INTERESTING THOUGHTS ABOUT PROPERTY

INTERESTING THOUGHTS ABOUT PROPERTY

This blog covers a few interesting aspects of property ownership and investment. Hope you enjoy the read.

Renting has always been an option. For some, it is the only option given their inability to afford a bond but it is also for some an ownership alternative and lifestyle choice. In a recent [5 June 2019] article in The Business Insider, It is now cheaper to rent a home in Gauteng and the Western Cape than a year ago, James de Villiers explores the cost of renting in the Cape and Gauteng.

“The average rent charged in the Western Cape declined by R94 between the first quarter of 2018 and the first quarter of 2019, and by R64 in Gauteng, rental payment platform PayProp‘s numbers show. This as Statistics South Africa on Tuesday announced that the country’s GDP declined by 3.2% in the same quarter. 

When PayProp’s Rental Index for the first quarter of 2019 is compared to its 2018 rental index, it shows that the average rent in South Africa stood at R7551 a month in the first quarter of 2019, compared to R7610 a year before, a R59 decline. 

PayProp said most national rentals (31.7%) in the first quarter were in the R5000 to R7500 bracket; 22.3% in the R2500 to R5000 bracket, and 18.4% in the R7500 to R10000 bracket.

The average national distribution of rental properties across price bands (supplied, PayProp) 

The average national distribution of rental properties across price bands (supplied, PayProp)

Rent in the Western Cape, the country’s most expensive rental province, stood at an average of R9030 per month for the first quarter of 2019 compared to R9124 in 2018.

The Western Cape is followed by Gauteng where the average rent is estimated to be R8000 compared to R8064 in 2018. 

The Northern Cape saw the sharpest decline in average rent from R8153 in 2018 to R7817 in the first quarter of 2019 – a R336 decline. 

It is followed by KwaZulu-Natal where rent declined by R154 from R8129 a month in 2018 to R7975 in 2019. 

The Free State is one of three provinces which saw an increase, with average monthly rentals increasing from R5942 to R6054. 

Mpumalanga saw the second biggest increase, from R7248 to R7298.

Mpumalanga saw the second biggest increase, from R7248 to R7298

Johette Smuts, data and analytics head at PayProp South Africa, expects the average national rent to increase in the next few months as uncertainty remains in the South African economy. 

“Generally, uncertainty decreases consumer confidence, which could leave property buyers reluctant to commit in coming months, effectively dampening demand and putting downward pressure on prices,” Smuts said. “Meanwhile, all these prospective buyers need to live somewhere, and they’ll most likely be forced to rent a property, thus increasing demand for rental properties and pushing up prices.” 

 

The bottom line of this article is that:

  • Little change has occurred in the average cost of rentals in the period. As a landlord, I would be concerned with that as the normal 8-10% is obviously not applying. Could the renters be saturated? If so, not good news for the landlords.
  • As usual, the only good news of stagnant property prices for landlords is that they get an equal or better return on their property as rentals rise. This equals out at point in time as the rental less ever-rising service costs, eventually begins to eat away at yields. Time to sell then, especially as I found that yields in no-hassle, risk-free investments were better than the risk-fraught rental market.

Extracts from the next article have been overcome by recent events that seem to confront our President. However, BIZNEWS 12 June 2019, in their article by Theuns Eloff, the Chairman of the Board of Advisors of the FW de Klerk Foundation, Give Ramaphosa a chance, there is light in this dark tunnel, has this to say:

One can almost feel the despair of the South African population. Many South Africans are asking, “What is Cyril doing about this? He is the President now!”

And that’s partly true – our President is in a better place than a year ago as far as party politics are concerned. He followed up his victory at Nasrec (53%) with a 57.5% victory at the polls in May. He is no longer an “interim” President, but one that has led his party to a victory (and probably single-handedly rescued them from a defeat). But, unfortunately, it doesn’t mean he is untouchable and can do what he wants.

There are a few stumbling blocks on his path. And to understand what’s happening now, one needs to know what these stumbling blocks are. There are still Zuma supporters in the Cabinet Only Ramaphosa’s leadership and drive will force them to take action. 

The second stumbling block is that, though there may be a new Cabinet, the people who will apply (hopefully) new policies, are still the same old officials – and the majority of them are the product of the toxic mixture of racial transformation and cadre deployment. It will take time to get better officials appointed on merit. Proper lifestyle audits are the only way in which the corrupt can be shown the door in the medium and long term.

Thirdly, it would still take longer to make a significant difference at the local level – that is how the three spheres of government work across the world. President Ramaphosa’s (and any President before and after him) ability to relieve the Mayor and Councillors of a completely dysfunctional municipality such as Lekwa (Standerton) of their duties, are extremely limited. In terms of Lekwa, which no longer even has the capacity to pump enough water for the community and businesses only a few kilometres from the Vaal River, and where the homeless sleep in the municipality’s offices at night, he can only work through the (also inept) provincial government and ANC structures. And it takes time…

The fourth stumbling block is that President Ramaphosa faces serious opposition from within his own ranks. The current face of this opposition is the ANC Secretary-General, Ace Magashule. He unleashed the current storm within the ANC through unsolicited statements about a changed mandate for the Reserve Bank. They can conspire together in the short term but also the medium term, with a view to the ANC’s internal processes and election conference that lies ahead in 2022.

Against the backdrop of these stumbling blocks on Ramaphosa’s path, one should never have expected the damage of the nine wasted Zuma years to be reversed soon. President Ramaphosa cannot put Ace in jail, as there are legal proceedings to be followed. President Ramaphosa also cannot just show Ace the door – he was elected by the ANC’s elective conference. Only when Ace is found guilty of a crime, can he be replaced as Secretary-General.

What can be done? President Ramaphosa has three “power blocs” in which to operate. Each of these three power blocs is unique, and like circles, they overlap.

The first power bloc the is ANC’s headquarters in Luthuli House. This is where Ramaphosa’s party political mandate comes from – and he can’t alienate himself from the majority of his own party. As a result of the outcome of the Nasrec election conference (and specifically the election of Ace Magashule as Secretary-General and Jessie Duarte as Deputy Secretary-General) he is not in charge of Luthuli House. He will have to take this factor into consideration and manage it at all times. 

The second power block consists of the Legislature and the Executive: Parliament and the Cabinet. Here Ramaphosa is in control, with the majority of the ANC parliamentarians and Cabinet supporting him – even if only because he is now firmly seated in the presidential chair. He can use this power bloc effectively, but still cannot act against the wishes of the majority ANC caucus members. This is where Ramaphosa has real power.

The third power bloc is that of the Constitution and its institutions. This includes the Chapter 9 institutions (such as the Public Protector, the Human Rights Commission and others). It also includes the judicial authority of the courts, especially the Constitutional Court. President Ramaphosa’s mandate as president of the country comes from the Constitution, not from the ANC. This power bloc is probably the strongest and can be very effectively used by Ramaphosa.

The way President Ramaphosa manages these three power blocs will play a decisive role in his success (or failure). He will have to make use of the power blocs where he is in control, or where he has a strong mandate, to neutralise the power bloc of Luthuli House. President Ramaphosa will have to play this ongoing game of chess and the underlying power struggle while he works against the other stumbling blocks to his reform strategy. It is no easy task, and will take time and require excellent timing.

What does this mean to ordinary South Africans? Take these stumbling blocks and power blocs into consideration in your assessment of our country’s current situation. It is not an ideal situation, but through it, there can be progress made towards a better South Africa. Do your job and look after your responsibilities, among other things by taking even better care of your own and others’ safety. Recognise that millions of other South Africans feel like you do, have the same concerns, and at times, much worse experiences. Above all, keep a cool head – there’s light in this dark tunnel.”

I appreciate an article like this for I share with many people the frustration of the pace of change. I often come across a general distrust in every aspect of the government, including the President. However, when I read of the complexities he faces, the latest being the appointment of questionable Chairs of parliamentary committees, and the Public Protector’s antics [or, is she onto something?], I realise that my opinions should be tempered by his realities as he must be a President and a politician in a toxic environment that he has inherited. Strength to your arm, Mr President, and may right prevail over wrong.

Point is, that as long as all this stuff leads to policy uncertainty and while Malema insists that by year-end all land must be transferred to the State, the economy will continue to falter and even collapse. We truly live on a precipice.

Now here’s an interesting and novel article to end with:

“Property stokvel buys its first 5.8ha piece of land

BY XOLILE MTSHAZO – 02 April 2019 – 10:08

 

After only launching in May last year with a membership of 30 potential investors, the Rustenburg Property Investment Stokvel has grown to 90 members and has already purchased a 5.8ha piece of land worth R5m that is ready to be serviced.

The property stokvel is the brainchild of investment pundit Lebo Ratema, who brought most of her clients – people that she knew – under one roof to get their buy-in to start investing in property.

“As an investor I have the information and the data. I then talked around most of my friends and people that I knew were interested to put our heads together and create wealth,” explains Ratema.

“Many of my clients had been declined by the banks. Some had made mistakes and had been taken advantage of because of their lack of knowledge and know-how to get into the property investment business.”

Ratema is ecstatic with the progress made as Rustenburg Property Investment Stokvel has grown from 30 to 90 members in less than a year.

Each member holds 100 shares sold to them.

Every member has a choice of three investment options. The first option is over three years, the second over four and the last over five years. If you opt to invest over a three-year period you contribute R5,500 monthly, over four years R4,125 and over five years R3,300.

“We have different voluntary contribution and payment plans to suit every member to be able to purchase shares.

“This is not a one-man initiative. I must emphasise that we have a 10-member-strong committee in charge of running the whole project. All of them have signing powers.”

Ratema said the land they are ready to develop is where they are based, in Rustenburg, but the whole project of servicing the land costs R19m, before the actual building of the housing

 

“The rezoning of the land will be completed within a year as we are now busy with proclamations and servicing the land.

“The development of infrastructure like roads, electricity and water must be factored in.”

Ratema and other stokvel members have been liaising with property experts and property management companies who will help manage the properties.

She said the stokvel is open to everyone who aspires to invest in property.

Ratema warned that the project was not a get-rich-quick scheme but a long-term investment. She said members would start getting dividends from their investment once the first house is sold and would share the profit, depending on the number of shares a member has bought.

“Once the last house has been sold and every member has been given their share dividend, we will dissolve the investment stokvel and start all over again.”

 

If Ratema can pull this off, one wonders how novel this model could be and how scaleable it could become. Let’s hope we get some ongoing Press coverage to track the progress.

 

And finally, an old friend is quoted in BUSINESSTECH’s 22 JUNE 2019 article, Luxury homes in South Africa are now selling for a ‘bargain’:Top of Form

Bottom of Form

“Luxury home prices are generally declining in many of South Africa’s most sought-after suburbs, and sellers are more willing to negotiate.

Citing recent FNB statistics, the property group noted that the rate of home price growth on the Atlantic Seaboard – South Africa’s most expensive area – has dropped from a high of 25.5% in the first quarter of 2016 to -5.1% in the first quarter of 2019.

“The rate of home price growth on the Atlantic Seaboard, which is South Africa’s most expensive area, has fallen from a high of 25.5% in the first quarter of 2016 to -5.1% in the first quarter of this year,” said Rory O’Hagan, head of the luxury portfolio division of the Chas Everitt International property group.

“House prices in the Southern Suburbs, including areas like Constantia, Bishopscourt, Newlands and Claremont are currently declining at the rate of 2.4% a year, after reaching a peak annual growth rate of 15.4% in 2015.”

O’Hagan said that he has seen similar drops in Gauteng and other parts of the country.

In Hyde Park, for example, brand new cluster homes that were on for sale at R28 million are now priced at R20 million, and a home originally listed for R19 million is now available for R15 million, he said.

“Our luxury portfolio teams in estates such as Val de Vie in the Cape Winelands and Zimbali on the KZN North Coast report a similar trend, with asking prices on specific homes dropping in the past month from R16.9 million to R13 million; from R15.9 million to R12 million; and from R13.9 million to R11.5 million.”

O’Hagan said that for luxury buyers planning to upgrade to a bigger property can acquire more home for their money in the current market. He said that appetite for luxury property around the world – including South Africa – is currently also being boosted by volatility in equity markets, which traditionally prompts investors to turn to brick and mortar.”

So now you too can live with the rich and famous. No longer do you need R25m to buy your dream home, R17.8m will do the trick 🙂 Just joking, Rory!

Property remains interesting and there is never a dull moment. We swing from luxury houses, to “give the President a chance”, to stokvels beginning to invest and rentals beginning to flatten out. What could be more interesting than property? Well, with all that said, I’m off to the cliffs to see if I can sight a whale. If I was on Twitter and a cook, I’d post a recipe like our Minister of Finance. 🙂

Yours in Property.

Jack Trevena

Jack Trevena

With over 30 years of experience in the banking and home loan industry, my hope it is share what I have learnt over the years with my blogging community, inspire conversation around the subject and in the process discover unique insights into this ever changing environment.
Jack Trevena

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