Affordable homeowners shellshocked

Affordable homeowners shellshocked
2008/06/13

The ongoing pattern of interest rate rises is making affordable housing increasingly less affordable, and homeowners in this market sector are financially shellshocked.
The 0,5% interest rate rise announced by the SA Reserve Bank today (12 June) has prompted the head of one of the country's leading developers of affordable housing to suggest that Government should relieve the burden on cash-strapped owners and aspirant owners of homes in the lower end of the market by adjusting the structure of the interest rate system.
"The fact is that the ongoing pattern of interest rate rises is making affordable housing increasingly less affordable," says David Wentzel, CEO of JSE AltX-listed RBA Holdings, one of the foremost turnkey suppliers of fully bonded homes in the lower (R300 000 to R700 000) price bracket.
"Perhaps the time has come for interest rates on affordable housing to be capped so that the collateral damage done to homeowners in the war against inflation is reduced – if not, ideally, eliminated. After all, homes do not contribute to the inflation spiral."
To illustrate his point, Wentzel says today's 0,5% hike adds over R400 to the income required to qualify for a bond on a R300 000 entry-level affordable house.
He points out that, unlike the mainstream residential property market, buy/sell decisions in the affordable housing sector are not dictated by sentiment but by cold, hard economic factors.
"Coming on top of the previous nine consecutive interest rate increases, and given the sharp spiral in fuel and food prices, homeowners in this market sector are financially shellshocked.
"Unless there is a homeowner-friendly change in the interest rate structure I cannot see further rate increases being sustainable in the affordable homes market," Wentzel adds.
He says the impact on RBA Holdings of the persistent interest rate rises since mid 2006 has been cushioned by the fact that the group anticipated it and has systematically reduced the sizes of both the sectional title and freehold homes they offer while, at the same time, increasing the density of units per hectare – thus maximizing the use of land and infrastructure.

Affordable homeowners shellshocked

Pitfalls that can delay transfer

Pitfalls that can delay transfer
2008/06/13

Sellers should be aware of pitfalls and hidden costs which can delay the registration of the transfer of a property.
Bev Nelson of Shepstone & Wylie Attorneys property department explains that if the property is sold with the assistance of an estate agent then the agent will usually provide a general sale agreement, which is required by law. "However, if there is no agent involved, or a specialized agreement is necessary, this will need to be drawn up by an attorney at a cost to the seller, unless the parties agree otherwise," she adds. Using an estate agent also carries estate agent's commission which is normally paid by the seller.
Sellers must be aware of their responsibilities once the agreement is signed and a conveyancer is appointed, advises Nelson. These include:
• The payment of all rates up to the date of transfer If the property is conventional,
• If the property is sectional title, all levies need to be paid up to the date of transfer.
• The cost of an electrical compliance certificate certifying that the property is reasonably safe, plus the cost of any repairs necessary in order for the certificate to be issued. This certificate is a legal requirement.
• The cost of an entomologist's certificate certifying that the property is free from wood-destroying insects (not white ants), plus the cost of any procedures (e.g. tents) necessary in order for the certificate to be issued. This is not a legal requirement however it is usually required by bondholders.
If the property is bonded at the time of selling then that mortgage bond will need to be cancelled simultaneously with the transfer of the property to the buyer. The bondholder will require a guarantee from the conveyancer that any balance owing on the bond will be satisfied on registration. "Therefore the balance owing on the bond will be settled out of the purchase price by the conveyancer before paying the balance of the purchase price to the seller. The seller is responsible for the costs of the cancellation of the bond," says Nelson.
If the property was not bonded then the seller should have the title deed. If the title deed has been lost or destroyed, application can be made to the deeds office for a certified copy. Once the Registrar is satisfied that the deed cannot be found he will issue a certified copy of the title deed which will, for all purposes, be treated as if it were the original. The seller is responsible for the cost of obtaining the copy.
Nelson warns that the seller should be careful to include an occupational rental clause in their sale agreement, as if the transfer is delayed and the buyer moves in, without this clause there will be no occupational rent payable. "Especially since most sale agreements include a clause that the agreement cannot be varied unless it is in writing and signed by both parties."
The seller should also note that the general position is that they will only be paid the purchase price and the risk of the property will only pass to the buyer, on registration of the transfer. However, this will be subject to the terms of the sale agreement, adds Nelson.

Pitfalls that can delay transfer

SA housing market still 10th best

SA housing market still 10th best
2008/06/11

Property markets in UK, Canada, New Zealand and Norway are struggling, with SA still the 10th best performing market globally.
South Africa is not the only country experiencing a rapid slowdown in house price growth. A report released last week on global housing markets by British based property group Knight Frank confirms that a number of other countries including the likes of the UK, Canada, New Zealand and Norway have also slipped from double digit to single digit growth territory over the past year.
The report ranks SA as the tenth best performing housing market among 34 countries in first quarter 2008 with growth of 8,8%. That's down from sixth position a year ago when SA house prices were still rising at 13,6%.
Overall global house price inflation came to an average 6,1% in first quarter 2008, down from 9,8% a year earlier. And although global house price inflation continues on its downward trend, there have been a few noticeable exceptions. Five out of 34 countries worldwide are still fetching house price growth of more than 20%, including Bulgaria (31,5%), Singapore (29,9%), Hong Kong (28,8%), Jersey (28%) and Russia (21,7%).
Seven countries have seen house prices dip into negative growth territory in first quarter 2008. These are Israel (-0,2%), Denmark (-0,7%), Japan (-0,7%), Germany (-5,2%), Ireland (-8,8%), Estonia (-10,7%) and Latvia (-20%).
Liam Bailey, head of residential research at Knight Frank, says there is no doubt that the number of markets where prices have fallen has increased. ``A year ago, 35% of the markets covered by Knight Frank's global house price index saw house price inflation in double figures. In first quarter 2008, this proportion had fallen to just 20%.'
Bailey notes that a number of markets have seen a sharp reversal of fortune since mid-2007 on the back of the sub-prime fall-out and the global credit crunch. The UK housing market has been particularly hard hit. In first quarter 2007, the UK was still the tenth best performing market in the world. It has since slipped to 24th position.
Bailey says the UK housing market is experiencing its most significant slowdown since the early 1990's. ``On almost every measure across the prime and mainstream markets and the new build sector, the market has shown worsening performance over the last six months.'
According to Bailey, the weak sentiment in the UK housing market is reflected across the wider economy, with consumer confidence, as measured by the NOP Index, at its lowest level since April 1994. With some regional and local market variations, house prices across the UK have been falling since September, with overall price growth of only 1,1% in first quarter 2008 (11% first quarter 2007). - Joan Muller

SA housing market still 10th best

Gauteng tenants worst defaulters

Gauteng tenants worst defaulters
2008/06/09

11% of Gauteng tenants did not pay rent at all in the first quarter of 2008, as opposed to only 6% of Western Cape tenants. These shock figures were supplied yesterday by the Tenant Profile Network (TPN), a registered credit bureau and developer of the first rental payment profile database of its kind in South Africa.
"Rising debt among consumers, combined with dramatic increases in fuel and food prices, may affect the way tenants pay their rent in the future," says Michelle Dickens, MD of TPN.
The company released statistics from its database which show that in the first quarter of 2008 only 72% of tenants were paying their rent on time. This is up from the last quarter of 2007 by 3%. In spite of the defaults, Dickens believes the increase in paying tenants is good news for the industry.
Audited figures from all credit bureaus in SA, which have been approved by the National Credit Regulator, show that there are 16.9 Million credit active consumers who average 3 accounts per consumer totalling 50.98 Million accounts. A significant portion of these are tenants who are renting.
Property trends from TPN for the first quarter of 2008 indicate that 28% of tenants are paying late or not at all, this could be a caution to estate agents and property owners.
Dickens says that although consumers are trying to cut their costs by renting instead of buying, the industry still needs to find ways to ensure that tenants pay their rent.
"Credit providers are increasingly critical of whom they take on and estate agents and property owners are now following suit. Property-owners and estate agents need to assess the behaviour profile of their tenants to ensure they will pay their rent at the beginning of the month," says Dickens.
"Although it is not a NCA requirement that estate agents assess the affordability of the prospective tenant - this type of assessment is becoming a best business practice of the industry. It is in the best interests of all parties to assess affordability of the prospective tenant, to ensure he or she is not placed under additional pressure as a result of entering into a lease agreement where the monthly rental is out of proportion to their affordability. Affordability is not measured on earnings alone, but rather the earnings less expenses," she says.
This is not all doom and gloom though, says Dickens, as the more rental agents and landlords that register with a rental payment database such as TPN, the more they can reduce their risk by profiling the tenant before hand.
"Now, agents can spend the first 7 to 10 days of the month focusing on new business and growing the market instead of chasing the 28% of tenants who are bad payers," she says.
TPN has developed the only trusted rental payment profile database of its kind in South Africa and in fact globally that has been profiling tenants for over 8 years. Their database combines information from TPN and other highly valuable sources to provide the most comprehensive behavioural profiles on tenants and prospective buyers in the property industry today.
For more information contact 0861 876 000 or send an email. Click here to visit the website

Gauteng tenants worst defaulters

Property owners: Watch the tax

Property owners: Watch the tax
2008/06/09

Property owners will need to keep their eye on tax changes that kick in at the start of 2009.
As of January 1, 2009 the definition of the dividend paid on property assets will change and this will make a significant difference to the way the secondary tax on companies (STC) will be handled.
Tax partner at Cameron & Prentice Chartered Accountants, David Warneke, illustrates the change by way of example.
"Say a close corporation purchased a building (as a capital asset) in 1990 for R2m. The value of the building on October 1, 2001 (the date on which capital gains tax became effective) was R5m and the value today is R12m.
"If the close corporation were to sell the building today for R12m, distribute the proceeds as a dividend to its members prior to January 1, 2009 and then deregister, the STC would be worked out on the post-2001 portion of the increase in value - that is, on R7m," he says.
Were the proceeds to be distributed after January 1, 2009, the STC would be calculated on the total gain - on R10m - resulting in additional STC of R272,727, assuming that there are no other reserves in the close corporation.
Many investors have utilised trust structures as a shelter against tax.
Warneke says that properties which are directly owned by a trust will not be subject to the same legislation. However, if the trust holds a controlling interest in a company or CC, which in turn owns a property, then this will be subject to the tax.
With this change in the way that gains will be treated, property owners will need to take a decision on which way the property market is headed.
Recently released poor figures relating to the residential property market and warnings from the head of a major real estate agency may encourage highly geared investors to consider exiting these positions.
Property investors should take into account the tax implications and make a call on their exposure to the market. - Marc Ashton, Fin24.com

Property owners: Watch the tax