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PUBLISHED BY THE PROPERTY ADVERTISING JOINT VENTURE 6 Beach Road, Old Castle Brewery Woodstock 7925 021 447 7130 EDITOR Michelle Funke 011 462 8959


Are you worth your weight in commission? This is a question many a seller has asked their agent over the years. The contentious issue of commission has raised its head time and again in the real estate industry the world over for as long as anyone can remember. Some basic research has revealed that across the globe, including in South Africa, real estate commissions tend to range between 5% and 7%. In this issue we get some local industry views on how agents should determine their commission, how negotiable they should be on it and what the seller should expect to get in return. In an effort to deliver a broader scope of articles and industry-related information snippets, this issue includes a range of articles, both prickly and positive, such as the tax and regulatory reform that REIT will usher in for the listed property sector and issues around the property valuation process that will affect all property owners. And, while every effort was made to offer a balanced article on the fundamental problems with the real estate education system, courtesy of the Services Sector Education and Training Authority and the Estate Agents Affairs Boar, both parties couldn’t have been bothered to give their side of the story. So agents, don’t feel alone, it is not only your certifications that are being brushed aside.

ADVERTISING SALES Sarah Steadman 082 334 4367 ADVERTISING PRODUCTION & SUBSCRIPTIONS Nikki Barnard ACCOUNTS & FINANCE Nicolette Lubbe 011 476 6293 PRINTING Paarl Media

Industry authority issues aside, in this issue we have also included many more interesting snippets, such as home loan trends, buyer and seller insights and more, and we do hope you enjoy working your way through it. Thank you for your mostly positive feedback and constructive criticism on the previous issue. We are delighted that you liked the new look and hope you enjoy the bumped-up content we have included in this issue. As always, I would love to receive your feedback and suggestions.


Disclaimer: The publisher of this magazine gives no warranties, guarantees or assurances and makes no representation regarding any goods or services advertised within this edition. © Copyright PA Group Advertising Joint Venture. All rights reserved. No portion of this publication may be reproduced in any form without prior written consent from the publisher. The publishers are not responsible for any unsolicited material.


















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INDUSTRY NEWS Lease accounting changes expected by 2014 Over 52% of South African executives are unaware of pending changes that will affect the reporting of leases and which will markedly alter balance sheets, thereby inter alia impacting debt-to-equity and return-oninvestment ratios. That’s according to Grant Thornton’s 2013 International Business Report (IBR), which surveyed 3 450 businesses across 44 economies regarding the proposed new lease accounting standard set to come into effect in 2014. “Amendments to this leasing standard will have far-reaching consequences for a large proportion of South African businesses, particularly companies in the airlines, manufacturing, mining or retail sectors – industries where many equipment and property leases are held,” says David Reuben, partner and head of Assurance at Grant Thornton Johannesburg. The new Lease Accounting Standard, which is currently in its draft format, is expected to require that companies reporting under International Financial Reporting Standards (IFRS) will now need to record billions of rand of new assets and liabilities. “This new standard from the International Accounting Standards Board (IASB) and the Financial Accounting Services Board (FASB) will require that all leases other than short-term leases will have to be reported on the balance sheet,” says Reuben. “It has the effect of broadening the definition and perceptions of what an asset and liability is.” According to the IBR report, the average business globally holds 20 leases. In South Africa Grant Thornton’s research indicated that nearly

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85% of South African businesses surveyed currently hold leases, with 51% holding less than five leases, while 15% reported holding more than 10 leases in their businesses. Reuben expressed concern about the lack of awareness amongst South African businessmen surveyed (52% are unaware of the upcoming changes) regarding these amendments. In terms of what impact these changes would have on businesses, 34% of South African executives believe that the amendments would increase transparency for investors, while 28% are expecting the new standard to increase the cost and complexity of reporting. Ed Nusbaum, Grant Thornton International CEO, says that the current lack of transparency around operating leases certainly needs to be addressed, and in light of this he welcomed the pending lease accounting amendments. “The information in the financial statements currently does not provide complete, readily understandable information about the obligations associated with operating leases,” says Nusbaum. “But change for the sake of change is not the goal. A new standard that is not based on clear, consistent principles could actually make things worse. A major change to lease accounting is a once-in-a-generation event and the boards need to be patient to get things right.” When the draft finally is issued as expected by May/June 2013, it will be put out for public comment for a period of 120 days, which would presumably end in September, according to a FASB spokesperson. If this timeline is followed, the revised standard would be issued in 2014.

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Page 8: I N D U S T RY N EW S

House price growth continues Ooba recorded a 4.6% growth in the average house price from R868 174 in February 2012 to R908 658 in February 2013. Additionally, the value of home loans approved through ooba in February 2013 was up 23% on February 2012. First-time homebuyer activity continues to drive the market, with nearly 52% of ooba’s applicants in February being first-time homebuyers. The average house price for first-time buyers was up 5.4% year on year to R698 721 and up 1.8% month on month in January.

dropped substantially by 14.2% year on year and 7.3% month on month to R125 843, representing only 13.9% of the average purchase price. “The slight relaxation in deposit requirements of the last few months has been positive for homebuyers as coming up with the funds for a deposit remains one of the major hurdles to obtaining home finance,” says Geffen. “It is also an indication of market competitiveness and confidence as banks gradually ease lending criteria.”

“We continue to see high levels of activity in this market segment. It is a good sign and encouraging to see that a large proportion of buyers are in their early 30s and are keen to purchase their first home while market

What’s more is that the average approved bond size increased 7.6% in February this year from February 2012 and the average initial bank decline ratio decreased 4.6% year on year and 2.4% month on month to 43.6% in February. The percentage of applications that were declined

conditions are favourable,” says Saul Geffen, ooba CEO. Despite the high number of first-time homebuyers, the average home loan deposit

by one bank but approved by another improved significantly to 28.7%, up 5.9% year on year and 3.2% month on month.

Repeat buyers gain ground The extent of the improvement in the residential property market over the past two years is clearly indicated in the latest statistics from BetterBond, which show that home loan approval rate has risen from 61% in March 2011 to 69% in March this year. During the same period, the average home purchase price paid by BetterBond clients has fluctuated quite widely, hitting a low of R780 000 in January 2012 and spiking to R960 000 in August 2012, but has generally also shown an upward trend, to reach R905 000 in March this year compared to R786 000 in March 2011 (a 15% increase). However, notes BetterBond CEO Rudi Botha, the average deposit percentage required by lenders has varied very little over the past two years, with the result that the average home loan amount approved has risen from some R700 000 in March 2011 to R738 000 last month.

“It’s clearly getting more difficult for first-time buyers to enter the market,” says Botha. “While the average purchase price in this sector has risen some 7.5% in the past two years, the average home loan amount approved has only increased by about 6%, indicating that first-time buyers need bigger cash deposits to secure loans.

“Obviously the banks are feeling increasingly comfortable about lending into the residential market again as the balance of supply and demand improves. In addition, most prospective borrowers now have much better financial profiles than was the case two and three years ago.”But the BetterBond statistics show that while first-time buyers continue to account for a large percentage of home loan applications, the percentage has declined from 48% in March 2011 to 39% in March 2012 and 36% in March this year.

in middle bracket home prices in the past two years means that repeat buyers now often have considerable equity in their existing homes, which can go a long way towards covering the deposit required to purchase their next property. “Such buyers are thus the ones best placed at the moment to make the most of the historically low interest rates. Indeed, if they have a sound credit record and sufficient income as well as a substantial deposit, they can now often upgrade to a better property for not much more per month than they are paying for their current home.”


“And because salaries have not been rising as fast as the cost of major budget items like food, transport and utilities, it is becoming harder for prospective buyers to save these amounts. In addition, because they are usually either still living at home or renting, first-time buyers have more flexibility when it comes to deciding when to buy, and they will often back off from the market when economic growth drops – as it has in the past year – and business confidence and employment prospects start to look shaky.”On the other hand, he says, the steady if slow increase

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Sleep-starved workers struggle to juggle family and work commitments Many South African workers report that they have to sacrifice sleep to fit in personal and work commitments, either by waking up too early or by burning the midnight oil. Although flexible working is highlighted as a way to reduce commuting, create more hours in the day for sleep or family life and to improve productivity and staff retention, only about half of firms are rewarding management for encouraging the creation of a flexible workforce. Workers also highlight that a shorter commute and greater

flexibility of location would give them more time spend with their families as well as allow them to catch some extra shut-eye. Businesses can also benefit from introducing greater flexibility, which is reported to improve productivity and help retain staff. These are some of the key findings of a global survey by Regus, based on interviews with more than 24 000 businesspeople from over 90 countries.

K E Y F I N D I N G S A N D S TAT I S T I C S Globally 29% of workers are sleeping less than they wish to fit in all their commitments.

Workers highlight a shorter commute (33%) and location flexibility (26%) as ways of helping them spend more time with their families.

Businesses can benefit, too, as flexible work is thought to improve productivity (78%) and help staff retention (82%).

Currently management is being rewarded for encouraging a flexible work environment only in half (53%) of firms.

In South Africa 38% of workers are sacrificing sleep to fit in work and personal commitments, while a fifth 24% feel they have to overcompensate for time taken off for personal matters.

Good opportunities for savvy investors According to many economists, the outlook for the local commercial property sector for 2013 seems to be dim. However, according to Gerrie van Biljon, executive director of Business Partners Limited, on the back of these dismal views, the current environment in fact provides a good opportunity to purchase commercial property due to the market still offering reasonable returns. He says that some analysts are talking about rental renewal rate increases of very low percentages or even no escalations for commercial property. “Well-known property economist Erwin Rode predicts a real drop in office rentals of between 7% and 14% throughout South Africa. However, even with low escalations, investing in commercial property should be considered. It is after all a long-term investment.” Van Biljon says that investing in commercial property as a long-term strategic investment decision may offer the long-term results other investment instruments do not. “Cash, for example, offers very low yields for investors.” However, he stresses that several factors specific to a business owner’s situation should matter much more than the general condition of the market. “If a business is doing well in a prime retail location and the location is important for the future viability of the business, buying should be considered. The final decision should not be an emotional one and

should be made with the facts in mind. Additional cash flow pressure due to the deposit requirements and additional payments should also be considered.” He says that a common mistake made by entrepreneurs is to compare the instalment that will be paid with the rental payments. “Property costs, such as rates, maintenance and insurance, should be considered. If a business owner purchases wisely and pays a 30% deposit, the cash flow will usually break even within the first two years.” Van Biljon says that when it comes to commercial property, such as industrial parks and shopping centres, different rules apply. “When it comes to this type of property, the focus is on the value and strength of the leases involved. These factors also form a direct correlation with the price the buyer is prepared to pay. For example, having a longterm lease with a national company in place will push the value of the property up, whereas multi-tenanted units in rural areas with a lesser profile and no anchor tenant are a less attractive option for investors.” Van Biljon says that in the current situation there are still sound investments available within the market. “When purchasing commercial property, much research into the area as well as the structure needs to be conducted by a business owner to ensure that they will reap the benefits of ownership. “Whatever you buy, always do a careful due diligence,” concludes van Biljon.

LANDLORDS’ GUIDE TO EVICTIONS Tough economic times result in many people being unable to afford basic expenses, i.e. monthly rental. Landlords are generally acquainted with the PIE Act which protects tenants from unlawful evictions, but often feel that tenants are protected to their detriment. The reality however is that landlords must follow legislative procedures before evicting a tenant. What are these procedures? PROCEDURES TO RECOVER UNPAID RENTAL AND TO EVICT A TENANT LAWFULLY ARE:

There are various technical requirements for such an application but in essence:

1. If the tenant breaches the agreement, the provisions of the ‘breach clause’ in the lease agreement, setting out the steps to follow to cancel the agreement, are important. Note however that the Consumer Protection Act stipulates that a landlord must give a tenant at least 20 days in which to remedy the breach, prior to cancelling the lease, and provided the tenant failed to remedy the breach within this period.

Where a tenant is in breach of the agreement and accordingly in unlawful occupation, the Court will grant an eviction order on the date of the hearing.

It is however practice in our Courts to afford a tenant at least a month to find alternative accommodation; only thereafter the Sheriff of the Court may lawfully proceed to evict the tenant if the eviction order is not complied with.

2. A summons with an automatic rent interdict may be issued by a landlord claiming unpaid rental (or any other amount due in terms of the lease), interest thereon, cancellation of the lease, damages for unlawful holding over and legal costs. A landlord may be able to recover all legal costs, provided the terms of the lease stipulate that the tenant will be liable for costs on an attorney and own client scale. 3. Eviction application in terms of the PIE Act (i.r.o. residential leases). This is a separate application, distinct from the aforementioned summons, launched in accordance with the prescribed legislative requirements set out in the PIE Act.


a written lease agreement is in place prior to any tenant taking occupation;

an attorney reviews the provisions of the lease agreement to ensure that your rights as landlord are fully protected in the event of litigation;

the tenant pays a deposit equalling at least 2 months’ rent to enable you as landlord to deduct any monies due by the tenant in terms of the lease (including rental and damages).


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28% 28%












27% 26%






30% 20% 10% 0%























100% 151





7355 4835

60% 40%


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Information supplied by Lightstone

































Property Professional speaks to leading industry statistics and insights providers to find out who the most active buyers and sellers were during 2012 and what the most popular residential and commercial purchase prices were.

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Infographic supplied by Knowledge Factory


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THE GREAT COMMISSION DEBATE Are all agents equal or should highly experienced agents charge more for their time?

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Let’s face it, the amount of money that agents charge for selling a home is always going to be a bone of contention. It’s a bit of a catch-22 situation really; sell a property quickly and most sellers will battle to understand how an agent can justify making such an ‘obscene’ amount of money in such a short time. Sell the property a few months after it has been listed and the seller bemoans the fact that he has to pay what he considers to be an excessive amount of money for a job badly done. The good news is that the commission argument is nothing new and is one that has been raging for years. The bad news is that this argument is never going to go away. The debate may be more muted during property booms, when everyone is making money, but until sellers can actually truly understand how much time, effort and expertise goes into selling property, the odd spat is bound to continue to break out. Kim Woods, manager of Tyson Properties Morningside, Berea and Glenwood, put the problem neatly in a nutshell when she stated: “Like athletes, people see agents running a 10 second race and winning a gold medal (the sale) and everyone is excited. But people don’t stop to contemplate the years of hard work, dedication and training that have gone into that short sprint (or sale).” Perhaps the best news of all is that agents these days are forced to justify their commissions. The South African consumer of today is far more savvy as to his rights and is demanding a higher level of service than ever before. The days of empty promises are over and the modern agent has to show that he is not only up to the task of selling a home,

are going to get for their money. Such a discussion should focus on four main areas: The marketing service being offered by the agent/agency (it is not only what is going to be done, but how the marketing will be implemented).

The degree of risk the agent/agency accepts, in other words the length of the mandate and type of mandate as well as the gap between the valuation and the marketing price.

Local market realities – try as we might; if the prevailing rates are low, agents need to remain competitive.

The agent’s track record – it is reasonable to pay more for a more experienced agent with a proven track record. De Villiers’ last point is bound to raise a few eyebrows both with the man on the street and agents within the industry: Should agents who have more experience be paid a higher commission than their less experienced counterparts or should the commission charged be directly linked to simply getting the job done in the shortest best way possible? Jeanne van Jaarsveld, general manager of Harcourts Real Estate, believes that the commission amount negotiated with the seller and the estate agent is based on the value of service delivery from the agent. “I do not believe that experience alone would be a measurement for the commission percentage payable, but rather the agent’s proactive manner in servicing the client, creating a lasting real estate transaction experience that leaves the client happy to pay the agent based on quality service received.”

“I do not believe that experience alone would be a measurement for the commission percentage payable, but rather the agent’s proactive manner in servicing the client, creating a lasting real estate transaction experience that leaves the client happy to pay the agent based on quality service received.” but has to provide a detailed marketing plan showing exactly how he intends showcasing the home in the best possible way. Woe betides the agent who reneges on this vital aspect. In short they are looking for trouble and are bound to run into commission arguments on an ongoing basis. Andre de Villiers, a well-known agent in Cape Town, says that over the years he has found that people have quite strong and often totally unrealistic attitudes towards commission. “The fact that commission is negotiable (as it should be) should never be a reason for a heated exchange between seller and agent – it should be a logical discussion. An agent does himself and his company a disservice if the approach to commission is one of arrogance. A seller has a right to ask what they

The question is, of course, is it possible for someone who has only been in the industry for a short time to have the same level of expertise as someone who has been selling property for years? The short answer is it depends on the agent – there are new agents out there who were born to sell and will not only hit the ground running, but seemingly have an uncanny knack of getting things right from the very start. Others struggle a little and will only truly find their groove once they have been in the industry for some time. Then, of course, there are agents who have been in the industry for years, but who will never match their ‘inexperienced’ counterparts’ levels of service. For this reason Adrian Goslett, CEO of RE/MAX of Southern Africa, believes that the amount of commission charged should be based on what the agent offers in the way of service, delivery and results. What about the time and money larger agencies invest in their agents, experienced or inexperienced, on an ongoing basis? What about a particular agency’s position in the marketplace? Surely these factors all count for something.

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Ships don’t sail themselves and a well-oiled organisation with all the right tools in place is undoubtedly going to help sellers get their property sold. When agents cut commissions, the impact is felt throughout the company. Lee Ellis, inland director of Tyson Properties, says: “We must also remember that behind every agent is a very experienced team of people, including in some instances a mentor, a principal, marketing team and an admin team. These people all have to be recompensed from the commission.” It seems that real estate companies throughout South Africa have recognised that negotiating commission is one of the most important aspects of an agent’s job. All of those questioned stated that it forms an important part of their training, although it was noted that some are able to communicate better with sellers than others. What has become abundantly clear is that times have changed and sellers want to know exactly what they are getting for their hard earned money. The days of agents filling in the amount of commission due on the mandate agreement without explaining to the seller what the commission is going to buy are well and truly over. Savvy sellers work with savvy agents. They want a detailed marketing plan in place and are rightfully going to start questioning the amount of commission due if the agent reneges on his promises. Agents who do not live up to the promises made as to how the property is going to be marketed are going to feel the full brunt of a seller’s wrath, and rightfully so. Although it may be stating the obvious, no one is going to be willing to pay good money for a second-rate service and it should come as no surprise that under these circumstances, the percentage of

commission charged becomes a huge bone of contention between the seller and agent. Communication, as always, is key. Agents should never assume that a seller who wishes to discuss the commission is necessarily doing so in order to save a couple of rand. De Villiers states that agents should never make commission an emotional issue. “Be willing to discuss the issue and don’t avoid it. We have a professional responsibility to be transparent and discuss the issue logically. Often the seller really wants to hear you justify your rate with confidence and not just knock it down.” Goslett backs this up by saying: “If the commission is agreed upfront, the expectations have been clearly defined by both parties and the desired result has been achieved, there should be no questions about the fee charged for services rendered. Where the misconception comes in with respect to the effort an agent puts into a sale is that most people evaluate and place a perceived value on a transaction based only on the work conducted during the transaction. However, much of the work happens long before the agent even takes the mandate.” Good agents know their worth and, while they understand that there will be times when a lower commission will be negotiated, most of the time they stick to their guns and charge the seller for their time, effort and incredibly hard work.


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UNRAVELLING REAL ESTATE COMMISSIONS Over the past 20 years not much has changed when it comes to real estate commissions, which remain a contentious issue to this day. Property Professional has tracked residential real estate commission trends since 1993 and takes a look at global commission trends in both the residential and commercial spheres.

Residential estate agent commissions timeline: 1993: It is an offence under the Estate Agents Affairs Board (EAAB) Code of Conduct (clause 8.2) for estate agents to tell clients that their commission rate is prescribed by law, the EAAB, the Institute of Estate Agents of South Africa (IEASA) or anyone else.

1999 – 2000: The IEASA recommended professional fees and commissions for estate agents’ services by publishing a Tariff Book for use by its members. The Tariff Book recommends minimum fees, hourly rates and sales commissions to be charged by estate agents who are IEASA members for property administration services. The Tariff Book recommended a 7.5% commission on residential property sales. The 7.5% rate therefore served as a benchmark in the estate agency industry for residential property sales.

CO M M ERC I A L R E A L ES TAT E I N T H E U S Commercial real estate brokers charge fees on both property sales and leases. The fees are most often a percentage of the dollar value of the transaction being negotiated. It is common for a broker to make 4%-6% on the sale of a property. Leasing commissions average between 5%-6% of the aggregate lease value (monthly rent plus term of lease). Most fees are limited to the first 10 years of the lease and fees are usually negotiable.

R ES I D EN T I A L CO M M I S S I O N I N T H E U K UK estate agents charge anywhere from 1.5% to 4% of the property’s ‘sold’ price in house-selling fees, not forgetting the additional 20% for VAT. If the average UK home costs approximately £160 000, a typical estate agent’s fee could total around £7 680 after VAT. Add to this a solicitor’s conveyancing fees, which average around £1 000.

R ES I D EN T I A L CO M M I S S I O N I N AU S T R A LI A Real estate commissions generally range from around 2.5% in the city and metropolitan areas to between 2.5% and 4% from the metropolitan area outwards.

2002: The tariffs were last published by the IEASA

2004: The IEASA no longer issues any guidelines on estate agent commissions and fees. This practice was discontinued in view of changes in the competition laws which meant that it was anti-competitive.

2013: There are currently no official or unofficial guidelines or tariffs whatsoever. Estate agents are free to charge whatever commissions and fees they choose.

CO M M ERC I A L R E A L ES TAT E I N S O U T H A F R I CA The commercial property industry is highly competitive and therefore commission fees differ considerably. Generally, brokers charge anywhere from 4%-10% for the sale of a property. The same is true when talking about the average commission for leasing.

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WB150F 14 Megapixel Samsung SMART Camera

AVA I L A B LE F RO M : R3 663

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L OV E I T: The iPad Mini’s ultrathin and light design is far more appealing than the larger iPad. Equipped with cameras, its storage capacities, optional LTE antenna and general functionality, it is a full iPad package. The front-facing Face Time HD camera gives a great view of you, while the iSight camera at the back lets you show others what you’re seeing. Additionally, you can record HD videos in full 1080p. And let’s not forget the advanced Wi-Fi, which is up to twice as fast as any previous-generation iPad.

L OV E I T: The Samsung WB150F has built-in Wi-Fi that is easily set up for wireless sharing and backup. You can wirelessly email content directly from the camera to anybody with an email account. Another drawcard is that the WB150F is inexpensive, at around 40% cheaper than its successor, the WB250F, with just about the same specs and features.


The iPad Mini still costs too much, especially considering the lower resolution of its 7.9 inch non-Retina Display. The A5 processor isn’t as robust as the one in the fourth-generation iPad and iPhone 5, and typing on the smaller screen is not quite as comfy. I N A N U T S H ELL : If you want the full, refined Apple tablet experience in a smaller package, the iPad Mini is worth the price tag. With its 7.9 inch screen, it breaks from the 7 inch tablet norm and is Apple’s cheapest iPad yet.

NOT SO MUCH: Samsung’s smartphone apps are only guaranteed to work with Samsung Galaxy devices and its auto backup software is Windowsonly. The camera’s photo quality is barely better than a smartphone’s and its shooting performance is fairly slow. I N A N U T S H ELL : If you’re happy with the photos from your smartphone, but wish you had an actual camera with a long zoom lens and wireless sharing and backup, check out the Samsung WB150F. With an abundant set of shooting and editing options, it is great for good quality photos that can be shared on the go.

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L OV E I T: PropCtrl Tablet App enables estate agents to work while on the go and upload listings to, their own websites and other property portals instantly. In addition, with the PropCtrl Tablet App, all listings related to the estate agent’s account can be accessed and shown on screen. This effectively turns your device into a digital property portfolio and helps you to make the most of face-to-face time with a potential buyer as you can showcase additional properties that could meet the buyer’s requirements.

L OV E I T: The HP Scanjet Professional 1000 Mobile Scanner is small, mobile and fast. At only 0.66kg, it is lightweight and can go anywhere. Perfect for an on-thego businessperson who needs to organise and share documents from various locations as efficiently as possible. The mobile scanner includes a heavy-duty carry case to ensure that the scanner is safely transported from one place to the next.

NOT SO MUCH: The bad news is that in order to benefit from this new app, you will need an Apple iPad – which is quite a pricey accessory. Property24 has said, however, that an Android app is coming soon, so perhaps the bad news will be short lived. I N A N U T S H ELL : The app is designed for estate agents, so if that’s not your occupation then this app is going to be of little use to you. However, if property is your game then this app has the potential to add years to your life. For now, you are going to need an iPad, as well as wireless internet and perhaps get to grips with the PropCtrl software – the app is free to download.

NOT SO MUCH: The mobile scanner does not have the best business card scanning software and is therefore not recommended if you need a mobile scanner primarily for business cards. Additionally, not much guidance is given on how to use the included software, which takes some time to figure out what it does. I N A N U T S H ELL : The scanner is portable, fast and comes with a full suite of scanning software. Powered through the USB port on your computer, it is easy to use and can scan a variety of paper sizes, although business card software is weak. The scanner can print with up to 600 DPI optical scan resolution and convert scans into editable files with Nuance OmniPage1. However, it is the size, USB power and heavy-duty case that make this mobile scanner a winner.

** All prices are approximate. NUMBERS TO KNOW


President Jacob Zuma today [20 March 2013] declined to “discuss the details” of the public works department’s R206m security upgrade to his Nkandla homestead. SABC News - Wait for the spending report: Jacob Zuma

Page 24: M O R E H A R M T H A N H ELP I N 2013?

MORE HARM THAN HELP IN 2013? There is a mixed bag of policies in the offing for the property industry that could help or hinder the market

What will legislation and policy bring to the property industry during 2013? With an election year coming up, the government is under pressure to perform and this could spell disaster for the property industry. So far, this year has started with both positive and negative news on the property front. On one hand there is a new segment of potential property buyers opening up, with the subsidy for the ‘gap’ housing market. On the other hand there are draconian laws that go against the very constitution being finalised and promulgated into law. I am referring to the restrictions on foreign land ownership and the four-tiered land ownership system. On 14 February President Jacob Zuma announced that the longawaited ‘gap’ housing scheme was underway. “The subsidy scheme promises to open up housing opportunities to hundreds of thousands of people who have been previously shut out of the market,” explains Berry Everitt of Chas Everitt International Property Group. The scheme is targeted at people who earn too much to qualify for RDP housing from the government, but not enough to qualify for an ordinary home loan. What this offers for the future of the residential market in South Africa is social stability and a broadening of the entrant’s base into the property market, which will have a ripple effect on demand and prices as the entrants start to upgrade. After being announced last year in the state of the nation address, the scheme now has the funding and green light to begin being allocated. The National Housing Finance Corporation will administer the subsidy on a sliding scale to the prospective home-buyers, but only if they have a clean credit record. This could be the reason the government is pushing hard for another credit amnesty this year, a credit amnesty that the banks have rejected, citing that the amnesty would encourage risk, an inappropriate culture and practice. There are currently 9.69 million

active credit consumers, of which only 53.1% are considered to be in good standing, according to Michelle Dickens, managing director of TPN. That leaves roughly 46% of the nation’s credit consumers in bad standing relating to their credit record. If a credit amnesty is granted, there is no guarantee that people with bad credit records will not go into debt again, only this time the creditors will not know they have previously had bad credit records. The subsidy-housing scheme is addressing a much-needed gap in the current housing market, and people who qualify will benefit greatly from this fund, as will the property industry as a whole. The scheme will see more affordable housing projects being developed as the demand for properties in the R300 000 bracket increases. Whatever subsidy a household obtains will immediately be applied to the purchase price of their new home, reducing the size of the home loan and easing the application process of a home loan in terms of the banks’ strict lending criteria. Another policy making headlines this year are the restrictions on foreign land ownership, announced by the Minister of Rural Development and Land Reform, Gugile Nkwinti, which sent shockwaves throughout the property industry. While the question of land reform in South Africa has always been an emotive and controversial issue, the key challenge South Africa is now facing is how to reverse the racial inequalities in land ownership without damaging the country’s image and negatively affecting foreign and local investment in the property sector. The Green Paper on Land Reform, published on 30 September 2011, is a strategic policy document dealing with land reform going forward. One of the elements proposed in the Green Paper is the four-tier system of land ownership, which states that there will be four types of land ownership or usage: State, private, communal and foreign. What the paper doesn’t

Page 25: M O R E H A R M T H A N H ELP I N 2013?

state but rather hints at is limitations and restrictions on land ownership for both foreign and local property owners. This has already come to pass following the announcement that foreign nationals will no longer be allowed to own land in South Africa once the Land Policy is finalised and promulgated into law. Instead of outright ownership, foreign nationals will be given long-term leases. Another worrying element attached to the Green Paper is the implementation of the office of the Valuer-General. The policy for the establishment of this office has already been approved in cabinet. The Valuer-General would have the power to determine just and equitable compensation in all cases where government has an interest, according to the policy, which also states: “these institutions will enforce compliance with the Constitution of the Country.” The Valuer-General’s powers would also extend past land reform to any transaction to which the state is party. A Land Rights Management Board is also proposed in the Green Paper. Its functions will, among others, be to communicate legal reforms to farm owners, farm dwellers and potential beneficiaries, to work with the Deeds Registrar to record and register rights on land, and to provide social solutions in the event of disputes or unlawful evictions. The Democratic Alliance in 2011 expressed its concern with the Green Paper over the proposed creation of a Land Management Commission that would be given wide-ranging discretionary powers to subpoena, award amnesty and invalidate land ownership. With the approval of the office of the Valuer-General, should the South African property industry be worried? Maryna Botha of Smith Tabata Buchanan Boyes says: “Because of the inherent threat in the rest of the Green Paper to expropriate, at most, and to limit, at least, foreign ownership of South African land, it will have a negative impact on investment in South Africa, foreign and local.”

While criticism is rife over the policies proposed in the Green Paper, the government is awaiting the results of a land audit before moving forward with implementing the policy and legislation proposed in the Green Paper. The Land Management Commission is essentially an infringement on the jurisdiction of the South African Courts and the very Constitution the courts protect. Dr Anthea Jeffery, head of Special Research at the South African Institute of Race Relations warns, “ Already the ANC has white-anted the Constitution in various ways, and the Green Paper on Land Reform goes much further, using the emotive land issue to bypass the Judiciary and establish a new norm: That the amount of compensation payable by an expropriation can be decided by a state official (the Valuer-General) and that title to land can be set aside or be ‘invalidated’ by a new bureaucratic body -the Land Management Commission.” Making foreign land ownership an issue is not the right way to deal with land reform, neither is infringing on the constitutional rights of property owners. While a clear and equitable policy is needed for land reform, the government’s approach will skew the country’s image and damage the property industry. With the proposals in the Green Paper still to be drafted into legislation, the final outcome is not yet certain. With both positive and negative policy and legislation set to come into play, the property industry is set for a rollercoaster of a year. Research shows that the South African property sector is valued at R4.9-trillion. The amount of revenue the property industry generates should encourage the government to tread lightly where harsh and counterproductive laws are concerned and offer encouragement instead to grow the industry even further.


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CAUGHT BETWEEN A ROCK AND A HARD PLACE Will the Services Sector Education and Training Authority get its act together and deliver the required certificates before the end of the year, or are agents who have taken the time and paid a great deal of money to various training providers going to be left high and dry?

In the last edition of the Property Professional we promised to report back on what was happening with the Services Sector Education and Training Authority (SSETA) and find out why it was taking so long for this body to issue the necessary educational certificates. How concerned should agents who are still waiting be, given that the Estate Agency Affairs Board (EAAB) has repeatedly stated that it will not issue Fidelity Fund Certificates (FFC) to agents who are not in possession of the correct educational requirements and that the deadline for certification is the end of this year? Is SSETA going to up the ante and ensure that all outstanding certificates are delivered on time, or will the EAAB delay the implementation of the new policy until SSETA finally comes to the party? We’d love to give you an official response, but unfortunately, no one in either organisation seemed willing to talk to us at the time of going to press and our emails remain unanswered. According to some in the know, the problems do not lie with SSETA alone and there have been instances where some unscrupulous training providers have printed their own certificates. There have apparently also been cases where training providers have not forwarded the necessary (if any) material to SSETA. Then there are the issues surrounding what was once one of the biggest real estate training providers in the country, the Development Institute and Training Academy of Southern Africa (DITASA). Suspended as an accredited training provider, it appears that those who studied with this trainer have been caught in the middle of the dispute between it and SSETA. Obviously these worrying issues have to be addressed, but keeping agents in the dark is surely not the way to go. It is extremely difficult, if not downright impossible, to write a balanced article when the two government authorities involved are not willing to respond to questions posed in a timely manner. Although not everyone may consider the matter urgent, there are many people who are very concerned. Dina Porteous, director of REBOSA, says that its members are deeply concerned about the current state of affairs regarding the certification of

principals and agents who have achieved their respective qualifications. “However, we have no way of validating the magnitude of the problem. We find it unacceptable that this apparent problem has not been resolved among the training providers and SSETA for over a year.

“There is a total lack of clear guidance and communication from SSETA and the EAAB to all industry stakeholders regarding the official position.” Jeanne van Jaarsveldt, vice president IEASA. “We intimately understand SSETA’s position in terms of the lack of the industry’s understanding of the process between submission of portfolios of evidence to the training provider and their internal verification and then the external verification processes, however there are timeframes by which each one needs to deliver. These timeframes are imbedded in the various Acts and Accreditation Conditions. “Often, after investigation, one would find that the fault does not lie with SSETA but with the training provider. The other concern is that there is no consolidated plan to resolve the problem among stakeholders and communication only happens when people are threatened with the Presidential Hotline, or a formal complaint to the Minister of Higher Education or the press.” Jeanne van Jaarsveldt, vice president of the Institute of Estate Agents of South Africa (IEASA), says the organisation has been inundated with enquiries from both agents and principals looking for clarity. “There is a total lack of clear guidance and communication from SSETA and the EAAB to all industry stakeholders regarding the official position. Most of the agents and principals who call our offices are desperately looking

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for clarity, information and guidance. At this stage it is a bit like feeling your way around in the dark, with no indication of where the light switch is,” says van Jaarsveldt. The big question here is, of course, whether the EAAB and SSETA are talking to one another and trying to resolve the issue. Again, given the lack of communication with outsiders, one can only assume that they are and that the issue will be resolved timeously. Something needs to happen and quickly as, according to van Jaarsveldt, the EAAB is not accepting the ‘Letter of Competence’ as sufficient proof that an agent is competent and will only issue 2014 FFCs with proof of a certified certificate, issued by SSETA. Agents have spent a lot of money ensuring that they are up to speed on the educational front and it is shocking that, through no fault of their own, they could be barred from practising as agents by next year. The lack of delivery has affected all sectors, including commercial sales. Tony Clarke, managing director of Rawson Properties, believes that although urgent, there is no need for concern as “everybody who has not received a certificate is in the same position.” He may well have a point and the fact that so many people are still waiting to be certified must surely mean that the EAAB will have to

the only crisis the industry is facing. According to van Jaarsveldt, there are still large numbers of agents who have made no effort to attain the necessary qualifications. “The latest statistics indicate that about 12 000 agents have not completed the required NQF4 certification.” In an ever-shrinking pool of practising estate agents, this figure is in itself cause for alarm. It is, of course, not known why these people have chosen to flout the new requirements, but one has to wonder if the threat of the non-issue of FFCs is regarded as a real danger to those who have never complied with even the most basic requirements and whether this will actually stop them from selling property. In a nutshell, it is unlikely and will remain so until the EAAB gets serious about cracking down on illegal agents. In the meantime, those who are concerned that they have not yet received the correct documentation shouldn’t just sit back and hope. Going it alone in an effort to get answers doesn’t appear to be working and van Jaarsveldt recommends that those who are struggling to get their certificates contact their training providers, who will then be able to contact SSETA on behalf of a number of learners. Porteous says: “As an association representing its members, we have invited affected companies to formally address their issues with us in order for us to facilitate and resolve their issues collectively. We are concerned that we don’t have a clear picture of what the current status is, so we really can’t know for certain how big or small the problem is as complaints are often directed to the wrong stakeholder, who would be looking to shift the blame, especially if they are in the wrong.

“REBOSA Committee members hear these complaints whenever we conduct industry meetings and road shows. Unfortunately, they will remain complaints unless we are formally requested to step in.” Dina Porteous, director REBOSA. delay the requirements for the reissuing of FFCs. Unfortunately, while the board remains silent, no one knows for sure what is going to happen or, indeed, which way the board is going to swing. However, there are strong indications that the EAAB means business and is not going to change its stance towards those who are not qualified. “Many agents assume that the EAAB will not withhold the FFCs, or will not downgrade the competency level of the agent from full agent to that of intern agent for those not in possession of the necessary paperwork,” says van Jaarsveldt. “However, the EAAB has sent out clear messages that it is exercising its mandate as the regulator of the industry and part and parcel of this is the issuing of FFCs. As the EAAB (regulatory) and SSETA (education) are at separate ends of the real estate spectrum - and in many respects, opposing ends - agents must not fall into the trap of thinking that because SSETA is delaying the issuing of certificates or not assisting in granting bursaries etc., that the EAAB will see this as sufficient grounds to overlook regulations and the issuing of competence certification in the form of valid Fidelity Fund Certificates in 2013.” The repercussions that this entire debacle could have on the real estate sector as a whole are pretty obvious. However, if truth be told, it is not

“REBOSA Committee members hear these complaints whenever we conduct industry meetings and road shows. Unfortunately, they will remain complaints unless we are formally requested to step in. I believe that it is the EAAB that will have to deal with the result of the problem (the lack of certificates) and will have no alternative but to enforce the Training Regulations in this regard. The problem is bigger when the Principal is not issued with an FFC as this will result in none of his/her agents receiving their FFCs, even when they have passed all their qualifications and have received their certificates.” The Institute is assisting affected members of IEASA and is in direct contact with SSETA to help resolve the problem. In addition, the Institute has taken the matter up directly with SSETA and has made contact with people at SSETA in a bid to resolve matters for IEASA members. Perhaps the time has come for both SSETA and the EAAB to start talking to the people they represent. Burying their heads in the sand is not going to make this problem go away and as the cut-off date looms, so the pressure to deliver will increase. People’s livelihoods are at stake and it would be tragic if, through no fault of their own, agents were barred from doing their jobs simply because someone else wasn’t doing theirs.


Page 30: S A R EI T

Estienne de Klerk - REIT committee chairman for the Property Loan Stock Association, also executive director at Growthpoint Properties

SA REIT BECOMES A REALITY SOUTH AFRICA’S NEW REAL ESTATE INVESTMENT TRUST OFFERS CERTAINTY ON RETURNS As of 1 April investors in the listed property sector will have certainty that 75% of all net income is distributed, thanks to South Africa’s new Real Estate Investment Trust (SA REIT). In addition is the certainty that tax exposure is determined only by the tax status of the recipient. Prior to the launch of SA REIT last month, the portfolios of shareholder stock derived from the JSE’s property funds would have been in the form of Property Loan Stock units (PLS), or Property Unit Trusts (PUT). Each offered investors varying distribution and tax structures and, in the case of PLS, a complex loan stock structure that did not sit easily with the South African Revenue Service (SARS). As a result, criticism of ambiguous tax structures strongly contributed to the JSE’s implementation of REIT last month, which now offers investors much needed tax and regulatory changes. All existing listed property funds will convert to REIT, with varying conversion processes and benefits applicable to PLS and PUT. JSE - SA REIT AS THE PROPERTY SECTOR’S LATEST INVESTMENT VEHICLE Patrycja Kula, business development manager at the JSE, says: “The REIT structure is in line with international best practice and having a globally understood structure will make our listed property sector much more attractive to foreign investors. The tax advantages of the new structure will also make the listed property sector much more attractive to local investors.” Regarding the new listings requirements for REIT, Andre Visser, general manager - JSE Issuer Regulation Division, says three major differences in qualifying to list as a REIT fund compared to previously listing as a PLS or PUT apply. Companies have to show a minimum distribution or

dividend of 75% of the distributable profits to shareholders, at least 75% of a company’s revenue must be derived from rental income and gearing or borrowing has to be limited to 60%. The conversion of local property funds to the new REIT structure is placing South Africa as the eighth largest REIT market in the world and may signal significant interest in new listings. Visser says tax certainty created for issuers with a REIT listing is a major attraction and although nothing is yet confirmed, very promising discussions with advisers and companies have taken place. INDUSTRY OPINION - TAX IMPLICATIONS FOR INVESTORS SARS’s questioning of previous distribution processes to PLS unit holders has resulted in the conversion to REIT, bringing it in line with the tax treatment for dividends. REIT committee chairman for the Property Loan Stock Association and executive director at Growthpoint Properties, Estienne de Klerk, says REITs will benefit from not having Capital Gains Tax leakage to the extent that they sell properties at a profit, and this will benefit shareholders in returns. He says local investors will receive gross distribution in the form of taxable dividend free of dividend withholding taxes, with tax on distribution at each shareholder’s applicable tax rate. Shareholders can use debt to acquire REITs and the interest paid should be deductible in the production of income as treasury see the dividend as ‘rental’ in essence. Foreign Investors will be liable to pay dividend withholding tax at 15% post 1 January 2014 or the relevant rate set in the applicable double tax agreement, he says. REIT ATTRACTING GLOBAL INVESTMENT De Klerk says: “Should all the current PLS and PUTs become SA REIT weighting in the global REIT indices could potentially quadruple, with South Africa as the eighth largest REIT market globally. He says

Page 31: S A R EI T

as the country’s largest listed property company, Growthpoint Properties Limited is set to become the 40th largest REIT globally by market capitalisation. De Klerk says excluding the United States’ REITs, Growthpoint Properties will become the 15thlargest REIT globally by market capitalisation - the largest in emerging markets. REIT facilitator to the JSE, Andrew Brooking of Java Capital, says: “Although only time will tell, the new tax structure is more likely to attract greater foreign investment in the future due to the fact that it removes any real or perceived tax risk associated with this vehicle from a potential global investment perspective.” He says the new structure offers a tax dispensation for qualifying property vehicles in that if a property fund qualifies as a REIT, then its qualifying dividends are tax deductible. Coronation Fund portfolio manager, Anton de Goede, says the REIT structure in South Africa will put the local listed property market on a similar footing as countries like the United States, Australia, Japan and the United Kingdom. He says although foreign investors are currently invested in some of the larger listed property counters, having an investment vehicle similar to what investors are familiar with in their home markets makes it easier to export our listed property sector globally. De Goede says he doubts South Africa will experience an immediate influx of additional investors. “First, foreign investors will be liable for withholding tax as REITs pay out dividends as income (and the income return is the main reason investors are drawn to REITs), while within the current PLS and PUT structures foreign investors earn interest and are thus not liable for withholding tax.” A healthy demand for local listed property from local investors already exists, which makes the investability and liquidity of this sector more challenging for foreign interest as opposed to other local sectors, such as retail and resources, says de Goede. ABOUT THE RESIDENTIAL PROPERTY MARKET ENTERING THIS FORAY IN THE NEAR FUTURE Growthpoint’s de Klerk says: “It has always been my view that it will only be a matter of time before we see the first residential REITs on the JSE. The challenge has been for incubator funds to get to critical mass and to bring something to the institutional market at an attractive yield.” He says various local private funds could come to market, assuming the conditions are attractive.

INDUSTRY REPRESENTATION Market players now benefit from a single representative body for the sector. The newly constituted SA REIT Association is the merged body of the previous Property Loan Stock Association (PLSA) previously chaired by Norman Sasse, CE of Growthpoint Properties, a significant driving force behind the launch of REIT, and the Association of Property Unit Trusts (APUT). The SA REIT Association is developing a Standard Disclosure Procedure, and REITs will be encouraged to account and disclose accordingly. PROPERTY SHARES VERSUS DIRECT PROPERTY OWNERSHIP The conversion to REIT offers potential investors improved options when weighing up the benefits of direct property ownership versus property shareholding in listed property stock on a global platform. In addition to majority income paid to shareholders on a regular basis, it offers both long- and shortterm benefits, such as secure and affordable entry into the property market, without the trappings of mortgages, tenants, maintenance, levies or transfer duties. Unlike holding title deeds to properties, it offers investors tangible assets of a diverse nature as well as geographical spread, tradeability, liquidity, favourable forward yields and earnings that are reasonably easy to predict. DIGITAL INVESTMENT TOOL Access to information of the global REIT investment platform is provided by REITs SA. Loren Cantrell of REITs SA says as an independent property resource, this freely accessible real time portal offers easy Internet and mobile access to maximise investment opportunities as well as informed decision making across the globe. Cantrell says: “The portal serves to provide easy international comparisons of performance while protecting investors within an internationally defined and regulated industry whose performance playing field is more uniform and easily identified.”


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TO TRUST OR NOT TO TRUST? When you think of trusts, what comes to mind? For most people, the word ‘rich’ springs to the fore. After all, most of the world’s wealthy have trusts. But here’s the rub: they don’t have trusts because they are rich; they are rich because they have trusts. The right legal entity could see property investors saving millions down the line in tax, registration and legal costs.

SO HOW DOES THE TRUST STRUCTURE WORK? A trust is a simple legal entity, which is established by a founder for the safe keeping and management of the trust’s assets by the trustees. The Master of the High Court appoints the trustees, who will handle the trust for the benefit of the nominated beneficiaries.

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As a property investor, a trust is a great tool if used correctly; through this structure investors can obtain more mortgage bonds than if they applied in their personal name. A trust is also not subject to the provisions of the National Credit Act as it is a separate legal entity. Aside from extending a property portfolio, there are also massive savings on income tax.

THE ELEMENTS OF A TRUST In order to avoid a court declaring a mismanaged trust invalid, it should be set up and managed professionally. There are five essential elements to creating a trust.

REFORM ON TAXATION There has been a lot of speculation surrounding the reference made by Minister Gordhan to the reform of the taxation of trusts in his budget speech; if history repeats itself, then the talk of reformation may be just that, talk. The pertinent issues mentioned by the finance minister were regarding the use of trusts to minimise duties and the taxation of trusts. The minister spoke of the Treasury reviewing how to curb the use of trusts to minimise duties and a reformation on the taxation of trusts to prevent abuse. Jose Delgado of Delgado Velosa Kenworthy & Associates explains the full context of the comments made: “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 be treated as revenue in the hands of the beneficiary.” But how the actual changes are going to be implemented remains to be seen. In previous years there was mention of estate duty being abolished, and now the opposite is true; this may well be the case now regarding reforming the taxation of trusts. THE BENEFITS STILL WIN OUT A trust is still going to offer the most comprehensive asset protection, estate duty savings, capital gains tax saving and other costs related to an estate. And unlike people, a trust has no lifespan, so even after death, a trust will continue to generate an income and capital appreciation. When it comes to managing risks, there are benefits in the trust structure for personal assets. If property owners place their property or portfolio of properties in a trust, they no longer belong to the property owner; in essence they belong to the trust. This provides property owners with protection in their personal capacity should any actions be taken against them such as insolvency, divorce, business volatility, disputes and other financial risks. In this way, property owners can safeguard their personal assets in a trust separate to those of their property portfolio. Then, in the unlikely event that the properties are unable to pay their debts, creditors cannot touch the property owner’s personal assets. The property owner and their personal assets can also not be touched if any liability claims arise against the trust holding the property portfolio.

1 2

The first is a grantor or a trustor; this is the individual, company or legal entity that initiates the formation of the trust. They possess ownership rights of the asset and transfer it to another person to keep in trust.

The grantee or trustee is the legal entity that is given the mandate to manage the property by the trustor. The trustor is under agreement to administer the property as per the trustee’s wishes. If they fail to do this, it can lead to legal ramifications.


The trust must provide a beneficiary or beneficiaries who will benefit from the trust; the beneficiary doesn’t have to have knowledge or notification of the trust for it to be valid.


For a trust to be valid there must be a specified intention from the part of the grantor to form a trust and be bound to it. This must be presented on a document called a trust.


The trust document must specify the property, in the form of an estate, cash, a business, a vehicle or even a boat, that the trustor gives to the trustee to manage for their beneficiary.

With no limit in value to the assets that can be held in trust, the trust structure is one that allows investors the maximum savings, while protecting their personal assets should anything go wrong. Even with talk of reforming the tax structure, it offers the best property portfolio protection and with the right trustees managing the trust, the business will keep on generating an income far into the future. R ES O U RC ES Delgado Velosa Kenworthy & Associates RCS


Page 36: F I N A N C E A N D F I G U R ES

HOW DO HOME LOANS MEASURE UP? Property Professional gathered information from the country’s leading mortgage originators to provide some insight into what deposit buyers paid in 2012 versus 2013 as well as how many home loans were approved and what the average age of applicants were. We compare statistics from February 2012 to February 2013:

Average age:

Average deposit required:

F EB R UA RY 2 0 1 2 :

F EB R UA RY 2013:

years old

years old

37 37

Percentage of home loan application approvals: F EB R UA RY 2 0 1 2 :

F EB R UA RY 2013:

F EB R UA RY 2012:

F EB R UA RY 2 0 1 3 :

16% 15% Where do most of the buyers come from? F EB R UA RY 2012:

F EB R UA RY 2 0 1 3 :



61% 68% 53% 50%

** BetterBond statistics only

Average value of bond size: F EB R UA RY 2 0 1 2 :

F EB R UA RY 2013:

R 727 383 R 763 770

5% increase from Feb’12 – Feb’13

** Information supplied by ooba and BetterBond

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Page 38: P RO P ERT Y VA LU ES : T R U E O R FA L S E

PROPERTY VALUES: TRUE OR FALSE High margins of error and inconsistency suggests that the property valuation system in South Africa does not work

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Does the mass appraisal system for property valuation work? Computer appraisals rely on accurate up-to-date data, but the widespread inconsistency reported in the 2013 General Valuation Roll tells a different story. It highlights a valuation system bereft of accurate data or an adequate audit process leading to the high margins of error being felt by property owners all over South Africa.

reports of favourable valuations and reports of valuations where the client reports a dramatic increase in value. Unfortunately it would seem that these valuations are not consistent.” And in Cape Town the experience is the same. 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 5-10%.”

A property valuation is the process of appraising real property to get the market value. This market value is then used to calculate new rates. So the higher the commercial or residential building is valued, the higher the municipal rates will be.

A system like the mass appraisal model is made for homogenous areas and doesn’t take into account that properties in the same area can have vastly different market values. If there are two properties in the same street in Cape Town, one might have a sea view and garage, while the other has no view and street parking. The property with the sea view will have a much higher market value than the one without. With no consistency in the percentage increases, it becomes the issue of the property owner to object and appeal to have the value corrected to reflect the actual value of the property. Ben Espatch of Rateswatch explains: “If the previous values were correct, then one would expect consistent increases, but if some of the properties were undervalued, the increase should be higher compared to those that were previously valued correctly.” This could account for properties whose value has gone up exponentially.

Unlike assets like corporate stock, property does not retain a fixed market value and many factors contribute to its market value – things such as location and size and what the property and properties in the same area have sold for. In residential property factors that play a large role in market value are the amount of bedrooms, the interior of the property, the amount of bathrooms and whether there is a garden or not. In commercial property the key components are lettable area, the grade, size and type of the building and the location, as the area sales of surrounding commercial buildings constitutes a large percentage of how the value is calculated and informs the achievable rental per square metre. In Cape Town the valuations are done in-house by the municipality using a generic computer programme (CAMA), a computer-aided analytical procedure used to value large amounts of properties. In Johannesburg the valuations are outsourced through a tender process, but a similar computer-aided system was used. The Municipal Property Rates Act states that all properties must be valued at market value, which is defined as the amount the property would have realised if sold on the date of valuation in the open market by a willing seller to a willing buyer. The date of the valuation may not be more than 12 months before the implementation of the roll; this would mean that the property was valued last year in July, allotting the municipality only six to eight months to generate the entire valuation roll. With Cape Town holding roughly 800 000 properties and Gauteng’s top three municipalities (Johannesburg, Ekurhuleni and Tshwane) holding about 2 000 000, is eight months to a year adequate time? SO HOW EXACTLY IS A PROPERTY VALUATION CONDUCTED? The value forming attributes are collected for every property, and market reports are created by analysing sales that took place around the date of valuation. This sales data is then used in the computer-aided analytical procedure to arrive at the market value of the property. The biggest flaw in the valuation system stems from the data used. If incorrect or incomplete data is used to arrive at the market value, the value assigned will be incorrect. Without actually seeing the physical building, the valuers are relying only on sales data and aerial photography to arrive at the correct figure, but so far there are huge discrepancies and inconsistencies being reported in both Cape Town and Johannesburg. Jonathan Davies of Pam Golding, Hyde Park, says: “We have had

Up to 3 000 people have filed objections to Cape Town’s valuation roll, and in the commercial sector in Johannesburg the discrepancies are between 15-20%. Mr Meakin, a registered professional valuer and associate member of the Institute of Valuers South Africa, explains that an independent audit of the average margins of error in the valuation roll is mandatory. “Only then can it be established if Christopher Gavor’s (director of Cape Town’s valuations) computer has made an educated guess according to the guidelines of the International Association of Assessing Officers (IAAO) to which the city subscribes.” Otherwise he says: “The margins of error in undervalued properties might be 50%, nobody can tell. The fail-safe check, according to the city IAAO manuals, is to send independent appraisers into the field to manually value a random sample of the unsold properties. Mr Gavor is on record as saying that the city had examined a ±2.5% sample of the properties in the field. However, this is seriously questioned because firstly these could not have been the unsold 800 000 portions because that amounts to ±20 000 valuations, a completely unmanageable sample. Secondly, ratepayers want the results of an independent audit, not an in-house report. They want to be reassured that they are paying an equitable share of the rates, no more and no less.” The supplementary rolls produced in Johannesburg last year saw 16 000 objections to the 85 000 properties on the roll, and the appeal process for this roll is ongoing due to sheer amount of objections and that was just from one municipal supplementary roll. The General Valuation Roll is still ongoing and if estate agents in the field in Johannesburg and Cape Town are correct, the objections to the General Roll will be overwhelming. HOW DOES IT AFFECT PROPERTY OWNERS? When a commercial building is overvalued, the rates affect the return on

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the building and create a trickle-down effect where increases are passed on from the owner to the tenant and then to the clients. In residential property it is the homeowner who suffers; high monthly rates coupled with an already high cost of living are seeing homeowners unable to keep their property, and if they let the property out, the rate increase is then passed on to the tenant.

they not only have to review their valuations of their properties each time a valuation roll or supplementary valuation roll is published, but each year participate in the public participation process run during the months of February to April in relation to the review of the local authority’s rates policy in Gauteng.

In terms of the Act, each municipality must, on an annual basis, review their rates policy and the manner in which they categorise properties.

In the long term the valuation model must be reviewed, and if businesses and homeowners stand together, they can insist that someone checks the checker, because without the correct data and enough time to audit the process, the end result will be incorrect. Brian van Vuuren, head of valuations at JHI, Sandton, adds: “Municipal mass valuation is all about systems. If the correct systems are in place and sufficient time is allowed for in producing the roll, a 95% accuracy rate should be obtained. Strategising and planning of professional staff is what it is all about in the earlier stages of compiling a municipal roll. To avoid this happening

Pieter Niehaus of Norton Rose says: “It has transpired in Johannesburg that in the past year certain properties that have been zoned as private open space (for example, sports clubs and certain parks) have been moved from the private open space category to the category of business, commercial and industrial. The significance is that their tariff increased by 1 400%.”

again, the process of selecting the correct property valuer must become a lot more transparent. The public need to be educated and informed more. Sufficient time must be allowed for the valuer to complete the process accurately. The window period for objections, normally two months, needs to be extended to at least four to six months allowing a sufficient time frame for all parties to lodge objections.”

WHAT CAN BE DONE ABOUT THIS? The first thing every home or building owner should do is object to their appraisal if their property has been overvalued or placed in the incorrect category. While it is not a certainty that this will result in the value being changed, it is the only course of action to ensure that property owners are not saddled with high rates for the next two to three years. While an appeal is being dealt with, the property owner will be liable for the rates based on the municipal valuation. If an objection results in the property value or zone being changed, the property owner will either be in credit or arrears, depending on the new rates.

High and inaccurate property rates will have a detrimental domino effect on business and the property industry. With the amount of money generated by property rates, the municipalities should ensure the property valuation system used is an accurate and consistent one generating equitable rates.

It is also crucial to consider that if one is faced with an inflated or manifestly incorrect valuation, the problem of paying higher assessment rates can be even further compounded if an incorrect tariff is applied if one’s property is categorised incorrectly according to each local authority’s rates policy.

The less accurate the valuation roll is, the more it affects a property owner’s cash flow. Sure, they might get the money owed back, but how long will it take and can property owners afford to pay the high rates while their objection is being dealt with? Property owners (especially in cases of the properties being non-residential) are also well advised that

R ES O U RC ES Rateswatch JHI Simon’s Town Civic Association Pam Golding Properties Norton Rose Institute of Valuers South Africa




“An organiser of the recent farmworkers’ strikes in the Western Cape is getting funds from the government. The department spent a total of R13m on NGOs last year and budgeted R16m for this year. Their funding was used to distribute food parcels to families during the strike at the end of last year and help defend workers who were dismissed from work or evicted.” Fin24 - Strikes organiser gets state funding

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Property owners and managers the world over share the inability to control energy costs, and as a result an increasing desire to control energy consumption. The benefits derived from spending human energy to achieve energy conservation as well as energy efficiency to reduce costs as well as carbon emissions are limitless. “The problem of energy management has been solved technically; all that remains is 50 years of implementation,” says US scientist and environmentalist Amory Lovins. The term ‘negawatt power’, coined by Lovins in 1989, refers to the measurement for energy saved as a direct result of energy conservation, and therefore an additional energy reduction technique to energy efficiency. Facts about the economic returns of retrofitting existing, in particular old, buildings are well documented globally, and the technological means for implementation have been available for some time. More essential to implementation is financial support to achieve effective retrofits to optimise long term benefits. Energy conservation practices implemented in organisations around the world through awareness and incentive programmes slash utility bills dramatically. Clever retrofits enable optimum operations and maintenance efficiency, resulting in sharp reductions of consumption costs, particularly in older buildings.

of standard coal, 117 times the level in 1949, and 4.4 times the level in 1978. The study illustrates how pressure on energy supplies is causing social problems as well as slowing down development in China. This is where appropriate retrofits of existing buildings would achieve energy consumption savings of up to 40%, energy operating costs of up to 10%, and reductions of carbon emissions into the environment of up to 20% The Green Building Council of Australia has long recommended the implementation of a financial support system to promote the retrofitting of ‘brown’ buildings. Australian commercial property owners are benefiting from a finance model and partnership between government and private sectors. Developed by Low Carbon Australia, industry groups in Melbourne are offered up front monetary support for retrofits, with loans in the range of $2-million. Following the US Environmental Protection Agency’s estimate that 30% of the energy used in commercial buildings is wasted, is President Barack Obama’s proposal for $200-million in his next budget for a ‘Race to the Top’ program, an initiative that plans to reward states that pursue energy efficiency.

Depending on the age of buildings and era of design and construction, several studies have shown that the sheer mass of some old buildings, where superior building methods, passive ventilation and optimum insulation were implemented, are naturally more energy efficient. To this end, South Africa’s listed property sector was seen educating investment markets as far back as 2007, when the Association for Property Unit Trusts highlighted financial rewards derived from improved property valuations as one of many positive outcomes of green buildings. The value of retrofits in fast-growing economies is of particular note, such as in China, which has the world’s largest construction market at present. An Institute for Building Efficiency study, directed by Johnson Controls, states China’s output of primary energy in 2009 reached 2.8 billion tons

Remgro’s Millennia Park became the first Green Building Council of South Africa’s 5 Star Green Star SA Office v1 Design certified refurbished building, following a complete retrofit to boost energy efficiency, while retaining 96% of the original structure.

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Although green building rating tools have been available to South Africa’s commercial property sector for some time, increased awareness related to retrofits is seen locally. A growing number of property owners participate in energy assessments and benchmarking tools through the National Energy Barometer. This benchmarking tool is supported by the Central Energy Fund (CEF) through the National Energy Efficiency Agency (NEEA), and enjoys endorsement by government’s national energy efficiency campaign, Save It! The Energy Barometer enables building owners to assess their energy intensities, compares these with historic consumption, as well as to the industry average in the same sector. Energy savings of between 10% and 30% can be achieved by implementing measures with payback periods of less than two years. The Energy Barometer Survey for the utility year January to December 2011 was published in February 2013. Dr Braam Dalgleish, business unit manager of the National Energy Barometer Survey says: “The most exciting aspect of this year’s survey is that participation has grown to close to 100 for the current survey.” In addition is the Energy Training Foundation at Energy Cybernetics, which offers local engineers international certification through the Association of Energy Engineers (AEE); they are required to score a 70% pass mark for qualification. Also on the cards for local property owners and management companies is the Green Building Council of South Africa’s (GBCSA) latest innovation, the Green Star SA Performance Rating Tool for existing buildings. For the first time, it will allow a Green Star SA Rating Tool to address and measure operational building performance. Should full funding be secured and appointments of consultants are made in time, the new PILOT tool should be available by October/November 2013. GBCSA technical director Manfred Braun says the main motivation behind the establishment of this tool is the potential to provide large-scale environmental impact benefits that can be carried out in 95% of local buildings. He says analysis of stakeholder feedback showed the three most important needs in the development of this tool to be ease of use, accessibility and simplicity, certification within operational budgets and importance of tenants’ perceptions of value. Retrofits will help overcome the barrier of upgrading existing buildings with lifespans of 50 years or more within a relatively short period, one refurbishment at a time, and within annual operational budgets. The Green Star SA Performance Rating Tool addresses a new sector of the South African property industry, and will service a larger component of the local property industry than any Green Star SA Rating Tool, covering various sectors including office, retail, hospitality and the like. Historically, utility bills have been passed on from landlords to tenants, where occupants have little reason to be concerned about the long term investments of their landlords, nor the long term impacts of the energy performance of buildings. While utility bills as ordinary and necessary operating expenses are tax deductible, industry says efficient financial models catering for long term management and tax efficiency for all energy efficiency investments in buildings is essential.

Buy-in from facility managers and tenants is essential for the uptake of green building management. A growing trend is seen among tenants in non-green buildings, new and existing, demanding green space to demonstrate a commitment to sustainability, and to accrue the benefits of increased productivity and lower operating costs. As green leasing, borrowing, legislation and business funding grows, so is the awareness of greater employee benefits derived from healthy buildings. A recent local example was seen by one of the 58 members of South Africa’s Energy Efficiency Leadership Network from the mining and energy, commercial, industrial and manufacturing sectors, business associations and government departments. Vodacom unveiled the largest array of solar panels on a single building in Africa at its offices in Century City in Cape Town. The installation forms part of the firm’s mission to reduce its energy consumption, and is expected to contribute up to 75% of the electricity required during peak production.

ED: Worldwide, buildings are responsible for about a third of all carbon emissions. At the time of going to print, there were 30 certified green buildings in South Africa and 50 registrations in the pipeline with the Green Building Council of South Africa


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Monte Christo Retirement Village is one of the few new retirement villages that are selling a completed product to senior residents of the Southern Cape. A state-of-the-art frail care facility, village houses, wheelchair-friendly apartments, a hairdressing salon, library, computer centre and a clubhouse that has a dining lounge, restaurant and ladies bar are amongst the completed facilities Monte Christo has to offer. The Property Development Management Company, Lazercor Developments, has noticed the difficulty senior residents are facing when trying to sell their current properties enabling them to purchase into a retirement village. In order to embrace this current market condition, Lazercor, together with the contractors and the professional team, have implemented cost-engineering without compromising the build quality. Considering the facilities that are included, Monte Christo Retirement Village now offers selling prices well below the market norms. The build quality, evident on the completed units on site, will set the standard for the units still to be built. The savings will not be based on reducing the quality of the units or eliminating any of the facilities offered, but from lowering plot prices and bringing profitability down to a level that is sustainable. Because financial security is so critical after retirement, Monte Christo residents can have peace of mind in knowing that the levy system is completely transparent and set up in such a way as to ensure that the village remains sustainable, while residency is kept affordable.

“The upgrading of Sea Point’s commercial precinct is having a positive effect on its residential market as it once again becomes a sought after area for well-heeled buyers,” says Signatura’s John Rabie, who is developing a luxurious apartment block in Calais Road. Named Azzurri after its panoramic sea views, the block features six two-bedroomed units with spacious terraces and some with indigenous gardens, as well as a duplex penthouse with three bedrooms and 343m² of overall living space. Each unit also comes with two garages and is accessed by a private lift from the parking area. Three of the seven units were already sold before the foundations were dug; with the expansive penthouse being bought for R7.5-million. Azzurri is expected to be complete in February 2014 with units starting at R3.65-million. “Sea Point lost some of its status as a desirable place to live in the late 1990s and many potential buyers were put off by signs of urban decay and neglect,” says Rabie. “However, it is now benefiting from the upgrading of the business zones and revitalisation of some older blocks that had fallen into disrepair. The City of Cape Town’s new zoning scheme, which anchors its Spatial Development Framework, is having a significantly positive impact on redevelopment and investment opportunities in Sea Point. Azzurri is a case in point. The site once held a dated single residence that has since been demolished and in its place, architect Jean Bernicchi has planned a modern, multi-level building that gives owners privacy, views and plenty of outdoor space.

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BUCKING THE TREND IN A CHALLENGING MARKET With the global downturn in GDP set to continue in 2013 through to 2014 according to leading economists, the South African property market is a challenging arena in which to operate. Property owners

“When we started the company 10 years ago, our vision was to create first class schemes in prime locations, not necessarily doing that many units, but with an obsessive focus on quality,” says O’Brien. “I feel privileged that we have been able to consistently do this in the current market conditions and am in no doubt that the Broughton Place homes will be amongst the finest Constantia has to offer.” SOUTH AFRICAN GATED ESTATES GENERATE 65 000 JOBS AND PAY AT LEAST R3.9-BILLION A YEAR IN SALARIES AND WAGES A recent survey indicates that about 65 000 people are employed directly and indirectly on secure gated estates and sectional title residential developments in South Africa.

are faced with increasingly high municipal rates and the inevitable electricity price hikes are disheartening to say the least. Add to that the increasingly stringent policies of South African banks when it comes to home loan applications – one out of every two of which are turned down – and the picture painted of the property market is not an optimistic one. However, in the midst of this economic slump, when people are increasingly cautious with their finances and investments, there are certain property developers who are bucking the trend, developing and selling property remarkably quickly at high price points – even off plan. The secret of their success lies in the quality of construction, exceptional value, prime locations and security estates. A case in point is the Urban Space Property Group. Established in Cape Town in 2003, Urban Space specialises in the development of bespoke residential schemes within secure estates, the latest example of which is Broughton Place – an exclusive development of eight luxury homes in Constantia. Broughton Place is the first security estate in this prime location, offering homeowners a secure family lifestyle and a sound investment opportunity. Each of these gracious homes, which vary from 520m2 to 750m2 set on stands ranging from 1 374m2 to 1 506m2, have been designed to strike the perfect balance between the desire for a finely crafted house and the essential need for security. Sceptics may be doubtful, however the rate at which Urban Space sells its high end developments tells a different story and is testament to its widely received acclaim for the quality and imaginative design of its schemes. Brendan O’Brien, director of Urban Space, attributes the consistent success rate of Urban Space to a number of reasons, chief among which are prime location, a non-negotiable security element, exceptional quality and value for money. “The reality is that in order to sell houses within this price range off plan within the current market conditions, the property has to scream value,” says O’Brien. “At this level of the market there is a lot available in terms of high end property, but proportionately few buyers. These buyers are obviously highly sophisticated and will look at everything available in their price bracket.”

Of the total, 9 864 are employed directly by Homeowners Associations (HOAs), while other stakeholders on the estates (such as clubs and schools) account for 23 376. The remaining 31 680 people are employed on an outsourced basis in services such as security and landscaping, the survey shows. “On a conservative earnings estimate of R5 000 per job per month, the organised and managed community sector accounts for an annual payment in salaries and wages of at least R3.9-billion,” says Jeff Gilmour, president of the Association of Residential Communities (ARC), which conducted the nationwide survey. “If the front end costs of construction and development are taken out of the equation, as well as direct employment by individual households, the biggest ongoing generator of formal employment in the residential property sector in South Africa is the management and maintenance of community estates and complexes,” he adds. The survey was conducted by ARC across 80 of its membership of 130 estates countrywide, which represents about 45% of the market in terms of number of homes. “The data supplied by the participating ARC members was then extrapolated across the rest of our membership, as well as non-ARC affiliated estates, to provide a comprehensive national picture,” says Gilmour. Organised communities account for 8.3% of South Africa’s developed land and are home to around five million people, he adds. Homeowners Associations (HOAs) in gated estates have assets of R800-billion under their management – more than a quarter of the R3trillion total current market value of residential property in South Africa,” Gilmour concludes.



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NEW LEADERSHIP FOR IEASA There is a changeover at the helm on the Institute of Estate Agents of South Africa (IEASA) as Jeanne van Jaarsveldt takes over the reins from former president Johalna Minnaar Jeanne van Jaarsveldt, who has served on the IEASA structures for the past five years, has succeeded Johalna Minnaar as the president of IEASA. Jeanne started his real estate career thirteen years ago when he became a principal agent and operated two of his own franchised real estate businesses in the Western Cape. With a national qualification in international banking and banking law and his strong financial management background, Jeanne soon used the experience of selling real estate and that of ownership of an agency to further himself in the appointment in senior positions by two established and successful real estate companies in South Africa. Jeanne has served IEASA since 2008 when he held the position of Vice-Chairman on the board of IEASA Western Cape. Concurrent to this, Jeanne was an active committee member of the IEASA on its Corporate Groups Advisory Council (CGAC). Via the flow of this structure to the IEASA national board, Jeanne was nominated and elected as an IEASA national director, a position he has held for the past two years.His efforts were recognised within the industry when he was awarded as a Mover and Shaker in 2008 at the Property Professional annual awards for his outstanding service to the South African real estate industry. Jeanne is committed to playing his part in professionalising the real estate sector as a whole and to create opportunity for sustainable transformation underpinned by young entrepreneurs making real estate their career of choice in South Africa.

This passion and dedication is what drives him to be involved with industry bodies. Jeanne also represents IEASA on the South African Qualifications Authority’s (SAQA) Education and Training Quality Assurance body (ETQA). He believes it is important to give back to the industry, play a responsible role in ensuring the industry remains sustainable and contribute to uplifting it from the inside out. He encourages more people to become actively involved in making positive changes to the industry rather that refereeing and criticising from the sidelines. His motto is: ‘be part of the solution rather than part of the problem’. When asked about his vision for IEASA as its new president, Jeanne said: “We are at the most vital period of transformation within our industry, with the newly drafted Property Transaction Bill imminent, as well as the restructure of the Estate Agent Affairs Board (EAAB) not only in function, but also in its mandate to the industry. Then there is the uncertainty around training and education and the likes. With all these factors in play, it is key that industry bodies like IEASA remain relevant as the voice of the industry. We also need to ensure that we keep the interest of all stakeholders in mind where these could have dramatic effect on the very way our industry functions and operates. “It will be my focus, with the assistance of the IEASA National Board as well as all the regional structures around the country, to make sure that we serve the interests of the real estate sector.” CO N TAC T: National office: 021 531 2074 / President: Jeanne van Jaarsveldt 071 607 5439 / Website:

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Page 50: WO R D O N T H E S T R EE T

WORD ON THE STREET “The racial breakdown in 2012 for suburban home buying was estimated at 11.3% for Indian buyers, 8.8% Coloured buyers, 29.5% Black buyers, and 50.8% White buyers. The faster the country can grow its economy (in a sustainable manner of course), the more rapidly it can racially transform residential property ownership.” John Loos, FNB household and consumer sector strategist (Property Barometer – Better Economy, Faster Rate of Residential Property Ownership Transformation)

“The rand exchange rate is still posing the biggest threat to inflation… as the rand is expected to remain volatile amid local and global economic turmoil.”

“If people are not amenable to that [paying market related rentals], we’ll definitely evict them because we are losing rental. You find people in suburbs like Bryanston in Johannesburg, yet expecting to pay R500. That is ridiculous and it’s not going to be tolerated”

The Reserve Bank Governor Gill Marcus commenting on the decision to leave the prime lending rate at 8.5% in March

Gauteng’s MEC for Infrastructure Development, Qedani Mahlangu, has warned occupants of government residential and commercial property who refuse to pay market related rentals that they will be evicted

“In Green and friendly office properties, among the many benefits, is the increased productivity due to improved ventilation, temperature and lighting control which result in increased health, comfort and wellbeing of building occupants. …Green buildings deliver a suite of financial and environmental benefits which conventional buildings do not.” Manfred Braune, the technical executive at the Green Building Council of South Africa (GBCSA)

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Property Professional - May/June 2013  
Property Professional - May/June 2013