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Po­ten­tial in buy-to-let for in­vestors

IN­TER­EST Buy-to-let pur­chas­ing has fallen off dra­mat­i­cally in the past year in re­sponse to very low rental in­creases in most parts of the coun­try, but care­fully se­lected rental prop­erty is still a good in­vest­ment prospect over the medium to long-term.

The first thing to con­sider, says Realty 1 In­ter­na­tional Prop­erty Group CEO Hano Ja­cobs, is in­ter­est rates, which are cur­rently at a 30-year low. “From an in­vest­ment point of view this means that the monthly bond re­pay­ment on your rental prop­erty is now also at a new low and that a size­able per­cent­age will be cov­ered by the rent your ten­ant is pay­ing. Se­condly, lower rates don’t mean that ev­ery­one can be­come a home­owner. The very strict credit cri­te­ria now be­ing ap­plied by the banks, high lev­els of debt and the re­cent re­turn of home prices to real-term in­creases are go­ing to keep a lot of peo­ple in the rental mar­ket for the fore­see­able fu­ture.”

It is also worth not­ing, he says, that prop­erty devel­op­ment and res­i­den­tial build­ing are still at his­toric lows fol­low­ing the re­ces­sion, which means that the de­mand for mod­er­ately priced rental homes is likely to re­main ahead of sup­ply for some time.

In­vestors need to be clear on their strat­egy, and be look­ing for medium to longterm gains from rental in­come and cap­i­tal growth. This is not a mar­ket for spec­u­la­tors look­ing for a quick turn­around. Fac­tors to be taken into ac­count in a rental prop­erty pur­chase de­ci­sion, Ja­cobs says, in­clude lo­cal­ity with re­gard to con­ve­nience, con­sumer ameni­ties and ac­cess routes. Also im­por­tant to ten­ants are price, se­cu­rity, and prox­im­ity to schools and day care.

High Court rul­ings strengthen col­lec­tion

LEVIES AND RENTS Two re­cent High Court cases will make it a great deal more dif­fi­cult to avoid the pay­ments due on sec­tional ti­tle levies and rents, says Grant Gun­ston, se­nior

di­rec­tor of Grant Gun­ston Attorneys.

“Re­cently, there have been in­stances where de­fault­ing body cor­po­rate mem­bers and/or de­fault­ing sec­tional ti­tle ten­ants have ap­plied for debt coun­sel­ing — and the Na­tional Credit Act stip­u­lates that where this hap­pens the de­fault­ing payer is en­ti­tled to a tem­po­rary mora­to­rium on his pay­ments in or­der to give him time to sort out his af­fairs.

“These new High Court rul­ings have ex­empted the land­lords and bod­ies cor­po­rate from this rul­ing, tak­ing us by and large back to the sit­u­a­tion where non-pay­ers are held to the con­tract they signed.”

In both cases, Dlamini v the Body

Cor­po­rate Frenoleen, and Pareto v Kal­nisha Si­ga­ban the court re­fused to ex­empt the ten­ant from levy pay­ments be­cause he or she was in debt coun­sel­ing. Gun­ston said that the de­ci­sions recog­nise the re­al­i­ties of the prop­erty mar­ket.

“We have to ac­cept that in our so­ci­ety prop­erty has be­come a pop­u­lar in­vest­ment chan­nel and that many of the in­vest­ments are geared, ie bought with bonds. We also have to ac­cept that bod­ies cor­po­rate are sim­ply rep­re­sen­ta­tives of their mem­bers — they are not in most cases wealthy as­set hold­ers who can af­ford to carry their mem­bers and their wa­ter, elec­tric­ity, sew­er­age and in­surance pay­ments.

“The new rul­ings are, there­fore, wel­come. and in the long run will help to restart res­i­den­tial prop­erty devel­op­ment in South Africa, cur­rently stag­nat­ing as a re­sult of a lack of bank sup­port for de­vel­op­ers and the strict cri­te­ria of the Na­tional Credit Act.”

Pay­ment ad­vice for off-plan buy­ers

CASH IS­SUES If you’re a home­buyer pur­chas­ing “off-plan” — or in ad­vance of your home ac­tu­ally be­ing built — you will most likely have more money is­sues to deal with than those pur­chas­ing a pre-owned prop­erty. And the first of these is the mat­ter of the de­posit. It is very im­por­tant, says Berry Everitt, CEO of the Chas Everitt In­ter­na­tional prop­erty group, that you do not pay any de­posit for a stand or an off-plan home — or sign any agree­ment to pur­chase such a home — un­til you have thor­oughly checked the cre­den­tials of the de­vel­oper and/or home builder and made sure they are well-es­tab­lished op­er­a­tors with a record of com­pleted, suc­cess­ful de­vel­op­ments.

“You should also make sure that your de­posit is only paid into the trust ac­count of an at­tor­ney or a reg­is­tered es­tate agent — not the bank ac­count of the de­vel­oper or builder. There have been far too many cases in re­cent years of bo­gus es­tate agents, builders’ agents and con­struc­tion com­pa­nies tak­ing de­posits and then sim­ply van­ish­ing.”

Writ­ing in the Prop­erty Sign­posts news­let­ter, he says the sec­ond thing to con­sider is the pos­si­bil­ity that you may need two sep­a­rate home loans — one to pay for a stand and the other for the ac­tual struc­ture — if the devel­op­ment is not sec­tional ti­tle.

“The sec­ond loan is used to pay the build­ing con­trac­tor in in­stal­ments known as draws. These are paid as cer­tain stages of the build­ing work are com­pleted to the sat­is­fac­tion of the fi­nan­cial in­sti­tu­tion.

“How­ever, you as the buyer will have to sign each draw form au­tho­ris­ing the bank to pay, so you can have a large mea­sure of con­trol over the way the work is done. And you should ex­er­cise this con­trol by vis­it­ing the build­ing site fre­quently so that any prob­lems can be rec­ti­fied im­me­di­ately — and be­fore the builder col­lects the last draw.”

In ad­di­tion you should never oc­cupy or sign for the keys to your new home be­fore you’ve checked it over thor­oughly once more, and got the builder to agree in writ­ing to rec­tify any re­main­ing “snags”.

10-year mile­stone for an­tiques fair

HIS­TORIC This year has not only been a mo­men­tous year for South Africans in terms of cur­rent events but it also marks some mile­stones in our his­tor­i­cal and cul­tural past. The Na­tional An­tiques & Dec­o­ra­tive Arts Faire, the coun­try’s most de­fin­i­tive show­case of an­tiques and col­lecta­bles, cel­e­brates its 10th suc­cess­ful year.

It aligns it­self to the global “an­tiques are green” move­ment — en­cour­ag­ing in­vest­ment in an­tiques as a way to re­cy­cle and re­use, and cel­e­brat­ing the re­turn to beau­ti­ful things as well as show­ing vis­i­tors how to ap­pre­ci­ate liv­ing with them. As we mark the 100th year of SA as a union, the fair will be show­cas­ing the very best in an­tiques and col­lecta­bles — in­ter­na­tional deal­ers like Ri­cus Dul­laert of Hol­land and Ed Pas­coe from the US will show never seen be­fore an­tiques and English pot­tery, and lo­cal deal­ers will fea­ture the best of the best from sil­ver to porce­lain and glass; from vin­tage to retro; and from Afrikaner, Dutch, French and English fur­ni­ture.

The Na­tional An­tiques Faire takes place in Ex­hi­bi­tion hall 1 of the Sand­ton Con­ven­tion Cen­tre from the 23-25 July 2010.

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