Real Estate Investor Magazine November 2013

www.sanlam.co.za Listed Property? 38645_SanlamProperties_PDMag approved.indd 1 It’s time for a new strategy SOUTH AFRICAN REAL ESTATE INVESTOR LIVE THE PROPERTY DREAM of your commercial real estate ventures. Get a bond today SAnLAm PRoPERTiES iS A diviSion oF SAnLAm CAPiTAL mARkETS LimiTEd Acquisition Finance development Finance Re-fnancing SAnLAm CAPiTAL mARkETS iS An AuThoRiSEd FinAnCiAL SERviCES PRovidER THE GREATEST REAL ESTATE DEAL Lessons that put Trump on the map THE RACE TO INVEST IN AFRICA Ready, set, go www.reimag.co.za There’s nothing we like better than an ambitious client. At Sanlam Properties, we put our wide experience into all aspects of fnance to assist the realisation Commercial Real a solid foundation. Lay the foundation of a successful fnancing transaction by calling us on 011 778 6000. WINNER Estate Finance with SAPOA AWARDS Best Printed Property Publication 2013 November 2013 Properties R50.00 (Incl. VAT) R43.86 Other Countries Z NOVEMBER 2013 www.reimag.co.za MASTER INVESTOR ETTIENE PRETORIUSETTIENE PRETORIUSETTIENE PRETORIUS TJDR (CT) 38645/E 2012/05/11 2:26 PM

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CONTENTS November 2013 COVER STORIES 8 Master Investor 12 Listed Property? 22 Live The Property Dream COMMERCIAL Annual Europe 1% growth in labor U.S 1.5% productivity, 2000 to 2008 Africa 2.8% number Economies of $1.6 Africa’s 40 The Right Information sub-Saharan $1.4 of telecom Africa ranked trillion subscribers Will lead you to the right investment amongst the exceeded lowest in the trillion Africa’s collective GDP 450 million World Bank’s 2010 in 2008, roughly equal in 2009, up from Ease of Doing Africa’s consumer to Brazil’s or Russia’s 52 million in 2003 Business report spending in 2020 42 Managing Your Maintenance Compounded annual real GDP growth, 2000-2013 Number of African Developed 2.0% Is essential to your industrial property companies with at Latin America 4.0% least $3 billion in 20 revenue last year Africa 4.9% Emerging Asia 8.3% 44 Establish A Turnaround Strategy 40% Average African For your struggling shopping centre ination per year 52 The Greates Real Estate Deal 62 The Race To Invest In Africa 1900s 8% 22% Revenue growth in African 2000s telecom industry at compounded annual rate 48 Your Mind Map Pick the best investment for you over the last ve years Percentage of world’s reserves in Africa UPFRONT RESIDENTIAL 50 Despite The Tough Economy Chromium Platinum Gold Oil Listed still delivers results 10% 40% 84% 88% Number of cities with population over 1 million 5 Investor Talk 24 Education Is Priceless 52 “The Greatest Real Estate 63 Latin America Europe 52 Africa From the editor and publisher It paves the way for your future Deal- Ever” 52 North America 48 Lessons that put Trump on the map 6 Inbox 26 Decrease Your Tenant Risk Ask The Property Experts And increase your success OFFSHORE Value your home 28 Don’t Let Repairs 56 Important Questions You 8 Master Investor Get your fnances down Helping others: My passion and key to Need To Ask success 30 Can You Be Fined Before you buy a property overseas For not building in time? 12 Time For New Tactics? 58 The Successful Four Weigh your options with listed property 32 Auctions Dimensional Investment Model Are they a bargain or a bad idea? Make the right decisions 18 Guest Expert Brian Azizollahof talks about corruption 36 Improving 101 62 The Race To Invest In Africa associated with government leases Update your home today Ready, set, go INTERACT WITH US fnd us on facebook fnd us on twitter fnd us on youtube www.facebook.com/Real Estate Investor Magazine www.twitter.com/Sa_Reimag www.youtube.com/reimag www.reimag.co.za November 2013 SA Real Estate Investor 1

CONTRIBUTORS BRIAN AZIZOLLAHOFF After gaining vast experience in the property sector as CEI of Redefne Income Fund, managing director of Apexhi properties limited, various positions at Investec Bank and JHI properties, Brian established Capstone Properties. Publisher - Neale Petersen Editor - Angelique Redmond MEYER DE WALL Designers - James Clark & Amy Little Meyer de Waal has been a practising conveyancing attorney, conveyancer and Trafc - Juanita Heilbron public notary since 1989. He holds a B Proc from the University of the Free State and Financial Manager - Marisa George is a member of the Western Cape Law Society Wills Estates and Trust Committee. Ofce Assistant - Melissa Petersen Web Administrator - Russell Bennett Sales Manager - Roy Lategan MIKE SMUTS Sales Executives - Andre Evans, Renier Lombard, Author, entrepreneur and full-time property investor, Mike Smuts is a recognised Alex Masamuna, Marc Oppel Lindsay Reynolds, London property expert who has helped many South Africans make great returns Mfundo Tyeli, Fabian Murphy & Chase Daniels in the London property market. Tel: 021 674 5026 XOLANI MEVA Fax: 086 627 2400 Xolani has completed a B.compt degree from the University of Transkei on Email: [email protected] Technology). Xolani has over 9 years management experience and currently holds Physical: Bizmall, Shop 3, Heritage House, 20 Dreyer the position of Area Manager in Property Investments at Business Partner Limited. Street, Claremont, 7700 Postal: PO Box 858, Howard Place, 7405 SCOTT PICKEN Advertising: 021 674 5026 Scott is the CEO of IPS Invest & Wealth Migrate and is an ofshore investment Subscriptions: 0861 228 669 / [email protected] specialist. Since 2003, IPS has been helping people invest internationally with Distribution: On The Dot Distribution For distribution inquiries contact Craig Hughes confdence. on 021 918 8659 / 073 395 2396 Printing: CREDA Communications JONATHAN SMITH Jonathan is the director of Courtwell Consulting and has extensive experience in Published by property and consulting including educational programs. Courtwell Consulting REALE MEDIA provides fve key services to the private and public sectors in South Africa. Neale Petersen (CEO) B. Taylor RUI MARTO Rui has been the Director of Marto Laftte & Associates for the past 18 years. He specialises in negotiation and drafting of commercial agreements, civil and commercial litigation and property law. “I see myself, and the law practice as problem-solvers.” Printed by Distributed by MONIQUE TERRAZAS Monique is a journalist and freelance writer, with more than a decade of experience across a range of industries, and was the winner of the 2012 SAPOA Property Feature Journalist of the Year Award. KOOS DU TOIT Koos is the CEO of P3 Investment Group and an invaluable source of education and information on investing in property. P3 ofers hope and guidance to anyone looking to build a succesful investment portfolio. JOHN ROBERTS John is the CEO of The Just Property Group. He is one of the property industry leaders. The Just Property Group’s vision is to provide focussed property services through specialised franchise outlets, in specifc niche areas in the property arena. IAN ANDERSON Ian Anderson (B Com, CFA, CAIA) is Chief Investment Ofcer at Grindrod Asset Management. He has more than 17 years’ experience and a proven track-record in managing the portfolios of listed property securities. Also Published by REALE MEDIA Just JUST PROPERTY MAGAZINE PROPERTY All rights reserved. No portion of this © publication may be reproduced or used Mega Trends In Commercial Property Shaping the future of investors in any form without prior written consent Spot Checks What to look out for GET THE RIGHT FINANCE Heavenly Tenants and permission from Reale Media. The Jason Lee tells you how Digital Edition on your iPad, Mac, PC ENSURE YOUR RETURNS How to fnd them publisher gives no written guarantees or In a volatile economy Rent killing you! How to save COME OUT ON TOP With Africa investments assurances and makes no representation or Laptop now! FREE www.justpropertygroup.co.za regarding any goods or services written or OFFSHORE HANDBOOK Go to www.reimag.co.za advertised within this edition. Prospective August 2013 R50.00 (Incl. VAT) WINNER R43.86 Other Countries SAPOA AWARDS ISSUE Best Printed Property investors should always consult their Publication 2013 Autumn 2013 4 Z www.reimag.co.za Copyright © Reale Media. www.reimag.co.za MASTER INVESTOR JT FOXX attorneys, advisors or accountants. 2 November 2013 SA Real Estate Investor www.reimag.co.za

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privateproperty .co.za Where do you want to live? Search Cape Town Search BE MOVED TO THE ULTIMATE LIFESTYLE Download our iPad app. Private Property’s brand-new website makes Download our iPad app. house hunting irresistible! It looks like no other property site. It has more virtual tours, fl oor plans and property images. Feel inspired as you visit the widest variety of unique property available on the web. Why not start your own private viewing experience now? To sell or not to sell... Visit www.privateproperty.co.za or call 087 375 1000 As SABC3’s Top Billing celebrates turning 21, Private Property is partnering with the iconic show to bring one beyond-lucky South African the opportunity to win a ULTIMATE LIFESTYLE lifestyle worth over R5-million! There are also iPad Minis to be won weekly. Visit www.privateproperty.co.za and click on the Top Billing icon for entry details. ULTIM ATE PRIZE Thursdays 20:30 - 21:30 Sundays (Repeat) 12:00 - 13:00 www.reimag.co.za

INVESTOR TALK privateproperty .co.za FROM THE EDITOR Times are a changing. Property today is simpler and yet more complex than ever before. Today you can still go out and buy a house, a fat or a building, and the information to do so is right at your fngertips. Gone are the days of looking in the newspaper, now with a click of the button you can search for property and educate yourself on the process involved in buying, renting or selling. But that’s not all, you can now invest in property through the JSE, this gives you greater diversity than before, opening up new investment felds that simply weren’t there 25 years ago. While more complex, this form of investing shouldn’t be discounted, the best thing Where do you want to live? to do is investigate. Learn about it, about what it can do for you and what it will ask of you, and then decide. In this edition we pull back the curtain on listed property investment. We are also in the very exciting process of launching our new digital platform and with this will come more interactivity and more exciting news and Search Cape Town Search views for you. So keep an eye out on our Twitter and Facebook pages for the competitions to come and the all- new digital magazine. Lastly we are nearly at that time again, the close of one year and the start of a new one, don’t miss out on the double edition we will be releasing in December, two magazine packed in one, for the price of one, double the knowledge and half the price. And without further ado, happy reading and investing! ANGIE REDMOND FROM THE PUBLISHER South African listed property has delivered consistent returns of above 15% for the past few years. It is just BE MOVED TO THE ULTIMATE LIFESTYLE question of whether it can continue. It can provide a great platform for investors looking to diversify across multiple property sectors and geographies indirectly. Read our feature about listed real estate stocks as an alternative investment option. Growth in unsecured lending and the increasing debt spiral are out of control. As long as consumers remain Download our iPad app. Private Property’s brand-new website makes Download our iPad app. cash-strapped, so will the banks, as they are reliant on loan repayments. Given the 1.8 million mortgage bonds and limited new bond growth, the banks will transfer the pressure back to cash-strapped consumers. Banks house hunting irresistible! It looks like no other also expect stricter regulations for consumers on unsecured loans and, as a result, are aggressively pursuing sureties on old mortgage loans of properties, which they repossessed more than three years ago. Te problem property site. It has more virtual tours, fl oor is banks are compelled to write of the loans and they no longer own the original promissory note the borrower plans and property images. Feel inspired as signed as a mortgage backed security. However, they still want consumers to pay back the shortfall without any collateral or asset behind the loan. Tis makes it an unsecured loan. Question is, who is going to stop the you visit the widest variety of unique property banks from continuing this deplorable practice? available on the web. Why not start your own Watch this space to see what ensues over the next few months. private viewing experience now? NEALE PETERSEN To sell or not to sell... “A pessimist sees the diffculty in every opportunity; an optimist Visit www.privateproperty.co.za or call 087 375 1000 sees the opportunity in every diffculty.” Winston Churchill TWITTER COMMENT FACEBOOK COMMENT As SABC3’s Top Billing celebrates turning 21, Private Property is partnering with the iconic show to bring one beyond-lucky South African the opportunity to win a Jim_Ingersoll@SA_Reimag Amber Bezuidenhoudt commented on Real Estate ULTIMATE LIFESTYLE lifestyle worth over R5-million! There are also iPad Minis to be won weekly. Visit Thanks for the follow! I always follow back and look forward to your tweets! Amber wrote: \"This is an excellent Table magazine to have, Not only does it add to your Investor Magazine www.privateproperty.co.za and click on the Top Billing icon for entry details. status but you just dont know when you have a potential investor, or investment.” ULTIM ATE PRIZE Follow us on Twitter Like us on Facebook Thursdays 20:30 - 21:30 Sundays (Repeat) 12:00 - 13:00 SA_Reimag http://www.facebook.com/RealEstateInvestorMagazine www.reimag.co.za November 2013 SA Real Estate Investor 5

ASK THE EXPERTS Property Finance Value Your Home Deposit Meyer de Waal Carol Reynolds Justin Clarke Oosthuizen & Co Meyer de Waal Attorneys Pam Golding Private Property www.oostco.co.za www.pamgolding.co.za www.privateproperty.co.za Q A.N Carrim Asks: Q Thando Maboneng Asks: Q Linda Viljoen Asks: I have had some credit problems in the past, and I am a new homeowner and am looking to I am a new landlord, and have just recently rented banks have declined my bond application (which insure and value my home, what is the best way out my property. I just want to know, when my was done via a bond originator). I am very positive to go about doing this? tenant’s lease is up, what is the procedure I need to about the block of fats I would like to purchase. follow to return the deposit? Could you possibly advise on what I should do? A Meyer de Waal Responds: A Carol Reynolds Responds: A Justin Clarke Responds: The type of finance required may not be As a new homeowner it is critical to obtain If you have already placed a tenant I hope you have a classified under a “normal” home loan. insurance from a reputable company and to signed a good lease with the tenant so that you both Working with an ordinary mortgage originator investigate the best rates available on the market. know what your responsibilities are. A good lease may not be the best solution. It may be a better Often when you register a bond, the bank will should spell out the handling of the deposit but, if solution to approach the commercial section ofer homeowners insurance as part of the fnance it doesn’t, here are some points you should follow, on of a bank to apply for finance as a loan of package. You are not obliged to accept the bank’s rental collection and other rules, so the tenant knows this type ought to be treated as a commercial insurance, and you are entitled to shop around for where the boundaries are. loan. A commercial loan may have different other deals and then advise the bank accordingly. interest rates and loan repayment period than It is critical that you obtain insurance for the 1. The deposit paid by the tenant should be held a normal “home loan” – establish this during buildings, as the banks will not fnance a property in an interest bearing account for the beneft of the the frst meeting and also how much “weight” without the requisite insurance. If you elect to tenant. It is only to be utilised by you in the event that the leases will add to the income required and obtain insurance via another source, you will need there is damages to the property. Damages do not what requirements the bank will have. It is to advise the bank so that they can cancel their include fair wear and tear. unclear what your current credit status is and insurance and approve yours. 2. Two weeks before the end of the lease you should we cannot provide any proposal in this regard do an inspection of the property with the tenant and - any bank will refect back on your past status With regards to valuing a property, the most run through the checklist that the tenant should to determine the risk they have to take to accurate method is to call three reputable estate have signed before they took occupation. List lend you money. Consider perhaps a rent2buy agencies and request valuations from their area the items that the tenant should attend to before transaction with the seller in that way you specialists. The agents will be able to give you moving out and agree on a plan of action to remedy secure the property and have time to repair your a comparative market analysis, showing recent the damages. If the tenant accepts that there are credit profle. If you enter into a partnership to sales in the area and they will be able to give you damages you should try to remedy them while the co-own the property – the bank may still not a market-related value based on current market tenant is still in occupation. approve the loan as your own credit profle will conditions, together with their experience in the 3. If there are no damages then you should release still be relevant. It is recommended that you area. Independent valuers charge a lot more for the deposit within 7 days but if remedial work carries repair your credit profle as soon as possible. their services, whereas most estate agents will ofer on after the departure date this can reasonably be this service as part of value-add to their clients. extended to 14 days. Do you have a property question you would like answered by our experts? If so, post it on ASK THE EXPERTS on www.reimag.co.za or email [email protected] 6 November 2013 SA Real Estate Investor www.reimag.co.za

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MASTER INVESTOR BY NEALE PETERSEN ETTIENE’S SUCCESS TIPS FOR INVESTING IN PROPERTY 1 If you don’t want to lose money, make 100% sure that you build a good team around you 2 Know where to find deals - brokers who just want commission are not interested in giving you a good deal 3 Develop your own investment strategy 4 Get to know town planners who can provide insight into developments in the pipeline that can influence a property deal 5 Know where you can buy land below market value 6 Change the thinking about a property, for example, rezoning and changing the face of a property can add value 7 When renting out a property, aim for a 9 – 10% rental yield 8 Depending on your strategy, hold or sell Helping Others: My Passion and Key to Success Money is just a tool 8 November 2013 SA Real Estate Investor www.reimag.co.za www.reimag.co.za

UPFRONT ttiene Pretorius is a successful real property in Potchefstroom. He demolished estate entrepreneur based in the East of the house on it and sold seven units of-plan to EPretoria. His real estate career started raise money to build the units. He subsequently in property construction, residential property completed three more developments, development and residential investment comprising of 80 units for students. He retained and he recently bought into a residential ownership of 28 of the 80 units in line with his estate agency franchise in order to create that model of retaining properties at breakeven funnel of information and build pipelines point for investment and renting. of communication between buyers, sellers, developers and professional people. At age 27, Ettiene had completed developments worth more than R35 million. He has been ETTIENE PRETORIUS His rise to success in a few months has been fortunate to travel across the world, visiting nothing short of spectacular. His business every continent. In 2009, he moved to Pretoria Personal Statistics sales turnover grew from 5 deals in the first and built a house, commencing a restructuring Age: 30 9 months to 76 deals in the next 6 months by phase in his career. In 2012, he bought the frst Marital Status: Married implementing game changing strategies and is Engel & Volkers Pretoria franchise in Silver Experience: Risk Management Degree still growing. Lakes, and later the Moreletta Park franchise, and Honours (International Trade), both and recently he bought the Nelspruit franchise. from Potchefstroom University; Masters While Ettiene has a solid track record of He received an International Businessman Degree in Real Estate from Tukkies success, he admits it has been a continuous Award from the JT Foxx Organization in Hobbies: Ettiene believes endurance learning process. He attributes much of his 2013, and was congratulated by Arnold sports contribute to breaking through success to business coaching, which opened his Schwarzenegger, Donna Karan (DKNY – mental barriers. He has completed eyes to new ideas, and helped him implement Fashion and Fragrance) and Wayne Allan Root the Iron Man, Comrades, Duzi canoe methodologies he learnt. His definition of (US Vice-Presidential candidate). marathon, Argus cycle tour, etc. success is based on realising the power of his Close-up choices, understanding his ability to impact Ettiene says that the current economic times Mentors: His late father, late randfather, the people around him and mastering the art of make it difficult to make game-changing JT Foxx and George Ross (Donald Trump’s rapid action when facing new opportunities or decisions. That is why it is so important to right-hand man), his business coach dealing with problems. continuously inform yourself about the latest Books: Among his favourites are “How trends and movements in the market. An life imitates chess” by Gary Kasparov; “Blink” Ettiene also attributes his success to the important principle he lives by is knowing the by Malcolm Gladwell, and “Black Swan” by good upbringing provided by his parents in facts, numbers and statistics in the areas you Nicolas Talep. Ettiene listens to audiotapes the Lowveld, where he grew up. He says they work in. when runs or travels to maximise his time taught him to live life to the fullest and to lead and stimulate his mindset conversations by asking questions, instead of Ettiene says it is crucial to cultivate the Biggest Achievement: The one that talking. ability to put things into context. The key to stands out is making his frst million at 21 context is having multiple perceptions. To gain years of age. He bought a property and Ettiene has been an entrepreneur all his life perspective, one needs to experience things - rezoned it, demolished the structure and and started his frst business at the tender age the more experiences you allow yourself to have, built a small development with seven of six. At age 10, he made his frst investment, the more multiple perceptions you have access student units, which he sold. He has won which taught him the principles of passive to and the easier it will be for your mind to put numerous awards, including JT Foxx income. However, a year later, he learnt ‘there is things in context. award for fastest business growth, ‘New no such thing as easy money’ after investing in Innovations’ award from Engel & Volker’s a pyramid scheme ofering unrealistic returns Ettiene also believes you can only say “yes” and South Africa’s Top Entrepreneur and, as a result, he lost his entire investment. or “no” in life, “maybe” is not an answer. If you Award by Absa in his honours year at say “no” and there was a positive outcome, you Varsity During Ettiene’s third year at university, he cannot earn from it, and if there was a negative The best fnancial advice you have made his first real estate investment. In his outcome, you cannot learn from it. So that been given? Understand what is behind fourth year, as an honours student at the age of leaves you with only a “yes” answer. the facts, numbers and statistics. Don’t 21, he made his frst million. At the same time, lose sight of people and relationships, he received an award from ABSA as a Top Ettiene suggests creating a funnel of these are the crucial factors behind the Entrepreneur In SA. information by surrounding yourself with numbers people in the industry. Phone people and ask Motto: : Failure is not an option. I learn Ettiene identified a demand for student for introductions to the lawyers, town planners, from mistakes every day and, as a result, I accommodation in Potch in 2003. In his third architects, developers and brokers in your area. make better decisions year at University, at age 21, he bought his frst Secondly, do more research in real estate and www.reimag.co.za www.reimag.co.za November 2013 SA Real Estate Investor 9

MASTER INVESTOR ETTIENE’S 7 LESSONS FOR understand what the bigger picture is about. homeowners in South Africa within the next BUSINESS AND LIFE Master the art of negotiation, networking, three years, which will change the game. His valuation and education. Coaching is a must! 30-year plan is to lead our country with one 1 Keep it simple He started his frst Paying for a mentor is a different game than term as president and create the future with a business at the age of six, selling beer to the 350 workers on their farm getting free advice. more capitalistic than political approach. He over weekends, for which they would believes it is time South Africans take action otherwise have to walk 15 km to town. Ettiene has ambitious plans for the future. He and control of their own lives: to stop talking is currently creating a model to access property and start doing. 2 Create a passive income At the listings faster. He says that if all goes well, RESOURCES age of 10, Ettiene realised buying and he should have contact details of 75% of all Engel & Volkers selling would require sacrifcing sport and time with friends. So he set up a foozball table that charged 50c per game at the farm store and created a passive income stream. 5 665 000 MEDIAN 3 There is no such thing as a quick TYPES PURCHASE PRICE buck At the age of 11, Ettiene invested OF PROPERTIES FOR 2012 in a “project” ofering returns of 45% per month. He lost his entire life 5 savings in one month. Today, when ofered an opportunity with a return ANALYSIS higher than 15%, he walks away. REPORTS Since then, he has never regretted his decisions. 4 Lead conversations with 9,4 questions At 17, his mother had a stroke and lost her speech. He learnt MILLION from her that the only way you can communicate efectively is if you PROPERTIES ask questions. This taught him to guide negotiations, meetings or LISTED conversations to the desired outcome by asking the right questions to which the other party can only respond. 5 Take action At the age of 21, he bought his frst property after visiting a friend. As he left, he announced: “I 5 am going to buy my frst property”. As SEARCHES he drove away, he saw an estate agent AVAILABLE driving by, so he followed the agent, stopped behind him at the house and 336 734 made an immediate ofer. The rest is MEDIAN history. NUMBER OF TRANSFERS 6 Live with purpose and meaning FOR 2012 Losing his father suddenly when he was 24, jolted Ettiene and made him realise two things: live life to the fullest every day, and always be ready for The Smart Way to Search when your path changes. Property Intellect provides an accurate, reliable and Property Intellect’s searches are smarter with constantly updated data research tool that results in increased functionality and richer data, along with 7 Context One cannot create context every business decision being successful. uncapped reporting. tel: 0861 53 53 53 from one experience. Multiple www.propertyintellect.co.za experiences will allow you to form Property Intellect is one of the key products that But don’t take our word for it, give it a try. diferent perceptions of the same assist clients in making business decisions, designed to We know* you’ll love it. event. Evaluate every perception increase the effectiveness of property reporting and Powered by and then create the bigger picture evaluations with leading data processing techniques. (context). 10 November 2013 SA Real Estate Investor www.reimag.co.za

5 665 000 TYPES MEDIAN OF PROPERTIES PURCHASE PRICE FOR 2012 5 ANALYSIS REPORTS 9,4 MILLION PROPERTIES LISTED 5 SEARCHES AVAILABLE 336 734 MEDIAN NUMBER OF TRANSFERS FOR 2012 The Smart Way to Search Property Intellect provides an accurate, reliable and Property Intellect’s searches are smarter with constantly updated data research tool that results in increased functionality and richer data, along with every business decision being successful. uncapped reporting. tel: 0861 53 53 53 www.propertyintellect.co.za Property Intellect is one of the key products that But don’t take our word for it, give it a try. assist clients in making business decisions, designed to We know* you’ll love it. increase the effectiveness of property reporting and Powered by evaluations with leading data processing techniques. www.reimag.co.za

COVER STORY BY MONIQUE TERRAZAS Time For New Tactics? Weigh your options with listed property hile many investors remain committed to the long-term strategy of creating wealth by investing in income-producing and capital growth-generating assets, it may be necessary to consider a change Wof short-term tactics employed to achieve the long-term strategy. 12 November 2013 SA Real Estate Investor www.reimag.co.za www.reimag.co.za

UPFRONT A direct investment in property, using straightforward and based on tried-and-tested investing would be companies that employ the the tried-and-tested principles of acquiring property investment principles. same strategy. income-producing and capital growth- generating property assets, remains the most 1. Acquire a well-located property in an area Fortunately, investors do not have to search effective and efficient way for individual with strong current and future rental demand far: the strategy of building a portfolio of investors to create wealth. and capital growth potential. property assets that produce an ongoing inflation-linked passive income as well as However, many investors are becoming 2. Apply the principle of gearing or leveraging ongoing steady capital growth over the increasingly frustrated by the stringent lending by acquiring the asset through fnance. long term, while harnessing the power criteria imposed by the banks, which is proving compounding, is not restricted to residential to be a significant obstacle to building a 3. Let the property to a thoroughly-screened property – works just as well in commercial property portfolio, even now when interest rates and well-selected tenant through a water-tight property sectors, including office, retail or are at historic lows and the property market lease with built-in rental escalation clauses. industrial property. favours buyers. 4. Use the income generated from the tenant’s Tis same strategy is also employed by listed Strategy vs tactics monthly rental to cover the fnance repayments property companies who are, essentially, Etienne Pretorius, speaking about building and property expenses, including maintenance. large-scale buy-to-let specialists operating in a property business at the recent SA Real the commercial sector and own commercial Estate Investor Magazine annual Wealth 5. Benefit from both the ongoing monthly properties such as office blocks and shopping MasterClass events, explained the diference income and the capital growth to earn centres. Just like individual residential buy-to-let between strategy and tactics in a succinct way: impressive returns over the short and long term. investors, these companies generate an income strategy is the long-term vision and goals an by letting these properties to tenants, while also Change of tactics required? investor has set, while tactics are the short- beneftting from capital appreciation on these term moves, more responsive to current Since the current property market favours properties. realities, which are implemented to achieve buyers, interest rates are at an all time low, and A few more zeros the long-term goals. the rental market is strong, the real obstacle for individual investors in implementing these Most individual investors, however, shy away Pretorius pointed out that in the dynamic tactics is obtaining fnance. from commercial property investment due to the and uncertain world we live in, there are many considerable investments that are often required challenges to overcome to realise a long- There are options to explore, for example, and a lack of knowledge about commercial term strategy. But these challenges often partnering with family or friends to increase the property. But, as George Ross, Donald Trump’s require a change in short-term tactics, not the chances of obtaining a bond, or joining forces right-hand man, reminds us: “Tere is no real abandonment of long-term goals. with other investors who may have access to diference between large and small real estate money, but lack the time to fnd, acquire and deals, other than the amount of zeros.” Applying this insight, property investors manage income-producing property assets. frustrated by the challenges of obtaining Listed property companies acquire income- finance to acquire income-producing and Another short term tactic investors could producing and capital growth-generating capital growth-generating property assets may consider is to invest the cash they have budgeted properties, although these generally entail want to consider a change in short-term tactics, to carry a monthly shortfall between the rental several more zeros than properties in the instead of abandoning their long-term strategy income on a rental property and the monthly residential sector. Like individual investors who of creating wealth through property. expenses. This will assist the investor in would use gearing by obtaining mortgage bonds ensuring that the cash budgeted for the monthly to finance the acquisitions, listed companies The strategy shortfall amount is still producing maximum would gear the investments by financing the The long-term strategy for most individual returns, and will contribute to building up a acquisitions through corporate property fnance investors is fairly straightforward: build a deposit. When the investor is able to obtain provided by financial institutions; by issuing portfolio of property assets that produce an fnance for a buy-to-let property, he/she would shares or units and listing these on a stock ongoing inflation-linked passive income as already be used to paying the monthly shortfalls exchange; or a combination of these strategies. well as ongoing steady capital growth over without straining cash flow, and will have a The property is then let to tenants and the the long term, while harnessing the power deposit amount readily available. income generated is used to service the fnance compounding, which Albert Einstein called obligations or to pay dividends to the investors. Maintain the strategic vision “the eighth wonder of the world” and underpins And, as the value of the properties appreciate both these multiple streams of returns. To ensure that it is only the short-term tactics over time, the value of the shares or units also that change, and not the long-term strategy increase. The tactics (creating wealth by investing in income- For most individual investors, the short-term producing and capital growth-generating By following these procedures, listed tactics to achieve this long-term strategy is also property assets), the obvious choice when property companies maximise all the benefts www.reimag.co.za www.reimag.co.za November 2013 SA Real Estate Investor 13

COVER STORY “Over the past 14 years, the of investing in income-producing and capital growth-generating property assets, including listed property sector has a high level of current income, inflation- hedged income growth and long-term capital appreciation. Further benefts outperformed other asset classes eight times” Tere are a few other benefts to investing in listed property that should be considered. An investment in listed property will provide rolled yield of over 7% for the sector as a whole a reputable stockbroker to select and acquire individual investors exposure to the commercial by the end of August 2013. And while the shares on their behalf. Investors who do not property sector, which may otherwise not be sector’s short-term outlook remains cautious, want to pick stocks can opt for Exchange possible. Tus, an investment in listed property with income distributions expected to grow at Traded Funds (ETFs), which simply track will provide individual property investors about 6% to 7% over the next 12 months, listed market performance, or outsource stock with the all-important diversifcation in their property as an asset class could deliver total picking to experts by selecting a unit trust, such investment portfolio, not only across property returns of between 10% and 12% per annum as the STANLIB Property Income Fund. sectors but also across geographical areas, even over the next fve years. ETFs ofshore. Te reason why listed property continues to ETFs streamline investment decisions and Secondly, listed property investments are outperform other traditional asset classes is that ofer investors one of the simplest, most cost- highly regulated and tightly managed to listed property in South Africa is a defensive efficient and low risk ways to invest in the reduce risk and protect investors. For example, asset class. Te listed property portfolios are stock market. ETFs are, essentially, listed listed property companies must conform to tightly managed, with around 80% of leases unit trusts which replicate a particular index’s signifcant disclosure levels and are managed being long-term leases containing built-in performance by simply tracking its return on a by professionals with experience to select the escalations of around 8% per annum, signed passive basis. best properties and manage these scientifcally. with large, stable multinational companies. Of course, there are higher investment costs As the majority of rentals are underpinned by It offers a number of specific features that associated with listed companies, but the level this type of long-term security, listed property minimise the risk of investing on the stock of protection this option afords investors may is not subject to the same volatility as the rest market, such as lower risk as a result of be worth the premium. of the traditional asset classes. In fact, listed diversifcation; the simplicity of investing in a property ofers 50% of the risk of equities, as basket of shares, eliminating the necessity to Thirdly, the investments are highly liquid the volatility on the markets do not afect listed conduct research on numerous companies; and and investors can access to their capital at very property as severely as it does other asset classes. a signifcantly lower total expense ratio (TER). short notice, should they, for example, have an Regular dividends are paid on a quarterly or opportunity to invest directly into a property. Furthermore, listed property is a hybrid semi-annual basis, and ETFs are exempt from of equities and bonds, providing stable, Securities Transfer Tax (STT) upon purchase, Furthermore, an investment in listed predictable and growing rental streams due although subject to Capital Gains Tax (CGT) property provides property investors with an to leases signed for an average of three to when sold at a proft. opportunity to share in the returns created by four years and escalating at about 8% per investments in income-producing and capital year. Listed property funds or companies pay Investors can choose, for example, between growth-generating property assets, but without out virtually all their profits to investors as the Proptrax ETF, which tracks the FTSE/ the management responsibilities that are part distributions, because they are not required JSE SAPY index of 16 property companies, and parcel of direct property ownership. to pay tax on profits distributed. Equity weighted according to market capitalisation; companies do not, and may not even alter their the Proptrax Ten ETF which tracks an equally Tere is no doubt that, over the long term, dividend policies. Bonds pay a flat coupon weighted index of the top 10 largest listed listed property is the star performer among the whereas listed property earnings grow virtually property companies by market capitalisation; traditional asset classes, which also include every year. and Stanlib’s recently launched STANProp equities, bonds and cash. ETF which tracks the performance of the How to invest largest 21 property companies that make up Over the past 14 years, the listed property There are investment products available in the FTSE/JSE SA Listed Property Index sector has outperformed other asset classes the listed property sector to suit any type of and in this way replicates the price and yield eight times. Te average return a year, over 10 investor. performance of the index. years, has been 22%. Despite the recent bond- driven share price volatility on the JSE REIT Investors can visit the JSE website for ETFs can be purchased through a stockbroker, board, listed property in South Africa had a online tutorials for DIY investing or appoint the particular ETF provider’s investment plan, 14 November 2013 SA Real Estate Investor www.reimag.co.za

www.reimag.co.za

COVER STORY investor platforms such as etfSA.co.za, or based on annualised results for the three years. and provide tax certainty and tax advantages for through approved fnancial advisors. The awards focus on property fundamentals the listed sector. and give a fair evaluation of the quality of stock, Make the Smartest Property Direct investments asset selection and management performance Nevertheless, for property loan stock company Investors who prefer to invest directly in shares and refects the underlying value of a property shareholders, distributions will change from need to be well-versed with the markets and portfolio. ‘interest’ to ‘rental income’ under the new REIT Investment Decisions will need to do their homework in terms of the structure. As such, the interest exemption that companies’ and shares’ values, objectives and This year, Resilient Property Income Fund previously applied to property loan stocks PRICING track records, by studying the annual reports claimed the overall IPD Direct Property will not be available anymore. Investors in STARTS AT and company presentations. Investment Award, having achieved a 19.3% PUTs will not be impacted since PUTs are R99 pm total return across its entire property portfolio, automatically considered a ‘Trust Reit’ and will Investors should consider the initial yield they compared with an IPD overall benchmark be listed on the JSE REIT board as a matter of will be receiving relative to the medium-term return of 14.7%. course. “An unwavering determination to Flexible determination An unwavering determination to achieve the achieve the goals that defne your goals that define your long-term strategy is undoubtedly a signifcant key to success. But be flexible enough to consider a change in long-term strategy is undoubtedly your short-term tactics that will help you to overcome the challenges. While obtaining a signifcant key to success” finance to acquire more income-producing and capital growth-generating property assets may be a signifcant obstacle at the moment, do not be discouraged by it and certainly do not income or distribution growth prospects of For the fourth time, Resilient also received abandon your long-term strategy for creating the company. Also consider the quality of the the award for retail portfolio performance, as wealth in a proven, tried-and-tested way. property portfolio, including the geographic its portfolio of shopping centres delivered a spread and weightings to the various property 19.9% total return substantially outperforming Continue to look for opportunities to partner types – office, industrial, retail, hospitality, the IPD retail benchmark of 14.6%. with family and friends in obtaining finance residential and hospitals. Investors should also and continue to network with other investors look closely at management’s track record – how Vukile Income Fund, last year’s winner for who may have the cash required. Continue long have they been managing property and industrial property portfolio performance, applying to the banks for fnance so that you how much time have they spent in the listed again achieved top returns in this sector with can take advantage of the low interest rate property sector. a 19.5% total return compared to the IPD environment and the buyers’ market. All-in-one property software for easy control of your benchmark return of 14.7%. Give preference to listed property funds or But, in the meantime, use the monthly portfolio and choosing the best properties to buy companies that: Capital Property Fund recorded the highest amount you have available or have budgeted for • ofer quality long-term earnings prospects; returns for office property performance at shortfalls on a buy-to-let property to invest in • maintain defensive portfolios; an 18.0% total return, well above the IPD listed property, to ensure it is working for you in • have a portfolio of assets with the potential benchmark of 13.5%. line with your long-term strategy. Tis will also to generate above average growth in their bring discipline into your cash fow, preparing The REIT story rental streams; you for the day these shortfalls are required on a • employ proactive management in terms Investors will be aware that earlier this year the property in your portfolio, and it will contribute of acquisitions, disposals, extensions, Real Estate Investment Trust (REIT) structure to building up a deposit which will always make refurbishments and developments; was implemented in South Africa. it easier to obtain fnance. • have good tenant, lease and debt profles; Full Portfolio Performance Long Term Cash Flow Property Rental • are trading at reasonable values relative to The structures previously used in South In the end, an investment in listed property – their income growth and quality prospects. Africa - property unit trusts (PUTs) and while requiring a change in short-term tactics Analysis Reporting Projections Planning Comparison Tracking property loan stocks (PLSs) were, efectively, – will allow you to continue moving closer to Picking the winners REITs, but will be phased out in favour of achieving the strategic vision of building wealth For investors who want to back the winners the globally recognised REIT structure. As by investing in income-producing and capital Get started with a 30 day free trial in the listed property sector, a useful resource such, the change does not affect individual growth-generating property assets, and will is the annual Investment Property Databank investors greatly, but rather serves to merge keep you at the ready for a direct investment www.propertyfrontier.com (IPD) Direct Property Investment Awards, the listed sector in South Africa into the more in a buy-to-let property for your own property which highlights superior fund performance, recogniseable global REIT structure and name portfolio when the banks come to the party. 16 November 2013 SA Real Estate Investor www.reimag.co.za

Make the Smartest Property Investment Decisions PRICING STARTS AT R99 pm All-in-one property software for easy control of your portfolio and choosing the best properties to buy Full Portfolio Performance Long Term Cash Flow Property Rental Analysis Reporting Projections Planning Comparison Tracking Get started with a 30 day free trial www.propertyfrontier.com www.reimag.co.za

GUEST EXPERT BY BRIAN AZIZOLLAHOFF Brian Azizollahoff Talks About Corruption Associated With Government Leases n addition to the thousands of leased premises housing government, the government is overwhelmingly the largest property owner in the country Iwith at least R1.5 trillion of property in its portfolio. Tis fgure could be signifcantly higher but absent a current and accurate asset register, the exact value remains a mystery. To put this in perspective, the entire listed property sector’s market cap is approximately R220 billion so the government owned portfolio is almost seven times the value. Tere is a perception that the Brian Azizollahoff from Capstone Property Group PIC (Public Investment Corporation), as the government employees pension fund, is where the largest concentration of government-owned properties are held but this is by no means the case. Te government owns most its real leases efectively transform an investment in the entity into a 20-year estate directly. government bond underpinned by bricks and mortar. With an initial return of say 10%, there is a strong encouragement for savings. It is logical that the largest concentration of government spending is through the Department of Public Works since it is that branch of government that Initially the government owns 100% of the new entity but then ofers the is responsible for infrastructure development and real estate matters including shares to the market at a “discount”. Te shares are marketed in a similar leases. Since the change in government in 1994, it can be argued that manner to the Telkom public ofering and a mechanism of ensuring that the transparency has improved in South Africa and consequently corruption is very shares arrive in the right hands would be devised by the advisors. Te man in topical. Some of the worst culprits of corruption have been landlords who prize the street has access to property ownership by walking into a post ofce and government leases above most others. It is common cause that a valid long-term purchasing shares at R1.00 a share. Te commuter riding to work in a taxi will government lease will raise maximum levels of gearing whilst increasing the look out the window and see properties in which she has ownership. value of a property substantially and hence landlords will often compromise their ethics in order to secure such leases. And now for the spin ofs. Te emphasis in terms of the employees of the company, from the CEO and executive directors through to the support The government of South Africa has an unparalleled opportunity to staf, will be to employ black staf. Tis would be relevant to both the asset immediately transform property ownership in this country and in a manner that management company as well as to the property management company. will eliminate corruption associated with government leases once and for all. Opportunities would be created for cleaning and security as well as maintenance support for the portfolio addressing the issue of job creation. Te plan works as follows. National Treasury appoints corporate advisors Management and staff would be incentivised with shares giving them who are experienced in driving property company listings. An entity is participation in the company as well as property ownership. established and the advisors select, say, R20 billion of property. Valuers are appointed to ensure that the properties are being injected at fair value. Tere is pressure on the property sector for meaningful and sustainable Te government then signs 20-year leases over all the selected properties. initiatives that would positively impact the sector and to redress the lack of A targeted initial return would determine the rental payable. competent black property practitioners. As a corporate Te theory is that it is not particularly relevant whether social investment programme, listed property the properties are commercial, industrial, companies may wish to involve themselves residential or service related such in skills transfer activities such as as train or bus stations or mentoring programmes. even libraries. Te 20-year 18 November 2013 SA Real Estate Investor www.reimag.co.za www.reimag.co.za

UPFRONT Once one or more of these entities are established, the next step would be for given, the timing could be almost immediate. Whereas in the private sector them to establish development divisions which would have access to the vast promoters of listed property companies need to amass a list-able portfolio and tracts of land and other potential sites owned by the government. Should the then approach banks for debt and the market for equity, here the portfolios government require new premises, the natural development partner would are available and the equity can be placed over time. In the case of government be these entities. portfolio listings, the stock of properties is almost endless and new entities could be rolled out on an ongoing basis. Te advantage to government is that Clearly the intention would be to create listed property entities that are “non-productive” assets are securitised and the cofers of the fscus are swelled. not government institutions but independent, sustainable operating entities. To this extent, once the government has facilitated the establishment of an Although what is being set out here is simple and straightforward, many entity, the new entity would become like any other listed property company. conversations have been held with Directors General and Ministers who nod Management could elect to utilise debt to grow the company and to fund their heads approvingly and then proceed to put the discussion out of their developments or it could issue new shares. Management would compete in the minds. One cannot but believe that there would be numerous individuals market to acquire government-tenanted properties which would add further who would see their “road to riches” being compromised hence the lack of critical mass to the portfolio. Since these entities would be in a position to any further discussion or activity. Accordingly, to successfully implement renew leases if appropriate, there would literally be no opening for “dirty this strategy, it would necessarily require a “top down” approach. To be more dealings” in order for leases to be renewed. explicit, the President would need to order his subordinates to make it happen. Te picture starts to emerge that the government’s real estate needs would Te unfortunate part of this is that despite the opportunity to really change be fully addressed by the new listed entities and the debate over who is entitled the face of property ownership in this country, there is little or no chance of to sign a lease with government and for how long would be resolved. Te success for this or any other scheme of a similar nature because, frstly, it will need to negotiate with the Department of Public Works would be obviated not fnd a “champion” within government, secondly, it removes the availability since parameters could be set in respect of rentals and hence the potential for of real “low hanging fruit” (excuse the cliché) for the select few and fnally, corruption is eliminated. it is simply easier to lay the blame for lack of transformation on the private sector. Because the “essential ingredients” belong to the government itself, the RESOURCES impediments to success are few and the beauty is that once the order has been Capstone Property Group Q&A Which sector is performing the best? Industrials, ofce, retail or hospitality? Currently the best performers are retail and industrial. Why do you think that is? Large dominant centres have retained good trading. Industrial feeds of strong retail and logistics to Africa, which is growing. What are the challenges in the commercial sector? The largest risk is an upward movement in interest rates. Other risks are administered cost increasing in excess to infation, and the lack of growth in the economy results in poor demand for space and increased vacancies. What advice would you give to someone looking at investing in commercial property? I prefer listed property as an investment as it provides investors with a liquid and tradable exposure to commercial property. Further you get the beneft of professional management, scale and improved cost of funding! What are the best fnance options available for commercial investment? Equity, mortgage debt from banks and institutions, bond markets and commercial paper markets. The competitiveness of the various alternatives are very dynamic and depends on various factors, like for example, quantum of funding required, term of funding provided, quality of security and of the covenant. What has the last year been like for commercial investing? Markets have been volatile but investors have seen good growth in income with sector average distribution growth being approximately between 6 and 7% for the sector. Where do you see the market going in 2014? Depends on your view on interest rates….we are concerned that interest rates will start rising over the next few years, which will put pressure on the capital value of the listed property Reit share prices. Hopefully the increases in interest Estienne de Klerk rates will coincide with positive/ buoyant economic activity which will support Executive Director strong growth in distribution, growth which will counter some of the efects of Growthpoint Properties Limited the higher yield environment. www.reimag.co.za www.reimag.co.za November 2013 SA Real Estate Investor 19

KRAAIBOSCHKRAAIBOSCH KRAAIBOSCHKRAAIBOSCH M A N O R C O U N T R Y E S T A T EC O U N T R Y E S T A T E M A N O R www.reimag.co.za

REI Residential Purchases Prices Are Up In September, the Average Purchase Price recorded by ooba, South Africa’s biggest bond originator, was R896,258, up 2.2% on R876,717 recorded in September the previous year, although marginally down on the R905,200 from the previous month. The Average Purchase Price for First-Time Buyers was R674,590, up 2% year-on-year. According to ooba’s latest statistics, the Average Deposit recorded in September, at R126,630, is 14.1% of the purchase price, down from 17.9% recorded in September 2012 and down from 15.0% in the previous month. In September, 53.7% of ooba’s total bond applications were from first-time buyers, which is similar to the ratio of 53.9% recorded in September 2012, but 2.6% higher month-on-month. More Tenants Pay On Time According to the latest TPN Rental Payment Monitor, the second quarter of 2013 saw the highest percentage of residential tenants in Valuable Input good standing since 2007. Nationally, 71 percent of tenants paid their rent on time and in Adrian Goslett, CEO, full, four percent paid within a grace period of RE/MAX up to seven days, and 11 percent paid late. “Te credit amnesty bill will positively afect many consumers Francois Venter, Director of Jawitz Properties, who are currently unable to obtain credit, or in some cases jobs, says this adds up to 86 percent of tenants being due to the fact that they are blacklisted.” in good standing. Gauteng has the most rental accommodation, with 41 percent of South Bruce Swain, MD, African households renting in the province. He Leapfrog Property Group says the report indicates that Gauteng tenants are now on par with the national average of “Gone are the days when the average person could put a decent tenants in good standing - this being the frst deposit on the table when purchasing a property; these days people need to borrow more in order to buy their own home.” time since the inception of the Rental Payment Monitor. www.reimag.co.za November 2013 SA Real Estate Investor 21

GETTING STARTED BY MEYER DE WAAL Live The Property Dream Get a bond today he dream of the older generation was to Tere are three aspects that a bank will consider activities and, on top of it, they had to write off pay of a mortgage. Te dream of today’s when they consider your home loan. Tese three many loans granted under such practices. It is Tgeneration is to get one. aspects are – your afordability, credit rating and much more difcult to secure a home loan (with profle and then the security that you ofer. the support of a property as security), compared Since the introduction of the National Credit to raising and unsecured loan. In the second term Act in 2007 it appeared that the banks closed the A bank will assess these three aspects to of 2012 only R1.5 billion was allocated to home tap on home loan approvals for a few years and determine the risks they will take to lend you the loans for those who earn less than R15 000.00 per only recently does it appear that it may be easier to money to buy your house. In terms of the National month, compared to R9 billion that was advanced qualify for a home loan. Credit Act, a lender (bank) can be held responsible to unsecured debt in the same income category. for reckless lending if they grant you a loan that The frst requirement: your Te impact of the downturn in the economy and you can argue later you should not have qualifed afordability test unsurpassed growth in unsecured lending all added for. Just recently African Bank was penalised R50 to the woes of a consumer to secure a home loan. million as they participated in reckless lending The first thing you need to know before you 22 November 2013 SA Real Estate Investor www.reimag.co.za www.reimag.co.za

RESIDENTIAL The third requirement: the security even begin house hunting is to establish what which says it will undermine the ability of you ofer bond you can aford. Te National Credit Act credit providers to assess risk.” requires lending institutions (banks) to assess Te bank will consider their loan to the value of your net surplus income when determining what the property. If you have a deposit available, it At this stage there is no clarity regarding the loan amount they will ofer you. You therefore means that you also share the risk of the bank precise recommendations that the Cabinet need to determine what disposable income you as you are less likely to “walk away” from the has approved but it will definitely provide have and then also bear in mind that the banks mortgage obligation and loan if you struggle welcome relief for many potential buyers, generally will not grant a bond for which your (in future) to make ends meet. Te advice is : who have previously been unable to obtain monthly repayments will be more than 30% of put down a deposit. Statistics show that home finance. Industry sources speculate that the your gross income. buyers, who are prepared to contribute a deposit amnesty will be implemented before the end are more likely to have their bonds approved. A of 2013, but it is already fltered through to the If you are self-employed, you may face an deposit could also result in a more favourable industry with a negative result as lenders are even more uphill battle as your income may not bond rate, which will save you on interest over now more cautious in lending money, as they be supported by a regular “pay-check” and you the term of the loan. have less credit information to support a new will then have to provide the bank with more loan application. supporting documents, like bank statements for If you rely on the income of a spouse – Start early and set a goal for yourself up to 12 months, balance sheets for the past two or investment partner, make sure that the years, income and expense reports, to prove your afordability and credit profle of the co-applicant Te bottom line is – get yourself “budget and sustainable income to the bank. is also in line with the requirements of the bank. credit ft” before you apply for a home loan and try to save towards a deposit. If you are not Getting assistance to apply for a bond Te best advice is to establish the information ready right at this moment, start the process and supporting documents that will be required Using an expert bond originator will give you to obtain your own credit report and study the in advance to prepare all such information and the best chance of approval. They will make information. documentation, before you submit an ofer to simultaneous submissions to all the banks on purchase. your behalf, improving your chances of approval Te credit information from a credit bureau and getting a better interest rate. may not always be comprehensive and it is The second requirement: your credit advisable to consider a report from a company status If the one bank declines your application, do such a Credit Health, or Kudough, which Before qualifying you for a home loan, the banks not give up. According to statistics released companies provide a combined 3–in–1 report will assess your credit history. Tey will look to see by Ooba, the ratio of applications declined by or a Moneysmart Credit report which provides if you have defaulted on debt in the past and if you one bank and granted by another in August an “easy to read” credit report as well as a are currently in arrears with any repayments. It is 2013 was 28.8 %. It is also held that due to a comprehensive plan over nine months to assist therefore important to obtain a copy of your credit proper pre-investigation and administration you to improve and repair your credit profle record in advance and prior to your application to process, approximately 70% of all home loan and status. the bank to ensure that all information held on applications that are received, are approved. Improve your afordability you is both accurate and up to date. Trough an originator you have a single point Make sure that your budget can accommodate • Cancel out of date credit and retail cards as of contact throughout the entire process which your current expenses and trim unnecessary you may not be using them, but they could still cuts down on time and inconvenience for you. expenses. Pay of debt as fast as you can. For appear on your fle, which make lenders wary every R500.00 that you save and have available about the potential size of your total debt. They prepare, motivate and package the extra per month improves your affordability application for you and have an in-depth with an additional R50 000.00. Make use of • Build up a track record, banks want to knowledge of each bank’s specifc requirements personal fnance tools to help you to manage see that you have a record of managing your for best chance of approval. your budget and keep track of each rand that credit sensibly. Also, make sure your income you spend. Some of the tools available are is deposited monthly into a bank account. It is advisable to also enquire with your own bank offered by companies such as Moneysmart, what services they can ofer you, as sometimes a 22Seven, ExpenZa, Mobile2budget and tools • Make sure all information you supply is bank can ofer you a diferent structured package and products are also on offer from leading accurate and truthful as inconsistencies can if you approach the bank directly. banks. Plan your budget so you are prepared to have a negative efect on your credit score. meet the additional payments that you would Do you have a less than fantastic credit Many credit reports contain outdated and be required to pay, once you have taken transfer, record or afordability? inaccurate information. such as rates and taxes and levies. In an article by Linda Ensor, 05 September in • Always keep proof of paying any arrear debt Business Day it was reported that: “Te Cabinet RESOURCES and rescind judgments. Make use of credit has agreed to a credit amnesty despite the Wizard Durbell, My Budget Fitness rehabilitation service provider to assist you. strong opposition of the banking industry, www.reimag.co.za www.reimag.co.za November 2013 SA Real Estate Investor 23

MY STORY BY ANGIE REDMOND Education Is Priceless It paves the way for your future, just ask Temba THEMBA’S TOP 9 INVESTMENT TIPS FOR YOU 1 Have no fear and know that fear stands for: false evidence appearing real. 2 Stay around people who are achieving the results you also want hemba Ntanzi is a professional electrical book titled Money Success and You by John Kehoe. engineer, registered w ith the Tis book had a challenge that read ‘If money 3 Have a clear plan of action of what you TEngineering Council of South Africa. was not an issue what would you like to have” want to do Temba’s life motto from the great poet and I wrote ten things that I would have liked to writer, Kalidasa, is as positive as his property have at the time. A year later the Sunday Times 4 Avoid analysis paralysis. Most people tend investment mindset: “Yesterday is but a dream ran a competition called “dream a new life”. to plan forever without action. and tomorrow is only a vision, but today Every prize that was listed in the newspaper 5 Don’t give up! One day I went to the bank well-lived makes every yesterday a dream of matched what I had written in my notebook.” 5 times and my request was declined 4 happiness, and every tomorrow a vision of After several weeks of participation, Temba times but on the 5th time it was approved hope”. He is an avid property investor and a did indeed win the competition and those on the same day. true tale of how education can really change winnings were the springboard for his first your life. foray into property investment. “I used my Don’t play low. Once your foundations 6 winnings to buy my frst two properties cash. I are set, take on bigger deals and never Themba grew up in a village called Kwa- was doing my third year and going to my fnal stop reading really good books and Dlangezwa; he stayed with his grandparents year when I won this competition. I had my frst attending wealth creation workshops. who had stopped working as early as 1975. two properties while I was still at varsity. Tese Temba’s grandfather was a shoemaker and his are properties that helped me learn the property 7 Invest or save 10% of your gross income and also tithe in your local church. If you grandmother was a tailor who also rented out business,” says Temba. don’t believe in tithing you can give to her backrooms to university students and school charity. You will be amazed how your teachers. “My investment and property journey Themba began his professional career in fnancial situations change. started at an early age but my grandparents Johannesburg, and while there he saw an ad for a did this at a smaller scale,” recalls Themba. P3 Investment Group presentation for the public 8 Have faith and you don’t need much - but When Temba got to university the frst book to educate them on property investment. “I just a mustard seed size of faith to move or he bought was the Fortune Strategy which was attended the presentation and I joined the club take on bigger deals. advertised in the Sunday Times, he also joined immediately. From 2005 I have been a coachable 9 the Sunday Times Money Club to learn from and growing student of property. In 2009 I felt Understand the tax system or have your guys like David Shapiro and David Bullard. that I had enough that I could also share my own tax advisor. Understanding the basics in tax makes a huge diference in Temba says, “Te book that changed my life knowledge with others. P3 gave me a chance how you structure your investments. and the way I saw things at the time was the to become the club’s part time representative. I 24 November 2013 SA Real Estate Investor www.reimag.co.za www.reimag.co.za

am currently at the stage where I need to grow why banks felt I could not afford a bond of and fast track my retirement so that I can get my R4000 when I was paying rent for R3500 in the freedom back,” says Temba. place I was staying in. I kept going to present myself to these banks and after three weeks my Themba credits the first two books he frst bond was approved,” says Temba, “I have bought on investing as the frst fnance for his had this ‘never give up’ attitude from then and properties; they gave him the tools to make the every time I approach the banks now I always decisions that have led him to where he is today. know that I will get what I want based on my “Te real initial fnance I have had to put in was cash fow. It seems to me that banks just want in investing in two books by John Kehoe (Mind to know that you are responsible and you know Power Into the 21st Century and Money Success and understand the risks involved.” and You). I don’t have the actual cost but they would not cost more R140,” says Themba. It Temba uses diferent banks for fnance today, was Temba’s refusal to give up that got him the and feels that the reason property is such a great fnance he needed, “I had just started working investment is that it has inherent value and when I applied for fnance and all four banks banks are willing to finance the investment. declined my application due to afordability. I While the recession has made it slightly harder did not know anything about using my other to access fnance, this hasn’t stopped Temba, properties as security. I could not understand “I am exploring other ways of financing and attending more workshops to meet property gurus that can give me some direction,” explains Temba. Education seems to be the key to learning and developing into a property investor: “It is really my grandparents who set the tone and P3 Investment Group taught me how to grow my property portfolio strategically. I continue to learn from books and newsletters written by gurus like Clem Sunter, Dolf de Roos and Jason Lee,” says Temba. It was Nelson Mandela who said, “Education is the most powerful weapon which you can use to change the world”. Tis certainly holds true for changing your world, with the right education you can use that knowledge to change your life. Themba is a hands-off investor who employs professionals to manage and run his investment properties and he in turn manages the professionals, such as rental agents. “The reason is that it gives me the peace of mind that my properties are managed by professionals,” explains Temba. Despite this, he is still very strict and runs a tight operation. “I am strict on maintenance. I need a maintenance report twice a year and I am not scared to fre an under- performing agent. Most of my properties are in high demand areas like big cities and industrial areas,” says Themba. And what has investing taught Temba? “Investing has taught me that people who take the first step to act do get good results,” says Temba. In order to achieve what you want to in life, you need to take the right steps to get there, this is especially true in Above: Themba Ntanzi property investing. www.reimag.co.za www.reimag.co.za

MANAGING BY KOOS DU TOIT Decrease Your Tenant Risk And increase your success ne of the biggest myths surrounding buy-to-let property investment is Othat tenants are a property owner’s worst nightmare. While there certainly are tenants landlords should avoid, this myth is mainly perpetuated by a misunderstanding of the landlord-tenant relationship, by urban legends of malicious tenant behaviour and by overstated statistics quoted out of context. Firstly, tenants are not adversaries, but the clients of the buy-to-let investor. In every business and in every industry, business owners face a risk of delinquent clients. But this is not a reason not paying on time and in full, even under tough Tenrisk, designed specifcally to cover the to start a business, nor is it a reason not to invest economic conditions. risks faced by buy-to-let property investors in property. It is merely a risk that smart business to cover late or non-payment of rentals or Managing the risk owners and investors identify and manage. In evictions. fact, if managed correctly, and tried-and-tested Tere is no reason for a property investor to do risk management strategies are implemented, business with the small percentage of tenants who Appointing a rental management agent to take the landlord-tenant relationship can be a very display malicious behaviour, or those that pay late care of all these aspects is almost always the best mutually rewarding one. or not at all. To avoid such tenants, a property choice. Professional, reputable rental management investor simply puts systems in place to manage agents have the expertise, experience and Secondly, it is a small percentage of tenants the risk. resources to deliver a professional service to both that fuel the urban legends of malicious tenant yourself and your tenant, at a very reasonable fee – behaviour. It cannot be denied that there are The risk can be managed efficiently with just usually 8 - 10% of the rental, which should ideally isolated incidents of malicious destruction of a few simple and affordable risk management be covered by the rental charged. a landlord’s property. However, most of us techniques, such as: have, at some time or another, rented someone • Doing thorough background checks and However, some property investors prefer to else’s property. Did you wilfully wreck your obtaining referrals from previous landlords; manage their own tenants. It is certainly an rented accommodation? Do you have friends or • Signing a water tight lease and collecting a option, provided that you are willing to put in the family who have maliciously damaged a rented deposit to cover potential damages; time and efort to do so professionally. A complete property? While urban legends of delinquent • Collecting a separate deposit for utilities and professional rental management process will tenants abound, experienced property investors payments or installing pre-paid electricity neutralise tenant risks to a large extent. will confrm that they are the exception and not and water meters; the rule. • Doing proper inspections, including taking Tese risk management solutions have evolved photos, with the tenant before, during and over the years as property experts identifed and Tirdly, only a minority of tenants pay their after occupation; refined the best ways to mitigate, manage and rentals late, or not at all. TPN’s latest Rental • Obtaining the right property insurance even eliminate tenant risk. All that remains Payment Monitor report shows that the specifcally for buy-to-let property that for professional property investors to do, is to percentage of tenants in good standing with provides cover for damages caused by a tenant implement these widely available and often their rental payments reached a record high of and even compensates for the loss of rental surprisingly afordable risk management solutions, 84% in the frst quarter of 2013. However, even following a catastrophe such as a fre or food; which not only significantly reduce the tenant at the lowest point of the economic recession • Taking out rental insurance such as risk, but exponentially increase the probability of in 2009, the percentage of tenants in good the comprehensive cover provided by P3 buy-to-let property investment success. standing stood at 71%. Te reality, therefore, is Investment Group, underwritten by Infnity RESOURCES that the vast majority of tenants nationally are Insurance and ofered in association with P3 Investment Group 26 November 2013 SA Real Estate Investor www.reimag.co.za

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MAINTENANCE BY KOOS DU TOIT Don’t Let Repairs Get your fnances down ne of the recurring pitfalls property and continues for as long as investors step into is neglecting the the property is held. Omaintenance on their investment Thorough inspections properties, most often as a result of fnancial constraints. There are, however, numerous Acquiring a quality property simple strategies buy-to-let property investors off-plan, provided that can implement to ensure regular maintenance the developer is registered on their properties, and that they harness the with the NHBRC (National Home Builders’ inspections and maintain good relations with full benefts of such regular maintenance. Registration Council), should delay signifcant their tenants to ensure they are always informed maintenance costs for two or three years. of maintenance and repair requirements or Te recent FNB Estate Agent survey clearly Nevertheless, the investor should thoroughly potential problems. And, since they have showed the impact of economic constraints inspect the property before making an ofer. budgeted for ongoing, regular maintenance, on the regular maintenance of properties. Te as well as unexpected repairs, they are able to percentage of homeowners “fully maintaining Acquiring an older property exposes the attend to any issues swiftly, ensuring minimal their property and making some improvements” investor to increased maintenance risk. disruption to the tenants and preventing delays reached a low of 27% in 2008. Te percentage To manage this risk, a NACHI (National which could escalate the costs involved. of owners not improving but still fully Association of Certified Home Inspectors) Quality contractors maintaining homes” declined to between 20% registered property inspector should be and 30% around the recession of 2008/9. Te appointed to inspect the property thoroughly Professional property investors appoint percentage of homeowners attending to basic and provide a report detailing defects, repairs reputable, reliable contractors who will attend maintenance only, which FNB notes means and maintenance issues, as well as the cost to the maintenance and repairs professionally, in efect the property will “go backward” over of attending to these, to guide the investor’s swiftly and cost-effectively and will provide time, reached a concerning 34% in the first buying decision. the necessary guarantees and warranties on the quarter of 2009. work they have done. Cash fow considerations Accurate recordkeeping Financial constraints certainly curtails a Professional property investors factor the cost property owner’s ability to the seemingly of regular, ongoing maintenance into their cash Professional property investors ensure they never-ending requirements to patch, paint, fow projections when considering a property, keep accurate records of all maintenance repair and replace fxtures and fttings, and to using custom-designed software such as the P3 and repair issues, and file quotes, invoices, deal with mould, pests and normal wear and Property Wealth Manager. Tis allows them to guarantees and warranties in an easily tear. However, the long-term consequences make informed decisions about the return on accessible manner. This not only prevents of neglecting regular maintenance are far investment of the property under consideration, disputes with tenants, but also ensures that the greater. Experts estimate that the cost of given the maintenance requirements and the costs are factored into their tax calculations. delayed maintenance can be as much as 15 expected ongoing costs thereof. times more than the cost of the required Taking a professional approach to property Building up a reserve fund ongoing maintenance, as small repairs and maintenance is a simple but highly effective routine maintenance turn into major problems. As a property ages, the maintenance and repair way to manage the cost of regular, ongoing Furthermore, poor maintenance will dampen requirements increase. Recognising this risk, maintenance and reduce the risk of unexpected growth in the value of the property, make it professional property investors build up a and signifcant maintenance and repair costs. increasingly difficult to find quality tenants reserve fund for unexpected repairs or major It further not only ensures that an investment and collect market-related rentals and reduce maintenance beyond the regular, ongoing property appreciates in value over time, but will the possibility of a quick sale at a market- maintenance budgeted for in their cash flow also ensure that the property remains rentable related price. projections. to quality tenants at a higher rental and that the property can be sold at a higher price, should Disciplined maintenance schedules So how does an investor avoid this pitfall? the property asset be disposed of. Professional property investors take a Professional property investors implement RESOURCES professional approach to maintenance, which regular maintenance schedules, task rental commences even before the property is acquired management agencies to conduct regular P3 Investment Group 28 November 2013 SA Real Estate Investor www.reimag.co.za

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LEGAL BY RUI MARTO Can You Be Fined For not building in time? here have been a number of disputes design and even construction materials used. imposes a fne on the homeowner. Where the between Homeowner Associations The problem arises when the purchasers agreements are silent on the amount of the fne, T(“HOA”) and landowners arising from for one reason or another do not finalise the the value of the fne is set per resolution taken HOA’s levying fnes against homeowners who building timeously. Te most common reasons at a meeting of the HOA. Te fne is usually a have failed to build within the period stipulated given tend to be the following: fxed amount charged per month from date of in their original agreements of sale. Te question resolution or date of default, whichever is the arises whether in fact HOA’s are legally entitled • Te purchaser failed to obtain a building later, to date of finalisation of construction. to issue these fnes or penalties and if so, whether loan for the construction of the property, Alternatively, the fne is set at a multiple of the there are any limitations thereto. alternatively same was granted but levy charged by the HOA, for example, five subsequently declined due to change in times the levy amount. General scenario circumstances; Typically, a homeowner enters into an • Change in fnancial status of the purchaser; Te reasons usually given by the HOA’s for agreement of sale of land within a cluster • Te purchaser was a speculator who intended imposing these penalties are:- complex. One of the terms of the agreement, to on-sell the land without intending to build is that the homeowner is required to build his and failed to fnd a suitable buyer; • Nuisance resulting from building activity. property on the land within a stipulated period. • A dispute arises between homeowner and Te objective is for all homeowners to build Te agreement further includes a provision that either the HOA or the building contractor, within a common period so as to minimise the HOA is entitled to impose a penalty should causing a delay in the fnalisation of the nuisance to each other; the homeowner not build within the stipulated building. • Damage resulting from building activity; period. Generally the period stipulated in the • Security risks resulting from continued The penalty agreement tends to range from one to fve years. building activity. At times this requires the Certain complexes include further limitations As a result of the homeowner’s failure to employment of additional security patrols; including the size of building, restrictions in build within the stipulated period, the HOA • Negative efect on property prices. 30 November 2013 SA Real Estate Investor www.reimag.co.za www.reimag.co.za

RESIDENTIAL Legal entitlement in the area. In most instances, the penalty Once you decide to build you need to make In terms of various court decisions, courts have imposed was a value equivalent to three times sure that you hire a reputable builder. there is held that a HOA is entitled to impose a penalty. the monthly levy. The Court also considered not point spending hundreds of thousands of HOAs are responsible for the formulation and the size of the total penalty imposed and the rands only to have to fx the fnished product. enforcement of rules and regulations of the income which was received by the HOA as a estates or complexes. Generally the constitution result of penalty levies in general. Te Court Another important thing to check is whether of the HOAs includes the power to charge came to the conclusion, that the penalty was your home has been built to the correct levies on members. out of proportion to the prejudice suffered. specifications. HOA’s often have a standard Restrictions “No law may guide when it comes to building in a gated community, you must ensure you follow these Te power to impose a penalty on a homeowner specifications. If you are building you must in these instances is not without restriction. Te permit arbitrary also follow the specification laid out by the Conventional Penalties Act 15 of 1962 (“the deprivation of municipality and that means getting building Act”), in essence, states that where any penalty plans approved before you build. Tere has been property” is imposed in case of a breach of contract, the a number of cases recently where building has penalty cannot be out of proportion to the been done before approval of plans and the prejudice sufered. alterations have had to be removed. So check Te penalty was “out of proportion to the goal with the HOA and your local municipality Section 3 of the Act states:- “Reduction of which it was legitimately seeking to achieve, before you put down a brick. excessive penalty: If, upon the hearing of namely to compel compliance with the term of a claim for a penalty, it appears to the Court the contract.” In other words, the imposition of BUILDERS CHECKLIST that such penalty is out of proportion to the a penalty is not there to provide an additional prejudice suffered by the creditor by reason income to the HOA but to attempt to act as a of the act or omission in respect of which the deterrent to enforce compliance with a specifc 1 Never let any builder or contractor start penalty was stipulated, the Court may reduce provision. work on your property until a legally enforceable written contract, including the penalty to such extent as it may consider Deprivation of property a detailed schedule of works has been equitable in the circumstances:- provided that signed. in determining the extent of such prejudice the The penalties imposed by HOAs tend to Court shall take into the consideration not only increase to sizable amounts very quickly. Tere 2 Ensure that all of the contractor’s the creditor’s proprietary interest, but every is also a tendency by HOAs to escalate the workmen are properly qualified, For not building in time? other rightful interest which may be afected by penalty imposed from time to time. Ultimately, registered and insured and check the trade references of the contractor with the penalty reaches levels which are equivalent the Act or omission in question.” Consequently, the Courts consider three to potentially a value equal to or exceeding the previous clients. matters:- value of the property. Once the penalty gets to a certain level, the homeowner has difculty in, 3 Make sure the contract stipulates a fair • Is the penalty out of proportion to the or is precluded from, selling the property. schedule of payment “draws” and stick strictly to the payment terms. Don’t prejudice sufered? If so, be pressured into making additional • Would it be equitable for the Court to reduce In my opinion, once it surpasses a certain payments. the penalty? If so, value, the penalty imposed acts as a deprivation • To what extent? of property of the homeowner. In terms of 4 Ensure that the contract provides for a Section 25(1) of the Constitution, “no one may retention of 10 per cent of the contract In the case of Murcia Lands CC vs Erinvale be deprived of property except in terms of law value to be held for 90 days after the Country Estate Home Owners Association of general application, and no law may permit contractor has left site. This ensures that (2004) 4 All SA 656(C), the HOA imposed a arbitrary deprivation of property.” if problems and snags arise (and they levy upon the homeowner equal to ten times will) there is money out to sort out these the levy per erf. The Court applied the Act Prospective purchasers entering into issues. in determining whether this was excessive or agreements for the purchase of land which not. The Court stated that “where one is not contain the above penalty provisions should 5 Check the contract beforehand and also scope the schedule of work. This dealing with monetary prejudice, this requires consider the possible consequences. HOAs are helps ensure that all foreseeable works the Court to make a value judgment in order to entitled to impose penalties should a landowner and “extras” are included and have been decide whether the penalty is unduly severe to not build timeously. Whilst the value of the costed into the original contract and don’t the extent that it ofends against one’s sense of penalty is limited by law, prospective purchasers become a later bone of contention. justice and equity.” should take all necessary precautions to ensure that they are able to comply with the building RESOURCES The Court assessed comparative data in restrictions prior to signing agreements of sale respect of penalties imposed by other estates to avoid possible disputes. Marto Laftte & Associates Inc www.reimag.co.za www.reimag.co.za November 2013 SA Real Estate Investor 31

ACQUIRING BY ANGIE REDMOND Auctions Are they a bargain or a bad idea? n July this year, the total value of properties that In the wake of this, comments by were under the hammer was down 75% in an Tirhani Mabunda, chairman of the I18-month period. “Te market was worth an South African Institute of Auctioneers, estimated R6bn/year before the Auction Alliance that South Africa’s auction profession is fallout early last year. It’s down to R1.5bn,” ‘riddled with corruption’ have left sellers says High Street Auction Co joint MD, Lance and buyers alike uncertain as to the ethics Chalwin-Milton. within the industry.” “So, can you trust us? Te short answer is a resounding yes. Is this the slow demise of the once booming We are completely in agreement with auction industry or merely a sign of the hard Mabunda’s insistence that our industry economic times coupled with the scandals and sense be properly regulated and that there be of mistrust that surrounded the auction industry? entry level educational requirements for Te drop in sales volumes seems to be largely due all members of our profession. We fully support to the banks keeping their distressed properties any initiative that adds to the existing regulations 6 TIPS FOR AUCTION BUYERS of the auction foor following the allegations of - anything that brings transparency and credibility 1 collusion that Auction Alliance embroiled the to the auction industry can only be seen as positive,” Do your homework. Request an investor’s auction industry in. Banks are instead using their says James Dall of High Street Auction. pack before the auction for essential own online sales portals and real estate agents to information on your chosen property. sell of the distressed properties in their portfolio. So, where are the opportunities at auctions? 2 View the property. Nothing beats a real Despite this, the auction industry is still a vital part Justin Clarke from Private Property says, “The life inspection to fnd out the fner detail of the property market. ultimate source of great value property is of course - these inspections are usually arranged the sherif auctions. Where the bank is unable to by appointment or at scheduled times CEO of Claremart, Jonathan Russell Smiedt, rehabilitate the bond holder and they see no chance designated by the auction house. says: “In general terms the auction industry seems of recovering their funds, the bank applies to the 3 healthy and active and we really can only talk court to attach the property and sell it to the highest Remember the “voetstoots” clause. from our perspective. We are fnding that buyers buyer as it stands, called a sale in execution. Te Under this clause you agree to buy the are attending our auctions in great numbers (both sheriff of the court executes these transactions. property with whatever defects it may on-site and at our multiple property auctions) and Tey are not well advertised with poor turnouts and have at the time of sale. Know what you we are selling property generally at prices that often postponed. In most cases the only party at the are getting into before you get into it. reach the Liquidators’, Trustees’ and Executors’ auction is the bank. Te bank will let the property 4 Make sure your fnance is in place. Decide expectations. Tere will always be those who will go at a big discount, often around 50% of value, and on the highest price you are willing to pay, remain with traditional selling structures but many this is where the real opportunities lie.” Having build in extra for fees and commissions, of them are indicating a scepticism with these found his love for the property market at an auction and then make sure you have the funds methods and ultimately are prepared to consider of an old house bordering on a commercial node available at the time of going to auction. auction as an alternative rather than close the door that was part of a deceased estate, Clarke recalls, Plan ahead if you need to bond the on selling.” “I knew there was a lot of interest but I had a tenant property. lined up already. I remember watching the bidders 5 Auctions are still a viable and fast way to sell at the auction from my seat and when they were Prove who you are. Provide your bar- a property, despite the past scandal and the exhausted fghting it out against each other and the coded ID, proof of residence and, in the struggling economy, there are still deals to be had hammer was going to fall, I put in my frst bid.” case of property purchased in the name at auction, and the scandal of Auction Alliance has of a company or trust, a resolution by the ensured that the auctioneers left behind in it’s wake Andrew James, Director and Ceo of Michael members, directors or trustees giving take honesty and integrity serioulsy. “Let’s tackle James Organisation, which has been operating for signing powers to the bidder. Make sure this head on: there is no doubt that the auction over 50 years, says, “auctions are still the best way to you are FICA registered. industry’s reputation was damaged by the Auction sell your property, to get the most value and making 6 Put emotions aside when you bid. Alliance ghost-bidding scandal. It’s inevitable that use of reputable auction houses can add value to Remember, auction sales are fnal: don’t allegations of collusion between auctioneers, banks, your sale.” go over the price you can aford no matter liquidators and attorneys afect public perception of RESOURCES how badly you want the property. the industry as a whole. Claremart, High Street Auction Co, Private Property 32 November 2013 SA Real Estate Investor www.reimag.co.za

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PROPERTY FORUM DOES THE AMERICAN WAY WORK IN SOUTH AFRICA? JT FOXX JT Foxx is a serial entrepreneur and real estate investor and is known worldwide as one of the top speakers and coaches in the wealth creation, real estate and business sectors. He has also been a radio personality over the last seven years. Originally from Canada, he started eight years ago with $974 and a very old Ford Ranger pick up truck. His areas of expertise are marketing, branding, sales, strategic thinking and investing. He is also the founder of the world-renowned events Mega Partnering and Mega Partnering Africa. ell, after my eighth visit in six months, after teaching thousands of clients all around the country, and after personally doing business there myself, the answer is yes and no. There are three characteristics that defne any successful property investor in today’s new real estate economy. The frst characteristic is knowing how well you are branded, Wthe second is knowing how good your marketing is, and the third is knowing how good your relationships are. After visiting a property auction to view 20 properties up for sale and to see only two of them available at the time of auction, I quickly realised that success in property in South Africa is not what you know, not whom you know, but who knows you. If the property is on the market for everyone to see, I and many other successful investors have probably already seen it frst. The market here in South Africa, as it did in the United States, took some very huge hits in 2007-2011. The reality is that only just now, both countries are fnally Mistake 3: Gambling on your investments getting out of their hole though many homeowners are still owing more to the banks than what their property is worth. Now that the market is coming back There are trainers here in South Africa that are teaching you the way to make strong in both countries, I am seeing people repeat the same mistakes they did money in properties is... you have to buy them, fnd a renter, hold them for three fve years ago. Here are someone of those mistakes. years, have negative cash fow, and then in three years sell it. The American way has always been “you make money when you buy real estate, not when you sell Mistake 1: Relying on the banks too much for capital it”. If you have to take money out of your pocket every month to make the deal work, it’s not a good deal. Where American’s went wrong is that we become too Whether you are in SA or the US, banks will rarely lend for more than 1-4 properties greedy. The market got hot, it got very competitive, money was cheap, and we if you are a small investor. Banks are afraid of making the same mistakes they did started buying properties hoping the price would go up. That is not any better before and are much more likely to lend to people who have a track record This than gambling and in the end the house always wins, and usually its not yours. is where the American way comes in: creative real estate. I have heard far too The American way is realising that unless you are solving problems or fnding many people here say things like owner fnancing, lease options and fipping solutions you won’t make money in property. The American way is about doing properties don’t work. Well I believed it myself until I decided to try it myself. It’s whatever it takes creatively to get a deal done and have it funded by someone actually easier here than it is in the US. The only challenge I faced is educating else. The American way is about making leads come to you through clever the attorneys, brokers and homeowners of the benefts of doing deals creatively marketing and branding. The South African way on the other side is about doing and that it is legal. deals with integrity and honesty, it’s about having care for the other person you are helping and it’s about realising the market is big enough for all investors and Mistake 2: Using all of your own money to buy properties there is enough room for all of us to make money. I bought my frst 500 properties without using any of my own money. Mr. Trump In the end, don’t change who you are. Be proud to be South African, one of once told me, “It doesn’t matter who you are, the better you are at investing, the the best countries I have ever done business in. While on the other hand, when more likely you are to run out of money”. This can often be the kiss of death it comes to making money, put on your Yankees hat because if you don’t, you for many property investors. On one hand, it can freeze you out from buying will be left out of many great deals. Come see for yourself how creatively I am other properties or if you are in the middle of projects, you can run out of money. doing both property deals and business deals at one of my live events at www. Something I have often seen happen here, where wannabe investors ventured JTFoxxLive.com/sa. It’s ironic how many people here are complaining about the out and ran out of money in the middle of their real estate project. The key to market, while more and more Americans are bringing their American dollars here long-term growth for investors who not only want to invest here in South Africa to buy properties. What they don’t realise and what I did from day 1, is that they but also globally, is building partnerships. You are only as good as the people you don’t think the market here in South Africa will shut them out. Happy investing! surround yourself with. This is something I have heavily focused on to teach at my RESOURCES property tours across the country. Use your cash for amazing once-in-a-lifetime deals and use partnership capital to grow your business. JT FOXX Organization 34 November 2013 SA Real Estate Investor www.reimag.co.za

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IMPROVING BY ANGIE REDMOND Update your home today ou don’t have to spend a fortune to increase Top painting tips Fixing cracked and broken tiles the value of your house. If you are looking Using primer is a good way to save some paint, since If the tile isn’t too badly damaged, you can try Yto sell or rent your home, there are a you’ll need to use fewer coats of mixed paint, which to fll in the chip or crack and then paint over it. number of simple steps you can take to ensure you is more expensive, and it will also help give your You can buy tile epoxy or adhesive at most home get the best deal for your house. So don’t break the walls a truer colour. improvement stores. Simply apply it to the crack, bank, just borrow from the piggy bank and watch let it dry and then paint over it. the value of your home increase. •Before you use a new roller, dampen it very lightly. Ten gently shake it or run your hand down If the damage is too big to fll in, you can simply Repainting cabinets and cupboards the roller to get rid of all the moisture. remove the tile entirely and put a new one in its A fresh coat of paint can make all the diference place. First, you’ll have to get rid of the old tile. when it comes to your home, while repainting the •Paint in a “W” or “M” motion, without lifting Place a cloth over it and shatter it with a hammer. walls can be costly, it doesn’t take much to put a the roller from the wall. Tis will help disperse the You may want to wear protective goggles in case any fresh coat of paint on all the cupboards and cabinets paint evenly, and on walls with some texture, it will errant tile pieces go fying. Clean the area where the in the house. Instantly these look fresher and new. make sure that problem spots are covered from tile used to be well. You may need to use a chisel to If the walls of your property are smudged, dirty and multiple angles. get the old tile pieces all out. look like they were last repainted in the 80’s, then giving them a fresh new coat is a must. When you •Start your frst stroke with an upward motion, Once the area is completely clean of debris, are thinking of shades, stick to neutral, you want because if you roll down on the first stroke, the you can apply the new tile. Use a trowel to apply the person who is looking at the house to imagine paint can puddle under the roller and run down the adhesive to the new tile piece. Try to coat the tile themselves in the house and garish green walls wall. evenly. Follow manufacturer’s instructions for how might make them run away. long the tile should set to dry. Once the adhesive is •Paint one wall at a time. Tempting though it may dry, outline the new tile piece with grout. What you will need be, don’t paint all the eye-level surfaces in the room • Paint – enamel (white or cream) and then come back with the extension pole. Tis Blinds • Roller brush and paint tray can create visible lines in the painting. Window blinds are easy and simple and they add • Turpentine much more character to a room and value to your Black garbage bags if you are painting the walls, •Leave at least two hours for drying between property. If perhaps you are slightly old- fashioned (tape these to the foor to ensure you don’t get paint coats, especially with deeper, richer colours, even if you can still have the best of either worlds with on the carpet or bare foors) it seems like the paint is dry, it probably isn’t. perhaps Venetian blinds, Roman blinds or a roller 36 November 2013 SA Real Estate Investor www.reimag.co.za www.reimag.co.za

RESIDENTIAL blind which are still classics in style. By using an impression is true. So, make the interior of you home Tere are a number of quick and easy fxes you antique looking material, plain or patterned, shine from the moment someone walks through can make to your home, to improve the look and can easily add an “old” air to the room. For the the door. Hire a cleaning service for a thorough top- feel and add value, either for the resale value or to modern type of house the choice of window blinds to-bottom scrubbing. Even if you clean your home attract tenants. or curtains is limitless in colour and material. regularly, there are nooks and crannies that you may Aluminum, wooden and even bamboo window miss or overlook. Let a cleaning service do the dirty AUTOMATIC IMPROVEMENTS blinds are proving popular choices today. work to really make your home sparkle. Taps and showerheads Kitchen 1 Lighten and brighten interiors with Modernising your taps and showerheads in your You don’t have to start from scratch to create a curtains and windows bathroom and kitchen are a quick and easy way winning recipe. For maximizing your home’s Clean and remove clutter with to update your home and add value without value, kitchen updates are key. Start by swapping 2 furnishings breaking the bank. Tere is a large range of taps out just one item, such as a stained sink or ancient and showerheads you can choose from, just make microwave for shiny new stainless models. Even 3 Repair any faulty or cover up unsightly sure that the new fttings are the correct ones for small kitchen updates will add big value to your looking plumbing your home’s water pressure. If you have very old home. plumbing and put a modern showerhead in your 4 Repair electrical wiring and fttings and shower, your water pressure may not be high Maintenance cover enough and you will end up with a dribble of water Walk around your home and make a list of all instead of the glorious stream you imagined. the little things that are broken or in need of 5 Landscape the garden repair. Individually, small repairs might not seem Keep it clean and tidy important, but if every room has just one thing 6 Upgrade the kitchen Overgrown or patchy lawns and outsized bushes wrong, those small things will add up to create Upgrade the bathroom will cause your home to stand out in a bad way. Te the impression that your home has been neglected. 7 good news is that taming your jungle is an easy fx. If you don’t feel comfortable tackling the repairs Upgrade the fooring Hire a lawn service company to trim your lawn and yourself, hire a handyman for a day and watch 8 shape your hedges. Your curb appeal will go from your “to do” list disappear. Staying on top of 9 Paint the exterior messy to maintained without blowing your budget. maintenance today eliminates problems down the Te old adage that you only get one shot at a frst road when you decide to sell. www.reimag.co.za www.reimag.co.za November 2013 SA Real Estate Investor 37

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REI Commercial Gautrain Will Provide Exciting Opportunities Unlike the scepticism that met the announcement of the initial 80km of Gautrain’s routes, the additional 140km announced by Gautrain, as part of the 25-year Transport Plan for Gauteng has been excitedly received, even though building is only likely to being in several years’ time. And this immediately begs the question about whether there are any investment opportunities that this announcement creates? Funders Can Make Returns Banks’ limited ability to finance long-term projects opens up opportunities for other types of funders to make returns and help SA implement its R3.4 trillion infrastructure programme. As infrastructure development is critically Valuable Input important for South Africa’s economic growth‚ it cannot be left for governments and the banks to “go it alone”‚ Mergence Investment Managers portfolio manager Mark van Wyk said. Morne Wilken, Marna van der Walt, Gielie Visser, CEO, CEO, Director, Attacq EPS JHI Properties in Africa “Listing Attacq has “Our ongoing strategy is “Developments on provided an opportunity to continue to increase the continent are Don't Blame Rising Bond Yields for investors to share our presence and increasing in size and in a unique long-term activities in the retail sophistication, which is High volatility in SA’s listed property sector over the past sustainable real estate property management not surprising given the year has largely been blamed on rising bond yields, which capital growth fund sector on the African size of the market.” conventional wisdom says is bad for property returns. with a successful track continent and we are record.” committed to securing But more and more research shows that there is little the best strategic retail empirical support for this thinking and that in some cases, letting skills in the rising bond yields and improving property returns can take region.” place in parallel. www.reimag.co.za November 2013 SA Real Estate Investor 39

GETTING STARTED BY JOHN ROBERTS The Right Information Will lead you to the right investment! NVESTING in property has always been in their deeds of sale that any outstanding about location, whether the purchase is transportation development levies become the Icommercial, industrial or residential. seller’s responsibility. However, getting value from the estate agent or broker and thus securing the best return on Tey also need to examine the municipal plans investment means also knowing and asking and surveyor general’s diagrams of the property the right questions - and pushing to get the to ensure there are no servitudes, while lease answers, particularly if that means digging for agreements have to be scrutinised to ensure the generally those less than 10 years old; B-grade information akin to seeking out diamonds. details provided are correct. ones would be between 10 and 20 years and C-grade buildings are over 20 years old. Commercial real estate investments include Due consideration also needs to be given office buildings, strip malls, restaurants and to prospective developments within the area. However, upgrading a C-grade building any other real estate in or on which people can If an airport is going to be built within the could raise the rental levels to being roughly conduct business. Among them is found single- vicinity and the building under consideration in the bracket typical of a B+ grade one, while unit main street buildings in small towns to houses a spa and outdoor café, the value will allowing a B-grade building to deteriorate skyscrapers in urban settings and landlords likely decrease because of the noise from the could cost the owner in terms of rentals tenants usually charge rentals based on the square metre new airport. are prepared to pay. of space rented. However, if the building has the potential for Generally, A-grade industrial premises command Tat calculation is substantially higher than warehousing and logistics, its location close to rentals of R45-55/m; B-grade industrial premises residential rentals on houses or apartments. the airport could prove to be the x-factor in are in the region of R25-35/m2 and C-grade its value. between R15 and R20/m2 - but every one of Investors seeking a commercial property these rates will depend on the yard availability investment must principally establish the Many commercial buildings are leased to the specifc units, so these become further key rental income that can be received from sometimes to more than one party. Potential questions potential investors should enquire from that property as well as the lease terms and buyers should ask their broker for a rent roll the broker. conditions, namely the expiry date, annual and copies of the current leases, particularly escalation rate and the strength of the tenants if the purchase is for a building with multiple However, one key benefit to owning currently holding those leases. store fronts. commercial property, particularly as an investment vehicle, remains the return on Following closely behind are questions Te rent roll refects the lessees; how much rent investment. Typically these investments are relating to the expenses on the property, they pay; whether they contribute to the common paid of more swiftly than residential property because only then can potential investors area expenses; what the lease terms are and when investments - in a decade rather than 20 years establish a market related purchase price they expire. Also included is information on rental - and the commercial property market is more as well as the cap rate at which they become increases with commercial leases usually spelling stable than the homeownership one. Leases are prepared to sign on the dotted line. If the out the increases either linked to the consumer based on longer periods - three, fve or 10 years property is part of a shopping centre, having a price index (CPI) or as a set percentage. at a time - with steady escalations. cup of cofee in that centre to observe the foot trafc may be the frst step in getting a handle However, determining a realistic return on Purchasing a property in the right position on the potential investment. investment is difficult and depends on the offers investors good returns for years and strength of the tenant occupying the property, once the property is bond-free and fully The next question that needs raising is the location (that word again) and the length tenanted, it also places the owner in a position zoning. Often the records refect the property of the lease. A rule of thumb is a 10% return on to acquire an additional commercial property is zoned for business, but the owner has failed investment, but there are always variations. through leveraging. to pay over the transportation development RESOURCES levy to the municipality. Consequently, Part of the variation can be attributed to the Just Property Group avoiding that pitfall means buyers should state building grading. A-grade buildings are 40 November 2013 SA Real Estate Investor www.reimag.co.za

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03 MANAGING BY SAXEN VAN COLLER Managing And Maintenance Is essential to your industrial property FROM AN OFFICE AT DUBE CITY TO MINUTES KING SHAKA INTERNATIONAL AIRPORT roperty management covers certain opportunities to capitalise on achieving practical areas of responsibility. These 100% occupancy and rental recovery. Pinclude tenant management; fnancial and marketing solutions and facilities management as However, in order to keep well as overall operational systems. Tese areas of tenants satisfied and generate responsibility are fundamental in ensuring that continuous revenue streams it is under a facilities maintenance properties generate continuous revenue streams essential for the business to ensure contract, which is a more reactive through timeous rental collections from value that building structures and fixed response to achieving the overall facilities 120 000SQM 300SEATER adding tenant groups; are maintained through installations are not only operating optimally management targets. This further provides seamless facilities management; and that risk but efficiently by reducing downtime and the platform for identifying opportunities factors are identifed and mitigation measures providing a proper Operational Strategy for for improvement of maintenance processes OF BULK TO DEVELOP adopted at infant stages in the process. all the precincts. Tis component of facilities and practices to produce more successful FULLY EQUIPPED management is therefore crucial in achieving performance. Against this background, it CONFERENCE CENTRE It is therefore necessary to understand and the abovementioned objectives. provides opportunities for strategic alliances and appreciate needs, preferences and the core training for internal personnel. business of tenants. In order to deliver value Dube TradePort is a 2 040-hectare master- to tenants and visa versa, strong Customer planned development. Tis world-class passenger An active planned, preventative maintenance & RESTAURANT Relationship Management (CRM) is therefore and airfreight hub, encircling King Shaka schedule is linked directly to the business MASTER critical. International Airport, has become a highly performance targets and it is therefore imperative 60 30 competitive business-operating environment, for the facilities and operations contracts Tis assessment is crucial to the preparation comprising four development zones, one of management division of the business to ensure YEARPLAN and management of tenant contracts and which is the sprawling Dube TradeZone that all planned maintenance exercises are MINUTES 3 HOTEL providing clear communication on the which is a specialist precinct with premium conducted timeously and meticulously. Key business response to new developments in fully-serviced airside real estate, ideal for new- to this function is stakeholder management FROM DURBAN their industry. Similarly, another key factor to generation warehousing, manufacturing, and management of relationships with service ZONED FOR COMING SOON tenant management is the prompt response to assembling, air-related cargo distribution, high- providers; budgeting and budget forecasting for CBD facilities maintenance request, with updates on tech aerospace services, automotive industries, the duration of the contracts/SLAs; monitoring progress. Precise implementation of these tasks clothing, textiles and cold storage. Te crucial the levels and quality of service provision and 10BLOCKS allows the business to monitor and measure lessons at Dube TradePort have been that compliance in regard to legislative requirements. BUSINESS tenant satisfaction which, in turn, contributes to managing and maintaining industrial property business improvement by ofering an operational centres on customer relationship management. Well-maintained properties through optimal RETAIL AND HOSPITALITY indication of how properties are performing At Dube TradePort contracts/service level facilities management - maintenance of all hard TO DEVELOP in comparison to similar industries in the agreements (SLAs) are concluded with third and soft services - are therefore fundamental to surrounding vicinity of the business precinct. party service providers along a wide range of retaining tenants and establishing a continuous 1 GOAL TO MOVE YOUR BUSINESS FORWARD hard and soft services. Cleaning and hygiene, revenue generation streams. Creating a solid understanding of the waste management and pest control form part performance of similar industries in the of the soft services group and these services Key to this is use of Enterprise Resource surrounding vicinity of the business precinct are conducted daily, across the precinct. Hard Systems or Electronic Dashboard for logging is also important to ascertain how the market services relate to the maintenance of generators, in queries. Te organisation should look at the is infuencing rental rates and service provision elevators, fire systems, roller shutter doors, feasibility of capitalising on its IT infrastructure Dube City is the next generation retail, hospitality and business precinct – to tenants. Tis in turn provides a competitive utilities and HVACR systems. These services as this has more benefts in terms of Customer a purpose-planned airport city close to King Shaka International. And a city advantage for the organisation by demonstrating are scheduled and delivered monthly, quarterly, Relationship Management. understanding of its own value chain. In bi-annually and/or annually depending on built to connect you to the world … and move your business forward. RESOURCES addition, this provides a good platform for the legislative and business requirements. CUBE/36900 www.dubetradeport.co.za marketing, promotional and advertising General building maintenance is catered for Dube Tradeport 42 November 2013 SA Real Estate Investor www.reimag.co.za 36900_03_ad_rei_mag.indd 1 2013/08/19 12:35 PM

03 FROM AN OFFICE AT DUBE CITY TO MINUTES KING SHAKA INTERNATIONAL AIRPORT 120 000SQM 300SEATER OF BULK TO DEVELOP FULLY EQUIPPED CONFERENCE CENTRE 60 MASTER 30 & RESTAURANT YEARPLAN HOTEL FROM DURBAN ZONED FOR MINUTES 3 COMING SOON CBD BUSINESS 10BLOCKS RETAIL AND HOSPITALITY TO DEVELOP 1 GOAL TO MOVE YOUR BUSINESS FORWARD Dube City is the next generation retail, hospitality and business precinct – a purpose-planned airport city close to King Shaka International. And a city built to connect you to the world … and move your business forward. CUBE/36900 www.dubetradeport.co.za www.reimag.co.za 36900_03_ad_rei_mag.indd 1 2013/08/19 12:35 PM

STRATEGIES BY XOLANI MEVA Establish A Turnaround Strategy For your struggling shopping centre isappointingly perhaps, there is no blue Parento has reported that the most notable in. Often the temptation for the centre print or ‘one size fts all’ approach to shift in development activity in the past 12 management is to let out retail space as quickly Dturning around a struggling shopping to 18 months in the local shopping centre as possible, or to the tenant promising to pay centre. Te reasons a shopping centre may be industry has been towards the “RE” concepts the highest rent per square metre. Tis tenant struggling may be due to myriad factors, among of RE-brand, RE-furbish, RE-design and may however not necessarily be the type of others, general economic downturn, strategic RE-tenant. service the surrounding community needs, downsizing by chain stores, over-concentration and may therefore struggle, which will have of shopping centres (or overbuilding in same Upon completing an analysis, a plan can be a negative result on the shopping centre’s area or vicinity), the decline in the turnovers of developed around how to remedy the identifed fnancial performance. existing tenants, or even an increase in online shortcomings. The remedial plan may often shopping among consumers. necessitate redevelopment and market A balance needs to be struck when it comes repositioning of the shopping centre. Tis will to the re-letting of retail space between larger According to Parento Limited, a shopping centre almost always require more funding, ideally, tenants and smaller tenants, as while bigger investor in South Africa, although regional shopping lower debt and more equity capital to invest. tenants are generally more fnancially secure, centres should generally continue to perform if they do make the decision to close the store, reasonably well, landlords are currently being A new re-leasing campaign may also need to the shopping centre could be severely impacted. challenged with vacancies and resistance to rental be undertaken by an underperforming centre, It is also very important to consider aspects increases as shop tenants feel the squeeze of limited which could include focusing on new or improved such as the visibility of tenants inside the economic growth and rising consumer costs. anchor tenants, at better terms to the shopping shopping centre, the improvement of access centre as the better quality of an anchor tenant is to the centre by building extra and more In order to establish a turnaround strategy, a a draw card for visitors to the centre. It is highly convenient entrances, or the implementation of thorough analysis of the specifc circumstances important to secure a good anchor tenant, but it is methods to improve shopper circulation. surrounding a particular shopping centre also just as important to note that there should be should be conducted. It should analyse factors a second or third anchor tenant, such as a clothing All of these efforts will also need to be such as the competition, tenant mix, rental anchor, or an entertainment type anchor tenant, communicated to the general shopping community rates, centre physical layout / design, parking which will assist in fostering repeat customer in order to inform them of the changes and availability and the profle of customers (ie If visits. It is also worthwhile to secure a destination improvements which will be made. Marketing the shopping centre is located in a township and type tenant, such as sporting goods retailers or initiatives, such as events and entertainment, are the majority of shoppers do not have their own specialty goods retailers. crucial to assisting in re-launching the centre to the vehicles, is the shopping centre public transport surrounding community and existing customers. friendly?). Tis strategy is essentially a form of The above-mentioned analysis will have RESOURCES ‘re-researching’ the surrounding community, as also had to include research around what the well as the shopping centre facilities. surrounding community would be interested Business Partners Limited 44 November 2013 SA Real Estate Investor www.reimag.co.za

RELOCATING RENOVATING RE-FINANCING COMMERCIAL PROPERTY FINANCE FROM BIDVEST BANK Whatever you have in the pipeline, get the specialist financial solution for commercial properties up to R200 million. And take your business where it needs to be. Email [email protected] and your personal consultant will contact you. Call 0860 11 11 77 or visit www.bidvestbank.co.za www.reimag.co.za Bidvest Bank Limited (Reg No 2000/006478/06) is a licensed financial services and registered credit provider, NCRCP17. BlastBC 123478

PROPERTY FORUM FIVE TRENDS THAT WILL INFLUENCE WHAT HAPPENS NEXT IN THE SA PROPERTY MARKET PROFESSOR FRANCOIS VIRULY Francois Viruly is a property economist with over twenty years’ experience in the analysis of the South African property market. Professor Viruly lectures in Urban Economics, Property Development and Portfolio Management at UCT in the School of Construction Economics and Management. hile attempting to guess market trends is never an easy task it is nevertheless possible to suggest some drivers that will infuence what happens next in the South African commercial and residential property markets. These trends invariably have social, technological, environmental, W economic and political dimensions. First, global property markets are starting to strengthen, and it is likely that the reduce the amount that households spend on transport which means that these South African property market will do likewise in the next two to three years. In the funds become available for expenditure in other spheres. period 2002 – 2007 the South African property market went through a major boom with property values rising well above the infation rate. In 2005 residential property The fourth trend relates to the growing impact that the Internet is having on values were rising by some 30% per annum. A similar trajectory was experienced in the the built environment. One can to a degree increasingly speak of a scenario best commercial property sector with the Investment Property Data Bank (IPD) recording described as” Clicks and Mortar”. In a growing number of cities across the globe returns of some 30% in 2006. The oversupply of stock in both the residential information technology has infuenced the way that cities are managed. This and commercial property markets, hand in hand with the efects of the global includes fne-tuning transportation systems and the ability of city managers to fnancial crisis which tightened debt funding, resulted in a downturn of the South provide households with critical data and warning systems. Information technology African property cycle in 2008. Although the performance of the commercial has also altered the manner that retailers interact with shoppers. For instance, and residential property markets continue to be tampered by a sluggish macro information technology has redefned the way that books and music are acquired economy, there is growing evidence that the number of investment transactions by shoppers and is now starting to infuence the sales of clothing and groceries. As are rising and that vacancies are declining the commercial property market. a result, shopping centres are fnding new ways to attract shoppers - for instance retailers are ofering price discounts on items that are acquired on the Internet but The second trend is closely related to the growth of the South African middle collected at a physical store. class and the urbanisation of South Africa. Recent research undertaken by Unilever points out that South Africa’s black middle class has more than doubled over the Finally, investors are rapidly appreciating the benefts derived from green rating past eight years. Demographic forecasts also suggest that over the next twenty of buildings. Recently, the rise in electricity and other operating costs have eroded years the population of the Gauteng City region will have increased by 10 million investment returns, and as a result it is something that investors are tackling through people. The greater densifcation of South African cities, combined with a wealthier the adoption of appropriate technologies. Investors are also seeing the merits of African middle class, not only provides opportunities in the afordable housing “Green Buildings” in the marketing of buildings. It has not become uncommon for market, but also provides opportunities for the growth of inner-city retailing and large “Blue Chip” tenants to sign “green Leases” which require the property owner to the revitalisation of older parts of cities that have sufered from urban decay. perform according to certain green benchmarks. The improvement in South Africa’s urban transportation system provides a As property investments tend to be long-term in nature, it is of importance that further important trend. Arguably this is linked to the growing urbanisation and investors understand the parameters that may infuence the medium to long-term densifcation of South African cities. Efective public transport systems alter the performance of these markets. It means paying attention to the unraveling of way the built environment is able to combine home, work and play. It also ofers social, technological ( including public transport ), economic, environmental and development opportunities at stations and promote diferent uses linked between political trends. stations. Added to this, a well-functioning transportation system can signifcantly RESOURCES Viruly Consulting For answers from the Prof email your questions to [email protected] 46 November 2013 SA Real Estate Investor www.reimag.co.za

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INVESTMENT IN FIXED PROPERTY CAN BE FOR R VARIOUS MOTIVES, INCLUDING: Personal occupation and use Site assembly Demolition and reconstruction Income return (that is, purely for the income stream that is derived from one CASH month to another from the investment) Capital return (that is, for the dierence between the purchase price and the sale price of a property) Risk diversication (that is, to allow the investor to spread his or her invested The return which investors who place their monies between two or more investment opportunities) money in the bank or the money market receive is termed interest. Interest returns are largely dependent upon PROPERTY START money from the public and the central bank as the rate at which commercial banks borrow HERE well the amount invested. Investment in xed property, whether via direct holdings or indirect That is, as the amount invested increases, so the interest rate earned will increase. holdings, is the fourth investment alternative within an economy. THERE ARE THREE FACTORS THAT So if you invest R50 in the money market at a Direct investment is less tradable than indirect investment, return of 8% per annum, at the end of 12 as will become apparent later. MOTIVATE THE INVESTOR TO MAKE AN Investment should always be understood as the foregoing of an amount of months you will have R54. If you leave that R54 INVESTMENT IN INCOME-PRODUCING FIXED PROPERTY money so as to earn a potential future return thereon from the proposed in the money market account, at the end of a investment. This means that investors within a business opportunity – including further 12 months, you will have R58,32. So property investors – allocate their cash resources (from equity and debt) towards THE AIM OF such investment opportunity in an eort to receive a future benet, which, over a you have gained 32c on your investment from the PROPERTY INVESTMENT period, is anticipated to be higher than the original outlay. interest the previous year, as well as R8 RISK DIVERSIFICATION over the last two years. Thirdly, investors hold commercial NET INCOME property to achieve diversication. 4 TYPES OF INVESTMENT Firstly, there is the net income to be Diversication results in lower risk bonds, including treasury bills made from rent collections after across a portfolio of investments. cash holdings operating costs have been paid. equities (via the stock exchange or privately owned) RENTAL INCOME property. The return that investors in xed property hope to achieve is termed CAPITAL GAIN BONDS rental income. Secondly, there is the capital gain to made from the increase in value which a commercial property achieves in an CAPITAL APPRECIATION inationary environment. Bonds are long-term debt instruments used by business and government to raise The additional value, net of ination, If the credit standing of the ultimate payer large sums of money, generally from a diverse group of lenders. Typically, a which accrues to a property during the of a bond is considered intrinsically sound, bond will have a stated (semi-annual) coupon interest rate and an initial the anticipated payout of the bond is holding period, is termed capital value maturity of from 10 to 30 years at which time the par (or face) value of the FINANCIAL LEVERAGE appreciation. considered to be risk-free. In South Africa, bond must be paid to whoever is holding the If the rate of return on a property one of our risk-free bonds is the RSA 186. bond at the maturity date. exceeds the cost of nancing the The contemporary rate that a risk-free bond property, it is probable that the pays represents the risk free rate used to nancial leverage that can be discount future earnings to a present value obtained through ownership The challenge which investors in the and adjusts periodically in accordance with will be benecial. share market face is that the directors market sentiment as to future INFLATION HEDGE of the company into which they have ination and business risk. Provided one can ensure that the invested their money manage A bond is a long-term loan, which the initial rental income and capital appreciation their funds. bondholder makes to the issuer for which the exceeds the ination rate during the bondholder receives a bond certicate. The bond investment period, investment in certicate is a promise to pay periodic interest at the property can act as a method of coupon rate as well as the loan value (par value) of reducing ination-related the bond to the bondholder at a point in the distant SECURITY value erosion. future. The initial bondholder – as well as several Because the use of property is EXAMPLE bondholders thereafter – will trade their certicates fundamental to modern society, it is An example, if you bought shares in Facebook (often termed “paper”) by selling their right to the regarded as a secure investment, in 2012 and they cost you R10 per share, and you future interest income for a discounted, up-front provided that the risks associated with bought 10% of the shares, you will receive a payment balloon amount. The subsequent bondholder then the ownership of property can be at the end of nancial year based upon how many becomes entitled to the cash benets of the bond successfully mitigated. shares you bought and how well the company until (s)he on-sells the bond to another person for a did nancially. Your shares can also become more further discounted, up-front balloon amount. valuable, so if you decide to sell you can make a prot. EQUITIES(SHARES) If in 2012 your shares were worth R10 and you had 100, and in 2013 those same shares were worth R15, The purchase of shares in a private or public or public listed company then when you sell, you will get R1500, but you means paying one’s money into a company in return for the right to rst invested R1000, so you have receive a dividend, which dividend is normally dependent upon made a R500 prot. the success of the company so invested in. 48 November 2013 SA Real Estate Investor