AUGUST 2012 #81
South African property and lifestyle for international investors A MASTERPIECE OF MAGNIFICENT PROPORTIONS R45 000 000
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Olympic Games and Politics and the London home prices property market BAROMETER
by DENISE MHLANGA South Africa may have scooped gold medals at the Olympic Games, but experts are uncertain of the immediate Olympic boost to London property prices. According to Mike Smuts, managing director of Smuts & Taylor Ltd, it would seem from the available data that the Olympics have had little effect on East London property prices. He points out that it’s a little early for judgement, but there is of course always a big debate about whether events such as the Olympics Games actually have a direct effect on property prices in the host city. Smuts explains that some earlier research has shown that the Olympics may aid property values in developing cities, but has little to no effect on developed metropolitan areas like London. Smuts is of the opinion that the point to get across is that hosting the Olympics or Fifa World Cup doesn’t do much for house prices in itself - but the infrastructure upgrades do. “House price increases near Gautrain stations in Gauteng in the wake of the Fifa World Cup is a good example of this,” he points out. According to the Knight Frank Prime Global Cities Index Q2 2012 report, the value of prime property in the world’s key cities rose by 1.4 percent and London ranked number five of the 27 global cities surveyed, recording an annual price growth of 10.5 percent. The same report saw two of Africa’s top home locations in the top 10 with Nairobi, Kenya, at number three (21.8 percent) and Cape Town at number 10 (4.1 percent).
Where South Africans are buying London homes Asked where in London South Africans are buying homes, Smuts says central and southwest London remain firm favourites with High Net Worth Individual South Africans, while Canary Wharf, the biggest employer of bankers in Europe, is also fast growing in popularity. “Most of our clients purchase in the price range of £350,000 to £500,000 for investment purposes and generate a gross yield of 5.5 and 6.5 percent.” He says they are also seeing a lot of interest from High New Worth South Africans who are buying with a view to relocate or as a second property to use for when they visit their children or friends residing in London. “For these buyers, trophy properties in the most desirable locations are at the top of their shopping lists and we have had a number of instructions recently for residential properties in excess of £1 million.” Wealthy South Africans are highly prudent with their investments and with the continued uncertainty around the prospects and timing of the global economic recovery, most favour the tangible and straightforward nature of residential property as an investment, he says. Smuts says this risk aversion and the consequent trend of ‘flight to quality’ have been the main drivers for South African investors as they attempt to avoid economic and political uncertainty at home. He points out that wealthy South African buyers do not seem to base their decision to invest offshore wholly on
fear of the Rand’s fall in value or local political instability but rather by solid financial planning that includes diversification of asset classes and markets. As a result South African buyers also take a very different view on the London market as a whole in that they do not see their property as a short-term investment. In fact, some don’t view it as an investment at all, but rather as a long-term asset that will stay in the family for generations to come, he says. This is mainly due to the longstanding view that London property offers a safe haven, the enduring attractions of the city’s excellent schools and the strong economic and social factors that makes it the investment destination of choice for the world’s wealthy. London property prices have nonetheless vastly outperformed expectations. Smuts notes that London was the last global market to go down in value and the first global market to recover during the global recession. Prime London house prices are now 47.3 percent higher than the bottom credit crunch in March 2009 and that’s more than 12 percent above previous peak in March 2008. Rents in Greater London average £1 177 per month – 7.9 percent higher than average rents in April 2011, he says. Smuts adds that while special events such as the Olympics Games and World Cup may come and go, investors will be well advised to ignore the hype that accompanies these events and instead focus on investing fundamentally in income producing properties. - Property24.com
by STAFF REPORTER Not only does South African politics influence the real estate market but neighbouring countries' political situations can easily spill over into SA. Zimbabwe has long had political problems and this directly influences any potential investments both locally and internationally, says Craig Hutchison chief executive officer of Engel & Völkers Southern Africa. Hutchison says South Africa has never lagged behind any country when it comes to political turmoil. This political situation has influenced everyone and almost everything in the country, so how has it and will it influence the real estate market? Looking back to 1994, when the first democratic elections took place, the hype that was created on a social level ensured the emigration of thousands of South Africans. Due to this the real estate market became a complete buyers’ market, homes were sold for next to nothing as sellers just wanted to get rid of their homes and emigrate, he says. Hutchison explains that emigration does play a factor in selling when political turmoil arises. Due to this factor, investor confidence takes a battering as the political situation has a negative impact on economic growth. In recent history, statistics have shown that the number of sellers selling due to emigration has doubled and this is mostly due to political instability. Factors that are also indirectly influenced by politics are things like rising inflation due to global food and oil prices which diminishes monthly disposable income. This all leads to a rising household debt-to-disposable-
income ratio, he says. Even though we have seen some ups and downs in the real estate market during the years since the first democratic elections, the future still looks bright. Recent stats have shown that black buyers have made a big entrance into the market and that almost half of home loan applications now come from black buyers, a very long way from the only 12 percent they contributed a decade ago. One of the main influencing factors on this is Black Economic Empowerment. This has been part of South Africa for many years now, but the increase in bond applications shows that black buyers are now more confident in investing in property and have better job security than before, Hutchison says. “This is a very positive sign for the real estate market and we hope it continues. “We have seen major changes over the years in the real estate market, from an absolute jump to some real lows as well, but the entry of new buyers into the market are surely welcomed.” The role politics also plays in foreign investment is immense. Any political instability within South Africa causes potential international buyers to retreat and this also causes buyers to drop their prices. Concern over the land reform situation is also a big factor. This is one of the major worries for buyers looking at farm properties. These properties have been attracting a lot of international attention as many of them can generate some income for the buyer. With land reforms being called for, international as well as local buyers stay hesitant when investing in South African properties. - Property24.com
Johannesburg city property revival by STAFF REPORTER With a rejuvenation programme well underway and transport nodes such as the recently opened Gautrain Park Station close at hand, the residential property sector of Johannesburg’s city centre continues to enjoy a strong revival. This is according to Rupert Finnemore, Pam Golding Properties (PGP) joint area manager, Hyde Park office in Gauteng. He says that the ‘City of Gold’ has residential properties available from the lower end through to the higher end of the market, depending upon where in the city you choose to reside. Whatever the case may be, residential property in Johannesburg can represent excellent value for money, he says. The city has put enormous resources into turning the city centre around after there
was a flight of capital to the northern suburbs in the 1990s, says Finnemore. “With crime levels down and occupancy rates up, the results of this urban renewal effort are highly positive and the area is enjoying a new vibrancy.” He says there is greater confidence in the district, which is attracting considerable investment and many apartment blocks in areas such as Braamfontein and Marshalltown have been, or are in the process of being, revamped. “There are good quality residential properties available in the city centre at reasonable prices and rental rates, and there is always likely to be a demand for good accommodation.” Pam Golding Properties agent Farai Chitokomere says bachelor apartments come onto the market priced from
R250,000, but may fetch up to R550,000. Some two-bedroom apartments in Marshalltown sell for as much as R1.7 million while penthouses in the area may fetch up to R3 million. A bachelor flat can be rented from R2,600 to R7,000 per month. In Braamfontein a 25sqm apartment is rented at around R3,500, while some larger 30 to 35sqm bachelor apartments in Marshalltown are available to rent from R3,000 to R3,500 per month. Johannesburg and its suburbs cover a huge area and little is more important to residents of the city than being able to get to their places of work and entertainment easily, says Chitokomere - easy access to transport is therefore an important factor when it comes to choosing a place to live. “With its newly opened
African buyers lead SA foreign buying by DENISE MHLANGA While foreign buyers account for a small percentage of total buyers, there is an increase in the African continent’s contribution to foreign buying. According to the FNB report on Foreign Buying, foreign buying has been stronger in the first half of 2012 than in 2011. Estate agents surveyed report that the number of buyers from other African countries could continue to increase significantly with Africa’s economic fortunes expected to improve. The report notes that emigration selling is low and Africa’s improving economic situation may have begun to increase the significance of African-driven foreign buying in South Africa. In the second quarter of 2012, the estimated percentage of domestic sellers “selling in order to emigrate” was 3.8 percent of total sellers compared to 3.6 percent in the previous quarter. John Loos, FNB Home Loans property strategist, points out that this is the
sixth consecutive quarter that estate agents estimated a percentage at near to 4 percent, and the level remains a far cry from the 20 percent peak of Q3 2008. Loos says this is because of weak economies accompanied by high unemployment rates in many parts of the developed world, especially the UK and Europe. The estimated number of South African expatriates buying property in South Africa is around 3 percent of total buying. Loos says from a low estimate of 8.5 percent of total foreign buyers back in 2010, the African foreign buyer contingent is now estimated at a significantly higher 20 percent of total foreign buyers as at the second quarter of 2012 using a second quarter moving average. “Given expected global economic developments, I would expect African foreign buying of residential property to become a far more significant percentage in coming years than its current 20 percent.”
He says this is because Africa’s economic growth prospects, admittedly off a low base, appear somewhat more attractive than the likes of Europe and the USA, whose economies have some years to go to resolving their debt and financial commitment issues. Sub-Saharan Africa has become significantly more politically stable in recent years, laying the foundation for improved economic growth. The result should be a faster growth rate in individual wealth of Africans, and South Africa is, for the foreseeable future the economic hub of the region to which many Africans like to come to visit or work, he explains. Secondly, Loos notes that as Sub-Saharan Africa grows, and with the likes of Gauteng being key services hubs, business interaction between South Africa and the rest of Africa, and skilled labour movement between the two, is likely to increase. This is a positive for foreign residential property buying, he adds. - Property24.com
The ‘City of Gold’ is experiencing a strong revival. Photo by Evan Bench.
Gautrain Park Station, the Metrobus depot at Ghandi Square and the MTN Taxi Rank, Johannesburg city centre is on all the important commuter routes and remains very central.” It is also relatively close to residential areas such as Soweto and business areas like Sandton, he adds. In some areas of the city centre the upper levels of office blocks have been converted into accommodation. This has allowed office space that lay vacant to be occupied. Many residents of these apartments
live and work in the same buildings, residing on the upper floors while working in offices below or at shops and businesses at street level. The Johannesburg city centre has come into its own once more in recent years, says Finnemore. “It is cosmopolitan and vibrant, and is the subject of a great deal of development. The area has had its ups and downs but is now enjoying a genuine renewal. For those who want to be close to where the action is, the city centre is the place to be.” - Property24.com
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ASK THE EXPERT >>
European vs South African property trend T he London property market seems to be slowly and consistently on the up despite the European recession. Do any of the regional or city property markets behave in a similar way in SA?
he recent interest rate cut by the South African Reserve Bank of 50 basis points bodes well for an increase in market activity especially in our area of Hout Bay, Western Cape. The more favourable lending rate will hopefully draw more buyers to the market and at the same time the banks will open their doors to more business. Equally promising is the recent report by our chairman, Samuel Seeff, that the group has seen an increase in growth of 20% year on year for the past six months. This increase has filtered through to Hout Bay, specifically in the more affordable property price sector of R1.5 million to R3 million. The higher priced properties from R5 million upwards only show a marginal improvement in activity but
still offer good value. There are no restrictions for foreigners owning properties in South Africa. However, the lending criteria are different. Foreigners can only borrow up to 50% of the purchase price from our local banks. The remaining portion must be introduced from abroad which can be done freely with no Reserve Bank approval required. Hout Bay sees a diverse mix of foreigners owning property because of its major attractions of coastline, mountain backdrop and farm-type setting with close proximity to Cape Town CBD and surrounds. Our advice is that it is still a good opportunity to buy especially for our cash buyers and for sellers to not hold on to high prices - this will only make the property difficult to sell and will create a negative perception of overexposure, with the property quickly becoming stale. Therefore, call our Hout Bay office on +27 (21) 7901032 and speak to one of our reputable agents who can provide you with an accurate
market related valuation or view our latest listings on www.seeff.com James Lewis +27 (0) 836794955
LICENSEE: Seeff Hout Bay and Seeff Llandudno www.seeff.com
What is a turn-key design?
would like to design my own unit in an estate in SA from the UK. What is meant by turn-key design? I know that there are certain types of designs to choose from when investing in an estate to make sure that there is uniformity, but I also want my house to look different
ou are right – many estates do have strict architectural/ building guidelines regarding the style of homes to be built (eg Victorian, Tuscan, Modern) and even the roof and exterior wall colours, but many others are more relaxed these days and only specify such limits as maximum building heights, the placement of homes on stands to protect owners’ privacy and preferred building materials (eg natural stone, wood, and glass in eco-estates). One does need some degree of homogeneity to protect the value of homes in an estate, but provided you choose the right estate, this should not
prevent you from designing the “different” home of your dreams, wherever you live currently. On the other hand, a “turn-key” offer from the developer of a new estate usually describes a set-price building package including a stand and the construction of a home according to one of several standard designs - or according to your own design, provided it fits in with the overall character and size of the other homes in the estate. The advantage here, especially for homebuyers inexperienced in construction, is firstly that they know upfront what the package is going to cost and secondly, that they will usually not have to deal with too many building problems, because the builder should be accredited by and accountable to the developer. In your case, this would obviously be a much easier option than finding your own builder and trying to
manage the myriad details of the construction process and progress from such a distance.
Berry Everitt CEO of the Chas Everitt International property group www.chaseveritt.co.za
Don't overspend on renovations by STAFF REPORTER Home décor and DIY expert Janice Anderssen says if you don't want to move but simply don't have enough space, or dislike the layout, then think carefully about what improvements could be done to your home. Many improvements increase the value of a home, whilst others have a negative effect on its ultimate saleability. Before undertaking costly improvements it’s important to take a look at property prices in your neighbourhood and surrounding areas. It would be a futile exercise to pump thousands of rands into renovating a property that is already at the price limit for the area – no matter how many bedrooms or bathrooms you add. For instance, if you’ve just spent R50k adding an extra bedroom but didn’t expand your small bathroom, the chances of ever recouping that cost should you sell your home are slim. The obvious way to upgrade an existing property is by remodelling existing rooms or adding on to the current floor plan. The list of possible improvements is endless: new bathroom, bigger kitchen, extra bedroom, home office, etc. But when should you decide to stop sinking money into a home and buy a bigger place? And how much is too much when the time comes to recover your investment? Keep up with the trends Keeping a constant eye on property market trends is one way of ensuring you’re in the know when it comes to what’s hot and what’s not. Subscribing to the Property24 SPI (Sold Price Index) provides you with information as to what the property market has been doing in your area, the latest property transfers for your street, and even suburb averages, giving you a clear indication of values in your area. It’s also a good idea to have
your property valued by a professional valuer before you start improving. This will give you a fair indication of what your home is worth and how much investment you can afford to play with, especially with larger, more costly renovations where you are hoping for a maximum return at some future stage. Getting the best return on your investment First and foremost, it is important to stay within the architectural or design character of your property. Nothing sticks out more than a new addition that is completely different in architectural style. Wherever possible, match new materials to those of the existing structure. Well-designed kitchens continue to add value to a home, as are lifestyle areas such as garden rooms, patios and entertainment areas. The kitchen is increasingly becoming a multi-purpose space for cooking, dining and living, with many homeowners restructuring these previously separate areas into one large, light living space. Some are going even further by opening the room up onto the patio or entertainment area, using large glass panels to separate interior and exterior spaces. When it comes to bathroom improvements, a carefully thought-out and designed project is considered a good return on investment, provided that any improvements are in line with today’s trends for spacious rooms with built-ins and modern sanitary ware and fittings. Before you undertake a home improvement project, assess your financial position. To start, know the value of your property, both as it is and as it will be with the proposed improvements. It’s necessary to get a sense of the size of the investment needed to accomplish the improvements, and what type of return can be realised at the end of the day. - Property24.com
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