Direct vs indirect property investing
When considering investing in property, one should choose between direct investment (owning one or two properties that are physically rented out and managed) or indirect investment (shares in a property loan stock or unit trust company).
Either can be rewarding, but an investor must choose the investment vehicle carefully and plan properly, says Michael Bauer, general manager of IHFM, a property management company.
When buying property and owning it 100 percent, there are pros and cons as with everything, says Bauer.
The advantage of owning a property outright and not in partnership with anyone is that it is yours and you can gear up to 100 percent of the investment (which means you own property without equity).
You earn the future rewards of that property and have 100 percent decision making ability on that property, he says.
The disadvantage is that the risk is 100 percent yours - in terms of financial market risk (interest rates), business risks, and the risk of default when you have tenants.
Lightning insurance & protection tips
South Africa has one of the highest lightning ground strike densities in the world, which can have major financial repercussions for businesses and local homeowners.
According to the Insurance Information Institute in the US, the cost of damage caused by lightning strikes totalled nearly $1 billion in insured losses in 2011 alone.
Christelle Fourie, Managing Director of MUA Insurance Acceptances, says lightning is one of the most underestimated natural disasters. She says in the summer months, an increase in thunderstorms and lightning is experienced throughout South Africa and can often result in substantial financial losses as a result of damage caused to homes and possessions.
Fourie says due to the high frequency of lightning strike incidents that occur in certain parts of South Africa, some insurance policies restrict cover by imposing an additional excess or in extreme cases even excluding cover altogether.
Green buildings take off in SA
Over the past decade, green building has emerged as a growing trend among a vigorous interest group to create high-performance, energy-efficient structures that improve tenant and/or owner-occupier comfort and well-being while minimising environmental impacts.
This is according to Nival Porun, portfolio executive and head of the green business unit at Excellerate Facilities Management.
Porun explains that with support structures in place by organisations such as the South African Property Owners Association and the Green Building Council of South Africa, both public and private entities are increasingly pursuing green buildings in the institutional, commercial and residential sectors.
Landlord and tenant mindsets are changing and progress in achieving greener standards is becoming noticeable, he says.
Porun says building projects which are currently being designed but have not yet been submitted for municipal approval need to be aware of the SANS 10400 part XA standards which form part of the National Building Regulations.
Property24 launches DIY workshops
With the housing shortage remaining a huge focus in South Africa, the need for building and maintaining homes is as great as ever. Since 1996, there have already been 3 600 families who have had their lives changed by receiving a home through the efforts of Habitat for Humanity South Africa, and as part of a drive to improve these beneficiaries’ lives further, Property24 is partnering with household service providers to offer DIY workshops. With the knowledge gained at these workshops, the beneficiaries will be able to better maintain their houses, ensuring their properties remain a great asset for many years to come.
Saturday, 24th November 2012 marked the first of these workshops, which was held in Mfuleni at the home of last year’s Clicks for Bricks beneficiary, Zodwa Regina. 16 beneficiaries attended the inaugural workshop, presented by Call-out Crew, where they gained hands-on experience on how to deal with some common household maintenance tasks. These included fixing leaking taps, waterproofing the edge of a bath with silicone, protecting wooden windows and doors against sun and rain damage, and solving the problem of constantly running water in a toilet. While such maintenance can be costly when hiring the services of a handyman, homeowners can perform these easily and cost-effectively themselves, according to Stephen White from Call-out Crew.
SA’s infrastructure finance future
The National Planning Commission recently identified a 30 percent fall in public sector spending since 2008.
This is more bad news for many South African infrastructure groups who are battling to survive, especially considering that (according to Murray & Roberts) though government announced South Africa’s R4 trillion expenditure on infrastructure over the next 15 years, there were no tenders issued for a major infrastructure project.
With the infrastructure sector now waiting for the state to start spending on its 18 strategic infrastructure projects, outlined at the October 2012 Presidential Infrastructure Investment Conference, funding has become a real problem.
With banks, other financiers and major equity investors tightening their lending requirements for many infrastructure projects, an opportunity for non-bank money to fill some of the gaps being left by international banks scaling down on long-term lending is available.
Construction industry income up 12.2%
The total income for the construction industry in South Africa 2011 was R268 100 million, an increase of 12.2 percent from R169 249 million in 2007.
According to the Statistics South Africa (Stats SA) Construction Industry 2011 report, the largest contributor to the total income was construction of civil engineering structures (R104 646 million or 38 percent), followed by construction of buildings (R68 758 million or 26 percent), other building installation (R20 129 million or 8 percent) and other building completion (R15 198 million or 6 percent).
The profit margin for the construction industry was 2.8 percent in 2011 while site preparation had the highest profit margin at 5.7 percent followed by electrical contractors at 5.2 percent.
Stats SA's report reveals that renting of construction or demolition equipment with operators had the lowest profit margin of -4.4 percent and expenditure in the construction industry in 2011 amounted to R257 157 million.
Banks focus on non-interest income
South Africa’s big four banks are under pressure to maintain revenue while concern continues to grow of an unsecured lending bubble.
According to Gary Palmer, chief executive officer, Paragon Lending Solutions, banks are unlikely to shift away from non-interest income, which makes up a bulk of the unsecured lending market, as the current environment favours higher fees and commissions from these products.
This trend is likely to continue into 2013 if interest rates remain low and non-interest income makes up a significant portion of most banks' revenue.
“The banks are attributing higher fees and commissions which are linked to initiation fees, administrative expenses and credit life insurance in order to steady revenue growth.”
For example, Nedbank’s recent third quarter results illustrate growth in non-interest revenue up 14 percent to R12.4 billion, indicating that they are on target for this year, he says.