Zimbali Coastal Resort Review (The Bush Telegraph)

The most frequently asked question most property professionals deal with is how the market is doing? It is a question we ask our selves often and spend many hours researching sales data so as to identify specific trends that may be emerging. An intelligent response would have to include an insightful analysis of actual registered transfers. For those who have been involved in property transactions for any length of time, you soon realize that a sale is not a sale until the transaction has been registered in the deeds office. 

We decided to download every deeds office transaction recorded for the suburb of Port Zimbali from 1^st January 2010 to 8^th Dec 2012. The transactions relating to neighbouring Port Zimbali Estate and Hilltop Estate were excluded, as was the R100,000,000 sale (registered) of Ptn 13 of erf 1566 of lot no 52 (old Pottery Gallery site). This 7,2ha site was sold as part purchase of the similar sized neighbouring property for a similar price. With a further R200m conservatively spent on infrastructural upgrades to this amazing 14ha residential property, this is the most likely candidate for most expensive South African residential property. Focusing on our Zimbali Coastal Resort transactions, my data sample was further divided into sectional title transfers and freehold transfers. The 22 Fairmont Hotel sectional title sales recorded over the period were also excluded as these were seen as a hospitality investment product rather than a residential property purchase. The remaining 49 sectional title transfers with a gross sales value of R489,520,995 within Zimbali then became a key sample to interrogate. On the freehold side the transactions were split between 110 vacant land sales and 48 sales of completed homes. The vacant land was further split between 100 single residential site sales and 10 development site sales. The highest transaction recorded on a development site opportunity was the R43,320,000 purchase of Erf 25 (old Metallon owned hotel site) which has been beautifully converted into 13 single residential sites, 6 of which can be regarded as the finest beachfront opportunities within South Africa. At R12m plus vat for this type of opportunity, it is not for the fainthearted, but will most likely result in some of the highest value homes within Zimbali Coastal Resort. The purchase of Erf 107 Milkwood Drive was included in the 100 single residential site sales even though this property had an incomplete structure on it. The property has been redeveloped by a local developer and was purchased largely for its ground value rather than the value of the brick and mortar on the site.

So armed with an excellent sample of 100 freehold single residential site sales, 48 freehold home transfers and 94 sectional title transactions, our analysis was able to provide some interesting insights. The selling price rate per square metre for sectional title property transactions is usually a very good guide for pricing similar units and to get a handle on whether your property is priced correctly. Rates per square metre across these sales ranged from R6,015.04 for a Nedbank repurchase at R3,2m of 9 Pinnacles, a 532 sqm villa, which was then unsold at R6m, to R27,925.53 for a magnificently positioned and presented top floor Imbali Lakes apartment measuring 376 sqm. The average rate per sqm across the 35,140 sqm of sectional title units traded was R13,930.59. A unit would have to be something quite special to be priced much above this average rate. 

The single residential site vacant land opportunities traded between a high of R10,5m for a beachfront site along Corkwood Drive to an Eagle Crescent site at R310,000 (again a Nedbank repurchase which was quickly sold on for R535,000). This property was developed and sold for R5,350,000 – always a good investment when the land is acquired at the right price. The average rate per sqm for vacant land across the R237,694,239 of single residential site sales was R1,610.53. Interestingly the R129,702,000 of development land sales only yielded R835.04/sqm, making it almost twice as valuable for a master developer to sell single residential sites where possible rather than development sites, excluding the extra cost of infrastructure possibly required to service individual sites. 

The 48 freehold homes traded between R4,250,000 for a triplex unit in Ihlati (they look like sectional title but are actually freehold) and R25,500,000 for a Milkwood Drive home. The average rate per sqm for developed homes, considering only the erf size, across the 67,988 sqm of developed land traded was R6,484.29. 

This new year is expected to see a renewed demand for Zimbali properties and we look forward to being of service to the buyers and sellers.

(Author: Andreas Wassenaar, 20 December 2012, published in the Zimbali Bush Telegraph)

How's the Property Market doing? (The Bugle)

How’s the property market doing? Well it depends, are you a buyer or a seller?  For buyers as a whole the past year has been spectacular. The term “buyers market” refers to the relative advantage buyers enjoy when the overall market has many sellers but fewer buyers, providing choice and the opportunity to negotiate keen pricing. November is typically a high property sales month within the industry, and on a national basis, Seeff recorded its highest sales in four years for the month of November. Summer also has a seasonal impact on sales, and we have found that the first quarter is a typically an active time. Within some price categories the advantage is starting to tip back towards sellers and this makes for a healthy property market.

As we end off 2012 it is important to review the key economic drivers of the property market to be able to get a sense of where the market could be heading over the next six months. At the top of our list is the cost and availability of mortgage finance. The prime lending rate remains at 8,5%, the lowest level in 39 years. You have to go back as far as between 15 Nov 1973 and 1 Feb 1974 to find the prime lending rate at 8%. Even though rate concessions have become harder to achieve, with most mortgage advances being finalized at the prime rate or above, the price of money is not a limiting factor on the demand for property. 

Inflation as measured by the Consumer Price Index (CPI) is currently 5,6% meaning that you have a real interest rate of around 2,9%. Producer price inflation as measured by the Producer Price Index (PPI) is currently dramatically down to 4,2% from a recent peak of 10.6% in October 2011, and with this rate below the CPI we can expect inflation to moderate further. 

The availability of finance is a different story. Although credit growth to South African households as a whole has accelerated recently, this has been on non-mortgage credit components. Growth in overall mortgage finance extension has been slow and tends to follow the business cycle very closely. The South African Reserve Bank leading business cycle index currently indicates flat growth. Ooba, South Africa’s largest mortgage originator, has reported a big jump in approved home loans (up 30% in November 2012 and up 47% in October 2012 on the year earlier). For the 11-month period January to November 2012, Ooba’s home loan approvals were reported up by 147% over 2009 and 42% on 2011. This is good news on the availability side, and also indicates Ooba’s relative market share growth within the industry. Ooba’s average initial decline ratio (i.e. the first bank decline) is currently 46%. However the percentage of applications declined by one bank but approved by another is 24.4%, taking the effective approval ratio, once Ooba have submitted to all the other banks, to 65.2%. It pays to shop around, especially when considering mortgage finance.  

If you are a cash buyer you stand a great chance to negotiate a good deal on a property purchase. The next best thing is to get pre-approval for mortgage finance. FNB are offering their innovative “passport to purchase” pre-approval service for buyers and a free detailed bank valuation service to Seeff sole mandate sellers. These are excellent tools currently available for both buyers and sellers.

From Seeff Dolphin Coast we wish our readers, clients, service providers and friends a blessed Christmas and healthy 2013.

(Author: Andreas Wassenaar, 19 December 2012, published in The Bugle)

Sheffield Beach Review (The Bugle)

Sheffield Beach has long been a favourite holiday destination for the local KZN farming community and Gauteng based purchasers. The way that Colwyn Drive meanders along the coastline towards Christmas Bay, revealing some of the most spectacular coastal scenery available, provides good enough reason to understand why so many people find this stretch of coastline so appealing. In many cases prospective purchasers restrict their search to Sheffield only. 

The last few years have however seen the success and popularity of the large gated estates within the area draw the bulk of the new investment and this has provided a significant buying opportunity to those people who appreciate the Mediterranean feel that Sheffield Beach is known for. The architecture of many of the existing homes has drawn on this inspiration reflecting white walls and terracotta roof tiles contrasting with the deep blue ocean backdrop. To get a sense of what the Sheffield Beach property market has been up to, I have analyzed every registered transfer for the period from 1 January 2011 to 8 December 2012. This data sample includes 275 transactions divided into 199 sectional title sales ranging in price from R489,000 to R3m and 76 freehold sales (including vacant land) ranging in price from R301,000 to R10m. The market of saleable properties within the suburb of Sheffield Beach numbers 939 properties, split between 428 sectional title units (45.58%), 397 freehold properties (42.28%) and 114 estate properties (12.14%). The estate properties are those located within gated estates such as the 10ha Sheffield Beach Estate, the 5,5ha Sheffield Cove development or the newer 5ha Sheffield Bay Estate. 

The sectional title transfers are dominated by the new Sheffield Manor development, now in its final phase of development and which is one of the most successful developments within its price category on the north coast. Of the 199 sales, 169 were of Sheffield Manor properties. With a price point below R1m these units offer great value as a starter home or investment property. The real beauty of Sheffield however belongs to those amazing properties situated on elevated sites offering expansive sea views. The highest prices in the last two years have been achieved in Colwyn Drive, with 79 Colwyn trading at R10m, 85 Colwyn at R9m and 47B Colwyn at R8,8m. A tier down from this we found 62 Colwyn trading at R6,5m and 65 Colwyn at R6,4m. Great deals for the buyers when you consider the position these properties offer. A current “best buy” Sheffield Beach opportunity in the sub-R5m price bracket has to be 17 Cuyler Road, which offers a 480 sqm home (which can be significantly expanded) on a large 1,558 sqm site with views that epitomize everything amazing about this beautiful destination. We see extraordinary value in Sheffield Beach at the moment and give it a big “buy now” recommendation.

(Author: Andreas Wassenaar, 12 December 2012, published in The Bugle)

Residential Replacement Cost Gap (The Bugle)

Summer is here! Having experienced the wettest last three months in decades we are due for a few weeks of good weather. The holiday rental properties have been booked to capacity and using this as a measure for what to expect from the season, we are in for the busiest holiday period as yet. We love the annual migration of Gauteng to the North Coast and know that owning a property along the Dolphin Coast is the obvious next step once you have experienced this amazing lifestyle. 

The beginning of December is always a very stressful time in the building industry as they desperately try to finish off outstanding work before the mass shutdown. Most gated estates do not permit building work over the end of year holiday season and by next week the industry will largely be closed for the year. To understand what is happening to the building sector in South Africa, consider the Statistics SA’s latest report, which helps you to understand why building prices are still relatively good. Total square metres of residential buildings completed in the 3^rd quarter of 2012 was 2.6% up on the prior year figure, slightly up from the 2^nd quarter’s -1.7%. It appears that around 1,2m square metres of residential building space is completed on a quarterly basis in South Africa. To try and get an understanding of the potential pipeline of future work in the industry, the total building plans passed should be considered. This was recorded as a 2.4% increase in the 3^rd quarter, which is up from the -7.2% drop of the previous quarter. Approximately 1.5m square metres of new residential building plans are passed every quarter in South Africa. This gives us a somewhat subdued but stable picture of overall building activity. The residential Replacement Cost Gap – the percentage difference between the replacement cost of a home and the existing value of the home as measured by the insurance value, remains high at 23.5% (3^rd quarter 2012 figure and slightly down from the 24.1% measured in the previous quarter). This will therefore result in a residential building sector, which will continue to battle to gain traction as it faces heavy competition from a well-supplied existing home market, making it difficult for new builds to compete price-wise. 

Building a new home is always going to be more expensive than buying an existing older home, it just depends on by how much. For new builds that come onto the market immediately on completion, the realistic selling price will typically be close to the land plus build cost. The average size of residential units completed has declined from a peak of 144 sqm. in 2006 to 114.4 sqm. by Sept. 2012. This trend to smaller homes can be expected to continue for now, as densification of South Africa’s main urban areas continues.

(Author: Andreas Wassenaar, published in The Bugle, 5th December 2012)

Full Title vs. Sectional Title (The Bugle)

Full Title versus Sectional Title? In a market where one often finds design and size similarities between the two, it is interesting to analyze the relative price growth performance over the past few years to get an understanding if any clear advantage exists of one form of ownership structure over the other. Traditionally apartments in high-rise buildings or cluster developments have been sectional title and freestanding homes have been freehold. This will continue to be the case, but often nowadays a development of freestanding homes may be sectional title. 

In the pre-2008 boom years, the sectional title market was buoyed by 1^st time and buy-to-let buyers and caused a “boom-time overshoot” in values of smaller sectional title properties relative to larger full title properties, where the less cyclical family demand plays a bigger role in underpinning values. As an example, and according to FNB’s published 3^rd Quarter 2012 House Price Review, during the pre-2008 house price boom, the average price of a 3-bedroom sectional title home was in excess of 20% higher than the average 3-bedroom full title home. Over the past four years however this gap has narrowed to an insignificant 0.6% as full title house price growth has exceeded sectional title price growth.  The year-on-year price growth of the FNB Full Title Price Index in the 3^rd quarter 2012 was 6.7%, down from the previous quarter’s 9.3%,  but still ahead of the FNB Sectional Title Price Index which grew by 4% in the 3^rd quarter (down from 4.4% in the previous quarter). 

As demand for full title homes has exceeded sectional title demand in recent years, many developers have preferred to develop freehold homes on any given vacant land opportunity. Whereas the two-bedroom segment dominates the sectional title market, the three-bedroom family home dominates the freehold segment. Although not directly comparable as freehold typically offers more space, and sectional title typically offers lower running costs due to shared amenities, it is interesting to note that for similar sized properties, the difference in average price between the two legal structures has all but disappeared. With the advent of large gated communities, which characterize our Dolphin Coast development landscape, the security consideration is no longer any different between sectional title or freehold properties, within any given development. We do however find a significant difference between pricing of both freehold and sectional title properties, which are not within the larger estates. 

A common misperception in the market is that sectional title levies imply that for sectional schemes within an estate, the owner pays a “double levy” in that an estate levy and a body corporate levy is payable. While this is true, this does not mean that the running costs of a sectional title property are higher, as you have to consider what cost line items are included in the body corporate levy budget. These costs are also typically incurred by freehold property owners, in one form or another, and when the detailed comparisons are made, a sectional title property will typically cost less to run than a freehold property.

(Author: Andreas Wassenaar, Published in The Bugle, 28th Nov 2012)