Category Archives: property

Weird and worrying rate increase proposal

According to News24, a proposed amendment to the Municipal Property Rates Act will see rates on rental properties levied at business rates rather than residential rates.

I don’t have all the figures, but from the examples given this could be a tripling of rates in some cases, taking rates from less than half percentage yield reduction to significantly more than a percentage in many cases. Given common rental yields of, say, 6% for a flat in Joburg, this could be as much as a 15% decline in net rental income.

This must translate into either:

  1. a 15% reduction in house prices to provide the same net rental yield to investors;
  2. a 15% increase in rentals (with a corresponding devastating impact on defaults on rentals, voids / availability of tenants, direct and wage-push impacts on CPI inflation and increased transport costs as tenants search for cheaper rental properties further away from central areas; or
  3. some mixture of the two.

Who bears the burden of the increased tax?

I cannot imagine a scenario where the cost of provision of services will be higher for a rented residential property than for a owner-occupied residential property. Therefore, the increase must be designed as a way of simply increasing tax revenue and shifting the tax burden from one group to another.

Now that’s not automatically a problem – it’s the sort of decision around taxes I regularly blog about as needing to be made. The problem with this is, who is now bearing the burden of the tax increase and is it positive for our economy and public finances? Continue reading

Rent and prices shall be lowered

The Freedom Charter was adopted in 1955. It reflects the rejection of much of the status quo in South Africa and is the aggregate and synthesis of thousands of “freedom demands” from the population at that time. It is an inspirational document and reflects how bad things were for most South Africans at that time.

The problems became worse before they became better, but since the early 90s a large number of the principles have already been effected:

    Every man and woman shall have the right to vote for and to stand as a candidate for all bodies which make laws;

    All people shall be entitled to take part in the administration of the country;

    The rights of the people shall be the same, regardless of race, colour or sex;

One point that decreases the current value of the Freedom Charter as a guide to out collective future is that it’s not all principles, but rather includes some practical changes:

All bodies of minority rule, advisory boards, councils and authorities shall be replaced by democratic organs of self-government .

Once we’ve done that, how useful is the statement? I would have hoped more for principles espousing the virtues of government and public organs considering all citizens of the country and being representative of the country. That would be still relevant in our imperfect current society.

Other aspects seem to have been forgotten by some political factions: Continue reading

Interactive house price data (including South Africa)

The Economist has a brilliant interactive chart showing nominal house price growth across a range of countries, including South Africa.

It’s clear, as we already know, that South African house price increases have been dramatic. Somehow though, seeing it on a graph with a range of other countries brings it into sharper focus. Our property market has been manic.

Risk, liquidity and the triumph of economics over alchemy

Sharemax appears to be spiralling to its doom. Multiple stories today report that they are late on dividend payments to investors and may not be able to pay dividends in the forseeable future.

Cash has run out. The overvalued, over-geared properties cannot support the income stream that was demanded from them.

No surprises here then.

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Property investment – the value of data over opinions

Lightstone have a trick up their sleeves. Their raison d’être is collecting, analysing, understanding and packaging data for themselves and others to use to understand past, current and future property valuations.

Their housing price index is more robust (and more independent) than those of the banks based off their own data and target markets. Rather than consider only the average price of houses sold in that particular month (which is a function of house price growth / decline but also how the type, condition, size and location of the houses sold that month differ from the prior month and year) they consider repeat sales where the same property has been bought and sold more than once.

This data is combined or “chain-linked” to provide a continuous measure of house price inflation over time.

House Price Inflation 2010
House Price Inflation 2010 source: lightstone.co.za

The result of all of this data, best-in-class methodology and analysis? When Lightstone says “opportunities abound in local market” I actually listen. Since their business model is to sell information, I’m more likely to trust what they say.

Is South Africa sheltered or delayed?

The South African Reserve Bank today lowered the REPO rate by a further 50 basis points, down to the level last seen in 2005 and the lowest the REPO and BA Rate have been in nearly 3 decades. Surveys leading up to the announcement and analysis of market interest rates suggests that the expectation was for rates to be held constant. Was this a purely populist decision, or does Tito Mboweni see more economic trouble ahead that other, more optimistic South Africans believe?

To date, the South African economy has been relatively less affected by the global financial crisis. Unemployment in Spain is up to 18% – within spitting distance of our own extravagant unemployment rates. Several large economies have been making eyes at 10% annual declines in GDP – often used as an informal definition of a depression (compared with a recession typically defined as two consecutive quarters of decline in real GDP). Property prices have been declining between 5% and 10% (depending on who you ask) and even after allowing for our higher inflation and thus greater real decreases, we compare very favourable to the drops of 20% to 50% in some parts of some countries. Continue reading

Rudie still trucking and ducking?

workspace
Creative Commons License photo credit: johnnyalive
A reader has some news, potentially about Rudie Visagie and another Rudco-style plan. Neither I nor the reader are sure about the details yet, but the story sounds all-too-familar.

I read your article on the web when i googled Rudy Visagie.
How very interesting to note all concerns people are having about “RUDCO”.
So i guess the guy is using a different company name.
I just wanted to share with you what is happening in the area in live.

There is a company by the name of Grande Properties, owned/directed by RUDY VISAGIE.  He is also offering low-cost middle class houses in Kimberley, Northern Cape. Houses range from 2-3 bedroom, fixed interest rate on 8%, 10,000k deposit for securing your plot. For a 3 bedroom you will be paying bond instalment of 2,000k fixed for 20 years at that interest rate, for a 3 bedroom at a price of 450,000k, 3,000k fixed for 20 years.

Concerns are many and most are the same as of the people in your articles, like: Continue reading