What caused the financial crisis?
What caused the 2008 financial crisis? We all know it was linked to the US property bubble, but who caused that? Many politicians would have us believe that the banks are to blame. However, the underlying facts tell a different story.
Timeline
- Prior to 1996 only wealthier people were able to get sub-prime mortgages. All this changed in 1996, when the US housing department set a goal for Fannie Mae and Freddie Mac that at least 42 percent of the mortgages they purchase be issued to borrowers whose household income was below the median in their area.
- This target was then increased to 50 percent in 2000 and 52 percemt in 2005. This led to increased sub-prime lending, particularly to lower income groups.
- During 2001, US interest rates were decreased from 6.0 percent to less than 2.0 percent in order to fuel consumer spending. Rates were then kept at this low level until 2005.
Insolvency in sect. title schemes
When owners of sectional title units don't take an interest in the running of their body corporate problems can creep in, some as serious as overly large municipal bills. Michael Bauer, general manager of IHFM says this can lead to the insolvency of the sectional title scheme.
A case he refers to was a sectional title scheme in Johannesburg where IHFM was called in to assist with the management and financial salvage, which received a municipal account for electricity to the amount of R3.8 million.
In this particular case, the disconnection notice arrived a few days before the electricity was cut off, and the building was left without electricity for over ten days.
How the account was allowed to run up to this amount, no one knows, he says. “In most cases before the amount even gets to hundreds of thousands the municipality would have cut the electricity or water in order to get the overdue amounts paid.”
In cases such as these urgent help is needed to manage the crisis and the first step is to raise the money to pay the outstanding account or to arrange a repayment plan with the municipality to settle the amount over a certain period of time, he says.
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What influences a property's value?
According to research, it only takes a potential buyer a few minutes to decide whether they like a property or not. This is according to Adrian Goslett, CEO of RE/MAX of Southern Africa, who says as with most areas in life, selling a property is all about making a good first impression.
He says while there are things that sellers can do to make sure that their home is in its best possible condition before it is placed on the market, certain elements that are often beyond a homeowner’s control will play a vital role in the marketability of the property before a buyer has even viewed it.
Goslett lists these elements as:
Location
Goslett says that the number one external factor that influences how a home is valued in the eyes of a potential buyer is its location. “We have all heard the adage of location, location, location too many times, but it is an essential element, especially when it comes to the perceived value of a property.”
Where the property is situated and what is around it will impact on how sought-after it is, he says, and factors such as its proximity to entertainment and shopping facilities, recreation areas, good schools and other amenities will all bear weight on how the property is viewed and valued by potential buyers.
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IEASA residential rentals course in CT
As a letting agent, it is important to be completely au fait with the Rental Housing Act and the legal interpretation of it, as well as the practical day-to-day aspects of rental management. Of the courses lined up to help estate agents get the necessary training to specialise in their chosen field of property transactions, the Institute of Estate Agents, Western Cape, has arranged for a comprehensive residential rentals course to be run at their Training Centre in Pinelands.
The course will run from 10 to 11 July 2013, from 9:30am to 2:00pm and the cost for the two days is R1 200.
The subjects that will be covered include the Rental Housing Act, unfair practices, regulations and Consumer Protection Act implications, landlord and property management agreements (of which samples will be given to each attendee); advertising and marketing, tenant screening, dealing with applications and problems with tenants; costs of renting; deposit handling; rental increases; late payment procedures; agent fees and how to handle inspections and inventories in homes.
The course will also covers subjects such as the rights of landlords and tenants, dealing with repairs and maintenance, eviction procedures – which includes ejectment and spoliation, attachment orders and granting of interdicts, change of ownership of properties and various case studies.
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Buying new vs secondhand property
Home buyers looking for a property in an estate usually have the option of buying a new home directly from a developer or buying an existing secondhand home. Michael Bauer, managing director of the estate agents IHPC, says the advantage of buying directly from a developer is that you’re getting a brand new product, where no major maintenance, refurbishments or repairs will be necessary for the next three to five years. Another benefit to buying new property is that the buyer can choose what layout he prefers, the size of the unit, and will usually have a list of finishes he can choose from.
Bauer says although homes below R600 000 will have no transfer duty a major benefit in buying directly from a developer is the saving in transaction costs. In most cases VAT will be included in the price and, traditionally most of the transaction costs are paid by the developer.
“If one considers that a buyer would have to have 10 to 25 percent as a deposit to put down and he would need to budget an additional 10 percent of the purchase price for the transaction fees if he bought a secondhand home (because the banks won’t finance these), the savings in buying directly from a developer are considerable.”
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Hidden psychology of property pricing
Sellers naturally want the best price they can get for their property and often ask unrealistic prices in the hope that they will get as close to the mark as possible - but they may be doing themselves a grave injustice. Andreas Wassenaar, Principal of Seeff Dolphin Coast and Chairman of Seeff KZN, has been involved in marketing and selling high-end residential real estate for almost 20 years and has some insight into the psychology of pricing and perception of value.
Wassenaar says Priceless The Myth of Fair Value is the title of a fascinating book by William Poundstone, in which he investigates the hidden psychology of value. The back sleeve of the book reads: “People used to download music for free – then Steve Jobs convinced them to pay for it. How? By charging 99 cents. Prada and other luxury stores stock a few obscenely expensive items – just to make the rest of their inventory seem like a bargain. Why do text messages cost money, while emails are free? Why do jars of peanut butter keep getting smaller in order to keep the price the same? The answer is simple: prices are a collective hallucination.”
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Interdicts can halt property transfers
The Institute of Estate Agents, Western Cape, is often called in to assist when buyers, sellers and estate agents experience problems. Annette Evans, regional manager of the Institute, says that they, in turn, will enlist the help of specialists in that particular field to answer any questions or deal with queries.
She says one query that has come up recently is whether an estate agent is responsible for checking if the seller’s property has any interdicts over it.
With the crash of the property market recently the above question has become more relevant, says Storme Heath, a director at C&A Friedlander Attorneys, who often sponsor training sessions and events held by the Institute.
She says often they see boards affixed to the gates of properties, alerting us to an upcoming auction to be held on the properties. "It seems that properties in a broad spectrum, from Salt River to upper end Constantia homes, have been affected by the fall in the economy.”
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Home loans for buy-to-let property
Following the global financial crisis of 2008/2009, South African banks have generally been more conservative in financing buy-to-let properties, compared with the boom years, which may have also contributed to slower buy-to-let buying. According to Ewald Kellerman, head of sales at FNB Home Loans, since there is no coordination of bank policies, the competitive nature of the financing industry encourages banks to push the limits of risk taken on with these types of transactions.
Kellerman explains that these types of home loan applications are of a more complex nature compared to applications for primary residential property buying and require special considerations when considering whether to grant a loan.
Be that as it may, the latest FNB report reveals that buy-to-let residential property investors are making a comeback to the market, albeit at a slow pace recording 8 percent of total residential property buying.
More buy-to-let investors choose KwaZulu-Natal recording 11 percent followed by the Western Cape at 8 percent and Gauteng 6 percent, as buyers in the Western Cape and Gauteng regions buy homes for residential purposes other than second homes, according to FNB.
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Pros and cons of building a new home
While the death of a loved one probably rates as one of the most traumatic life events, Century Property Developments has found that many South Africans experience almost equal trauma when engaging with the building trade - whether building a new home or renovating an existing one. It is not difficult to understand why: the cost over-runs, the delays in building, the problems in co-ordinating teams of contractors, managing the project, the inevitable deviations from plan.
You can make up your own list. Anyone who has been through this experience knows what it feels like, explain the developers.
According to Century Property Developments, the truth is that buying and building a home is the most substantial and important purchase in most people’s lives.
Most home purchases are financed by way of a home loan, and these generally have a life of 20 years, they say.
The average South African moves on after eight to 12 years, so buying a home is not a short-term decision – the home embodies their individual tastes and preferences, not to mention their aspirations for their families.
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