FREEDOM DAY – 27 APRIL 2018

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I listened to some interviews on the way to the gym about experts’ opinions of Freedom. Added to those, it must be the day itself that got me thinking about the Freedom we enjpy.

Can you remember where you voted? Mine was at Constantia Kloof Primary School in Roodepoort. The day was 27 April 1994. The weather was a bit like today, a soft breeze cooling the piercing South African sunshine. The mood was friendly, almost jovial and even though we were, some of us thought, giving away our freedom, we were pleasantly surprised at how peaceful, efficient and sincere the whole event was. The queue snaked for hundreds of meters and our waiting time was probably about 2 hours [not bad compared with some voting stations]. The attendants, all new recruits of the newly established IEC, were proficient, smiling and understanding. A mixture of white and black, they were a demographic equivalent of the queue outside. Standing there with maids, friends, acquaintances, men, women, and a peppering of soon-to-be, black diamonds, we found ourselves making light of what was to be the next 24 years today. Many had stored baked beans in makeshift shelters, many were considering emigration, many were still afraid of each other and what harm may come to us from the hand of others. The gravitas never hit us until Nelson’s famous speech under the awnings at the Union Buildings. Since then, we have experienced the tremendous ups-and-downs of a young democracy. Some think a low-intensity war exists in our lands, others have grasped the opportunities that the downfall of the Group Areas Act [in 1992] ushered in, for some urban life has honestly changed little and for others, the entrance of freedom has not changed much by way of their poor living standards.

Somewhere in that ramble, you can place yourself. Many of us have since emigrated and view the land from afar. Others have grown and prospered despite the numerous perceived obstacles. A section of the population has grown by leaps and bounds to become the emerging and perhaps for now, the developed middle class; some 5m people it is estimated. Some have become embittered by the absence of service delivery, the most recent riots in North West Province simply a tip of the iceberg say others; promises made but stillborn,  while some prospered and others languished in degrading conditions.  State Capture with parallel government flummoxed us. How the … did we get there?  Thank Goodness that we seem to have recovered from the brink of financial ruin. To the top of the wave and the bottom of its trough, but always on the edge of what is and what could be.

And so it goes, we can all find ourselves in this beautiful and sometimes tortured story. What do we make of it? On the one hand, grateful we have been spared greater possible calamity and on the other, acutely aware that the opportunity cost of the past 10 years cannot be eradicated overnight. Excuse the correctness of the details, but I hear that SAA needs R20bn to survive and if sold, would need to fetch R60bn just to pay its debts. I know what I would do but the stakes are off the page! I attended the first Senior Executive Programme presented by Harvard Business School in 2001 with a cross-section of South African leaders. One of the lectures was pure American turnaround strategy and the lecture [advice? best practice?] was something like this: “outsource it or privatize it or close it down” if it’s losing money. The example at the time was the harbours component of SAR&H [South African Railways and Harbours.]. Afterwards, we discussed the material in small groups and I remember being, well “American”, in my approach. Suddenly, from an executive of National Treasury came the much-needed rebuttal: “What would happen if up to 60000 people became jobless overnight and had no social underpin – which, frankly compared to America, we still don’t have? Boom! Like a blow to my social and financial solar plexus, I was winded and had to go back to my mental drawing board. I still often think of that question when I ponder just how we bring about social equity in this country.

So just what is this Freedom bought through struggle and political and social compromise? Let’s explore for a moment:-

“Freedom”, said one of the interviewed on CapeTalk, “is the opportunity to self-determine.” Another added something like: “Freedom is the autonomy to decide what you want and in doing so to choose to pursue your outcomes with dignity and respect for others.”

The Cambridge dictionary defines Freedom as:

“The condition or right of being able or allowed to do, say, think, etc. whatever you want to, without being controlled or limited:

Everyone should be allowed freedom of choice (= the ability to make their own choices).

Freedom of speech and freedom of thought (= the ability to say and think whatever you want) 

And, current campaigning for freedom of information (= The ability to access the internet free-of-charge anywhere) (My parenthesis).”

Pretty hard stuff if we’re honest. Having had to do with poorer people, I have seen how poverty not only dims the eye but also the mind; how it consumes the person and limits their ability to see, let alone grasp, the opportunities being presented. It takes an admirable and monumental effort for a poor person to break through and make a financial success of their lives. All around us we see examples of those who have not been able to chisel through that ceiling. No wonder politics seems to hold sway for so many, and in recent times, people have died for such a place on the hills of KZN.

Freedom to own property rightfully paid for is one of the bedrocks of financial freedom. It touches who we are and what we own. It gives us the ability to borrow and to lend and houses our most precious asset, our family. On the other hand, we are going to have intense debate on the freedom to own property. Personally, I think that we are going to resolve the issue despite some very stressed societal negotiations. The reason I believe this way is not puritan, but rather because we have to find the way through as a national imperative – I personally still cannot see how expropriation without compensation is ever going to work across the board.

Freedom, like power, is not a right and may not be abused. Like we prosecute criminals, the abuse of Freedom is intolerable. Many would say that Freedom therefore has necessary boundaries. The liberals among us would disagree demanding only self-control – a kind of Nike moment, Just do it –  but those of us who have lived next to a neighbour’s barking dogs, know exactly what I mean. How much more, my freedom at the expense of others’ rights and privileges?

Suffice to say that Freedom is precious and should be guarded with our lives. Enjoying it is our privilege. It drives our inter-personal relationships. It drives our economy, the so-called Free Market principle. As such, it places people in homes and moves them whilst it ensures values for their properties. Freedom to be selfish and Freedom to help others lies in our same breath. You may not like that, but that is the price and responsibility of the very Freedom we cherish.

In closing, I have just read an advert for a local construction company and it goes like this:

“HOME IS WHERE THE HEART IS”

A Swedish family decided to make a piece of Hermanus, the South African sun and blue skies their own, and fell in love with a Northcliff home built in 1948.”

I’m not sure where your heart is as you finish reading this blog but why don’t you just let your guard down a little, temper your complaints, raise your vision and become a part, however wavering, of the groundswell of good sentiment and willing hearts that will make this an amazing country to live in? All her people, every race, creed, foreign or local, and strata of wealth, deserve a touch of your and my good grace to make their days happier and healthier. Like you chew a good steak one bite at a time, don’t despair that the best you can manage may not change the world but could change the world around you.

Homeloan Junction commits itself to just such a path.

Yours in Property.

 

WOW! – The news this week has been off the charts.

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The World Bank has increased the global growth rate prediction from 3.8 to 3.9%. Doesn’t look like much but extrapolated across the world, that’s huge.

CR has appointed a super-Team to trawl the leading investors for $1tn in Investment in South Africa. Some of the finest networks, the greatest minds and the cleanest hands in the country are going to be out doing battle for investment Dollars. Put behind you that the last time when we came close to such an initiative was when our erstwhile president recalled Pravin Gordhan from an investors’ meeting where $5tn was meeting to discuss SA as an investment destination.

Gwedi Mantashe and CR are making good work of the revised Mining Charter and the legal framework that gives it legs. Positive discussions are taking place to find the economically fair ground that serves social equity and investment. Find that and we come alive with opportunity and word has it, mining projects that were on hold pending the past minister’s removal by commonsense, could be released for development.

The IMF has upped the SA growth rate to 1.5% minimum and up to 1.9% for this year. You read it first in my previous blog but, hey, who cares who gets the scoop on excellent news!

Flippit, this is good for everybody. WOW!

In a country rich with heritage, blessed with resources and inhabited by beautiful people, we have so much going for us. We have speculated before on what could happen and it seems that before our eyes we are beginning to experience the unthinkable just 5 months ago. Leadership has made an enormous impact in a short space of time. Now we need rain down here!

The latest Property Barometer from FNB has some interesting news on secondary home buying. Just fyi, the reasons for secondary homes are predominantly, buy-to-let, buying for another member of the family and leisure homes. Although the smallest percentage of the overall market, buying for other family members has increased way more than the other two. I would like to focus on that for a moment.

According to FNB:

In the 1st quarter survey, it was only the 3rd and smallest motive, i.e. buying a primary residence for someone else, that rose quarter-on-quarter, from a lowly 0.37% to 2.01%. This is the strongest estimate in this small category since a 9-year high of 2.32% reached in the 3rd quarter of 2015. This “jump” comes suddenly, and the estimates for this category of buying can be volatile, so we are cautious not to read too much into it.

However, we are well-aware of South Africa’s very weak household savings rate, implying many people ill-prepared for retirement, resulting in a need for support from younger family members in their older years. The phenomenon of “hiving” (3 or more generations of a family in the same home), or in some cases buying another property for a family member, on a larger scale could be the result at some stage.

Is the rise in this survey estimate beginning to reflect the above challenges?

There are two forces at play in this sector. The one is longevity with inflation and the other, not mentioned by FNB in this survey, the purchasing for children.

Just addressing the children first, worldwide with property prices rising exorbitantly, parents are buying homes for their children. Once we received our first car from our mom and dad, but today in increasing numbers, mom and dad are buying their children their first home. Nothing fancy but a huge boon for youngsters setting out on life. The purchase takes a few forms such as outright purchase as a gift, lending money to the children and monetizing the loan as part of the income, pension or otherwise, of the parents or, simply a large deposit on the property to bring the bond into affordability. I would imagine that the use of trusts in these cases is quite normal so as to protect the asset. Those of you who follow the UK property market will know that property has moved away from the common man never mind the youngsters. In this case, many hybrids of what I have just discussed are used to fund a home for the children.

In a sense, the move to private university accommodation [student accomodation] which has proliferated in the last 15 years is nothing more than this trend. Rather than house, if it is possible in any case, your child in a varsity res, you buy a small flat and use it for the years that they study. It’s not unusual to let the other room for income for the child or retain it for a younger sibling on their way to the same institution. Student accommodation has proven to be a great investment over the years with rising yields and even capital growth. It is really sustainable as university budgets are hammered and cannot any longer build residences – by the way, the protest for accommodation in recent student protests may not simply be entitlement as some seem to think, but the very issue that accommodation is simply out of reach of the less affluent students.

Let’s finish with homes for parents. It is not longevity that causes problems with income over the years but rather, inflation. Keeping pace with inflation is hard enough as it is, but living a long time with it is a scissor grip from which many cannot escape. We find ourselves surrounded by octagenarians who are quite open about the fact that their children help them to live. Whether that be by way of housing or a subsidy or both, life on the other side of 70 is tough for most people financially. So, my reader, what do you do to avoid what is obviously on its way? Some suggestions:

  1. Those who can buy a retirement village home that precedes their needing it one day. Let to retirees who prefer to rent rather than buy when they retire, such a home does not make a great return but does pay for itself. Also, when needed, it is available fairly readily because you need to remember that retirement villages are scarce resources and you don’t just get in on the day you decide you need to.
  2. Be aware of the retirement conundrum before you have to retire. I say this because what is an obvious projection when you’re healthy can become an immediate nightmare when you or your spouse is not. It may sound radical but given that units in retirement villages are either scarce or increasing in value faster than your residential property, you need to consider down-scaling your home so as to afford a retirement unit and a freestanding home before prices move away from you and you can’t buy the unit you really want. If you do this, rent the retirement home as indicated above.
  3. Many retirement villages are Life Rights. Relatively inexpensive to acquire, a downside may be that you’re not able to rent the unit to a third party. This puts pay to the idea above and you must ensure rent-ability is confirmed in writing before you buy.
  4. If you’re reading this and you have concerns about your ability to retire in principle knowing that your genes live long, then consider selling and making the move sooner rather than later. The reason is the old issue of opportunity cost. As an example, a R5m home can cost you R8000 per month to service and maintain but sold, it can provide you R500000 per annum in a preference share. Sure you have to do your sums and will probably spend half that buying a retirement unit, but the point stands that the sooner you release funds for a smaller home and retirement income, the better you will cope with ever-increasing costs of living.

In the part of the world that I live, I see the above daily. It doesn’t just take extraneous political factors to set one’s mind reeling, you just have to see what it costs year on year to eat out to understand that many luxuries today may not be attainable tomorrow. The sooner you get over yourself and understand the new reality, the better. The exception could be significant capital growth in your current property but, when the chips are down, a Rand in the hand could be better than a double storey.

Property and life are inextricably linked at an individual level. And, so it is for Homeloan Junction. We understand the implications of what’s been discussed above and can give an answer or refer many of your questions as regards that connection between your home and your lifestyle. We would welcome such interaction and will be there with finance as required. In the final analysis, we care about our customers.

Yours in Property

THE CONFIDENCE ELIXER

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It is not profound to say that good news is better than bad news but, my goodness, the statement in property that there is some good news is very profound. The reason, as we’ve discussed many times, is that Confidence is the primary yeast of mortgage book building and mortgages mean house sales. In addition, in this blog I have nailed my colours to the mast and said that Gauteng is on the verge of increasing house price movements. Good news, obviously followed up by business activity, will change the shape of Gauteng house prices. The sleeping giant will arise in my humble opinion and, in turn, Cape Town will slumber for a season. In the former, house prices are too low to represent value and in the latter too high to represent value. Put incredibly simply, selling a house in Joburg and trying to replace it in Cape Town is well-nigh impossible. I have two friends [sad hey? – just joking], who are experiencing this big time; the one Joburg to Cape Town and the other, even in KZN’s North coast developments.

This trend is highlighted in the latest FNB Property Barometer: 1st Time House Buyers. John Loos reports:

 

“We find Gauteng still to be the strong 1st time buyer region on the one hand, and Cape Town to be the very weak 1st time buyer region on the other.

 

Greater Johannesburg had an estimated 1st time buyer percentage of 21.59% for the 2 quarters, and Tshwane Metro a massive 30.75%.

In the 3 major coastal metros, Ethekwini Metro had the highest rate, i.e. 20%, Nelson Mandela Bay a weak 10.5%, and Cape Town Metro a very low 6.46%

These major divergences partly reflect diverging home affordability trends in recent years. We believe that slow house price growth in Gauteng over the past decade or so has greatly improved home affordability (average house price/average household income ratio), whereas at the other end of the spectrum, Cape Town’s home affordability has deteriorated significantly during recent years of greater market strength and strong house price growth.”

 

In short, FNB is saying that new homebuyers can’t afford the prices in Cape Town but can afford the slowed down prices in Joburg. Extrapolate that fact a few layers upwards and the middle+ markets, who are baulking at Cape prices, are seeing value in Gauteng. Really glad that we have this green shoot confirmation of above-average rising prices in Gauteng; a stance this blog has taken since December especially.

And here’s a stab in the same direction – the national GDP growth rate is going to be at or near to 1% for 1st Quarter 2018. May be naive but we should not underestimate the force of positive news on our economy.

A person who I have not had the privilege of meeting but who I admire through the Press is Andrew Cantor, CIO of Futuregrowth. Futuregrowth is a huge investor in Commercial and State Owned Enterprises [SOE’s]. It was Futuregrowth, with other significant players, who eventually refused funding to Transnet, Eskom and that other cash-eater, SAA, in 2016/7. Thankfully, we have not yet experienced the dire predictions of those times and may it remain so. But Andrew has written an article entitled, It’s not so gloomy in SA, in Financial Mail, the main points of which I share with you as an extract:

“It has become all too easy to overlook the positive forces that have been at work in the country in recent years, and to underestimate the potential that exists for positive change.

It is my belief that SA has many core strengths and that its challenges can be met. I am comfortable, on a daily basis, to invest pensioners’ savings into this country.

We all know the bad news. So, to explain my confidence, I’d like to offer some perspective.

SA has witnessed a remarkable political change: a new president, new cabinet and clear evidence of a crackdown on corruption.

The Futuregrowth credit team has, since the fourth quarter of 2016, been in engagement with the six largest state-owned enterprises about issues of governance. We found that four had reasonable governance structures and practices and, subject to certain changes, we recommenced lending to them. Eskom and Transnet have been at the centre of serious allegations and these are being investigated through various parliamentary and judicial processes. Our analysts continue to be in discussions about governance and improved disclosure with both these organisations and are finding them co-operative. We have not yet recommenced lending to either.

As we look back, there are some very positive signs despite the past difficult decade:

  • SA’s constitution and judiciary have stood the test. The principles of the constitution were defended repeatedly by a free and independent judiciary.
  • SA’s incredibly free press played a critical role in creating a channel for truths to be aired and for the public to become aware of the problems.
  • Democracy itself has played a key role. The ANC suffered meaningful setbacks in the municipal elections of 2016, and the mood of the electorate was a clear warning that change for the better was vital for the party and the country.
  • Civil society found its voice through whistleblowers, e-mail-leakers, writers, academics, entertainers, financiers and others.
  • National treasury is the linchpin of fiscal control, and has a strong culture, with many dedicated professionals.
  • Often forgotten, the Reserve Bank has constitutional protection, a clear mandate and independence.
  • And SA has a large, professional and ethical investment community with a strong pension fund investment culture, legal frameworks and regulatory oversight.

As a bond investor, I deplore the weak standards in SA’s listed corporate bond market. However, that perspective can do an injustice to SA’s very strong equity market and its remarkable government bond market. Both are world class.

And we are in a unique historical position to effect positive change.

Despite good global growth in recent years, domestic mismanagement has undermined fiscal accounts and economic confidence — resulting in low domestic growth, credit-rating downgrades, and worsening inequality.

That said, the economic outlook is brightening:

  • While GDP growth estimates are still pencilled in at between 1.5% and 2% for 2018 to 2020, the rise in confidence gives a likelihood of materially better outcomes.
  • Domestic inflation remains subdued, offering scope for monetary policy flexibility.
  • We expect better fiscal control and growth to stabilise SA’s credit rating.

As we approach the 2019 national election there will no doubt be comments and cross-winds. This may be unsettling, but during my 28 years in SA good sense has ultimately prevailed.”

Shew! If that does not encourage you, nothing will. Bad news will always be there. Just had lunch with British people and they are concerned about Brexit and would love to live here; how’s that? Andrew’s perspective lifts us from the gloom and places us in hope.

Do you do that daily where you touch the lives of Others?

Yours in Property.

PS – if you are looking for experienced and professional assistance with the home buying process, Contact Homeloan Junction – They take care of all the steps so that you can focus on what matters most to you.

NEWS TRAVELS FAST

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The beautiful seaside town of Hermanus has not been spared the ravages of land invasions. The accusation is that people have waited for houses for 20 years and are now completely impatient. Having the unrest close to you is nerve-racking and our hearts went out to the peaceful residents who live in Zwelishle. As is so often the case, they bear the brunt of the ire of the crowd and get beaten and even to death [3 cases as we understand] for simply going to work. The local churches have set up Safe Shelters and we are feeding and caring mainly for those who feel completely unsafe going back home. The Housing MEC flew in yesterday to meet with the protesters and things seem quieter [27/3/2018]. Let’s hope that sanity prevails and that justice is served both for criminals who have looted and assaulted, but also for genuine cases of long-delayed housing delivery. Our Municipality has assured us that we are one of the most progressive house-building local governments so we must take them at their word at this stage. What I can say is that in the last three years many homes have been built and many are under construction, but obviously, not enough for the Eastern Cape and foreign people who have semigrated into the Cape in general. The irony of irony is always the burning of buildings – the satellite police station which could have provided protection and investigation and the other, the….wait for it…..the Housing Department. The latter holds the lists of Awaiting Houses people. So let’s hope there’s back-up in this crucial area.

All of this speaks to the Land issue with its component parts:

– Vacant land;

– Services;

– Service delivery of existing housing, and;

– Housing construction and delivery to the properly prioritized people.

To the latter pair, does anyone know if the government has completed the delivery of title deeds to the so-called “matchbox” houses in Soweto? If not, that’s a scandal of immense proportions as long-time residents of those houses could have formed a symbolic body of homeowners able to benefit from the wealth creation of their properties.

God knows, the Land issue is now worldwide. Detaches delivered to the Australian government do not help and the lack of comprehensive, understandable, compelling communication to every global stakeholder is vital. You don’t redistribute land even with compensation, never mind without, by passing a resolution at the ANC Elective Conference and then go quiet on all of our major trading and investment partners. Little wonder that the Australians, who are building a nation of highly skilled and vetted immigrants, have taken the gap of practically inviting our farmers to apply for visas. Sensationalism aside, we have some of the finest agricultural skills and expertise in the world and most certainly in a water-scarce country, which Australia also happens to be. Until we realize in Home Affairs that Skill is a globally competitive commodity, we will not replenish the hundreds of thousands of people who have left for other lands. It is not about race or ethnicity – if you stand on a Vancouver street corner, you will be shocked at the number of Asian folks who have immigrated there. Where did they come from? Hong Kong certainly, and in the face of the uncertainty of the British handover to China. Skills walk and Money talks.

Shew! That was a headful to get on paper. So why do it? Well, the price of property will be linked to the long-term affordability of our population. While everyone will not be rich, everyone can own an home appropriate to their affordability. As is obvious, the home is first of all shelter, second of all family security and sense of being, but thirdly, a source of wealth creation. We can remind ourselves that for most people, their pension and their home are their ability to retire – one or the other missing and the prospects will look bleak. We will never progress our nation until it catches the dream of the likes of Joe Slovo who set the goal to build 1000000 houses by 2000 and succeeded, even posthumously, to beat that goal. The American Dream of home ownership was not motherhood and apple pie, it was about the mighty American Dollar and the profit that could be made. In turn, it worked for all who succeeded to realise “the dream”.

Developers reading this, we salute you. You are building the national housing stock and that is meritorious. Keep it up!

The news did indeed travel fast. From Cape Town, the Vaal, Joburg, and Sydney message after message to find out how we are. So far we are good but every hour a new threat arises from people intent on destruction, another spear of fear penetrates the hearts of the people of this town and its surrounds. Let’s hope the violence dissipates and with things back to normal, houses get delivered as soon as possible.

But, there is other much better news. The Moody’s decision to retain our rating bordered on a miracle. To have held the downgrade off was a gift to South Africa. Remember that their decision would have plunged us into full junk status and to the point that the Citi World Bond Index would not have been included in offshore Bond mandates. In simple terms, $10bn of SA Bonds would have been sold off in no time. They prevented that ignominy and financial destruction just by holding the rating. But then to give us the filip of lifting the negative watch to Stable was amazing! It sets the scene for a few things that should excite us:

 

  • It gives the new Administration and its decrepit SOE’s a financial space to move on critical initiatives. The cost of funds should not rise and we need every Rand we can spend on turnarounds right now.
  • It gives the SARB the space to manoeuvre interest rates and I for one, am backing a decrease in Bank Rate come the next MPC. Allied to this as we have noted, the strengthened Rand also gives the SARB much-needed headroom for a rate reduction.
  • It may spur the other Rating Agencies to review their stance on South Africa.
  • Finally, it’s just some good news amidst the gloom that has succeeded Ramaphoria.

 

All of the above said, am I negative? No!

We live in a vibrant country that is grasping the nettle of social inequality. We will make some mistakes in our rollout and even frustrate many with the pace of change. But ultimately, we must survive and even thrive in order for our People to enjoy a developing economy. I can understand people who are cynical about this approach but we have chosen to live positively and faithfully in our beautiful, tortured country. For some there is not an option but to live here but for others, it is a choice. Either way, as in all of life’s challenges, you can be positive or negative. The decision is yours and the way you react to a stimulus will always be your responsibility. I choose to live positively and remind myself of that whenever I need to “hear my own prayers”.

HLJ agrees and we invite you to do the same. It’s not fairyland stuff, just a simple choice to be happily effective in what we CAN DO.

Yours in Property.