Archive for category: General

We have a crisis. There is no other term to describe it. 9 milion people unemployed is actually too big to blog about, too indescribable for words and could simply be imagined as a sea of despair.

You and I get out of bed every morning with work to attend to. For stay-at-home moms, it’s getting kids nourished and ready for school. For businessmen, it’s off to work and the stress of the day. Whatever it is, it lends meaning to life and creates the routine so many of us need to live and be ourselves.

What of those who do not enjoy employment? I would put to you, they:

• Have no or little money.
• Have little that it is required to be bought, starting with food.
• Have no or little dignity.

The first “have not’s” are so obvious that they need no describing and frankly, I’m not in a position to even try; the Afrikaans word “ellende” comes to mind, that sense of utter desperation. But as regards dignity, let me try a little to give flesh to its absence. I can remember when the homeloan business was shut down in Nedbank and the sales force found itself being retrenched. Every time I met one of my team, my message was: “Don’t let anyone take away your dignity; it belongs to you and only you can give it away.” It truly was the lasting thought on my mind as I too departed from the company that had employed me for 20 years; that retrenchment programme was anathema to me and not being retrenched myself, I resigned to pursue my own origination business. The rest is history, so they say.

It seems to me that the first thing unemployment depletes is dignity. How do you explain to your family that tonight there is no food on the table? With whom and how do you share what little you may have? How do you pay your debts as little as they may be in the scheme of things? The mind boggles at the reality and those of you reading this who have experienced the chilling wind of unemployment, you would be able to best describe the desperation into which you plunge. It must be incredibly difficult to avoid the indignity of your circumstances. Statistically, over 9m (and growing) people face this debilitation every day. I’ll never forget getting to know my people in the meat business – the first time I had worked with who we term as “labour”. I learnt they were wonderful people with hopes and dreams just like mine – a brighter future, a home, education for their kids. No airs and graces just an exceptional work ethic every day under trying circumstances. I tried many times to enable some of them to lift their circumstances and become entrepreneurs. In the meat business that’s fairly easy, all kinds of offal, stewing bones, offcuts and over-stock exists and the market for its sale was right where they lived. Very few ever saw the vision of beginning small and possibly growing a significant business though some went off into Legal work and the Metro police so good for them. We talked about it and encouraged it, but little seemed to bear significant fruit. One thing I think I learned then is that poverty constricts the poor and their inner belief of potential is strangled by constant negative feedback – I battle for the right words, but knowing some people come out of poverty in rags-to-riches stories, my sense is that we know them because they are so exceptional. On the other hand, the masses of poverty-stricken individuals and families have not enough dignity to rise beyond simply struggling to stay alive themselves every day. I often say “I have never been poor” implying that I just have no idea what it’s like. Life was never rich and everything our family had and now has, has been worked hard for and I’m sure most of you identify with that upbringing. But in it was the power of dignity that knew it could reach for a dream and have a probability of success, whatever that means to each of us.

As I drive past Atterigeville and to Cape Town from time to time, I am aware of the shattered dreams of many of our people. The government has not provided the promise and the land grabs have managed only to give 3X3 square meters shelter with not even a cabbage able to be grown in the yard. Abject poverty is a blight and disgrace upon our land and, indeed, the “struggle” which fought for so much more than this, has really failed them. And demagogues and populists only continue to crash the economy into its base elements along socialist lines and towards a possible failed state. I’ve just read Fighting for the Dream by RW Johnson and have started People’s War by Anthea Jeffery – both books speak to the black hole of National Democratic Revolution philosophy. Radical change is needed for radical unemployment; the NDR is not that kind of change.

This is not a rant but just a record of the position we all know we’re in coupled with some personal insights with which you’re welcome to disagree. But on the other hand, for all I seem to see in even my few travels, there is obviously a huge informal sector that I simply don’t know. Every day men and women are raising themselves from abject poverty with the guts and determination to eke out a living for themselves and their families. As economist and banker, I was dumbfounded by an article by GG Alcock about the Informal sector of our economy. What also struck me is that we think about people earning R30 per day just to stay alive but he knows “Vetkoek” ladies making R6000 per day literally on the streets. It is not taxable income I’m sure but she feeds another 5 people and their families and no doubt does well for herself. What’s also impressive here is the incredibly hard work of this kitchen and sales force; I couldn’t make 12 koeksisters a day never mind 6000 vetkoeks. Strength to your arm Lady, whoever you are, you make us in the formal sector proud!

Enjoy the article… and then an optimistic closing comment.

SHATTERING THE MYTH OF HIGH UNEMPLOYMENT RATE: WHY 29% CLOSER TO 12%

19th August 2019 by Jackie Cameron

High unemployment is often quoted as the reason for emigration from South Africa. But, look beneath the official statistics and you will see a vibrant economy built by tens of thousands of small business operators and entrepreneurs. This is the message that GG Alcock, who calls himself a white Zulu after being brought up in a rural community, is bringing home to economists. His number-crunching makes for fascinating reading. Looking at the details of the street vendors and small-time landlords, the incomes being generated are fairly impressive – and certainly not just subsistence living. GG Alcock reckons it is time to take a fresh look at the South African economy and realise that the statistics being bandied about cannot be true. – Jackie Cameron

ANGINAM’SEBENZI, NGIYASEBENZA. I DON’T HAVE A JOB, I WORK!

By GG Alcock*

In the crescendo of shock and horror about unemployment of 29% I must disagree with these numbers.

These numbers should be prefaced by the word “formal” unemployment.

GG Alcock pictured centre. (Source: Facebook) 

I have written about the huge scale of informal businesses at some length in my books Kasinomics and Kasinomic Revolution. There are a multitude of informal and kasi businesses – some small, some pretty large – which are not measured in unemployment stats.

This is for a few reasons why they are not considered:

1. They are not measured by formal research;
2. They are considered survivalist or subsistence business people who would at the drop of a hat accept a formal job if they could have one (which is total bull);
3. They do not consider themselves employed as they do not have a payslip or work for a boss which defines what a job is, they say “anginamsebenzi, ngiyasebenza”;
4. They operate in an informal and largely invisible economy, well invisible to the formal world. The former Minister of Small Business even said “we need to create more entrepreneurs in the township”. Astounding there are tens of thousands of entrepreneurs and micro businesses out there in the informal and kasi sectors. 

In a recent Kyknet show on the informal economy and youth unemployment the programme asked me to assist them to interview some young entrepreneurs. One I connected them with was a lady from Limpopo who sells vetkoek in downtown Joburg. This young 24-year-old sells 6,000 vetkoek a day for R1 each and employs 5 staff, one her brother. She turned to vetkoek selling because she could not find a formal job. She definitely was not measured as employed in the stats nor were her 5 staff.

What about income generating activities, are these viewed as jobs? I wrote in Kasinomic Revolution about a gogo who earns around R1,600 a month in old age pension. Yet she rents out a shisanyama and a hair salon in front of her little house for R1,500 each and three backrooms for R1,200, R900 and R900. So, she earns an additional R6,000 a month from rental. Let’s briefly look at the kasi rental sector. The immigrant spaza sector rent their stores from South Africans, paying between R2,500 to R25,000 for the store rental depending on the size. I estimated the rental income to South Africans is in the vicinity of R30bn a year. That’s a lot of good money being earned. Pity this is not featured in xenophobic rants about immigrants taking jobs.

And backroom rental? Practically every single township home has a back room, a garage-sized room rented or occupied by extended family and often a mix of both. I estimated that over and above the rental of spazas, backroom residential rental brings in another R20bn a year.

So are the more than 20,000 hair salon owners employed or are their stylists who in kasi style rent stations from the salon owner in a gig economy type arrangement. They are not employed but each stylist who rents a station in the salon is self-employed making anything from R5,000 to R15,000 a month in styling, nails, extensions etc.

What about the fast food sector in the townships, what I call kasi kos with 50,000 outlets selling kotas, amaplati, inhloko, isibindi, isishebo, burgers, chicken dust, mogodu. A sector employing 200,000 odd staff “informally” and turning over in excess of R85bn a year. Are they all unemployed?

Or the muti sector, inyangas and sangomas dispensing herbal plant based concoctions estimated in 2004 to be worth R3bn a year and employing 150,000 plus herbalists.

What about the school mamas, the school tuckshops of the townships, I wrote in Kasinomic Revolution of a lady in Thembisa who has been selling food and snacks at the same school for 26 years, earning R6,000 a month in profits. She has put her two kids through university and her husband has been unemployed the whole time. There are 12,000 odd township schools each with 5-8 school mamas, if each only earn R3,000 a month (the minimum wage for domestics) then that is a sector worth easily R2bn a year in incomes. But these school mamas are unemployed, aren’t they?

I am not even going to mention the auto sector with its kasi mechanics, panel beating, car washes etc.; nor the tavern sector; nor the township building and support sectors such as electricians, plumbers, builders, tilers; nor the internet cafes or goat farmers; I can go on.

We are NEVER going to create a million jobs in the formal sector no matter how many electoral manifestos or government promises are made in this regard. Initiatives like the YES programme are designed to encourage mentorship, internship and job learnership opportunities in the formal sector which is shedding jobs. Why would you get a job shadowing or intern opportunity at Standard Bank while they are closing branches and retrenching staff as an example.

The informal sector is remarkably similar to the gig economy. While governments and municipalities are trying to regulate or limit AirBnB, Uber etc these are the economies of the future which should be supported (and taxed) as the future employers and economies.

The informal sector is where the opportunity is, we need to bring the informal economy into the formal economy, not by formalising but by creating fostering and growth environments.

My simple starting point and three steps to addressing formal unemployment is about growing and giving security to the informal sector so that it can grow, so that it can formalise, so that the participants have security and thus invest more into their businesses, and so that there is an incentive for this economic sector to pay rent, tax, PAYE etc:

1. Give security of tenure through a PTO (permission to occupy) type mechanic, to informal traders and in exchange charge rental. An astonishing example of this is the Warwick Street Market in Durban with work done by the Asiye Etafuleni organisationin cooperation with the municipality.
2. Venture capital type credit for small businesses allowing them to expand; get stock and grow. Utilising different means to measure credit worthiness and profitability to existing models. As an example, the vetkoek seller I described purchases 50 x 12.5kg bags of flour a week from a local wholesaler. It is very easy to measure these input costs and do a simple extrapolation to calculate margins and as such valuate these businesses for credit.
3. BEE type model for immigrant traders. These traders are going nowhere, let’s bring them into the economy and let them add value. This simple mechanic would offer, business licences, residency etc in exchange for the outlet following a BEE type code earning points for e.g. pay VAT and Tax, pay rental to a South African at a set rental rate, employ x amount of South African staff,  procure security, transport services etc from a South African small business. 

I reckon real unemployment i.e. where the person has no income generating opportunity or income for any form of permanent work, is probably closer to 12%. Prove me wrong if you can?

Instead of banging our heads against the formal sector wall doing the same thing over and over expecting a different result why don’t we look for solutions which assist the largely informal Kasinomic sector? The economy does not belong only to the formal sector. Prepare for a Kasinomic Revolution.

*GG Alcock has been at times a shebeen owner, political activist, community worker and African adventurer, and more recently the founder of Minanawe Marketing, a leading marketing agency in the mass market

If you don’t know this man as I’m embarrassed to admit myself, he is a breath of crystal-fresh air; the kind of almost-unique man who has taken the trouble, like Johnny Clegg, to live with and understand the majority of our population. Imagine [a word I use often], an education system to have given these brilliant entrepreneurs a head start in life. Imagine mentors taking these businesses to great heights starting with a dream of what could be and then teaching what is necessary to finance and build a business out of its seams. But even while we allow our imagination to run, what these people do not need to do is steal for a living; they have self-induced motivation and dignity pouring out of them. They are part of the future of this State and not a product of it corruption and social torture. How do you know that maybe they’re the homeowners of the future or, at least, that they’re growing an educated and driven population of kids who could be.

The question then remains, “What about me [and you]?” As I often say, “Any idiot can tell me the problem! I need people who can tell me the solution!” Look at my first few passages to this blog. Were you nodding your head and agreeing with me as we slipped into depression and “I told you so” together? Or, are you part of the solution? Finding answers, employing people for the best salary you can pay, talking to them courteously and meaningfully to lift their spirits into dignity and possibility thinking. Or, are you or I just miserable. I have a dear friend who is determined to sell his house and move to Scotland to be close to his kids who have moved offshore. But instead of bitching constantly about the country, he employed Alex and then helped fund him to get to and start a subsistence farm back in Malawi. Now he has employed Sam and I bet he’ll help him along the way as well. Who knows what my friend’s “hustle while you wait” positive attitude may mean to these two men who are fighting to lift themselves from economic refugee status to something better?

Hope you and I “get my drift” and do as much as we moan while we’re blessed with health and life to be ourselves and so much more.

Yours in Property.

We have journeyed through the Land issue of our country.

No matter how well-informed, no one knows who was where when [Part 1].

The issue may boil down to the Cultural value of land, the Commercial value of land and the Capital value of land. These three characteristics were covered in Parts 2&3.

My opinion is not the “law” so please forgive me if you have a different version. In fact, let me know if you disagree and we can chat. As usual, I would love to learn.

But something has just arrived and it bears mention. It is the latest version of EWC land and it looks far less inflammatory than what we have feared. Let’s have a look at the article……..

BusinessTech 29 July 2019, reported:

“The presidential advisory committee has published its report on land expropriation without compensation.

The report makes a number of recommendations on land in South Africa –  including provision for the establishment of an integrated planning system’ which will be responsible for the planning and coordination of the land expropriation process.

The report also calls for the speedy distribution of land that is already owned by the government, as well as ‘voluntary donations’ from various sources such as churches, mining houses, and commercial farmers.

In line with the current Expropriation Bill that is being considered by parliament, the report suggests that the conditions for land expropriation without compensation, should include:

• Where land is occupied or used by a labour tenant;
• Where land is held for speculative purposes;
• Where land is state-owned or owned by a state-owned entity;
• Where the owner has abandoned the land; and
• Where the market value of the land is equivalent to or less than the present value of direct state investment or subsidy in the acquisition and beneficial capital improvement of the land.

Over and above these conditions, the report suggests that expropriation without compensation also applies in the following circumstances.

• Hopelessly indebted land;
• Land obtained through criminal activity;
• Informal settlement areas;
• Inner-city buildings with absentee landlords;
• Land donations (as a form of EWC); and
• Farm equity schemes.

What happens next?

Last week, the National Assembly has agreed to establish a multiparty committee to introduce legislation amending section 25 of the constitution.

This committee will draw on the findings of this report as well as previous studies, and past legislation to come up with a new bill which covers the above issues.

The new committee will report back to the National Assembly by 31 March 2020, and will and be composed of 11 voting members and 14 non-voting members.

Voting members will be drawn from the African National Congress (6), the Democratic Alliance (2), the Economic Freedom Fighters (1) and other parties (2).

The 14 non-voting members of the National Assembly, will comprise of the African National Congress (2), Democratic Alliance (1), Economic Freedom Fighters (1) and other parties (10).

Once the bill has been finalised it will be gazetted and undergo a full public consultation process.

This means that the earliest that land expropriation can be introduced is mid-2020. However, it will likely take much longer as the bill will face intense scrutiny from the opposition parties and members of the public.”

A couple of points that will also conclude this resume of Land, that it exists, how it is transformed culturally or commercially to have “meaning” and that it is the source of the most vicious tension at this point in time in South Africa. The land redistribution issue sorted, we would be able to stop focussing on it as a distraction and we could focus on the real issue, its productive use for food, industry and habitat. If not sorted, some of us fear it will disintegrate into civil war and scorched earth to the detriment of All. But my fear is that it gives rise to the biggest impediment to future growth and prosperity; the reason for every failure and the balm that we use to soothe our consciences when we continue failing to deliver to our people. To this point, I understand, I really do and accept, that apartheid was a social, inhumane disaster but it is no longer the reason for every cock-up in this country starting with the school book fiasco of a few years ago where our erstwhile president blamed apartheid, to the disgusting rape of VBS bank by greedy, self-seeking individuals that got onto a “scheme” of mega-returns. You should all be bloody ashamed of yourselves and jailed immediately! Like the game of Monopoly, Go to Jail Do Not Pass Go.

That stuff off my mind, a few points:

• The Land proposals above don’t seem inflammatory by any means. I guess there may be some who have farm in old trusts and therefore will be aggrieved by losing them but, to the point, land must be productive or really, it has little value beyond its cultural value.
• The use of State land is significant. Unfortunately, it may include Green Belts, like Emmarentia Lake, in its ambit. So, just by the way, you can buy plots in England through St James Capital Group that are farms at this stage that need to be converted into development land. The fight in Britain to preserve green belts is huge and can delay rezoning by a decade. In other words, we’re not the only country in the world with a housing backlog and protestations against affordable housing; the UK is 3 million houses short and fighting to deliver.
• Allied to this is the issue of affordable housing where “I” live. It will destroy the value of my property, you know? Sadly, collateral damage is unavoidable if we are to readdress the disadvantages of the past and you or I may be caught in the cross-fire.
• That said, one of the concerns is that land invasion will be enflamed by reckless demagogues who drive “their people” to invade land. The only solution to this is the voice of reason, followed by the rule of Law, followed by forced eviction. We have watched this movie in Hermanus. It is ugly and municipalities have inadequate resources to begin the negotiation process and then no power to enforce the law and then poor Police resources as a last resort. It is ugly and may be coming to your town soon; don’t be naïve. However, once all attempts failed and Dubai [a pristine, 10^th biggest Milkwood forest in the world now burnt, on the beach and actually owned by a private company who failed to evict; as well as the site for the future municipal desalination plant] was occupied by 300+ shacks, it has been reported that a proper multi-use development will be built in due course – so hope remains!

The problem will fester on unless we solve it. Solving it will be tough and well-nigh impossible in some cases. It will call for cool heads and warm hearts. Money will need to be found so as to follow through on well-intended land redistribution. Our negativity will need to be tempered by practical realization but if we don’t commence the process it will be a sore point from generation to generation. I think it’s reached the point where politicians are so hell-bent on winning votes that even if they got huge swathes of land, their “people” would reject their plots and swop them for a stable, proper job in the city with a pension and medical aid. As always, time will tell.

But what is reassuring about the list above is that honest, hard-working, bond-paying home owners will still have their properties. They will go to work every day, their kids will grow tall and educate, and their capital value will be realised by maintaining their property and selling it in a process which is world class. You and I fit into this mould and we, in the property industry, ensure the dream every day for every kind of person and family. Don’t allow the “noise” to cripple your motivation to get up in the morning and “house the nation”. Right here in Hermanus, Greeff Properties is opening for the first time; goodie for them as they recognise that “this too will pass”.

Homeloan Junction is in this with you. Fully invested but not naive, committed responsibly and solely to the good of the industry and to thriving for many years to come.

Speak to us and let us surprise you with what we can deliver to your business.

Yours in Property.

From Biznews, 19 July 2019.

What a compliment to a man who has fought his fight in a team of fighters to retain the independence of the SARB. Thank you for the rate cut, Mr Governor, But even more so, Thank you for fighting for what is right….

“Lesetja Kganyago has had a tough time of it. With the economy tanking, some have been calling for a political takeover of the SA Reserve Bank (SARB) in order to, one assumes, print money in the hope of inflating our way to prosperity, or at the very least, tweak the central bank’s mandate to focus more on growth.
In his role as governor, Kganyago has been a powerful voice for SARB independence. That’s no small feat at a time when central banks are under political pressure from Turkey (where the governor of the central bank was summarily fired by the Erdogan) to the US (where Trump has been giving Powell a rough ride). SA is in the fortunate position of having an independent, technocratic central bank, and Kganyago is working hard to retain that.
Which brings us to yesterday’s rate cut. While some may see political pressure in the decision, the monetary policy statement clearly outlines a balanced and rational case for a cut. With the economy contra Best”

The first Land read was interesting, hey? I mentioned Bulpin, the author, to my well-read, elderly neighbour and he said he certainly knew of him in his day; a good author he said. At least that gives me some comfort as to source.

Given that we are not going to debate who was where when, I’d like to unravel a little of the emotion around land. On the one hand, the owner of a unit on the 17^th floor, The Michael Angelo, ultra-luxury apartments in Sandton, surely does not care about the value of the land? That problem was solved 10 years ago when the developer bought a plot and began building a high-rise. On the other hand, does the person who “owns” a piece of “heaven” on the beach along the Wild Coast where he has a rudimentary two bedroom house and a 3-cow herd of cattle and 15 chickens also doesn’t care about the land; he rents it from his tribal leader and never achieves value other than the subsistence farmer that he is? And what about the great 12000Ha farms in the Karoo that can sustain a herd of sheep and a few other animals in the vicinity of the homestead? And finally, the Top Road, Clifton owners who have multi-million homes with views to suit?

In order to do some justice to the effort, let’s divide the thoughts into:

Culture

Commercial

Capital.

CULTURE: [I need to declare my cultural heritage and the bias it brings. I am English speaking, over 60 years of age and first-generation South African with parents from the UK. Naturally, I have a view of the world that may not reflect all my readers’ and hence there may be bias for which I apologise.]

This topic is serious and emotional. It probably speaks to the heart of the Land issue in South Africa. The dispossessed now have protagonists of their cause – EFF and Black First Land First, as front-runners. Unlike Australia, New Zealand and the United States, for example, we had the word Apartheid applied by Europe (as I understand its source) as we made a science of social engineering. The demographics of apartheid and the grande design of separation-with-a-purpose, or separate development in homelands, was never going to make muster. It was hated, exploited and overcome after years of the struggle and we will never return to its indignity and spatial dynamics again. The dispossessed are aggrieved deep into their souls and the land-holders are threatened to the nth degree. But somehow, this matter needs to be resolved and we live in future imperfect as our President attempts to make inroads into the problem. No wonder he says one thing to one constituency and another thing to the next constituency – he probably, better than many of us reading this, truly knows how hard the task will be to keep everyone satisfied and the economy on an even keel at the same time. Our “right” to land was destroyed when strangers appeared from another continent and began to broke or force away our land. Like Israel and Palestine, that dispossession and its well-told stories have woven itself into our fokelore for the Ancient and our spatial demographics for the Modern.

Different peoples have different views culturally. In Joburg North, I really don’t care if my land is in Lonehill or Fourways Gardens. Culturally I have no sensitivity at all; it is simply a suburb preference. But for others, a plot in Magoebaskloof is vital for family continuity and memories; even spiritual for millions of people. I’ll never forget learning about a culture of our Black people that if a relative dies away from home a ceremony takes place using a Buffulo Thorn branch at the scene of death. The branch is brushed over the ground in order to “catch up” the spirit of the deceased. The branch is then returned to their home and placed, say, in their room so that their spirit may settle in again. That may sound unusual to me, but how strange it is to see crosses and flowers at scenes of road accidents remembering a loved one’s place of death. On Saturday I went past such a shrine which has been there for years on the Hartebeespoort road and the large printed photo of the deceased is now pale and worn by the elements. Perhaps those left behind have moved on but even the road workers don’t clear the memorial.

So Land carries enormous cultural significance. Perhaps the best we can do is understand that the plot at Magoesbaskloof means the same to someone as the family home in Plettenberg Bay to another person. And the point is, millions are aggrieved by what is deemed to be dispossession and I’m not sure where the fight is going to end in the final analysis.

As a boy in Natal, I watched as the Whites were removed from Isipingo and replaced by Indians, there and others relocated to Chatsworth. At the same time, homelands were being boundaried and funded at great cost along tribal lines as best the government of the day understood it. As a consequence, we had upset Whites moving into the suburb where we stayed, Indians getting “prime land near the sea” and the strange so-called independent state of Bophuthatswana fragmented into many little “states”. Frankly, what a mess! But as a result today, we have Black First Land First and others, like our Hermanus Land First, making mayhem in our country.

Culture and Land intersect in agriculture. There’s something about the dry soil running through their hands that makes farmers love their Land. I think the same applies whatever race or nationality you belong to. Farming goes hand in hand with Food and therein lies the rub for all those who threaten and even attempt to kill off farmers; take the Land and you cull the production. Cull the production and you’d better get used to the feeling of sand running through your fingers because, frankly, that’s the only worth that land has.

If ever a Loser existed, Zimbabwe takes the trophy. Venezuela is too far away for any other than CNN to convey the mess, but our Northern neighbour is on our doorstep. Economically, southern Africa’s own Syria in which millions of people have suffered, the rich and skilled have emigrated and the poor have migrated. Tragic social engineering of a different kind; Land capture by a threatened, greedy State. God help us if we sink into land-for-pals’-votes in such a grotesque manner. Culture and votes drove the dispossession for the people, but hatred and assault drove the farmers away. With them went the food, sustenance and foreign currency of a nation – how stupid can you be! And we are not immune, Culture is the pretext for much of the Land political rhetoric but whether the politicians have a point or not, the end result is scorched earth. The notion that you can “take back the land” and not do inexorable damage to the nation is far-fetched. Just ask the estate agents who are now “stocked up” by sellers longing to sell at a reasonable price and not even getting any offers. And the politicians need to understand that the “end justifies the means” is nonsense when it comes to destroying for the sake of rebuilding. In my humble opinion, only war carries that logic as would be indicated in Germany who had the Marshall Plan to help restore it, and Japan who took Hiroshima from rubble to skyscrapers in 25 years in what was a display of intense national pride. Unfortunately, all we have managed to do in this country is take a grand old airline like SAA and bankrupt it while getting its baby brother, SAExpress, grounded. A very different intent and purpose. Land in Zimbabwe was given to the least deserving, ala Grace Mugabe, while the locals who received plots continued to live in un-supported, un-serviced squalor.

Culture is a prime driver of the value of land. It may not add much to its value commercially but it certainly drives peoples to want it or defend it, either even with their lives.

COMMERCIAL: This is the application of Land that many of us understand well. For the sake of it, this land comprises all land zoned Commercial or invariably, that land and buildings which houses factories and office space. The point is that this land derives its value from its rental income and rental contracts. For our benefit, we will include buy-to-let apartment units.

I remember when I first learned the word “Opportunities”. It took care of the Michaelangelo Towers example above. Essentially, an opportunity was the total cost of the land and the building divided by the total square meterage of the saleable floor space. The selling price then included a profit margin for the investor and/or developer. 100 units were 100 opportunities for sale.

This formula of total cost divided by floor space allows for a return on capital which is acceptable to those who have taken risk for the development. If all sold, the opportunities yielded many a handsome profit for developers. However, not too many developments have been plain sailing. I remember when Summercon developments came to a halt as electricity could not be guaranteed. Nobody offered an offset for development loan interest or the time cost of delay; those developments just “hung” as vacant land or part-finished properties. Very costly indeed. Then there is the development risk ie sales are not enough to cover costs and bonds and serious damage can occur. Fortunately, the banks understand the cashflow risk of developments and tend to nurse the developer through. Sometimes they will have taken equity in the hope of upside in which case they make themselves part of the solution.

Apart from capital profits – build 100, sell 100 – the primary form of returns is rental. This is where things really get interesting over long periods of time. The amount of the lease, the term of the lease and the quality of the tenant then play a huge role in the value of the property. Now its land and building cost is just that and only its value of the lease agreements give it any value whatsoever. After all, who wants to own an empty building in Claremont with crippling costs pumping through every month? The discounted cashflow of the net rentals becomes the source of value. That present value, after all operating and financial expenditure is the only value worth talking about. Of course, right now you may like Checkers as the anchor tenant but you may also be focussed around an Edgars as well. Better the former, for sure! We have a building in Hermanus with both and I often wonder what would happen if Edgars finally gives up the ghost. Of course in similar vein, it’s also interesting that the new Whale Coast mall has a flagship Checkers [Whitey Basson lives just down the road] and thus the mall store obviously cannibalises the village store. We often now hear of renegotiations of lease costs by major tenants in order to meet low economic activity. Each time, the owner of the complex takes a knock in their value. Vacancies also play havoc with these values over time.

Point is that commercial property has no “land” value per se. Only the net flows of income matter when it comes to determining the saleable value of the property.

But to see Culture and Commercialism come together roughly, we need look no further that the same Whale Coast mall. The locals believed that the land was earmarked for affordable housing and I have no reason from some Press articles of the time to deny their understanding. But the mall was built after an 8 year approval process. Needless to say, the mall was targeted and threated by marchers during the protests in no uncertain terms. I’m not sure what this underlying, unresolved issue will do to the mall’s value in the long-term; time will tell.

We will leave CAPITAL for next time……….

Yours in Property.

As my first blog after the LIFE series, I need to be careful of my mood. It could influence the way I present myself.

On 2 May, ABSA published its Home Ownership Sentiment and it has made interesting reading amongst other documents that flow across my desk. It has found itself sandwiched between four important announcements: the outcome of the election, the GDP growth number for Q1:2019, the SARB MPC decision, and the composition of Cabinet. May I say that another really interesting and unfolding story is the resignations of unsuccessful MP’s from President Ramaphosa’s government? Perhaps a comment on that later.

“Gevang met a slap riem”, the saying goes. ABSA, and frankly every economist I have read, was caught out by the -3.2% GDP growth in the first quarter economy. Some expected negative growth, but at the beginning of 2019 we were preoccupied deciding whether the year’s GDP growth would be more than or less than 1%. The news “klapped” us, using another lekker Afrikaans idiom. All of a sudden, we have revised, from the IMF to Moody’s and the others, down to below 1% for the year. No Ramaphoria this time round, but I must be honest, I felt sorry for him. Imagine fighting a grueling election campaign where your front and your back are exposed, to hear this news. Goodness me, it must have been tough! But, on the other hand, a huge wake-up call that, frankly, the ANC and its constituents have not even yet heard. Bottom line, ABSA had no inkling as at 2 May either when they projected 1.3% growth.

Secondly and briefly [see blog: Election 2019] for the sake of context, the Election results were really mixed. The ANC at its lowest majority, the DA bleeding but retaining the Cape, the EFF positive, and new kids like ATM [I do not know whether to say “appropriate” or “unfortunate” when it comes to this abbreviation for the African Transformation Movement] and Good [“cute”, I thought] in parliament. And now the broad swipe at the DA as “Auntie” Patricia takes over Public Works….. Fact is by all accounts, that CR gave the ANC this 58% break but it was not enough to silence his critics and we’ve seen the truth of that almost every day in the Press.

Thirdly, the SARB decision. Remaining the same was a good one but more enlightening was the dovish sentiment around inflation and rates. Inflation rises on strong demand and there isn’t any; frankly, I get the sense that only Financial Services are flying. Growth in the Manufacturing, Mining and Agricultural sectors was down -5%, -8% and -13% respectively. That’s a crisis in any other country and so it is here – the only good news is that it softens inflation. What emanates from that is the SARB saying that with inflationary pressures being weak, they may be able to reduce interest rates in order to stimulate economic growth. Sad that a crisis leads to rate reductions but we’ll take it, won’t we? By the way, this possibility is against the backdrop of all the major banks calling rates to remain the same for the balance of the year.

And finally, the composition of the Cabinet. In Election 2019, I wrote:

I think he will produce a Cabinet who are worthy to represent us. I also happen to think that Cyril Ramaphosa is the best person in the country for the job and, heaven knows, he better be and he better be selected. Anyone less would be a national body blow of titanic proportions. I think he will reduce the Cabinet but he will not be able to ignore everybody who we may consider tainted by some misdemeanor; he just won’t have that luxury right now but having said that, he needs to try. We will know in the next few days.

We know now. He has been selected and I’m relieved after the sensationalism of May’s coverage. However, he was not able to drastically reduce Cabinet and shave much-needed cost reductions. Nor was he able to leave some people out despite coverage to the contrary. Mr. President knows he needs to watch his back as many seem to not have it. That said, what do you think all these resignations are about? Apart from Jeff Radebe who is going to enjoy a “more normal life”, the rest all feel like they are resigning in a fit of pique. The useless ones and the not so useless ones have decided to throw in the towel. I guess it’s quite hard to mix with the riff-raff MP’s when you’ve been a Minister; but, on the other hand, they may feel that they have had their genius and competence overlooked by their panoptic [read: seeing the whole at one view, a word I recently read in a mega-cynical article on the Cabinet size and choices] President. Whatever their reasons, individual or corporate, I trust there is nothing sinister lurking in their choices. Fact is the Cabinet is too big to save costs but reduced enough to demonstrate the need. In the final analysis, the vote of these members could prove more important to CR than what they cost and in any case, what they accomplish for their salary and perks is more important than what they draw from your and my tax revenues – nothing costs more than incompetence and corruption.

So, to return to the Ownership Sentiment paper, everything is down quarter-on-quarter. The sense of buyers being willing to buy because prices are cheaper is offset – in Hermanus at least – by the fact that people are not buying. A live example: A beautifully renovated house 800m from us was on the market for R6.9m. Reduced to R6.5m, they have had a “cheeky” offer of R5.6m cash which is under cost. In 6 weeks 23 couples have viewed the house with only this offer presented. Everybody else liked and left the house. One year ago, this house would have been snapped up in two months at little discount to the asking price. What is real is that politics and economics intersect to create Confidence. At the moment, that intersect is just too low for the commitment that confidence brings.

But there is one silver lining to this cloud and that is the banks’ willingness to lend. I am really impressed at the conversion ratio, whether by “first bank” or “secondary bank”, of homeloan applications and by the rates on offer. There is no doubt that things could be worse. The banks are bringing their part in this property market. We appreciate that sincerely.

2019 was never going to be easy. Elections were the big gorilla but now he is sitting in the corner resting. I guess that leaves us in the room. Are we going to join him, sulking, complaining, wondering and wandering? The temptation is to find the reason why “it’s hard”. But please, don’t! Get up, look up and press on – if you don’t, someone else will and you will become the double-loser. That must not happen! This too will pass……..

Yours in Property.