Happy Spring Day

Hello From Plett - September 2012

Spring is upon us, at last.  Let's all say a resounding goodbye to winter.  Everything is green and flourishing and is starting to bud.  Hopefully, this is a sign of good things to come and a prosperous year ahead.

August has been a sad month in Plett, with our Lagoon's new mouth claiming six lives in a tragic, family fishing trip gone horribly wrong.  Members of the Wildeman, Waits and Figland families, including an eight year old boy, drowned when their small boat capsized in the river mouth.  Extensive searches by NSRI, AMS Helicopters and police divers resulted in the recovery of four bodies, two men are still missing.  The whole community mourned these deaths involving three old Plett families.

On a lighter note, we are very proud of our RE/MAX Sales Associate, Bruce Noble, who has stirred, fried and grilled his way into the final of Plett's "So You Think That You Can Cook" competition, with a prize of a family trip to Mozambique.  Good Luck Bruce!!

We have seen a definite increase in interest in property over the past couple of months.  Volumes of sales have increased but prices remain low, with many bargains to be had.  Buyers still have plenty of choice. 

Understanding Capital Gains Tax

It is important for property buyers and sellers to be aware of the implications of capital gains tax (CGT) and how it could affect their future property transactions.  CGT is tax payable by the seller of an asset or fixed property on the profit made from the transaction, and applies to all South African resident taxpayers, companies, close corporations and trusts.

It includes any capital gains made from the sale of assets both here and overseas.  Resident taxpayers who are not South African citizens and who sell immovable property in SA are also liable for CGT.  However, Adrian Goslett, CEO of RE/MAX of Southern Africa, said there were certain exclusions applicable to CGT.  'For example, if an individual sells their primary residence they will need to make more than R2 million profit on the sale before CGT is applicable.'  A primary residence is defined as a property that is owned by a natural person.  It must be the main residence of the individual and must predominantly be used for domestic purposes.  Deductions would be made from the exempted gains to account for periods when the property was not used as a primary residence or was used as a business property. 

According to Goslett, where a primary residence is registered jointly in the names of a husband and wife, they would each benefit from a respective R2-million abatement on their share of the capital gain as both are considered taxpayers. However, both parties would have to reside in the property and a husband and a wife could not each have a primary residence.  No exemptions apply to capital gains from the sale of a second house or holiday home. 

'To calculate the capital gain of a transaction, sellers need to deduct the price of the property sold from the base cost of the property.  'The base cost is calculated by adding the original price paid for the property to the total cost of buying and selling the property, including the estate agent's commission, attorney fees and the cost of any inspections by electricians or plumbers.  'The cost of any renovations that qualify as improvements to the property can also be included; however, costs of routine maintenance may not,' says Goslett.

He said the SA Revenue Service wold then calculate CGT based on the net profit realised.  'The capital gain amount will then be added to the individual's income and taxed according to the tax brackets.  'The CGT becomes payable when the individual's income tax return is submitted at the end of the financial year during which the property was sold.'

Should You Rent Or Buy In Today's Market?

While current conditions have opened up the property market to many buyers that may not have been able to purchase property during the boom period, some consumers are still hesitant to dip their toe in the property ownership pool and would rather continue to rent, says Adrian Goslett, the CEO of RE/MAX of Southern Africa.

"For certain buyers, it is a question of whether they feel it is currently more financially sensible to buy their own property or to just rent one until they see more drastic improvements in the market," says Goslett.  "However, for others there is far less choice in the matter.  While the number of South African homeowners has risen over the past 10 years, many are still struggling to show the necessary affordability levels required by financial institutions and have no choice but to rent.  The South African personal debt-to-income ratios remain relatively high and many aspiring homeowners are working on reducing debt levels in order to take advantage of the opportunities available for buyers in the present market."

With banks' lending criteria still strict and approximately 51% of home loan applications being approved, demand for rental property has increased dramatically over the last few years.  The rental market continues to see an influx of tenants looking for rental property at reasonable prices.  "The increased momentum in the rental market has been greatly welcomed by investors that have a buy-to-let portfolio.  There is a constant demand for rental property and it is relatively easy to find tenants.

"From an investment perspective the low interest rates have meant that investors who have financed their purchases will be paying less on their monthly bond repayments and seeing a greater return on their investment," says Goslett.  "The market conditions are also primed for investors that have the access to finance to purchase additional property and to build their portfolio."

According to Goslett, in some cases it is more feasible for consumers to rent, particularly if they are unsure of their future plans or where they want to be in the next five to ten years.  "Purchasing property is a long term commitment, while some consumers may want the freedom to relocate to a different city for employment reasons or a change in lifestyle.  Sometimes tenants can also find property that they can afford to rent, that they probably would not be able to afford to buy," he says.

Goslett says the money saved by renting could be put towards buying property at a later stage or could be used to bring down household debt levels.  "However," he says, "many consumers end up increasing their living standards rather than saving that money and paying off debt."  Therein lies the crux of the matter.  Many consumers lack the restraint to withhold on living above their means so they can save.  Goslett says the big argument for buying a home instead of renting one is that owning your own home is in fact a kind of forced saving.  "The reality of the matter is that most South Africans do not save enough money for their retirement.  The country's current household saving rate is around 16%, which is relatively low when compared to other emerging markets.

"However, being able to sell your home that you paid off over 20 years, and downsizing will no doubt offer welcome financial relief when it is needed most.  South African's that have rented for their entire lives will have no asset to sell."  To make the most out of property investment, the secret is to get into the market as early as possible, advises Goslett.  "While a buyer may have to initially tighten their belt to meet the monthly repayments, assuming there are no drastic changes, a 20 year bond will decrease in real terms as the buyer's salary increases, making the bond more affordable as time passes.  This means that the earlier a buyer gets into the market, the better off they will be," he says.  "If possible, homeowners should also try and put any extra money into their bond to reduce the terms and save on the interest paid on the loan."

Whether renting or buying, each option has its own advantages and disadvantages.  "Each consumer is at different stages of their lives which involve different needs and levels of affordability.  Renting can give a tenant the flexibility they may require before they make a long term commitment, while buying can provide a homeowner with an asset to their name that will certainly show good returns in time to come," Goslett says.

Low Rates Assist Property Homebuyers

The interest rates have remained at a 30-year low since November 2010 and are likely to stay there a while longer, says Adrian Goslett, CEO of RE/MAX of Southern Africa.  Why is this important for the South African property market and homeowners?  "The majority of South African homeowners and buyers are loan dependent and require financial assistance to purchase property.  This means that the interest rates will affect most consumers at some stage of their lives in some way," says Goslett.

He notes that the interest rates have a massive affect on the property market and particularly consumers who are already homeowners.  If a person has chosen to fix their interest rate amount then they will be much less affected by the fluctuations of the rates over the term of their loan.  However, homeowners who haven't fixed their rate will have reduced monthly repayments the lower the interest rate and increased repayments if it goes up.  "A low interest rate could give a homeowner the ability to pay extra money into their bond, reduce the term of the loan and pay it off faster, without affecting their monthly budget to severely," he comments.

During the boom period banks were offering a repayment percentage on residential property of prime less two.  This is no longer the case and most financial institutions are offering a rate of prime.  "However," says Goslett, "this still translates to a reduced repayment on new loan agreements because since the boom period the prime interest rate has been reduced by 5,5%.  In fact, in today's property market the overall monthly bond repayments are a great deal cheaper.  This, coupled with where property pricing is at the moment, makes it an ideal time to buy property."

Aside from the possible fluctuations on repayments for homeowners, the interest rate directly affects buyers wanting to purchase property and how much they can afford.  Since the introduction of the National Credit Act, banks have put a lot of emphasis on affordability levels.  "The interest rate will impact the size of the bond which a buyer will be approved for.  If the rate is lower, it is likely that the buyer will be able to afford a larger bond, provided all other aspects are in place," he mentions.  "Paying interest at a lower rate will indirectly put more disposable money in the buyer's pocket and drive demand in the property market.  More and more buyers with a clean credit record are finding it easier to raise finance and purchase property.  The increased demand will push property pricing up at some stage and increase the home's value over time."

From an investment perspective the increased demand in property and the reduced monthly repayment will result in investors gaining more from their property portfolios.  Property investors who have a rental portfolio, for example, will be able to charge the same rental for their units, while paying reduced bond repayments resulting in greater profit.  The less interest that is paid on an investment property each year means the less net return that will need to be realised for the owner to see a return on their initial investment.

"Consumers who are interested in making the most of the current interest rates and want to invest in the property market should approach a bank or a reputable mortgage originator such as Betterbond, to ascertain exactly how much they can spend.  Some may be surprised at the opportunity the interest rate has created in the market," concludes Goslett.

Pros and Cons of Property Partner Purchases

While property pricing and market conditions favour buyers, many are still struggling to meet the lending criteria of financial institutions.  In light of this, many buyers are choosing to partner with a friend or family member to purchase property together, says Adrian Goslett, CEO of RE/MAX of Southern Africa. 

In today's property market, co-ownership has become an especially attractive option as the shared costs make it a much more affordable venture.

Although some banks no longer offer joint cheque or savings accounts; Goslett says that due to the vast number of buyers who are choosing to co-own with another party, many lenders do offer joint home loan accounts or mortgage packages that cater specifically for this situation.

"There are definitely advantages of buying property with a partner, such as the greater prospect of finance being approved as well as the possibility of obtaining a bond for a higher amount.  Additionally, there is the benefit of a reduced individual financial commitment as all costs during and after the purchase process are shared.  Both parties can contribute to the deposit, transaction costs, bond repayments, as well as the maintenance and utilities bills," says Goslett.  "However, it is important that co-ownership is handed in the correct manner and that all aspects are discussed before any transaction has been concluded.  It is advisable that there is an agreement in writing that is signed by both parties, should any dispute arise in the future."

Goslett notes that some of the points that should be discussed and agreed upon between the parties are aspects such as what each one wants from the venture, how long they plan to live together, and what happens if one wants to sell their share of the property in the future.  The future plans of both parties will have a major impact on the partnership and how viable it is.

Each of the respective parties will have to be in agreement with regards to their expectations as well as their individual responsibilities.  "Along with the shared costs, also comes shared responsibility.  To protect both co-owners, each partner should keep a record of all documents and payments made that relate to the property they jointly own.  If one person defaults on any of the payments, all partners will be held liable.  It is for this reason that choosing the right person to buy property with is so important and should be considered carefully.  The relationship must be based on trust and each partner should be open and hones with the other.  All financial matters or difficulties that could affect the property should be discussed, so that they can be dealt with appropriately before a problem arises.  For precautionary measures each partner should also have a will drawn up that addresses what will take place should anything happen to either party," advises Goslett.

He notes that those who want to purchase property with a partner have chosen the right time to do so.  "The conditions in the market such as ideal property pricing and low interest rates have given rise to many opportunities in the property sector.

Through sharing the deposit and bond repayments, those who are unable to show the necessary affordability on their own, can still take advantage of the current buyer's market by investing with a trusted partner," Goslett concludes.

Ask The Right Questions

As the biggest investment decision many South African consumers will ever make, purchasing property is not one to be taken lightly and it is important for buyers to ask the right questions before committing to such a large investment.

The most important factors that buyers need to think about when searching for property in which to invest are:

WHAT DOES THE FUTURE LOOK LIKE?

Property investment is a long term commitment, so know what the plan is for the future.  A property that may meet the requirements of a buyer now, might not in a few years time. Consider the property’s location and the size and shape of the stand.  A young couple may be happy with a small home for now, but they may want to build on at a later stage and extend the size of their home for chidren. It is also important to consider the home’s proximity to amenities such as good schools, medical facilities and business districts.

IS THE HOME STRUCTURALLY SOUND?

While there are good value-for-money homes that require some attention, certain fixer-uppers can be an investment nightmare if the structural integrity has failed.  Some cracks in the walls might be insignificant. However, structural cracks, which are deep and appear on both sides of the wall, can indicate that the foundation has failed or that there is severe structural damage to the home. Once a property has been built, it is a very costly affair to rectify structural damage, if it can be rectified at all. Buyers should look out for heavy filler work on the walls, diagonal cracks running from the corners of window or door frames and deformation along roof lines. If in doubt, ask a structural engineer to inspect the property to make sure.

ARE THE PLANS OF THE BUILDINGS LEGAL?

Buyers can make an enquiry with the local municipality to ascertain whether the buildings on the property are legal and built to the required standards. Any building that has not been approved through the necessary channels will not appear on the database and will be deemed illegal and could very well be built to substandard criteria. The records of the property will also show the current zoning of the property and its development potential if the buyer would like to add on at a future date.

IS THERE A LEAKING ROOF OR WATER DAMAGE?

Having water in places it shouldn’t be is never a good thing for a home. Water damage or rising damp can also be a costly exercise to repair. Look out for areas in the home where the paint is scaling or bubbling, as these are usually indications that there is damp in the walls or ceilings. If buyers are unsure, they can get a plumber to check the property or they can request the seller to provide them with a certified plumber’s certificate, although it is not required by law.

ARE ALL FEATURES OF THE HOME IN GOOD REPAIR?

While a home with a swimming pool is appealing, if the pump is not working or the pool is leaking, it will only cause headaches for the buyer in the long term. Inspect all aspects of a home such as the electrical wiring, although the seller is obliged to provide the buyer with an electrical compliance certificate, it might be worthwhile getting an independent electrician to go over the home.

Buyers must always do their research and take their time to ask themselves whether they are making the best possible investment decision. The old adage that knowledge is power has never been more appropriate than when investing in the future and one’s home.

Happy Women's Day

Tips For Buying Investment Property

Purchasing an investment property can be an intimidating and often risky business, but it is also a way to ensure a solid financial future for those who can master it.

While seasoned property investors will generally have a vast understanding of the property market, many first-time buyers or those relatively new to the property game will often make the wrong and sometimes very costly decisions. Although lucrative opportunities can be found in the current market, it is important for buyers to avoid certain pitfalls that can impact on their return on investment.  

Any property buyer should take note of the following tips:

Have patience, don’t be in a hurry - Take the time to do the necessary research.

Location is everything – The importance of buying in a prime location cannot be over emphasised. A property in a bad location will never fetch a premium price, even in a boom period.

Don’t make assumptions - It is always advisable to have a professional home inspector to take a look at the property.

Seek help, don’t do this alone - Rather learn from other people’s mistakes than your own. Most buyers should seek guidance and advice from other seasoned investors and real estate professionals.

Keep an eye on the budget - Investors should undertake an in-depth budget and cash flow analysis in order to ascertain their accurate financial position. Buyers should also compare financing deals from various financial institutions before deciding to secure their home loan. 

Proper maintenance - Whether the property is bought as a primary residence or as part of a rental portfolio, keeping the property in good order is a vital part to ensuring a good return on that investment.  Buyers should include maintenance costs as part of their budget and plan and ensure they have the time or capacity to properly manage and maintain their property.

Don’t put all your eggs in one basket - When buying property specifically for investment purposes, it is imperative to diversify your portfolio. This will largely minimise exposure to risk. Buyers should try to buy different kinds of properties in various areas, rather than buying a few properties in one development.

Property buyers should learn as much as possible about the environment they are trading in, consult various experts and make use of professional, reputable and knowledgeable estate agents to assist them in the sales process.

Hello From Plett - August 2012

Winter has certainly made itself felt in Plett this year, with daytime temperatures down to 6 degrees at times, but as is always the case, in the area, this freezing and very wet weather has been interspersed with the most stunning, bright, crisp and gorgeous sunny days!

The worst of the weather over July caused the Bitou and Keurbooms Rivers to flood again, from excessive rainfall in the high lying areas, bringing a wave of trees and debris into the Keurbooms lagoon, and most dramatically, being instrumental in the opening of a new mouth in the lagoon, almost opposite Plett Caravan Park.  We now have two mouths vying for dominance, causing much speculation as to which one will remain and which will close up.  Local residents are closely watching developments here, which could have an impact on the Poortjies area.

The shock announcement made by Human Settlements Minister, Tokyo Sexwale, on 31st July, of the disbanding of the Estate Agent's Affairs Board, has left the property industry reeling.  Bad service delivery by the Board has been a complaint from the industry for many years, and we eagerly await an announcement of the way forward.

We have all been glued to our television sets watching our athletes and swimmers at the Olympic Games in London.  At the time of going to print, we have two gold medals from swimmers Cameron Van Der Burgh and Chad Le Clos and a third gold medal from our rowing team, Sizwe Ndlovu, Matthew Brittain, John Smith and James Thompson.  Well done boys!  We are so proud of you!  I think that each and every one of us gets a little teary eyed when we hear our National Anthem being played.


GO SOUTH AFRICA!!