Category: Real Estate (8)

A closer look at listed property and buy-to-let residential property investments.
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The year 2016 has seen volatile financial markets globally with the commodity cycle still in recovery mode, economic growth in many countries still faltering and the roller-coaster political landscape.

Arguably, investors cannot be blamed for their conservative appetite for risk as finding investment gems is increasingly becoming difficult when the immediate future looks uncertain.

At a time when equities, bond and currency markets are under pressure, market watchers continue to find value in real estate markets during tough times – whether hitching their  wagons to physical properties or listed property stocks.

On the latter, investors would be normally investing in a property company, which owns physical property assets and collects rental income from its tenants that can be distributed as dividends payouts.

“That’s why listed property is much more defensive than any other sector on the JSE,” said Stanlib’s head of listed property funds Keillen Ndlovu at the Liberty Retire Well Masterclass last week.

Although SA’s listed property sector did not initially pique the interest of many investors, who often had a bias toward equities, the sector has since courted a strong following.

Listed property firmly outperformed equities (JSE All Share Index), bonds (ten-year government bond) and cash over the past ten years in terms of total returns. This has since firmly entrenched the asset class as a bellwether.

The sector has also seen a flurry of JSE listings – from having only 20 property companies on the bourse five years ago to 44-odd companies that invest in student accommodation, shopping malls, office, industrial and residential properties.

Ndlovu said the listings have offered investors choice as SA’s property market has opened up to offshore markets, giving investors access to hard-currency earnings.

Underscoring this is figures from Stanlib which reveal that ten years ago the sector had no exposure to offshore markets and so far this year, 37% of earnings derive from markets including the UK, Australia, Central and Eastern Europe. “If you invest in some SA-focused companies, you are also getting exposure to offshore markets,” he explained.

Having listed property in your investment portfolio helps to boost returns. For example, Ndlovu’s figures show that if your portfolio is 60% invested in equities, 30% in bonds and 10% in cash over 15 years – you would have achieved a 13.7% annualised total return.

“If you add 5% of property exposure, you get a total annualised return of 14%. Add another 5%, you get 14.6% and add another 5% you get as much as 15% in total returns. But you have to focus more on the long-term.”

He believes that listed property allocations in an investment portfolio should be 10% to 20%. But this depends on your risk profile.

Despite SA’s worrying state of the economy and the pesky rand, SA’s listed property sector is achieving an average forward yield of 7% and property companies are expected to post inflation-beating dividend growth of 8% average for the next 12 months.

Investment property

Residential buy-to-let properties continue to be beset by humdrum rental growth and property returns that have dimmed the allure of owning a rental property as an investment.

Latest figures from credit bureau Tenant Profile Network (TPN) and FNB show a rise in buy-to-let rental yields since two years ago.

National gross rental yields (before the rental properties’ operating costs such as electricity, water, maintenance, rates and taxes are accounted for) marginally rose to 8.6% in the second quarter of 2016 from 8.5% in the first quarter.

Rental yields are a key metric for a rental property’s return on investment, expressed as rental income over costs associated with the property.

To make matters worse for landlords, the upkeep costs of a rental property continue to rise faster than rental growth, eroding returns.

Finding value in the rental market is fast-becoming area specific.  For example, if landlords are looking for better rental yields, TPN and FNB figures suggest that they might have better luck Johannesburg (9.51%) than in Cape Town (7.71%).

Despite tenants facing the sustained rise in living costs, interest rates, and unemployment, TPN MD Michelle Dickens said the national rental payments trend is still stable.

Dickens said 66% of tenants nationally and across all rental value brackets are paying rent on time and in full; 6% are in the seven-day grace period; 10% are paying their rent partially, and nearly 6% of tenants are not paying rent at all.

The best performing rental value bracket is the R3 000/month to R7 000/month bracket, which makes up 55% of the rental market share.  The below R3 000/month is performing badly due to affordability issues.

“Investment property is still bricks and mortar, and you are still having capital growth albeit it’s not great at the moment. But ultimately it’s about the management of that property,” she added.

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The ratings agencies have been circling for months with many fearing a downgrading to junk status, and South Africa’s economic growth rate has been narrowed from 0.8% in February to 0.5%.

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It’s fair to say that South Africans are feeling the pressure of a struggling economy – something that’s set to continue into 2017 and beyond.

During his medium-budget address Minister Pravin Gordhan announced that additional taxes to the tune of  R43bn will be raised over the next two years, with R13bn being raised next year to bring the total tax increase to R28bn in 2017/2018. Whether these taxes will be in the form of company or personal taxes, sugar taxes or VAT remains to be confirmed, what is certain is that it will all feed down to households at some point.

“Admittedly Minister Gordhan has limited space to manoeuvre within the current framework and we support his call for a tightening of belts. That said, the proposed tax increases will certainly place the residential property market under further pressure”, believes Bruce Swain, MD of Leapfrog Property Group.

According to the FNB Property Barometer; “The housing market slowdown has become more broad-based, with a loss in quarter-on-quarter house price growth momentum across all 4 Major Metro Area Value Bands recently”. John Loos, FNB Household and Property Sector Strategist, attributes this to mounting financial constraints due to “house price inflation exceeding per capita income growth, rising interest rates, and growing concern amongst consumers about their economic and financial future in a very weak economy. As yet, though, there is not widespread financial stress”.

Advice to Home Owners and Buyers Alike

“At this point my advice to homeowners and buyers saving up to purchase a home is to assess their fixed costs – adjusting their budgets accordingly. It’s almost certain that utilities like water and electricity and petrol prices will increase over the next few months as well as the tax increases. As such it’s crucial for households to review their budgets to ensure that they’re able to cover the basics. It’s also critical to settle as much debt as possible to avoid further pressure on household finances”, says Swain.

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This months emailer pays homage to the Epping of old and takes a look at the great warehousing that is currently available.

Give us a call if you want to book a property consultation!

A bit of History – Epping is an industrial area of Cape Town that is situated centrally on the N7 south of the N1, 15km’s east of Cape Town and north of the N2. Epping Industria was first developed in the late 1940s. Industrial development was initially slow and in the early 1950s the circular Gunners Circle was used as a race track for cars. When industrial development picked up in the late 1950s the racing was stopped. The completion of the Athlone Power Station close by assisted in the proliferation of industrial businesses into the area in the mid 1960s

Epping Industria is the largest and most centrally situated industrial area in greater Cape Town.ts proximity to the major roadways and the availability of most forms of public transport make it an extremely sought after location for business.

 

The City has completed the General Valuation for 2015.

Property owners will soon receive an official notice in the post or via e-mail, advising
them of the 2015 valuation of their property/properties. This is the first year that the total valuation of all rateable properties has passed the trillion rand mark in value.

The City’s latest general valuation shows that the total valuation of all rateable properties has increased from R911 billion in 2012 to R1 156 billion in 2015. Property owners would therefore be encouraged to see that their property investment is still increasing in value in most areas in Cape Town.

In total there are 845 764 rateable properties on the General Valuation Roll (GVR) for 2015. The largest portion of properties comprises residential properties (719 681). It also includes, among others, 31 296 commercial properties.

The General Valuation (GV) for 2015 was signed off by the Municipal Valuer on 29 January 2016. It was published on 19 February 2016. Property owners will also be able to view the latest GVR for 2015 by visiting www.capetown.gov.za/propertyvaluations.

South African Reserve Bank (SARB) governor Lesetja Kganyago on Thursday announced a 50 basis-point increase in the repo rate to 6.75%, in line with the consensus. This means the prime lending rate will now be 10.25%. Print Send to Friend 0 0 Lending rates have risen by a cumulative 175 basis points since late January 2014. Kganyago said the SARB’s latest inflation forecast has deteriorated. Inflation is still expected to breach the upper end of the target and remain outside its limits for the entire focus area. More Insight SARB facing dilemma over growth, inflation – governor The deterioration in forecast is mainly due to the exchange rate assumption and expected higher labour costs, he said at the end of the SARB’s first monetary policy committee (MPC) meeting for the year. The rand immediately firmed to R16.27 from R16.33 following the announcement, while Kganyago was speaking. Jacques du Toit, senior economist at Absa, said the MPC’s decision to increase the repo rate again after announcing a rate hike in November was taken against the background of factors such as the sharply weaker rand exchange rate since late last year, anticipated food price increases in the near term because of the impact of the severe drought and the possibility of above-inflation electricity tariff hikes this year. Ahead of the MPC meeting debt experts warned that an increase would be devastating for consumers, especially those already burdened by a high level of indebtedness. DebtBusters CEO Ian Wason said consumers need to prepare themselves and find other means to pay their monthly expenses as opposed to taking out loans. DebtBusters’ latest Debtometer Report shows that its clients require 102% of their net income to service their debt before paying for any living expenses. He said middle- and-upper income earners in particular should watch out for higher living expenses and factor these into their monthly household budgets. 

 

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Analyzing industrial property by box size reveals that there is currently more space available in middle of the range properties, particularly those sized 2,500sqm to 5,000sqm. Interestingly, the smallest and largest box size segments recorded the largest improvements in vacancy rate. This is perhaps surprising given the state of the economy and also the fact that smaller tenants may be more vulnerable to exchange rate movements. What it could potentially indicate is that most occupiers are downsizing their operations – requiring less space.

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Cape Industrial Property was recently awarded the Project Groundbreaker award by Growthpoint Properties.
Project GroundBreaker is the Industrial Property Award that forms part of Project Millionaire, Growthpoint’s broker incentive program.

Cape Industrial Property

Cape Industrial Property

Cape Industrial Property Managed to win the Western Cape regional prize achieving the highest value for leases concluded over the past 12 months for warehouse space in the Growthpoint Industrial Property Sector.

Cape Industrial also managed a second place nationally.

The award seremony was held at the Barnyard Theatre in Rivonia.

Reserve Bank

South Africa’s central bank raised its benchmark interest rate for the first time in a year, following through with warnings to tighten monetary policy as inflation threatens to exceed the bank’s target.

The repurchase rate was increased by 25 basis points to 6%, Governor Lesetja Kganyago told reporters on Thursday in Pretoria. This was in line with the forecasts of 17 of the 31 economists surveyed by Bloomberg. The rest expected no change.

The Reserve Bank kept borrowing costs unchanged since July last year to help support an economy hit by strikes, power shortages and falling global metal prices.

While inflation has stayed within the 3% to 6% target since September, a weaker rand and rising electricity costs threaten to push it outside of that band.

The central bank wants to “ensure that inflation expectations remain firmly anchored”, Jeffrey Schultz, an economist at BNP Paribas Cadiz Securities, said in an e-mail to clients before the decision.

African central banks are bucking a global trend by raising interest rates to ward off inflation risks stemming from weaker currencies put under pressure by a slump in the commodities that make up the bulk of their exports. Uganda, Namibia, Angola, Kenya and Ghana have all tightened monetary policy this year.

Speculation that the United States Federal Reserve may increase interest rates this year has curbed appetite for emerging-market assets, contributing to the rand’s 7% slump against the dollar this year. That is adding to import costs, including gasoline prices.

An energy crisis is clouding the outlook for economic growth and inflation. Eskom Holdings is implementing regular rolling blackouts because it can’t meet power demand, hurting retailers and manufacturers. The state-owned utility is seeking to raise tariffs, even though its request for a 25% increase was denied last month.

Africa’s second-largest economy expanded by 1.5% last year, the slowest growth since the 2009 recession.– Bloomberg

Original Article: Mail & Guardian