operating environment, encouraging and improving investor confidence. How to submit STRs Visit the FIC’s website - www.fic.gov.za – and click on the Reporting button.
For further information call 0860 222 200 or e-mail us at fic_feedback@fic.gov.za
MASTER INVESTOR
BY NEALE PETERSEN
The Conservative Property Maverick Maverick (noun) - “Someone who exhibits great independence in thought and action” 8
May 2013 SA Real Estate Investor
www.reimag.co.za
I
nvolved in the real estate industry since 1972, Lew Geffen is undoubtedly one of the doyens in the business. Today, he is considered as one of South Africa’s leading experts in real estate. As chairman of Lew Geffen Sotheby’s International Realty, Lew also holds directorships in other associated property and industry-related companies. It was, therefore, a pleasant surprise to discover that he is not only an avid REIM reader and follower, he’s had REIM delivered directly to his home for a number of years. We are delighted to share his story of hard work, creativity and drive for success. Lew was literally born into property and inherited the property bug from his mom, Aida Geffen, a powerful woman who founded Aida Real Estate in 1958. Since he was 10, he listened to his mom talking property at home and on business. Much like children who are constantly exposed to music in homes where there is a musician in the family and then become musicians themselves, the constant exposure to property negotiations prepared him well for the future.
UPFRONT a house for sale. Aida placed an ad in the local newspaper and Lew signed the buyer with her assistance. Despite this achievement, he found the business frustrating and did not feel ready to pursue a full time career in real estate. At age 18, Lew decided to leave home to travel the world. His travels took him to Israel in 1967, and he enjoyed it so much that when the war broke out, he decided to become a volunteer soldier. Back in South Africa, Lew met his wife and convinced her to travel to Israel with him. There, he studied Economics for a year, before deciding that Economics and studying was not for him. After his return to South Africa and his marriage to Sandy, Lew became a hawker by default. A lidchi shop offered a clearance sale of Iranian copperware and brassware, and Lew wanted to buy a coffee table so desperately that he eventually bought the entire contents of the shop on tick, with the aim to sell the products quickly at a solid profit. The entire consignment was offered for sale at Killarney Corner and it sold out in just three weeks. After paying the shop
“Today there are just under 1 000 Lew Geffen Sotheby`s International Realty agents operating from 60 offices in South Africa, which places the company among the top 10 property brands in South Africa.” Originally from Johannesburg, Lew was schooled in and around Johannesburg and in Middelburg, attending seven different schools over the years, including Middelburg School and King Edward School (KES). He completed his schooling at King Edward VIII (better known as Damelin College).
Property apprentice Property was not Lew’s first career choice, despite the constant exposure to property activities during his early years, and the fact that he completed his very first property deal when he was just 16 years old. Aida had put Lew to the challenge, sending him to The Hill area in the south of Johannesburg. He canvassed the whole street looking for sellers and eventually found www.reimag.co.za
R3 000 for the products, Lew made a handsome R9 000 profit. He travelled to Iran and returned with 100 crates of brassware and copperware to sell on the open market. After a year, it was time to move on to bigger and better things.
Lew ‘the builder’ Lew’s f irst foray back into property took a different approach: renovating and improving proper t ies. A ida backed h im w it h t he proviso that he learnt the trade from Jack Robbins, an architect. As a result, Lew Geffen Construction was established in 1974. Lew learnt every aspect of renovation - from digging foundations to building and maintenance. For the next six years he enjoyed working as a jobber with construction
LEW GEFFEN Personal Statistics Age: 65 Qualifications/Experience: University of Hard Knocks. No formal tertiary qualifications. Marital status: Married to Sandy, four children - two sons and two daughters. Lew’s son Barak passed away in 2009.
Close-up Mentors: Lew’s mother, Aida, as well as his father, who was also part of the business, were Lew’s mentors. Books: Lew is an avid reader and especially enjoys reading biographies. Some of his favourites include Keith Richards’ book and Donald Trump’s books. Hobbies: A sports fanatic, Lew enjoys golf, gym, running, snow skiing and hiking. He has just completed the Otter Trail for umpteenth time. What is the best financial advice you have been given? Lew’s dad taught him to build everything layer upon layer: create an infrastructure, create a wonderful environment in which people will be happy, give them the best marketing tools – that’s how you surround yourself with A players. Motto : Wake up early and always have a tan.
May 2013 SA Real Estate Investor
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MASTER INVESTOR crews, doing alterations and becoming what he calls a ‘qualified builder’. A house he renovated in Houghton was eventually bought by Benny Slome of Tedelex. Around 1976 recession, Lew decided it was time to get back into buying and selling real estate. He knew he had a flair for advertising and he joined Aida Real Estate as Advertising Manager. He enjoyed writing off-the-wall ads that created quite a stir among the agents. Around the same time Kentucky Fried Chicken (KFC) brought the franchise concept to South Africa and the company investigated the possibility of franchising Aida Properties. It became the first property franchise company in South Africa and listed on the stock exchange in 1978. By 1982, 12 franchises had been established and Lew enjoyed teaching franchisees to run their property businesses successfully.
Going it alone In 1982, Lew stepped out on his own and established Lew Geffen Estates. From the first day, the company was on a growth curve and became the market leader in the Johannesburg area. Lew attributes this success to what he had learnt from his mother. After 20 years of running Lew Geffen Estates, and with over 200 agents supported by an impressive infrastructure, Lew felt it was time to take the brand to the next level. An agent showed him a Sotheby’s International Realty® (SIR)
property and Lew decided to make contact. At first, Lew Geffen Estates became an affiliate of SIR, but when Lew saw the effect the SIR brand had on the business, they rebranded the company to match the SIR royal blue and obtained the full Sotheby’s International Realty ® master licence in 2003. The client profile of Lew Geffen Estates changed almost immediately to a more high-end clientele. The results were so positive, the company decided
“Lew follows the old adage ‘location, location, location’ and believes that a run down property in the right location is where you will find real value.” to roll out a national franchise operation under the leadership of Barak Geffen. Today there are just under 1 000 Lew Geffen SIR agents operating from 60 offices in South Africa, which places the company among the top 10 property brands in South Africa. The franchise company is run by CEO, Jason Rhode. Globally, Sotheby’s International Realty ® operates in 47 countries with over 13 000 agents.
Do you invest? Lew invests in property personally. He follows the old adage “location, location, location” and believes that a run down property in the right location is where you will find real value. Based on his extensive experience in the construction industry, Lew believes that in the right area, you can buy an old shell and convert it into a gem. He has bought and sold multiple properties using this method and also holds a sizeable property portfolio. Lew owns si x residential properties in Johannesburg and two properties in Cape Town. Two of the properties are commercial office buildings, one in Randburg and the other the Head Office. Lew credits his wife Sandy, who has also been involved in the business for over 44 years and with whom he enjoys a great partnership, for his success. Lew calls himself an innovator and a maverick and loves the creative part of his work: watching an idea come to life. He still plays an active role in the marketing of the company, including contributing to the success of their exclusive partner magazines, Private Edition and Habitat.
LEW’S ADVICE FOR PROPERTY INVESTORS
1 2 3 4 5 6 7 8 9
The luxury sector - R2.5 million and above - is now a thriving market to invest in. Timing is critical and now is the best time to buy. There is a major shortage of property. Astute buyers are coming in, so do your homework. Sellers offer good value, but most prices are governed by the banks. Now is the time for developers to seize the opportunities as there is a lack of supply. Gearing should be conservative - 100% gearing can result in big strain. 10% per annum is a healthy return on geared money. Another boom will come around, so invest for the long term. RESOURCES Sotheby’s Realty
10
May 2013 SA Real Estate Investor
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COVER STORY
BY MONIQUE TERRAZAS
Discovering
The Money Tree
Money grows on trees “promises to pay "
T
he bank ing and f inancia l system globally is under scrutiny as scandal a f ter scanda l rock s what we had always assumed was a trustworthy industry, solid as rock. 12
May 2013 SA Real Estate Investor
But things have changed. There is little doubt that the irresponsible practice of securitisation and inter-bank lending brought about the global credit crunch. After setting in motion the subprime crisis that dumped the global
economy into the worst recession in living memory, banks were exposed for manipulating the Libor and Euribor interbank interest rates - providing false figures on key interest rates upon which mortgages and loans are priced www.reimag.co.za
UPFRONT affecting millions of families and hundreds of thousands of companies, large and small, across the globe. As one commentator noted: “This dwarfs by orders of magnitude any financial scam in the history of the markets.” In addition, the information age has brought to the man in the street the knowledge that “money” is no longer backed by gold reserves, but fabricated through the fractional reserve banking system. Given how pervasive the financial system is – affecting every aspect of our lives – it has become critical that we move out of our comfort zone where ignorance was bliss. We need to become far more proactive and involved, understanding thoroughly how the system works. This is the only way in which we can shift from being victims of a system we have helped to create through ignorance, complacency and greed, to becoming empowered consumers and users of these systems, understanding the rules so we can play the game or step outside the game for our own collective best interests, and the interests of generations to come.
Understanding the rules We cannot play on an equal footing in the global financial system if we don’t understand the rules. While learning the rules requires time, effort and dedication, it is absolutely necessary if we are to become empowered players, instead of victims. It is not possible to explain the intricacies of the entire global financial system in one article, but there are a few concepts that, once understood, will help us to understand the basic tenets of the system, notably the f ract iona l reser ve ba n k ing sy stem a nd securitisation.
The fractional reserve system In previous articles in REIM, we revealed that banks do not actually lend out money they already possess, but rather “create” the money loaned to borrowers, using the “promise to pay” signed by the borrower. In other words, “money” is created through debt. This is called a ‘fractional reserve’ banking system, and it is used by governments, central banks and f inancial institutions across the globe. On a national scale, central banks print money that has no intrinsic value, based on www.reimag.co.za
a “promise to pay” issued by a government. Because this new “money” has no intrinsic value, it derives its value by literally taking value from the money already in circulation, and this is what is called “inf lation”. The money already in circulation is worth ever less to give value to new money that is printed. This practice was taken to extreme in Zimbabwe not so long ago, when the government’s practice of simply printing more money at a rate well in excess of economic growth, sent inf lation to levels above 1 000%, rendering the money already in circulation worthless. Of course, today, they do not really actually “print” more money, but simply “create” the money through a “deposit entry”, even though no deposit was made by anyone! T he sa me happens when a bor rower approaches a bank for a loan. The bank does not actually have the money it “loans” to the borrower. They simply “create” money, through
its own money to the borrower, why is interest charged by the bank? “A management fee payable to the bank for managing the system seems more appropriate,” comments Robert Vivian, Professor of Finance and Insurance at the School of Economic and Business Sciences at the University of the Witwatersrand.
Securitisation Another hot topic over the last few years is the practice of securitisation. Banks securitise loans by bundling them together, using a special purpose vehicle (SPV), and selling them to third party investors, who trade them on the capital markets. For example, in the home loan market, the borrowers’ promissory notes are backed by collateral through the mortgage contract on the propert y. As such, these become “mortgage-backed securities”. The bank approaches another institution that buys and
“How can a loan agreement exist when nothing was loaned? And how can the bank charge interest on a “loan” that is not legally valid? ” similar electronic “deposit entries” or “book entries”, simply based on a borrower’s “promise to pay”, with no actual deposit being made by anyone, anywhere. This raises a number of issues, including the legal validity of a “loan” and the legality and the morality of charging interest on such a “loan”. It has been contested in a number of court cases that a “loan” agreement cannot exist legally under these circumstances, because the bank did not “lend” something they had prior title, ownership and rights to. The “money” lent to the borrower did not exist before the borrower signed the all-important “promise to pay”, but was “created” based on the borrower’s “promise to pay”. How can a loan agreement exist when nothing was loaned? This, furthermore, raises issues around the charging of interest. How can the bank charge interest on a “loan” that is not legally valid? If the “money” loaned is “created” out of nothing more than a “promise to pay” - which belongs to the borrower - and the bank does not loan
sells mortgage-backed securities. It “sells” the buyer’s mortgage-backed security to this institution for the full amount – the principal and interest - payable by the buyer over the period of the mortgage loan. This is up to three times the amount of the principal debt. Since the bank is paid in advance, it makes a tidy profit without using or risking its own money. However, legally, once a bank securitises a loan, it loses all rights to it – ie the bank is no longer the owner of the debt. Should the borrowers default on their loans, the debt to the SPV and its investors are covered by insurance policies, called “credit default swaps” in the US and other countries. While the use of this insurance has not been confirmed in South Africa, it stands to reason, according to legal experts, that an SPV trading on a stock exchange would be required to have this insurance in place. The South African Securitisation Forum has confirmed that the implication of this is that the bank cannot, for example, repossess May 2013 SA Real Estate Investor
13
COVER STORY the propert y if the borrower defaults on repayments, because the bank no longer has any rights to the property that is the collateral for a “ loan” which has been securitised and now belongs to another entity. Quite simply, there can be no legal case against the defaulting borrower, because all parties have been settled. The bank was settled when the mortgage-backed security was sold, and the investors were settled through an insurance policy. Several recent court rulings in a number of states in the US have, essentially, declared the practise of securitising home loans illegal, and as a result numerous banks have stopped foreclosure procedures on homeowners who have defaulted on their mortgage repayments. The implications are staggering: four million people in the US have had their homes repossessed illegally and the banks have been forced to pay out $8.5 billion in settlements.
The situation in South Africa How do these practices in the global financial system impact South Africa? South Africa has one of the most advanced financial systems in the world, which is why we survived the global economic crisis better than most developed countries. But this does not mean there is nothing to be concerned about. T he fractiona l reser ve system is used extensively in South Africa. According to Russell Lamberti, writing on Mises.co.za/ blog, the blog of the Mises Institute South A frica (w w w.mises.co.za): “Since 20 0 0 the SARB [South African Reserve Bank] probably printed about R100 billion out of thin air. This allowed the commercial banks to use about R40 bil lion to fractiona l ly leverage at about 40:1 and create about R1.6 trillion in additional money out of thin air (that’s R1,600,000,000,000).” This means that South Africa has quadrupled its money supply in the last decade and, of course, the value of this new money must be derived from the money in circulation, creating inf lation. He adds that: “Since 2000, the US Fed balance sheet grew 370%. Over the same time the SARB balance sheet increased from R76bn to R440bn, about 480%. In other words, since 2000 the SARB balance sheet has grown 1.3 times more than the Fed balance sheet.” 14
May 2013 SA Real Estate Investor
The fractional reserve system is also used by our banks to “create” money based on the borrowers’ “promises to pay”, which raises the issues of the legal validity of the loans and legality and morality of charging interest when “nothing” was loaned, because the money “loaned” did not belong to the bank, but was “created” ex nihilo (out of nothing) based solely the borrower’s “promise to pay”. The Banks Act states that a bank cannot act as an agent or intermediary for a third party, such as a securitisation SPV, without the express written consent of the customer. However, according to the South African Banking Association’s website, local banks securitise loans worth about R30 billion a month. The issue here is that if a bank securitises a loan, it loses all rights to the asset. This means the bank cannot, for example, repossess property put up as collateral on a loan which has been securitised, because the bank no longer has any rights to the debt. It could well mean that thousands of homes may have been illegally repossessed by banks in South Africa too. The issue has already been tested in court, and on a number of occasions, it has resulted in a bank abandoning the foreclosure proceedings, because it was no longer the lawful owner of the debt. These practices are also being challenged in the High Court by NewERA (New Economic Rights Alliance), a non-profit organisation supported by 150 000 people, which argues
renewed ferocity, “to protect millions of South Africans from what we believe are blatant and unscrupulous actions of the banks.” Follow the case on www.newera.org.za. R EIM asked the banks and the major role players the following questions about securitisation. 1. 2. 3. 4. 5. 6. 7.
Can you provide us with an indication of the value of loans securitised and what percentage of these loans are home loans? Does a consumer have the right to know if their loan has been securitised? Or is there a clause in the credit agreement that the client signs that provides the bank with the rights to securitise the loan? If so, can you provide a sample of the wording used? If not, how is the client informed? Can a consumer choose not to have their loan securitised? How can a consumer trace the securitisation of his/her loan? How do the banks ensure compliance with the legislation that credit agreements that have been sold or traded are registered with the NCR? How is the legal standing of a South African citizen’s loan affected if the loan has been securitised? How would the debt counselling process be affected by securitisation?
The Banking Association of South Africa did not bother to acknowledge or respond to numerous emailed requests for information.
“If the ownership of the debt shifts, it could mean the banks have no legal status over the debt, because they do not own the debt.” that if a loan has been securitised, not only has the borrower’s legal status with the bank changed, but the debt with the bank no longer exists. Their case is supported by extensive evidence and research with specific reference to South African economics and South African law and presented by lawyers acting pro-bono. The banks have emphatically argued that they cannot understand NewERA’s papers and the court ruled that NewERA must amend its papers, “removing all the evidence”. NewERA has said it will file amended documents with
The National Credit Regulator (NCR) – legally mandated to protect the interests of South African credit consumers - replied: “The NCR views this matter in an extremely serious light and is giving it the requisite attention. For fear of comprimising the project the NCR is not at liberty to discuss any details at this stage”. Frightening. Especially given the fact that the National Credit Act, Sec 69(4) requires that all credit agreements that have been sold or traded (ie securitised) are to be registered with the National Credit Regulator. www.reimag.co.za
UPFRONT Humbulani Salani, spokesperson for FNB Legal, simply responded: “We can confirm that currently FNB does not have any home loan securitisation outstanding in the market. When securitisation transactions were entered into by FNB in the past, it did not breach any law. Securitisation is an industry matter.” Steven Barker, Standard Bank’s Head of Home Loans, replied: “Only a small portion of Standard Bank’s Home Loans form part of a securisation arrangement. The customer agrees upfront that the bank may cede its rights and delegate its obligations under any loan agreement to a third party. Where a loan is securitised there is generally a cession of the rights under the mortgage bond registered at the Deeds Office. The terms and conditions of the loan agreement are not affected by the securitisation and a customer is required to repay the loan as set out in the loan agreement. The debt counselling process and any rights under the National Credit Act is not impacted. Further, Standard Bank complies with its reporting requirements under the Act.”
Fu r t he r mor e , A b s a note s t h at “ T he consumer remains indebted under the loan, albeit to a different creditor and, save for this, the terms and conditions of the loan do not change. The debt counselling process is not affected by securitisation and the consumer is still entitled to exercise the rights he/she has in terms of the National Credit Act.” Deborah Solomon, founder of theDCI, the debt counselling industry portal that has become the springboard to better debt management for thousands of overly indebted consumers, offered a different view.
“The NCR is aware of the process of called ‘securitisation’ and have stated that they are investigating how this fits into the National Credit Act. We have also brought the matter of securitisation to Minister Rob Davies’ attention and will hopefully get some answers from the Minister’s office. We have also requested further information from the NCR regarding the compliance of the banks in terms of registering credit agreements that have been sold or traded with the NCR, but nothing has been forth coming as yet. In terms of the NCA, the banks must give the debt counsellors information as per their request. But the banks all have one ‘template answer’ and obviously feel that they do not have to answer these types of questions. It is another point which we have raised both with the NCR and with the Minister,” says Solomon.
Absa noted that, currently, their total residentia l mor tgage book amounts to approximately R233bn and only about 2% of this has been securitised. “Worth mentioning is that the performance of South African residential mortgaged backed securitisation transactions have been superior to those in the US over the last 10 years. This is primarily due to South Africa’s very well-regulated securitisation market where transactions are monitored by the SAR B, the JSE, international rating agencies and the NCR. Fitch Ratings recently released a report confirming that EMEA (Europe, the Middle East and Africa) residential mortgaged backed securitisation transactions (from 2000 to 2011) had significantly lower losses than their US counterparts.” With regard to the questions about the consumer’s rights, Absa stated the following: “The customer will receive a letter from Absa to advise the customer [in the event] of the securitisation of the loan and thereafter the credit provider’s details are ref lected in all communications to the customer. Usually there is an express provision for a credit provider to transfer its rights and obligations. It should be noted that a credit provider has a common law right to transfer rights without consent. The NCA did not remove this right.” www.reimag.co.za
May 2013 SA Real Estate Investor
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COVER STORY She notes that from a debt counsellor’s perspective, securitisation has huge implications, as the counsellor needs to know who the debt belongs to, to ensure negotiations and payments. “If we do not know who the real owner of the debt is, how can we make a judgement call on the outstanding ownership of the debt?” In terms of the effect of securitisation on the debt counselling process, Solomon says that it could mean that a credit agreement is illegal. “If the ownership of the debt shifts, it could mean the banks have no legal status over the debt, because they do not own the debt. The new holder or owner of the debt would also need to be a registered credit provider in terms of the NCA. Of course, a debt counsellor would look at the debt differently if they
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May 2013 SA Real Estate Investor
knew it was securitised and would question the legality of the action on behalf of the consumer.” Solomon further notes that consumers absolutely have the right to know if their loan has been securitised. “If the bank has securitised a debt, made money from your signature without your consent or knowledge, and then try to take legal action against you should you default on the loan, it is 100% your right as a consumer to know this. Maybe this could be the reason why the banks have not embraced the NCA or tried to window dress the debt counselling process, because they know that should the truth be revealed, they could stand to lose more than what they are currently worth.”
So what to do? How do these issues impact ordinary South Africans? And what can we do about it?
1. Get informed Firstly, we need to realise that we ordinary South Africans don’t know what is really going on. The “money” in the financial system is no longer backed gold reserves, nor are deposits in the bank held safely in a vault. “Money” is little more than electronic bookkeeping entries based on “promises to pay”. It is up to us to demand and ensure that our financial system operates on sound principles. As the people of Cyprus just discovered, relying on government or the financial authorities in a country to monitor and maintain the system responsibly, can
www.reimag.co.za
UPFRONT lead to unimaginable consequences: government “appropriating” as much as 40% of the money in depositors’ accounts at its two biggest banks to bail out the financial institutions! We need to become informed, involved and concerned citizens who understand what is going on and what the implications are, and take the necessary action to safeguard our rights and interests, not only for ourselves, but for our fellow South Africans and our children.
2. Become part of the solution We also need to understand that the fractional reserve system is dangerous and inherently unsustainable. As Russell Lamberti, head strategist at ETM Analytics, wrote in an article published in the Mail & Guardian: “The current financial crisis is no accident. It is the predictable and logical result of fractional reserve banking and the political-legal privileges that make this system possible.” Because the “credit” or “money” loaned by banks is not backed up by actual deposits in the bank, but simply on ever-more “promises to pay”, it is creating a credit pyramid that drives unsustainable over-consumption. This is patently clear in South Africa. While our financial system is strong and highly regulated, the reality is that debt levels in South Africa are frightening. There are 19.69 million active credit consumers, of which 46.9% - almost half - have impaired credit records. Our 75.8% debtto-disposable income ratio is extremely high by our own historic standards, and this at a time of prolonged low interest rates. The value of outstanding credit balances in the South African household sector showed growth of 9.8% year-on-year (y/y) to R1.311 trillion up to the end of February 2013. The components of instalment sales and unsecured credit (comprising personal loans, micro finance, credit card debt and overdrafts) continued to record relatively strong growth of 19.6% y/y and 27.4% y/y respectively in February. The rise of unsecured lending in particular has raised alarm bells. Many experts are deeply concerned about the level of debt defaults that could occur if interest rates begin to rise. We cannot deny that our excessive debt levels are a part of the problem – our demand for www.reimag.co.za
credit is driving an ever-more unsustainable and shaky f inancial system. We need to understand the system, and we need to use it responsible and intelligently. And, simultaneously, we need to demand that those in power also use the system responsibly and intelligently to protect us from the financial disasters that are playing out across the globe. Be part of the solution by drastically reducing the number of your valuable “promises to pay” f loating around in the financial system. In other words, avoid making debt, especially the kind of short-term, high-interest debt that enslaves us to the financial system. If you need assistance, email reimsave@budgetf itness. co.za or visit www.thedci.co.za.
3. Take action We are far too comfortable and complacent in South Africa. And complacency is dangerous – we hardly notice how our freedoms and our values as a society are being eroded - like a frog that is slowly boiled to death. When organisations such as theDCI, NewERA or the Free Market Foundation alert us that our rights are under threat, we need to take action. If banks are enforcing “loans” that have no legal validity and are charging interest on these “loans” that do not legally exist, we need to take action. If banks are repossessing homes and other assets illegally when the debts in question have been securitised, we need to stand up against a violation of human rights that is destroying thousands of people’s lives. If our government and financial institutions are “creating” money in a way that threatens our entire f inancial system, we need to do something. Investigate the claims and efforts of a g row i ng nu mber of org a n isat ions a nd “common law movements” that are working to bring transparency and fairness to the government and f inancial systems. These decentralised and non-violent organisations have been around for years across the globe and they certainly have impressive numbers of followers. In the US they are called “Sovereign Citizens” and in the UK they are called “Freemen on the Land.” Some local examples include NewER A; the newly-established Ubuntu political party (w w w.ubuntuparty.org.za) formed on the
principles of absolute equality, abundance for all and Unity Consciousness; and the One People’s Public Trust (OPPT), which now has a South African branch (www.oppt.co.za), formed to “free the people of South Africa from the shackles of a corrupt government and a tyrannical banking system”. We need to start getting involved. We need to join and support organisations that are remaining vigilant and are working to protect our rights. Most importantly, understanding that the “money” in the system is essentially worthless, because it is not backed by gold reserves or even deposits held, we need to shift our attention away from making and saving “money” and begin to focus on acquiring real assets. And to do this, you need to follow the system of building real, tangible wealth that is as old as the financial system itself: securing real assets in a trust. We are not talking about cash in a bank account or a fancy car. We are talking about real, tangible assets that not only increase in value over time, but also – at the same time - produce an ongoing, passive and inflationlinked income. These assets include, for example, a sustainable business run by an independent management team; royalties, copyright and patents; and of course, the cream of the crop: income-producing properties, especially those that are sustainable, featuring alternative energy, a rainwater tank and a vegetable garden. These assets must be safeguarded in a wellstructured trust, managed by professionals, to ensure superior protection of the assets against the many risks we face in the current unstable f inancial system, so the wealth is preserved from generation to generation. We are not simply victims of an ongoing conspiracy between big corporate financial ent it ies a nd gover nment. T he t r ut h is more likely that we have become victims of a system we have helped create through ignorance, blind compliance and greed. But we can help create a more transparent, fair and stable system, if we are willing to get informed, become part of the solution and take the right action to defend our rights vigorously, build real wealth and protect it for the future generations.
May 2013 SA Real Estate Investor
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CASE STUDIES
BY MONIQUE TERRAZAS
Beware! New Scam In Operation The Good
The Bad
The Ugly
GEPF implements international sustainability benchmark
Commercial property sector under pressure in 2013
Yet Another Scam
Africa’s largest pension fund, the Government Employees Pension Fund (GEPF), has become the first South African institution to implement t he Globa l Rea l Estate Susta inabi l it y Benchmark (GRESB), used by institutional investors globally to improve the sustainability performance of their investment portfolios. Assessing where its property portfolio ranks on the global GRESB enables the GEPF to determine which of its buildings or property funds excelled in terms of environmental sustainability and where improvements are required. “ This is a huge boost for responsible investment in the property sector in South Africa and shows that asset managers will prioritise investment in companies with sustainable environmental management,” says Green Building Council of South Africa (GBCSA) CEO, Brian Wilkinson. "Increasing demand for green and efficient buildings by blue-chip corporate tenants allows owners of green and efficient buildings to attract and retain a better quality tenant and, in turn, attract higher rentals," comments GEPF environmental, social and governance manager Adrian Bertrand. Significant scope exists for improving the carbon footprint of the built environment, which currently contributes one-third of the world ’s greenhouse-gas emissions, while buildings are estimated to consume over 40% of electricity generated globally.
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May 2013 SA Real Estate Investor
The Broll Property Report 2013, which considers South Africa's commercial property market and the real estate sector in sub-Saharan Africa, says downward pressure on South African GDP will place the country's commercial property sector under pressure for the rest of the year.
According to a report in the Weekend Argus, 32 cases of funds being misappropriated from conveyancing attorney's accounts have been reported to the Attorney's Insurance Indemnity Fund (AIIF), involving sums ranging between R45 000 and R488 000.
Malcolm Horne, CEO of Broll Property Group, part of the global CBRE Affiliate Network, says, "The report shows the outlook for an upturn in world growth is now brighter than in 2012. However, many of South Africa's international trading partners are experiencing little or no economic growth, in a sluggish global economy, especially the Eurozone.
The scam involves criminals targeting conveyancing attorneys’ bank accounts, transferring the profits of a sale before the money can be paid into the seller’s account. It is a form of identity theft perpetrated against the seller, causing the conveyancing attorney to pay the proceeds into the wrong bank account.
"The research shows that landlords are likely to face a difficult year, as they cope with rising costs on one hand and an income squeeze on the other. This is exacerbated by economic conditions and the trend among tenants towards more efficient space use." The report reveals a continued slowdown for the retail property sector. The outlook for industrial property is closely influenced by the manufacturing and mining sectors, which are predicted to experience another year of lacklustre performance. For offices, soft demand will continue to define 2013. Nevertheless, investors are recognising that the time to re-enter the property investment sector is starting to look positive, although securing finance from banks is likely to remain a constraint. For a copy of the report, visit www.broll.co.za.
The scam has affected conveyancing attorneys around the country, however, in all but one instance, the same bond cancellation bank was involved. According to the report, Greg Salter, head of risk at Nedbank Home Loans, confirmed that isolated fraudulent instructions had taken place. He said Nedbank’s attorney firms have all been made aware of preventative measures to be taken and that a forensic investigation was under way, with the bank engaging with police and other banks to identify the perpetrators. Although monies deposited into an attorney’s trust account are protected by the Attorney’ Insurance Indemnity Fund, the Fund cannot be held liable if there is no wrongdoing on the attorneys’ part. If you are selling a property, keep in contact with the conveyancing attorney and confirm that the proceeds of the sale are being paid into the correct account. www.reimag.co.za
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RESIDENTIAL HOT SPOTS
PROVINCIAL PERFORMERS
Highlighting the top performing suburbs in the major provinces, based on highest rate of annual inflation and indicated for e ach value band. Mid Value : R250k – R700k
High Value : R700k – R1.5mil
Gauteng
Luxury : R1.5mil +
Gauteng
Gauteng
City & Suburban - City of Johannesburg
19.68%
Kent View - City of Johannesburg
17.04%
Fernridge Estate - City of Johannesburg
16.32%
Cosmo City Ext 1 - City of Johannesburg
19.58%
Vaalmarina Holiday Township - Midvaal
16.81%
Mountain View - City of Johannesburg
14.46%
Western Cape
Western Cape
Western Cape
Summerville - City of Cape Town
29.82%
Avalon Estate - City of Cape Town
25.27%
Schoneberg Estate - City of Cape Town
19.59%
Lindida - Stellenbosch
18.60%
De Molen - Swartland
15.13%
Forest Glade - City of Cape Town
12.48%
Eastern Cape
Eastern Cape
Eastern Cape
Michausdal - Inxuba Yethemba
22.48%
Abbotsford - Buffalo City
11.17%
Bonnie Doon - Buffalo City
Tyutyu North - Buffalo City
22.42%
Headlands - Buffalo City
11.01%
Vincent - Buffalo City
Kwazulu Natal
Kwazulu Natal
10.37% 8.62%
Kwazulu Natal
Shakaskraal - Kwadukuza
16.57%
Bazley Beach - Umdoni
13.82%
Zinkwazi Beach - Kwadukuza
11.97%
Shastri Park - Ethekwini
16.35%
Stanger Manor - Kwadukuza
10.81%
Dunkirk Estate - Kwadukuza
8.66%
Free State
Free State
Free State
Merriespruit - Matjhabeng
28.11%
Jordania - Moqhaka
14.75%
Woodlands Golf Estate - Mangaung
8.43%
Welkom Ext 19 - Matjhabeng
15.90%
Panorama - Moqhaka
11.51%
Heuwelsig - Mangaung
4.72%
WESTERN CAPE
Presenting the Top 5 suburbs per area value band in the Western Cape based on the highest rate of inflation for a 1 and 7 year period. The median represents the current median value for the suburb. #
Suburb
1 year
Median
#
Suburb
Mid Value : R250k – R700k
7 year
Median
Mid Value : R250k – R700k
1
Summerville - City of Cape Town
29.82%
R 580,000
1
Kleinvlei - City of Cape Town
205.20%
R 420,000
2
Lindida - Stellenbosch
18.60%
R 420,000
2
Heideveld - City of Cape Town
202.77%
R 470,000
3
Brentwood Park - City of Cape Town
17.66%
R 420,000
3
Saxonsea - City of Cape Town
201.61%
R 430,000
4
South End - City of Cape Town
17.47%
R 520,000
4
Manenberg - City of Cape Town
192.75%
R 510,000
5
Malibu Village - City of Cape Town
13.31%
R 420,000
5
Hornlee - Knysna
190.63%
R 560,000
High Value : R700k – R1.5mil
High Value : R700k – R1.5mil
1
Avalon Estate - City of Cape Town
25.27%
R 1,200,000
1
Milnerton Ext 6 - City of Cape Town
266.44%
R 1,150,000
2
De Molen - Swartland
15.13%
R 770,000
2
Avondale - City of Cape Town
186.40%
R 800,000
3
Milnerton Ext 6 - City of Cape Town
13.70%
R 1,150,000
3
L Agulhas - Cape Agulhas
171.98%
R 990,000
4
Rawsonville - Breede Valley
13.67%
R 800,000
4
De Rust - Oudtshoorn
158.52%
R 930,000
5
Sonkring - City of Cape Town
12.90%
R 1,175,000
5
Riversdale - Hessequa
130.81%
R 800,000
Luxury : R1.5mil+
Luxury : R1.5mil+
1
Schoneberg Estate - City of Cape Town
19.59%
R 2,000,000
1
Schoneberg Estate - City of Cape Town
131.92%
R 2,000,000
2
Forest Glade - City of Cape Town
12.48%
R 1,800,000
2
De Zalze Golf Estate - Stellenbosch
126.64%
R 6,750,000
Disclaimer: Lightstone applies advanced statistical methods to a comprehensive property data base - compiled from the Deeds Office, the Surveyor General and other sources - to generate property market data, insights, trends and forecasts. Despite the statistical and actuarial rigour applied, Lightstone cannot guarantee the accuracy and reliability of the data. Furthermore, any information provided does not amount to advice and may not be applicable in some cases. Lightstone does not take responsibility for any losses incurred as a result of any person acting or omitting to act as a result of the publication of this information.
REI Residential
Body Corporate Responsibilities
Loans For 18k Earners
Demand For Residential Property Picking Up
If maintenance to a section is in continued disrepair should the body corporate intervene?
SA Home Loans, South Africa’s largest nonbank specialist home loan provider, has entered the affordable housing market, a development that spells welcome news for house hunters earning less than R18 000 per month. SA Home Loans Chief Executive Kevin Penwarden says now, lower income earners have access to the same innovative, consumer friendly approach to mortgage lending that’s helped more than 150 000 individuals and families purchase their own homes. He says affordable housing is a major segment of the South African housing market, with properties valued bet ween R250 000 and R500 000 making up more than a quarter of all registered residential properties.
In recent weeks, the question has begun to arise as to why it would be that the household sector’s consumer spending growth has become increasingly constrained, while simultaneously it would appear that residential property demand has been noticeably picking up. This would appear surprising to some, as it is the same household sector with the same frail f inancial situation that spends both on consumer goods and services as well as on housing. And a “partial reprioritisation” in household spending may just mean that a gradually rising need for new residential properties further constrains already pressured consumer spending growth.
The classic situation in which this question is asked is when an owner fails to repair a leak in their section and the leak damages a section below. This can result from leaks in balconies, kitchens or bathrooms. Section 44(1)(c) places the obligation to maintain and repair sections squarely on the shoulders of the owners. The body corporate is only responsible for the maintenance and repair of the common property. If there is no common property between the section that is leaking and the section that is suffering consequential damage, the issue is between the owners and the body corporate has no need to get involved.
Valuable Input
Mike Greeff, CEO of Greeff Properties
Jennifer Paddock, Attorney, Paddocks
“Cape Town property figures continue to defy the more depressed or flat national graphs, With 2014 being the official year of the Mother City’s reign as Design Capital of the World, we’re very optimistic about foreign interest.”
“Get involved in the management of your sectional title property. The more you understand about the finances and decision making, the better equipped you are to protect your pocket and your property.”
www.reimag.co.za
Samuel Seeff, Chairman, Seeff “Smart buyers are taking advantage of the favourable buying conditions with sales volumes in the primary residential sector continuing to strengthen.”
Graham Paddock, Paddocks “The most significant aspect of the Sectional Titles Schemes Management Act, 2011, expected to come into force in 2013, is the requirement for a separate reserve fund.”
Kim Faclier, MD GoIndustry DoveBid S.A “Just as online has become part and parcel of the way we do business every day, so too will online auctions become the way we auction property in the future. Online property auctions are the eBay of the future, no doubt about that.”
May 2013 SA Real Estate Investor
21
SMART MOVES
BY KOOS DU TOIT
Don’t Go It Alone Harness Other People’s Time
Each of these aspects is a field of expertise in its own right, governed by ever-changing laws and regulations. The simplest and most effective way to ensure a smooth running and highly profitable property portfolio is to appoint specialists in each field to provide professional services, backed up by expertise, resources and systems already in place to ensure adherence to continuously changing regulations, legal aspects and market conditions.
company; the property management and maintenance to a propert y management company; the accounting, insurance and tax to a professional accountant and tax advisor; and the trust management to a trust specialist.
Outsourcing
For t u n ate ly, e v en f i nd i n g t he r i ght professionals can be outsourced – you don’t have to spend months or even years finding the right people and companies to become your outsourcing partners, or to learn by costly, time-consuming and potentially unpleasant trial-and-error if the partners you chose are indeed the right ones.
Appointing experts – or outsourcing, as it is called in the business world – is a proven business strategy, used by corporations around the world to ensure cost efficiencies that free up valuable cash flow and, more importantly, to benefit from the outsourced company’s expertise and experience, reducing legal and compliance risks.
Other People’s Time
W
hile the property investment business model is so simple that property investors with sufficient time and expertise could very well manage all aspects thereof themselves, “going it alone” is a property investment pitfall investors should avoid. This can be done easily and cost-effectively, while harnessing a host of benefits associated with having a team of experts to manage and grow a portfolio professionally.
Why not “go it alone”? In reality, few buy-to-let property investors have the time, expertise or inclination to become experts in the many complex aspects of property investment, such as property law, mortgage f inancing, rental management, propert y maintenance, tax and accounting, and trust administration, among others. 22
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In wealth creation circles, appointing experts or outsourcing is referred to as “harnessing Other People’s Time (OPT)”. It refers to the practice appointing experts who can perform necessary management functions quickly and professionally, exponentially increasing the ability of an investor to get things done, far beyond the capabilities of one person or the restrictions of 24 hours in a day.
Extreme outsourcing The property investment business model is ideally suited to outsourcing or harnessing OPT, since every function can be outsourced effectively – allowing property investors to leverage outsourcing and OPT to the maximum. Property investors can outsource the search for suitable investment properties to a property investment club; the pre-offer propert y inspections to a property inspector or a valuator; the negotiations with the seller to an estate agent; the finance process to a bond originator; the actual buying process to a conveyancer; the tenant acquisition, rental collection and tenant management process to a rental management
The right team
Of course, to optimise and maximise the outsourcing model and the harnessing of OPT, it is critical for a property investor to find experts in each field who understand the property investment business model and the investor’s goals and objectives.
Your selection process can be outsourced by simply joining a professional property investment organisation, who provides preferential or discounted access to a network of professionals such as attorneys, bond originators, property valuers and inspectors, rental management compa n ie s a nd prop er t y ma na gement companies, insurers and trust accountants, who have been carefully screened, are continuously monitored in terms of service levels, and most importantly, who understand the property investment game and the market.
The bigger picture Once all these functions are outsourced, you will have experts in each field managing each function. All that remains for you to do is to keep a watchful eye to ensure everyone is delivering on their mandate. And while these experts take care of the details, you are free to focus on the bigger picture and on what is really important: making the strategic decisions, taking advantage of opportunities and expanding your portfolio.
RESOURCES P3 Investment Group www.reimag.co.za
ACQUIRING
BY KOOS DU TOIT
The Truth About Trusts
What benefits lie behind the tax?
Once investors understand how simple and cost-effective a trust can be, it becomes one of the greatest tools in their wealth creation armoury.
Why use a trust?
T
r usts a re common ly rega rded as complex and expensive structures, reserved for the rich and the wellconnected. This is a property investment myth based on very little truth. The my th that trusts are complex and expensive is often perpetuated by financial advisors and accounting practitioners who simply focus on the fact that trusts are taxed at 40%, without understanding the full tax benefits and asset protection that trusts offer property investors. The truth is that, f irstly, with the right e x per t ise, t r usts ca n be ma naged ver y e f f ic ie nt l y a nd c o s t- e f fe c t i v e l y, w it h exceptional tax benefits. And, secondly, the wealthy and well-connected do not have trusts because they are rich, they are rich because they have trusts.
What is a trust? A trust is a simply a legal entity, established by a founder for the safekeeping and management of trust assets by the trustees appointed by the Master of the High Court for the benefit of the nominated beneficiaries. 24
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Of particular importance to property investors, a trust is a structure through which you can obtain more mortgage bonds than you would be able to in your personal name. Trusts, as separate legal entities, are not subject to the provisions of the National Credit Act. In addition, there are some compel ling f inancia l benefits. If structured and managed correctly, a trust will allow you to save significantly on income tax. While some changes to the taxation of trusts have been suggested, it remains to be seen whether such changes will be effected. Furthermore, trusts, unlike people, cannot die and is therefore not liable for capital gains tax, estate duty and executor’s fees when you die. Perhaps most importantly, a trust will ensure that your property portfolio continues to generate an income, as well as capital appreciation, long after your passing, creating a legacy of wealth for future generations. No other entity can preserve and dispense the benefits of a legacy quite as flexibly and securely as a trust, through which the benefits of your life’s work can be distributed in a precisely determinable manner.
longer belongs to you. This provides protection against any actions that may be taken against you in your personal capacity, for example, insolvenc y, divorce, business volatilit y, partnership disputes and other business and financial risks. Your personal assets can be safeguarded in a trust separate from the trust in which the buy-to-let properties are acquired. In the unlikely event that the buy-to-let property portfolio fails or becomes unable to pay its debts, creditors cannot touch your personal assets. In addition, any liability claims against the property-holding trust will not place your personal assets at risk, because the claim can only be made against the property-holding trust itself. Furthermore, should you pass away, the property portfolio does not become part of your deceased estate, but continues uninterrupted, providing an ongoing passive income to the stipulated beneficiaries.
Easy, cost-effective to manage Just like any other legal structure or entity, trusts can’t be set up by just anyone. Your trusts, as the foundation of your property investment portfolio, should be set up and managed professionally. A number of crucial issues must be adhered to, to avoid the possibility of a court declaring a mismanaged trust invalid.
A trust also offers significant risk management benef its. A property investment portfolio, built on a foundation of the right trusts, offer investors solid protection for their personal assets.
Fortunately, all the tools you need are readily available through professiona l propert y investment organisations. For example, P3’s experienced and specialised trust experts will help you set up trusts tailored to your particular needs and circumstances. In addition, P3’s Trust Management Kit has been developed specifically to assist members to understand the intricacies of how a trust works and to enable you to manage your trusts correctly, covering all the issues you need to know to safeguard your financial future and that of your heirs - even beyond your lifetime.
When a trust fully owns a property, it no
P3 Investment Group
Manage risk
RESOURCES
www.reimag.co.za
MANAGING
BYJOHN ROBERTS
Manage Your Tenants Right And reap the benefits of long-term capital growth
A
CQUIRING buy-to-let properties w ithin the investment por tfol io offers long-term capital growth while providing short and medium-term income from tenants occupying the house. However, a property can be beautifully designed and in a highly desirable areas, but if tenants are not correctly managed and the occupancy is not maintained at sufficiently high levels, the profitability of that rental property will collapse. Unhappy tenants vacate at the end of their leases if not beforehand. This reduces the income due to unpaid rents and incurs costs in finding new tenants either via advertising fees or in the commissions paid to agents for vetting potential new tenants.
Rental collection by a real estate property manager does not start on the date rents are due. Rather, the process begins when tenants complete their rental applications - providing glowing rental references and passing the requisite credit checks - are the principle steps in ensuring rents are paid on time. The next step is a sound lease agreement that clearly lays out the date (and time) rents are due; where the rents have to be paid and what happens if tenants do not adhere to these restrictions. Taking legal action and bringing about an eviction may become the final outcome of poor tenant management or selection.
Those fees are paid upfront and amortised over the period tenants occupy the residence - and basic logic and mathematics show the return on investment is boosted the longer that initial payment covers a single tenant’s stay.
Yet, even good tenants can fall on hard times and good property management means having a clear understanding with the owner on how much latitude can be granted in those situations. When buy-to-let owners have long-term, essentially sound, tenants in their properties, there is merit in working together and coming to an agreement on unpaid rentals for the sake of retaining that tenant.
In this vein, effective tenant management involves good rental collection practices; responsive handling of repairs and maintenance; a consistent and fair enforcement of regulations and regular and informative communications with tenants.
However, obtaining and securing long-term tenant retention and thus acceptable levels of return on investment demands work from the owner. Properly maintaining that investment requires regular ongoing and preventive maintenance to the property with the same - if
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not greater - levels of enthusiasm as displayed in retaining the primary residence. This means repairing, not only superficially band-aiding, problems or malfunctions and undertaking construction or remodelling when the time comes. Preventative and ongoing maintenance requires a thorough knowledge of the property, its demands for upkeep, staffing required to accomplish the tasks and budgeting for accomplishing them. It means balancing the costs of routine and preventative maintenance with the benefits and expected results. Routine maintenance includes cleaning common areas; maintaining the landscape; regularly servicing the heating and air-conditioning systems; periodically inspecting the plumbing and electrical items and properly maintaining the wood, roofing and other building components. Corrective action is required when things break or cease functioning as intended. Sometimes those repairs are emergency ones such as when the geyser floods, but others can and should be scheduled and undertaken efficiently. Professional property management requires differentiating between the two and effectively servicing tenant’s needs while balancing the costs.
RESOURCES
Just Property Group
www.reimag.co.za
CUS T
CE VI
R SE R ME O
PROPERTY GROUP
EXCELLENCE
IMPROVING
BY JAMES COLBY increase the value of your property, but additions that go against the look and feel of the house can detract from the value. Additionally your family’s or your own needs may change in a few years, so plan your remodelling to fit your future.
Keep an eye on the numbers Even the most meticulous budget can run over. Chances are high that your remodelling project will run over what you had budgeted for it, so before you set your heart on high–end products, find out what they cost and have a back up in mind. For essential items that could clean out your budget research products that have the same quality but are maybe more budget friendly. Your alternative is to research home improvement loans or financing options.
Your team is key
From Ordinary To Extraordinary
Remodelling your home
I
t all begins with a dream, your dream vision for your house. You look at your home and see skylights, walk in closets, vaulted ceilings and a Roman bath. But without the proper planning, your dream house could turn into a nightmare before you begin. So before you start to remodel your home, follow these easy steps and set your home improvement project on the path to success.
Draw the dream Before you decide to consult an architect, begin to sketch how you want to remodel your home. If you are thinking of adding or expanding a room, think about how the space will be used. You also need to think about how the new construction will affect the overall look and feel of your home. There 28
May 2013 SA Real Estate Investor
are home design software programs that can help you see what the changes will look like.
Use the web One of the best ways to get inspiration for your remodelling and to avoid costly mistakes is to research the experiences of other homeowners who have remodelled their homes. There are a number of websites that offer useful information on home improvement projects, where people will post their own experiences along with reply forums and chat rooms so you can ask questions and get valuable feedback.
Plan for the future What are your future plans for the house. If in a few years you might want to sell your home, then you need to remodel with this in mind. A luxury bathroom or added room can greatly
Unless you can take on the entire remodelling project yourself, you will need to hire people with the necessary skills to create your dream home. You will want the people who work for you to be qualified, licensed and properly insured. But beyond just checking references, make sure the people you are working with have the same dream in mind as you do and know what you want, there is nothing worse than seeing your vision for your house chopped and changed by someone with a different design vision. Use resources such as the Web and home improvement sites to find professionals you will feel comfortable working with.
It’s all in the contract Have you ever played broken telephone? You do not want your remodelling job to suffer from a lack of communication. Whether you are planning a simple carpentry job or a major remodelling job, misunderstandings can spell disaster. Don’t begin any work without a written contract stipulating exactly what is to be done. Your contract should also state what type of work is to be done, how much it will cost and how long it will take as well as the materials that will – and won’t – be used.
Planning permission Any structural changes or additions will require planning permission from your local authority or municipality. A great website to look at to see what documents you will need and who to submit them to is the Building Regulations South Africa website. It offers advice and has the latest on laws and legislation relating to building codes and permission. You must discuss www.reimag.co.za
RESIDENTIAL with your contractor who will take care of permits and the paperwork, as if it isn’t done correctly, the council can order you to halt work causing costly delays.
Plan for problems There are going to be equipment delays, supply shortages, miscommunications and delays. The best way to make sure this doesn’t cause a critical backlog and make you snap is to draw up a list of friendly rules for the workers, tell them where they can park and store their equipment, make sure they don’t make your neighbours hate you. On the very bad days when you are ready to tear your hair out, plan a spa day, reserve a night at a romantic B&B, and allow yourself time to de-stress.
The nitty gritty details Below are just some of the things you might want to consider doing when you decide to remodel. If you are making major structural changes there is a natural rhythm to how it is done, a f low of work if you will. If you are planning a major remodelling of your home it’s a great idea to get an idea of how long each step will take and what to expect. Below is a typical remodel step-by -step action plan.
1. Prepare Replace seriously damaged windows that may threaten future remodelling work.
2. Demolition Depending on the scale of your renovations and the condition of the house, demolition might be the first step. Demolish as much as possible if you will not be living in the house. Rent a large waste container for all the waste from the remodelling.
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3. Structural Carpentry
8. Windows
At this time, call in the carpenters for major carpentry projects. Things like: Moving walls. Constructing new walls. Significantly enlarging window openings Adding beams to support a greater weight upstairs. Punching in new doors (or removing existing doors).
Install new-construction or
4. HVAC Ductwork, Electrical, and Plumbing With the walls and ceiling open, it’s time for the company to install ductwork for central heating and air conditioning. Also with the walls accessible, run new electrical and plumbing systems. Electrical and plumbing inspectors will visit at this time, too.
5. Insulation Last thing to do with the walls open: install insulation in the walls and attic. Insulation goes fast, so give your drywaller a call and let him know he’s next up.
6. Drywall A second inspection from the electrical inspector (and perhaps the plumbing inspector) will give you the go-ahead to close up the walls. Drywallers hang sheets of drywall, drywall compound, and let the compound dry. After drying, they sand it smooth. Sometimes, they will repeat the process until they achieve a seamless surface.
7. Flooring Installing the flooring later in the renovation process saves your f looring surface from significant damage.
9. Fine Carpentry Here’s where you introduce carpentry that doesn’t involve structural issues. Install baseboards, moulding, trim around windows and doors, built-in elements (bookcases, breakfast nooks, etc).
10. Interior Painting, Wallpaper, and Other Surface Finishes Painting interior walls, hanging wallpaper, painting molding and trim, staining and sealing trim: all of these detail-oriented surface finishes should be the last items you do indoors.
11. Siding, Gutters With the house mostly finished, it’s safe to put on siding. You don’t want to do this earlier (unless absolutely necessary) because doors and windows may get punched out, ruining the siding.
12. Major Auxiliary Building Last, do major auxiliary building projects like: swimming pools. Large building projects like additions should come last. If you do this last you don’t deplete all of your funds and energy on projects not related to remodelling the house itself. However, an alternate view is that you may want to build an addition very early in the process so that you don’t ruin any work you do in the main part of the house. Once you have your dream home in mind all that’s left is to put the proper planning in. A well-considered plan will save you time and money, because when it comes to remodelling it’s all in the details and control.
May 2013 SA Real Estate Investor
29
STRATEGIES
Inconsistent Valuations
BY ANGELIQUE REDMOND
Are they creating rip-off rates?
T
he season of property valuations is upon us and by now most homeowners will have received their new property valuations and had a chance to lodge their complaints if their property had been over valued. But does the system used by the government for property valuations work? Or is this system having a detrimental effect on the property industry? Firstly, what is a property valuation? Real estate appraisal, property valuation or land valuation is the process of valuing real property. The value usually sought is the property’s market value. Appraisals are needed because compared to, say, corporate stock, real estate transactions occur very infrequently. Not only that, but every property is different from the next, a factor that doesn’t affect assets like corporate stock. Furthermore, all properties differ from each other in their location - which is an important factor in their value. The city council uses your property’s valuation to determine what rates you will pay on your property. These rates are applicable for the next two to four years, so if your property is over valued, it can have dire consequences for you,
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the property owner. A property, which is over valued, means you will be paying high rates, something that coupled with the high cost of living and maintaining a building, could see you unable to keep your property. The date of valuation may not be more than 12 months before the implementation of the roll and the date of valuation for the rolls that are to be implemented on 1 July 2013 is typically 1 July 2012. The process to value all the properties may have commenced before July. The General Valuation Roll begun on the 1 July 2012 and was finalised in January 2013, with each municipality having their own General Valuation Roll and conducting their own valuations. The act which governs the rules around the roll states that all properties must be valued at market value, which is defined as the amount the property would have realised if the sold on the date of valuation in the open market by a willing seller to a willing buyer. So how exactly is this valuation conducted? Value forming attributes such as the size and quality of buildings and number of rooms are collected for every property. Market reports are then created by staff collecting and reviewing sales that took place around the date of valuation,
(since July 2009) and that sales data is then used in a computer-assisted mass appraisal program (CAMA) to value large numbers of properties. The City of Cape Town has roughly 800 000 properties within its boundaries, all of which have to be valued The most glaring problem with this system is also the most obvious one: there is room for error. Cape Town is varied, and even properties on the same street can differ vastly, one might have a view of the ocean, the other might not, and some of the fanciest properties are next to properties that are poorly maintained. A computer does not make for these allowances in one road, let alone one area. Also the age of a property and the interior inform the sales price, gardens and renovations are also large factors contributing to sales price. Another problem with the valuation process is the particular period the sales are taken over? Is this a realistic view of the market value of the property? Does the model take into account seasonality and anomalies? Sales that happen before the date of valuation must be adjusted, to provide for changes in the market or the data used to create the valuation will not be accurate. The computer may not take into account the numerous ‘shack www.reimag.co.za
privateproperty .co.za
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STRATEGIES
“Poor data has resulted in valuations that are not accurate or consistent.” cities’ that have sprung up in areas all over South Africa, sending the property values in that particular area into a nosedive. While the CAMA program works well in a homogenous area, poor data has resulted in valuations that are not accurate or consistent. One area in particular is a prime example of this, a block of property in Clovelly; Cape Town, has not undergone any renovations or improvements since the date of the previous valuation, and has had values go up just under 3% to 58%. Dr Lesley Shackleton of the Simon’s Town Civic Association says, “once again we have incredible variations in one area
with some property valuations dropping, some going up by 5 to 10%.” The problem is not restricted to the Southern Suburbs but is evident in the Cape Town City Bowl as well. Seeff agents Michael Hauser and Doris Rickettes issued a press release stating that “the City’s valuation system still does not work and the problems are getting worse. There is simply no consistency in the percentage increases. How is it possible that there can be such disparity?” Ben Espatch of Rateswatch explains: “ If the previous values were correct,
then one would expect consistent increases, but if some of the properties were under valued, the increase should be higher compared to those that were previously valued correctly.” Up to 3000 people have filed objections to the City of Cape Town’s general valuation roll, since it was published. The rates based on the valuations will be billed from the 1 July, but you have the right to object if you believe your valuation is incorrect, within the allotted time frame for your municipality. The results of the objection could confirm, reduce or increase the market value of your property. However, the rates will remain payable on the determined market value, whether you have objected or not, until your objection has been dealt with and your new rates determined. Any excess payments will be refunded and if your property value is increased you will be liable for the difference in the rates as of the 1st July 2013. The municipal valuer decides on the objections and if the value is changed by more than 10%, it is subject to review by the valuation appeal board. If you are unhappy with the municipal valuer’s decision, you can appeal the decision with the Valuation Appeal Board. Their decision can only be reviewed by the High Court - a costly exercise.
RESOURCES
Rateswatch Seeff 32
May 2013 SA Real Estate Investor
www.reimag.co.za
“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
SECTIONAL TITLE
BY IVAN ZARTZ
A Stitch In Time
Will save a homeowners association nine
T
he budget of most Homeow ner s Associations is notoriously tight and in many instances even a f iercely debated issue. So suggesting that the HOA should consider spending time and money on obtaining professional advice to draft a new Memorandum of Incorporation that complies with the Companies Act 2008 (“the new Act”) may seem like heresy. A f ter a l l, t he Compa n ies Ac t, when implemented in May 2011, granted recognition to the status of all “pre-existing companies” including thousands of HOA’s which had been incorporated either as a private company or more usually as a “section 21 company” being “an association incorporated not for gain” under the Companies Act 1973 (“the old Act”). Most importantly, the new Act allowed these pre-existing companies the right to use their existing company documents as their governing
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May 2013 SA Real Estate Investor
“constitution” for a period of two years even if actions taken consistently with such documents did not comply with a procedure introduced by the new Act. After the grace period, which lapses on 30 April 2013, however, the provisions of old-style company memorandums of association and articles of association can only be relied on to the extent that same are “consistent with” the provisions of the new Act.
or not. We submit it is much easier to start with a clean slate and tailor-make a Memorandum of Incorporation (as the single constitutional document is now known) which suits the HOA and which is fully compliant with the new Act.
And therein lies the rub – especially since failure to comply with the new Act can either result in an action being void or lead to the Companies and Intellectual Properties Commission issuing a “compliance notice” against the company.
• the Articles of Association of many HOAs were drafted at a time when the developer of the property still had a substantial interest in the affairs of the HOA and accordingly many exceptional powers and protections were specifically included for the benefit of the original developer. Especially in more mature properties it will be important to review whether those powers and protections are still appropriate today;
While much of what is contained in the existing “constitutions” of HOA’s may comply with the new Act it is an unnecessarily arduous (and at the end of the day expensive) process to systematically check each provision against the new Act to determine whether it is consistent
There are several additional factors (but not necessarily an exclusive list) which we submit are applicable in making this decision, namely:
• the provisions of the new Act add a number of new requirements for what “section 21 www.reimag.co.za
RESIDENTIAL companies” have now become under the new Act ie “non-prof it companies”, and in particular careful consideration must be taken of the provisions of Schedule 1 to the new Act in this regard; • the Articles of Association of pre-existing companies are usually replete with crossreferences to sections of the old Act to add substance to their provisions, which is exceptionally problematic because very few of those sections correspond to the much abridged and substantially re-arranged layout found in the new Act. Even when one does eventually find the provision of the new Act which deals with the subject matter of the particular “Article” it is not uncommon to find that the wording of the new Act is different from that used in the old Act and in numerous cases the fundamental approach to that issue may have been changed too! • then there is the issue of the distinction which the new Act draws between “unalterable provisions” (the majority of the Act) and “alterable provisions”, which are instances where the legislature recognised that the stakeholders
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of a company could be afforded an election as to the extent to which the company would want to bound by the standard rule as set out in the Act. There are over 50 such “alterable provisions” in the new Act and many could have application in respect of HOAs, and the downside of not considering the extent to which such provisions should be modified, changed or amended, extended or negated, in the case of a particular HOA is that you might just be left with a “default” situation as catered for in the new Act which is highly unsuited for that HOA!
“Careful consideration must be taken of the provisions of Schedule 1 to the new Act” • the new Act a lso recognises that the drafters of the Act were neither omniscient nor omnipotent and accordingly allowance is made for the Memorandum of Incorporation to include and deal with issues which are not otherwise specified in the new Act, subject of course to an overriding requirement of
“consistency” with the Act. This is a further opportunit y to tailor the Memorandum of Incorporation to the specif ic needs and circumstances of the particular HOA. Finally we would also recommend that the members of HOAs take the time out to consider the status of their Memorandum of Incorporation when relations between the members are on an even keel. The task will be much more difficult at a later stage if there are any “skirmishes” between the members! And if there is a major battle in the future one certainly does not want to enter into the fray on either side armed with a set of outdated Articles of Association which may be impossible to interpret and apply to the current situation. So, there may be some expense involved in adopting a new Memorandum of Incorporation at this stage, but it is also worth remembering the time-honoured adage: “A stitch in time saves nine”.
RESOURCES Ivan Zart Attorneys
May 2013 SA Real Estate Investor
35
FINANCE
BYJOSE DELGADO
The New Trust Taxation Should you embrace it or avoid it? A FEW EXAMPLES MAY ELUCIDATE THE POINTS MADE
T
he 2013 Budget Speech was balanced and contained a modicum of relief for small business owners and the average man and woman. And of course the usual sin taxes and how the funds are to be utilised. Minister Gordhan made a reference to a reform on the taxation of trusts, this has certainly ruffled a few feathers and got tongues wagging. As far as we are concerned the more things change the more they stay the same… This will become evident based on the points set out below.
Whilst the Minister mentioned these issues they may not necessarily be implemented. In previous years there have been discussions of estate duty being abolished and this did not transpire, in fact the opposite is now being stated. This may well be the case with the proposals contained in the Budget Speech.
So, what do the proposed changes mean for YOU as an investor? How are you affected? Is a trust structure to be avoided or embraced?
The Budget proposals will cause the demise of trusts…trusts are now highly tax inefficient… Changes to tax will kill of trusts...
The pertinent issues that Minister of Finance mentioned per taining to tr usts are the following: 1. Estate duty remains in place and the Treasury is to review how to curb the use of trusts to minimise duties.
The majority of the media statements and commentary have arisen around the Budget Review document. This document brief ly touched on the proposed or intended changes. It has been stated that the flow through principle is to be addressed by ensuring that the revenue or gains will be taxed in the hands of the trust.
2. There is to be a reformation of the taxation of trusts to prevent abuse.
This singular statement has been taken out of context and needs to be properly analysed.
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May 2013 SA Real Estate Investor
We now turn to what all the hype and the naysayers have to say about the taxation of trusts:
1
You want to save capital gains tax when selling your house or assets BUT end up losing the asset to a creditor or in divorce because it is not in a trust!
2
You wish to save capital gains tax on some assets that you may sell during the course of your life BUT on your demise your estate pays CGT on ALL YOUR ASSETS.
3
On death your estate pays executor’s fees of roughly 4% on the GROSS value of all your assets! Plus a 6% fee on any income that flows into your deceased estate.
4
There will be various costs levied to transfer properties and assets to beneficiaries.
5
Estate duty of 20% of the net value of your estate is payable on death.
6
YOU must also consider the major tax advantages that you and the beneficiaries will enjoy before the asset is sold, e.g. the trust owns an asset that generates R 100 000.00 per annum for 10 years and this is distributed to your children. This results in tax free income of a R 1million. In the event of the sale of the property, if the trust pays 26.67% CGT instead of 13.3%, the net position is that you will be better off overall, this is also not taking any losses into account.
www.reimag.co.za
RESIDENTIAL Further in the Budget Review Document, it states that if the trust distributes revenue to a beneficiary then this will be a deduction, effectively the tax position in a trust will be neutral if a distribution is made in the same year and the distribution is of revenue in nature. Accordingly the beneficiary will be liable for the tax at their effective rate. The conduit principle is therefore alive and well, so nothing has changed on the income / revenue front BUT the position pertaining to interest and capital gains is set to change and this is where some great tax advantages may be lost. The proposals state that the distribution from a trust to a beneficiary will treated as revenue in the hands of the beneficiary. The current position is that a capital gain can be attributed to a beneficiary, the beneficiary enjoys the annual capital gain exemption and only a portion of the gain is included as income depending on the inclusion rate of the beneficiary: 33.3% for individuals and 66.6% for companies and trusts How these changes are to be implemented remains to be seen as capital gains are attributed
and not distributed from a tax perspective. We wait with bated breath… The above notwithstanding, trusts are still the ONLY entity that can provide comprehensive asset protection, estate duty savings, capital gains ta x savings on death, avoidance of hefty executor’s fees and other costs related to winding up your estate, ensuring the continuity of the legacy you are building and of course protecting your minors and persons who need to be protected from themselves!
As with any change or obstacle there is opportunity for those who fully understand trusts and the taxation of trusts.
“Trusts are still the ONLY entity that can provide comprehensive asset protection” In closing we suggest that you maintain the status quo and wait for Treasury to implement the proposed changes if they transpire at all. The changes will affect many aspects of the Income Tax Act and we firmly believe that the revenue that will be generated from this exercise is miniscule relative to time and expense that will be expended to implement the changes. SARS must have better things to focus on!
ABOVE: Finance Minister Gordhan
RESOURCES Delgado Velosa Kenworthy & Associates Inc
REI Commercial
Hyprop’s R2.3 Billion Acquisition
E-Tolling Gets The Green Light
Construction Companies Liable For Corruption
Leading JSE shopping centre fund, Hyprop, announced its R 2.3 billion acquisition of Somerset Mall from Sycom Property Fund (“Sycom”), in line with strategy to invest in sizeable quality shopping centres. The purchase consideration is being settled by the transfer of 81 500 000 Sycom units to Sycom, which will clear the way for Hyprop to exit its investment in Sycom. Hyprop CEO Pieter Prinsloo says: “Not only are we pleased to have acquired a high quality regional shopping cent re t hat complements ou r e x ist i ng portfolio, but also that it has provided us the opportunity to convert an indirect investment into a direct property asset.” The purchase consideration equates to 32,8% of Sycom units in issue, or 97% of Hyprop’s holding in Sycom. The effective date of the transaction is 1 October 2013.
Transport Minister Ben Martins warned motor i s t s t h at g ov e r n me nt r em a i ne d committed to e-tolling, adding this would be implemented as soon as the National Council of Provinces passed the enabling legislation. Martins dismissed as ‘unfounded and baseless’ specu lation that the government cou ld reconsider implementation of its unpopular e-toll programme to charge for the use of freeways. “E-tolling is on track. It has been to Parliament and now it’s waiting for approval by the National Council of Provinces and from there it will be implemented. I suggest you get your e-tags now so that you can get a discount,” said Martins. T he M i n i s te r s a id it w ou ld b e t he responsibility of the SA National Roads Agency (Sanral) to collect the tolls. He said he was satisfied with the agency’s ability to do so.
The government wants to hold construction company bosses personally liable if their firms are found guilty of bid-rigging, corruption, collusion and price-fixing, by making them sign binding contracts. Economic Development Minister Ebrahim Patel said that because of rampant collusion – which had rocked the industry in the recent past – the Competition Commission had received more than 400 confessions. Patel said the government was boosting its capacity to plan, procure, manage and monitor projects. It was further working with the construction companies in a bid to clean up the industry. “CEOs in future will take personal responsibility to grow the culture of transparency.” Patel is reported to have said. “We’ll make them sign some kind of a contract on this.” The report adds the government had also put up incentives for companies that came clean on collusive practices.
Valuable Input
Michael Bauer, GM, IHFM “The main benefit of REITs is that you can have direct foreign investment and the legislation is in line with international best practice so this structure is understood globally.”
www.reimag.co.za
Simon Black, MD, Black Pepper “In tough economic conditions premium commercial property assets continue to deliver positive returns. High quality, well located office and industrial sites are attractive both from an investment and tenancy perspective.”
Dr John Fletcher, RCIS “When it comes to disputes in the built environment, these are often very complicated and involve issues at multiple levels which would take an enormous amount of time and money to resolve in the courts or through arbitration.”
Estienne De Klerk, Chairman, SA REIT Association “Because the SA REIT dispensation provides many benefits, it is likely that all qualifying South African listed property entities will make application to the JSE to become a REIT.”
Patrycja Kula, Business Development Manager, JSE “The tax advantages of the new structure will also make the listed property sector much more attractive to local investors.”
May 2013 SA Real Estate Investor
39
LISTED
BY IAN ANDERSON
REIT Legislation Increase your growth and income
S
outh Africa’s listed propert y sector gained a further 3.3% in March and, at the time of writing in April, it is up 9.1% since the start of the year. The sector has significantly outperformed both the equity and bond markets since June 2012 and some of this outperformance is probably due to the introduction of Real Estate Investment Trust (“REIT’) legislation in South Africa. REITs were first introduced in the United States during the 1960s as a means of giving the man in the street access to the benefits of commercial and industrial property. During the first 30 years, banks and other institutional investors exploited the legislation as a means of off loading underperforming properties to unsuspecting investors or to create highly leveraged and risky property investments, which once again were sold to unsuspecting investors. The savings and loans crisis of the late 1980s and early 1990s resulted in the failure of many of the first or second generation REITs and led to the start of the modern REIT era. The most significant difference between the first REITs and modern REITs is the behaviour of management. The first REITs were externally managed, passive investment portfolios that attracted very little capital over the 30 years. I n c ont r a s t , t he mo der n R E I Ts a re internally managed, with entrepreneurial management teams engaged in the development, redevelopment, management and sale of portfolio assets. The evolution from passive portfolios to vertically integrated, entrepreneurial real estate operating companies
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May 2013 SA Real Estate Investor
led to a significant increase in both income growth and total returns for investors. A lthough Nationa l Treasur y forma l ly published REIT tax legislation for South Africa on 25 October 2012 and the JSE published new listing requirements that will facilitate the REIT structure in South Africa on 28 March 2013, South Africa’s listed property sector has been operating with REIT-like characteristics since the late 1980s. The early South African listed property companies were externally managed and promoted by some of the country’s largest institutions. The sector attracted very little investor interest and the overall quality of the property portfolios was not particularly good. From the late 1990s, the sector began to adopt many of the best traits of foreign REITs and today the sector is dominated by vertically integrated, entrepreneurial real estate operating companies.
the sector is now capable of producing income growth in excess of South African consumer inflation in the years ahead. So despite the absence of off icial REIT legislation, South Africa’s listed property companies have been operating like the very best global REITs. Unfortunately, without REIT legislation, the tax status of South Africa’s property loan stock companies (the capital structure and vehicle of choice for some of the largest listed property companies in South Africa) was never certain. With the tax certainty that South Africa’s REITs will enjoy from 1 May 2013, foreign investor interest in the sector is likely to increase. A number of companies have already reported a substantial increase in their foreign shareholdings and this trend is likely to continue as more and more companies will make application to the JSE to become a REIT.
This resulted in increased investor appetite and significant growth in the size of the sector. From a market capitalisation of R5 billion in 1998, the sector has grown to more than R200 billion today. Growthpoint Properties, the largest South African listed property company, is a constituent of the FTSE/JSE Top 40 Index.
From an investor’s standpoint, the experience w il l be no different going for ward. As mentioned earlier, most of South Africa’s listed property companies are already REITs in all but name. The only difference is that investors will now have more certainty regarding the tax status of their listed property investments.
With a significant increase in capital and a reduction in the cost of that capital, South Africa’s listed property companies have been able to acquire, develop and redevelop some of the very best shopping centres, offices and distribution centres in the country. At the same time, income growth rates have accelerated and
It is expected that within a year, there will be approximately 30 South African REITs offering investors the benef its of a ta xadvantaged investment in some of the country’s best commercial and industrial real estate.
RESOURCES
Grindrod Asset Management www.reimag.co.za
www.mustardmarketing.co.za
MANAGING
BY JONATHAN SMITH
Paper Begone...
Converting to modern software
R
eal estate investment managers should, ideally, keep abreast of the latest data across a wide spectrum of information within their property investment portfolio and, thanks to modern soft ware, this is possible via a live (or real time) concept known as a dashboard.
A dashboard replaces the voluminous paper reports that shareholders and directors would receive each month end and have to examine so as to provide direction to their property management team. Now stakeholders (and, particularly investment managers) can see at glance the relevant data of their property portfolio in a single screen. Should they also require more detail on the summarised
statistics, they can drill down to ref lect specific data. The following information would typically be ref lected on a property asset management dashboard, having been compiled by totalling and analysing line data from each building, premises and tenant within a set of buildings: • • •
The income-capitalised value of a property portfolio (or just one building) The risk profile of your portfolio – reflecting items such as expiry profile, vacancies, arrears and a calculated risk premium to your capitalisation rate A tenancy profile – reflecting the make-up of your tenancy base by tenant category and a
• • •
depiction of group tenants. Examples of group tenants would be the Edcon and Foschini groups An operating cost profile which depicts the current dispersion in costs across your portfolio or a building An indication of outstanding maintenance projects, their progress to completion and their outstanding values for payment A set of reminder or diary notes which reflect information which asset managers should be following up on.
The following diagrams ref lect such data in a user-friendly manner and should form the basis of each property asset (investment) managers’ dashboard.
PETER PLACE MALL ASSET MANAGEMENT DASHBOARD AREA (SIZE) OF DEVELOPMENT
32, 347 square metres
NET OPERATING INCOME and VALUE
ARREARS RATE PER SQUARE METRE
CURRENT MONTH 174, 059
NORMALISED TOTAL GROSS INCOME
52, 217, 772
134.53
NORMALISED TOTAL EXPENSES
17, 393, 201
44.81
0.35%
TOTAL NET INCOME
34, 824, 571
89.72
60 DAYS
MARKET CAPITALISATION RATE
9.00%
208, 871
RISK PREMIUM
0.19%
0.42%
CAPITALISED VALUE
378, 939, 837
90 DAYS
11.715
250, 645 OPERATING EFFICIENCY
66.69
0.56%
RISK PROFILE RISK PREMIUM TO CAPILTALISATION RATE
0.19%
EXPIRY PROFILE AREA (SIZE)
42
GROSS ANNUALISED INCOME
EXPIRY PROFILE IMPACT UPON VALUE IF NOT RENEWED
CENTRE VALUE IF NOT RENEWED 307, 604, 249
EXPIRED EXPIRED
2, 316 7.16%
7, 801, 069 14.94%
71, 335, 587
EXPIRES WITHIN 6 MONTHS EXPIRES WITHIN 6 MONTHS
875 2.71%
3, 400, 979 6.51%
2, 930, 486
376, 009, 351
EXPIRES WITHIN 12 MONTHS EXPIRES WITHIN 12 MONTHS
2, 660 8.22%
4, 439, 243 8.50%
3, 008, 943
375, 930, 894
EXPIRES OVER 12 MONTHS EXPIRES OVER 12 MONTHS
25628 79.23%
34, 089, 920 65.28%
20, 309, 571
358, 630, 265
VACANCIES VACANCIES
868 2.68%
TOTALS
32,347 100.00%
May 2013 SA Real Estate Investor
EXPIRED
7.16%
NEXT 6 MONTHS
2.71%
NEXT 12 MONTHS
8.22%
OVER 12 MONTHS
79.23%
VACANT
2.68%
49, 731, 211 95.24%
www.reimag.co.za
COMMERCIAL 2.71%
7.16%
Vacant
2.68%
Let
8.22%
Expired Next 6 months Next 12 months Over 12 months Vacant
VACANCY DATA AREA VACANT ANTICIPATED GROSS INCOME IMPACT UPON VALUE IF LET
79.23%
868
2.68%
3, 231, 777
6.19%
35, 166, 236
CENTRE VALUE IF LET
414, 106, 073
PETER PLACE MALL TENANCY PROFILE 2.94% 2.68%
4.60%
Supermarket
10.01%
4.03% 28.22%
Supermarket
Restaurant
Restaurant
Pet supplies
0.92% 2.87% 0.17% 1.82%
Financial services and banks
Pet supplies
15.01%
Financial services and banks
Home decor and furnishings
Home decor and furnishings
Travel
Travel
Cosmetics and perfume
Cosmetics and perfume
Books and stationery Specialist
13.46%
Books and stationery
7.97% 1.12% 1.45%
Jewellery Clothing and shoes Personal care and health
0.32% 2.82% 0.34%
Novelties, gifts, toys & hobbies
1.42% 5.35%
Personal care and health
0.38%
48.36%
6.38%
Cellular telephones
14.39%
Average Footcount for Peter Place Mall
410000
Novelties, gifts, toys & hobbies
2.95% 0.59% 0.76%
Vacant
Jewellery Clothing and shoes
12.15%
Cellular telephones
Footcount for Peter Place Mall: 2012
440000
400000
420000
390000
400000
380000
380000 360000
370000
July
August
Cleaning
5.55%
June
320000
2.55% 0.11%
May
2012
April
4.47%
2011
March
2010
February
340000
360000
January
6.53%
Specialist
Security
0.87%
Gardening
11.38%
Airconditioning
TENANTS WISHING TO TERMINATE EARLY:
Lifts Parking
AREA (SIZE)
919
2.84%
Assessment rates
GROSS INCOME
958, 506
1.84%
Refuse
IMPACT ON VALUE
464, 353
Sewer Repairs
22.47%
Marketing
43.01% 1.37% 1.67% 1.00%
www.reimag.co.za
5.54%
RESOURCES Courtwell Consulting
May 2013 SA Real Estate Investor
43
SMART MOVES
The Sky Is The Limit
BY ANGELIQUE REDMOND
For Gauteng’s Airport City
M
any city airports have become airport cities, with the rapid expansion of airport-linked facilities such as commercial buildings, warehouses and transport: the 21st century has embraced the concept of the ‘Aerotropolis’. Dr John Kasarda, a world renowned figure for his work on airport cities, is considered the leading developer of the Aerotropolis concept, an idea that was named one of the ten ideas that will change the world by Time magazine in 2011. He explains, “The Aerotropolis, like any other traditional city, consists of a central core with rings of development permeating outwards; unlike a traditional city, however, the city’s core is an airport and all neighbouring development
supports and is supported in turn by the airport industry. Several airports around the globe have organically evolved into these airport-dependent communities, generating huge economic profits and creating thousands of jobs.”
Breaking ground in South Africa In the Ekurhuleni municipality, which is the local authority and government for Gauteng, plans are underway to create an Aerotropolis around OR Tambo airport. The Aerotropolis concept was approved by Ekurhuleni in April 2007 and reviewed and approved in 2011. Since then council off icials have worked towards making this a reality. The Ekurhuleni Aerotropolis enjoys national status and forms
part of the 2050 national strategic infrastructure programme. The land use for what the metro calls Region A has been approved. This region includes the areas closest to the airport like Kempton Park, Germiston and Boksburg central business districts and some industrial areas. At this stage only 21 per cent of the land use in this region is for residential purposes and 23 per cent is industrial areas like Isando, Spartan, Sebenza and Anderbolt. Region A will be built on the strength of the airport and the manufacturing industry, which is reinforced through aviation activities. The Aerotropolis will eventually form the basis of the economic growth of Ekurhuleni and freight and logistics will strengthen the road network and railway links. It will influence land use and zoning, as well as the way people conduct business in the metro. Urban development and plans to adapt this also featured the development of corridors between developed nodes in the metro and
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May 2013 SA Real Estate Investor
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SMART MOVES The land is not for sale, however is available for development based on a long-term land use arrangement. ACSA will consider development proposals, which should include security of tenancy, development skills and financial plans. Jack van der Merwe, who successfully oversaw the development of the Gautrain project, has been appointed to lead the initiative of developing the Aerotropolis and includes a proposal for the airport to become a terminal city with air, rail and road networks fuelling economic development. It is envisaged to include a commercial component, hotel, conferences, exhibitions and a residential component.
ABOVE: The proposed ORTIA Aerotropolis development Picture courtesy of the City of Ekurhuleni the airport. For this the metro needs a welldeveloped highway system. Central business districts need an upgrade and transformation to become investor and tourist attractions. For this, the aesthetics of the city, as well as industrial areas, have to be seriously considered. Located around one of the province’s greatest assets, OR Tambo International Airport, an Aerotropolis is a new type of urban form comprising aviation-intensive businesses. The ORTIA Aerotropolis will attract industries related to time-sensitive manufacturing, e-commerce fulfilment, telecommunication and logistics, hotels, retail outlets, entertainment complexes and offices for business people who travel frequently. It will comprise clusters of business parks, logistics parks, industrial parks, distribution centres, information technology complexes and wholesalers who are located around the airport and along transportation corridors, serving the airport. An Aerotropolis also typically includes Free Trade Zones [FTZs] providing certain incentives for businesses located within this business space. By leveraging on the largest and busiest airport within Africa, the Aerotropolis will provide a new commercial hub for the Gauteng Province, and support both local and international trade through Free Trade Zones and the increased efficiencies
46
May 2013 SA Real Estate Investor
related to clustering. Investment opportunities exist for developers in the development of trade and exhibition space, hotels and leisure and industrial and office parks. Other parts of the urban design of the Aerotropolis included provision of open space, desperately needed in an urban set-up, as well as proper high-density residential areas and storm water management. Another need is to erect a landmark for the gateway of the Aerotropolis, which will be established on the R21. The longterm vision for Aerotropolis East is: World class
Aircraft Maintenance and aviation facility.
Development of a Mixed-Use Precinct founded on the live – work – play principle. The mixed-use precinct will be situated to the South East of O R Tambo International Airport, along the Atlas Road corridor. The proposal is envisaged to include the following key components:
Commercial component Hotel & MICE component (Meetings, Incentives, Conferences and Exhibitions)
Residential component The land use may follow market demand. Township establishment is imminent. The envisaged PHASE 1A comprises of a land area of approximately 10 hectares.
One look at city development highlights the strong relationship between transportation and growth. The very first modern cities developed around seaports and then rivers and canals; later it was railways and highways. And now the in the 21st century, airports have become the primary drivers of urban growth and economic success. Gauteng Premier Nomvula Mokonyane said, “The Aerotropolis should be seen as a vehicle to position the SA economy among the world economies. It must be about creating jobs, poverty alleviation and the equitable share of business opportunities.” Work on the development of the Aerotropolis, centred at OR Tambo International Airport, seeks to leverage public and private sector investment at the airport and surrounding areas.
Revenue Airports are vital contributors to a city’s economy and the Aerotropolis model could become a major contributor to economic invigoration. The airport in Chicago, USA is the 2nd largest off ice market in Midwest America, while Washington’s airport area has more retail sales than any other city besides Manhattan. A new airport development can stimulate a struggling economy and generate billions in annual economic activity, tax revenue and create and sustain jobs, something sorely needed in South Africa. In addition the commercial property industry stands to gain a massive boost from the office and retail space the Aerotropolis will create and the demand that will be created by the airport city. OR Tambo is an international airport and services most of the African countries, and is used by the world’s leading airlines, making it the perfect epi-centre for South Africa’s first Aerotropolis.
RESOURCES Aerotropolis
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PROFILES
BY ANGELIQUE REDMOND
The Reality Of
REITs
With Marius Fenwick
M
arius Fenwick is a Certified Financial Planner with an advanced postgraduate diploma specialising in investment planning, portfolio structuring and estate planning. Marius has more than 10 years experience in the financial services industry and specialises in structuring international investment portfolios and is a shareholder and Chief Operating Off icer of Mazars Financial Services. Mazars are a f inancial consultanty service offering skills such as auditing, accounting, tax and advisory services. REImag recently had the chance to ask him a few questions about what the introduction of REITs to South Africa will mean for the property industry and what we can expect when they are introduced this month.
investors are not familiar with, the introduction of REITs eliminates this problems since the US, Europe, Japan and Australia all make use of REITs.
“Invest in more than 3 stocks…diversification among assets as well as asset classes are prudent. ”
There has been a high level of investments into large cap property stocks but REITs in SA have not yet been available to foreign investors. I do expect a high level of flows due to the fact that many foreign fund managers and many foreign pension funds are only allowed to invest the property component of their funds in REIT structures.
What effect has the property industry already seen? Our property industry has grown to more than R200 billion. International investors have become serious investors in some of our larger property stocks holding up to 15% of particular stocks. The effect of REITs in SA has not yet been noticed since it will only launch on 1 April, but inflows from international investors can be expected.
Have we seen more foreign interest in listed property companies?
How has the introduction of REITs changed the property game?
Have there been any negative effects since REITs were introduced?
REITs were introduced internationally in the early 1960’s. This was a great opportunity for investors to gain access to listed property companies and obtain a diversified portfolio of listed property stocks. The main benefits are that the investment requirements are much lower than buying the actual property and REITs offer high levels of liquidity, whereas investments in direct property don’t. With the introduction of REITs to SA we’ve become much more of an international player. Listed property stocks, property loan stocks and unit trusts have structures that international
Since the announcement that REITs will be introduced, I have mainly heard positive comments.
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May 2013 SA Real Estate Investor
Is there any concern over liquidity? Smaller stocks always carry more liquidity risks than larger stocks and I expect the same to apply to REITs. This also implies that investors that manage funds that may include property as an asset class will probably stick to the REITs with exposure to underlying property stocks with larger market caps.
ABOVE: Marius Fenwick Chief Operating Officer of Mazars Financial Services
Where do you see the listed sector going this year, based on their results? I do not expect the same returns that we have experienced over the past 5 years. If the long bond yield and low interest rates are considered then capital volatility and possible capital losses are possible. Property does however hold one strong trump card and that is rental income. Irrespective of capital f luctuations, rental income remains pretty constant and generally increases with inflation and provides distributable income. For income bias investors this remains the main reason for investing in property. As far as returns go I think one can expect a yield of around 6% to 7% and capital growth of around 5% to 6%, providing a total return of between 10% - 13% - however this may come with more volatility than experienced over the past 5 years. The listed property sector may see a further expansion of new listed companies and the trend of mergers and acquisitions of current listed property companies will probably also continue.
Will the REIT structure cause any issues or concerns? I have not encountered any negative comments. The transparency regarding structure and in particular taxation is a huge improvement if compared to property loan stock.
www.reimag.co.za
COMMERCIAL How do we compare legislation wise to other countries that use the REIT structure? The one area of development that needs some attention is probably the legislation around REITs. At the moment there is no legislation in SA that governs REITs. The current JSE listed REIT universe is comprised of dual listings. I am not sure how this is treated internationally.
What benefits do the property players in South Africa expect to see, are they realistic? The players are expecting more inf lows from foreign investors purely as a result that REITs will offer them a structure that they understand and that they will be mandated to invest in. They are also positive about the tax benefits of REITs.
There has been a lot of hype around the introduction of REIT’s, is it warranted? As an investor in loan stock you will be better
www.reimag.co.za
off in REITs as far as tax is concerned. Loan stock companies are subjected to CGT when trading companies, whereas CGT does not apply to REITs. That means that there will be an immediate pick up for investors considering this and the fact that more international involvement in our local property market is expected probably does warrant the hype.
In your opinion, which three stocks should people invest in right now? I n v e s t i n m o r e t h a n t h r e e s t o c k s… diversification among assets as well as asset classes are prudent. I don’t have a view on particular stocks. Personally I prefer global emerging markets for long-term solid returns. This may entail investing in developed markets and companies but with strong distribution networks into emerging markets.
RESOURCES Mazars Financial Services
May 2013 SA Real Estate Investor
49
STRATEGIES
BY ANGELIQUE REDMOND
Savings For Your Business Eskom’s Andrew Etzinger talks rebates
that specialise in identifying opportunities for achieving reductions in electricity consumption, and scope and execute projects as basis for establishing a four-way partnership between Eskom, the farmer, an ESCo and a measurement and verification expert.
4. Performance Contracting
T
he recent rise in electricity prices has caused concern in all sectors of business, here to answer some questions and concerns you might have is Andrew Etzinger, Senior General Manager of Eskom, IDM, the utility demand-side intervention division of Eskom. What effect, in your opinion, will the increase in electricity tariffs have on business? Andrew: Eskom tried to balance the needs of the country in its application for an increase; a balance between the country’s needs for a secure supply of electricity and at the same time managing growth and job creation. What exactly is the Standard Offer program? Andrew: Eskom has for four rebate programmes.
1. Standard Product The programme offers funding for customers who achieve energy savings greater than 1kW and more than 2 MWh per annum. • Funding is capped at R1.875 million per project. • Only technologies approved by Eskom will be considered, including off-the-shelf products such as energy efficient lighting, heat pumps and electricity and water saving shower heads. • The programme is ideal for farms, retail outlets, shopping centres, guest houses, B&Bs, hotels, lodges, factories, and residential estates. 50
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• •
A new, streamlined approval process takes less than 2 weeks from project submission. Projects may be undertaken by customers themselves or an Energy Services Company (ESCo) or Project Developer on their behalf.
2. Standard Offer The programme offers funding for the implementation of large retrofit projects. • Electricity savings to be achieved should range from 50kW to 5MW sustainable over a period of three years. • Focus is on electricity usage during the 16 weekday hours of 6am to 10pm. • Technologies supported include lighting systems, building management systems, hot water systems, industrial and commercial solar water heating systems, process optimisation systems and renewable technologies such as biomass waste; geothermal, solar, thermal gradient and ground source heat; wind energy; and hydro, tidal and wave power. Projects may be undertaken by customers themselves or an Energy Services Company (ESCo) or Project Developer on their behalf.
3. ESCo Model The programme offers funding for the implementation of large retrofit projects. • Potential load savings should be 1 MW or more. • It is aimed at Energy Services Companies
• • • •
The programme supports verified bulk energy savings across multiple sites and technologies by contracting with a single project developer. It was developed to simplify project approval, reduce contractual complexity, improve sustainability and shorten project lead times. Minimum project size should exceed 30GWh of savings sustainable over a period of three years. The focus is on electricity usage during the 16 weekday hours between 6am and 10pm.
Who is this aimed at? Andrew: The rebate programmes are aimed at retail outlets, shopping centres, lodges, hotels, guest houses, B&Bs, commercial and industrial parks, residential estates, farms, factories, manufacturing plants, paper mills, mines, distribution centres – businesses of all types ranging from very big to very small in all sectors of the South African economy. Many people are very worried about the price increases, not just from a household point of view but also the knock on effect for consumers and business. How can this be alleviated, or minimised? Andrew: Through IDM, both businesses and the residential sector can tap into the energy efficiency technologies that Eskom provides which reduce the electricity consumed and helps save rands. For households, you are looking at about R3 000 savings on an electricity bill if you have 30 down lighters instead of incandescent lights. B e s id e s t he I DM e ne r g y e f f ic ie nc y technologies, there’s a protection built into www.reimag.co.za
COMMERCIAL the tariff structure for poorer households that use less electricity. If you look at the NERSA decision, you will notice that there are different increases for different categories of customers so that, for example, the poorest households face a much lower increase than the average. In a recent article the massive theft of electricity was raised as a contributing factor to price rises, how true is this? And what is Eskom doing to stop electricity theft? Who absorbs the cost of the electricity theft? Andrew: There’s different kinds of electricity theft. There’s illegal connections, there’s metre tampering and there’s fraudulent vending machines. Because it’s illegal connections, it’s an opportunity cost in economic terms to Eskom and municipalities who provide electricity to both business and the residential sector across the country. It’s not a cost that Eskom directly pays if someone illegally connects, it’s revenue we do not get from those customers. Eskom has Operation Khanyisa to try and combat electricity theft and works with law enforcement agencies to prosecute any individuals involved in electricity theft. In which other ways can businesses and households alike cut consumption and costs? Andrew: Businesses can make a huge contribution to saving electricity by adopting a few simple measures. • • • • •
The first step is to appoint an energy manager for each office building to monitor electricity usage and identify savings opportunities. Install motion sensors for meeting rooms and security lighting. Also, reduce lighting levels in parking areas to the minimum legal requirement during the day while turning off at night after the building lights have been turned off. As far as climate control is concerned, maintain a difference of not more than 10° Celcius between inside and outside building. Turn on extraction fans at around 4am to draw cold outside air through the building to cool down the structure, and close window blinds to shade rooms from direct sunlight. An important savings tip for the office is to not leave computers, copiers, printers and fax machines on standby, as they continue to use electricity even whilst on standby. www.reimag.co.za
Homeowners can save up to 10% on their electricity bills without spending a cent. • Switch off lights in unoccupied rooms. • Dress for the weather – it will help you postpone switching on a space heater. • When you do switch it on, heat only the room you are in. • Seal gaps around windows and draught-proof wall cavities throughout your home. • Warm your bed with an electric blanket for one hour; switch off when you get in. • Alternatively, use a hot water bottle to keep your bed warm. • Don’t use under-floor heating – it’s highly energy intensive. • Switch off appliances at the power point when you’ve finished using them. • Use slow cookers to prepare stews and oxtail; microwaves are best for small-volume winter meals. • Boil only enough water for the number of cups of hot drinks you are preparing. • Shower; don’t bathe – keep it hot and short. • Limit filtering your pool to only once every 24 hours in winter. Where will renewable energy go over the next few years in both business and households? Andrew: Showcasing and demonstrating the potential of solar energy is crucial to shifting mindsets and driving wider spread adoption of renewable energy, as it is a relatively uncharted field in South Africa. The a commercial setting, depending on the electricity tariff and the type of solar PV panels installed the payback period is around nine years. Since the approval of the pilot solar PV project and the inclusion of renewable energy solutions as part of the IDM programme 47 project proposal have been submitted, of which 2 have been contracted and are currently in implementation. The project proposals have been received from all business sectors which includes; 26 commercial , 12 agricultural and 9 industrial and mining proposals. The Lincoln on Lake Project, a mix-use commercial building in Umhlanga Ridge KZN, was implemented in 2011 as a “proof of concept” project in partnership Eskom, Suntech, Hudu Solar and Growthpoint Properties. The project consisted of 234PV solar panels to generate about 238kWh of electricity per day, to meet the energy
requirements. Growthpoint Properties has since been awarded a 4-star Green Star SA rating building (one of just a few in SA), while small scale renewable has be included by National Energy Regulator of South Africa as part of the Eskom IDM business rebate programme. Eskom Holdings has also embarked on the solar PV journey by installing PV solution for traffic lights and building requirements at the head office MegaWatt Park and two power stations. On the residential side, the Eskom IDM offer does not include solar PV system, only solar thermal system. The rebate programme has provided an incentive for the installation of solar water heating systems; the programme reduces homeowners’ capital outlay when replacing energy intensive electrical element geysers with solar water heating systems. In the case of high-pressure solar water heating systems, less than 200 units per month were installed at inception of the programme; this number has since jumped to a peak of over 6000 units per month. The installation of low-pressure solar water heating systems developed into a mass-roll programme due to the fact that the rebate covered most of the installation costs. In total for both LP and HP, over 329 000 units have been installed to date. It is important to note that the rebate programme on low-pressure solar water heating systems has ended; no new registrations were accepted beyond Thursday, 28 February 2013 and all approved installations must be completed by Friday, 31 May 2013. The high pressure solar water heating rebate was based on: • local manufactured systems received a high rebate value • the electricity saving performance of the system (Q-factor); • the system needs to be SABS-approved • the household needs to purchase the system from an accredited supplier participating in the Eskom solar water heating programme and registered on the Eskom IDM database www.eskom.co.za/idm.
RESOURCES
IDM, Eskom
May 2013 SA Real Estate Investor
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REI Offshore
Prime London Property Prices Increase
Greece Not Picking Up Anytime Soon
Israel Property In Demand
Prime Central London residential prices increased by 0.9 percent in March and by 2.2 percent in Q1 2013 with the biggest price rises in March seen in City Fringe (1.8 percent), Islington (1.5 percent) and Mayfair (1.1 percent). Mike Smuts of Smuts & Taylor says those buyers looking to enter the market can take a look at a new development, Providence Tower, located on the R iver Thames next to Canary Wharf. Prices start at £430 000 for a 630 square foot one bed and around £600 000 for a two bedroom apartment measuring 821 square foot. Homes worth bet ween £1 million and £2.5 million have increased in value by 3.4 percent so far this year, while prices of homes worth up to £1 million are up 2.2 percent.
“The general property market in Greece is currently under heavy pressure due to the global financial crisis, but there is still good demand for exclusive property such as the islands, especially when it’s selling at a discount to its value, as is the case with the Sofia Island,” says Greg Hanna, director of Auction Avenue. With the continuous fall in prices in the past few years, the Greek real estate market most probably does not show any signs of significant overpricing since a significant decline was observed in the past five years in the house price-to-rent ratio, which is usually examined in conjunction with other factors as valuation indicators of the real estate market, says the bank. Data from WealthInsight reveals that there were just over 48 000 millionaires in Greece at the end of 2012. This compares poorly to the pre-crisis high of 75 000 millionaires in 2007, says Andrew Amoils, senior analyst and head of reports team.
Regional Owner of RE/MAX Israel, Bernard Raskin, says property in Israel continued to grow from strength to strength, and demand is currently outstripping supply. This is despite the fact that mortgage f inance in Israel is hard to get, with 65 percent of finance being the maximum that banks will even consider loaning on property. Raskin says this is one of the main reasons why Israel fared well throughout the recession, as the banks didn’t have a lot of bad debt. Buyers in Israel, he says, cover a wide demographic of people, from first-time buyers to those upgrading their properties to suit their family requirements and to those downscaling closer to retirement. Raskin says first-time buyers make up about 35 percent of the market, with three to four bedroom apartments close to economic hubs being the most sought-after property.
Valuable Input
Scott Picken, CEO International Property Solutions “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.”
www.reimag.co.za
Jenny Ellinas, Cypriot Realty
Craig Illman, CEO, Propwelath
“With a volatile ZAR; there’s never been a better time to invest in offshore and specifically in Cyprus. For as long as there is a cold winter in Europe; there is always a strong demand for residential properties in Cyprus.”
“Investors should always remove the emotional aspect as tenants don’t care about views of the Thames or gardens; they want transport, lifestyle and comfort.”
Dr Andrew Golding, CE, Pam Golding “With its idyllic lifestyle, tropical climate, coupled with a stable economy and business- and taxfriendly environment, it’s hardly surprising that the island of Mauritius holds increasing appeal.”
Liam Bailey, Head of Research, Knight Frank “London’s prime property market continues to be an attractive destination for overseas investors looking for a safe haven to protect against global economic uncertainty.”
May 2013 SA Real Estate Investor
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EUROPE
Moscow, Russia
BY JAMES COLBY
Zagreb, Crotia
Skopje, Macedonia
Istanbul, Turkey
Investing In Europe Is the crisis over?
I
s the Eurozone crisis over? Most experts warn that although the storm has slowed it is far from over. After four years the Eurozone still doesn’t have the f iscal or banking unions it needs to make the monetary union work, and despite the European Central Bank promising to do whatever it takes to save the common currency, countries in Europe are still reeling and more are running into trouble. So why do we have this crisis? Well when banks make bad bets on their own companies it’s not an ideal situation but when a country doesn’t have it’s own central bank, that bad bet can bankrupt the country. In light of the financially turbulent times in Europe, there are still countries whose property is worth investing in. The global property guide highlights the top nine European countries you should be investing in now.
Russia The last few years have wrought change in Russia and Moscow as well as other regions 54
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which boast newly opened shopping malls and an off ice market that is still standing strong, despite the European economic situations. In 2011 the total area of residential housing constr ucted increased by 6.7% , bringing the total area of housing stock to about 3.3 billion sq m. The rental yields in Moscow are high, with an average of EUR40 to EUR 48 per sq m per month, but the price of property outstrips the rental yields with the price of a sq m going from EUR 11, 000 to EUR 15, 000. So if not Moscow where should you look at? In St Petersburg, the gross rental yields have a good rate of return, with 65 sq m getting a rate of 7.49%. St Petersburg is the former imperial capital of Russia, originally founded by the Tsar. It is still the cultural capital of Russia and the most westernised city in Russia. According to the Land Code of 2001, private ownership of land properties is allowed for both locals and foreigners. The legislation was extended to Moscow in January 2006.
Croatia Croatia’s largest city and the national capital is Zagreb. A thousand-year-old city on the banks of the Sava River, Zagreb is a chic, friendly destination for tourists looking to enjoy the charms of Europe on a budget. While Croatia as a whole still remains adversely affected by the Eurozone crisis, property prices are falling, meaning now might be a good time to purchase a property before the prices begin to rise again, and with a strong tourist rental market, a holiday home in Croatia’s capital could make for a good nest egg. The only downside is the economic uncertainty, making this investment a bit of a gamble.
Skopje, Macedonia Macedonia has been on the road to recovery and stability, with new properties and developments on the cards as foreign interest has surged into the capital. Despite rapid growth in household lending since 2003, outstanding housing loans were still only 1% of GDP in 2007. In 2010, www.reimag.co.za
OFFSHORE loans for house purchases were 18% of total loans granted to households. Foreigners from countries which grant reciprocal rights can buy residential property in Macedonia, subject to approval from the Ministry of Justice, but landed property is somewhat more complicated. The gross rental yield in the city centre is 3.46% and outside the city centre it’s 3.78%.
Istanbul, Turkey 2011 and 2012 saw Turkey’s property prices increase on average 11.5%, astounding when you consider that one of Turkey’s near neighbours, Greece has been undergoing the Great Greek Depression. After the changing of Turkeys rating from BBB- to BB+, their economic situation has become far more stable than a lot of countries and investment money is pouring in. With rapid population growth there is a demand and need for housing which is making the price of property increase but not so high that the property is expensive.
Chisinau, Moldova Moldova is a small country with high rental yields. The capital, Chisinau, has very steady prices and offers up to a huge 13% yield
Chisinau, Moldova
www.reimag.co.za
on small apartments, which is better than any where else in Europe. If Moldova ever becomes an EU members then there is the real possibility of capital growth too in the future. With rental yields of around 11% for medium sized apartments, Moldova offers real investment opportunities. Non-agricultural land can be freely bought and sold by anybody. However foreign citizens, companies, or states cannot buy agricultural and forest land, though they can lease short term (1 – 3 years), or long term (5 – 99 years).
Riga, Latvia The Latvian economy has been on the road to recovery since 2011 and has experienced real GDP growth since 2011. And 3% economic growth is predicted for this year. In Riga suburban yields are between 5% and 6.4%. The rental market and laws are generally prolandlord and residency is dependant on real estate investment, where and what you invest in.
Rome Italy Investing in Rome is a wise decision; it’s one of the most attractive and interesting cities in the world and is a tourist hotspot, boasting culture and historical artefacts, which draw tourists from far and wide. Unlike in most of
Riga, Latvia
Rome, Italy
Europe the house prices in Italy did not boom as high and so are unlikely to bust as bad. Be wary of older property and purchasing until you have a clear idea of ownership as some properties may have several owners. On the positive side capital gains tax in Italy is nil after five years of ownership.
Berlin, Germany Germany is the healthy child in sickly Europe at the moment, and has surpassed the UK in terms of most favourable property market in Europe. Property in Berlin is among the least expensive in Europe. Property is available in the German capital at less than 1,000 euros/m² (around £800/m²) which compares with Paris at 6,000 euros/m² (£4,800/m²). Germany also boasts a healthy and competitive mortgage market, with banks lending between 50 – 60% of the valuation and at lower rates, which can be fixed over a number of years. The favourable conditions in Berlin and Germany have seen private-equity f irms purchasing property in Germany at a high rate.
RESOURCES Global Property Guide
Berlin, Germany
May 2013 SA Real Estate Investor
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SOUTH AFRICA
BY RUI MARTO
Land Ownership Under Fire Should foreign property owners be worried?
L
ast mont h t he M in ister of Ru ra l Development and Land Reform, Gugile Nkwinti, announced that foreign nationals will no longer be able to own land in South Africa once the Government’s new Land Policy is finalised and promulgated into law. The news has sent shockwaves amongst foreign nationals who already own property in South Africa, foreign investors and the property industry. These were not the only restrictions announced by the Minister which are sought to be introduced. In this article, I examine what these proposed Land Reforms will be and more specifically, the extent to which they will affect the foreign nationals’ ownership of property in South Africa.
Context The question of Land Reform in South Africa has always been a highly emotive and complex matter. The key challenge facing South Africa is how to reverse the racial inequalities in land ownership, resulting from this country’s past and the violent dispossession of indigenous people of their land. The land reforms need to be examined in this context. The restrictions of land ownership by foreigners are part of these reforms. The debate around the ownership of land by foreigners has arisen since 1994. With democracy came opportunit y, a worldwide interest, investment and an increase in the acquisition of land in South Africa by foreigners. There seems to be a specific concern around the perceived or actual ownership by foreigners of coastal and inland prime tourism land, game reserve land, as well as, farmland. Those advocating restrictions on foreign land ownership argued that:56
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1. Foreigners were acquiring propert y that was either sensitive or considered important from a nationa l securit y perspective, including communal land, prime tourism and game reserve land or sites that are significant for heritage, rural, strategic and/or environmental reasons; 2. T he re w a s a c on s e q uent i nc re a s e in propert y prices, resulting in the perception that South Africans could not afford to own property in certain areas; 3. The foreigners were producing food in South Africa solely for exports abroad. This question was further explored as part of the Land Summit in July 2005. Consequently a Panel of Experts was set up to guide the process of Land Reform. One of the main questions requested which the Panel had to answer was: “Who owns South Africa?” The Panel made various recommendations, including:1. The disclosure of nationa lit y, race, gender and other information by current property owners. The Deeds Registries could not provide accurate information in this regard; 2. That similar declarations be made by companies that are property owners; 3. That classif ied or protected areas be banned from foreign land ownership in total. This ban would in most cases be extended to South African citizens that would relate to property of historical, environmental or national interest; 4. Long-term leases be held by foreigners instead of outright ownership. www.reimag.co.za
OFFSHORE Green Paper on Land Reform
The critics argue that:-
The Green Paper on Land Reform was published on the 30th of September 2011. O ne of t he mo s t i mp or t a nt e lement s addressed in the Green Paper is the four-tier system of land ownership. The Paper sets out that there will be four types of land usage and ownership in South Africa, namely, State, private, foreign and communal. The Paper envisages a system where in certain instances ownership will have limitations, obligations and/or conditions. Under the new proposal, State and public land will be available on leasehold while private land will be available as freehold with limited extent and communal tenure through institutionalised use rights.
1. The Government is putting the proverbial cart before the horse. Government appears to have decided upon a policy of restricting foreign ownership without establishing the percentage of land and value of land ac t ua l ly ow ned by foreig ners. Ma ny argue that this percentage is so small that it in no way affects or compromises the Government’s Land Reform Programme. The question that remains unanswered is why the Government did not first wait for its audit to be completed before suggesting the introduction of these restrictions? 2. Even when the audit is complete, it will not properly reflect the true picture for the following reasons: • The information provided by deeds offices across the Country will not provide accurate confirmation of how much land is owned by foreign nationals. • Even if this was available, it is important to take into account both the area and the value of the land being surveyed. Differing value of property may skew this analysis. 3. A ban on foreign ownerships does not help the country’s image and may be perceived as a sign of antagonism to foreign investment and even a further example of xenophobia. 4. The Land Management Commission established by the Green Paper arguably infringes on the jurisdiction of the South A frican Courts and more specif ically infringes on the Constitution. 5. Making foreigners an issue is not the best way to deal with Land Reform in South Africa. The policy seems to target foreigners as being the problem or impediment to Land Reform, which is not the case.
Proposed Restrictions on Foreign Ownership The proposal seeks to limit foreign land ownership to a leasehold of a minimum of thirty years. The leasehold could be extended to fifty or ninety-nine year leases. The Land Management Commission which is introduced through the Green Paper will oversee land owned by foreigners. Minister Nkwinti was quoted as saying that the focus however, will be on restricting agricultural land owned by foreigners. It appears that the Government is determined not to allow foreign interest to buy up huge tracts of South African commercial agricultural land to produce food for export abroad. The land ceiling is used on both citizens and noncitizens and targets prime agricultural land that is not being used to its full potential. In this context, the ownership of certain game farms or parts thereof may be under threat as it could be determined that the land is not being used for food security. The Government has emphasized that the restrictions would not affect the commercial farmers as long as they farmed productively. Speculative accumulation of agricultural land will be targeted by the new legislation. Minister Nk w inti conf irmed that the Government had completed an audit of state-owned land but was still busy with its audit of privately-owned land, which includes that owned by foreigners. Once the Government has completed the audit the Government policy can be finalised and legislation be implemented. www.reimag.co.za
One of biggest challenges Government continues to face is how to deliver on electoral promises concerning land distribution. Despite the Government not having completed a land audit on privately owned land, it is clear that the Government has set its sights on limiting the ownership of land by foreign nationals. While long-term leases have been suggested, it is not yet clear how the proposals will translate into Law. There will clearly be further restrictions on land ownership, both to South Africans and foreign nationals. Foreign nationals who currently own property in South Africa may take some solace in that (almost always) legislation cannot apply retrospectively.
RESOURCES Marto Lafitte & Associates
May 2013 SA Real Estate Investor
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AFRICA
BY JAMES COLBY
Fertile Ground In Botswana For listed property investment
T
he face of Botswana proper t y is changing. The landscape is becoming more diverse with a host of commercial property developments, one of the more notable ones being the city’s new CBD which houses the Lansmore Masa Square Hotel and the Prime Plaza office block. And in the modern day and age of property you no longer have to stick to the traditional method of buying a house for rental profit. Everyone now has the chance to own a slice of Botswana’s new landmarks and contribute to her growing commercial skyline. With tribal and state land unavailable for sale to foreigners, there are still large areas of land in Botswana that you can invest in. How you may ask? Through the stock exchange. There are currently four domestic property investment companies listed on the Botswana Stock Exchange ( BSE): Imara Holdings, Prime Time Property Holdings, RDC Properties and New African Properties. The beauty of investing in listed property is that you enjoy all of the benefits of being a landlord with none of the headaches associated with managing a rental property. It is a far cry from owning a physical property, which brings with it the issues of regular maintenance and tenants. Listed property investments provide exposure to a range of properties and eliminate some of the
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day-to-day stresses of regular property ownership. Another benefit of listed property is the diversity it offers you, not just in terms of the volatility of your portfolio but also in terms of the sector of the economy, you can invest in residential, commercial and offshore property, more eggs in different baskets and you spread the risk. RDC Properties is underway with an exciting project, which is nearing completion and will add significant value to the Botwsana commercial property market, Masa Centre. The project team is led by a steering committee to which our partners provide a valid contribution. The Masa Centre lays a legitimate claim to many firsts for Botswana. Capital Entertainment centre will feature the first 3D movie house to its audience in Masa Centre, with five movie theatres. African Sun Limited will enter the Botswana market through the reintroduction of the Holiday Inn brand. The first managed underground parking facilities will optimise the number of available parking spaces. The Centre continues to attract international retail brands that will delight trendsetters with a love for style and glamour. IPD recently released a report on Botswana prop er t y p er for ma nce for t he y e a r to December 2011, and Botswana produced a total return of 20.9%. This figure represents
the ungeared total return to directly held standing property investments from one open market valuation to the next. T his ret u rn on Botswana proper t y is comprised of a 10.8% income return, coupled with 9.2% capital growth throughout the year. Headline inflation in Botswana over the same period, however, was also 9.2% - meaning that growth in nominal terms was in fact stable, and highlights the importance of income yields in the property market.Retail and residential property investments outperformed offices, ref lecting the impact of recent development activity in the office sector and the resulting pressure on rental levels in the short to medium term as new supply comes online. The report presents a fully-fledged indicator of results that will provide effective comparisons for market trends going forward, and is a significant step forward in the promotion of transparency in the Botswana property industry. One thing is for sure; Botswana is not just a beautiful country but is a diverse and fertile ground for listed property investment. And with her commercial skyline continuing to expand the time to invest is right now.
RESOURCES RDC Properties 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.
REI Lifestyle
Mothers Day
Great Gatsby Hits The Big Screen
The 2013 New York Times Bestselling Fiction List
The modern holiday of Mother’s Day was first celebrated in 1908, when Anna Jarvis held a memorial for her mother in America. She then began a campaign to make “Mother’s Day” a recognized holiday in the United States. Although she was successful in 1914, she was already disappointed with its commercialization by the 1920s. Jarvis’ holiday was adopted by other countries and it is now celebrated all over the world. In this tradition, each person offers a gift, card, or remembrance toward their mothers, grandmothers, and/ or maternal figure on mother’s day..
An adaptation of F. Scott Fitzgerald’s Long Island-set novel, where Midwesterner Nick Carraway is lured into the lavish world of his neighbor, Jay Gatsby. Soon enough, however, Carraway will see through the cracks of Gatsby’s nouveau riche existence, where obsession, madness, and tragedy await.
1.
PROOF OF HEAVEN, by Eben Alexander. A neurosurgeon recounts his near death experience during a coma.
2.
Directed by Baz Luhrmann, this long -awaited novel turned film will see your favourite characters by F. Scott Fitzgerald come to life.
AMERICA THE BEAUTIFUL, by Ben Carson with Candy Carson. A vision of the nation’s future that is informed by a view of its past.
3. WILD, by Cheryl Strayed. A woman’s account of a life-changing 1,100-mile hike along the Pacific Crest Trail in the summer of 1995. 4.
THINKING, FAST AND SLOW, by Daniel Kahneman. The winner of the Nobel in economic science discusses how we make choices in business and personal life.
5.
AMERICAN SNIPER, by Chris Kyle with Scott McEwen and Jim DeFelice. A memoir about battlefield experiences in the Iraq war by the Navy SEALs sniper, who was recently killed in Texas.
6. QUIET, by Susan Cain. Introverts are undervalued in American society.
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INDABA 2013
Broadcast Show Africa 2013
INDABA is one of the largest tourism marketing events on the African calendar and one of the top three ‘must visit’ events of its kind on the global calendar. It showcases the widest variety of Southern Africa’s best tourism products, and attracts international visitors and media from across the world. INDABA is owned by South African Tourism and organised by Witch & Wizard Creative (Pty) Ltd. INDABA is a four day trade event that attracts well over 13000 delegates from the travel tourism and related industries. 11 - 14 May 2013, Albert Luthuli Convention Centre (Durban ICC), South Africa
Africa’s broadcast terrain demands constant change to keep up with its vast audiences – opening the door for innovative technologies and solutions that can help broadcasters meet these demands.
May 2013 SA Real Estate Investor
The Broadcast Show Africa 2013 is the leading marketplace and ideas exchange for trends, content ideas and business in the broadcast industry in Africa – helping you create, acquire and entertain your customers. Sandton Convention Centre, JHB, 27th - 30th of May 2013.
7. BOSSYPANTS, by Tina Fey. A memoir from the creator of “30 Rock. 8.
HEAVEN IS FOR REAL, by Todd Burpo with Lynn Vincent. A boy’s encounter with Jesus and the angels.
9. OUTLIERS, by Malcolm Gladwell. Why some people succeed. 10. LET’S PRETEND THIS NEVER HAPPENED, by Jenny Lawson. A blogger recalls her unusual upbringing.
www.reimag.co.za
REVIEWS READ THIS A guide to buying or selling a house in South Africa By Jill Fish
Nolo’s Essential Guide to Buying Your First Home By Ilona Bray
Are you buying a home for the first time, wanting to sell and buy again, or wanting to earn income from renting out property? A guide to buying or selling a house in South Africa is packed with ideas about how you can make the most out of investing in property. You’ll find: step-by-step guidelines that take you through the complete process of buying and selling a home and objective information about the pros and cons of buying and selling privately.
WATCH THIS
LISTEN TO THIS The Essence Of Extraordinary
The ABC’s of Property Management
Want to know all about property investing with our Master Investor Lew Geffen? This short video on Youtube will give you a insight into the extraordinary property company that is Lew Geffens Sotheby’s International Realty. Just click on YouTube and type in: The Essence Of Extraodinary.
From “BusinessWeek” bestselling author McElroy comes “the” book on property management for real estate investors with 8 audio CDs on What You Need to Know to Maximize Your Money Now. Author: Ken McElroy Format: Audio CD Edition: Abridged edition Seller: kalahari.com
REGISTER FOR THIS
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Find the right house at the right price with insider tips and advice from the experts. This timely title will help you find the right place to live and invest in and even enjoy doing it. Filled with interesting facts, real-life stories and insights, and common pitfalls to avoid, this book provides everything you need to select the right type of home for your family, the right mortgage, the right agent, the right inspections and much more. Get the inside scoop on buying your first home.
GO TO THIS
New Digital Platform
SAPOA 45th Annual Convention
Reimag is launching a whole new digital platform in the next few months. What you get is the same great content delivered to you on the same day we go to print, with interactive pages and copy that comes alive. A ll you have to do is go to www.reimag.co.za and register to receive the digital magazine for free and sit back and wait for it to come to you.
When: From Tuesday, 14 May 2013 - 08:00 to Thursday, 16 May 2013 - 17:00 Where: Sun City. SAPOA is the official umbrella body committed to protecting the interests of the commercial and industrial property sectors, in terms of ownership, management and development in South Africa.
May 2013 SA Real Estate Investor
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MY STORY
BY ANGIE REDMOND
Key Investor Tips From Karl: The property investment game is a marathon, not a 100 meter sprint…it requires patience and perseverance.
It is a business, you need to manage your rental properties prudently in terms of expenses, repairs, maintenance, cashflow, administration and lease agreements. We always try to keep our rental increases in line with the CPI…otherwise our net return will decline… this is the best way we keep on beating inflation i.e. CPI + Capital growth rate.
We believe that the secret to limiting your property woes is to partner with a professional property rental company. We like doing business with people who are transparent in their business dealings.
Meet Our 2013 Master Investor Of The Year Karl Landman takes home the prize
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We always try our best to negotiate a good deal with every property purchase. We aim to buy 5 to 10% below market value.
We prefer buying existing properties rather than off plan for two good reasons: established body corporate financials and it’s easier to source tenants in a well established complex.
www.reimag.co.za
LIFESTYLE
M
eet K a rl Landman, t he Sout h African Real Estate Master Investor Of The Year. An Afrikaans kid who grew up in Brighton Beach in Durban’s Bluff area, Karl is not only a master investor but also a philanthropist. With seven properties (and a cottage) in his portfolio and a net worth of R11.5 million with no debt, Karl was a clear winner in the eyes of the judges. Having come from a modest upbringing, Karl spent two years in the South African Air Force doing his national service before moving on to the retail sector in 1983. He started his working career at Score Food Holdings as a trainee retail manager and in record time worked his way up to manager of the largest supermarket in the group at the age of 21. A mere four years later he was a wholesale/cash & carry specialist. His career spans thirty years in local and international retail, FMCG and healthcare industries. After getting married to a young English girl from Welkom named Laree, Karl and Laree started investing in property. “My wife and I wanted to buy our first house as soon as possible when we got married in February 1986. We did not earn enough to save for a deposit, so we worked day and night for a year to save R10, 000 for a deposit to build our first home”. Their very first property was a newly built face-brick 2 bedroom government subsidised house. With little cash to spare and having worked five jobs to get the money for their first home it was up to the newlywed couple to pretty the house up, landscaping their own garden over weekends and spending many long hours removing stones and planting grass and making flowerbeds. After four years they sold the property but only got back their initial investment, as Karl says, “ we paid our school fees early on in the property game.” Their next property they bought was a townhouse in Tobago Keys (sectional title unit) complex in Atlasville and this turned out to be a great investment, “ we bought for R119, 000.00 and sold it 14 years later for R720, 000.00,” says Karl. It was early on in this period that the couple bought a second townhouse in the Sheraton complex in Atlasville and that was the start of their Buy-Renovate-Let-Sell strategy. Karl explains, “We never make any financial decision if there is no unity and agreement on the strategy or plan. We have a “two week rule”…we never make a large financial commitment unless we considered the impact or consequences for at least two weeks. This rule has saved us from a lot of impulsive purchases and financial trauma over many years.” www.reimag.co.za
And this rule has paid off; today Karl and Laree have an impressive and diverse property portfolio, with a value of R7 100 000. “In 27 years we have bought/built/renovated/sold and rented a total of 15 properties. Our approach to building wealth is not running after money, but rather enjoying the journey and focusing on our purpose of making a difference in the world we live. We are not perfect; we are just trying to do our best. The objective for us is not to see how much money we can make, because in life there are always smarter and richer people. We are content with who we are and what we trying to achieve,” says Karl. They survived the global crash through smart investing and knowing when to sell and when to hold onto their properties, they sold the majority of their townhouses six months before the global crash, holding onto only two of them. It was after failing to turn a profit on the unit he had kept that Karl realised the property market has run hard and he needed to reduce his risk, “we needed to reduce our risk as all our rental properties was bonded at the time, although they were all at a breakeven point we were not willing to take the risk, but rather get out of debt. We succeeded and became totally debt free until this year we decided to take on R840,000.00 debt on the Bonness unit to reduce our tax and we are confident in the property market picking up going forward and look forward to better capital growth in 2015/16 and beyond.” So what is Karl’s approach to building wealth? “Our approach to building wealth is not running after money, but rather enjoying the journey and focusing on our purpose of making a difference in the world we live. We currently only need 30% of our after tax income to live. In living this way our personal balance sheet is never under strain and we never have to restructure our finances due to stress but rather contemplate our next investment strategy carefully. We always have money to invest, give away and to enjoy outings, travel, weekends away and great holidays. In the last 3 years we have had great overseas holidays in Mauritius, Thailand and Australia. I don’t comprehend why investors want to leverage their portfolios to such an extent that they can’t breathe financially to chase higher growth, after all life is short and you can’t take it with you when you die!” After trying early on in their marriage to have children, they realised it wasn’t meant to be and instead focused their attention on their careers in international markets, but after four years they returned home and decided to try and
help people in a direct way, not only to make a difference but also to have a positive impact on their own lives. “We decided to help people on an individual basis rather than giving our money to large charitable organisations. We did not want the bulk of our donations to go to administration cost but rather 100% to helping a family member, friend, domestic workers, stranger or a charity/ ministry with a real need. Over many years we have been involved in many different charitable and volunteer work…variety is the spice of life. We enjoy new experiences.” It’s not just what you do, but how you do it, that matters, and Karl cites ethics and integrity as the only way to succeed in life. “Ethics and integrity go beyond my investment practices. To me it is the only way to succeed in life. I never look for shortcuts. I believe in putting in the work through understanding the big picture and the finer details before I take action. I have managed my entire life this way.” When I asked Karl what he would change if he could do it all over again, his response was worth noting to anyone wanting to invest, “When we started out at first I took advice from a Financial Adviser (not a independent Financial Planner) who I realised after 10 years did not have our best interest at heart but rather his commission earnings. This cost us about R800K to R1million in lost capital growth. I rectified the situation by taking complete ownership of the situation by conducting our own investments and since then I turned around the losses into excess of what we lost. Over the years I have spent many hours reading and researching personal financial management and investment strategies. I would have focused on becoming financially literate at a much younger age.” When it comes to South Africa, Karl and Laree are not going anywhere, they are proud South Africans and have no interest in becoming economic refugees, with their two naughty sausage dogs, Charlie and Molly, they are content with life. “We are committed and optimistic Africans who wants the best for our country and the continent, I know there will be no shortterm miracles, but I have a legitimate interest in remaining in Africa, investing time and hard work. One lesson I learned in the last few years is that we have to move faster in an environment of uncertainty, be confident to make good business decisions on limited information.”
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MY STORY PROPERTY PORTFOLIO PURCHASE PRICE EXCL. COST
PURCHASE PRICE PLUS RENOVATIONS
MARKET VALUE ESTIMATE
GROWTH
%
MONTHLY RENTAL INCOME
RENTAL AGENTS COMM. @ 8% + VAT
RATES, TAXES & LEVIES
NETT INCOME BEFORE TAX
NETT %YIELD BEFORE TAX
NIL
400 000
NIL
450 000
12.5
1 000
NIL
NIL
1 000
.25
Mar 2005
NIL
495 000
NIL
865 000
74.7
4 800
438
1 110
3 252
6.57
2 Bed Shandrani, Brentwood Park, Benoni
Dec 2006
NIL
555 000
NIL
550 000
-0.9
3 750
342
814
2 594
4.67
2 Bed Seringa, Farramere, Benoni
Dec 2010
NIL
425 000
NIL
480 000
12.9
3 750
342
941
2 467
5.80
2 Bed Eden Gardens, Rynfield, Bernoni
Mar 2012
NIL
515 000
NIL
540 000
4.8
4 000
365
971
2 664
5.17
3 Bed Homestead Villas, Farramere, Bernoni
July 2012
NIL
775 000
NIL
875 000
12.9
6 500
593
1 207
4 700
6.06
3 Bed Anchor Lodge, Bartlette, Boksburg
April 2013
NIL
860 000
NIL
895 000
4.0
6 500
593
1 210
4 697
4.46
3 Bed Bonness, Lakefield, Benoni
April 2013
ADDRESS
REGISTRATION DATE
OWING
Whitman Street, Farramere, Benoni 1 Bed Cottage (Mother)
Mar 2004
2.5 Bed The Terrace, Beyers Park, Boksburg
TOTAL RENTAL
840 000
840 000
NIL
895 000
6.5
6 000
547
1 207
4 246
5.05
840 000
4 865 000
NIL
5 550 000
14.0
36 300
3 220
7 560
25 620
5.27
NIL
570 000
1 320 000
1 550 000
840 000
5 435 000
6 755 000
7 100 000
PRIMARY RESIDENCE 4 Bedroom House, Farramere, Benoni
March 2004
TOTAL PROPERTY
13.3
CHARITIES Here are just a few of the charitable organisations Karl and Laree have been involved in over the years: •
Donations to Drug Rehabs
•
Meals on Wheels for elderly for many years.
•
Supported the Janai’s Children’s home with food.
•
Now started contributing to the John Wesley Community Centre in Etwatwa Township for orphans and children infected with HIV.
Seringa Unit
Karl & Laree’s primary residence
•
Gave money to strangers who was in real financial need.
•
Gave money to friends who had lost everything.
•
Fixed an old lady’s car that was written off in an accident .
Church: •
Monthly tithes
•
Other church initiatives
Volunteerism: •
Laree volunteered at the REACH ministry for addiction as an administrator for two years working 18 hours a week.
•
Karl volunteered at the REACH ministry as a member of the board giving strategic input and conducting training / facilitation.
Homestead Villas Unit • •
Janai’s Children’s home. Karl has now joined the Paradigm Shift that supports the development of micro entrepreneurship.
Karl will be putting the R50,000.00 cash prize to good work, helping an elderly lady Mrs. Maureen Corbett age 67 who lives in Northmead, Benoni. Her house is in dire need of repair as the corrugated roof is leaking terribly when it rains and there is already substantial damage to the ceiling boards. The prize money will see this repaired.
Shandrani Unit
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Karl and Laree with Charlie & Molly
www.reimag.co.za
LIFESTYLE Judges Comments Jason Lee – Property Author & Millionaire Investor “Karl was the natural winner for me as he aspires to and follows many of the tried and tested techniques that I have learnt from some of the best property investors over the years. Keep it simple, invest close to home in what you know and understand, build a team to help you find and execute deals, incinerate your debt as quickly as possible and sit back and reap the rewards. Your generosity is well recognized as well - Well done Karl.”
Gordon Mackay – Millionaire Property Investor Why I chose Karl Landman: “This wasn’t an easy decision as every entry had their own merits. The main points which stood out in Karl’s entry were: hard work; ethics & integrity; good cash flow; low risk: learning from mistakes; taking responsibility for own investments; proper research and making sure the numbers work; giving back to charities and people who are in dire need of financial resources and helping others get back on their feet made him a clear cut winner.”
Scott Picken - Investor, Property Proffesional and Entrepreneur This wasn’t an easy decision as every entry had their own merits. What really stood out about Karl’s entry were his hard work; ethics & integrity; good cashflow; low risk: learning from mistakes; taking responsibility for own investments; and making sure the numbers work; giving back and helping others plus many more…
Neale Petersen – Publisher, Investor and Entrepreneur “Karl made an immediate impact on me as he had no initial support when he started investing and followed the methodologies of the successful investors. He works with people with high integrity, which demonstrates his penchant for wanting to make a difference in people’s lives. His foresight in seeing market booms and busts plus his philanthropic approach made Karl a clear cut winner in my book”
Hennie Bezuidenhout - Billionaire International Property Developer “Karl’s ability to read the financial crisis and boom and bust markets makes him a special investor. Karl has a natural ability to give back to people and make a difference in their lives, this was also a big factor in my decision in choosing Karl. He started from humble beginnings and has demonstrated his ability to build a sizeable portfolio over a number of years.”
Dolf de Roos – Billionaire Investor, Author and Educator “The ability of property to change people’s lives is often over promoted in the circles of investment guru’s. Few stories and life stories have a fairy tale story of starting from humble beginnings to building a portfolio from scratch to giving back. His strategy has worked for him to create both a great lifestyle and an income for life.”
A Bit About The Investor Of The Year 2013 Sponsor, Wealth Migrate Crowd Funding will destroy the banks, empower investors through the use of IT and help people create Global Wealth through a blend of nature’s laws and technology. According to Deloitte’s it is one of the top 10 trends in 2013 and according to Forbes magazine it will grow from a $1.5 billion industry in 2011 to roughly $500 million in 2013. Wealth Migrate is the global crowd funding platform for International Property Investment and is a unique concept which is not a fund nor a syndication, as the investors interests are aligned, there are no fees and performance determines everything.
Before Henry Ford arrived, cars were built bespokely, they were very expensive and only for the super wealthy. Henry Ford arrived, invented mass production for cars, made them available to the middle class and most importantly changed transportation forever. Wealth Migrate is no different as it will change the property landscape forever, giving investors far greater opportunity to Create Global Wealth through International Property, but with transparency, flexibility and ease of use. This will be achieved as crowd funding has been legalised in America and it allows investors to use IT to overcome the hurdles of international property investment.
At the moment Wealth Migrate is focusing on residential and commercial opportunities in America and Australia, but will be migrating to wherever the best returns are globally with the best partners on the ground! Wealth Migrate sponsored the Master Investor competition in South Africa as they wanted to find the best investors in South Africa and help them make the best investments globally. Go to www.wealthmigrate.com for more information.
Investor Of The Year Competition proudly sponsored by www.reimag.co.za
May 2013 SA Real Estate Investor
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GREEN PROPERTY
BY ANGIE REDMOND
The V&A Goes Green Achieving a six-star green rating
A
n of f ic e bu i ld i n g at t he V& A Waterfront in Cape Town is the first building in the Western Cape to achieve a six-star green rating, and is only the second building in South Africa to achieve this rating. No 1 Silo office building is currently under construction and will be complete in June. It boasts an impressive array of energy saving features, and works with the environment rather than against it.
Some of the key features The use of seawater from the Atlantic Ocean allows the building to reject waste heat from the cooling plant, and allows for potable water savings and improves energy efficiency. There is a grey water system, which collects and treats wastewater from hand washbasins and showers to be reused in toilets. The building has a double-glazed, double sk in and high per formance façade that reduces solar heat gain, while maximising the natural light penetrating the building.
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There is an under f loor mechanical airconditioning system which supplies fresh, cool air from the raised floor, and absorbs warmth as it rises and is extracted at the ceiling level, preventing the build up of pollutants. The interior of the building also boasts an eff icient and environmentally- friendly l ight i ng s y stem, w it h h igh ly ef f ic ient f ittings. In addition there is an individual addressable lighting system, f itted w ith sensors, which ensures the lights are only on when needed. The building will be constructed from a minimum 1% of reused materia ls and will adhere to strict recycling principles throughout construction, which will include the recycling of all of the excavated and demolished material from the site. Easily accessible recycling zones throughout the off ice, and an indigenous rooftop garden with composting facilities and a herb garden for the staff canteen are all part of the greening elements of the No. 1 Silo building.
The actual building was constructed using 60% less concrete than its conventional counterparts and Forest Stewardship Councilcertified timber. David Green, CEO of the V&A Waterfront explains what makes this building so unique, “At 18 000m2 it is the largest commercial building in South Africa to receive this world leadership rating for sustainability, and the first in the Western Cape. The sheer scale of this development presented its own challenges makes this a significant achievement.” With sustainability central to the Waterfront’s business strategy, this building is highlights a new era in Cape Town building design. “We recognise that sustainability efforts go beyond just one building. In the last six months, the V&A Waterfront has received a Gold Heritage certification, an Eskom eta Award in the commercial category and a City of Cape Town Energy Efficiency award for initiatives in waste management, recycling and reducing our energy dependence on the grid,” says David. T he V& A i s he lpi n g to pu sh t he boundaries in buildings looking to change Sout h A f r ica’s stat us as t he 13 la rgest
www.reimag.co.za
LIFESTYLE
3D Renderng of the building
Double-glazed, double skin g r e e n ho u s e g a s e m it t e r, a nd A f r ic a’s largest. The Silo No1 off ice f loor has been compared against a similar typical f loor in relation to system and material properties, (using the minimum requirements by the building energy standard SANS 204). The result shows that a saving of roughly 50% electricity consumption and CO2 emissions over a ‘normal’ building is predicted. Planning behind the building involved v isit ing top-end susta inable bu i ld ing s in Australia, and speak ing to occupants from various green buildings including the CH2, the first 6 Star building, and the Pixel building. There were also a number of sustainable and innovation workshops i n v ol v e d . T h e d e s i g n t e a m w it h t h e architectural collaboration of VDMMA and Rick Brown Associates was responsible for translating the vision of the building into the near completed structure it is today. This marks an important step in the greening of South Africa’s commercial property sector, into ensuring that new buildings are built for sustainability and the future.
RESOURCES
V&A Watefront
www.reimag.co.za
Air handeling plant room
Raised flooring
Sea water plant room
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EVENTS
Investor Of The Year 2013 Awards Ceremony
Above: Master Investor Winner, Karl Landman surrounded by judges and sponsors
Above: Handing over of the prizes and cheque by Neale Petersen The annual Investor of the Year Award aims to find South Africa’s leading property investor, an investor who stand out among his peers and to recognise and celebrate the achievements of property investors around the country. Real Estate Investor Magazine in conjunction with Wealth Migrate Investments awarded the R 50 0 0 0 w inning pr iz e for South Africa’s leading property investor for 2013 to Karl Landman of Benoni, Gauteng. The presentation was made on Saturday, 16 March at Bryanston Country Club. Criteria for the 68
May 2013 SA Real Estate Investor
competition was not purely judged on the rand value of the property or the size of the portfolio. It is based on key factors that have contributed to your investment success such as discipline, entrepreneurial f lair, creativity, dedication, initiative, commitment, contribution to society, strategy and plain hard work that has got you to where you are today. The competition was judged by a panel of property proffesionals, from the esteemed Dolf de Roos to our very own publisher, Neale Petersen, also on the judges panel was our
Below: Karl shares a quick word of thanks on becoming the Master Investor of Year 2013 Winner sponsor Scott Picken from Wealth Migrate, property investors: Gordon Mckay, and Hennie Bezuidenhout, all billionaire or millionaire investors and property experts. Despite the wealth of candidates, Karl really stood out to the judges and his story of success won them over. If you are a property investor and think you have what it takes to be crowned Investor of the Year, look out for our next Master Investor of the Year competition. Details will be available on the REIM webiste in the coming months. www.reimag.co.za
STANLIB
ADVERTORIAL
STANLIB
Africa Direct Property Fund creates quality
A
cross the real estate spectrum the world over, Africa provides some of the best risk adjusted returns. The STANLIB Africa Property Development Fund is targeting an Internal Rate of Return (IRR) of 25% in dollar terms and aims to achieve first year yields on development costs of between 12-14% in dollars. “Africa is a good return play and provides investors w ith grow th oppor t unities not seen any where else in world at the moment”, says STANLIB Direct Property Investments Chief Investment Off icer, Amelia Beattie. The nature of propert y investments a nd t hei r abi l it y to have a posit ive impact on the communities they serve is compelling, she says. The developments will have long-felt benefits, including the creation of a significant amount of jobs, new communities in nodes around the developments and new trading platforms for retailers - making it a responsible investment choice. The initial focus of the Fund will be in creating quality retail developments in Nigeria and Kenya, with 6-8 developments planned across both. Beattie says Lagos has a population of 21 million who are serviced by only two shopping centres of 25000sq m each. In Nairobi, 1.5 m people commute into the city every day and therefore the opportunity exists there to build quality retail environments on the outer skirts of the city to help relieve the enormous burden on the inner city where many of the shopping nodes are currently located. “This tells you there is a lot of opportunity for quality retail space in areas accessible to a vibrant population that is upwardly mobile. Our philosophy is to have investments with long term returns in quality real estate in
carefully chosen economically growing nodes. We want to build quality, sustainable investments that stand the test of time. Our direct involvement means we can vouch for the quality of the buildings and that the income stream remains relevant over the long term.” Beattie says two things are ‘sacrosanct’ in their development process: the choice of engineers and quantity surveyors: to keep the buildings safe; and ensure money is spent on the right quality construction inputs to provide for a long lasting, sustainable environment. Investment in the Fund will focus on retail development as a primary investment. “All our investments are anchored by the retail environment as we believe that is the catalyst for further developments around the area.”
Risks and returns
Retail is expected to be the main driver of economic growth because of the concurrent growth of the emerging middle class.
“With links to the large and established Standard Bank and Liberty Group, we conduct very detailed due diligence. We leverage existing relationships in these countries, and are not new to these areas – through the Group, we bring with us a deep understanding.
The emerging African middle class is driving a lot of retail consumer spend. Currently, of every rand spent, 70% is spent in the informal market in Nigeria. Beattie’s vision is to help convert this into spend in a formalised retail environment. She says the emerging market is an aspirational one that wants to experience quality retail environments, and f inding ever y thing they need under one roof should transform shopping habits. “Many of the retail-specific opportunities will link back to South African retailers. The Liberty Property Portfolio, managed by STANLIB Direct Property Investments, is the biggest holder of retail space in SA and we understand the market. We want to stick to our knitting and have a tried and tested formula. We would like to create a platform for retailers in these communities and provide a much-needed service.”
Beattie says the difference between perceived and real risks in investing in Africa is huge. The team has identified specific actions to manage – and mitigate – these appropriately.
Another way to minimise risk is to have partners and use them as active participants. Nowhere is this more important than in ensuring land tenure is secure. Having established local relationships helps manage the myriad of regulatory rights issues, which Beattie is confident that with the right local partners, one ensures better security. “We believe in transformation in the true sense of the word – we build their business as we build ours. Importantly, our in-country stakeholders have a vested interest in the success of the project”, says Beattie.
For more information, contact: Amelia.Beattie@stanlib.com
TECH TALK
BY RUSSELL BENNETT
Quirky Crypto-currency experiment full of Lessons
W
hether you’re a techie at heart or a total technophobe, there’s absolutely no denying that the Internet has fundamentally affected our lives in a plethora of ways - some anticipated but many not. The Internet was designed as a communications medium, and little else. But while it still very effectively functions as a global, open, unfettered and unfiltered platform for communicating ideas, news, and anything else that needs to be discussed, it has become a lot more than its creators originally considered. And it continues to evolve. Whether to you social networking is merely a way of fancifully idling away time, or a critical channel of business communications, these systems have already been very effectively used in engineering real social change. And in the process proven themselves far more effective as a driver of such change than our existing, traditional societal structures ever were. But, I put it to you, that’s still just the beginning. The tip of the iceberg. The first rays of light beaming from the slightest crack in the slowly opening lid of this particular Pandora’s box. What about the existing monetary system, easily one of the oldest and most powerful institutions we face the challenge of dealing with in this modern society we’re building. It’s quite clear that the existing model of Keynesian capitalism works to an extent, but is also fundamentally unsustainable. After all the very basis of the system contradicts itself - capitalism is based on generating and then saving up sufficient revenue to catapult your organisation on to the next level of success through investment, while the monetary system is built to perpetually devalue that same capital in circulation.
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How can the Internet rock as well-established and powerfully-supported a system as this, flawed though it may be? The answer may lie in a small digital oddity which I first reported on when it was initially introduced back in 2009. Have you ever heard of BitCoins? Created by a small team of entrepreneurs, a BitCoin is a currency which only exists in digital format. In fact, each BitCoin is effectively made up of a complex chain of code built up from peer-to-peer (P2P) net work f unctions and exchanges, w ith no intrinsic value whatsoever beyond what the community and greater market give it. Critically, however, it is a currency which has since its introduction only increased in value with no devaluation cycles or trends. In fact, it is the first currency ever introduced to be able to claim such a phenomena. BitCoins allow for the transmission of funds without any need for a third-party authoriser managing the flow. Transactions are effectively free and managed by the entire open-source BitCoin network without a central authority. Users either “mine” BitCoins by providing the distributed processing capabilities necessary to maintain the BitCoin network, CPU time for which they are compensated in the digital currency, or by buying the currency through one of a variety of BitCoin markets. It can be used as any recognised currency for purchasing and paying for products, with the value tied-in to the current BitCoin to USD exchange rate listed at: bitcoincharts.com/markets.
into a burst bubble very soon. However these same analysts have been predicting the demise of this experimental currency since it was first mooted. In reality, where a BitCoin was worth less than USD0.10 four years ago, they are now traded at an average value in the region of USD140 per coin. Effectively unprecedented growth for the traditional investor. It is nat ura l ly a high-risk investment however, as no-one can really predict where the market will drive the BitCoin next, and heavy investment could either be handsomely rewarded over the next few years or crash spectacularly when the experimental system comes down. But BitCoin market analysis def ies all traditional norms, so foreseeing which way things will go is certainly no more than a shot in the dark. For a sure-fire growth portfolio, we’d def initely still recommend sticking with property. Either way, whether this particular financial experiment goes on to boom or bust, the BitCoin is another example of a technologydriven solution forcing us to rethink our most fundamental beliefs. If in the end it passes as nothing more than an intriguing experiment, or continued growth drives it beyond that, it’s existence and market behaviour have turned the 20th-century thinking of the global monetary system on its head. It’s technology at its most disruptive. But potentially, given the challenges facing the traditional system today, a disruption which could change the economic face of the planet once and for all.
T he idea has g row n impressively. So impressively that many financial commentators are anticipating the BitCoin boom will turn www.reimag.co.za
MOTOR TALK
BY RUSSELL BENNETT
Drive Test: Infiniti EX37 EXemplary? S
o, how do you respond when you’re cruising at a steady 130kph, and an Audi A4 2.0 TFSI that you just passed at the side of the road a few kms back, with one of the occupants relieving themselves in the dry West Coast scrub, comes blasting by at almost 200? OK, so perhaps I’m not the most grown up man ever. But my right foot wavered for a couple of seconds not due to an internal legal struggle, but purely because I was in an SUV and not a sports car. Nevertheless, inevitably, the hammer goes down and the chase is on!
A Proper Sporty SUV In these situations, this Infiniti EX37 feels like just the right tool for the job. The 370Z-sourced 3.7litre naturally aspirated V6 responds immediately and with plenty of enthusiasm. In this form the motor might not have the crazy 7000rpm-plus rush that it does in that definitive Japanese sports car, but it sounds much nicer. A deep, throaty and irrepressible roar spews forth from the twin bigbore tailpipes, the rear end of this spaceship-like SUV squats convincingly, and the entire mass is propelled urgently up the road in pursuit. There’s enough power on tap here to surprisingly easily stabilise the growing gap between Audi and Inf initi and then start to rapidly erode the spaces between his rear bumper and my sleek but imposing front end. A puff of smoke from the exhaust shows the downshift and the turbo girding its loins for
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battle, but the far lither and more slippery A4 can’t pull away from the big-hearted grunt on offer by the 3.7-litre naturally-aspirated V6 again, well over the 200km/h mark.
Howling Beyond 200 This car does without much of the trickery of the big flagship, the FX 50 S. It has standard fixed-rate dampers for instance, and doesn’t have any rear-steering arrangement. And yet, it still manages to feel truly special. The sleek proportions of the exterior are to my eye the closest anyone has ever come to making a sporty-looking SUV, beasts like the X6 included. You feel like you’re sitting quite high, as you should in a car of this nature, until you park up alongside a conventional SUV and note just how chopped the Infiniti’s roofline looks in comparison. Like a Hot Rod. The interior is, very much like a Lexus, a peculiar blend of recognisable Nissan parts with a substantial veil of upmarket surfacing covering every inch. Our test car didn’t come with the family-unfriendly white leather pictured in the press images, instead favouring a very smooth chocolate-brown, while the gadget-count which comes standard on this model is comprehensive.
Old-School Charm, New Age Kit Yet despite all of the, the EX37 really surprises by being a car you can actually connect with when you’re for instance chasing an A4 down the West Coast Road. You can feel there’s some weight being controlled, but it never feels hippo-like or like you’re taming freighttrain levels of momentum. The large alloys do occasionally send a bit of a shimmer through the suspension reminding you that they represent a fair deal of unsprung weight, but it never feels scrappy or all about to come apart on you. Allied to that vocal 235kW V6 this excellent chassis allows the EX to shrug off it’s almost1900kg kerb weight when you want it to, with the motor punching hard up the road (0-100kph in 6.4s, according to the manufacturer) and pulling with enthusiasm all the way round to the 240km/h top speed. As you may have already gathered, I quite liked the EX37. In fact, I just about loved it. In common with the madcap but awesome FX 50 S tested last year, the EX37 seems to have all the ingredients right, and it actually manages to remind you of why you love driving, and driving fast specifically. The noise is great, the dynamics involving, the punch ample, and it’s all wrapped in a lovely cocoon of luxury which on the surface at least doesn’t give much away to the German giants of this space.
May 2013 SA Real Estate Investor
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LESSONS
Oprah Winfrey
BY ANGIE REDMOND
Pierre Omidyar
Karl Albrecht
Mukesh Dhirubhai
Michael Bloomberg
10 Life Lessons From 10 Billionaires
T
he 2013 Forbes Billionaire list now has an impressive 1, 426 names on it. The net worth of which is estimated at $5.4 trillion. The United States has 442 billionaires; Asia-Pacific has 386, Europe 366, The Americas 129 and the Middle East and Africa 103 billionaires. So what can you learn from them? Here are some key lessons from ten billionaires on earning money. 1. “You become what you believe. You are where you are today in your life based on everything you have believed.” —Oprah Winfrey, net worth of $2.7 billion. Oprah was a true rags to riches story, starting with nothing she worked her way to being ranked the richest AfricanAmerican in the 20th century. She went from co-anchoring the local evening news to launching her own production company and creating the Oprah brand. 2. “What we say here every day is that our success is really based on our members’ success, our community’s success.” —Pierre Omidyar, net worth of $6.7 billion. In 1995, at the age of 28, Omidyar began to write the original computer code for an online venue to enable the listing of a direct person-to-person auction for collectible items. On Labour Day, September 4 1995 he launched an online service called Auction Web, which would eventually become the auction site eBay. 3. “ The t y pical human life seems to be quite unplanned, undirected, unlived, and unsavored. Only those who consciously think about the adventure of living as a matter of
Prince Alwaleed Bin Talal Alsaud
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Michael Dell
May 2013 SA Real Estate Investor
making choices among options, which they have found for themselves, ever establish real self-control and live their lives fully.” — Karl Albrecht, net worth of $25.4 billion. Karl Albrecht was born and raised in modest circumstances in Essen, Germany. He founded the discount supermarket chain Aldi with his brother Theo in 1961. 4. “I think that our fundamental belief is that for us growth is a way of life and we have to grow at all times.” —Mukesh Ambani, net worth of $22.3 billion. Mukesh Dhirubhai Ambani (born on 19 April 1957) is an Indian business magnate who is the chairman and CEO of the Indian conglomerate Reliance Industries Limited (RIL), a Fortune Global 500 company and India’s most valuable company by market value. 5. “Getting the job done has been the basis for the success my company has achieved.” — Michael Bloomberg, net worth of $22 billion. Bloomberg began his career at the securities brokerage Salomon Brothers before forming his company in 1981 and spending the next twenty years as its Chairman and CEO. 6. “If I’m going to do something, I do it spectacularly or I don’t do it at all.” —Prince Alwaleed Bin Talal Alsaud, net worth of $18 billion. He is a Saudi Arabian businessman and investor and a member of the Saudi royal family. He is also the founder, CEO, and 95%-owner of the Kingdom Holding Company. Arabian Business ranked him as the most inf luential Arab in the world.
Charles Koch
7. “It’s through curiosit y and looking at opportunities in new ways that we’ve always mapped our path at Dell. There’s always an opportunity to make a difference.” —Michael Dell, net worth of $15.9 billion. Michael is an American business magnate, philanthropist, and author. He is known as the founder and CEO of Dell Inc., one of the world’s leading sellers of personal computers (PCs). 8. “The role of business is to produce goods and services that make people’s lives better.” —Charles Koch, net worth of $25 billion. He is co-owner, chairman of the board, and chief executive officer of Koch Industries Inc., the second largest privately held company by revenue in the United States. 9. “No person will make a great business who wants to do it all himself or get all the credit.” — Andrew Carnegie, net worth of $298.3 billion. Andrew was a Scottish-American industrialist who led the enormous expansion of the American steel industry in the late 19th century. 10. “The ultimate definition of success is: you could lose everything that you have and truly be okay with it. Your happiness isn’t based on external factors.” —Tony Hsieh, net worth of $840 million. Tony is an American Internet entrepreneur and venture capitalist. He is the CEO of the online shoe and clothing shop Zappos.com.
RESOURCES Forbes
Andrew Carnegie
Tony Hsieh
www.reimag.co.za
Where investment and excellence meet STANLIB Direct Property Investments 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.
www.stanlib.com