Developers to bend the knee to middle and low-income buyers

Low to middle income home buyers often ignored by developers in the mid 2000s boom period in terms of their housing needs are about to be given a fair hearing. In fact it’s likely that developers, at least the wiser ones, will be falling over themselves to meet the lower market segments every need, according to a prominent home loan expert who believes property related stakeholders can no longer ride on higher house prices to balance the books.

“Volume, not value,” was cited repeatedly by Marsha Haupt, national sales manager of mortgage originator Better Bond, as she urged home loan consultants at a recent convention in Johannesburg to increase their market activities. As the average household debt of 73 percent nudges its highest levels ever and upward pressure continues on interest rates, Haupt says the lower house price growth will be driven by affordability levels. Haupt strongly advises developers to keep a weather eye on oil price trends, domestic fuel and food prices and the rand exchange rate in their forward planning. All of which, she believes, will be strongly inter-woven in the house purchasing trends into the next year. Even so, Haupt is cautiously optimistic of a house price growth of around 13,1 percent (7,2 percent real) for the year over that of 2006.

Assuming developers will respond to the burning issue of affordability, either through building smaller units, lower price finishes and higher densities she sees this having a positive effect in stabilising selling prices in the second hand market. Her view is based on the current price differential between new and existing houses, which in the first quarter of this year was only 2,3 percent, or R21 800 more than an average size house. Far off the cry of the 31,1 percent, or R173 100 differential between new and existing recorded in the first quarter of 2003.

Given that the banks are still lending up to 108 percent on the purchase price of a new unit and transfer costs are included in the selling price Haupt says existing homes, unless representing good market value for money, could find themselves sitting. The situation could be further exacerbated by increases in second hand stock, which are already in over supply.
Rodney Hayter, September 5, 2007

NCA wreaks property havoc

Black mortgage originators operating in South Africa's township property market are being hit by misfortune. Firstly, they are still struggling to crack the white-dominated mortgage origination market and, secondly, the National Credit Act (NCA) is severely hampering their business. Mortgage originators are sensitive to the performance of the property market and any dip in house sales puts pressure on their revenue because they earn commissions from acting as middlemen between lenders and homebuyers.

The originators have become so powerful in the property market such that they generate about 70% of home loan sales for the banks. The bigger the volumes they generate, the greater the profits they make. Nakedi Magodielo, the managing director of Agang Bond Originators, said the NCA had worsened their plight. The NCA was introduced by the government in June to stamp out bad lending practices. Turnover halved" My business is still a start-up and the next thing we are being hit by the NCA. My turnover has gone down by more than 50%.

But Tsogo Bond Originators director Fondi Maluleke, whose mortgage origination business operates in Limpopo, North West and Free State, is optimistic of a turnaround despite sales dropping 25%."Sales have declined since June but if you give the banks quality loan applications you stand a better chance of doing well. "The levels of approvals on home applications have declined by an estimated 10% to 20% in certain sectors. This has impacted on the lower income market," he said. Despite the NCA teething problems, black originators say the banks must help them to muscle their way into property developments that take place in the affordable housing market.
Fin24, September 9 2007

Joburg’s new gold belt

Whether you love or hate the idea of the vastly expensive Gautrain that’s set to cut through the nation’s busiest region, don’t ignore it from a property perspective. Land and property along the Gautrain route is set to become South Africa’s “new gold”. That is the forecast from John Loos, property strategist, in the FNB Commercial Property Finance market update for the third quarter. He said he believes mounting congestion “will limit the pace of both urban sprawl and the de-centralisation of commercial activity, and promote densification of prime existing locations”.

Traffic will continue to slow even out of peak hours, making it “far more difficult” to move around for business purposes. The result, said Loos, is that people should move closer to the commercial action and places of employment as well as to good transport infrastructure. This should lead to “an increasing amount of office location decisions” made on the same basis.

“I am of the view that the land/space along the new Gautrain route will become SA’s new gold, and we are already seeing investors respond logically, with recent announcements of high density office and residential developments in the likes of Rosebank.” Loos said Johannesburg residents can expect more of the same to follow. Many old buildings as well as office parks have insufficient parking. Loos said it looks as if the “parking constraint will deteriorate further”. Owners of well-placed parking garages could achieve some of the highest commercial property returns in the coming years, he said.

“All ships on a rising tide’ is probably an appropriate phrase at the present time of low vacancy rates. But their performance may not keep up with the nodes along the Gautrain corridor over the longer term,” he said of areas “away from the main decentralised action”. This is because the Gautrain “will provide a valuable high-quality public transport service at a time when commuting (and intra-day business travel) is becoming increasingly time-consuming and problematic”.
Moneyweb, September 10, 2007

Landlords lick lips ahead of 2010

Cape Town homeowners are already rubbing their hands in gleeful anticipation of a rental bonanza when thousands of football fans descend on South Africa’s tourist hotspot for the 2010 World Cup. Even though the tournament is still 1,000 days away, estate agents are already feeling an upturn in the market as they confidently predicting property owners could raise their rents eight-fold during the tournament.

"There is no doubt that people will make fair amounts of money," Michael van der Westhuizen of the Rawson property agency told AFP. South Africa expects nearly half-a-million visitors for the football showcase to be hosted at ten stadiums in nine South African cities from June 11 to July 11, 2010."We expect the biggest impact on our property market to come after the World Cup when a lot of foreigners who experienced what life is like in our city will want to come back," said Van der Westhuizen.

"This is all very good news for our industry and for South Africa." Nick Ball, owner of upmarket property agency Cape Villas, said enquiries about rental properties for the World Cup had begun trickling in from abroad. "People can expect to ask up to eight times their normal rent." Ball said property owners in the Cape Town’s upmarket Camps Bay area, expected to be a favoured spot for World Cup visitors, normally got an eight percent rental return on their property value per year.

During the World Cup, that figure was expected to reach 20 percent. Andrew Boraine, chief executive of the Cape Town Partnership, a city development agency, said the World Cup was "certainly a helpful factor" in Cape Town’s booming property market. "Investors are considering the legacies to be left by the World Cup, such as an improved transport system; things that will make this a better city. "I have on my books property and infrastructure developments worth 28.5 billion rand for the city centre over the next five years," said Boraine.
The Times, September 12, 2007

New property player wins limelight with 'no fee' deal

A new Strand business is hoping to beat off its competition in the property marketing industry by offering in what it says is "a unique approach", to pay its customers' fees for property transactions.
Called CORE (Consumer Orientated Real Estate), the company is advertising that it will pay transfer duty on deals valued at between R500 000 and R1-million and pay it pro-rata if the value is over R1-million.

"In all instances we pay all legal fees regarding transfer and bond registration," declares CORE MD Ferdi Joubert, who has a background in finance and mortgage origination. He adds that the idea for the business has been seven years in the making. While some people may think twice when considering the conditions of signing up, preferring a greater flexibility and essentially room to negotiate a deal, many others might find this appealing. The conditions are that buyers must buy and finance their properties through CORE and no other agents or mortgage originators be involved in the transaction. Sellers must also give the company sole mandate and property must be sold and financed through CORE.
Also, the discount on the transfer duty applies only for individuals. According to Joubert, the main objective behind this idea is to help boost the up-and-coming middle class in SA particularly by lowering the threshold to home ownership. While being a new brand on the block, CORE has tied up alliances with companies such as Comcorp Online, Bond Alliance, ABSA, First National Bank, Nedbank, Standard Bank and Sanlam, that it believes will give it the edge to win a profitable share in the highly competitive local property market.

It is also determined to be different. Its new office, which is completely wireless, is more like an upmarket lounge than the lines of desks and telephones in many traditional estate agencies. Apart from buying and selling property, CORE also offers its customers property valuations and auctions, rentals, mortgage finance, life insurance and legal advice.
Helderberg District Mail, September 14, 2007

Cabinet Approves Foreign Land Ownership Report

Cabinet has officially approved a report on ownership of land by foreigners in South Africa announced Minister of Agriculture and Land Affairs Lulu Xingwana. The Panel of Experts on the Development of Policy Regarding Land Ownership of Foreigners in South Africa was appointed in August 2004, due to uncertainty regarding how much land is owned by foreigners and its resulting impact on property markets.

The panel's recommendations to the minister include amongst others that all property owners - not only foreigners - be subject to Compulsory Disclosure Requirements, which specify nationality, race, gender and other information. The panel also recommended that Special Ministerial Approval be required for certain changes in land use and for disposal of State land to foreigners. The establishment of an Inter-ministerial/department oversight committee to monitor land ownership was also recommended, along with a limited two year moratorium on the disposal of state land to foreigners and "nationals who do not qualify for redress under the national land reform policies," read the report.

After officially receiving the report from panellist Mandla Mabuza, the minister said there is a widely held concern that the phenomenon of foreigners owning South African land, especially coastal and inland prime tourism and game reserve land is materially influencing effective land reform. Ms Xingwana said if this trend continues unabated, government would find it increasingly difficult to deliver on its Constitutional duties and obligations to the people of South Africa. As the Report indicates, management of foreign ownership of a country's land is evident in many countries worldwide, she said, adding government would be deemed negligent if no steps were taken in light if these threats.

She highlighted that progress in resolving the land question will be an important barometer for measuring the manner in which South Africa is consolidating its democratic gains. Foreign land ownership and its affect on the issue of land transformation in South Africa, was also probed. The panel found fronting by land owners and businesses as an issue that can undermine Government's policy on land reform and regulation of foreign land ownership. After visiting and studying land ownership policies in countries including Canada, Chile, Brazil, Indonesia, Singapore, England and Scotland, the panel concluded that Government "may consider medium and long-term leases of public land as a viable mechanism for future acquisition of land use by foreigners.", September 15, 2007

Rudco madness rages on

Controversial finance company is still marketing its infamous 6% fixed-rate home loans to the public. This is despite the National Credit Regulator (NCR) finding it to be in contravention of several provisions of the National Credit Act (NCA) and its predecessor, the Usury Act. Moneyweb reported that the NCR had forwarded its files on Rudco to the National Prosecuting Authority, which is best known for its elite crime-busting squad, the Scorpions. The NCR instructed Rudco and its agents to stop operating in contravention of the National Credit Act. The NCR also instructed Rudco to submit a proposal on how it intends to reimburse customers for amounts received in contravention of the NCA and the Usury Act.

This proposal was to be submitted on September 3. The NCR says it has received a response from Rudco, and that the relevant department and people are still evaluating its submission. In the meantime, potential Rudco clients are well advised to steer clear of its products, at least until the NCR gives it a clean bill of health. Even if the "new and improved" 6% home loan offer complies with the NCA, which is still open debate, there are several reasons to be wary of it.

Common sense tells us that to provide a loan at 6% is not a viable business model. Who in their right minds would lend money at 6% when they can get a higher return (close to 10%) at much lower risk from a money-market unit trust? Some of Rudco's agents are making the dubious claim that the money is sourced from overseas, where interest rates are lower, and that somehow this makes the 6% loan viable. This raises serious questions about the agents' knowledge of home loans and financial markets in general. It is true that interest rates are lower in many other countries, and there are investors who take advantages of these different rates.
Moneyweb September 17, 2007

Mortgage originators saving SA consumers R30bn annually

The rise in popularity of mortgage originators in the home buying process has now reached a level where they are collectively saving South African consumers R30bn a year in interest charges through lower home financing costs.
This comes from discounts to the prime lending rate originators achieve by shopping around at various banks on behalf of homebuyers to secure the lowest borrowing rates possible says the company that launched bond origination in South Africa in 1999.

There is no charge to homebuyers for originators’ services. Rhys Dyer, chief operating officer of MortgageSA, the originator that has placed over 300 000 people in their homes with over R100bn in mortgages, says that prior to the advent of origination banks offered customers home loan rates of, on average, 0,5% below prime. “Since originators came on the scene, we have driven this average rate concession down to 1,5% below prime, saving consumers on average 1% on their rate concession. “
This 1% saving - based on annual new homeloan values - represents a R30 billion interest savings annually to consumers over the life of their bonds.” Dyer says that in the current cycle of rising interest rates, consumers need to be even more certain they are getting the lowest rate when sourcing a home loan because even a 0,1% lower rate will make a significant difference over the life of a bond. Dyer notes that as early experience of the NCA has shown there is variation in banks’ lending criteria. This means that people declined by one bank are often approved by another.
Rodney Hayter, September 25, 2007

Mature homeowners can unlock property value

It’s common cause that less than 5% of South Africans have sufficient retirement income but unlocking the value in their properties can go a long way towards a solution. “Financial planners place heavy emphasis on providing for the future of the younger generation, but little help is available for those who have already reached retirement age and are cash poor but asset rich in the form of their property,” points out Gerhard Kotzé, CEO of the ERA South Africa property group.

The good news is that there are numerous ways to tap into that value. Reverse mortgages, as they are known, are pioneering ‘equity-release’ products. Seniors Finance offers a product called SF Help, while Nedbank has launched its Home Income Plan.
Both basically assist senior citizens in unlocking value from their homes without having to sell them. “The principle of these products has been well tested overseas. Basically, the senior citizen homeowner is granted a loan based on the value of the property, rather than on his or her income level,” Kotzé explains.

In the case of the Nedbank product, for example, the borrower has to be at least 65 years of age, the minimum value of the property R850 000 and the minimum loan R200 000. The Nedbank loan is granted with the option of repaying or not repaying it. If the choice is the latter, the loan is repaid at the death of the borrower from the assets in the estate or by the surviving spouse, by which time the property should have increased in value.

“Good financial advice is needed before entering into one of these agreements, as with other options such as selling to your children. Parents can sell their homes to their children but need to beware of donations tax and transfer duty (payable by the buyers) and capital gains tax (payable by the sellers).
Property Trader, September 26, 2007

International News
Namibian property bubble trouble

The Bank of Namibia has expressed its concern over the pace of property price increases in the country. In its latest Annual Report (2006), the bank said the spiralling price increases in the residential market were a source of concern. According to a report in the Namibia Economist which was carried recently by the website, the Bank of Namibia is also worried that an eventual decline in inflated property prices could result in a boom-bust cycle.

The Namibian capital Windhoek was undergoing a property boom at present, which was fuelling concerns, and property prices elsewhere, said the report. In June, Trustco Group Holdings announced a major property development in Windhoek including the construction of 1 800 residential units over the next ten years. The project constitutes "one of Namibia's biggest investments to date" in the property sector, according to Trustco CEO Quinton van Rooyen. The 360 hectare development, reported Namibia Economist, would take place just north of Windhoek and would feature shops, schools, business facilities as well as recreational and sports facilities. It is about 15 km from Windhoek's central business district.
Realestateweb, September 16, 2007

BetterBond plans international expansion

Mortgage originator reveals ambitious plans to target home buyers in South America - RE/MAX conference., according to Kevin Lancaster, CEO of BetterBond. was currently investigating growing its business internationally with Brazil now being considered as its first overseas venture. A decision on would be made in the near future. Nationally the group was keen to build on its current good relationships with estate agents.

While acknowledging that both the home loan and real estate industries were in the midst of a changing environment, CEO of BetterBond, Kevin Lancaster said that the future of the mortgage origination was assured. Focusing on the current state of the mortgage origination industry Lancaster said the best month for new business had been set in May, the month before the National Credit Act had been implemented.

The trend, which has pushed BetterBond to a monthly record in terms of home loan grants of R6 billion, had been fired up by a consumer rush to beat the stricter credit lending criteria. The current six largest of an estimated 600 mortgage originators, were BetterBond, Bond Choice, MortgageSA, Finbond, Loanlink and Bond Alliance. Finbond, who had listed on the Johannesburg Stock Exchange several months earlier, was still the only mortgage origination listed company.

Lancaster pointed out that in building their homeloan books the banks focussed on four major areas to attract new business. These were rate, in term of pricing given to consumers; an applicant's creditworthiness; processing of applications and client relationships. Concentration by the players on the four areas was cyclical at any given time and in his view hugely successful in terms of the banks generally efficiency and consumer service levels.
Realestateweb, September 19, 2007

---Property News---
Property Talk - October 2007


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