Hilltop Private Estate v.s. Port Zimbali Estate (The Bugle)

Two estates, which are starting to attract a lot more interest, bordering on the Zimbali Coastal Resort are Port Zimbali Estate and Hilltop Private Estate at Port Zimbali. The municipal area and designated suburb is referred to as Port Zimbali and includes all the land east of the M4 and south of Seaward Estates and Ballito. The largest component of this land is Zimbali Coastal Resort. However there are other designated and developed areas within this suburb, and Port Zimbali Estate and Hilltop Estate receive our focus for this week. 

Port Zimbali Estate measures 8.7 ha and has a maximum capacity of 80 freehold properties. No sectional schemes will be developed within this estate. Currently approximately 50% of the properties have been sold and developed. The estate levy is R1,500 p.m. The mandatory gardening levy is currently R650 p.m. and this ensures that all the internal gardens and road verges are maintained by the home owner’s association. The once of contribution to the levy stabilization fund, paid by the purchaser, is R10,000. The average price, based on all registered transfers over the past 12 months, is R2,891,667. ABSA is currently the most active mortgage lender on the estate. The number of registrations, the best guide for sales activity, has increased from 8 in 2011 to 11 in 2012, which is almost back to the pre-recession 2007 level of 12.

Hilltop Private Estate measures 14,4 ha and consists of 61 sectional scheme units (across three completed and occupied sectional schemes) and 47 freehold properties, which includes the 10 new sites, which make up The Ponds development. The estate levy is R1,140 p.m. and the once of contribution to the levy stabilization fund is R6,000 plus vat. The average selling price is R1,995,789 and ABSA is also currently the most active mortgage lender on this estate. The number of registrations recorded at Hilltop were 19 in 2011 and 5 in 2012. The respective figure for 2007 was 11.

The big difference between the two estates is that the opportunity at Port Zimbali Estate is a plot and plan option as the master developer also does all the building on the estate. A purchaser therefore enters into a building contract within 6 months of taking transfer of the land. This has created certain efficiencies which are passed onto the purchaser – the relative building package cost is very competitive, the quality of build is excellent and consistent, the build time frame is probably the shortest within the Dolphin Coast area and all professional fees are bundled together in the home package. The landscaping around and between each of the properties becomes part of the building package and is also maintained on an on-going basis. For a completed freehold opportunity in the R3,5m price range, Port Zimbali Estate presents a compelling solution. Hilltop Estate currently offers some of the best vacant land options to be found where stand sizes average 1,600 sqm and spectacular sea views are possible. Hilltop recently scrapped all build by dates and are actively encouraging investment in this largely overlooked boutique estate. Purchasers of vacant land are free to use their own appointed architect and builder, although the architectural guidelines are subject to the Zimbali town planning scheme. Examples of large and impressive freehold homes have already been built and the sectional title offerings have suddenly over the past 6 months received significantly more interest. For vacant land within the R1m price range, Hilltop offers exceptional value.

(Author: Andreas Wassenaar, published in The Bugle, 26th June 2013)

Rental Market Review (The Bugle)

If you have been in the market to rent a property within the past six months, you would have quickly realized that there is a huge shortage of quality rental accommodation available along the Dolphin Coast. The shortage of new supply coming onto the market has limited the choice for would be tenants and the reluctance of many property owners to make their properties available for rental further steepens the supply curve.  One of the leading tenant credit bureaus in the country, Tenant Profile Network (TPN), which focuses on the residential rental market has recently published its Rental Payment Monitor and provides some interesting insights. This report confirms that the stock shortage is not limited to our region and is a national issue, which tenants have to deal with. This is not surprising however when we consider the national average buy-to-let statistic is only 8% of all sales. Developers were hard hit over the past five years and very few new projects were provided for. There are current indicators, such as the Stats SA figures for buildings plans passed, increasing substantially in the first quarter of 2013, which will eventually translate into more supply. 

Locally we have two new large scale projects, Manor Estates and Sheffield Manor, which have been supplying new rental stock to the market within the ultra-active R7,000 to R10,000 p.m. bracket. We know that more people are renting than ever before and we also know that people are staying in the rental market for longer – the average age of a tenant has increased from 27 to age 31. The result of this limited supply has been good news for landlords. According to TPN the number of tenants in good standing has increased steadily to 84% as at Q1, 2013. The payment performance by rental value and by province is very interesting. The best performing category in terms of rent collection is the R3,000 – R7,000 p.m. group with 86% of tenants in good standing - 73% paid on time and in full, 3% paid within the grace period, 10% paid late, 8% made a partial payment and only 6% did not pay.  The R7,000 to R12,000 p.m. category is very similar, but things start to drop off on the lower and upper ends of the spectrum. The lower end (rentals below R3,000 p.m.) showed 77% of tenants in good standing with 64% recorded as having paid on time, 4% paid within the grace period, 9% paid late, 9% made a partial payment and 14% did not pay. On the upper end, recorded for rentals above R25,000 p.m., only 67% of tenants were in good standing with 51% having paid on time, 5% paying within the grace period, 11% paying late, 24% making a partial payment and 9% not paying at all. When we consider the behavior of tenants by province, we see that tenants in the Eastern Cape, Western Cape and Mpumalanga performed best – all achieving an 88% in good standing. Gauteng recorded 82% in good standing and KZN and Limpopo each recorded 81% of tenants in good standing. The lowest recorded “did not pay” tenants were recorded in the Western Cape and Mpumalanga at 5% and the highest was in KZN at 12%. This is all the more reason for KZN based landlord’s to ensure they are using professional and experienced rental agents who subscribe to credit bureau service providers such as Tenant Profile Network.

(Author: Andreas Wassenaar, published in The Bugle 19 June 2013)

SA Property - A Buyers Market for Offshore Purchasers (The Bugle)

For estate agents the first five months of 2013 has been a busy period. Sales volumes are up although pricing on the whole is down for many of the transactions. This has been a delight for buyers, but an adjustment in expectations for many sellers. The outlook for the remainder of this year, as expressed by most economists, is that consumers should proceed with caution. The recently released FNB House Price Index figures show that house prices continued their marginal escalation with May showing a year-on-year growth of 5,8% up from 5,4% in April. After adjusting for CPI inflation, real house prices declined slightly by 0,4%. It is interesting to view this same house price index over a ten-year period from 2003. We then see that house prices are up 49,8% in real terms or 151,9% in nominal terms. This indicates that the price effects of the residential demand boom experienced over the last decade have not worn off even after taking into account the significant downward correction experienced in 2007/2008. 

The FNB Valuer’s Market Strength Index is one of those statistics you always want to keep an eye on as it gives you an indication of the relative levels of demand and supply within the overall market. Although this is indicating that supply levels have been contracting and demand levels growing marginally, the overall demand rating remains at 46,33 which is well below the key 50 level mark at which demand and supply are equal. Until demand exceeds supply, sellers will not experience the escalation in home prices they became used to during the boom years. 

For anybody who has been watching the performance of the exchange rate of the Rand this year, the rapid weakening of our currency has been a little concerning. I tend to think of the exchange rate of the Rand as our country’s share price. When confidence is up and international investors favour us, money floods into the equity and bond markets driving up the value of our currency in terms of Dollars, Euros or Sterling. May 2011 does not seem that long ago and the Rand : US Dollar exchange rate averaged R6,57 at that time. By May 2012 the rate was R7,89 per US Dollar. And now by June 2013 we are at R10,07 per US Dollar. That is a 53% weakening over the two year period. Our residential property just got a whole lot cheaper for a purchaser making their decisions in US Dollar value terms. For South Africans based outside the country who have been considering buying a residential property in South Africa, this is probably one of the best times you will be presented with to buy. It will be interesting to see if the current weakness of the Rand does translate into increased foreign buying of our local properties during the course of this year. It should.

(Author: Andreas Wassenaar, published in The Bugle, 12 June 2013)

Empire State Building - For Sale! (The Bugle)

What is the most prime real estate on the planet? A list would no doubt include iconic buildings in the world’s leading cities, from London, to Hong Kong, to Dubai, to New York. If you have ever dreamt of owing a part of the world’s most desirable real estate offerings, now may be your chance. Hot of the press from the Wall Street Journal, is a report that the world famous and instantly recognizable Empire State Building is to be sold. This will be by means of an Initial Public Offering (IPO) by the stakeholders in the private company that owns the Empire State Building. More than 80% of the 2,800 stakeholders in the building eventually voted in favour of the deal, which has now paved the way for one of the largest real-estate IPO’s ever. The new proposed company, Empire State Realty Trust, aims to combine the iconic 1931 skyscraper with 18 other properties. This seems to be a clever way to sell other (possibly less prime) buildings by bundling them with such an iconic landmark as the Empire State Building. It does however also diversify the risk of the asset holding which investors would respond favorably to. The Malkin family have controlled the asset and have had a lengthy battle with dissident stakeholders who opposed the plan. The upside for a listed real estate asset is the fact that it becomes much more tradable. When you combine an iconic building with one of the world’s most vibrant cities, it becomes a very attractive proposition to want to go the IPO route. The demand for office rentals in New York has however been flat and with new office space coming on stream, older buildings will have to remain competitive in terms of rentals. Although some reports are claiming that the value of the IPO will be US$4,2bn  (ABC News), this remains to be seen.

The Empire State Building was the tallest building in the world when it was completed in 1931 and remained as such until the completion of the World Trade Centre in the early 1970’s. Today, at 381m and with 102 floors it is ranked only as the 22^nd tallest building in the world. The world’s tallest building is the impressive Burj Khalifa in Dubai, which measures 828m and has 163 stories. This building has set other world first records including the tallest free-standing structure in the world, the highest number of stories in the world, the highest occupied floor in the world and the elevator with the longest travel distance in the world. Luxury residential suites occupy floors 45 to 108, with office space taking up the remaining bulk. The very slick and newly completed One World Trade Centre in New York is now the world’s third tallest building at 541m and 104 floors.

(Author: Andreas Wassenaar, published in The Bugle, 5 June 2013)

Saving Economics from the Economists (Ballito Mag)

“Saving Economics from the Economists” is the thought provoking title of a recently published article in the Harvard Business Review (Dec. 2012), written by the 1991 Nobel Prize winner in Economics, Ronald Coase – now an impressive 101 years old. Coase remarks that Economics as currently presented in textbooks and taught in the classroom does not have much to do with business management and still less with entrepreneurship, which is at the heart of a market economy. The degree to which economics is isolated from the ordinary business of life is extraordinary and unfortunate. Coase points out that this was not always the case as the father of modern economics, Adam Smith, envisioned it as the study of the nature and causes of the wealth of nations, with his seminal work, “The Wealth of Nations”, which every Economics 101 student will know about, widely read by businessmen at the time. Coase calls for a reengagement of the study of economics with the economy and to re-orientate this field of study to the study of man as he is and the economic system as it actually exists. The blockbuster titles “Freakonomics” and equally successful sequel “Super Freakonomics” by Levitt and Dubner, therefore came as a breath of fresh air for those thirsting after applied economics, as they set out to explain wacky real life questions such as why drug dealers live with their mothers, how your name can affect how well you do in life and what estate agents have in common with the Ku Klux Klan. I am always interested when estate agents are used as a group to study and the revelations provided by Levitt and Dubner explain why as a seller it is so important to have your estate agent’s goals aligned with your own. The best way I know how to achieve this is through the use of a sole mandate.

The emergence of capitalism in its hybrid forms as a means of organizing labour, capital, information and innovation in China, India, Africa and South America provides economists with unprecedented opportunities to study how a market economy gains its resilience in societies with such diversities. The recent BRICS (Brazil, Russia, India, China and South Africa) annual conference held in Durban and hosted in Zimbali for part of its duration, brought to the Dolphin Coast the reality of the importance these newly developed economies exert on a global platform. South Africa has seen its proportion of gold production to world output plummet but remains a key producer of platinum (together with Russia). South Africa also remains a strategic gateway for doing business in large parts of Africa, and with Africa now being the fastest growing continent as measured by GDP growth according to the Economist magazine, this provides opportunities for us. As Africa becomes wealthier, we can expect more and more African nationals to invest in residential property within South Africa. We have already witnessed this with the proportion of foreign African investors now making up 20% of all foreign residential property purchases. I would expect this figure to double over the next five years. Did you know that the single biggest investment to date in a residential property along the Dolphin Coast was made by a Zimbabwean national? My estimate is R200m for the land and existing buildings (confirmed) and R200m (conservatively but unconfirmed) for capital improvements to date. I would challenge anybody in South Africa to show me another single residential home with a cost value (not asking price) of R400m.

The protection of property ownership rights and the information communicated by prices are fundamental to the operation of the market for real estate in an economy. The pricing of any good or service is an interesting concept as at most price levels there will be some people who see greater value offered than the asking price, and who would tend to buy the good or service while others will see the price as higher than the value provided, and therefore typically elect not to buy the good or service. An outstanding book by William Poundstone, called “Priceless. The myth of fair value”, interrogates this hidden psychology of value. He comes to the conclusion that prices are a collective hallucination and that what matters is not the absolute price of anything but only the relative price. This field of study is called behavioural decision theory and draws on our knowledge of psychology and economics to explain how pricing of anything directly affects the value we associate with it. Poundstone explains the idea of “anchoring” the value we ascribe to a product where it is priced at a certain level and then discounted repeatedly to create a sense of relative value as we psychologically create a benchmark in our minds using the original asking price. In a property market the asking prices of other similar properties provide an opportunity for “anchoring” or creating this benchmark. Over-priced properties make other similar properties seem like excellent value and therefore help estate agents to actually sell the other property. Properties that have been significantly discounted relative to their original asking price also create a sense of value at the revised pricing, which often results in a sale.  

(Author: Andreas Wassenaar, published in The Ballito Mag, June 2013)