MARCH 2012 #76
South African property and lifestyle for international investors
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Budget 2012 and the property market by DENISE MHLANGA In his budget speech, Finance Minister Pravin Gordhan says South Africa’s new story is about building a vibrant economy. The macro economic climate presented in the 2012 National Budget suggests that the South African property market will in the next year, continue to trade in an environment characterised by uncertain and subdued economic growth. This is the view of property economist Professor Francois Viruly from the Department of Construction Economics and Management at the University of Cape Town. Viruly explains that the possibility of a rising inflation rate, escalation of electricity and municipal related costs continue to impact negatively on operating costs and has become the central concern for households and the South African property sector. He points out that the focus of the 2012 budget on infrastructural expenditure offers opportunities for the property sector. “Infrastructural expenditure not only underpins the performance of the built environment, but also plays a critical role in creating development and investment opportunities in cities and rural areas,” he says. The residential property sector continues to show considerable weakness and the budget does little to promote household investment in the sector. It is critical that government should deliver a housing policy
that not only delivers to the lowest tier of the housing market, but which also starts to address the financing and development bottlenecks that exist in the middle tiers of the residential property sector, he says. Viruly believes the housing sector should be seen as a means for households to save and create a strong asset base. Meanwhile, the commercial property sector continues to suffer from high vacancy rates and rapidly rising operating costs. Apart from government’s commitment to focus on the creation of Special Economic Zones, there is very little in the 2012 budget to promote the sector. “If anything, the vigorous focus on infrastructural expenditure could result in escalation of building related costs and possibly crowd out development activity in the private sector.” Lew Geffen, chairman of Sotheby’s International Realty in South Africa, says the budget holds excellent prospects for the speedy improvement of the real estate market and the sustainability of that recovery. Geffen notes that the most important macro aspects include Gordhan’s strong stance against corruption and financial mismanagement, which will undoubtedly boost investor confidence and the property sector. He says the new housing subsidy scheme (subsidies of up to R85 000) aimed at individuals earning between
R3 500 and R15 000 a month will give the lower end of the market much needed impetus. Dr Andrew Golding, chief executive officer of the Pam Golding Property Group has welcomed the new Cities Support Programme focused on improved spatial planning, public transport systems and management of infrastructure in eight metropolitans. “Home buyers increasingly seek to live in areas within easy reach of transport to places of employment to avoid the increasing effects of rising fuel costs, toll roads, traffic congestion and time wastage.” Golding says they had hoped for further reduction in transfer duty payable by home buyers to help encourage home ownership, which in itself helps provide future financial security for home owners. “The housing market remains under pressure, and while interest rates remain historically low, a recovery in the market is expected to remain relatively muted for the remainder of this year.” Craig Hutchison, chief executive officer of Engel & Volkers Southern Africa, says the budget’s focus on job creation, education and infrastructure improvement bodes well for the property market. Bond originator Betterbond says the positive sentiment expressed in the Budget will further stimulate housing demand and increase the ability of home seekers to qualify for housing finance. Property24.com
South Africa’s Finance Minister Pravin Gordhan presented his annual budget speech recently. Photograph courtesy World Economic Forum.
Transfer duty and the property market by DENISE MHLANGA On 23 February 2011, South African Finance Minister Pravin Gordhan raised the transfer duty threshold by R100 000 to R600 000. According to Lightstone, the 2011 adjustment also changed the ruling to allow juristic entities, i.e. trusts, CCs and Pty Ltds to also benefit from the R600 000 transfer duty allowance. Lightstone conducted a study of the impact of amendments to transfer duty in respect of property sales. Hayley Ivins says in order to understand whether these adjustments had any impact on sales in the property market, they examined the frequency of property sales in the R500 000 to R600 000 price bracket in the six month period pre and post the date of implementation i.e. 23 February 2011. She says they excluded those transactions that were directly from property developers as they do not carry transfer duty costs and portions of title shares. The study also looked at sales to natural persons and juristic entities independently.
Results from the study revealed that property sales increased by 8% for natural persons. Looking at people buying property in their personal capacity registered against their ID number at the Deeds Office, the number of sales in the R500 000 to R600 000 band in the six-month period prior to the transfer duty amendment was 6 378 and this rose to 6 879 in the six months post the adjustment, she points out. In the case of juristic entities, the study identified a 36% lift in property sales between the R500 000 and R600 000 band in the six month period post the announcement, from 635 to 866 sales. “This indicates that the adjustment served as an impetus for purchases in the names of juristic entities, in the price band exempt of transfer duty.” Ivins adds that the study results indicate that an increase in the minimum value for transfer duty appears to stimulate the appetite of buyers in the value band exempt from transfer costs. Property24.com
SA's hot new property developments by DENISE MHLANGA Whether buying a primary residence or for letting purposes, the new residential property developments in Johannesburg and Cape Town are in demand. In Johannesburg, Melrose Arch’s latest residential development Forty on Oak is set to deliver a super-modern cosmopolitan lifestyle to a privileged few. Forty on Oak has 59 apartments measuring between 95 square metres for one bedroom apartments to 886 square metre penthouses. It has set a new standard for sustainable living and boasts the first ever Four-Star Green Star Rating awarded to a multi-unit residential development in South Africa. Built on an existing ‘green’ infrastructure, further energy reductions are accomplished via the use of revolutionary technology that intelligently reduces and monitors energy consumption. Developers Amdec say those that buy to live at Forty on Oak will enjoy the ultimate in enviable lifestyles, just steps away from the very best in shopping, wining, dining and more. “Forty on Oak seamlessly delivers everything the heart desires in a luxury lifestyle investment that will appreciate over time,” says Amdec. According to Amdec, this development has attracted significant interest from foreign buyers and local corporations. They say the top-end buyto-let investors appreciate the superb returns that Melrose Arch apartments have achieved to-date. Beyond the qualities evident in the apartments themselves, appreciating value may also be attributed to the excellent security and brilliantly managed and maintained environment. Peet Strauss, Melrose Arch development manager for Pam Golding Properties (PGP), says 35 of the 59 units available in the five-storey apartment block situated adjacent to the Protea Fire & Ice Hotel have already been sold.
This represents more than 70 percent of the apartments, which were placed on the market by PGP in June 2011. The apartments will be ready for occupation by the end of this year and are valued between R3.7 million and R28 million. The total value of the units in the new apartment block is R400 million. Strauss indicates that two of five luxury penthouse apartments available have also been sold for R25 million and R28 million respectively. Strauss explains that demand is spurred on by the limited accommodation on offer in the highly fashionable mixed-use development, as much of the space in Melrose Arch is devoted to offices and retail. There will only be a total of 172 units available once the third phase is complete, and because Melrose Arch offers secure high street living, these apartments are fast proving to be a sound investment, he says. In Cape Town, Little Moorings, the first new residential development to be built at Century City in the past 18 months is almost complete, with transfers scheduled to take place this month. Comprising 42 one and two bedroom studio units, Little Moorings is the first new development to be linked into Century City Connect, Century City’s revolutionary fibre optic open access network. This provides the country’s fastest last mile open access network over which a select number of Internet Service Providers can offer those living and working in the precinct the fastest voice, broadband and multimedia services. Brian Usher of Property World, the official on-site agency at Century City, says only two of the 44 apartments remain to be sold. Buyers at Little Moorings were investors who bought to let, and tenants were snapping up these apartments, many of which are water facing. “There is no doubt Century City Connect has been an
Forty on Oak is one of the latest and hottest property developments in South Africa. It is located in Melrose Arch, Johannesburg and boasts the benefit of living just a few steps away from the finest shops and restaurants in the area.
additional drawcard with tenants prepared to pay a premium to stay there,” says Usher. One bedroom apartments command rentals of between R6 500 and R6 800 per month and two bedroom units from R8 800 to R9 000 per month, he says. Little Moorings is set in a secure, private garden fronting a canal which links into the 8km of waterways at Century City The site is secured by means of perimeter palisade fencing with access control. Priced from R750 000 to R1 750 million, apartments measure between 50 square metres for one bedroom units, to 99 square metres for two bedroom, two bathroom apartments. The Herschel, which was launched in 2011, is an iconic luxury apartment building which continues the transformation of Claremont’s central precinct, which started
with the construction of Cavendish Square 30 years ago. Set within 150 square metres of Cavendish Square, and within easy cycling or commuting distance to the University of Cape Town, The Herschel comprises 66 apartments priced from R1.2 million. Berman Bros and SandakLewin Developments formed a joint venture to develop this R140 million project on a prime site of 2 364 square metres, on the corner of Herschel Road and Herschel Close. Paul Berman says they have sold 30 percent of these top-end apartments to a wide range of buyers. Buyers include local people downscaling from larger, older homes to reduce their overheads, and looking for a lock-up and go lifestyle, and young entrepreneurs, businesspeople, investors and
parents of students at UCT. Buh-Rein Estate, the largest private development currently being undertaken in the Western Cape suburb of Tygerberg will have 3241 apartments, 133 freestanding homes and 137 townhouses once complete. Two-bedroom apartments fetch rentals of R4 000 per month, and Roos attributes the success of the estate to a good balance between lifestyle, security and convenience at a very affordable price. Buh-Rein Estate offers a state-of-the-art five-tier security system, 20 pocket parks, multipurpose sports fields and green zones, more than 2000 indigenous trees, 10km of jogging and cycling tracks, a shopping centre and a petrol station, a fast food drive-through, a sports clubhouse and management centre. Property24.com
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R14 000 000
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r39 000 000
R1 250 000
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R1 720 000
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<< ASK THE EXPERT
What to do if you can’t view before purchasing W
hat complications should I expect to face if I buy property in South Africa without being able to visit it before the purchase? How many of these issues can be resolved by the agent we'll use?
t is always risky to purchase property you have not seen or inspected. The biggest risk you would face is not knowing about defects at the property, or factors in the neighbourhood which affect the property’s value
– both of these factors could translate into lost income or over payment. If there is no alternative and you are unable to view the property, ensure that you are utilising the services of a reputable agency and an agent who has been in the area for some time and whom you trust. Check that the agent has a current Fidelity Fund certificate and request sight of the defects report the agent should have compiled at the time of taking the mandate. Agents
are required by their code of conduct to disclose any defects to prospective purchasers. It may be worthwhile to instruct a firm of home inspectors to give you a written report on the condition of the property. This is becoming common practise in all sales. Ask the agent to provide you with a recent CMA. A CMA is a comparative market analysis, which shows the values of recently sold homes in the immediate proximity of the property which you are
interested in, as well as their growth rate. Furthermore, ask the agent to give you a written report on the surrounding area, possible developments and building activities, proximity to schools and information regarding new highways or roads in the area. Ask the agent to secure the crime statistics for the area and ask the dominant security service to provide you with incident statistics for the area. Lastly, ask the agent to email photographs of each room, the
Treasures in the scenic Bushveld by STAFF REPORTER Mpumalanga and Limpopo are two provinces synonymous with lush South African bushveld. Limpopo is the land of myths, legends, beautiful scenery and landscape, as well as majestic Baobab trees. Limpopo is typical of Africa, hence has become a favourite destination for leisure and adventure travellers worldwide. Mpumalanga is divided in two by the Drakensberg escarpment, the western side consisting of high-altitude grasslands and the eastern side a low altitude subtropical savannah habitat. This area boasts some of the most breathtaking natural beauty in the world. Dullstroom is a small town situated only two hours away from Pretoria and three hours from Johannesburg. It’s well-known as a safe tourist destination where you can enjoy outdoor activities such as fly-fishing, endless kilometres of mountain biking and horse riding. Property in the area is a mixed bag, from working farms and guest farms to village properties categorised as permanent residences and luxury holiday homes. These properties are also rented out over weekends and generate a good return on investment. “Most of our properties are of a leisure/second home nature. The second home market has taken a definite knock during the recession period and sales in 2011 were
outside and the interior, and the surrounding neighbourhood. Charles Vining Seeff Sandton: Licensee www.seeff.com
The breathtaking Bushveld could be the perfect backdrop to your dream home in South Africa. Photograph by Dominic Morel.
very slow,” says Charmane Horn, team leader of Engel & Völkers Dullstroom. “Average farms in the area start at the R2 million mark for a typical weekend farm, and up to R10 million for a working farm. Village stands are in the region of R350 000 and homes average around R1.5 million. In 2012 the enquiries for the area have increased rapidly,” she concluded. Futher east, about 320km from Pretoria, is Nelspruit ,a city surrounded by majestic mountain ranges and with a subtropical climate. It is the ideal area for citrus fruit farming and forestry, and perfect for either investing in developments, buyers looking for holiday homes or anyone
looking to move away from the metropolis areas to the quiet bushveld suburbs of the Lowveld. “We are currently focused on the Elawini Lifestyle Estate. What makes this estate noteworthy is the fact that it’s the only lifestyle estate in Nelspruit with a complete and fully functional central facility, which includes a gym, 25m swimming pool and squash court. The estate offers stands right next to the beautiful Nelsriver, says Kobus Bosman Licence Partner of Engel & Völkers Nelspruit. “Full title stands with an average size of 800m², are selling from R410 000. Building packages with a private stand fenced
off with a brick perimeter wall start at R1,2 million. A three-bedroom, two-bathroom sectional title duplex with two carports goes for R845 000 and single storey 3 bedroom, two-bathroom sectional title units with a double garage, for R1,045 million. Building contracts, depending on structure and finishes, are around R6000 per m² (excl. the stand),” Kobus added. Moving north into Limpopo province, nestled between the Kruger National Park and the Blyde River Canyon, you find the small agricultural and tourist town of Hoedspruit. Hoedspruit finds itself in an enviable position because of its access to the private game areas of the Timbavati and
Klasirie. Properties in the area can range anything from R600 000 for a medium-sized house, up to R50 million for a game farm. This area is perfect for investors looking to buy a game farm to use as a holiday destination, or buyers looking for a second home. Mpumalanga and Limpopo are truly provinces with hidden treasures around every corner. They are home to luscious green vegetation, some astonishing mountain ranges, and are an investor’s paradise. If you’d like to find out more about properties in this area, please contact Engel & Völkers at +27 12 346 7777 or southafrica@engelvoelkers. com.