SA INVESTORS URGED TO CREATE OPPORTUNITIES ELSEWHERE IN AFRICA

SOUTH AFRICAN property investors have to start investing in the rest of the continent because there are “major opportunities that are being overlooked”, says Wayne van der Vent, head of property investments at the Public Investment Corporation.
Van der Vent, who was speaking to the media at the 40th annual convention of commercial property association Sapoa in Cape Town, says there is a tendency for South African property players to limit themselves to offshore investments in the UK and other European property markets.
“At the moment we (SA) are an island of prosperity in a sea of decay.” He says the xenophobia that is raging in SA will not “go away until we start investing in the economies around us”.
“People come to SA because they are looking for opportunities. We must create those opportunities in their own countries.”
Van der Vent says South African property companies should start developing infrastructure and focus on developments such as shopping centres, offices and private hospitals in neighbouring countries such as Mozambique. He says while there are risks attached to developments in other parts of Africa, there is also money to be made.
Wayne Wright, business development director of the African operations of JHI, says there are a number of reasons why investors and property service providers such as JHI have established their operations in Southern African Development Community (SADC) countries, including the fact that it enables a transfer of skills and expertise to joint venture businesses there.
JHI has a presence in eight SADC countries.
He says there are limited skills systems and human resource facilities available in these markets and this creates opportunities for companies to establish themselves as partners in these countries.
“Thirdly, fees are based on US dollars and tend to be higher than what could be earned as a percentage in SA.
“Therefore, JHI believes that, notwithstanding the risks and high set-up costs required ... one would take a long-term view and the returns outweigh the risks.”
Colin Young, head of asset management at Old Mutual Investment Group Property Investments (OMIGPI), says “capital follows opportunity” and countries have to be “foreign investment-friendly”.
“When it is difficult to invest and it is too difficult to get your money out of a country, then your capital won’t flow in there. If there is a restriction in liquidity, be it because there is a lock-in or it is difficult to get your money out of a country, it adds risk to an investment.
“When you add risk to an investment, then as an investor you demand more returns.”
OMIGPI MD Ben Kodisang says his group is looking at investing in other African countries, particularly Nigeria. The group has a pilot property project in Abuja, the capital.
What attracted Old Mutual to Nigeria was its huge population and its strong gross domestic product growth because of the oil-based economy.
“We chose the capital of Nigeria because the government is located there and demand for property space will be quite strong.”
The group is developing a waterfront mixed-use property that includes about 30000m²of retail, two hotels, and an office and residential component.

MORE REPOSSESSIONS ON THE CARDS

There is no good news for homeowners desperate to sell their houses as the latest house price survey shows a dip that has not been seen since 1999. Furthermore, if you have put your house up for sale, you can expect to get as much as 40 percent less than your initial asking price by the end of this year. The residential property sector is continually showing a deflated bubble from the previous property bubble boom.
Absa Bank’s House Price Index for May released yesterday recorded single digit year-on-year nominal growth of 4.3 percent last month, down 1.2 percent from 5.5percent in April — the slowest house price growth in nine years. The average price of a middle- segment house dipped to about R960700 in May, from the average of R974 000 in April. The Absa index is based on the total purchase price of houses in the 80m² to 400m² size category, valued at R2.9-million or less last year , including home improvements, for which loan applications were approved . The bank expected the SA Reserve Bank’s Monetary Policy Committee to introduce a 100 basis interest rate next week, with potentially further rate hikes if the CPIX (inflation excluding mortgage costs) remained ‘‘stubbornly high.” Absa property analyst Jacques du Toit said there were more people selling their homes than there were buyers as broad negative economic conditions started to show their effects on people’s affordability levels. ‘‘We anticipate and expect property repossessions to pick up, but coming from a low base. The repossessions would not be isolated to a particular market segment; it would affect virtually all segments of the residential property market. ‘‘The increase of stock in the market is a reflection of the financial difficulties that people are going through,” Du Toit said.
Head of Lew Geffen Sotheby’s International Realty Lew Geffen, in a letter to his agents, said this week he had advised a relative to drop his price by 25 percent in order to get a quick sale, and advised agents to tell their clients to do the same. He said: ‘‘It’s a question of being truthful to your clients to save them severe pain by procrastinating and not accepting the offer today. Today’s low offer is tomorrow’s miracle price. This market is not going to recover any time soon.”
Geffen said his thoughts were that the property market would come down by a significant 40 percent from the highs of 2007, adding that there were already 60 percent fewer buyers on the market today, compared with the same time last year. He said the bank requirement of five percent and up to 25 percent equity for property purchases ranging more than R800, 000 to R4-million — indicated strongly that they had factored that the market would drop another 25 percent on top of the current estimated 15 percent decline.
‘‘Take into account that today a man who wants to purchase a R2-million property, which is the average selling price in our company, will have to earn more than R87000 gross per month in order to qualify; and if the market drops by 25 percent that same person will need to earn R65200 gross, which is also no picnic.”
The Tenant Profile Network (TPN), a registered credit bureau that offers tenant rental payment profiles for property managers and landlords, said it had seen an increase in demand for rentals compared to a year ago.
Michelle Dickens, managing director for TPN, said the company had seen the beginning of a trend of a preference for a tenant six-month versus a twelve-month-lease period, to increase rentals and meet their mortgage repayments.
She said that nationally rentals were up, averaging at R4000.
The company had also seen an increase of properties initially put up for sale being put up for rental to cushion the longer period of waiting for a purchase.
‘‘Demand for rental property is far outstripping market availability. Estate agents are now at the reverse effect of a property sales boom, and are sitting with an over- supply of stock,” said Dickens.
The Alliance Group was reported to have a countrywide 1000 houses up for sale from execution, repossession and insolvency.
It expected thousands of families to lose their homes by the end of the third quarter of the year. — Additional reporting from Simpiwe Piliso

MEDIAN HOUSE PRICE FELL TO R550000

MEDIAN house price fell to R550 000 last month - a contraction of 11,3% year-on-year when compared with the median house price of R620 000 in June last year, the banking group said today.

The five-month moving average growth rate in the median house price was 7,8%. In May the median house price was recorded at R520 000.

The Standard Bank median house price is the middle price on the group's home loans portfolio and can be considered as a reasonably accurate portrayal of national house price trends given Standard Bank's market share in the mortgage business.

The Standard Bank median house price has been volatile in the price range R520 000 to R620 000 since January 2006.

"In fact the median house price peaked at R620 000 a year ago. The surge in the median house price during the second quarter last year, which culminated in the June peak, was the result of uncertainty in the domestic residential property market that was due to the pending implementation of the National Credit Act (NCA) at the time," it said.

The uncertainty of qualifying for a mortgage of a certain amount post implementation of the NCA incentivised the prioritisation and conclusion of purchases of higher-priced properties that created a high base in the median house price from which current house price growth is being calculated.

Hence, the data have been somewhat distorted by the high base established last year, it said.

"However, this technical distortion notwithstanding, the broad trend within the South African residential property market is in line with the evolving and intensifying headwinds currently confronting the South African consumer," it said.

The Reserve Bank raised interest rates again at the June Monetary Policy Committee meeting and rates are now up a cumulative 500 basis points since June 2006. The prime interest rate is now 15,5% relative to 10,5% in June 2006.

This means that the monthly cost of servicing a mortgage is now 36% more than it was 24 months ago.