Highest Residential Prices across South Africa (The Bugle)

The high end of residential real estate is where I have focused on for the past twenty years. Definitions of “high-end” vary depending on where in the country you are active in. Along the Atlantic Seaboard in Cape Town, this category is significantly higher than in most other areas. Transactions ranging from R10m, for an average V&A Waterfront apartment, to R110m for a penthouse at the One and Only Hotel tends to define this category in Cape Town. As I am fascinated by what drives the property market and how value is attributed to various real estate sectors, I cannot resist analyzing transfer data across various suburbs and estates. Nettleton Road in Clifton is a remarkable road with Stefan Antoni designer homes perched on top of granite rocks looking out over the cold Atlantic. It is not uncommon to see a home advertised in Nettleton Road for over R100m. A transfer report on all registered transactions within Nettleton Road since 1 January 2010 however indicates only 9 transactions ranging in price from a “pedestrian” R11,5m to a more impressive R60m. These homes are not situated on large sites. The site sizes of the sample ranged from a tiny 593 sqm (small even by our local Palm Lakes benchmark) to a more meaningful 1,912 sqm. Selling prices per sqm of land ranged from R15,416/sqm to R84,317/sqm. Ouch! Imagine paying almost R90,000/sqm of land for a freehold property. 

As high as these registered transfer prices are I could not find transfers registered over R100m. OK, so what about the V&A Waterfront? The 500 plus high-end apartments that make up this exclusive suburb have equally impressive advertised prices. Again analyzing all registered transfers over R10m from 1^st January 2010 within the V&A Waterfront suburb, I could pick up 36 transactions. The highest registration during this four year period was R63m for a 1,050 sqm penthouse at the One and Only. For R10m you can expect to buy a 250 sqm apartment at around R40,000/sqm. The highest rate per sqm in the sample analyzed was R78,431/sqm for a 255 sqm apartment that sold at R20m. 

Expanding the research across the entire Clifton suburb and restricting the research to the four year period from 1^st January 2010, I picked up on a “wow” transaction. Over this period Clifton delivered 81 transfers over R10m – that has to be impressive by any standard. At the top of the list is a sale recorded at R198,354,300 for a 834 sqm apartment at The Clifton situated at 56 Victoria Drive. The accompanying garage of 33 sqm would push the total size to 867 sqm and the resultant price/sqm to R228,782.35.  

Having now understood what the Atlantic top end actually means how do we in KZN compare. Zimbali Coastal Resort provides a benchmark for our local high-end residential real estate. Applying the same methodology to Zimbali we see that there were 21 transfers over R10m in Zimbali for freehold homes (excluding vacant land transactions and sectional title units). Of these 19 were between R10m – R15m. Two were at R20m. This gives sellers some insight into how infrequently homes above R15m trade. The most inactive price bracket in Zimbali is currently the R15m plus range and yet it is in this bracket that a large amount of the current listed stock sits. Once you consider stock in terms of years on hand, we have over 20 years of stock on hand for the R15m to R35m price bracket. Comparing Zimbali to the Atlantic Seaboard opportunities it appears that we are offering incredible value for money, which buyers should enjoy as long as it lasts.

Published in The Bugle, 26 Mar 2014, Author: Andreas Wassenaar

House Price Index Activity (The Bugle)

It’s all about the price. In a market economy prices embody a host of information. House prices reflect the demand and supply forces within the property market and can reveal underlying trends and cycles. Factors such as consumer confidence, household finances and debt levels and economic conditions combine to drive demand for property up or down. Absa’s recently published House Price Indices report reveals price movements across three broadly defined segments – small homes (80-140 sqm), medium homes (141-220 sqm) and large homes (221-400 sqm). The figures as at the end of February 2014 show nominal year-on-year growth rates of 1.3% for small homes, 6% for medium homes and 7.2% for large homes. Once these figures are adjusted for inflation we see that in real terms small home prices declined by 4.6%, medium home prices declined by 0.9% and large home prices increased marginally by 2%. Absa’s house price indices are compiled from mortgage applications received and approved by Absa. It is interesting to see how the growth of the larger more expensive homes has been so much more significant using Absa’s house prices. Despite our national economic growth rate taking a pounding in the third quarter of 2013, to end the year at a pedestrian 1,9% growth rate, due to massive disruptions in production on the back of labour strikes, the forecast for 2014 is far more positive. A GDP growth rate of 2,7% is predicted for 2014. 

You can think of a rising tide raising all ships. As our economic growth improves, disposable income and the capacity to service debt increases. With that consumer and business confidence increases and people are more inclined to make longer-term property buying decisions. There is no doubt that the greater Ballito area is a current property hot spot. It appears that every second enquiry for property comes from somebody migrating down from Gauteng. The local schools have grown from two to five mainstream institutions and each appears to be bursting at the seams. Ballito is at that wonderful stage of its development where it is big enough to provide its residents with the range of amenities that are important to have on hand and at the same time small enough to ensure that traffic, congestion and pressure on services are manageable.

The delivery of new residential opportunities is starting to gain momentum along the Dolphin Coast. Producer price inflation for building materials slowed down to 6.64% in January 2014 from a peak of 8.4% in October 2013. The devaluation of the Rand since then may well put pressure on building input prices so this will be interesting to watch. Essentially lower price inflation for building materials speeds up the delivery of new homes while higher price inflation tends to slow it down and make the existing stock of homes more attractive and price competitive. A statistic I find fascinating is the FNB estimate of the National Full Title Property Replacement Cost Gap. This is the percentage by which the average property’s replacement cost (i.e the cost of a new build) exceeds the existing home value (cost of existing homes). Currently measured at 22.6% this implies that new homes should be trading at a premium of 22.6% above the price of the existing stock. It is therefore always going to be more cost effective to buy old rather than new and it is only the size of the difference that varies with the property market cycle. 

Published in The Bugle, 19 Mar 2014, Author: Andreas Wassenaar

Property and Taxes (The Bugle)

Property and taxes seem to be inseparable. Transfer duty is one of those nasty taxes that impact significantly on the transaction costs of trading property. The way it is calculated is on a sliding scale based on the value of the selling price. The first R600,000 is exempt. From R600,000 to R1m, 3% is payable, from R1m to R1,5m, 5% is payable and everything over R1,5m attracts 8% in transfer duty. A quick way to calculate this is to take the purchase price, less R1,500,000, apply 8% to the balance and then add R37,000 as the applicable transfer duty for the first R1,5m. For individual transactions this can be a very significant consideration and when we consider the macro value of all transactions, the amounts are huge. It was several years ago that the tax loophole of transacting in company and close corporations owning property to avoid paying transfer duty was closed. For buyers and sellers looking to make and accept payment outside of the country for a property traded in South Africa, the amount payable as transfer duty remains and SARS will be watching you.

In his budget speech for this year, finance minister Pravin Gordhan left the transfer duty rates unchanged and indicated that he expected transfer duty revenues to increase at around 9-10% per annum for the next three years. This is a reasonably conservative estimate considering that transfer duty receipts increased by a massive 28% in the 2013/2014 tax year. So how much does the government collect from transfer duty payments? Last year’s transfer duty revenue amounted to R5,47bn up from R4,27bn in 2012/2013. This is still well below the peak of 2005/2006 when the treasury collected R8,51bn in transfer duty. By 2008/2009, the transfer duty receipts had dropped by 42% to R4,93bn.

Transfer duty receipts are an excellent proxy for the business cycle and when you consider the South African Reserve Bank leading business cycle indicator relative to it, it is surprising how closely they track each other. The surge in January 2014 transfer duty payments by 49,4%, when measured on a year-on-year basis, is indicative of a strong property market recovery. This provides support to my view that we are in for an exceptionally busy 2014 characterized by resurgent buyers and stock shortages within certain product ranges and prices.

Capital gains tax is another tax property owners have to be aware of. The primary residence exclusion was kept at R2m. This means that the difference between your cost plus capital improvements over the time of ownership and the selling price (i.e. your gain) is reduced by R2m if the home being sold is your primary residence as defined by SARS. Once this net gain is established an inclusion rate of 33,3% is applied if the property is registered in your personal name. This taxable amount is then applied to your income earned for the period and taxed at your marginal rate. For individuals a maximum effective capital gains tax rate of 13,3% of the gain applies. An inclusion rate of 66,6% of the gain applies if the property is registered in a company, close corporation or trust. For companies and close corporations an effective capital gains tax rate of 18,6% applies and for trusts this effective rate is 26,7%. It therefore pays to plan your property ownership structure at the outset with the end in mind.

Published in The Bugle, 12 Mar 2014, Author: Andreas Wassenaar

Brettenwood Booms (The Bugle)

Brettenwood Coastal Estate is booming. The 103 ha estate is positioned along Dunkirk Estates northern boundary and lies just behind popular suburbs Salt Rock and Sheffield Beach. The surge in vacant land sales within Brettenwood over the past 18 months has been nothing short of astounding. The developer’s vacant land availability list used to be four pages long. Today there are only 7 sites available in phase 1 and 23 sites in phase 2. Rarely have I seen a window of opportunity close so quickly. Scarcity is a seller’s best friend. Current land pricing ranges from R1,050,000 for a 1,470 sqm bush view site to R1,460,000 for a waterfront site measuring 1,291 sqm. It is less about the site size and all about the position and outlook achievable. The stock of available land is shrinking before our eyes and as estate agents this means one thing – demand will drive pricing upwards, and quicker than you think. For those who like the idea of buying a new freehold home but feel overwhelmed by the prospect of having to go through the development process themselves, the developer has provided development packages on certain selected sites. These range from a 217 sqm build package at R2,075,000 to a 432 sqm option at R4,257,605. If you are able to get a developer to provide you a build package for less than R10,000/sqm you are doing very well. These build prices cannot last with a depreciating Rand as the cost push inflation impact means that almost every aspect of the building is affected in some way. Although our petrol and diesel prices respond very quickly to movements in the value of the Rand, other components sometimes have a lag affect of a few months as existing inventory is sold but all new inputs have to be bought in at the escalate prices.

The contemporary architecture and clean horizontal lines inspired by legendary architect Frank Lloyd Wright are evident and something investors and residents have responded to. The success in driving demand of the new communal facilities at Brettenwood cannot be under estimated. The Woodland Rest Clubhouse was opened in October last year and consists of a main clubhouse with wrap around deck and catering facilities, 3 pools  (a 25m lap pool, an aerobic/multi-function pool and a kiddies pool), fully equipped gym with sauna and change rooms. The entire facility was specifically designed to be wheel chair friendly. Below the clubhouse is a Boma, which is a popular entertainment area with braaing facilities and beautiful forest walks that can be accessed from it.

Brettenwood has learned from Dunkirk how important a beach club facility is for residents living in an estate that does not have direct beach access. To this end the developer has already purchased land on which the Brettenwood beach clubhouse will be constructed and plans are being finalized. A R35,000 beach clubhouse membership fee is applicable and payable by the purchaser of every re-sale property. The pricing of the developer’s product includes this fee, providing another incentive to purchase land while available.

The age analysis of recent buyers (over the past 12 months) at Brettenwood indicates reasonably equal weighting across the age groups. Current figures indicate that 16.33% are aged 18-35; 32.65% are aged from 36-49; 32.65% are aged from 50-64 and 18.37% are aged 65 and older. The impact of younger buyers acquiring vacant land to build their own homes and older buyers acquiring retirement opportunities at Forest Village within Brettenwood are evident. It is interesting to note that the average price across all registered transactions over the past 12 months within Brettenwood is R2,396,795. This compares favourably to the average of neighbouring estate Dunkirk at R2,684,647.

Published in The Bugle, 5 Mar 2014, Author: Andreas Wassenaar