NEWS

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August 2008

Jordaan of Multi-Projects bullish on the future – if the banks play ball.

In response to the decision to leave the repo rate untouched Monté Jordaan, MD of Somerset West-based investment property marketing company Multi-Projects, has much to say about the current property market environment – and the way
forward.

“ The decision to leave the repo rate unchanged will go far to calm the market and will start to bring back confidence to an
unstable market, since sales during June and July were dismal, to say the least. The constant increase in interest rates has had a very detrimental effect on developments, since the bulk of sales are investor-driven. The normal residential market
and commercial market were also badly hit. Sales are slow and asking prices not regularly achieved. “Investors want stability, which we have not had in the property market for a while due to the rising interest rate cycle. Clients are worried that we go might go back to the rates of 1998 of 25%. Hopefully, the rates have now peaked. If the Reserve Bank leaves the rates unchanged for the next two or three quarters we will see buyers returning to the market in numbers. “It is widely expected that the interest rate will drop during 2009. It is also widely expected that the next rate change will in a downward direction. When interest rates drop, property prices rise. “We are also seeing much stricter credit granting guidelines from banks - 100% bonds are mainly a thing of the past.

Banks now demand deposits and transfer fees are no longer financed. This will underpin the rental market, as first-time home buyers will be the worst affected, and will need to rent. They are now required to pay a deposit of 5-10% and to pay the transfer and related fees and costs themselves. Just think how long it takes a young couple to save up the deposit of R50 000 to R75 000 to fund these expenses – years. They will be forced to rent and will add to the currently buoyant rental market. We believe that the rental market still has a long way to go before that market will be saturated. “Banks’ mortgage finance practices are now going back to the 1980s and 1990s where a prospective buyer was required to pay a substantial deposit or even to provide collateral.

“The market has also been badly hit by FNB’s decision to reassess bond applications older than 12 months. These bonds are mainly development-driven and up to 3000 of them could be affected. This places the client, developer and agents in a ‘Catch 22’ position - clients are still bound by the contract and could face losses from losing their deposit to claims for damages from affected parties.

“Then we still have the ‘access’ bond- type business from ABSA under review, affecting clients and small business owners that used these facilities to store surplus funds. This added to concerns and just added fuel to the fire! All of this is tied to property since it is the supporting asset class – and it also fuels negative perceptions of property by the consumer.

“The credit ‘party’ is over and we are back to business as usual - with a ‘hang over’!
We advise investors to grab the bargains/ best buys now, since construction of new developments is on a low due to weak
sales. This will result in a shortage of stock
in the latter part of 2009/beginning of 2010
“The South Africa property market is fundamentally sound and in a state of good health. The current blip will be shortlived,
and we will be seeing a return to substantial growth in the last quarter of 2009 or first quarter of 2010. We also believe that the 2010 Soccer World Cup must have some positive effect on sentiment and add to financial prosperity in the property sector, especially in the tourism areas. “It is of the utmost importance that clients to remain calm under these difficult circumstances. They must focus on the longer term. Property moves in quarters, and not months. The market will recover and all of this will soon be a thing of
the past.”

Contact Monté Jordaan of Multi-Projects:
Cell: +27(0)72 952 2667
Office: +27 (0)21 850 9620
E-mail: info@multiprojects.com
Website: www.multiprojects.com

February 2008

What impact are ongoing electricity black-outs likely
to have on the property market?

In response to the above question Monté Jordaan, MD of Multi-Projects, an investment property marketing company based in Somerset West, says: “We do not know how great the impact on the economic growth of South Africa is going to be. Only time will tell on that score. But we do believe that the energy crisis will have an effect on property developments - and developers who do not plan for alternative energy sources will suffer.

“Developers and developments that incorporate alternative energy sources to Eskom-produced power will flourish. Developments with generators and alternative ‘green’ sources of power (such as solar panels) will be in high demand. Security that runs off solar panels or stand-by generators will also increase in desirability and value, since power-cuts increase security risks. The smarter developers that apply creative thinking will survive and prosper. Developers are committed capitalists - and they will find solutions!

“ However, as indicated by Eskom, all the indications seem to be that power cuts are likely to accelerate until well into the future – and major power stations require about 5 years or longer to construct. This could mean fewer developments taking place, or lead to them being postponed for several years. This in turn will result in less stock being available, especially residential units. John Loos of FNB believes that the demand for residential property in the affordable market of up to R800,000 will increase. This increased demand will lead to increased prices in this category - while a shortage will drive the prices up further. We further believe that landowners that want to dispose of their land for development purposes (especially unzoned land) will see a dramatic reduction in their expected values, due to the economy cooling down, the increased development cycle, and the increases in holding costs for developers. These costs cannot just be passed on to the consumer; the consumer market is currently very price- sensitive.”

Jordaan says he believes that the interest cycle is very close to its peak, and that we could see reductions in the first half of 2009. “Taking all of the above into account, one must always remember that investing in property is a long-term journey and not a quick one; investors must remain calm and focus on the longer term. The South African property market is still exhibiting the characteristics of a normal market, it is just ‘taking a breather’ from a 5-year growth period. I am sure that it will continue its positive run in and from 2009 to 2012/2014. For those who want to invest in property, now is the right time to buy - especially in new developments that will only be completed in 2010 or thereafter.

“ People must not make hasty, irrational decisions and sell their properties without considering all the options; they might just find out down the line that they cannot replace what they had. Property remains the cornerstone of wealth creation for the majority of South Africans, and will continue to be so for decades to come. I strongly believe in the South African property market and its future. In terms of the power shortages, we must just all remain calm and find a common solution – after all, this power shortage is just a symptom of a growing economy!”.