September 2010. R15,00 incl. VAT

A Pam Go ld ing P roper ty Group Pub l i ca t ion

World CupOur feast of soccer caused a loss of appetite for property, but interest is picking up

Moving OffshoreInterest in Central London property

Turbo RandThe strong rand has boosted our gold reserves. But do we

want a strong currency?

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EditOr

Stuart Murray

tELEpHOnE

Cape Town 021 710 1800

AddrESS

Monterey, 12-14 Klaassens Rd

Bishopscourt, 7708

PO Box 53012

Kenilworth, 7745

dESignEr

Monika Benseler

CO-OrdinAtOr And

AdvErtiSing EnquiriES

Michelle Swindale

michelle.swindale@pamgolding.co.za

021 710 1700

All articles, unless stated, are written by Stuart Murray.

Intellectual Property reserves the copyright of its

content. No articles, reports, graphs or diagrams,

or portion thereof, may be reproduced without

the express permission of Intellectual Property.

Intellectual Property is not a financial adviser and

accepts no responsibility for any decisions made

by any reader on the basis of information of

whatever kind published in this magazine.

4 Property OutlookThe peak in house price growth does not fully apply countrywide.

Also, different methodologies in data capturing make analysis difficult.

3 Andrew GoldingWe’ve shown what we are capable of. Now is the time to seize the moment.

2 In PassingThe country awaits a final balance sheet on the Fifa Soccer World CupTM. Will it be profit or loss?

16 London FocusThe strong rand will assist South Africans who wish to buy property abroad.

PGP has two central London developments which offer attractive investment opportunities.

15 TaxesSARS is offering a helping hand on two matters – properties in companies, trusts and forex fiddles.

8 The Turbo RandSA’s strong currency is worrying some sectors of the economy.

7 MortgagesThe interest rate cuts of last year helped boost the housing market.

But the effect has worn off and consumers need another shot in the arm.

6 Regional RoundupOur feast of soccer caused a general loss of appetite for property.

Meanwhile, the Western Cape leads the provincial activity league.

18 Foreign BuyersWe haven’t had many overseas buyers of late, but they’ll come back. Some basic legal advice for those

who are considering a South African lifestyle.

19 The Write WayBeware of word of mouth agreements when changing written contracts.

20 CommercialIncome streams may have dipped, but growth potential still makes this JSE sector attractive.

AWARDED FOR BRANDING EXCELLENCE

intELLECtuAL prOpErtY September 2010 1

A Ball Park FigureIn Passing

Trying to finalise a soccer world cup balance sheet is going to take time –

perhaps as long as it takes to reap the benefits; maybe longer. Was it worth it? Of course it was!

ACCLAiM fOr SOutH AfriCA’S hosting

of the Fifa Soccer World CupTM is still waving over

us like a tsunami and it’s a very pleasant feeling.

In a practical sense, let’s hope that success really

does breed success.

Prior to kick-off, the newspapers were awash

with projections of the cost of the soccer festival,

with the over-runs being updated with monotony.

Initial estimates put the bill, including the new

stadiums and the updated and renovated ones,

at between R2 - R3 billion. Revised estimates –

after adding a couple more stadiums – came to

R5,6 billion. Now the latest national estimate I

can unearth is R11,87 billion. On the other hand

I am reliably informed that Cape Town’s bill for

the stadium and surround plus all the other

developments came to R4,5 billion. So I suppose

until the homework has been completed, it’s

anyone’s guess as to the final balance sheet.

What strikes me as interesting is that the

magnitude of the pre-Cup cost projections,

analyses, criticisms and economic comment with

which we were bombarded has not been equalled

by post-event assessments. Try as I will, there’s very

little on record so far. One comment from KPMG

senior economist Frank Blackmore suggests that

the Cup pumped R93 billion into the local economy,

equivalent to 0,5% of GDP. But that was the SA

Reserve Bank’s projection for a GDP boost some

time before the games began. Another guesstimate

suggests a R130 billion shot in the arm.

An interesting aside from Blackmore is that

he reckons that the total infrastructural spend

– new stadiums, stadium renovations, transport

and communications – was around R800 billion

and that this helped shield South Africa from the

worst of the global recession. The question is,

can we keep up the delivery? Can we carry on

building new roads and sorting out those pitted

with potholes? Can we deliver homes, basic

services, healthcare and education? Where will

the money come from?

Can we handle life without Fifa? Can we fill

the vacuum?

There has been disappointment that fewer

tourists than expected turned up. In the long

run, this probably helped make the event more

manageable and contributed to its organisational

success. Nevertheless, the tourism rate was 20%

higher than usual for that time of the year. The

Gautrain exceeded expectations – 3 000 to 6 000

commuters a day was the projected number; the

reality was 13 000 on week days and 20 000 at

weekends.

There is widespread acceptance that the

benefits South Africa will gain from its magnificent

handling of the soccer bonanza lie ahead. Some,

like property, may take years to materialise.

A survey by research group African Response

found that 96% of visitors would possibly return

to South Africa, while 92% would recommend

this country to friends and family as a holiday

destination. That’s a pretty optimistic view, but

there is no doubt that South Africa has been

rebranded.

The big question in many minds is what are

we going to do with the new stadiums? Are

they destined to become white elephants? How

on earth can we amortize their cost? Another

growing concern is their maintenance. The

surround park alone at the new Greenpoint

stadium in Cape Town will cost R500 000 a

month to maintain, according to reports. That

excludes the stadium itself – and there are seven

other monoliths. Already there are squabbles in

terms of attracting sporting events. Provincial

rugby diehards, such as in Durban and Cape

Town, assert that their supporters are happy

where they are. Port Elizabeth has landed one big

international rugby fixture for next year. The three

remaining Tri Nations 2010 rugby matches will be

held in South Africa this month onwards – only

one was held in a world cup stadium, South Africa

vs New Zealand at Soccer City, the others feature

in Pretoria and Bloemfontein, at the conventional

rugby grounds.

Talking of rugby, a scathing article appeared

in a New Zealand national newspaper recently

lambasting South Africa for what it suggested

was profligate spending on the Fifa Soccer World

CupTM. The report claimed that the New Zealand

authorities responsible for organising next year’s

Rugby World Cup had budgeted to spend a total

amount equivalent to half the cost of one of our

new stadiums. The All Blacks are determined, it

seems, to remain in the black.

What I want to know is whether we can take

our vuvuzelas? Can they be our answer to the

Haka?

The ediTor, STuarT Murraystuart.murray@pamgolding.co.za

Stuart Murray is co-founder and former editor of Finance Week magazine.

...until the homework has been completed, it’s anyone’s guess as to the final balance sheet.

intELLECtuAL prOpErtY September 20102

Carpe DiemThe residential property market must seize the moment,

taking advantage of the goodwill derived from the World Cup to promote this country’s advantages and attractions.

tHE SOCCEr WOrLd Cup has come and

gone, and as our heads clear from the sheer

excitement of the spectacle there is a widespread

feeling of anti-climax. In some quarters there is

disappointment, even resentment. What did we

get out of it? Where are the benefits?

In the property market there were no

immediate fields of gold. In fact, the beautiful

game so enraptured South Africans and visitors

alike that commercial prospects took a back seat.

The fans, players, officials, even the media, enjoyed

the sport, the excitement, our hospitality and

organisation, to the extent that as far as buying

things, beyond the general fun of the fair - not

forgetting vuvuzelas – the soccer throngs were

far too distracted to be bothered with anything

as mundane as buying a house, flat, or whatever.

Results filtering through this last month from our

agents around the country indicate that the 2010

Fifa Soccer World CupTM, to give it it’s proper

appellation, actually put a damper on residential

property sales.

And why not? We were all caught up in World

Cup Fever.

The positive side of agents’ appraisal is the

expectation of things to come; that the spectacle

has firmly put South Africa on the map and that

the commonly held view of the Republic as yet

another run down third world country in the

“Dark Continent” has been firmly dashed. The

organisation, the smooth running of matches, the

joyful atmosphere, the friendliness of the locals,

most certainly have burnished this country’s

image and transformed it, not just as a place to

visit, but a place to be.

Already there are signs of payback, confirmed

by a massive increase in foreign visits to the Pam

Golding Properties website. We have experienced

enquiries and visits from people in 190 countries.

Hollanders lead the log, followed by potential

buyers from the UK, US, Germany, Canada,

Belgium, Australia, France, Switzerland and the

United Arab Emirates.

We need to seize the moment, because if ever

there was a time to present our credentials to the

international community of investors it is in the

afterglow of, in the words of Fifa president Sepp

Blatter: “The best World Cup ever.” For the most

part, those foreign visitors will see South Africa

as an opportunity and in return will bring much-

needed foreign direct (and fixed) investment,

creating jobs and ultimately contributing towards

stable economic growth.

Currently foreign capital is flooding in to

South Africa as investors buy our bonds and

equities and the so-called “carry trade” takes

full advantage of our attractive interest rates. But

that is short-term capital; it can flow out just as

quickly as it pours in. We need fixed investment.

And that is attracted to stability, both political

and economic.

On that subject, there is little doubt that

South Africa delivered. Now it is up to all of us

to capitalise on future opportunities. The Cup

has opened a lot of new doors. We may even

have a chance of winning the 2020 Olympic

bid, although that is a long shot indeed. But the

Olympic Committee certainly sat up and paid

attention. Would it have prior to the Cup?

As to the residential property market right

now, we need to realise that we are in a new

scenario, which is about prudent bank lending,

modest house price growth and hesitant buyers.

At the peak of the market around 25% of buyers

were speculators; today they are very thin on the

ground. There was also a bigger foreign market –

which hopefully will return.

Nevertheless we are at a tipping point, two

years into a downward cycle. Credit is hard to get,

debt levels are high, running costs are climbing

ever higher and interest rates are still a formidable

hurdle. There is a large pool of stock for sale, but

fewer buyers than sellers.

There is still a proportion of distressed sellers.

But for the market as a whole, pricing remains

unrealistic and has contributed to the lengthening

time it takes for a property to sell. It is a time

when astute investors capitalise on the situation

by making considered acquisitions and achieving

significant returns. The leisure market, which will

clearly take longer than the primary market to

recover, is a case in point. Prime coastal property

for sale currently presents a desirable investment

opportunity.

Another opportunity has been created by

the country’s massive infrastructure upgrades.

These have provided improved transport nodes

and created new, attractive and convenient,

residential development opportunities. With the

new Gautrain station precincts clear examples

of these, I anticipate that this trend will only

increase as these nodes become fully bedded and

the true value and convenience of these transport

hubs becomes fully appreciated.

PaM GoldinG ProPerTy GrouP Chief exeCuTive, dr andrew GoldinG

Never before has South Africa been presented with such an ideal opportunity to promote the country to foreigners... We need to seize the moment...

intELLECtuAL prOpErtY September 2010 3

Property Outlook

Running Out of SteamAnalyses differ around the country and between the various data capturing entities

as to the extent of house price growth. But generally speaking the market could be peaking.

ALL tHE MAin COMMEntAtOrS in the

residential property market are cautioning that

the steady rise in house price growth appears

to be peaking. According to Absa’s August

House Price Index, the average real value of

small medium and large houses increased by a

weighted 7,2% in July (year on year). FNB’s most

recent figure for house price growth brought it in

at 7,6% in real terms. Standard Bank looks ahead

to only 6% nominal growth this year – and 1,2%

in real terms.

In terms of interpreting these figures one

should bear in mind that they reflect the purchase

price of houses in terms of the banks’ mortgage

books. Standard Bank, for example, has around

27% of this bond market and it computes data

on a median basis in contrast to an average basis,

as done by the other banks. This tends to make its

numbers lower than the others.

One also has to bear in mind that these figures

are national and are thus affected by the highs

and lows of different sectors of the country where

mortgage lenders may each have varied exposure.

There are depressed areas of the housing market

and relatively vibrant ones. Within geographical

boundaries there are market segments – large,

medium and small homes.

A very good example of how rounded up

averages can distort data is the fact that the

small house market (80 m2 - 140 m2) has boomed

in recent months. According to Absa, the value

of small houses increased by a nominal 33,6%

in July. This, of course, accelerates the average

nominal house price growth figure substantially

and indicates considerably poorer price growth in

the medium and large house categories.

Property research group Lightstone reports

that the most lucrative sector remains the mid and

affordable bands. Freehold properties have also

outperformed their sectional title counterparts.

The latest Rode Report on the property

industry says that in real terms house prices are

still very high relative to previous periods. In

terms of going forward, Rode echoes the general

sentiment in the industry that, given the general

need for potential homebuyers to gear their

purchases, easing credit standards by banks will

help the recovery in house prices.

However, that is not happening at present,

and is a real brake on the housing market. Current

SA Reserve Bank data showed sluggish mortgage

advances growth is hovering around 2% - 3%

and has flattened after some significant growth

earlier in the year. Absa Bank says that growth

is expected to remain in single digits for the rest

of the year.

However, Standard Bank reports that July

marked the first month of real growth in its

median property price index and, it says, this

provides confirmation that the recovery is still

on track. It’s Residential Property Report for

August says: ”Fundamentals are also improving,

mirrored by increasing discretionary spending,

such as passenger car sales which rebounded

to 27,6% year-on-year in July from 14,4% the

previous month. Weak employment conditions,

poor income growth and high debt levels have

contributed to both weak demand and hesitant

credit supply conditions. This by no means suggests

that the employment environment is improving

sufficiently to boost property growth just yet, but

the rate of deterioration is slowing. Households

are beginning to shed debt in arrears that have

gnawed at real disposable income, providing

increased scope for discretionary purchases. With

the market remaining affordable from both an

inflation and borrowing cost perspective, further

improvements are envisaged.”

At the current rate of improvement, Standard

Bank reckons, factoring in seasonal effects, the

market is set to show average nominal growth of

around 6% this year.

FNB’s property analyst John Loos comments

that the arrival of a residential property slowdown

so soon after the start of a strengthening phase

may have surprised some. He believes that a few

big structural changes are required to get the

next impressive property performance going.

He says: “In the likes of the US, the UK and a

good few other developed countries, a period of

austerity and slow economic growth is necessary

in order to work off the massive debt burdens…

in some instances by the household sectors, in

some instances by government – and in many

instances both.”

Basically, demand relative to supply has

remained weak during the recent recovery cycle,

never having got anywhere near the levels of

2004/2005 period at the peak of the property

boom.

Loos continues: “We remain firmly of the

view that the latest decline in the FNB House

Price Index’s (house price growth) inflation rate

is the start of a slowing trend in what we term a

‘mini-cycle’ for residential property. As such our

projection for house price inflation is lower – a

revised 8,2% average for the whole of 2010.”

Absa’s senior property analyst Jacques du

Toit’s assessment is: “Year-on-year house price

growth is forecast to slow down further in the

month towards year-end, largely driven by the

base effect of a recovery in property prices from

the second half of 2009.”

Standard Bank economist Danalee van Dyk

advises: “Confidence in the property market is

Households are beginning to shed debt in arrears that have gnawed at real disposable income, providing increased scope for discretionary purchases.

intELLECtuAL prOpErtY September 20104

returning. Standard Bank expects the second half

of the year to yield higher growth in the median

price, with average nominal growth envisaged at

around 6% for the year.”

OOBA upBEAtIn spite of comments by some of the major

lending institutions that the uptick in the housing

market may be peaking, leading mortgage

originator ooba’s latest statistics indicate that the

recovery, which began in the second half of last

year, has continued to take hold.

According to ooba CEO Saul Geffen, the

monthly trends tracked by ooba suggest that

positive conditions for the housing market will

continue into this second half of the year. Ooba

tracks movements in house prices, approved

bond sizes, deposit requirements and bank

decline ratios.

The oobarometer price index recorded a

9,8% year-on-year increase in the average house

purchase price in July. The average purchase price

made by first-time buyers showed an 8,5% rise.

“The ratio of applications declined by one

lender, but granted by another, showed a continued

improvement, says ooba, up 9,7% year-on-year to

29,4% of all declined applications. This means that

nearly one third of all declines have a chance of

being approved by another lender,” says Geffen.

“While the bank decline ratio for July did show

a marginal year-on-year increase of 0,5%, this is

a function of the volume of applications for 100%

bonds in the current period, which have far lower

approval rates than applications with deposits.

As the data for the comparative period last year

excludes 100% loans, which were not generally

available from the banks then, there has in effect

been a significant year-on-year improvement in

the decline ratio.”

Ooba’s statistics also revealed a 15% year-on-

year increase in the average bond size while the

average deposit size fell by 17,8%.

Meanwhile Stats SA reports that the building

of new residential units remains slow. Value of

plans approved dropped by 5% year-on-year

– especially in the segments of housing less

than 80 m2 and higher density flats and small

townhouses.

Depending on your point of view, this

slowdown could in fact assist the market to

grow as demand for low-cost housing in the one

segment of the market that has really shown

improvement.

Oobarometer property Market recovery Analysis - second half of 2010

Indicator July 2010 July 2009Change year on year

(Jul 10 vs Jul 09)June 2010

Change month on month

(Jul 10 to Jun 10)

Avg purchase price 850,763 775,172 9.8% 837,599 1.6%

Avg purchase price of first time buyer 591,643 545,487 8.5% 611,611 -3.3%

Avg approved bond size 685,503 592,512 15.7% 695,381 -1.4%

Avg deposit (as % of purchase price)19.4%

(R165,260)23.6%

(R182,660)-17.8%

17.0%(R142,218)

14.1%

Avg age of applicant 37 37 No change 37 No change

Avg decline ratio 47.8% 47.3% 0.5% 48.8% -1.0%

Ratio of applications declined by one lender but approved by another

29.4% 19.7% 9.7% 24.8% 4.6%

Small Medium Large

Absa House price indices - Nominal y/y % change

Source: ABSA

40

35

30

25

20

15

10

5

0

-5

-1004 05 06 07 08 09 10

y/y % change

Small Medium Large

Absa House price indices - Real y/y % change

Source: ABSA

40

35

30

25

20

15

10

5

0

-5

-10

-1504 05 06 07 08 09 10

y/y % change

...ooba’s latest statistics indicate that the recovery, which began in the second half of last year, has continued to take hold

Repayment/HHDI House price/HHDI

Affordability of housing

Source: ABSA

170

160

150

140

130

120

110

100

9000 02 04 06 08 10

Index: 2000=100

intELLECtuAL prOpErtY September 2010 5

Birth of the BluesThe great soccer event did not promote property purchases.

Rather, potential buyers were too busy having a good time. But we’re getting back to normal.

tHE WEStErn CApE residential property

market appears to be outperforming the national

market, according to First National Bank’s August

Property barometer. House price growth has been

around 2% greater than the national average

says the bank, but adds the caveat that signs of

a slowdown are now apparent. However, FNB’s

property analyst John Loos says we mustn’t be too

hasty in presuming any long term downward slide.

He comments: “Agents suggest that the World Cup

may have had something of a negative effect on

demand through ‘distracting the nation’.”

In terms of cities as opposed to regions, property

research group Lightstone reports that Cape Town

and Johannesburg have shown the steadiest

increase in house prices of all the metropolitan

areas. Although Johannesburg led in annualised

month to month house price growth this year,

the city’s figures took a dip from 8,7% growth in

January and 9,2% in February to 8,6% in March,

says Lightstone, Cape Town did not suffer the same

reversal. Figures for the Mother City were 7,7% in

January, 8,8% in February and 9,0% in March.

Pam Golding Properties’ Western Cape regional

director Laurie Weiner explains: “At the end of May

we were well ahead of budget but World Cup

euphoria and the long school holidays drew focus

entirely away from property and it is proving slow

to recover.” She adds: “There is an increase in stock

levels across the board and demand is lagging – a

sure formula for pressure on prices. Some areas,

where investment properties dominate such as

previous off-plan development sales, have seen

price decreases as much as 20%.”

The soccer frenzy appears to have had a

dampening effect nationally. “During the World

Cup period activity was very low, but it is picking

up a bit,” says Pretoria regional executive Retha

Schutte. “Our market is moving sideways,” adds

Bedfordview’s Eric Gibson.

FNB’s report points out that the Western

Cape’s economy has moved out of recession and

is expected to grow at around 3% this year. This

has supported the modest recovery in residential

property through assisting recovery in household

disposable income growth.

At present, of course, the Western Cape is in

its winter “hibernation” period. So a falling off

is the norm. But John Loos says the decline was

discernable earlier, with a flattening of growth

rates in the second quarter of this year which, he

argues, supports the notion of a peak in the cycle

and the start of a slowing price inflation trend to

come. This weakening trend is expected to last well

into 2011, he says. “Therefore we expect Western

Cape price growth to recede back into single digit

territory by the year end, and remain there through

2011 as the country and the region goes through a

slower economic period.”

Laurie Wener says difficulty in obtaining

mortgages, even with excellent past credit

references, job uncertainty, increasing household

running expenses (electricity and rates) are all

contributing to hesitancy and poor sentiment.

“There is an uptick in activity in under R3 million in

areas where there are a higher proportion of cash

or financially qualified buyers, namely the Atlantic

Seaboard and the City Bowl.”

In the Boland and Overberg region, sellers are

still reluctant to drop their asking price, reports

Annien Borg, regional director for the area. “Buyers

are taking their time to make offers as they have

more properties to choose from. When they do,

offers come in at much lower than asking price,

sometimes 30% lower.”

Borg says that sales have generally been slow

across the region, in particular the coastal branches

and small country towns where holiday/second

homes make up the biggest portion of stock available.

“Most sales are between R800 000 and R3 million,

but in Stellenbosch, where there is a limited supply

of land for further development, we have achieved

R6 million for a vacant plot and R11 million for a

luxury home in the De Zalze golf estate.

“As expected we did not experience an increase

in foreign buyers over the World Cup period and

property enquiries in the region are still made up

from buyers wanting to scale down, up-country

buyers – mostly from Gauteng and KZN – and

clients wanting to exchange city life for a country

town with good schools, easy access to amenities,

less crime, and a more relaxed lifestyle.”

Pretoria’s Schutte also highlights difficulty in

getting mortgages, particularly 100% loans for

sales in the R600 000 - R1,1 million bracket. “The

banks are valuing below offer price so 100% bond

applicants have to come up with deposits, which

most buyers in this price range don’t have.”

KZN regional marketing manager, Leigh

Foaden, reports that activity has picked up since

the World Cup slowdown – but not price levels.

Stock turnaround time on well-priced stock has

improved from 60 days to an average of 30 days

and advertising response has doubled compared

with the month of June. Says Foaden: “The market

is heavily price-driven and affordability is still the

greatest barrier to the successful conclusion of

sales. The mortgage bond decline rate is still high,

being around 40%.”

The fact that sectional title unit owners now

have to pay municipal rates directly has, says

Foaden, created an affordability problem even if

the selling price is right.

“On the positive side,” she adds, cash buyers

are on the increase, both as investors and end

users. Our expectations for the remainder of the

year is of steady improvement.”

Carol Reynolds, area principal for the Durban

North and La Lucia areas, adds some advice to

sellers: “The key to successful transacting is correct

pricing. The old adage that the first offer is the best

offer certainly rings true in this climate. “Reynolds

echoes Retha Schutte’s complaint that the banks

often don’t find value. “Without finance there is no

sale, no matter how willing the parties.”

World Cup euphoria... drew focus entirely away from property and it is proving slow to recover.

Regional Roundup

intELLECtuAL prOpErtY September 20106

Cutting EdgeThe positive effect of cumulative interest rate cuts by the Reserve Bank has worn thin.

Lower mortgage bond rates would make a big difference to the housing market

An iMpOrtAnt COntriButing factor

to the decline in house sales is the fact that

mortgage bond interest rates are still too high.

Potential buyers can’t afford the repayments or,

perhaps more common, the banks to whom they

have applied for a bond decide that, while doing

their rigorous credit checks, that the applicant

can’t afford the repayments.

Some 40% of bond applications are currently

being turned down. Loan to value considerations

are strict, with first-time buyers at the end of

the queue and 100% bonds are rare. Absa did

announce at the end of May that it had resumed

granting 100% bonds, “but only to Absa

customers and blue chip ones at that,” says a

spokesman.

All the major mortgage lenders insist that they

have relaxed their credit requirements since this

time last year, but estate agents are unanimous in

their experience that lack of finance is hindering

any progress in the market. It appears to be a

stand-off.

The banks, of course, have been hard hit

by bad debts and are sitting in a “once bitten,

twice shy” mode. A striking example is the 16%

decline in first half profit announced by Nedbank

in August. The drop, said CE Mike Brown, was due

to losses in its retail business due to the fallout

from mounting bad debts.

It’s not that the margins in the mortgage

business are unattractive. Only a couple of years

ago the banks were fighting tooth and nail to gain

market share, offering all sorts of inducements

and cutting bond interest rates by as much as 2%

- 2,5%. “Those days are gone,” says one banker.

The banks will tell you that their cost of funding

has gone up, which squeezes their margins. But

is this necessarily the case, consumers ask? The

margin between the prime lending rate and repo

rate (at which the banks borrow from the SA

Reserve Bank) remains constant at 3% and this

is applied by all retail banks. This mutually agreed

margin was queried by former SARB governor

Tito Mboweni, who called for more competition

in the banking sector. However, the issue died a

quick death. Noticeable is, as far as the man-in-

the-street is concerned, the steadily widening gap

between the repo rate (7%) and the prime lending

rate (10%) and the rate of inflation (4,2%). This

prime rate hasn’t moved since inflation was up

around 8%.

It is interesting to compare mortgage costs

in South Africa and, for example the UK. Here

the average 60% loan to value bond will carry

an interest rate of between 10,5% and 11,3%.

Consumer inflation, as mentioned beforehand, is

currently 4,2%. In the UK, where Bank of England

governor Mervyn King has just announced a rising

inflation rate of 3,1%, one can get a mortgage

bond (see London apartments page 18) at 3,6%

interest pa. That’s only a margin of 0,6%.

Of course, South Africa’s relatively high interest

rates are important in terms of foreign capital

inflow (see next page) which the country badly

needs to address its widening current account

deficit. But try explaining that to a young couple

trying to get finance for their first home!

There are two further opportunities for the

Reserve Bank to cut the repo rate – at its monetary

policy committee meeting on September 9 or

again in November. However, there is a growing

feeling in the market that it may not happen and

that, in fact, we are nearing the bottom of the

rates cycle. Standard Bank’s economics division,

for example, forecasts rates turning upwards in

the second quarter of next year.

The horrors of recent years when rates went

over 20% per annum will still be fresh in the

minds of many bondholders. Only a few were

wise enough to switch from a variable rate to a

fixed one in time to weather the storm.

Perhaps now is the time to look into the issue.

Another indication of what could be in store is

that Absa announced recently that it is no longer

offering its 10-year fixed rate on bonds – the

longest term available now is two years (see

table).

Mortgage originator ooba says that at present

it has no customers enquiring about fixed rates.

The banks also report little interest. Bond-seekers

and bondholders alike should keep an eye on

developments.

The banks, of course, have been hard hit by bad debts and are sitting in a “once bitten, twice shy” mode.

fixed rate table - 12 months fixed rates

Customer Rate Risk Grade

LTV Band 1 2 3 4 5

(A) Less Than 50% 10.30 11.30 10.65 11.5 11.90

(B) 50% to 60% 10.35 10.45 10.70 11.55 11.95

(C) 60% to 70% 10.40 10.50 10.75 11.6 12.00

(D) 70% to 75% 10.45 10.55 10.80 11.65 12.05

(E) 75% to 80% 10.50 10.60 10.85 11.70 12.10

(F) 80% to 85% 10.60 10.70 10.95 11.80 12.20

(G) 85% to 90% 11.05 11.15 11.40 12.25 12.65

(H) 90% to 95% 11.20 11.30 11.55 12.40 12.80

(I) 95% to 100% 11.75 11.85 12.10 12.95 13.35

(J) 100% to 120% 11.95 12.05 12.3 13.15 13.55

Mortgages

Source: ABSA

intELLECtuAL prOpErtY September 2010 7

Enter the Turbo RandFor how long will the rand stay on its upward climb? That’s the big question.

It helps importers and frustrates exporters. Organised labour says the currency must be weakened – but how?

tHE StrOng rAnd iS LEAding the

country’s economic debate at present or, more

accurately, how to limit it. In July alone, the

rand appreciated 4,2% against the dollar. On

the other hand, rand volatility is considered by

some economists to be the priority, as this is more

harmful to growth.

One result of the surging rand has been an

unexpected increase in the SA Reserve Bank’s

gold and foreign exchange reserves which has

been accomplished through the Treasury, which

has been providing some resources from the

government’s foreign deposits. Foreign exchange

reserves in July stood at US$43,2 billion.

However, without the Bank’s intervention,

the rand would have been even stronger. This is

because when the Bank sells rands to buy foreign

currency, this tends to weaken the local currency.

New in the debate around policy endeavours

to limit rand appreciation is the suggestion that

we introduce capital controls (some form of tax

on foreign inflows, such as a small transaction

fee). However, it is generally accepted that it is

difficult to assess the effectiveness of capital

controls. The IMF, for example, cautions that

capital controls should be part of a tool-kit, but

adds that such controls are justified only if an

economy is operating near potential, if the level

of reserves is adequate, if the exchange rate is not

undervalued, and if the capital inflows are likely

to be transitory.

Governor Gill Marcus has been under

pressure from trade unions and exporters to cut

interest rates and there is a widely held feeling

that the Bank missed this particular boat at its

July monetary policy committee meeting. Next

meeting is on September 9 – but don’t hold your

breath! The rising rand strength is not necessarily

going to be curbed by lowering rates given the

ongoing flood of foreign short-term capital. And

the Reserve Bank, wary of inflation, may not want

another credit-based consumer boom. However,

it has happened in the past that the Bank has

surprised us!

The trade unions have been particularly

vociferous in the clamour for interest rate cuts,

blaming both rand strength and volatility for the

country’s growing unemployment. Cosatu has

been a supporter of more aggressive buying of

foreign currency by the Reserve Bank but says it

has become clear that South Africa doesn’t have

sufficient reserves to buy at a level which will

make “a real difference.” Cosatu general secretary

Zwelinzima Vavi stated recently: “There is a very

clear consensus (with Finance Minister Pravin

Gordhan and the Reserve Bank) that we need a

weaker currency and a more stable currency.”

The problem is that they don’t always go hand

in hand. Furthermore, critics of Cosatu argue that

the labour movement is partly responsible for the

situation because of its excessive wage demands.

The public sector strike in mid-August, which

included many teachers, was in demand for a

wage increase more than double the current CPI

inflation rate of 4,2%.

The strong capital inflow, supporting equity

and bond markets, has possibly given an

impression of a high growth environment. But

this is not the underlying reality, comments Cees

Bruggemans, chief economist of First National

Bank. “Business confidence has been badly

mauled by crisis and recession. It doesn’t look

ready to take on demanding labour as earnings

recovery has barely started.“ Bruggemans adds:

“Indeed, organised labour – and scarce talent

– behave as if the prosperity boom of 2004-

2007 has never ended, enabling them to keep

demanding more.”

Unfortunately, the net result of unsustainable

wage demands is usually job cuts. And that is

what is happening.

In spite of the restraints on credit, consumer

confidence is surprisingly high, according to the

FNB/BER consumer confidence survey. Consumers

remain over-indebted and there is a clear

indication that they are endeavouring to pay off

debt and even save more. Still, the country’s debt-

service ratio (the cost of servicing the household

debt burden, interest plus capital, as a percentage

of disposable income) is estimated at 12,7% –

too high for comfort.

The global outlook is another matter. Europe,

the US, China are all potential crisis areas. In

the second week of August the governor of the

Bank of England warned that the UK economy is

in troubled waters; that inflation was rising and

the economy slowing. US watchdogs continue to

suggest that a “double dip” remains on the cards;

and China is in the throes of a banking alarm over

suspect loans, including housing loans. All these,

or any one, can impact severely on South Africa.

In spite of all this, rand strength may intensify,

towards R7:$1 and even beyond, perhaps to

R6:$1 unless the authorities find an effective way

to intervene. At even current levels, however, the

currency’s strength is of considerable benefit –

cutting our import bills, particularly oil. Exporters,

on the other hand, are squealing.

You can’t please everyone.

One result of the surging rand has been an unexpected increase in the SA Reserve Bank’s gold and foreign exchange reserves...

Interest Rates

intELLECtuAL prOpErtY September 20108

WEB ACCESS HP504772

Bryanston, GautenG

Set in trendy Eccleston Crescent, this large family home offers generous reception rooms, a patio and a pool. It also includes 5 bedrooms en suite, a gourmet kitchen, gym, staff accommodation and excellent security. R7.95 millionJoan Lewis 083 266 9292, Win doody-pestell 083 309 0770, Alison White 082 714 2626

WEB ACCESS MR533192

Kyalami estate, GautenG

With its tranquil surrounds, 4 reception rooms, 4 bedrooms, expansive enclosed entertainment patio, exquisite kitchen, sparkling pool, 4 garages, workshop and staff accommodation, this is the perfect family home. R4.8 millionLeanne Santana 083 273 6881, peta tongs 082 808 0261

WEB ACCESS HP513412

sandhurst, GautenG

This charming family home offers 4 bedrooms (3 en suite), as well as a guest suite. 4 Reception rooms flow superbly onto the patio, pool and a park-like garden with rolling lawns.

R14.5 millionvictoria russell 074 683 1222, Office 011 380 0000

WEB ACCESS GV462-563

meyersdal Crest, GautenG

This 7-bedroom home offers executive living at its best, and is perfect for 2 families. Boasting a multitude of quality features, the residence offers the best of the upmarket estate lifestyle.

R4.95 milliondebbie Young 083 307 7234, Office 011 432 0303

WEB ACCESS BV541125

Bedfordview, GautenG

This gracious home offers 4 en suite bedrooms, a loft-style study, 5 reception rooms, a bar, poker room, patios, pool, Jacuzzi as well as a potential guest wing.

R9.5 millionLuz dias 082 444 9763, natalia dias 072 392 8421, Office 011 455 6666

WEB ACCESS DNF494572

Cedar laKes, GautenG

Features of this immaculate family home include a large garden, 4 bedrooms, 3 bathrooms, a study nook, an open-plan kitchen and a play area. It also offers a pool, underfloor heating and staff accommodation. R3.95 millionnatalia Atanassov 084 783 3010, Office 011 469 4691

PAM GOLDINGLIFE PRESIDENTPAM GOLDING PROPERTIES

ANDREW GOLDINGCHIEF EXECUTIVE

PAM GOLDING PROPERTIES

www.pamgolding.co.za

WEB ACCESS TU1021487

tulBaGh, Boland & overBerG

This multi-income farm comprises of 2 houses and offers relaxed riverside luxury and a variety of fruit and vegetable plantations, including olives and grapes.

R7.5 milliongail friedlander 082 699 6146

WEB ACCESS STA1024735

stanford, Boland & overBerG With its inviting, rustic ambience as well as thatched and beamed ceilings, this lovely home is all about charm. It also offers breathtaking views of the valley. R1.97 milliontracy Brady 082 441 8307, Jill Smith 083 700 4103

WEB ACCESS ST1026596

stellenBosCh, Boland & overBerG

This well-designed residence has a wonderful ambience, spacious rooms, comforting extras and superior attention to detail – all adding to the functionality of the home.

R7.6 milliondeanne Kriel 083 531 7827

WEB ACCESS MV452821

PlatteKloof, western CaPe

This formidable property features a home theatre, snooker room, bar, gourmet kitchen, summer house, pool, braai and 3 reception rooms, all opening onto a wraparound balcony.

R10.9 millionpenny petersen 083 261 7339

WEB ACCESS MON1024975

montaGu, Boland & overBerG

Renovated to perfection, this smallholding is the ultimate lifestyle property and offers free-flowing open areas as well as the ultimate gourmet kitchen.

R3.25 millionMagda pepler 082 816 4364, dimar Marais 084 549 2696

WEB ACCESS ON1023655

onrus, Boland & overBerG

Set on the banks of the Onrus lagoon, this home’s Scandinavian architecture and functionality will appeal to the connoisseur and offers ample privacy and tranquillity.

R7.9 milliondenis Helfrich 083 285 6474

www.pamgolding.co.za

WEB ACCESS LA1024126

lanGeBaan, western CaPe

This classic and serene 500m² stone-finished home is set on 3 181m² of indigenous garden, and offers uninterrupted lagoon views and excellent security.

R14 millionStephanie Wynne-Cole 082 570 6540

WEB ACCESS SIM1023299

simon’s town, western CaPe

Set on the upper slopes of the mountain, this property offers a true rural lifestyle retreat and features 5 bedrooms and 4 bathrooms.

R6.5 millionJoy Snooke 082 920 0044

WEB ACCESS CO1023735

Constantia, western CaPe

Set in an unsurpassed position with stunning mountain views and a north-facing aspect, this property also features a landscaped garden, fine proportions, meticulous attention to detail and top-quality finishes. R39 millionArie Kadé 083 448 0488, Clare Jackson 083 675 3707, Angie Bloom 083 678 7876

WEB ACCESS CB1028216

vredehoeK, western CaPe

Escape the hustle and bustle of the city and relax in the peace and tranquillity of the popular Fairview complex. The property features 2 bedrooms, 1 bathroom, a garage and a parking bay.

R1.75 millionMariel Burger 082 372 2573, peter Spencer 083 264 0971, Scott irving 082 465 8444, Jeanne Hingston 082 888 1630

WEB ACCESS TV1025136

atlantiC BeaCh, western CaPe

This fully-furnished penthouse-style home is set on a secure estate and features ocean and golf course views, sublime entertainment areas, a pool, Jacuzzi, lift and a double-volume entrance with a floating staircase.

R9.95 millionivan Swart 083 653 5620

WEB ACCESS PR1017640

fresnaye, western CaPe

Old-world elegance, original features and luxury elements all combine to make this a remarkable 6-bedroom family home. It’s been superbly restored and maintained and is located in a sought-after area. R13.995 millionJanice toay 082 770 1510, Jackie rosenberg 083 414 6600, Basil Moraitis 082 565 8481

WEB ACCESS 1GC1005569

Grahamstown, eastern CaPe

Set on 1 300 ha of well-watered and fully stocked land, this expansive lodge overlooks a tranquil valley, offering great game viewing from its decks. Located 20 minutes from Grahamstown, the property brims with possibility.

R11.627 millionAngus Sholto-douglas 083 406 0147, Office 046 622 2778

WEB ACCESS 1EA1029098

east london, eastern CaPe

This sensational property is set in a prime location and boasts breathtaking sea views. Features include a gourmet kitchen, spacious living rooms, top-of-the-range bathrooms and luxury fixtures and fittings throughout.

R3.8 millionHanlie Bassingthwaighte 083 659 8287, Anton Coetzee 082 779 9004

WEB ACCESS 1GC1029631

Grahamstown, eastern CaPe

This charming home, circa 1830, is set in a park-like garden and features wooden floors, pressed ceilings and cellar. This magnificent property would make an exceptional guesthouse or spacious family home. R4.5 millionKim Webber 082 523 8277, Office 046 622 2778

WEB ACCESS 1GC1028241

Grahamstown, eastern CaPe

This gracious family home is set on 2 erven and its features include a modern, revamped kitchen and bathrooms, as well as a main upstairs bedroom with sweeping views over the town. R4.6 million

daphne timm 082 809 4283, Office 046 622 2778

WEB ACCESS 1EA1028734

east london, eastern CaPe

This large home with 4 bedrooms and a spacious study also offers gorgeous, flowing entertainment areas and a gourmet kitchen.

R2.2 millionHanlie Bassingthwaighte 083 659 8287, Anton Coetzee 082 779 9004

WEB ACCESS 1GC1022819

Grahamstown, eastern CaPe

This classic home has a huge garden and plenty of potential to become a majestic residence. Set in a sought-after area, the property also includes a 2-bedroom, self-contained flat. R3.2 millionBrenda Cadle 083 529 5551, Office 046 622 2778

www.pamgolding.co.za

WEB ACCESS 1KC1027629

noetzie, Garden route

The perfect opportunity to own your very own well-appointed private castle, this spectacular home is set on a secluded beach adjacent to the internationally acclaimed Pezula Private Estate.

R56 millionLing dobson 083 252 2112, Office 044 382 5574

WEB ACCESS 1KC1023725

Knysna, Garden route

Located on Thesen Island, this modern, open-plan property is surrounded by water. The home is sunny and bright and features spectacular views of the canal. R3.9 millionAmanda Stocks 083 566 4488, Office 044 382 1775

WEB ACCESS 1KC1023196

Knysna heads, Garden route

Set on the Western Head, a stone’s throw from Knysna, this home offers countryside living on a 14ha secure estate and boasts a prime position with stunning lagoon and ocean views. R16.125 millionpetrusia deacon 082 734 1373, Office 044 382 5574

WEB ACCESS 1KC1024925

Knysna Quays, Garden route

One of the best-positioned units at the Knysna Quays, and with a large deep-water mooring, this property provides ample accommodation, good security and top finishes throughout.

R6.3 millionEdward Alant 082 979 5309, Office 044 382 5574

WEB ACCESS 1KC1022229

Knysna, Garden route

A beautiful and well-designed home with open-plan living, this residence is set on Thesen Island’s waterways. It has superb finishes and includes a flatlet and jetty. R6.5 millionKim Bailey 083 448 2632, Office 044 382 1775

WEB ACCESS 1KC1027279

Knysna heads, Garden route

This wonderful family/holiday home is located close to the beach and lagoon and has fabulous views, as well as a protected and sunny garden.

R4.8 milliondeborah Scott 072 731 8188, Office 044 384 0100

www.pamgolding.co.za/ebotse

Sales team: Office 011 425 9400, benoni@pamgolding.co.za Celeste ferreira 072 220 8845, fatima rebelo 082 499 4542, Lydia van der Merwe 082 601 0539,tammy Heatly 082 462 7644, Caroline franks 072 102 0042, Elize Coulter 084 370 6710

MOSt Of uS ArE used to visualising

SA Revenue Services as a sort of modern

highwayman, putting a gun to our heads and

squeezing as much of our earnings as it can,

while we wake up in a cold sweat fearing the

outcome of not fully complying with our returns.

We perceive SARS’ growing efficiency as a threat

and an imposition and ignore the contribution it

makes to the national economy.

So it is with considerable surprise that we

occasionally see the hand of friendship extended.

Our natural reaction is to beware the SARS

bearing gifts. However, says IP’s tax adviser Grant

Bayne, that is just what the taxman is offering –

and not just one gesture, but actually two.

One affects the removal of a residential

property out of a corporate or trust structure and

the second is the waiver of penalties and interest

for tax indiscretions – including taxation of assets

linked to exchange control contravention. In

essence, these actions indicate where SARS sees

tax revenue escaping the net and may intend

applying strong punitive action in future.

This is rather the impression we got last

year when a concession was granted enabling

taxpayers to transfer primary residences out

of existing companies or trusts. SARS believed

that these structures were created to avoid the

payment of transfer duty. Yet, oddly enough

comments Bayne, SARS had never bothered

to challenge such measures under the anti-

avoidance measures available to it.

“There were criticisms of the 2009 concession

and in some cases the unwinding of such structures

was not possible as this would have triggered

tax. In this year’s Budget Finance Minister Pravin

Gordhan, formerly head of SARS, announced that

this window would be extended, and this was

generally welcomed. The amendments to the Act

are now in draft form and propose to provide a

more flexible regime. Early in August this year

SARS announced:

‘It is now proposed that the 2010 regime be

further widened to allow a more complete array

of distributions. Firstly, the distribution rules will

no longer be restricted to the originating funders

(and their spouses). Qualifying distributions

can be made to a broader set of shareholders

or beneficiaries. Secondly, the revised relief will

accommodate multi-tier structures. Nonetheless,

the requirement that the distributing company

or trust (including structures with multiple tiers)

is liquidated, wound up or deregistered in order

to qualify for the relief on transfer duty remains

unchanged.’

“This gets around prior issues where a trust

held a company, which in turn held another

company, which held property. These changes

will appear in a Bill shortly and will most likely be

promulgated by the end of the year.”

Bayne advises that anyone holding residential

property in a structure – be it simple or complex

– may find benefit in waiting until the new

legislation is on the table before unwinding.

SARS, he says, is keen to unwind such structures

but is also determined to “get it right”.

“Considering the proposed changes to the

current Bill there may be opportunities, especially

with trusts. Unwinding a complex tiered structure

now before the legislation is enacted may well

incur transfer duty and trigger other taxes.”

MEA CuLpAOnce again to encourage taxpayers to come

clean without the fear of being marched off to

prison, SARS is proposing a “voluntary disclosure

programme” which will come into force from

November 1 this year and run for one year. It will

avoid non-discretionary imposition of interest.

During this period taxpayers may confess

their tax sins and regularise their tax affairs, but

it does not absolve them from a SARS audit or

investigation. However, although the full amount

of any tax owing will still have to be paid,

additional tax, penalties and interest relating

to any default will be waived. To improve the

flavour of the carrot, SARS says that it will not

pursue criminal prosecution in respect of the

transgression.

Says Bayne: “Apparently there may be limited

circumstances wherein disclosure can be made

after taxpayers have become aware of an audit

or investigation. In such cases, only 50% of the

interest relating to the default will be waived.”

Incidentally, the programme is expected to

run simultaneously with one governing exchange

control misdemeanours. Says Bayne: “Clearly

SARS suspects that there are still a lot of people

who did not make use of the previous exchange

control amnesty and that there is still a lot of loot

lying hidden offshore.”

grant.bayne@gmail.com

SARS Bearing GiftsTaxes

Wait awhile before unwinding property in trusts or companies until the new rules are clear.

Another amnesty for tax and exchange control fiddlers

Of interest to hard-pressed consumers, SARS has announced that the country has 5,5 million

individual taxpayers and 1,8 million companies paying tax. This is a respectable jump from

3,7 million individual taxpayers five years ago, but it is still a drop in the ocean in a country with an

estimated population of some 50 million. People in Gauteng pay just over half of tax assessed.

intELLECtuAL prOpErtY September 2010 15

London Focus

Moving Offshore

WHiLE uK rESidEntiAL property generally

is showing signs of faltering growth, the London

market is powering ahead. Demand is outstripping

supply, prices are climbing, and sellers are holding

on to their properties, to such an extent that the

ultra-wealthy foreign buyers are turning to other

European capitals in which to invest.

According to one UK property economist, “With

prices rebounding strongly on the back of this

demand, the separation in performance between

London and the rest of the country has now

turned into a chasm… Short term pricing trends

are becoming an irrelevance. Demand for central

London property is so large, and supply so limited,

that these price trends no longer matter. The prime

London market is becoming ever more difficult to

access, with choice so limited in some areas as to

make suitable purchases a virtual impossibility.”

Central London is dominated by discretionary

owners (59% are un-mortgaged). As a result, they

can sell when they choose to, meaning that when

prices fall, so too does supply. And even when they

do take a dip the attitude appears to be, “Who

cares?” However, falls are not presently on the

cards and prices are expected to rise by 7,5% in

the final quarter of this year.

James Talbot, international sales director of

Savills, Pam Golding Properties’ UK associate,

advises: “I have seen the market bounce back.

The situation makes for a very astute medium-

term investment opportunity with potential capital

growth. “

Talbot makes the point that a South African

buyer can benefit from the weak pound sterling

and the strong rand and thus take advantage of

the R4 million which can be legally taken offshore.

Recognising this opportunity, PGP’s chief executive

Dr Andrew Golding and Chris Immelman, MD of

the group’s international division, viewed several

residential developments in central London and

selected two which they consider appropriate for

the South African market. Both are in South West

London where, according to Savills, prime rental

values outperform both prime central and prime

East of City markets.

Both are being developed by the Berkeley

Group’s St James Homes, winner of the Queen’s

Award for Enterprise . The first is Avington House in

Queen Mary’s Place, a collection of apartments set

within the 14-acre grounds of Roehampton House,

a stately 18th century Grade 1 listed building. Says

Chris Immelman: “The bulk of the units sold to date

have been snapped up by UK buyers, so we are

fortunate in bringing to the South African market

a limited number of units.” Tenure on Avington

House is a 125 year lease.

Avington House is ideally located, within

walking distance of Richmond Park and

Wimbledon Common and about four miles from

Royal Wimbledon. In close proximity are trendy

Barnes and Putney, the River Thames being two

miles away. Commuting access to central London

is easy; train time to London Victoria is 16 minutes

and to Waterloo 22 minutes.

The 2-bedroom units marketed by PGP are

priced from GBP 349 950 to GBP 379 950, all with

the latest in technology. A typical apartment will

have a net internal space of around 63 m2 – tight

by South African standards, but very much the norm

in relatively inexpensive residential developments in

London. Says Chris Immelman: “This is one of the

best developments. Heathrow airport is only a 30

minute drive and the heart of London’s entertainment

and cultural centre easily reached.”

Also in South West London but further south,

below Wimbledon Common and about 4 miles

from Kingston on Thames, lies the second

development – Coombe House, the final phase of

the Trinity Place project by St James Homes. Trinity

Place offers unique outside space, uncommon for

London developments. 2 Large communal roof

top terraces are available to residents and all

apartments have their own private balcony or a

terrace area and several include both. The complex

includes a Waitrose store as well as a coffee

shop, residents’ gymnasium and cycle storage.

There is allocated parking within the purchase

price for the 2-bedroom units. Prices range from

GBP 246 000 for a 1-bedroom apartment up to

around GBP 360 000 depending on volume and

which floor (there are 3). Average floor coverage

for a 1-bedroom unit is between 46 and 50 m2 and

75 - 80 m2 for a 2-bedroom apartment. Tenure is

a 999 year lease.

Situated close to Raynes Park station, Trinity is

also well placed for access to central London as

well as Heathrow and Gatwick airports.

An interesting aspect of this development

is that it has been designed with a commitment

to sustainable energy. Through careful choice of

building materials and a central, combined heat

and power system the project can deliver a 25%

reduction in carbon dioxide emissions below the

applicable building regulations. There is also an on-

site recycling facility.

Both Avington House and Coombe House

are planned to be ready for occupation around

Britain’s Spring next year – March/April. Following

presentations in Gauteng and Cape Town, Pam

Golding Properties CE Dr Andrew Golding disclosed

that interest has been phenomenal, but again

commented that “every astute investor would

want to add Central London residential property

to their portfolio”.

Central London property has swept aside the UK value slide and continues to power ahead.

Demand is outstripping supply. PGP offers two opportunities to South Africans.

the trinity place project

the Avington House

intELLECtuAL prOpErtY September 201016

BuYing in LOndOn – StEp BY StEpIf, as a South African resident, you decide to

invest in overseas property, the first step you need

to take is to establish an offshore bank account into

which you can transfer all, or part of your overseas

investment allowance (currently R4 million

per person). You will require a tax clearance

certificate from SARS. You then need to inform

your South African attorney of your intentions

and appoint (through him/her or with the help of

PGP’s international division) a UK solicitor.

If, presumably, you intend to finance part of

the purchase, PGP’s London associate Savills

Private Finance division will assist you in securing

a suitable mortgage. You must provide suitable

financial statements and proof that you can meet

the required mortgage payments – not simply

from rental income (see cash flow panel).

The British system of buying and selling

property is different than that of South Africa.

In the UK, prior to an “exchange of contracts”

– the legal term given to the act of offer and

acceptance – your appointed solicitor in the UK

will run a series of searches and checks on the

property and the developer or seller. Once the

“exchange of contracts” has taken place both

the buyer and the seller are now legally bound to

follow through with the transaction and neither

may withdraw.

With transfer completed and applicable fees

and duties paid – at this point the buyer must

pay Land Registration fees of approximately

GBP 330 to enable the property to be legally

transferred into your name. Similar to our Transfer

Duty, you will be required to pay Stamp Duty

Land Tax, which varies depending on the value of

the property. At the prices of London apartments

marketed by Pam Golding Properties SDLT would

typically be 3%.

rAndS And SEnSEBesides being attractive to South Africans

seeking a compact, secure dwelling in London,

both Avington House and Coombe house offer

attractive “buy-to-let” investment potential. If

you intend going this route you should appoint

a managing agent. The agent will collect the

keys, gain access and, if you wish, supervise

the furnishing of the apartment. The units come

complete with all white goods. Furniture packs

may be purchased at different levels – from

GBP 2 500 upwards, or you can furnish your home

yourself (fairly time-consuming).

Pam Golding Properties and Savills have an

association with managing agents Vanet Estates,

which has a Gauteng office specifically to deal

with South African customers. Its local agent

Phillip Gittens says: “Some 80% of our clients are

South Africans who own London property, so it

makes sense to have a presence here.”

Services included in the managing agent’s role

are; securing and vetting suitable tenants, drafting

the tenancy or lease agreement, collecting your

rent (usually monthly) and depositing it into

your bank account as well as paying your annual

expenses such as service charges and ground

rent. Service charges are the UK equivalent of

the levies we pay on properties in SA. Fees range

from GBP 1 000 to GBP 3 500 a year and are

usually paid in two instalments. As the properties

are leasehold, ground rent is payable to the

owner of the underlying land. Incidentally, part

of the solicitor’s duties will be to check leasehold

agreements and ensure that the buyer is not

compromised in any way.

If you are going the buy-to-let route, it’s worth

noting a couple of points in terms of tenants. Your

managing agent will organise a tenant reference

check, which is carried out by an independent

company. An option, says Gittens, is an insurance

policy (costing GBP 110 a year) which guarantees

rental payment for six months should a tenant

defect. Also important is an inventory report,

also by an independent company, as the tenant

moves in. A six weeks deposit is standard and this

is held against any claims (breakages etc). When

the tenant moves out the same report is used for

a second inspection. Any disputes will go before

the Tenancy Deposit Scheme.

Most apartments are let furnished. Vanet

Estates assures that, for example, it will seek

around GBP 380 a week for a 2-bedroom

apartment at Avington House.” Generally speaking

letting demand is for furnished accommodation.

However, rental income doesn’t vary much

between furnished and unfurnished.”

There is an important legal issue to deal with

in terms of rental income. Subject to certain

deductions, the income will be subject to UK

income tax and your agent, or the tenant, is

obliged to deduct basic rate tax at 20% before

paying the rent to you. This can be avoided by

registering with HM Revenue Services as a

non-resident landlord. You should also consider

having a separate English will to cover your UK-

based assets. This can help avoid inheritance tax.

Furthermore, check out your status in terms of

capital gains tax. If you have been a UK resident

in the past and return to the UK within five years

you can be liable.

finAnCE And gEAring Buyers at Avington House and Coombe House

can gear their purchase through the association

between PGP and Savills Private Finance. An

indicative outflow/inflow scenario for a 2-bedroom

unit at Avington House would be as follows:

Indicative purchase price GBP 369 950

Cash (40%) 147 980

Mortgage (60% @ 3,5% interest only) 221 970

Total purchase costs 18 210

Rental income @ GBP 365 per week

less outgoings 13 763

Mortgage repayment 7 769

net income 5 994

Purchase cash flow

Reservation fee 2 500

Deposit: (10% on exchange, 28 days

from reservation) 36 995

Stage payment: (5% once roof has

been completed) 18 498

Completion: remaining cash portion 89 988

SuMMArYCash portion of purchase price GBP 147 980

Total purchase costs 18 210

Total cash required 166 190

rand value r1 828 088

According to Tom Bland, a director of Savills

Private Finance, there are various mortgage

options which can be negotiated. Proof of income,

assets and liabilities and income/expenditure

statements including bank statements, are

required. “We can usually get a decision in

principle within a few days to a week. “

intELLECtuAL prOpErtY September 2010 17

South Africa Calling…

tHE SuCCESSfuL SOCCEr WOrLd Cup has presented South Africa with an ideal

opportunity to promote the country to foreigners

as a prime investment destination, Pam Golding

Properties’ CE, Dr Andrew Golding told the recent

IPD/SAPOA conference. “If ever there was a time

to present our credentials to the international

community of investors, it is in the afterglow of

such a resoundingly successful World Cup.”

Dr Golding suggested that the residential

property market remains an attractive asset class

at this time and presents an opportunity to make

profits. The market recession provided ideal timing

for foreign buyers, he added.

A vital component in attracting foreign buyers

to South Africa is the basic fact that there are no

restrictions in respect of property ownership by

non-residents – other than illegal aliens. There

are, however, procedures and requirements. If, for

example, a foreign entity (a company, trust etc) buys

property it must be registered in South Africa and

appoint a South African public officer. If the non-

resident intends residing in South Africa for long

periods a residence permit must be applied for.

There are a number of frequently asked

questions from foreigners interested in buying

property in South Africa. A number of these follow,

with the answers provided by attorneys Smith

Tabata Buchanan Boyes.

q. How can foreign funds be brought into

South Africa for a property acquisition?

A. Foreign funds can be paid into any nominated

bank account in South Africa. This account will

usually be the trust account of the estate agent

or transferring attorneys into which the deposit

for the property and the balance of the purchase

price is paid. These funds will be invested (and

interest accrued) for the non-resident’s benefit. The

regulation of these accounts is supervised by the

professional boards overseeing the operations of

both attorneys and estate agents.

When a non-resident transfers funds from a

foreign source into a South African bank account,

a record known as a “deal receipt” is kept by the

South African bank. This is an important document

which will be needed to effect repatriation of the

funds.

note: Capital gains tax. A non-resident can

be liable for CGT in certain circumstances. Advice

should be gained from the buyer’s attorneys.

q. Can money be borrowed in South

Africa to purchase property?

A. Yes, but non-residents are restricted in their

borrowing ratio to 50% of the purchase price,

while the remaining 50% must be brought into

the country in cash from a foreign bank. In order

to qualify for a South African mortgage bond,

the non-resident will have to comply with the

bank’s normal credit criteria and comply with the

Financial Intelligence Centre Act. This act requires

identification of the non-resident for money-

laundering purposes, and involves producing

certain documents. Also, the SA Reserve Bank

adjudges all foreigners not having their domicile in

South Africa as non-residents. However, foreigners

with work permits will be considered residents for

the duration of their work permit.

q. Are there any other costs, other than

the purchase price, for which the purchases

will be liable?

A. Yes, as follows: Transfer duty is a tax levied on

the acquisition value. It is payable prior to transfer

of ownership. For a natural person a purchase up to

R500 000 is exempt; from R500 000 to R1 million

it is 5%, and more than R1 million the duty is 8%.

For entities the tax is 8% without exception.

Other costs include transfer fees (not payable

if the seller is VAT registered); Deeds Office levies;

pro rata rates and taxes; rates clearance certificate

fee; sectional title levies; attorney’s fees.

q. On sale of the property can the money

be taken out of the country?

A. Understandably, this is without doubt the

number one concern of non-residents considering

investing in South Africa. Their answer is, simply,

yes! Money from a foreign source together with

any profit, proportionate the non-resident’s

shareholding in the property, may be repatriated.

The non-resident must present the Reserve Bank

with all deal receipts, a copy of the agreement

of sale together with the conveyancer’s final

statement of all costs for the duration of ownership.

This facilitates the repatriation of the funds and

the profit on the sale, provided the bankers are

satisfied that such profit is reasonable and market

related.

Obviously, if the purchase was partially financed

by funds borrowed in South Africa, that portion of

the purchase price cannot be repatriated unless

the mortgage bond has been settled in full. It is

important to note that during the course of the

bond repayment history, the instalments towards

the bond must have emanated from a foreign

source or from rental/interest income generated.

As stated earlier, funds will be subject to capital

gains tax.

q. is a non-resident liable for payment of

South African income tax?

A. While South Africans are taxed on their

worldwide income, non-residents are liable for

income tax only on income accruing from a South

African source. For example, if the property is

rented, the rental income will be subject to South

African income tax.

A non-resident who has not permanently

immigrated to South Africa will be considered

a resident for income tax purposes if she or he

spends more than a certain length of time within

the country. This is known as the “physical presence

test” and is calculated in terms of days spent in the

country over a 3-year period.

No tax is levied on foreign pensions.

Foreign Buyers

Foreign property buyers have been few and far between as the global recession hit the pockets

even of the well-heeled. That there are few if any restrictions on foreigners is a plus.

The market recession provided ideal timing for foreign buyers, says Dr Andrew Golding.

intELLECtuAL prOpErtY September 201018

Legals

Word of Mouth

OrAL AgrEEMEntS can be quicksand in

the property market, as a recent court judgment

illustrates. The basic issue in this case was whether

a verbal compromise can override a non-variation

clause. Attorneys Smith Tabata Buchanan Boyes

explain: “Notwithstanding non-variation clauses

in Deeds of Sale and Lease Agreements, property

practitioners will be familiar with allegations by

one or even both parties that they have orally

agreed to something which constitutes an

amendment of their written agreement and are

thus not bound by the original clauses of the

written agreement.

“This matter illustrates the perils of relying

on alleged variations. The interesting twist

here is that the tenant alleged that the original

agreement was not varied but, in terms of a

compromise reached with the landlord, that the

latter waived its rights to sue for arrear rental.”

The facts are as follows:

The defendants, a company, entered into a

written agreement in August 2008 in terms of

which it leased premises from a Trust. Occupancy

was from 1 July 2008 and rental was payable

monthly. The lease contained the clause: “No

variation, amendment or cancellation of this lease,

inclusive of this clause… shall be binding unless

it is in writing and is signed by both landlord and

tenant.”

However, from June 2009 the company

defaulted on the rental, electricity charges

and other operating costs and in February the

following year the trust issued summons against

the company and four individuals who had signed

sureties. When the sureties entered notice to

defend, the trust applied for summary judgment.

The sureties based their defence on the fact that

the parties had reached an oral compromise

after it had been made known to the trust that

the company was experiencing serious cash flow

problems. They alleged the compromise provided

that:

• The lease would be cancelled as from

1 September 2009 onwards;

• That the trust may use the deposit the

company had paid towards reducing their

damages resulting in the early cancellation in

lieu of outstanding rentals; and

• Neitherpartywouldproceedagainsttheother

in terms of the lease agreement.

The company vacated the premises on

1 September 2009 and regarded the matter as

finalised. With regard to the non-variation clause,

the sureties argued that it was not applicable

because the compromise constituted a waiver

by the trust of its right to pursue its remedies in

terms of the agreement, rather than a variation.

The court, however, granted the summary

judgment and held that;

• Itwastritethatwhereanon-variationclause,

such as the one in the lease agreement

under discussion, which was contained in a

written agreement, any verbal amendment or

cancellation of the agreement was null and

void and of no force and effect.

• On the other hand, our courts have

acknowledged that a non-variation clause

did not prevent one party waiving a provision

of an agreement which was entirely for that

party’s benefit or waiving the right to pursue

his or her remedy for a breach that had already

occurred.

• That the facts indicated that the sureties’

defence was based on their alleged right

to cancel the agreement which arose from

their alleged oral agreement with the trust.

Similarly, the right to vacate (agreed upon in

the oral arrangement) could not exist if the

written lease agreement was still in place.

• In effect, the oral arrangement/compromise

constituted an oral cancellation of the

agreement, not a waiver of right. As such,

it was disallowed and considered invalid by

virtue of the non-variation clause.

For those in the property industry the moral

of the story is: Should the need arise to amend

a written agreement which provides that it

cannot be varied other than in writing, then any

such variation must also be in writing. If not, the

original agreement stands.

... the moral of the story is: Should the need arise to amend a written agreement... such variation must also be in writing. If not, the original agreement stands.

A cautionary tale - changes to agreements in writing must also be in writing.

Verbal variations may be agreed but they won’t necessarily stand up.

intELLECtuAL prOpErtY September 2010 19

Growth Potential

tHE LiStEd prOpErtY SECtiOn in the

JSE securities exchange remains a favourite with

investors. The improved rating over the past few

months has resulted in double digit yearly growth in

prices (March up 15% and April up 13%). This has

compensated to some extent for the disappointing

yearly growth in income streams.

Funds are still trading at a premium of about

100 points to long bond yields, according to the

latest Rode Report, which comments that this

shows that investors are still willing to pay a

premium for listed property because of the added

luxury of potential income growth.

Says the Rode Report: “Considering that

non-residential property fundamentals remain

under pressure at the moment – read rising

vacancies and shrinking market rentals – a

further deceleration in the growth of distributions

from listed property funds is possible. This does

not augur well for listed property prices should

sentiment turn against listed property.”

Catalyst Fund Managers’ August report

concurs: “Over the last 12-24 months the direct

property market has been characterised by

weakening property fundamentals and this has led

to slowing in income distribution growth over the

same period. Although the operating environment

will remain challenging over the next 12 months,

the signs are that fundamentals are beginning to

show signs of improvement.”

August is a busy time for the listed property

sector in terms of reporting results. A total of nine

out of the sector’s 22 listed companies report

either full year or interim results in the month.

These companies account for 60% of the sector in

terms of market capitalisation.

Catalyst’s three-year ranking in total return of

property units trusts is as follows:

1. Capital property (69,78%)

2. Emira (41,33%)

3. Fountainhead (33,70%)

4. SA Corporate (25,89%)

5. Sycom (-8,91%)

Property loan stock three-year ranking (cumulative

growth over the period) is :

1. Fortress B (76,00%)

2. Capital Property (69,78%)

3. Panprop (52,86%)

4. Resilient (49,54%)

5. Vukile (46,53%)

6. Premium (38,00%)

7. Hyprop (37,91%)

8. Acucap (34,20%)

9. Redefine (34,14%)

10. Growthpoint (27,31%)

11. Hospitality A (16,51%)

12. Octodec (13,32%)

13. Fortress A (10,00%)

14. Hospitality B (-19,14%)

The fact that real office, industrial and mall

rentals are shrinking is impacting on the commercial

property market. In Johannesburg, Pretoria and

Cape Town the growth in market rental was on

average below that of building cost inflation. This

means that in real terms rentals are lower than

they were a year ago.

Commenting on the industrial market, the

Rode Report says: “Although the stilts of the

market – namely manufacturing activity and retail

sales – can be said to be in recovery mode, the

strength and sustainability of the recovery remains

uncertain. This uncertainty comes mainly against

the backdrop of a South African economy that is

still shedding jobs, and a wobbly world economy.”

Rode adds that uncertainty regarding market

rental prospects are a negative, adding that in the

first quarter of this year market rentals continued

to contract. On the Central Witwatersrand (-7%),

in Durban (-5%), Port Elizabeth (-3%) and the

Cape Peninsula (-2%) market rentals were lower

than a year ago.

Vacancy rates in smaller shopping centres took

a hike as a result of weaker retail sales. However,

the national tenants, especially those in regional

centres, continued to do well.

In terms of office space, capitalization rates

remained firm despite the sharp rise in vacancies.

The reason for this, says Rode, is probably because

South African landlords have not been under as

much pressure to sell as those, for instance in the

UK. Cap rates in the decentralised Johannesburg

office areas moved sideways, similarly in Pretoria

and Durban. In the major Cape Town decentralised

office locations such as Claremont, Tyger Valley,

Century City and Westlake, cap rates on prime

office property are in the order of 10%.

Commercial

Listed property is still attractive as an investment, in spite of a dip in income streams.

But commercial property remains under some pressure as the economy lags.

intELLECtuAL prOpErtY September 201020

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