ODIOUS COMPARISONS [Part 1]

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There’s an old saying: The show’s not over ‘til the fat lady sings. But that said, this year is drawing to a close and I’m reminded that there are comparisons to be made between Sub-Prime and Covid, even at this incomplete stage. So, this two-part blog attempts to make some pertinent comparisons – both those that are similar and those that are different. The purpose is learning and through it, encouragement.

Long, long ago in Cloud Capitalist Land, a few guys got together and said: How could we create a product so curious that billions of US Dollars would be invested in it by the crème de la crème of financial institutions because it is fail-safe, linked to The US property market and bundled so simply that just with the stroke of a pen, you can buy as much as you want for returns you have dreamed of? Returns we have dreamed of? They cried. Yes! The few guys answered, And we’ll throw in something for just a weeny extra. We will get AIG to insure the credit so nothing – yes, that’s nada…nothing – can ever go wrong. And like the pedlar of Cowboys days selling Snake Oil, the few young guys packaged $33trn’s worth of “black boxes”. They were so appealing, top investors didn’t even need to look inside; they were “safe”. They were called, by the suspicious, NINJA loans. “Misinformed people” who doubted the system and the “few guys”, in the name of common sense.  NINJA stands for No Income, No Jobs or Assets.

The “or Assets” was premised on the American dream – everyone should own a home. What a beautiful dream! So, drive the American property market into a frenzy with lose credit, and then sell their mortgages to the Investors because you cannot lose and wham bam, you have a winner! Whatever the credit behind the loan, because the property is going one way, you cannot lose. If they don’t pay, just sell the house, put the family on the street, get your money back and do it all over again. Fannie Mae and Fannie Mac, both most quizzical names for United Building Society of the American government, climbed in and the riotous feast was prepared. In fact, it still would have had trough-fulls of husks to go but for one or two glitches. Glitch One: Homeowners couldn’t pay [read: never in a million years, could have paid]. Glitch Two: The residential property market tanked.

Drat! What spoiling circumstances! Suddenly, everyone who wasn’t anyone got blamed….but, to this day, I have never heard of anyone going to jail because the scheme operated within the law even for all its stupidity. Banks began to fail, and President George Bush Jnr found himself between a rock and a hard place. Capitalism says that if you fail you go bust and burn. But when the entire banking system of America and later, many feared, of the world may fail, he and the world, needed to do something. I would imagine in cigar smoke-filled rooms, a deal was worked out that Lehmans would fail but AIG could not be allowed to burn. The reverse “at the trough” process began, and the government began to take over or stand good, for the debt in those obscure little black boxes. JP Morgan, Citibank and the likes were bankrolled by The Fed and were enabled to weather the storm financially. Of course, the bankers were then safe, and I’ll never forget the news that some lucky ones paid themselves enormous bonuses [probably this time of the year] just after the government money hit the bank’s account. About that time, Royal Bank of Scotland and the UK building societies were also bailed out by the British government. But by then, governments had begun to get clever and instead of giving loans, they compelled the banks to issue shares and then bought huge re-capitalisation stakes in the institutions. These stakes were later unwound at enormous profits by the governments.

But then of course, this begs the question, how does the financial system bail itself out of the chaos caused by “the few guys”? It’s actually easy, you sell the black boxes to Collections entrepreneurs who begin the seedy task of making people pay, or compelling them to pay rent, or, simply researching the books, sorting the probable collectable loans and selling these off to other Collections entrepreneurs at a profit. Effectively, the mess was sorted one black box at a time. But of course, you need money for that and, as easy as [mud] pie, you print money or sell Bonds of the government type into the market and you give this process that drives your currency closer to its real value – the paper it is printed on – a serious sounding name. That name is Quantitative Easing [QE]. QE borrows from your childrens’ children and pays the money over to the greedy “few” [but for the sakes of the “many”, you know!] so as to bail out the financial system. And just to make sure NO one borrows too soon and puts the banks at credit risk, you hike the interest rates. What a multi-whammy for the unsuspecting homeowner!

Thousands of smaller banks went belly-up, many affected by very long-term fixed interest rates. Thousands of homeowners suffer the ignominy of non-repayment of their homeloans. Economies begin shifting all the prudential Debt:GDP ratios, in fact as I recall it, 60% became the new normal threshold. Roll this trauma worldwide and you have recession of the highest order. 2008 into 2009 extended to 2010-2012 in most countries. But, as we have noted before, from 2012 to 2020, you have an unprecedented economic revival in most economies. The national debt ratio became absorbed into Growth and personal debt levels skyrocketed to accommodate a Consumer-led economic upturn.

Many lessons arose from Sub-prime:

  • Legislation was passed to outlaw black boxes. As was always the case in South Africa whose bankers never participated in this practice, a see-through was compelled into the securitisation entity whereby every loan was clearly annotated and accounted for and only “eligible” assets ever found their way into assets to be securitised.
  • The Ratings Agencies, hammered for their incompetence when approving black boxed loans, became extremely vigilant and relevant to future securitisation.
  • When something is deemed “too big to fail” it became clear that it was certainly too big to fail. No matter how odious or expedient the rescue package needed to be.
  • Raising the interest rate [Repo rate] is foolish. You kill the little man for the stupidity and greed of the corporate. Only one of our banks suffered a relatively small, recoverable financial loss and that for an investment made offshore, but all of them suffered the paucity of lending available from international lenders. This move paced severe strain on our very professionally managed banks.
  • For the consumer, the age-old lesson that you never strain yourself buying fixed property. You could rub your eyes and find the bond unaffordable and the house difficult to sell in the prevailing market.
  • National debt is hard to repay. From Sub-prime many countries were still struggling when the recent pandemic hit hard. You only need to listen to last week’s European Union’s recovery package to realise that many, especially Mediterranean, countries never recovered fully from 2008-2012. That why the other name for Sub-prime is GFC [the Global Financial Crisis]. Africa laboured under the same yoke.

The GFC set the stage for lending to be the preferred method of recovery from financial crises. On an astronomical scale it is being used right at this moment.

More in Part 2………

Yours in Property.

WINDING DOWN

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This will be my last blog in November. There’s a sense of Christmas in the air although, in Hermanus, Christmas is always in the air except when it’s Easter ☺

Christmas remains in the air as regards the property market! No winding down there!

Considering that Australia sells 90% of its property by auctions, the news from Pam Golding [PG] is interesting. With the purchase of eazi.com, the virtual property marketplace platform, PG now also uses auctioneers, BidX1, to sell homes as well. Virtual may be required for covid but being able to market property globally is a huge boon at any time. Their second Summer Auction catalogue features 21 properties, from below R2 million up to R14 million. “Superlative properties in Bedfordview, Silver Lakes (Pretoria), Kalk Bay, Sandown, Boknesstrand and Riebeek West in the glorious Cape Winelands, all of which offer exceptional value.”

The BidX1 digital platform provides alternative and easy access to a property portfolio which has been identified to “sell on the day”. In September 2019, 9 of 17 properties were sold to a value of R41 million.  PG adds, “BidX1 is recognised as one of the world’s leading and most innovative online property trading platforms, having already achieved sales success of over 10 000 properties across the globe, with a total sales value of in excess of R29 billion.” Not too shabby at all, I would say!

FNB’s Property Barometer for November 2020 entitled, Price Growth Resilient, is really upbeat… [I’m leaving out the rest titled, Outlook Uncertain], for now…

“The pandemic has not had as chilling an effect as initially expected: prices growth has held up and volumes reached multi-year highs in contrast to initial expectations.”

We say it again, on the simple face of it, covid has not had the impact we thought. But a few points: I said during covid that one of the things sub-Prime taught me was not to catastrophize. Amid sudden, deep adversity we all tend to overthink the problem. Evidence at the time is pervasively negative and so are we; it reflects in our voice and posture. If you have endured covid relatively okay, learn the lesson with me. Catastrophizing, like its close cousin, Worrying, never helps anyone. Another point is that the matters upon which I serve have weathered the storm through unbelievably trying times in some cases. They stand as testimony of CorporateSA and her leadership.

The aggressive reduction in interest rates (and mortgage rates), good pricing and lower transfer duties have momentarily improved mortgage affordability and incentivised renters to buy property.”

Rentals have suffered some and FNB confirms that. I can also imagine that many landlords are experiencing tenant problems. I left feeling sorry for both, quite frankly. It’s horrible to lose your income and suffer the ignominy of not being able to pay your rent. On the other hand, landlords have costs as well. Very tough indeed.

“The FNB House Price Index (HPI) shows annual house price growth flatlined in October, reaching 2.6% y/y (last month downwardly revised from 3.1%). Despite the mild reflation in recent months, the overall residential property price growth remains below inflation, as has been the case for most of the last decade.” 

To be able to speak of house price growth is amazing in of itself. Without considering inflation and calculating the Real Price growth, we’d take anything above negative price growth.

“Lower-priced properties are performing better, with the bottom 20% of price distribution (values below R500k, using FNB transaction data) averaging 11.4% y/y in 3Q20. On the opposite end of the spectrum, the top 20% (>R1.9m) averaged 0.7% y/y in the same period.”

This statement is really business as usual apart from the extreme areas like the Atlantic Seaboard. Lower cost homes and those anecdotally “under-R2.5m” often see greater positive or lesser negative growth in prices. Probably the driving factor is the number of people employed in these affordability bands. But there’s no doubt many 1st-time homebuyers have stepped into the market during these times.

“As a result, price reductions have not been as large as initially feared. The improved affordability (lower acquisition and repayment costs) and increased demand has, inadvertently, offered sellers a bit more room to negotiate: the FNB Estate Agents Survey shows that the average discount from the listing price has pulled back somewhat, from 13% in 1Q20 to 11% in 3Q20.” 

Wow! Wriggle room for sellers and not the doomsday 20-25% reductions I was hearing about in the covid mist. Point for me is that there was no doubt urgent sales happening “at any price” but if such a quick turnaround can occur to the fortunes of sales in general, then imagine what a vaccine and going back to sustainable work could do. I’m really chuffed to read this researched assessment from John Loos at FNB!

“Despite the pandemic, industry-wide data shows bourgeoning home buying activity, with the volume of mortgage applications reaching multi-year highs. Year-to-date, applications volumes are approximately 9% year-on-year. However, approvals lag as lenders apply caution amid an uncertain economic outlook, only outpacing 2019 levels by approximately 1.5% year-to date. Approval rates are slowly recovering from their lows in May/June (and subsequently, risk cuts from lenders) and have now cleared the long-term average. Loan-to-value ratios (estimated from Deeds data) also continue to tick up. There is also stiff market competition among lenders.”

My sense of the uptick in Applications was far higher than 9 % and the banks have recovered lending levels much quicker as well. One thing’s for sure, banks understand that rising interest rates could wreak havoc on affordability but checking this out with one of them yesterday, the sense is that the current low rates will need to remain in place for another “year or two”. My view is that if I was doing a “tight” bond, I would be cautious. In my humble opinion, prices will not rise rapidly, and interest costs will rise from Q32021 because of GDP and inflation increases and to protect the Rand. I really hope I’m wrong, but I would add between 2% and 4% to test my affordability in the next 3 to 4 years.

“In our view the 2Q20 data reflects the initial impact of lockdown restrictions on employment (the “first wave”). There is a risk of a “second wave” of job losses: faced with low demand levels, corporates will likely seek to reduce operational costs and achieve efficiencies. This could come in the form of labour shedding and may even extend to higher-skilled workers, who, during the “first wave”, were relatively insulated.”

I said that I was leaving out the “Outlook Uncertain” bit, but now we have to face it. Commonsense and CNN [just joking ☺], tell us that the disjoint between stock markets and the market where the rest of us live, work and have our being, is stark. No one knows the chance of a second wave and we will only know after Christmas if we have behaved or not relative to the invisible virus. Vaccine jabs only come months later to the less vulnerable population and right now the lines of communication are so conspiracy-rich that who knows who will rush to be vaccinated?

SA cannot afford a further lockdown, but we may feel compelled to try. Serious damage will be done. All we can hope for is that the infections will remain under control and that a large proportion of the population will behave responsibly at least in public places. I can already see shops are relaxing and I’m pretty sure I could walk into some without a mask while heat guns lie wasted on the entrance table. Sad testimony to a pandemic quickly forgotten; we may well be “covided out”. JUST REMAIN CAREFUL, PLEASE.

So, many of us find ourselves in somewhat of a purple patch making hay while the sun shines. Good for you! However, it would be trite not to reflect on the deaths in many families and the great harm done by joblessness. In our area, we certainly have regretful evidence of that as businesses close and others hold out for the tourists we hope will come. Not easy times at all.

But for now, on the brink of December, we count ourselves fortunate and enjoy the buoyancy. Remember to speak if you’re down and encourage if you’re up. Truth is we’re all in the same boat going in the same direction and a little bit of friendliness goes a long way and lasts a long time. On this thought and to close, I complimented a Pastor the other day having heard how he stood by a well-known family who lost their Mom. He answered me like this:

“Thank you for that encouraging feedback. Ministry is an extraordinary privilege. These are intense times & every act of caring & every word of encouragement reaches far beyond what is involved in the action or the word itself.”

Point made.

We’ll talk again in December.

Yours in Property.

 

GOOD NEWS

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A long-overdue burst of good news is required in this blog. Not only because it’s required but because the news is good….if that makes sense?

I receive a regular email “From the desk of Dr Andrew Golding”. Apart from his natural, positive style, he relays excellent information for on- and offshore properties. But what really struck me was the increasing interest in luxury properties.

“As South Africa continues gradually emerging from the national lockdown, the luxury residential property market is showing promising signs of increasing activity”, says Dr Andrew Golding, chief executive of the Pam Golding Property group.

“Among most recent sales by Pam Golding Properties is a home in Clifton on the Cape’s Atlantic Seaboard purchased ‘sight unseen’ by an American for R30 million, and a penthouse in the V&A Marina which achieved a sales price of R41 million, also acquired by a US buyer. Both buyers are familiar with the highly desirable lifestyle offering on the Atlantic Seaboard, and a comparable seaside lifestyle in most European and North American states would cost multiples of the cost here in Cape Town. “More recently, we have begun to see interest from Chinese, UAE and US buyers.”

“However”, says Dr Golding, “the luxury residential property market, which spans from approximately R5 million up to R100 million and beyond in rare instances, remains predominantly a local market, with foreign buyers comprising only around 1% of total sales in any given time period.”

Hot spots for high net worth buyers
Dr Golding says there are generally speaking five key areas which are the most sought after in South Africa:

  • Johannesburg, primarily the Sandton area.
  • Cape Town, notably the Atlantic Seaboard but also Bishopscourt and Constantia.
  • Durban and Umhlanga – notably Umhlanga, La Lucia and Ballito – including Zimbali Coastal Estate.
  • Paarl, Franschhoek and Stellenbosch in the Cape Winelands.
  • Menlyn Maine in Tshwane metro in Gauteng, which offers secure, lock-up and go living and a bespoke concierge apartment lifestyle.

Adds Dr Golding: “There is a marked trend towards gated communities – in fact, residential estate living has been attracting interest for many years. New World Wealth estimates that as many as 40% of South Africa’s high net worth individuals live on residential estates. especially those with International Schools in the estate or in the near vicinity.”

And then another insight which covers “the rest of us”…

The level of activity in the housing market in the months since real estate agencies were allowed to reopen (1 June 2020 at Level 3) surprised market analysts. For example, FNB recently noted that not only has the volume of new mortgage applications rebounded beyond pre-lockdown levels across the price spectrum, the level of buyer interest seen on property portals has also surpassed levels seen in early-2020 when Covid-19 was but a distant threat.

The resilience of the local market certainly runs counter to initial expectations that residential market activity, already subdued by years of sluggish economic growth, would slump further. However, it would seem that there are a number of factors currently driving significant sales volumes in South Africa’s residential property market. These include, among others, the impact of Covid-19 and the ensuing lockdown – including the fact that Deeds Offices were closed for several months, which has created a considerable pent-up demand, and the historically low-interest rates, to name but two.

Interest rates at historic lows
One of the obvious, but significant changes caused as a result of the pandemic has been the Reserve Bank’s bold decision to slash interest rates by 300bps this year to date to an almost 50-year low of 7%. For many homeowners, this unprecedented low, coupled with the price correction in the local residential market in recent years to more realistic levels, has resulted in a clear message that this may well represent a ‘once in a lifetime’ opportunity for buyers.

And first-time homebuyers are taking advantage of the cheaper finance to acquire more expensive properties, with such buyers accounting for almost 53% of home loans during the second quarter, according to ooba. As we have noted previously, South Africa’s young population, with nearly two-thirds of citizens currently below the average age of a first-time buyer (34 years), provides the market with a solid underpinning.

Notably in the Western Cape and other sought-after locations in South Africa, well-priced properties are now attracting strong buyer interest. In the residential property market, we are currently seeing that the main price bands experiencing the most interest and activity are those up to R2.5 million and R3 million, followed by the middle market price band between R3 million and R8 million, and upwards.

Brisk sales in June, July and August
During the months of June, July and August, we experienced a significant activity uptick in terms of successfully concluded sales, which, while partly attributable to the pent-up demand as a result of the lockdown, is also indicative of a tendency among some buyers to reassess their residential ‘lifestyle’ requirements as a result of the lockdown, as well as an aforementioned strong appetite among first-time buyers to enter the property market.

The latter is partly driven by former renters who prefer to put down roots and gain the security of tenure by purchasing their own homes – rather than pay rent while capitalising on the low-interest rates as well as the zero transfer duty payable on properties selling below R1 million. Many millennials who used to remain mobile, maintaining the flexibility to travel globally, seem to be looking at getting apartments and ‘settling down’ for now.

Various trends evident in the marketplace include relocation to smaller and/or coastal towns and downsizing due to financial pressures or upsizing – to satisfy the need for work-from-home space and more outdoor space. In this regard, we are seeing a shift back to freestanding homes with garden cottages and an increasing demand for homes in secure lifestyle estates.

Furthermore, depending on how the pandemic and lockdown impacts, some families are choosing to live together to save costs, namely multigenerational living, others are relocating provincially – perhaps to a more relaxed lifestyle in a second-tier city, while some are emigrating. That said, we are not seeing a specific increase in sellers due to emigration – we have also noted that some sellers who were preparing to emigrate either cannot get to their destinations or in some cases the jobs they were going to, have been done away with.

Finally, there are still those who are selling and relocating for the usual reasons, namely lifestyle changes, downscaling as adult children have left home, retiring and so on. While questions remain regarding the sustainability of the current high levels of activity in the housing market, particularly as the full economic cost in terms of revenue lost and job losses are still far from clear, the reassessment that many South Africans have made regarding their needs in terms of their homes, and indeed, their perceptions of home, is currently seeing a positive wave of change wash through the residential property market.

Don’t you just love it?! And all of us are experiencing it across the country. What a welcome relief from the long, dry commercial drought of covid. I hear the caution about this unexpected activity which seems to baulk at every other trend in the country [much like the Stock Market in the USA]. But enjoy it while it lasts, is all I can say.

John Loos, Property Sector Strategist, FNB writes in his Property Insights – The potential impact of remote working and the changing office property market could be far-reaching:

“The potential impact of remote working and the changing office property market could be far-reaching. But in the near term, there will be more questions than answers. While many companies may have embraced remote work because they were forced to, the true extent of this enthusiasm for remote work from management teams and employees alike will only become clearer once the COVID-19 Crisis has passed and office buildings are 100% open.

Nevertheless, surveys point towards many companies planning to downscale on office space. Some concerns have been flagged, with some pointing to human relationships between fellow employees perhaps “going a step backwards” due to a lack of “same location” interaction, but even many people harbouring some of those concerns often agree that, while there may be a need for some time at the office, the amount of time could be significantly reduced.

Nevertheless, while remote working will not be without flaw, COVID-19 lockdowns have probably given the scale of working from home a massive boost for another reason over and above forcing people into getting used to it. Many CFO’s will thus likely be eyeing out cost-cutting opportunities and reducing the amount of costly office space owned or leased by their companies. Besides the cost reduction aspect, 72% of the CEOs saw benefit from remote working in terms of widening their talent pool.”

If there is going to be a lasting change after covid, I think this may be it. Virtuality has become the order of the day and many people I speak to are loving the convenience especially now the kids are back at school.

Compare my experience with yours:

  • WhatsApp has become my friend. Connected and free.
  • I have run many small and large Zoom and Teams meetings. They have worked well despite my initial reservations.
  • Seeing people is better but domestic wi-fi does not support video. Switched off, virtual meetings work better.
  • Sharing documents is a cool idea but you need an easier method of reading full-screen and still knowing what’s going on in the meeting.
  • Questions and “hand-ups” are not easy when you’re scrolling your full-size pdf documents.

Etiquette is required. What I found is:

  • Once the meeting is started, listen carefully. Without body language, voice tonation is all you have to message emotions.
  • Greetings must be real but keep personal matters to a minimum. People don’t want to share their weekends with five other people.
  • Keep it short – a good rule for all meetings anyway.
  • Get to know peoples’ voices. That way you remain personal and in touch.
  • Watch out for humour. Much is conveyed by your face and the faces of others. A good joke can go flat if you don’t hear laughter or at least see smiles; it can leave you without the affirmation of personal contact.
  • Create a rule for Yes’s and No’s right upfront. Many questions are met with silence though people may be nodding in agreement. Silence is
  • Consent is as good a rule as any and the minutes can record that.
  • Always make sure your camera is switched off and/or your mic is muted. Very embarrassing possibilities go through my mind.
  • Don’t stress about interruptions. Sometimes the dog’s bark or my mentally challenged daughter comes to say hello. People have gotten used to your home life so just chill.
  • In the end, say goodbyes and then get off the call. Like any phone, “Leave” the meeting.
  • AND, a final word – I do not miss flying to Joburg, driving in traffic the ultimate time-waster, and hanging around for meetings. Online meetings are exceptionally effective.

Breaking away for a moment, other industries have recovered well as well. In Hermanus, the town is hectic, the hardware shops, restaurants, community services, parks and recreation, [vaping 😊] and retailers are kicking up a storm. Each has their own tales of lockdown, but now they’re busy again.

Just to that point, the way to avoid Ireland’s L5 lockdown is to…wait for it…here it comes again…Wash your Hands, Wear a Mask and Socially Distant Yourself From Others. Stop comparing yourself with others, “those okes there” and be your own best friend. Comparing yourself with the worst examples is in poor taste. Be good and stay healthy.

Covid will be with us for a long time and so will HLJ. We salute you as you return to full-steam and appreciate your business and the interaction we can have. To you and those you love, we’re proud to be associated with you and to have survived another chapter together.

There is Good News. Find it, read it and absorb it into your Self.

Yours in Property.

INTEREST RATES

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Global interest rates are so topical these days. In a world where the stock markets react to R-factor news, especially second-waves, stimulus packages and seemingly ignore joblessness and the general economy, interest rates play a huge part.

Traditionally, Reserve Banks, apart from their general economic well-being mandate, are established to determine the interest rate and stabilize the currency. Their primary tools are the Repo rate, sales and purchases of instruments, and printing of money. The latter, apart from the clean-up of old/broken notes and coins, is primarily monitored by the ebb and flow of money supply, the so-called M1,2,3 supply of money. Of course, all of this is supposed to be without political interference, but it’s very hard to keep the politicians out, especially when they want to own the Reserve Bank.

Allied to all of this is two things:

  • The banks’ Prime rate, their supposed lending to their best clients, is priced off the back of the Repo rate. 3% above, is generally the norm, however, currently the Repo is 3.5% and Prime, 7%. Just fyi, the USA Federal Reserve rates are: Federal Discount rate: 0.25% [2.75%] and Prime: 3.35% [5.25%]. The FED is resisting 0% or negative interest rates at present as part of the overall stimulus of the economy. 
  • Inflation. A measure of the rate of increase or decline in the cost of goods and services, inflation for us has been most severe in Food and Services. If Eskom increases 15% next time, this would be a blow, for instance. Inflation is benign at present, reducing from 4.62% in 2018, to 4.3% in 2019 and then falling to 2.3% at end-February 2020. 
  • Real interest rate. The difference between Prime [or any interest rate at which you borrow, really] and Inflation is the Real interest rate. Right now, 7 – 2.3 = 4.7%.

COVID has changed the rules sharply and if you had any sense that rates will remain this low for the long-term, then you need to look at the Bond yields. Bonds are sold by the government in order to fund the borrowing needs of a country. The short-term bonds i.e. R2023 is 4.455%, but the long-term bonds, R2032 and R2048 are 10.190% and 11.510%, respectively. Intuitively, we probably feel that interest rates will rise over time, but the real issue here is the risk. South Africa has to attract Bond investments from risk-aware investors. To do this, we have some of the highest-priced Bonds in the world. My guess would be that if we reversed our Junk status and grew our economy, we could have the long-term bond yields halve over time.

So, the question may be: What are interest rates? An interest rate is the price you pay for money borrowed and the price you receive for money invested. Those of us borrowing are happy when interest rates go down and those of us investing, like them up. Talk about money “going round”! Economically, interest rates can be seen as the value, or cost, of money over time. When the banks need it, they pay more for deposits and then need to charge more for borrowing and vice versa.

The SARB sets the scene with the Repo rate, in other words, the rate at which the banks could borrow from the Reserve Bank “at the window” if they needed liquidity. But the banks also have another standby rate which has become institutionalised, the Johannesburg Inter Bank Acceptance Rate or JIBAR. JIBAR, 3.68% today, is about 2.5% below Prime and, as the name implies, the banks lend to each other real-time. When I use the term “institutionalized”, it simply means that the rate has become a benchmark underpin for several corporate lending transactions in the country.

Finally, the rub of all of this. The Reserve Banks worldwide dislike inflation and control it primarily by adjusting interest rates. Too much inflation probably means that consumers have too much money, including borrowed money unfortunately, and are demanding [“chasing”] too few goods. Avocado Pears are a good example. Sometimes R20 each and other times, R20 for 4. Simplistically, their inflation is driven by local production and our willingness to pay. Inflation at the levels we are currently enjoying is as a result of little demand caused by an economy in depression and unemployment, both factors probably at historic levels. The Oil price is also a good dipstick of this condition globally.

Abruptly perhaps, I’m ending here. Enough interest rate economics for today but with Part 2 to follow…

Yours in Property.

AN ARUM AND OTHER THINGS

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Welcome to Spring! Can already feel a change in the mood although, I must admit, Spring Day was a glorious snow and washout in our parts. No wonder the Cape has dams over 90% full and our own little version in the Valley is at 80% – the highest it has been since we arrived in 2014. It’s been a real Cape Winter and we’ve loved it. BUT, the whales = the tourists = little or none ☹

The picture of this blog is of an Arum lily in our garden. The Cape has millions of Arums this time of the year. This one was an import with the cycad under which it grows. Sometimes it’s so shady under there that it gets leaves but doesn’t manage a flower; just like the one on the other side of the cycad which, by my recollection, has never flowered. But normally out comes the Arum round about Spring Day and it flowers for almost two weeks before beginning to wilt. As with the flower, eventually, the entire plant wilts and disappears into the mulchy earth from whence it came; somehow gathering enough energy to repeat the process every year.

THE MORAL OF THE ARUM STORY: Admiring it in the last week or so from my veranda, it struck me that there are things to learn from this story. For instance, if it chooses, there is a time when it flowers… every year it makes that decision. Stuck in its shady mulch, it always gets leaves but if and when it flowers it pushes that bloom right out of the shade. Has lockdown been your shady mulch – kinda wet, muddy and miserable? Have you decided to go back to work grudgingly and just show enough presence to get by the day – maybe a little fearful to stick your head out, fearing infection, waiting to see what happens; “the worst is yet to come” you secretly think to yourself?

Or, have you stuck your head out with that beautiful face that is uniquely yours – enjoying the height, the sunlight and feeling of growth and the sense of success as the market has surprised you with its busy[i]ness? Imagine if you were still stuck in the shade of your own fears and troubles post-lockdown and you introverted to the point that you could not enjoy the property upswing that is so prevalent at this time? What would you have missed out on! Life’s experience brings learning and learning brings maturity and maturity brings the care and compassion to lift and encourage others. You see, when I look at that Arum lily, it speaks to me of latency coming alive. Determination exists in its DNA, comes alive, grows, and does not stop growing until its head is above the gloom and in the sunlight of every opportunity in its surroundings. What about you, and me?

As you know by now, I’m a bit of a sceptic when it comes to “the new normal”. I keep hearing that this pandemic and its lockdown will “change the way we live forever”. Having lived through sub-Prime, we came out and returned to one of the best economic periods in human history for all the debt that underpins it. I think that will happen again especially as a vaccine arrives and we have the conviction to get it. But, that said, I think there have been a few lessons that we have learned and may in fact, internalise. Here’s my thoughts:

Materialism:

We can live with less. We don’t have to go out for coffee every day. Jacobs, black or with milk [especially Woolies full-cream, long-life milk [that tastes like Ideal Milk], with or without sweeteners, sugar or honey, is really nice and even though the company didn’t change for about 8 weeks, it was a really nice coffee “outing” on the veranda. We can own less. One of our two flashy cars stayed clean for two months at least. Our day tripper went to Checkers and the vet and the licensing department and it did that for 3 months on one tank. And we were okay… no withdrawal symptoms. We can wear less. Our cupboards with 16 pairs of shoes, 8 suits, 12 jeans and 250 tops were never opened. We wore, washed, stored, and wore 4 sets of clothing for almost 3 months. Did we ever think all that was possible, clattering around in our four 2X2’s [our bed, bathroom, kitchen and lounge] that we could actually live and live well? I think covid has got many of us thinking and may bring some lasting change.

Technology:

I haven’t flown to Joburg or travelled to Cape Town for 5 months. But I’ve had at least 20 meetings of one kind or another in between watching movies and reading books. All my emails are up to date and I’ve kept in touch with friends and family nationally and in England, Portugal and Australia on a consistent basis. I have been party to multi-million Rand transactions, covid-related contingencies, BBBEE transactions and fiduciary matters. I have facetimed my family and watched my grandson double his age in months. ALL OF IT by means of technology. Netflix, Takealot, Wi-Fi, multiple App’s, Zoom – all enablers of a new way of business and interaction. The point is, did I miss people? Of course! But, did I need to meet with people to live commercially? No! And no doubt, there are real exceptions like an associate who said it’s really hard to drive the acquisitions of new clients for his business over the phone. But for many of us, for many things, we have proven we can radically reduce our carbon footprint and come out on the other side alive and well thanks to technology.

Politics:

Those who know me well, know that the state of our country is of great concern to me. However, in view of JP Landman’s last editorial, the best thing I heard signed off by our President a month-or-so ago was the authority for the interim “evidence” of the Zondo Commission to be used to initiate cases against alleged perpetrators of corruption. No waiting for two years, then another to consolidate the testimonies, and then the legal process; prosecutors can immediately commence. Excellent news needed to criminalise corruption good and proper. Allied to this, I will never understand why it took covid corruption to seemingly galvanise our President to “hang his and his party’s heads in shame” and commence with prosecuting covidpreneurs. Why didn’t State Capture, the parallel state as Pravin Gordhan termed it, dynamite the same response into action? I don’t know and won’t share my speculation, but what I do know is that PPE cashflow thieves and the international [IMF?] aggravation towards their theft from the Poor, somehow galvanised him into action. Thank Goodness! Since then the NEC has met and been managed, we hope, to allow the process to jail perpetrators. I don’t understand everything, but I sure hope I’m right that corruption has been dealt a death knell, no matter how slow the blow.

Economics:

We now have our toes over the edge of the fiscal cliff. At 51%, that’s more than HALF[!] collapse of GDP in Q22020, we have junked and entered an economic depression, in 2020. Listening to a Senior Risk Analyst the other day, he spoke of the international fears of SA “going bust” if “radical reforms” are not implemented immediately, and the Debt Trap not being an “if but a “how deep” because, amongst other things, “in 2 years, government’s spending on interest will be 30% of budget.” To the point above, have the President and the ANC finally had enough of a wake-up call to bring us back from the abyss? Point is, without covid, we may have continually drifted into this mess merrily explaining it away; but with covid, we have been jolted by one million volts [obviously not delivered by Eskom ☺] of angst to do something about the crisis. We have to hope that what I’m tabling is true; this is no longer a game or conjecture but rather mission-critical for our beautiful, tortured country.

Covid has brought about change there is no doubt. From the very personal to the possible shift in the world’s balance of power, it has halted us in our tracks, and for many and varied reasons forced us to reassess our lives and futures. Against these backdrops, the Property news has been varied but enlightening.

From FNB’s Property Barometer of August 2020 titled, Buying activity resurging, supporting prices, the following extract:

Annual house price growth rebounded to 1.4% y/y in July, down from an upwardly revised 0.7% in June and 0.6% in May. We note, however, that April and May’s house price indices are based on significantly lower volumes of mortgage transactions, which affected the stability of our price index. Nevertheless, volumes have since normalised and the index stabilised.

The bounce back in prices reflects the unexpectedly rapid recovery in market activity since the easing of lockdown restrictions. Our initial expectations were for the pandemic to have a more chilling and lingering impact on activity, with pent-up demand filtering through only later this year. In contrast, the volume of new mortgage applications has rebounded beyond the pre-lockdown levels, and across the price spectrum.

We’re all wide-eyed with amazement!!

Of course, there is often a tale of two banks and in this regard, Standard Bank’s Property Research dated 7 August 2020, and titled, House Prices Still Plummeting, reports:

As pandemic conditions keep taking a toll

  • Growth in our inhouse Standard Bank House Price Index (HPI) was just 2.6% y/y in July, after 4.0% y/y in June. Residential property prices are expected to keep moderating, likely averaging 2.1% y/y this year (from 4.0% in 2019) as the pandemic puts pressure on employment and income. The cumulative 300bps interest rate cuts by the SARB since January and downtrading by property market participants, that under normal circumstances would have purchased large and/or luxury residential properties, should provide some support to small- and medium-sized residential property prices.

    First-time buyers in good credit standing with healthy balance sheets and confident about employment prospects will likely support entry-level and small-sized residential property price growth. Still, we’d foresee a contraction of 3.7% y/y in residential property prices next year, with the forecast risks high and the trajectory depending on the evolution of the pandemic and the pace of GDP and employment growth.

  • In July, mortgage applications increased across both freehold residential properties and sectional title properties, to the highest level since March 2019 but YTD applications were still 31% less than the same time last year. Applications approved were significantly lower in April during Level 5 lockdown but have since modestly improved as lockdown restrictions were eased, even surpassing pre-pandemic levels in both June and July. Applications were still concentrated amongst entry-level and small properties but the largest m/m increase in number of applications was recorded in small- and medium-sized properties.

Some of this is not easily understood but Standard Bank forecasts a drop in house prices next year and records the increase in mortgage applications because of lowered interest rates. We’ll take the latter good news and make hay while the sun shines.

In closing, we have traipsed around in this blog. But for good purpose, I hope you’ll see…

Momentum has a TV ad that asks a powerful question:

If you could start the year again, what would you do differently?

You can’t start the year again but you and I can start again today. Like the Arum seemingly caught up in its mulch, every year it grows leaves and some years it flowers. The flower always pushes out like its pride and joy. You and I have all the resources at our disposal, and we have decisions to make. Whether you just push on or really decide to push up, is in your hands.

Yours in Property.

 

 

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.

OUR ROLE

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Hi Everyone!

It’s probably 5 weeks since my last blog. It was titled Resilience and, as is so often the case, writing about something we all have but also something that we need to be reminded of from time to time, left me at a loss. Indeed, I found that a difficult blog to research and write and it took some doing for me. The next few weeks flew by and we experienced why they call this place the Cape of Storms. We’ve had two storms of a ferocity that we have not seen or felt in almost 6 years of being here. Eucalyptus trees uprooted, houses demolished, near misses of cars and homes as trees crushed into them and 270mm of rain this year thus far compared with 320mm in total last year.

No wonder the Cape of Storms has another name, the Cape of Good Hope. Life’s like that sometimes, hey? On the one hand, its storms and on the other like sitting here this morning in glorious, quiet sunlight [getting my vitamin D like the doctor said], its cause for hope and positivity. If you’ve seen the recent videos of Seapoint’s promenade battered by 10m waves and rivers of foam, you can imagine the early sailors arriving here terrified by the storms they had endured and then filled with hope as they moored in Table Bay in the lee of the Mountain. Little did they know it would become a landmark and one of the new 7 Natural Wonders of the World. We get to have it as part of our beautiful, tortured country.

In recent times, we have experienced a reduction in rates akin to the 1970’s and an inflation below the bottom of the SARB’s target range at 2%. In addition, and may I say unlike the sub-Prime crisis, the banks have stayed open for business. They are saying “Yes” to loan applications and that is adding to the “time to buy” that many people are experiencing.

If you have more than 10 years’ experience in the property industry, you have never lived through a time like this. I’m over-60 and been in financial services just about all of my working life, and I have never experienced anything like this. Despite global growth projected to reverse to -3% this year from +3% last year, our own growth from +0.5% to -6% this year and our unemployment increasing from 10 to 13m, we seem to have a buoyancy in our sales. I’m thrilled for every worker in this great industry who may, even tentatively, agree.

I have a few thoughts to offer some insight into this phenomenon:

  1. It could be as simple as a rebound from a long period of inactivity.
  2. It could be that people have done the sums at a 7.25% Prime and found bonds affordable for them.
  3. It could be that house prices have reduced significantly for two reasons. Firstly, there are desperate sales taking place in a scramble for cashflow. Secondly, realism over some time has resulted in house prices dropping in favour of buyers. There is a last niche issue and that is that people have finally decided to emigrate and they’re selling at their best price.

If I’m right on the first point, little did we expect that and grateful we are. No doubt. As regards the second, the SARB’s decision to drop the rate as a monetary tool was out of realisation that they must do so. One of the great learnings from sub-Prime was that the financial institutions must act early and decisively. Worldwide they did, and it worked; even to the seeming delight of the markets that have recovered on a whim of economic revival and any rumour of a vaccine. The last point above is probably correct because any reduction in price over time has been met with an increase in sales. What has really impressed me though is the speed with which a heightened level of confidence has returned. I look forward to banks’ research as to why this has happened.

All the above is based on solid feedback that the mortgage business, the real estate business and conveyancing has become busy again. The middle sector is still active in the lower end of market prices but compared to some of the negative press a while ago, we’ll take any good level of activity. I hear in Hermanus [read: along the coast] there has been a renewed interest in buying, however, the issue is that people still have to sell their current homes and that’s where the reality stalemates. Nevertheless, people want to buy, and others want to sell so we’ll take that!

A last point is that the Deeds offices are backlogged. There are millions of Rands of reggies locked up in their inability to fully staff and then stay open. I hope the floodgates open for so many cash-strapped businesses.

Homeloan Junction has been operating virtually but practically at full capacity throughout. In its belief that clients come first, service may have been difficult at times but nonetheless, it has been as good as it gets. Like you, we have endured and survived; grateful that the damage has been contained. We are faithful that it will continue and now just need the banks to regain their confidence and improve approval ratios. That may sound cheap talk, but their confidence means jobs are returning into the economy and everyone is a net-gainer.

How we appreciate you and your support! We depend on it for success and never underestimate all the effort you have put into our business. We trust you feel the same about us and what we have been able to deliver in these trying times.

So, to our title for this blog…

Our role? Twofold:

  • To continue to be the best estate agent, originator and conveyancer in your area. Trusted, competent and enthusiastic.
  • And, to encourage anyone who has allowed these times to dent their emotions. Be there, lift them and trade in hope for them.

Finally, I have not mentioned covid, corona, pandemic, etc in this blog. You could say I have avoided them like the plague but that may sound a bit corny ☺. How we hope that we quickly peak and begin the process to normality, however “new” that may be.

Yours in Property.

OPPORTUNITY BEGS [Part 3]

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In Part 1 we used the acronym of COVID to good effect. Our COVID stands for:

Concentrate On Victory In Defeat

We said that using a crisis for victory, means that although you are not exempt from it and may even be infected, you use every ounce of your energy for two things:

  • To protect yourself, those closest to you, and those beyond.
  • To learn from the crisis and then begin to plan for life after the crisis.

Point is, you don’t plan for the crisis but through it. It is a juncture, a point in time, an event that can precipitate change if you isolate but don’t hibernate if you lift your head and don’t succumb to defeat.

Your immediate three actions are:

Hygiene. Isolation. Test [if you get a dry cough and sense a fever].

In Part 2 we considered some gifts that are human and precious:

Choice. Family. Panic vs Patience. Levelling. Connectivity.

We concluded with these thoughts:

  • Coronavirus begs a response from us. It is business unusual. We now have time to change where change is needed.
  • Character is refined in a crucible.
  • Choose Family. Be Patient. Allow yourself to be levelled. Stay connected.

I have had positive feedback from some readers. But in receiving that, I cannot describe how I didn’t want it in the sense that right now, I’d prefer to be writing about a rebounding market and interest rate drops and recovering businesses as staff return to them. What do I say in Part 3 to businessmen and women who are facing a financial crisis? How do I explain away Moody’s Ba1 Negative Watch rating and that the Nedbank share price is R67? Right now, to me the only good news on the horizon is a R2 reduction in the fuel price.

Most of my readers I imagine are businessmen and women. Anyone who has had the courage to step out from corporate salaries and face the prospect of commission-based sales as an originator, an estate agent, an estate agency or a conveyancer is a businessperson, in fact, an entrepreneur deluxe.

Let me tread this water as humbly and hopefully as I can:

    1. Saleable, Scalable, Sustainable: Being clever in hindsight is not my style. But allow me this one look in the review mirror. No matter how small or big you are, these three things are a guiding light for business.
      • Saleable implies that you are building a business that someone else will buy whenever you begin to prepare to sell it. Of course, this does not apply to sole traders other than you have a database of relationships built over years and you “sell” that in different ways. Financial brokers value their forward annuities from clients. Doctors sell a practice with known incomes over a previous period which it would be up to the buyer to retain. Principals would do the same.Large businesses would have developed structures of mangers to make the entity saleable without the original founders involved, and then the past income multiples would kick in. The only point I make is that this process takes time and strategy to work out for your business but don’t lose sight of the value you have built up over time through hard work.
      • Scaleable: Point here is that it would be preferable if your business was scaleable. Investors buy income streams, but they also often buy expansion opportunities. How many estate agency offices do you think Seeff started with? One. How many today? “Over 200” says Google with 1200 agents. Not bad for a company founded in 1964. Whether scaleable by opening branches, licensees, franchises, etc, it really doesn’t matter. Think about the scalability of your business and follow the strategy with intention.
      • Sustainable: This is the hardest one for me right now. Let me handle it away from our property focus. Edcon [Edgars opened its doors in Joubert Street, Johannesburg in 1929 and now incorporates JET stores], is in trouble again. I got to meet its CEO, Grant Patterson, who is ex-Spar and -Massmart, back in the days I managed Nedbank’s Card Acquiring division. He’s been overseeing the turnaround at Edcon. My heart broke for him on Thursday when he wept as he told all his Suppliers that Edcon does not have the money to pay them. Briefly, Edcon has R400m and that is needed to pay staff who cannot work during lockdown and by end of this period, Edcon will be R800m shy of budgeted turnover. Without a fresh capital injection by shareholders, Edgars and JET will finally be no more. He has been praised by some suppliers for having the courage to face them with the news instead of, as some have done, sending a cold “we-have-a-problem” letter to suppliers. While off the focus, the SOE’s have proven a disgrace for the government. Imagine the R100’s of billions used to save them being in the bank right now for COVID measures. R16bn is still set aside for SAA. For what? Com’on, shut it down. Richard Branson’s Virgin Airlines is asking for a rescue package and the USA’s airline industry is taking $60bn in rescue from the $2trillion package signed off yesterday. How do you think SAA is going to fly again? Right now surely the only sensible thing left, seems to be to salvage those businesses with a fighting chance and close the rest, thus giving the staff decent retrenchment packages. Heaven help us!These real-life dramas dramatically speak to Sustainability. Essentially, being sustainable is having money in the bank when times get tough and enough of it to survive commercial storms. Today the question is how much it would take to survive coronavirus for each of us in business?
    2. Caring for the assets: Many owners pay lip-service to their most important asset. Intentions dictate People but behaviour may demonstrate more inanimate things. In financial services, very little beyond brand and technology has much value. We are people-orientated and people-intense businesses; you just have to walk through a conveyancer’s office to realise that. I put to you that if you care for the Hero, the business, as I described in Part 2, then you will naturally care for the employees.When all is said and done and the virus is dead, your people will return to work. Some may have expected compensation, but I’m positive that loyalty will increase with having been cared for to the best of the owners’ ability. I’m not a cynic who says if you want loyalty, buy a dog; I have experienced gratitude even in instances where tough calls were made. People appreciate people – care as much as you can for your employees. After all, they are probably the reason why you got where you did in the first place.
    3. Protect the Hero: The business gives returns to the investors and employees to the staff. In that sense, if your actions sustain the business through the tough times, it may not come through unscathed, but it may come through. In doing so, however, downscaled, it will continue to offer returns and employment for many years to come. Here is the rub: What is needed to sustain your people and keep even a remnant of the business alive? Monitoring what you have in the bank, allowing for a high percentage of non- or short-payment from debtors who have their own predicaments, providing for delays in conveyancing and registration, and then looking at your costs, is your best estimate of how much you need to survive.This principle is no different for individuals and I have no doubt thousands of people are planning to delay their debt repayments in order to fund themselves or their businesses. No wonder Nedbank’s share price has plunged to R67 [by the way, it was R54 after the crisis of the early-2000’s]. Your finances will be tested to the hilt and you may need to make terrible calls way before you hit rock-bottom. And remember, you need to act sooner rather than later to ensure you’re not too late. At a national level, as an example, I can’t help but feel it’s too late for SAA. What I have written before when discussing these matters is that the business that survives continues to employ for many years. The originators and so many other stakeholders in the property industry bear testimony to this truth. Some I can think of right now have flourished even more in the last decade than before the Sub-Prime crisis.
    4. Protect your brand: Your brand, both personal and business, is the beacon by which others know you personally and commercially. Whatever you do, protect your brand. Openness, optimism, pre-emptive actions, foresight, understanding, consideration, humility and courtesy, to name but a few attributes, are the characteristics that matter most.You and your business can have those attributes. What also happens in a crisis is that people lose sight of these human and business qualities. Psychologists doing Management interventions test you often at your limits; it’s there that fuses shorten, negative instincts exhibit and the real “me” come to the fore. Especially be honest with your people. Many of them know your business as well as you do. Tell them the truth as best as you understand it, they will value your transparency.
    5. Make contingencies: There is an old term: Hope for the best, prepare for the worst. It’s not helpful at the extremes as very often the real scenario occurs between the two. The only way I know to deal with this is by using probabilities. Using base case as normal business, you need to assign probabilities to income, debtor repayment and creditors’ willingness to assist. These probabilities would then give you a worse case and then a worst case. At these cases, the amount you need to survive the storm becomes calculable.Some things from experience:–
      • This exercise almost seems puerile to discuss. It is really obvious. However, the reason why I mention it is because we may become paralysed by anxiety and spend more time worrying than acting. The exercise helps you focus on what needs to be done and when. Action casts out fear.
      • Don’t delay. If you need facilities, arrange them. If you need debt relaxation, ask; there is nothing lenders hate more that borrowers who duck and dive their payments – talk, restructure, arrange to pay a minimal amount. And if you need to shed costs, shed them before it is too late.
      • A planned reduction in overheads proportionate to turnover may become a hallmark of your leadership in a crisis. Watching the originators who survived 2008-2010 and then diversified their businesses into auxiliary financial services, they have done very well and are now better poised with more annuity income to ride this storm.
    6. Working remotely: We have talked about this phenomenon since the invention of the computer. The internet raised the opportunity. It was interesting to hear the CEO of Verizon talking about his 135000 global workforces working remotely as far as possible. What he also shared was the upgrades to their systems to enable corporate-orientated bandwidths to be upscaled for domestic traffic; a project to which they allocated $500m. How do you now manage? – no coffee meetings, no MBWA, no social occasions, no physical meetings. I’ve never done this, but I am now chairing boards virtually at least until end-April and finding it tough. I tend to watch people and facilitate meetings accordingly, now, especially with some line-loss, I find myself interrupting more frequently. Here are some of my thoughts:
      • Monitor technology links real-time.
      • I would have a virtual meeting first thing every morning to uncover needs for each role.
      • I would contact individual staffers to ensure their anxieties are aired. This would not be forced but a natural conversation between “friends”.
      • I would check myself daily for stress. As intimated above, unnatural circumstances affect behaviour. “You can’t preach the measles if you’ve got the mumps”, said one of my pastors years ago. Even though your time is face-only time, your eyes and voice will resonate unease. Calm down as a daily routine.
      • Manage your expectations. Nothing changes in delivery required to satisfy your clients. They may make some allowances, but don’t assume they will; retain standards of performance and especially, business risks management.
      • For the rest, be yourself. “This too will pass” must be our mantra as we deal some of the shocking revelations from every information source.

In conclusion, this has been very difficult to write. People matter and I’m writing to and about people with as much empathy as I can muster. But we must prevail and prevail we will.

Homeloan Junction is in this with you. We are not immune in the least and have uncertainty at every turn. However, we salute those of you working from home. Thank you for your support. We assure you of ours. Please keep in touch and let us know how things are going.

We trust God’s protection on you and your families.

Yours in Property.

DR ANDREW GOLDING ON SONG

/in , /by

I had the pleasure of attending a Pam Golding function in Hermanus. In greeting Andrew, I complimented his Mother who was the Founder of Pam Golding Properties over 40 years ago. An outstanding lady and businesswoman who drove a powerful ethos into Pam Golding estates over her many years. I believe she also oversaw the transformation of Pam Golding from an elite-area agency to an agency for “the normal man”, bringing all the class and expertise to that market’s operation without detracting from the sophisticated positioning of the Pam Golding brand.

She also oversaw the transition from her own dynasty to her son as the guardian and driver of the business into the future. I’m sure she was tough on her “boy” as he too transferred from Medicine to Property to take his place in an arena he had no doubt grown up in around the dinner table. With genuine praise, he has done that very well indeed, continuing to uphold Pam Golding as one of the iconic businesses in our industry.

He had a team thereof himself, Golding’s economist and Strauss Daly, the attorneys. Here’s a synopsis of what they spoke about. A little parochial but I’ll add some comments at times.

  1. Properties are moving given that Sellers are getting realistic as regards the value of their property in the current market.
  2. Prices are down about 20% compared with one year ago. Secure estates flying in the range <R2.5m. This is attributable to the continued perceived security threat but also due to downscaling from larger properties.
  3. Stellenbosch is flying with this town being the #1 Pam Golding office in the country.
  4. The value of a house that lingers on the market declines at 1.5% per month. This was an amazing comment that I have heard but never taken too seriously. I can now understand why friends have removed their homes from the market and then put them back on.
  5. House prices slowing are slowing which we all know but seemingly at a slower rate according to the latest research. 
  6. 7% (14% in my opinion) of house sales are for the purpose of emigrating. But, according to Andrew, many sellers are not actually leaving but are rather renting and then investing in golden VISA countries eg Malta and Mauritius. Apparently, the latter country is very active indeed.
  7. Semigration has slowed to Cape Town. People are now choosing PE and Durban for similar lifestyles but with much more property value. PE is now the top growth market for house prices, whilst Cape Town has been declining rapidly
  8. Hermanus [I knew we would get a mention ☺] is now attracting young buyers in the <R2.5m price range. As I experienced in George many years ago, many people place their families here but then fly to work in Joburg or internationally. Hermanus is beginning to carry value in all price ranges but I can attest to the 20% reduction in asking prices. I have two examples this month of sellers of newly built or renovated homes just getting their cost price or a little less after commission.
  9. Andrew agrees with us that a primary underpin of sales these days is the willingness of banks to lend. Their growing or defending of market share is driving sales.
  10. This slide caught my imagination. Consumer Confidence = The Great Depression. That is really sobering and I’m not sure how we’re selling anything if that is empirically true.
  11. First-time homeowners are changing the structure of the market. Millennials are moving to growth points eg Claremont.  Pods, which I experienced at the new Dubai airport some time ago and read about in Japan, are being built and sold. R1m buys you 24m2!! A parking bay then sets you back a further R250000. Point is that if you have a hectic social life or choose to avoid the traffic every day, such an investment may be realistic. Rental pools exist in these apartments if you wish to “timeshare” your unit.
  12. The Retirement market is robust which is quite obvious for two reasons: We’re ageing and many people cannot consider going offshore. KZN is repositioning itself to these buyers but the Western Cape is still outperforming all other markets. 
  13. 10 of the top estates are in the Western Cape.
  14. House prices remain at an absolute premium within 500m of the sea.
  15. The Coronavirus has the potential to infect 58% of the global population.  The only good news on this point is that deaths from infection are only 1%. Small comfort ☹
  16. Ramaphosa is not as strong as we need him to be, neither as a leader nor as a politician. We are advised to watch the upcoming ANC NGC.
  17. Asked about property values, we are all waiting with bated breath – to downgrade or not to downgrade, that is the question. However, Andrew is realistic when he says that a downgrade will have negative sentiment value if nothing else. The hope is no downgrade but if so, it will affect property values.
  18. A fascinating statistic from Japan: 30% of houses are empty as older people move out to smaller properties. 


Andrew was asked about EWC. His answers were sensible. Firstly, that he hopes the matter will be settled between the Executive and the courts in such a way that recourse to the courts is allowed so that sensitive matters can be handled properly. Secondly, that we should not expect residential property to be included; it is occupied and used-for-purpose and any attempts to do so would be sensational. Thirdly, that land redistribution is an unfortunate consequence of our past but if handled correctly by ALL, he would hope it contributes to a lasting solution and economic prosperity in our country. The question is obviously on his mind and he answered it in a very level-headed manner as any business leader should.

In closing, the presentation was a privilege to attend and a feast of information. It is quite obvious that the global property market is experiencing enormous change. A friend of mine who is emigrating to the UK has been watching the guesthouse market very closely. Many of them, up to 11-bedroom, B&B’s of about UKP500000, have been on the market for 18 months or more. It seems that kind of money is not readily available, but on the other hand, perhaps Brexit has been hurting tourists and landlords alike.

Yours in Property.