CREDIT ACT WILL PREVENT CRISIS

Business Day
Posted to the web on: 19 September 2007
Nick Wilson Visiting US real estate speaker says that credit restrictions will lead to responsible lending INTERNATIONAL real estate seminar speaker David Knox says the new National Credit Act (NCA) will be good for the real estate sector and potentially protect it from crises similar to the collapse in the US subprime lending market
Knox, who was in SA last week, said it was important to have reasonable standards for borrowing and that "people who borrow money should have the ability to pay it back".
"The NCA may delay a person's entry into the market, but they will come in at the right time in their life. It's like a college kid wanting to buy a brand new car before he's ready. Affordability is an important way of keeping financial health in our life," he says.
"If South Africans don't believe that, they should look at the subprime lending mess in the US." In the US some of the banks relaxed their borrowing standards during a low interest-rate period to enable less qualified property buyers to borrow at lower interest rates.
This meant these buyers were now able to afford a higher mortgage than they would ordinarily have been able to. When interest rates went up these buyers were not able to afford their homes at the higher rate and this resulted in many foreclosures. The bottom fell out of this market earlier this year.
The NCA , effective from June 1 , has been slowing down bond applications. The act requires banks to check the overall credit exposure of borrowers before approving any new loan. It is aimed at protecting South African consumers from reckless lending.
Knox, who hails from the US and is a top-ranked international real estate trainer, was brought to SA this month by Seeff Properties to complete a countrywide road show of training seminars for its 1200 agents. This is his fifth trip to SA.
Knox, who has 34 years' experience in the real estate industry, says SA's residential property sector seems "very vibrant" and that he is impressed by the professional standards of the estate agents he has met.
He says SA's residential market is healthy compared with the US market, which "went into the tank a couple of years ago".
But Knox says buyers should not be "overly excited" about property cycles which rise and fall. He says that these are natural cycles.
Knox believes that SA's market is "still very much a seller's market". "Every estate agent I've spoken to, and I've spoken to about 1000 over the past two weeks, is telling me there is a shortage of inventory. If you are a seller now it may be a good time to put your home on the market. There are more buyers than properties now in SA from what I'm hearing."
He says when markets go up or down it is "dysfunctional to describe it as good or bad. Someone is going to win on the rainy days and someone is going to win on the sunny days. In a rising market the sellers are going to benefit, while in a downturning market the buyers benefit because they can afford to buy."
Knox thinks people "spend too much wasted energy" worrying about the direction of the market. "The secret to real estate is, don't wait to buy real estate, buy real estate and then wait. If you are buying a place to live, raise a family, buy a place and get into a home.
"It's a home, not an investment. It can be an investment, but it's a house first and an investment second." Knox says he has been "very impressed" with the "character of real estate professionals" in SA. "They seem to be truly interested in providing good service to clients. The South Africans have been very pro education since I've been coming here and I started coming here in 1990. I get very good attendance at property seminars here."
Knox says the skills and professional standards of South African real estate agents are high. "These are the agents I see. Bad agents don't come to seminars, the good ones do." The 2010 Soccer World Cup will boost SA's economy, which will be good for the real estate market, he says.

BEWARE: NEW HIDDEN TAX IN PROPERTY DEALS

MoneyWeb 17/09/07
Buyers, estate agents and lawyers must dip into own pockets for hefty tax when sellers run from Sars. What you need to know...
Buyers, estate agents and lawyers will be made to pay tax for sellers who skip the country without paying their dues to the South African Revenue Service (Sars).The new law applies to properties sold for R2m and up, with the minimum tax payable starting at R100 000. It kicks in from this month.Sars, in this new legislation, is effectively saying it is impossible for it to keep track of property transactions where non-residents are involved and owe it money, so it is going to force buyers, agents and conveyancers do its job by acting as tax collectors. Tax lawyer Johan Troskie, a director at Deneys Reitz Attorneys, highlights the implications of a recently promulgated new section of the Income Tax Act (section 35A), which provides for a withholding tax.This is in lieu of capital gains tax payable when a property is sold, but is not calculated according to the gain made, he says. Instead, the withholding rates apply to foreign sellers as follows:
5% if the non-resident seller is an individual;
7,5% if the non-resident seller is a company; or
10% if the non-resident seller is a trust.
Troskie says estate agents now have an obligation to tell potential buyers that a seller is non-resident. If they don't, they can expect to dip into their own pockets for the money owed to Sars. The buyer must not pay over the full purchase price, but must keep back the correct amount owed to Sars and pay it over on behalf of the seller to the national fiscus.Now, that's perhaps easy enough to pick up when the seller has a thick Irish brogue or can only pronounce his "Ws" as "Vs". However there are many South Africans who have declared themselves non-resident for tax purposes and have clever schemes to get around the law, like staying out of the country for a certain number of days each year. They live and own property here, and may give their friends and clients the impression they are South Africans at heart, but technically they are non-resident and are therefore liable to pay withholding tax when they sell property. Troskie says the unwitting buyer may have one defence in the law if the circumstances are such that they could not reasonably have known a seller is non-resident. But, it's a "tenuous" test, he says.The tax law expert says agents will have to become more diligent by asking questions about residency. Asking sellers to sign a formal declaration, or type of affidavit, on their residency status may become a feature of the sales process, he predicts. There is a big risk for buyers in private sales because they may not be aware of the intricacies of the new law.The mind boggles, too, at the potential pitfalls where trusts are involved. The tests for residency undoubtedly become more tricky. As Troskie says, the new Income Tax Act addition is set to become more of an administrative headache for agents and lawyers than the Financial Intelligence Centre Act, with "real financial risks" for those involved in the process. He says the procedure for paying the money has not yet been clarified, and there are slightly different terms for resident and non-resident buyers.If you are buying, it appears that it is now more important than ever to hire a lawyer to look after your interests. Remember, the risks need to be identified before signing an offer to purchase, as that agreement is binding.

HOUSE PRICES TO SLOW FURTHER

Sep 05 2007 01:55 PM
Evan Pickworth
Johannesburg - Jacques du Toit, senior economist from the biggest mortgage lender in the country, Absa, said on Wednesday that their projections were for nominal house prices to taper off in 2008 to just 10% growth as higher interest rates bite.
He added that average growth for 2007 is forecast at 14%, which is in line with his forecast in May.
"Nominal house price growth for next year is forecast at about 10%, mainly as a result of the upward trend in interest rates since mid-2006, as well as slower economic growth expected in the second half of this year and in 2008," explained Du Toit.
This projected slowdown comes after house prices grew at an astronomical 22.7% in 2005. The declining trend then took route the next year as growth averaged 15.3% in 2006. This declining cycle is therefore now likely to extend over a minimum of three years before potentially picking up again.
The current Absa projections come after they recorded August house price growth at a lower 14.6% year-on-year from 15.1% in July and 15% in June.
House price growth in the first half of the year was at 15.5%, but a decline took place to 15.4% when measured over the first eight months of the year.
Many analysts also point out that the implementation of the National Credit Act may also affect growth in mortgage advances, although it is felt that it is still a little early to tell whether this has impacted prices.
- I-Net Bridge

HOUSE PRICE GROWTH MAY START TO REVERSE

September 6, 2007
By Roy Cokayne
Pretoria - House prices rose by less than inflation in July, implying a real decrease of 0.2 percent month on month, after no change in real prices was recorded in June, according to Absa's latest house price index, released yesterday.But real year-on-year house prices grew by 7.5 percent in July compared with 7.7 percent in June. Real growth in house prices averaged 8.4 percent year on year in the first seven months of the year.House prices grew 10.2 percent in real terms last year and the market has performed better than expected this year.Next month, house prices are expected to decline in real terms by 1.9 percent, the first annual reduction in real prices since 1999. However, real house prices are projected to rise by 7.2 percent for the calendar year.Absa economist Jacques du Toit said the house market performed more strongly than anticipated in the first quarter.Nominal house prices had grown in the first quarter, probably because there were no interest rate increases and the economy had performed strongly.Standard Bank said this week that the growth in the median house price fell to 5.7 percent year on year last month, from 10.4 percent in July, showing a levelling off. This also means that house prices are declining in real terms, because the growth rate is below the inflation rate.
The financial landscape of households changed with last month's interest rate hike. Mortgage repayments rose by 30 percent since June 2006.The macroeconomic environment remained resilient, which meant house price increases were likely to remain positive but in single-digit territory over the medium term.However, more tightening of monetary policy, seen as a strong possibility, would "change the financial environment and thus the outlook for the housing market", said Standard Bank. Absa said yesterday that the growth in nominal month-on-month house prices slowed to 0.7 percent last month from 0.8 percent in July. The average price of middle-segment housing rose 14.6 percent year on year to R942 800 last month. Price growth of 15 percent was recorded in July. Nominal house prices grew year on year by an average of 15.4 percent in the first eight months of 2007.Du Toit said growth in house prices was expected to taper off at the end of the year, with average growth for the full year projected at 14 percent. Nominal house price growth of 10 percent was forecast for next year.Du Toit attributed the anticipated lower growth in average house prices largely to the upward trend in interest rates since the middle of last year and the slower economic growth expected in the second half of this year and next year.

AVERAGE SA HOME COSTS R942800

Sep 05 2007 09:55 AM
Johannesburg - Nominal house-price growth of 14.6% year-on-year was recorded in August in the middle segment of the market from a revised 15.1% (14.5%) in July, according to the latest Absa House Price Index. This brings the average price of a house in the survey to R942 800.
House price growth was at a higher 15% in June.
In the first half of 2007 average nominal house price growth of 15.5% was recorded compared with the same period a year ago, and the data on Wednesday showed that in the first eight months of the year average nominal house-price growth came to 15.4% year-on-year.
Real year-on-year growth in house prices of 7.5% was registered in July compared with a growth rate of 7.7% in June, based on the headline consumer price index.
On a month-on-month basis, nominal house price growth slowed to 0.7% in August (0.8% in July). In real terms, house prices declined by 0.2% month-on-month in July after no change in real prices was recorded between May and June.
The Absa House Price Index growth in December 2006 was at just 13.5% and overall in 2006 it was at 15.3% from a whopping 22.7% in 2005.
The Absa House Price Index is based on the total purchase price of houses in the 80m²-400m² size category, valued at R2.7m or less (including improvements), in respect of which loan applications were approved by Absa.
- Fin24

'LAND BUYERS MUST LIST RACE'

Sep 03 2007 06:52 PM
Michael Hamlyn
Cape Town - A panel of experts have recommended that all potential property buyers disclose their race, gender and nationality, and that will include "substantial shareholders" in land-owning companies.
The panel has been investigating the foreign ownership of land. The report was presented to cabinet in July, but was not released until Monday.
The panel, under Unisa professor Shadrack Gutto, says that it is currently difficult to assess the quantity of land owned by foreigners with their best estimate being that foreigners own around 3% of land used for residential housing, agricultural holdings, farm land and sectional titles.
This will be much higher in coastal and game farming areas, they say.
Once the experts have got a better handle on information regarding corporations and trusts, the size and value will be much higher, they say.
To improve the information and statistics, the panel recommends that all property owners should be obliged to make compulsory declarations for all past, present and future registrations of property - along the lines of the disclosures demanded by the Financial Intelligence Centre Act (Fica).
The panel also recommends that special ministerial approval be required for certain categories of land to be disposed of to foreigners, especially where such a change has the potential negatively to impact the state's constitutional obligations to effect land reform" or land restitution.
Total ban
There should be a total ban on foreign ownership of land, the 10 member panel suggests, in the national interest for environmental considerations, and in areas of historical and cultural significance, or for reasons of national security.
Such land would include national key points, coastal areas, conservation areas, land close to military installations, or international boundaries and in water catchment areas.
The government should be able to expropriate such land if it is already in foreign hands and either hold it in state hands or allocate it to authorised nationals.
The panel points out that the lack of a national policy on the regulation of land owned by foreigners is not the norm among those countries with comparable economic systems or even those with more advanced economies.
They also say that ordinary citizens, both black and white, feel very strongly that the acquisition of prime land by foreigners is denying them affordable access and "rendering them strangers in their own country".
The recommendations will require legislative changes, which the panel hopes will be accommodated in one catch-all amendment bill.
Speaking in Pretoria on Monday one of the panellists, Mandla Mabuza, explained what happens next: "It is entirely up to the Department [of Agriculture and Land Affairs] in what it does in terms of possible legislation or policy framework," he said.
The panel was first constituted by the previous land affairs minister Thoko Didiza in August 2004.
- I-Net Bridge

HOUSE PRICE GROWTH PLUNGES

Sep 03 2007 05:54 PM
Johannesburg - The median house price declined relatively sharply to 5.7% y/y August from 10.4% y/y in July, according to Standard Bank's Residential Property Gauge for August.
The higher end of the market experienced a tightening of financial conditions, which impacted adversely on activity in that segment.
The financial landscape of households also changed with the hike in the repo rate in August. Mortgage repayments have increased significantly since June 2006.
Johan Botha, Standard Bank senior economist says: "Economic growth has slowed down to 4.5% in the second quarter of the year, but the macroeconomic environment remains relatively resilient.
"This implies that house price increases are likely to remain in positive territory, but in single digits over the medium term.
'Rate hikes to change housing market'
"A further tightening of monetary policy at the next Monetary Policy Committee meeting in October, which is seen by many as a strong possibility, will change the financial environment and thus the outlook for the housing market adversely."
The financial landscape of households and thus the property market has changed in the last month and become gloomier. The August hike in the repo rate brought the increase in this benchmark rate to a full three percentage points higher than the rate in June last year.
The increase in the repo rate signalled an increase in mortgage rates, with mortgage repayments jumping by approximately 30% over the same period.
Higher interest rates will impact on all households and thus on the demand for housing. The debt levels of higher income groups may make them more vulnerable to interest rate increases.
This interest rate sensitivity, coupled with speculative activity taking place in higher-priced property, may partially explain the decline in the proportion of higher priced houses on Standard Bank's mortgage book in August.
'Market may be taking strain'
Botha says: "In August the proportion of the lower and middle price segment increased by another percentage point while the proportion of higher priced houses declined by two percentage points.
"The greater prominence of lower priced houses on Standard Bank's book in July and August not only resulted in a lower median (and average) price, but may also indicate that the upper end of the housing market is taking some strain.
"It certainly appears to be a buyers' market in that segment of the market. With a shift in the distribution of mortgages granted, a decline in the month-on-month median price level in August came as no surprise."
Research conducted by Credit Suisse Standard Securities confirms that the debt-servicing burden as a percentage of disposable income increases with higher levels of disposable income. The decline in the proportion of higher-priced property may also be partly explained by the artificial lift provided pre-NCA.
Broader environment 'benign'
The broader macroeconomic environment is still relatively benign. House price data are still reflecting some underlying consumer resilience that stems from the continued expansion in employment and income on the back of a relatively strong macroeconomic setting.
In the first quarter of the year, 17 000 jobs were created, which compares favourably with the 10 000 and 152 000 jobs lost in the first quarters of 2006 and 2005 respectively.
The growth in households' real disposable income of 7.5% in the first quarter (on a seasonally adjusted and annualised basis) was the highest in eight years.
"The tougher financial environment and affordability concerns will impact on property prices over the medium term. Only with the expected easing in monetary policy in 2008 could we see the start of another upward phase in property prices," says Botha.
- I-Net Bridge

CREDIT ACT, RATE HIKES CUT GROWTH IN HOUSE PRICES

Posted to the web on: 04 September 2007
Property Editor
MEDIAN house price growth plunged to 5,7% year on year last month from 10,4% in July as the National Credit Act took hold, according to the Standard Bank Residential Property Gauge.
Standard Bank senior economist Johan Botha said yesterday the act, implemented on June 1, was affecting growth in house prices by slowing down bond applications.
The act requires banks to check the overall credit exposure of borrowers before approving any new loan.
Botha said many financial institutions had an increase in bond applications in May, before the act came into force .
Applications for bonds had now dropped off.
The South African residential property market has been slowing down in any event since its peak near the end of 2004.
House price growth peaked at more than 35% at the height of the residential property boom in late 2004.
Since then the trend has steadily declined, as the relatively expensive property market caused demand to drop off.
Botha said the bank expected median house price growth of between 5% and 10% for this year. He expected even more of a decline from these percentages in the first quarter of next year.
The bank said the higher end of the residential property market had experienced a tightening of financial conditions, adversely affecting activity.
Standard Bank said the “financial landscape of households” had also changed with the hike in interest rates last month.
“Mortgage repayments have increased by 30% since June 2006,” said the bank.
Botha said economic growth had slowed to 4,5% in the second quarter of this year, but that the macroeconomic environment remained “relatively resilient”.
“This implies that house price increases are likely to remain in positive territory, but in single digits over the medium term.”
Botha said a further tightening of monetary policy by the Reserve Bank next month could “change the financial environment and thus the outlook for the house market adversely”.
Property economist Francois Viruly, of Viruly Consulting, said the market was seeing property investors “shifting slightly downwards” in the type of properties they could afford.
“This can only be normal considering the hike in interest rates, the National Credit Act and the pressure on the inflation rate.”
He concluded that “although the middle (housing) market might find it somewhat more difficult at present, the lower end of the market should continue to show very significant growth”.

EMERGING HOME BUYERS HIT IN THE POCKET

Business Report
03 Sept 2007
Rising property prices in emerging markets might sap consumer spending because of the extra cash needed to buy homes, according to John Muellbauer, an Oxford University economics professor.Because credit markets are still underdeveloped in eastern Europe and Asia, home buyers face tougher financing conditions and have to put up larger deposits, according to Muellbauer's paper, presented at the weekend at the Kansas City Federal Reserve Bank's economic symposium in Jackson Hole, Wyoming.
Rising property values are likely to benefit consumer spending in nations such as the UK, where the mortgage market was liberalised in the 1970s. Property prices have surged in parts of India, China and eastern Europe, fuelled by a global liquidity glut. - Bloomberg, Jackson Hole, Wyoming