Monday, December 7, 2009


While many are viewing the property investment market critically, due to obvious losses in many sectors, the shrewd investor knows that opportunities exist in every single market condition.

Similarly, stock market investors will shift their stock holdings from perhaps retail into gold or platinum as the market conditions change. To claim that there is no money to be made on the stock exchange just because a certain stock did not perform is silly and short sighted.

Of importance to note, is that property prices are fast approaching their levels of 12 to 18 months ago. In other words, the investor in property has lost nothing in terms of capital. Those that lost through forced sales (and I do not want to appear unfeeling here), did so because they bought in an overpriced market at a level above their safe risk zone. In other words, only bad investors have lost money on property.

The question therefore is simply - what makes a good investment currently. Commercial properties continue to be under stress and the statistics from many shopping centers will bear this out. Pure residential investment while currently viable in a growing market can be viable but one needs to still be careful of secondary fallout form the global recession.

My thoughts? Go for student accommodation. The opening up of South African society has seen massive increases in demand for university and college education. Subsidies are widely available. Many more people from the previously disadvantaged groups are entering the middle and upper income groups. Rural areas are developing and student aspirations with it. This burgeoning group of students will need a place to stay.

A stroll around any inner city area or suburbia close to places of further learning quickly reveals that students make up a large group of the population - by tenancy. Simply because the institutions themselves cannot cope or are overpriced.

Viewed in these terms, a two bedroomed flat, instead of generating a single rental income, can now be viewed as shared accommodation for four students - with corresponding increases in total rental income. And of course students are less demanding in terms of demanding the kitchen be revamped and other such demands. Providing the accommodation is neat you will have happy tenants - and parents or subsidies footing the bill.

Many of these students are being abused in terms of quality of accomodation and if you set yourself apart as a landlord of choice, you will have a never ending stream of income.


Government through its housing subsidy programme assists people with very low salaries to buy houses. Many people however are not sure how to access this assistance, so I thought that this original article by Denise Mhlanga would be helpful.

I would like to help my employee who lives in a shack buy a simple house in Cape Town. Could you please tell me more about government's housing grants and where one can go to for subsidy application?


The Housing Subsidy Programme provides financial assistance to poor people, enabling them to buy decent houses. According to Louella Lekgetha, deputy director of Subsidy Administration at the Gauteng Provincial Government, the national housing programme was introduced post 1994 called the Housing Subsidy Scheme.
She said the grants were then R9 500 with an escalation of 10% serving as cushion against the ever rising building costs.

"The establishment of these grants were aimed at providing land and houses to the poorest households in the country," said Lekgetha.

Lekgetha said first-time buyers in the low-income earning group can access housing subsidies through their local housing department. The subsidy could be used to buy an existing house, including the property on which the house stands.

It can only be given to an individual once and is not given to the applicant as cash but is paid directly to the financial institution or conveyancing attorney.
The housing subsidy is not a loan. An individual does not have to pay it back.
People earning salaries of up to R3 500 are granted housing subsidies of R44 000.
She said people from this category do not qualify for mortgage finance and lending institutions. It is for this reason grants are not paid back.
For individuals earning between R3 500 and R7 000, grant subsidies are reduced.
If the amount they will be given is not enough for the property they are purchasing, they will then attach the subsidy amount to mortgage finance.
As an example, Lekgetha said a salary of R3 501 to R3 600 has a subsidy grant of R28 090 while that of R3 601 to R3 700 has a subsidy grant of R27 931.

Requirements for subsidy grants
  • An applicant has to be a South African citizen at least 21 years of age.
  • They should not have benefited from government assistance in buying any property and should not own a fixed property at the time of application.
  • Single people with financial dependents are eligible to apply for the subsidy grant as married or co-habiting couples.
To apply for the subsidy grant, applicants should go to their local housing departments with their personal documents which include: green bar-coded identity document, marriage certificate (where applicable), dependents' identity documents or birth certificates, and recent payslip which is not older than six months.
There will be application forms to be filled in, which will assist the department of housing to assess and set terms of the subsidy qualifying criteria - such as how much money the grant will amount to, based on earnings.

Nedbank Corporate Property Finance, through its Affordable Housing Division, assists many people.

Jeff Lawrence, head of Nedbank Retail's Affordable Housing Home Loans Division said Nedbank funds affordable housing developments in most metropolitan areas in South Africa where a tangible need for affordable housing has been demonstrated. Nedbank recently funded new affordable housing developments in the Soshanguve area, where 775 homes will be built.

Lawrence said affordable housing will mostly fall below the R350 000 range.
Information can be obtained at any Nedbank branch, or visit the Nedbank website and selecting the home loans option at or telephone the call centre on 0860 555 111.
Alternatively, employees can contact me directly and I will direct them to the necessary assistance. My website is at


The Taxation Laws Amendment Act 2009 introduces two concessions relating to residential properties in South Africa.  As we explain below, however, one of them has a sting in the tail.


As is by now well known, the first R1.5m of the gain on disposal of the primary residence of a taxpayer is excluded from CGT.  With effect from 1 March 2009 a further exclusion has been added, which will simplify things for many home owners.  If the proceeds of the disposal of a primary residence do not exceed R2m, then any gain or loss must be disregarded.

This should encompass many thousands of primary residences.  However, the provision only applies if, throughout the period from 1 October 2001, (when CGT was introduced), or the date of acquisition of the residence, whichever occurred second, the owner or spouse, or the beneficiary in the case of a special trust, used the property as a primary residence and did not use it for the purposes of carrying on a trade.

At first glance, this seems to be a concession, but it has within it a potential disadvantage.  If the residence is sold for less than R2m at a loss, which is quite possible in the current economic climate, the taxpayer loses the tax benefit of the capital loss, because the application of the provision is not optional.


It seems that many taxpayers failed to take advantage of the opportunity to transfer their primary residences out of companies and trusts during the two year window period after 1 October 2001.  (See previous blog article regarding pitfalls) This left many such entities exposed to the CGT, the secondary tax on companies (and later its successor the dividends tax) and transfer duty implications of disposal in the future.  In addition, of course, residences held in a company or trust do not enjoy the primary residence exclusion.

Another window period has been established, from 11 February 2009 to 31 December 2011.  Where an interest in a domestic residence is transferred to a natural person or spouse in terms of this provision, and the qualifying requirements apply, the person (and spouse where applicable) and the entity are deemed to be one and the same person for CGT purposes.  In addition, the transfer, to the extent that it comprises a dividend, is not subject to STC, and transfer duty is not payable.

The qualifying requirements are that:

a) in the case of a company, the person or spouse held all the share capital or members' interest from 11 February 2009 until the date of registration of transfer.  In the case of a trust, the person or spouse disposed of the residence to the trust by way of donation, settlement or other disposition or financed all the expenditure incurred by the trust to acquire and improve the residence; and

b) the person alone or together with his or her spouse personally and ordinarily resided in the residence and used it mainly for domestic purposes as their ordinary residence from 11 February 2009 to the date of registration of transfer.

Important to note, is that if the property exceeds 2 ha in size, any portion in excess of that limit will not enjoy the benefit of the concession.

The concession also does not apply to the fairly common situation where the residence is housed in a company, all the shares of which are held by a family trust.

Interestingly, this provision refers to "domestic residence", of which there is no definition in the Act, and not "primary residence", of which there is.  It raises the question whether its use is deliberate or inadvertent.  Does it mean that it applies, for example, to a holiday home, which can quite easily meet the requirement of "domestic purposes" and "ordinary residence" without qualifying as the "primary residence"?  Or is it a slip of the pen? There have been no legal precedents in this matter and one suspects the latter to be the case, in which case we can expect "domestic" to be replaced by "primary" in the near future.

Finally, it is noteworthy that a condition for the R2m provision to apply is that the residence must have been used exclusively as the primary residence, whereas a residence housed in an entity may have been used partly for trade purposes.

Monday, November 23, 2009


The October oobarometer price index recorded an increase in the year-on-year house prices of 9.9%.

"This is the fifth consecutive month that the oobarometer has shown a rise in house prices and it is the biggest increase within that period," according to the chief executive of ooba.

The average purchase price according to the oobarometer was R820,885 last month compared to R746,654 in October 2008. The month-on-month purchase price also shows a nominal increase of 1.8% from R806,494 in September this year.

The average purchase price for first time buyers has also shown a large year-on-year increase of 10.7% and a month-on-month increase of 3.7%.

The drop in interest rates and banks loosening their lending criteria, has also positively affected the affordability of first time buyers and we are seeing an increase in activity from first time buyers.
The year-on-year average approved bond size has increased by 8.9%, from R636,339 in October 2008 to R693,008 in October 2009.

The average deposit as a percentage of purchase price, has increased slightly in October, to 15.6% compared 12.5% in September, but is still considerably lower than the 23.1% in August this year. The change to lower deposits is a permanent shift as a result of relaxed bank requirements; however the changing mix of business will continue to fluctuate the monthly data for some time.

The average bank decline ratio is slightly up at 49.6%, compared to 48.4% in September. This slightly higher decline rate should be understood in the context of the significant increases in application volumes, rather than increases in bank rejections. Despite lenders having generally increased approval rates, a higher proportion of applications are now not being approved due to an increase in the proportion of marginal applicants who are trying to take advantage of the improved lending environment, particularly 100% loans which have stricter criteria to fulfill.

18.6% of applications which were initially declined in October were subsequently approved by another lender, which is marginally lower than September's ratio of 19.5%. This should also be seen in the context of the increased application volumes.

The outlook for the property market stays positive, with all important drivers such as increased application volumes, increased approvals, further relaxation of bank lending criteria and increased competitiveness amongst lenders indicating that the improvement in the market will be sustained. No better time to buy than now.

If you would like the full table of barometer results then please contact me via my site on My Website

Wednesday, November 11, 2009


The new amendment to the taxation laws, with regard transferring residential properties in a company, close corporation or trust, into one’s personal name, has been widely publicised but owners be warned - do your homework before you leap to get a 22% tax saving on your property.

But just in case you're still in the dark... If you own your primary residence in the name of a company, close corporation or a trust, you have a window period until December 31, 2011 to transfer this property into your personal name, without incurring transfer duty and capital gains tax.

However, whenever a government department extends a helping hand, it comes with certain limitations.
  • The property must be used primarily as a residence. You must be living on the property from at least February 2009. Residential properties used for business, holiday homes, or buy-to-let investments do not qualify for this benefit. If the property is in a trust, you will need to seek legal advice to establish if you qualify for this dispensation, as there are a number of restrictions pertaining to trusts.
  • If the property is mortgaged, you will have to cancel the existing bond and re-apply for a new home loan. Giving the banks current strict credit criteria, best you first establish if you will qualify for the bond. Furthermore, you need to bear in mind that the banks are not offering interest rates as favourable as they were a couple of years ago. If you are currently enjoying prime less 2%, you probably will have to settle for a lower interest rate discount, if any at all.
  • People wanting to do this, can only do so if they are the donor or the person who financed the property. Thus properties owned by a company, which in turn are owned by a trust, will not be included. It will also therefore not apply to someone who bought a plot in Summerstrand for instance, and transferred it to a trust with his five daughters as trustees and is now at a stage where he would like to sell, in order to buy into a retirement village.
  • Don't overlook the costs involved in cancelling your existing bond and registering a new bond. Make provision for bond cancellations costs, new bond registration costs and banks' initiation fee. These figures will differ depending on the size of the new bond you wish to register. I will be able to give an indication of such costs.
  • As you will be cancelling one bond and registering another, you need to give the bank three months notice of your intention to cancel the bond in the name of the entity, failing which, you will be liable for three months penalty fees.
Section 57 of the Deeds Registries Act 47 of 1937 makes provision for merely substituting one mortgagor with another, costing 50% less than having to register a completely new bond. However, most banks are hesitant to entertain a "substitution of debtors" transaction. One can only speculate that they may be concerned that their security will be compromised if the mortgage bond document is merely annotated to reflect the new mortgagor.

While this article serves as a warning to do your homework before you leap, it is not intended to deter you from taking advantage of this tax break. Don't be penny wise and pound foolish. The capital gains tax (CGT) saving when transferring ownership of a primary residence in the name of individual, compared with selling out of an entity is substantial enough to deserve your consideration.

Then there is the issue of the risk to the asset, which is probably why you didn't purchase the property in your personal name in the first place! But this is another topic for another day...

Monday, November 9, 2009

FNB Tries to Renege on it's Word

August 2008 saw perhaps for the first time, the banking ombudsman truly acting in the interests of the consumer and gave FNB (and all it’s cronies in the banking monopoly), a rude awakening to basic rights.

What had happened, was that First National Bank(FNB) was going to re-assess home loans that the bank had already approved a year or more ago. The home loans that would have reconsidered included about 2000 approved mortgages that had, for various reasons, after a period of a year or more, not yet been registered against the title deeds of the relevant properties.

The bank planned to reassess the loan applicants’ credit based on the current credit assessment standards and their current debt load and general financial position.

A FNB spokesperson on Morning Live (SABC2) said that the bank came to this decision because the recent interest rate increases might make it very difficult for those home purchasers to honour the monthly mortgage bond repayments they will have to make.

The questions is - what’s new FNB? Surely all their mortgage clients needed to fork out more because of the high interest rates? Typically, it was made to sound as if First National was actually doing these home loan grantees a huge favour in withdrawing their mortgage bond approvals. But in reality the bank was obviously trying to limit its own exposure in the current low value growth (read falling value), high interest rate real estate market. The bank was in effect pre-pre-emptively repossessing these people’s homes, without the nasty costs involved in a proper foreclosure.

The banking ombudsman’s response to this was commendable and hopefully a sign of things to come in terms of letting SA bankers know that they indeed cannot do as they please. His response was quite strongly worded. He gave his assurance to the FNB representative that he would (not might or probably would; he WOULD) order FNB to pay for any damages those home purchasers or any other party might experience as a result of the banks re-assessment of mortgage bond approvals.

He was of the opinion that the question that should be asked is whether FNB SHOULD do this, not if they CAN do it. And I have to agree. Just from a public relations perspective, the damage done to FNB’s reputation, credibility and trust worthiness because of their decision to go back on their word is HUGE. And this is effectively what they tried to do – go back on their word.

And if you consider all the financial losses that might arise from such a home loan approval re-assessment by FNB, one cannot help but wonder how the bank figured that it would be worth their while. In my opinion their exposure would have been bigger, not smaller, if they went back on their word, destroyed their credibility as having any hint of honour, and re-assessed already approved loans.

A re-assessment on different standards could very well have meant that these approved home loans would then be refused, placing a whole lot of people (far more than the 2000 home loan applicants) in a perilous financial position.

Obviously these home purchasers would need to suddenly look for alternative accommodation, if they took occupation based on the bank’s approval of their home loan application. And knowing what buyers are like, I imagine that there would be a lot of them that would have gone and spent a pretty bundle on home repairs, alterations and/or home improvements before or shortly after moving into their new homes. They would very likely forfeit all of the money they spent.

Additionally, a buyer whose loan got declined on re-assessment would lose the deposit he/she paid on the purchase of the house. I say this because the purchasers’ suspensive mortgage bond condition would have been fulfilled when the bank first approved the home loan. So, a binding contract to purchase came into being. If the buyers then could not complete the sale, because of the re-assessment of their loan application, they would be in breach of the contract of sale.

The sellers would of been well within their rights to take steps to remedy the breach of contract or collect compensation, for damages they may have suffered, from the purchasers. And the damages they could suffer would include the cancellations of home purchases they may have made on the binding contracts of sale established by the mortgage bond approvals from FNB. Oh, and don’t forget that sellers who “sold” their properties to these unfortunate FNB home loan applicants would be looking for new roofs over their heads too.

Next in line at the ombudsman’s office door would probably be the other banks. Other banks may have granted mortgages based on the guarantee implied in a home loan approval. If their mortgagees cannot honour their mortgage terms because of FNB’s decision to go back on their word, they could of very well claimed damages as well.

And let’s not forget the poor real estate agents. Times were tough in real estate land. And commissions become due as soon as a real estate agent causes a binding contract of sale to exist. So, real estate agents would of been banging on the ombudsman’s door too. Really, FNB. Had you never heard that coming between an agent and his/her commission can be bad for your personal safety?

Now take into account that many real estate agents have taken to the bad habit of dipping into future commissions. A number of lenders bombard real estate agents with promotional offerings of their loan instruments that allow real estate agents to get an advance on commissions that have not become payable yet. So, if FNB cancelled mortgage approvals, and in effect cancelled the agents’ commissions, some bridging finance folks would lose much more than the value of those commissions.

I almost forgot the poor mortgage bond originators. They also work on commission. Would FNB have paid them their commissions too?

I think this plan to re-assess approved home loans ranked as one of the most ill conceived ideas I’d ever heard coming from a bank………. But serves only to confirm that for too long, they have done as they please… and now they do not even know how to think something through anymore or consider implications.

But the Ombudsman has got us hoping…..

Bonus for UK Investors and SA Expatriates

Hundreds of thousands of South Africans living in Britain are able to buy SA property at discounts of up to 40% since new tax laws become effective from 6 April 2006.

Changes to British legislation will allow them to own tax-free pension funds – known as Sipps (for self-invested personal pensions) – with which to invest in SA property, among other assets, such as paintings and wine.

Any cash that a person paying British tax puts into a Sipp will be tax-deductible and taxpayers can put all their income each year into their Sipps.

A young South African earning £50 000 (R550 000) a year will be able to put all of it into buying an SA property. The British government will then rebate the tax paid – around 40% or £20 000 (R220 000) at that income.

A R550 000 house in Port Elizabeth for instance will end up costing the taxpayer R330 000. Even at the lowest tax rate of 18%, it would cost R449 000.

The Sipp will also be able to borrow up to 50% of its asset value, so the taxpayer could effectively buy properties worth R1,1 million with a R550 000 mortgage and pay it off with future income, all of it tax-deductible. Additionally, all rent earned from the property will be tax-free.

If he or she returns to SA, the tax-payer will have a tax-sheltered offshore trust through which he can continue to build an investment portfolio until he turns 50 (before 2010) or 55 (after 2010). Beneficiaries will be able to draw income from the fund before reaching that age. However, the income will be taxable.

A group of friends or family members will be able to combine their money in a group Sipp. Or a group of Sipps will be able to invest in one property.

An estimated 750 000 South Africans live in London alone. Many of them are in their 20’s and 30’s and have come to Britain to save in hard currency. Some want to accumulate capital for when they return to SA. Despite a soft property market in the UK, they tend to continue to be interested in investing in SA property.

The pattern is that young South Africans stay in London for about five years, saving as much money as they can. Then, usually under pressure from their partners, they either move out of London and stay in Britain or return to SA with some capital to kickstart a future at home.

Most know little about property or investment and put their savings into low-interest bank accounts. A growing number, are putting their savings into properties back home and this is an ideal opportunity for them. The new flexibility of Sipps gives them a way to boost their earnings by making them tax -free and to buy SA properties at a large effective discount.

The law is being changed because the British government, like other authorities in the developed world, is worried about the burden of supporting hundreds of millions of pensioners who won’t have enough money to live on.

Australia was the first country to have personal pensions and up to 40% of Australian property mortgages have been granted to them. The US is also exploring personal pensions. Who knows what the now left wing inclined SA government will do despite undoubtedly come under pressure to launch them, too.