The saying “pregnant pause” normally relates to speechmaking or coaching. But the recent months have been pregnant as everything but the stock market has taken a pause.

Consider this…….

  • In four months the global markets have lost 10% of their value except for China which almost halved very early in the year.
  • Commodities like iron and copper lost half their value and this was reflected in Kumba and the like.
  • Then, as if nothing happened, everything retraced their steps and we reverted to close just under 53000 on the JSE late Friday 22 April 2016.
  • The Rand peaked at R16 to the US$ and is now trading in the R14’s.
  • Inflation is growing rapidly as price increases take hold.
  • The drought has been bad and we are importing Maize.
  • Fuel breached $30 and then proceeded to breach $45 – a 50% increase in two months.
  • Our political arena has been blasted by bad news and gone into a pregnant pause.
  • The Manifestos of the parties are being presented to crowds who are to be convinced who to vote for in August.
  • Syria has a fragile ceasefire in place.


Apart from that, little has happened in 2016?!

Latest news from ooba is that house price increases are slowing with the average purchase price increasing by 6.2% compared with Q12015. Given an inflation rate of 7%, this means real price growth is negative. We knew this would happen if Inflation jumped steeply but negative real growth was not expected until Nenegate in December and the Rand’s sudden fall. Affordability criteria have stiffened and larger deposits are required to bring Buyers in line with higher prices coupled with higher interest.

Uncertainty is never pleasant and its effects can be felt like tremors throughout the country. It would also be foolhardy to expect that we have now settled down to business as usual. This brings me to a large dose of good news.

Messy indeed!

But here’s a thing, there have been two interesting pieces of information on the downgrade that many await anxiously.

RMB surveyed 432 people to assess their views of a downgrade. 84% thought that a downgrade would occur. Ninety four percent felt that the downgrade would have a negative impact on their business. The good news is the corollary of this finding – if the majority of people expect a downgrade then the market would adapt, or better still, the market would have adapted to the expectation of a downgrade. Therefore, the market has possibly already adapted to the downgrade and so little impact would be felt.

My view on this was that the market could not have “downgraded itself” or else the strengthening of the Rand, for instance, would not have occurred in the past few weeks. It seems that something bigger is at play relative to the SA economy, such as commodity prices rising, a weakening of the US$ exhibited by the stagnant interest rate stance of the Federal Reserve, and a declining JSE.

Then arrives an article in Moneyweb Today, When a Downgrade Hits dated 24 April 2016, that seems to provide a far deeper insight into the possible harm of a downgrade. However, this study of real countries that have endured such an event, shows a much more positive view of this eventuality. I cannot improve on Patrick Cairns article so I have copied it verbatim and present it with gratitude to Moneyweb Today  and Patrick.

When a downgrade hits

Patrick Cairns

While there is some disagreement around when South Africa’s sovereign debt rating will be cut below investment grade, the market consensus is that it won’t be avoided. In either June or December Standard & Poor’s is likely to be the first agency to announce a downgrade. Minister Pravin Gordhan and the team around him will continue to work valiantly to avoid this, and they may well succeed in at least improving sentiment. However the honest assessment is that it is probably already too late, and they don’t have the tools on their own to do everything that is necessary to prevent the move.

South Africans should therefore prepare themselves for what happens next.

Many pundits have suggested that the immediate impact of a credit downgrade would be a flight of capital, a spike in bond yields, rapid currency depreciation and a fall in equity markets. However, the head of fixed income at Prudential, David Knee, says that an historical analysis of other emerging markets that have suffered a downgrade from investment to sub-investment grade actually reflects something different. “Markets are very good at anticipating what’s going to happen, and they price that in,” Knee explains. “They tend to perform poorly in the run up to a downgrade, but actually in the 12 months after that these assets generally perform better.” He studied a group of emerging markets that had all been downgraded from investment to sub-investment grade, and looked at how their bond yields, currencies and equity markets performed in the 12 months before and after the move. These countries included South Korea, Brazil, Russia, Greece and Uruguay.

The table below shows the changes to ten year bond yields in these countries immediately before and after they were downgraded. The chart is indexed to the downgrade point.

The general trend is clearly that yields expand leading up to a downgrade, but generally recover afterwards. “In Russia, for example, ten year bond yields were 6% lower a year before the downgrade, and subsequently in the 12 months afterwards they rallied 4%,” Knee points out.

He noted that the exceptions are Greece, where yields continued to rise, and Uruguay, where yields spiked so high that they wouldn’t have fit onto this chart. These were however countries that suffered a series of downgrades over a short period of time. “In a world where you get even a half-baked policy response, asset prices improve,” Knee says. “And we would say that there is a reasonably good chance that South African assets post the downgrade will perform okay.”

The chart below showing the real effective exchange rates of the currencies of these countries tells a similar story.


“There have been some examples where currencies have done poorly, but overall the average currency on a real effective exchange rate basis has increased relative to where it was at the time of the downgrade,” Knee says. “South Korea’s currency actually went up by 40%.” South Korea set the standard for how to deal with a downgrade, having managed to regain investment grade status in one year. “That shows that if you can get your policy response right, things can move very well for you,” says Knee. “But even some of those countries where the policy response hasn’t been fabulous, like Brazil, their currency has actually rallied in real terms.”

Given that the Rand has already depreciated by 50% since 2011, Knee believes that there is already a lot of bad news priced into it.

The effect of a downgrade on equity markets in these countries has been more mixed, but as the chart below shows, big losses are rare.

“If you look at the average, equity markets approaching the move to sub-investment grade tend to have modest bear markets and then track sideways for the 12 months afterwards,” Knee says. “There certainly isn’t a catastrophic decline.”

This suggests that a downgrade will probably not be profoundly negative for financial markets in the short term. What will really matter is the longer term policy response and how South Africa goes about getting back to investment grade status.

“There are significant concerns that are very valid about being downgraded, particularly because if you want to get yourself back on track it takes a long period of time and its incredibly painful from a macroeconomic perspective,” Knee says. “But in terms of the financial markets, the interest rate markets have done a lot of the heavy lifting already and the currency too. “With equities I think it depends an enormous amount on what happens to the US dollar and commodity prices,” he adds. “The South African market in our view does look slightly expensive on a real yield view so the market is vulnerable to bit of a re-pricing to get it back to fair value, but it is certainly not a train smash.”

Almost without exception, countries that are downgraded to sub-investment grade go into recession. It also takes them many years to earn back their credit rating [Minister Gordhan put this at 5 years when questioned on the time]. This is the real challenge that South Africa faces, the policy response will be critical. “There is a very tough road to tread and none of the policy decisions are going to come easily,” says Knee. “National Treasury and the Reserve Bank are world class institutions, but they’re not really in a position to lift potential growth for South Africa, which is what needs to happen. That needs to come from other government departments and other initiatives.”

What an amazing study and article!

Where does that leave us in the Property industry?

  1. If the Rand declines, interest rates will increase in order to quell inflation.
  2. If rates rise, affordability will decline and existing bondholders will sweat a little more.
  3. My view that rates will rise this year by 2% stands. We are currently at 1.25% increase and I cannot see that the SARB detracts from its path. In fact, I sense that the SARB is showing the Rating Agencies that it is independent and that it is willing to take tough decisions when they are well considered in the Monetary Policy Committee – in that sense, I believe they are part of the solution in the short term, even though SA is bleeding for growth and employment.
  4.  House prices will continue to decline and affordability stress will continue to rise.

But, we will have a market in property no doubt. And sales will remain in place, slower than now, but ever-present. Affordable housing will continue fairly unabated because government will continue to be a net employer though it may shed a few thousand jobs over time [remember, Minister Gordhan must cut government expenditure and part of that could be job freezes in non-essential posts]. It seems that fuel prices are the outlier and we should watch that trend carefully. Remember too, that only 10% of our debt is foreign and the balance is Rand-denominated. That means cost of funding may rise but the funds’ capital that is denominated in Rands, will not rise if the Rand weakens.

Anything can happen and may, But my sense is that Minister Pravin Gordhan and his team are the “men for the job”. If anyone was going to avoid a downgrade it would be him and if anyone is going to execute a recovery [like South Korea], he will. We have to remain hopeful that the rest of government and our politics, in general, remain on a steady and even upward, path of care and concern for our country. Anything less could harm all our peoples irretrievably.

There is nothing like a positive attitude at times like these. It seems cheesy, but we need to ask ourselves whether we are part of the solution or part of the problem. It is so easy to fall into the trap of negativity but it is men and women who have confidence and even faith, that lift the spirits of each other even under trying circumstances. In fact, now that I think of it, read Man’s Search for Meaning by Victor Frankl if you have any doubt.

Pregnant Property Pause? You bet! Watch this space……

Go well and see you again @ the Junction. Homeloan Junction, of course.

Yours in Property.

Where to Buy an Apartment

Looking to make an investment in a property? Homeloan Junction can assist you with a buy-to-let home loan. We are available online and our website has calculators and information to help you make a decision.

There could be a number of reasons to be thinking along these lines:

  • the kids will soon need accommodation while attending Varsity – so buy now and rent it out while they get on with passing matric;

  • perhaps granny needs to move into an apartment but needs time to get around to accepting the fact – buy now and rent it out until she gets used to the idea;

  • maybe looking to provide extra rental income each month for when you retire is the way to go.  By using a buy-to-let home loan and allowing the rental to pay for the apartment you will eventually have a steady income when the mortgage is paid off.

What’s A Buy-to-Let Home Loan?

It is exactly what it says it is! It is a home loan to enable you to purchase a property with the intention of leasing it out, and not to live in it at that time. It is a long-term investment with eventual benefits. It can provide additional income for retirement or be used to finance your children’s further education by having an asset against which to raise finance.

What?  Where? When?

1. What: As seen elsewhere in the world, the property market has seen ups and downs but as a long- term investment, property is a sound choice. Good returns have been experienced by the rental market in South Africa. Smaller homes in the middle to lower price range are soughtafter as rental properties. This pinpoints those who are not yet able to afford their own property. Sectional title, flats and apartments are exceptionally popular and always in demand – especially smaller apartments in the bigger cities.

2.Where: If you intend buying an apartment to eventually live in, or for the children when they attend University, the choice of where to buy is narrowed down. When purchasing an apartment to rent out, it would be best to consider an area with has a high requirement for rentals which will see it fully rented out. As mentioned, the bigger cities project the biggest demand and enjoy the higher rentals.

The northern areas of Johannesburg are the most popular neighbourhoods to look at when wanting to apply for a buy-to-let home loan to purchase an apartment. Areas to consider are Parkhurst, Parktown, Parkview, Hyde Park, Houghton, Melrose, Sandhurst, Saxonwold, Illovo, Inanda and Dunkeld. Students always require accommodation so other areas to consider are in reasonable proximity to the Universities.

Cape Town is always popular with tourists and its wonderful beaches, mountains, wine estates and upmarket residential areas are appealing. You can’t go wrong when buying in one of the following Cape Town neighbourhoods: Bantry Bay, Bakoven, Fresnaye, Green Point, Mouille Point, Camps Bay or Clifton. City Bowl is also a sought after area and growing in popularity. The cosmopolitan lifestyle enjoyed in Cape Town is a huge draw card to one of the most constant property markets.

3.When: The sooner the better! There is no time like the present. Remember, we said it is a long-term project and investment so best get started now.

Check List

Here’s a checklist of things to bear in mind when you buy that apartment:


It would be practical to consult with your accountant as to what the tax implications could be with the acquisition of a new property. They will advise you at which rate you will be taxed with the rental considered as additional income; what to expect in view of capital gains tax and if there are any tax deductions that could be applied.


The less you borrow as a buy-to-let home loan, the greater your eventual profit will be.

Comprehensive investigation into your investment is a must to ensure you make an informed decision based on sound advice. This is where your estate agent and bond originator can be invaluable. Do you require a deposit? What is the interest rate expected to be? Is the neighbourhood safe and settled? Knowing the average rental in the area will indicate what you could expect as a return.


Choose a property that is in relatively good condition as you do not need to pay for extensive repairs. Cosmetic improvements, such as repainting and garden improvements, is always a worthwhile exercise.


Weigh up the advantages of a loan over a shorter term with a higher monthly payment, opposed to a lesser amount over a longer period of time. Inquire if the loan can be repaid sooner than the agreed period, and if so, what penalties will be incurred.

Our home loan expert will be happy to guide you through your application for your buy-to let homeloan. This service is provided free of charge and will save you time and stress allowing you more time to dwell on becoming the proud new owner of an apartment. Get in Touch with us for more details

How Real Estate Agents Can Help You

Homeloan Junction is an established home loan origination company that has been in the property market since 2003. Our relationships are of the utmost significance to us and we focus on carefully nurturing them. Our invitation to join us extends to customers, banks and financial institutions, conveyancers and estate agents, all of whom we work closely with to ensure you receive outstanding service with long-term benefits.

Why Join Homeloan Junction?

You will begin your one-stop-business-journey to purchasing a new property when you join Homeloan Junction. Our experienced consultants keep themselves informed of the latest trends and developments in the property market which enables us to advise you according on your specific needs.

Our business connections allow us to submit your loan application to 9 different banks. Our knowledge of their products will make certain that you receive the best deal possible under our guidance. We will assist with all the paper work and other details involved, saving you time, effort and the frustration of dealing with a number of different banks.

Perhaps you have not yet set your heart on a property but have been exploring the size of the bond you would qualify for to enable you to look to buy in the correct price bracket. Our online calculators will enable you to estimate the affordability, savings, bond and transfer fees of your future homeloan. We have much information to help you in making this significant decision. Please take time to browse our website.

Working With An Estate Agent

We work closely with estate agents and value their knowledge, experience and assistance in finding you, the home of your dreams. Here are 5 tips to getting the most from your Estate Agent:

Tip #1 Do You Come First?

Working with the right estate agent is important as buying a home is a sensitive and emotional experience. You need to feel comfortable with the agent and confident that they understand what your needs are. You will soon pick up if the agent you are working with identifies with your requirements and the type of home you wish to live in. If you are repeatedly shown unsuitable property, they don’t understand you. It usually pays to stick with one agent that you work well with until you find your purchase.

Tip #2 Do They Have A Good Track Record?

Make sure that you chose a reputable real estate company, and an agent, with track records that they are proud of. Don’t be afraid to ask about accreditation and test their knowledge of the area and prices by asking about property recently sold. They are normally linked to multi-listing which gives them a broad base from which to choose suitable homes to show you. They might even email you a number of properties to look at and receive your feedback on to better gauge your preferences and taste.

Tip #3 How Good Is Their Local Knowledge?

There are advantages to working with someone who specialises in an area and knows it well. They will have knowledge on the public transport, schools, shops and sporting facilities that most families will no doubt need. A worthy agent will be on good terms with other agents and realise the benefit this holds to those in the industry. They will also know about all the homes for sale, those about to be sold and what other agencies have on their books. In a case such as this, they will share the sale and happy to do so if the client finds their home.

Tip #4 Are They On Your Side?

Agents work on commission and in most cases represent the seller, which is understandable as they pay the estate agent’s fee. Be sure that the agent you chose to work with will also act for you by putting forward your questions, negotiating with the seller and disclosing any relevant information. An estate agent is required to act on your instruction but sometimes will impart alternative suggestions for you to consider. Real estate agencies have recourse to legal advice and they will advise you when they feel that you need a lawyer should things not run smoothly.

Tip #5 Do They Have Helpful Connections?

A good estate agent will be knowledgeable about municipal requirements if you wish to make alterations or carry our renovations. They will also know of qualified engineers, builders, contractors and workmen to refer you to which would be helpful if you are new to the area.

A Sweet Ending

Finding an estate agent who will take an interest in you and put in every effort to see a happy client at this stressful time in their lives is really the cherry on top when it comes to house hunting. To make sure that you don’t end up in a gingerbread house, let Homeloan Junction help you secure the best home loan and terms available. We have a 70% approval rate on all home loans we put forward.

Homeloan Junction’s head office is situated in Gauteng but we have branches and consultants in 7 provinces and in cities throughout the country. You could even join Homeloan Junction and enjoy a career as an independent homeloan originator under our training, guidance, using our products and network.

Homeloans and home ownership always remains interesting.

We return to buy-to-let.

Here are some solid thoughts for those of you privileged enough to afford a property investment.

  1. Remember to buy close to home. Think of it this way: Trouble equals distance squared. Ever tried to find a plumber to fix a geyser in another town. ever tried to sort out a non-paying tenant in Durban when you live in Johannesburg? One of the benefits of investing in property is that you can “touch and feel” the investment; be close enough to do so simply.
  2. Avoid maintenance as far as possible. That beautiful lawn, the sparkling pool, both can become nightmares in the careless attitude of a tenant. Similarly, look for a property where painting on the outside is kept to a minimum. There are many lovely complexes that are built with face bricks and only gutters, window frames and doors to be painted. Linked to this thought is the question of high rise buildings. A lift replacement in the retirement village in Hermanus has just cost R2.5m for only one floor and the Body Corporate has been saving for 3 years to do it. what you can see immediately is that it has come at the cost of painting and other maintenance. So try to avoid buildings with lifts in favour of stairs.
  3. Remember to retain a kitty for unexpected repairs. Stuff happens and your tenant will not appreciate a slow deterioration of carpets and fittings as you annually increase the rent. Prepare for some push-back and ongoing renovation. You also don’t want to lose on resale because your property is old and tatty.
  4. Secure your tenant contractually. I have just has reason to negotiate a Rental agreement. Rawsons have an excellent offering and the agent was highly experienced in his field – something it is always good to enquire about. However, Just Letting have Rentsecure for almost the same monthly fee. This policy enables your rent, less the 8% fee in total, to be guaranteed every month. If the tenant hasn’t paid, Rentsecure ensures the collection process until the tenant is up to date and will even initiate eviction processes if required. That’s cool to have when needed – collections and evictions can be expensive and time-consuming. Contract with your tenant without exception. a handshake is very difficult to manage legally if and when required. Furthermore, details around behaviour, alterations, pets etc are left in the air if you cannot prove what is considered acceptable. Finally, contracting collections and inspections by a reputable letting agent may look expensive but is well worth the while when required.
  5. Pay off the bond as quickly as possible and make sure it is an access facility. The purpose of having an investment property is to provide an asset to invest further. Just because the bond is being paid by the tenant is not a reason not to pay it off quicker as you are able. once you have the bond reduced or paid off, use it to invest again in whatever you choose. This does two things, a. It enables you to take risks using a non-primary property as collateral so in the event the business does not go well, you don’t lose your family home, and b. The ability to access your bond gives you the chance to take advantage of investment opportunities that arise in a number of markets, for some, even the stock market.
  6. Pick your spot wisely. Close to the Gautrain is popular and tenants will always be plentiful. On the other hand, close to schools and amenities will be popular for young families who often become good tenants. To the later point, a good tenant does not always pay the highest rental – I will often reduce a rental for a longer term or decrease a contracted increase percentage in appreciation of a tenant who looks after my property as their own and always pays on time. Often new property investors struggle with the thought of vacancies and to them I would say: There is always a tenant, there may not always be a high rental. Pretty cheesy if you have to earn a certain amount of rent to pay the bond but then maybe you should have waited and saved a bigger deposit before buying your investment property.
  7. Check out the returns: the following calculations are contentious but when I calculate my return on a property, I use the total cost as the base. See the following example:

Total cost: R645000

Rental per month net of services and levy: R6000

Return per annum: 11.2% [72000/645000*100]

By the way, this is a good return and you could expect less, say, 6-8% net. For this reason it is important to buy where you can expect a sustained capital growth.

Some would say that if I put down only a R100000 deposit and the bank financed the rest, then I could calculate my return as 72% [72000/100000] but I think this is nonsense particularly as the period of the bond increases and repayment occurs on the capital – you obviously use the net rent to do this so how can the return be so high. One thing is for sure in property investment – you don’t need to pay cash and can “gear” your investment with a smaller deposit relative to your bond size.

I’ve said it many times, an investment property or two prove a good long-term asset and give you financial choice when needed.