JP LANDMAN Article

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Once again, JP Landman has produced an outstanding article. As a leading Political and Trend analyst, he traces the path of corruption, the fight against it, and what has been done so far. Obviously, the reason why we blog it is that corruption and the fight against it are the two sides of the property-value sword. The one degrades values as property slips lower in the face of the scourge of corruption. The other, the fight-back, if we can call it that at this early stage, lifts hope and spirits. Confidence raises property values.

What has been interesting to me with this article is that I read it as soon as it arrived. Then, most unusually, two people sent it to me expressing it as incredibly positive news. Against that, I have heard some cynics continue to say that it is unrealistically positive. As with the half-full/half-empty glass analogy, we will each have our own views. But we also have the ability to choose our response. I would rather see that something is moving in the right direction than have another News presenter tell me another tale of illicit covidtreneurship at the expense of the Poor.

Enjoy the read…

Corruption                              14 August 2020

There is palpable anger in the land about corruption. The anger is largely focused on what the ANC is doing and failing to do about the scourge. If we separate party and state, it is useful to look at the scoreboard of what the state has achieved so far in fighting corruption.

Critical State Institutions

President Ramaphosa, 10 months after coming into power, fired erstwhile South African Revenue Service (SARS) Commissioner Tom Moyane in November 2018. Moyane fought mightily to keep his job, all the way to the Constitutional Court, who sent him away empty-handed. By May 2019 new Commissioner Edward Kieswetter was in office. Four senior SARS executives left in the next three months, bringing the total senior executive departures to seven. Now, a year later, SARS seems on its way back.

At the Public Investment Commission (PIC) no fewer than 17 board members and senior executives left in the nine months between June 2018 and April 2019. The Mpati Commission’s report was released in March. A special team under Judge Yvonne Mokgoro is now assisting the new board in implementing the recommendations of the Mpati Commission and a much stronger organisation is emerging. Some have already received summonses to repay money and I suspect more summonses will be issued.

Eskom retrieved R1 billion from McKinsey and R150 million from Deloitte. (Two Deloitte directors also resigned.) Eskom cancelled a coal contract of R3,7 billion with Tegeta, the erstwhile Gupta company, as well as a R14 billion oil supply agreement. Other contracts are being investigated. On 3 August Eskom and the Special Investigating Unit (SIU) launched proceedings to recover R3,8 billion from 12 individuals, including the Guptas, a former minister, former senior executives and former board members. In its investigations at Eskom, the SIU notified the board of wrongdoers – some resigned before disciplinary hearings started. There are consequences, even if we don’t see orange overalls yet. (As an aside, 300 managers left Eskom with voluntary severance packages.)

At Transnet, a new board was put in place and 15 senior executives left over a period of 12 months. South China Rail has repaid R618 million; the two Transnet pension funds recovered R1,168 billion from Gupta entities; and assets worth R232 million from a former Gupta associate were frozen. Not all institutions were cleaned up as successfully. The Passenger Rail Agency of South Africa (Prasa) remains a mess and is now thankfully under administration. Gratifyingly, SARS attached some of former CEO Lucky Montana’s private properties.

The Land Bank had to be bailed out with R3,5 billion, but three people have been sent to jail for fraud at the bank – one for 20 years. Mercifully, South African Airways is on its way out (unless a benefactor appears) and SA Express is in liquidation. Denel also saw a clean-up and has a new and very competent board, but it can probably no longer be saved from the ravages of earlier corruption – the military procurement environment has changed too much.

National Prosecuting Authority (NPA)

A most critical institution for corruption is the NPA. A walk along the timeline of what has happened there since Ramaphosa became president is quite revealing. (I apologise for the detail, but it discloses a lot.)

In August 2018 Ramaphosa fired previous National Director Shaun Abrahams. (Like Moyane, Abrahams challenged his dismissal in court, but he too was eventually sent away empty-handed.)

In October 2018 Ramaphosa suspended the two deputy directors, advocates Nomgcobo Jiba and Lawrence Mrwebi. As required by law, he appointed a commission to investigate the suitability of the two to hold office. Following the report, they were fired in April 2019. Like Moyane and Abrahams, Jiba challenged her dismissal in court. She threatened hellfire and brimstone, but eventually simply abandoned her case and went into oblivion. New permanent deputies have been appointed.

In February 2019, while these clean-up processes played out, Shamila Batohi assumed her position, having been recruited from The Hague.

Also in February, Ramaphosa announced in his state of the nation (Sona) speech that a special investigative unit would be created inside the NPA to prosecute state capture cases. The unit would combine prosecutorial and investigative capabilities like the Scorpions used to have. Ramaphosa promised that skills from ‘within government and the private sector’ (my emphasis) will be brought in. He also left the door open for ‘a more enduring (anti-corruption) solution’ to be developed.

The unit was gazetted in April, and in May 2019 Hermione Cronje was duly appointed from outside the NPA to head this new unit.

In September 2019 Ramaphosa returned to the NPA and revoked the appointment of five senior prosecutors who were promoted by Zuma just before he left office. Two accepted the reversal in their fortunes; three threatened to challenge it in court – of which only one has done so far. The director general in the Presidency revealed that Ramaphosa took this decision on the five prosecutors after consulting Wim Trengove SC. Clearly Ramaphosa does not just blunder in.

In October 2019 the Treasury allocated R38 million to get the special unit going; a further R25 million was allocated to appoint private sector practitioners to assist the NPA (there is Ramaphosa’s promise of ‘private sector skills’); and R102 million was allocated to fill vacancies at the NPA.

In February 2020, 800 posts at the NPA were advertised. More positions were advertised in August 2020.

In July 2020 the regulations on the Zondo Commission were changed to allow the NPA to use evidence from the commission in criminal prosecution as well as to use the services of people currently working for the commission. This was not possible under the commission’s previous regulations. One must remember that the Zondo regulations were promulgated by Zuma just before he left office; and it was a balancing act to protect people’s right to remain silent, but still get the stories out. That balancing act now favours the NPA.

In August 2020 the ANC’s National Executive Council (NEC) has resolved that ‘government (must) urgently establish a permanent multidisciplinary agency to deal with all cases of white-collar crime, organised crime and corruption’. Later, Justice Minister Ronal Mamola confirmed ‘it is clear, the country needs a permanent structure’. This sounds much like Ramaphosa’s Sona speech of February 2019 where he left the door open ‘to develop a more enduring (anti-corruption) solution’. Looks like he knows where he wants to go and is playing the long game.

In the meantime, several investigative agencies have been pulled together in a ‘fusion centre’ to work on Covid-19 corruption, creating precisely the integration of skills and a more enduring capacity President Ramaphosa was looking for.

Prosecutions

Sixteen months ago, in this column, I tried to temper expectations for quick prosecutions. I wrote that prosecutions will only happen in 2020. Legal processes take time, simple as that. How much time was again illustrated by an adjournment of the Zuma case to September to allow for documents to be exchanged between the two sides and for other preliminary matters to be concluded? If these matters are all cleared, a trial date can be set. In the meantime, Zuma has suffered a number of setbacks in various courts. As he is discovering, the wheels of justice turn slowly, but they do turn.

The Hawks are investigating 250 cases of municipal fraud of which 93 are already before the courts. More people will discover that the wheels of justice actually turn, if slowly.

In June 2020, nine suspects were arrested for the VBS Mutual Bank saga. They were granted bail and will appear on 8 October 2020. One of the nine has turned state witness, which should help to secure convictions. The danger of relying on proceedings at commissions, in books and by investigative journalists (undeniably useful as they are), were underlined this week when one of the prime suspects in the VBS case brought a successful application against the report of Advocate Terry Motau on the VBS scandal. The NPA has to build every case, piece by piece, with its own witnesses.

In the meantime, five of the nine VBS accused, including the former chair, chief executive officer, chief financial officer and chief operations officer, were sequestrated and their assets seized to repay money to the bank. Two directors were declared delinquent and cannot be company directors again. Consequences are following even without jail sentences.

Special Investigating Unit (SIU) and Special Tribunal

The SIU is a division of the NPA with the mandate to investigate and recover public money through civil claims – it is not a prosecutorial body. Where the SIU comes across evidence of criminal wrongdoing, it is referred to the prosecutors at the NPA. (For example, it laid criminal charges against three companies in Gauteng and identified two senior officials as ‘enablers of corruption’ relating to Covid-19.)

Criminal prosecutions can still follow a successful civil claim. Criminal cases require ‘beyond all reasonable doubt’ while civil claims require the less strenuous test of ‘on a balance of probabilities’ (as we are seeing with some of the VBS accused being both sequestrated and now also charged criminally).

To speed up civil litigation by the SIU, President Ramaphosa created a Special Tribunal to adjudicate in the civil proceedings the SIU brings against alleged wrongdoers. It became operational on 1 October 2019 and consists of eight judges under the chairmanship of Judge Thami Makhanya. Currently, 22 cases are before the tribunal. They include, among others, luxury car purchases, dodgy scholar transport claims and inflated government contracts.

In two cases the tribunal ruled that the pension of suspects be frozen, giving the SIU the opportunity to seize the money. (Resigning and running with one’s pension has just become more difficult.)

Over the weekend it became known that the Special Tribunal has seized the assets of a suspended Transnet executive, including a luxury home in Dairnfern, 2 farms and… 35 motor cars! Transnet was also prohibited from paying out any pension benefit to the executive. The SIU has R14,7 billion in cases ready that it wishes to submit to the tribunal.

Asset Forfeiture Unit (AFU)

The AFU is an old division of the NPA and was established in President Mandela’s time. It is an old workhorse that was deliberately restrained in the Zuma era. It now seems to have a new lease of life. In the last reported year, it recovered nearly R2 billion from economic crimes against a mere R180 million the previous year. Over the five years to 2019, the AFU has recovered R11,8 billion in 2 707 cases. The AFU focuses on 10 specific crimes, including fraud, cash smuggling, human trafficking, counterfeit fraud and drug-related offences.

An example: in the current Covid-19 corruption saga the AFU seized a bank account two weeks ago with R700 000 siphoned off UIF money meant for underemployed workers.

So What?

  • As the timeline clearly shows, getting rid of people, replacing them with better ones, and building up institutions take time. 
  • A lot of action is being taken through civil proceedings (sequestration, asset seizure, and civil claims). This does not have the drama of orange overalls, but there are still consequences for the perpetrators and public money is being recovered. 
  • Progress has been made with some state-owned enterprises (certainly most of the big ones); however, most of the current Covid-19 corruption seems to take place at a provincial and local government level. 
  • One must distinguish between what the state is doing and what the ANC is doing or not doing. President Ramaphosa has clearly put the state on a new trajectory. It is important that the ANC now follows suit.

YOURS IN PROPERTY

The above article, once again, attributed entirely to JP Landman

JP Landman
Political & Trend Analyst
jp landman

PROPERTY INVESTMENT GUIDELINES

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Many people are experts in property. I am not one of them. Real experts are multimillionaires with property portfolios that dazzle the eye. They have built them with seed capital, geared the investments to multiply the number of units and they have built sufficient equity in their portfolio of cash flows from their portfolio in order to withstand even pandemics.

I am not, nor have I been, at that level but I have owned buy-to-let and/or bought, built and sold enough properties to position some guidelines for investors. I will focus on residential but many of the aspects of investment transfer to commercial properties. I hope the following, in no precise order, adds some value for Homeloan Junction’s readers…

GUIDELINE#1

ANALYSE YOUR CIRCUMSTANCES

Buy-to-Let was novel as a concept in 2002 when I introduced it into Nedbank. I had been to the UK to research the investment with local lenders. The numbers were compelling and, coming off the back of low returns in retirement savings, many people were supplementing their income by buying “the house next door” for let. It was not small but rather a multi-billion UKP industry.

When you invest in property, you are tied to a fixed asset. Key to such investments are personal circumstances. You need to understand, and I believe write down for future reference, the reasons for investing this way. Where you live and want to live, what money you have for a deposit and for a rainy day, your affordability of what for most people would be a second mortgage, where you see the market for people who’d want to rent, and the time you have to manage the investment.

All of these questions plus some, need to be carefully understood and answered realistically.Bottom line to this is that you’re buying a fixed asset. Forget the notion that “if you get into trouble you’ll just sell the flat.” Property is not a unit trust or savings account; you cannot just sell it because you need to do so one morning. With the knowledge of your circumstances, you could think about approaching a bank for a bond once you have found a property.

GUIDELINE#2

AFFORDABILITY

Obviously, if you have cash, you can buy the property, find a tenant and be on your way. For the less fortunate, you need a deposit. My recommendation, against many pundits, advice, is 30%. It is good for bank approval to have some “skin in the game” or equity in the property but the main reason I see is that your bond will have a smaller payment in times of vacancy. As regards the bond, the banks like no more than 30% of your gross income payable on bonds.

They will permit a percentage of the expected rent to be included in your income but the old rule of 50% of that monthly payment is no longer simply applied. In addition to the bond, there are services and maintenance costs to add to your budget. [Talking about budgets, any businessman needs one for any investment].

These costs include:

  • Rates, Water and Refuse: I estimate that municipal costs are increasing by about 7% per annum compounded.
  • Levies: This cost, budgeted and apportioned by the Body Corporate, are rising at least 8% per year.
  • Maintenance: Maintenance responsibility is determined in your Lease agreement with the tenant, but you will have maintenance costs as the landlord.
  • Tenant Costs: The costs of entering and exiting a tenant should be considered.
  • Capital: You don’t need a global pandemic to tell you that you need some spare cash. Vacancies occur. My rule of thumb is 6 months’ rent in ready cash. You can sail much closer to the wind financially but getting bank approval for a bond on a second property is not that easy. 

GUIDELINE#3

GEARING

Gearing is possible in property. It simply means putting in as little as possible in order to obtain a maximum return. Say you spend R1000000 on a property and you deposit R300000 and bond for R700000. Your rent per month is R10000.

In this case:

  1. Your loan-to-value ratio is 70% [R700000/R1000000].
  2. Your investment is R300000.
  3. Your return on investment is 40% [R10000x12/R300000].

Some investors see Gearing this way, but I never have been able to. Rather, I prefer the acid test calculation. If you don’t think you’ve signed up to invest R1000000, just skip a payment with the bank. You will quickly know that you owe them R700000 and, if you need to sell urgently, you risk some of your deposit as well.

So, if you agree, then the more conservative calculation for return on investment is: R10000x12/R1000000 = 12%.

In this thinking, you have also invested the R700000 but just decided to use the bank’s money to do so. But remember, whichever way you wish to see the investment, the 40% or the 12% is gross return and your costs, including vacancies, come off the return.

What I have done in these regards is requested the highest bond possible; in some cases, 100%. But I insist that it is an access bond. Then, I store the deposit and the rainy-day money in the bond for easy access if I need it. In this way, I hold a reserve and save interest equal to the bond’s interest and over time, that is a big saving.

You get tax relief on property investments. In general, costs are deductible from rental income. Some would, therefore, say my use of the access bond is conservative. But for all the years, I have had no overdraft and simply used the bond as such. Finally, a word on interest rates. Now, the rate is at historic, 40-year lows.

My old rule was to do the bond payment calculation at your rate + 2%. Right now, I would push that to +4%. The reason being that the SARB will increase rates to protect the economy against inflation and the Rand. The normal rules have been discarded within the crisis we have, but the minute we as consumers begin to buy again and inflation looms, the rates will go up. When, you may ask? My sense.. from this time next year slowly but surely.

GUIDELINE#4

KNOW THE ASSET

So many rules apply to this. We have discussed the “fixedness” of the asset class. Right now, investment or primary property, prices are down 20 – 25% off 2019’s valuations. You cannot easily sell your property without a deep price discount. In fact, allied to this if you’re a Buyer, you should only deal with serious Sellers. If the price is too high in comparison to last year, walk away – you could be overpaying.

Then the Golden Rule [he who has the gold, sets the rule ] but not that one. Rather, Location, Location, Location. Where you buy the investment property depends on the kind of tenant you envisage. If normal working-class people, then proximity to schools, transport, shops etc become the driver of the decision. If, as many are doing, you’re investing for your retirement and want to let long-term while you work, make the decision of where you want to retire and buy in that location.

Two extremes of the same investment principle, but the essence is that you determine the target market of your tenants and then work back to the location of your investment property. The building itself is very important. If the sectional title, [which I see as a rule ie no standalone investment properties], then ensure the financial management of the complex is sound. The bank will ask for Body Corporate financials to confirm this but if you’re paying cash, do the investigation yourself.

Maintenance is a killer-cost so reserves, recency of painting, state of the gardens, etc need to be considered. “Needs a little TLC” is great but who is going to do it and at what cost to your return on investment?

Avoid lifts [their maintenance is very expensive] and ensure back-up power generators are in place or that the “special levy” has been collected and invested for the move to backup power. Finally, I have never found a “bargain”. You may, and I encourage you to keep your ears close to the ground. But for me, a good property in the right location at the right price is the foundation for a long-term investment.

GUIDELINE#5

GROW GLOBALLY

My late friend used to say: “Trouble equals distance squared.” In other words, buy a property close enough to you to be able to respond quickly and easily. Living in Joburg with a burst geyser in Cape Town sets the scene for what he meant. However, I wish I’d invested more offshore. Nevermind the Rand depreciation, property in hard currency has provided very good returns over the last two decades.

At this stage, you are able to buy good management as well in places like Mauritius, England and Australia. This is taking care of administration, tenancy, rent collection, and maintenance. Once you’re in the position to do so, consider offshore. Some of the student rental complexes seem to offer affordable properties at a good return, for instance.

GUIDELINE#6

ESTATE AGENCY

I appreciate estate agents. To begin with, they are professionally qualified to practice. They have access to sound legal advice from conveyancers when required and often know the complexes in which they sell very well. They understand property and how to buy it. Make them part of your network especially in the area in which you intend to invest. Their time is free, and a well-structured appointment will give you stacks of information as you research your investment. But you have to take personal responsibility; it’s your money!

Think carefully through your investment – how much, where, which tenants, what values, what rentals, what capital appreciation, comparative pricing, facilities, state of the body corporate, special levies etc? This information can be simply obtained but you need to ask for it. Your estate agent is not investing your money, You are. So, it’s up to you. A primary consideration, if you require the service, is rental collection and insurance – you may wish to only deal with an estate agency that facilitates this important function of your buy-to-let investment.

Investment in property is not for the gung-ho or light-hearted. Many an investor will tell you of poor or peaked returns after costs or bad tenants. If you don’t have the determination to manage your investment, rather buy a unit trust. In fact, for sad economic reasons, right now Property unit trusts are at very low prices and may have upside as the economy improves. At least there, your money is easily accessible and the properties are managed professionally for the best returns available.

HLJ provides Bond Calculators on their website www.homeloanjunction.co.za. Our staff can point you in the right direction probably with many an anecdote of their own property investments, though never as advice.

When it comes to your bond application specifically, our service is free to you and loaded with professionalism. Like any saving, the cost of delay is very high. So, start now, even if it’s just for the deposit on your new home.

Yours in Property.

RECORD

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This is an email from the leader of the Team that says it all…

Good day Team,

Congratulations on exceeding our all-time high Submission and Grants in July!!!

You have set a new sales record!

Without you, our business would not be what it is today! We are so proud and grateful to have such a great team.

You have already proven that you are the best sales force in the market, and with the current state of the market I am confident you can exceed again in August 😊

Keep up the great work!

Kind regards,
Vincent.

Remember the days of Records? They’re the stuff of antique shops in Melville and rural towns. Plastic rings with a hole in the middle and a brand label around it. Played on a record table with a needle that vibrated in the grooves and caused a sound through speakers. You got 7-singles and long-playing records. All your favourite singers. My first recollection of a record was Alvin and the Chipmunks, a cute kiddie’s long-player with squeaky voices and happy lyrics. I loved Alvin and have just Googled his song, Christmas Don’t Be Late. Be a kid again and listen to it; you’ll be glad you did.

Then there are Records of the information type. I’m reading a book of Dr James Barry who posed as a man for most of her [Margaret Barry’s] life in order to pursue her dream to be a doctor in the late 1700’s. It was the sole domain of men, but she pulled it off and spent much of her time in Her Majesty’s Army. The main reason for reading it is that she was instrumental in the humanising of the Leper colony which was established in the Hemel en Aarde Valley right behind us. Now known as Volmoed, it has become a wonderful sanctuary over the years, no longer required for its historical purpose. Dr Barry was fastidious with record keeping and thus we have much of her work in the Cape Colony and beyond recorded for us. Records, data in whatever form, are foundational to life.

But then, as above, there are Records of achievements. One of my favourite sports stars is Usain Bolt, proud holder of 8 Olympic Golds and 19 Guinness World Records. Watching him prepare, run, lift his arms in victory and then prance around for the crowds and media is always a joy to me. What a character! How much he oozes the sweet taste of success for each of us.

But what happened last month was little short of another exciting Record. Vincent, in expressing his delight at the July 2020 performance, points to a few things we could bear to remember. But before a few comments, I join his congratulations and celebrations of this outstanding performance.

History was made in July 2007 when the National formal grants peaked above R15bn. Post-sub-Prime crisis, this number had slumped by about 90% in January 2009 and we were all fighting for our lives in origination, sales and conveyancing. The next time I heard of a serious Record was October last year [open to correction] and though I don’t know the national number, originators were excited.

We started 2020 slowly with every reason not to have a great year even though interest rates were reduced to stimulate the economy. Along came lockdown on 26 March 2020 and we dunked. April was a train smash and cashflows floored as the Deeds Offices closed down. Three weeks, then five weeks and then the seemingly interminable lockdown until July L3 when most people could begin to go back to work. By that time, the SARB had slashed the Repo rate to a record low and it now stands at 3.25%.

In the words of Garreth Cliff’s new show, “So What Now?”

  1. On the upside, “Records are made to be broken” is an old saying. Who knows that this trend does not continue, and we all stand in the sunlight of sustained unexpected success?

  2. Something moved the needle and most of our guesses would be a combination of low-interest rates, fair bank approval rates, and realistic house pricing. The upsurge is probably found in there somewhere but the surprise on most of our faces is visible. I wish I could see the Occupational data of the buyers – the one thing I know is that the least affected sector of our employed economy is Government. In general, they have not needed to work beyond a minimum but have been paid without exception for every day. It would not surprise me that this sector is buying and at approx. R900000 bond size, it almost inevitable that first-timers are driving the market.

  3. “Make hay while the sun shines.” The great thing about a rising tide is that all the boats rise naturally and equally. The task of the crew is not to question the reason but to put to sea. The fruits lie in making the best use of the time while it lasts. Get out of lockdown blues and get going. Ke Nako…It’s Time.

  4. In reality, for many of us that may enjoy some success at this stage, we will need to consolidate. Barren April, May and June have likely left us platsak and getting back on our feet will not come cheaply. Given what’s happening with volumes, my only wish for you is that the Deeds Offices rise from their slumbers and get the registrations flowing again. The knock-on effect and impact of cashflow will have been felt in many a household for too long. Ek gun dit vir jou.

  5. Enjoy the moment! Times like these are unexpected, to be honest. Inflation is benign but any sense of uptick will have the SARB MPC hawks on their guards and as things stand, they will not hesitate to raise the rates again. [But as an aside, I have been amazed at how the Rand has not over-reacted to the interest rate drop. I guess the reason is that our, may I say, Record Government Bond returns have secured desperately needed funding for our country.] So, use the time to do everything you can to reap where you have sown whilst paying off debt and recovering personal capital bases. We really do have no idea where corona is taking us in the medium-term.

Finally, a thought I often share. Celebrate Success! For the humourist in us, the owner’s wife at Wijnskool Wines in the Valley, quotes Napoleon Bonaparte in her WhatsApp strapline: “In victory you deserve champagne, in defeat you need it.”

Always celebrate success. Whilst you never hang your hat on it, it is one of the rewards of hard work, well-managed risk and enthusiasm. While it lasts, savour its sweetness. If it passes, redouble your efforts. Success breeds success and those of us who have lived, know that.

To Homeloan Junction and all who support her efforts, my sincere congratulations in concert with Vincent’s. We appreciate you. And, the last well-known saying: LONG MAY IT LAST!!

Yours in Property.