A steady growth of buy-to-let investors and a renewed interest in property as an asset class are among the clearest trends now evident in the South African residential property, says Bill Rawson, Chairman of the Rawson Property Group.

The JSE Securities Exchange, he said, has proved surprisingly resilient (at the time of this interview the share index was again above 4,000), but there is now concern that it could become more volatile in the coming year.

If this happens, he said, it would be in response to the growing concern that the country is being poorly governed and lacks dedicated leaders who understand what an emerging economy needs.

Factors that show evidence of the unsatisfactory state of affairs currently prevailing, said Rawson, include high unemployment, which remains at roughly the same level seen for the last 19 years, strikes, which are eroding investor confidence not only locally but overseas, high levels of unsecured debt, a drop in manufacturing output, the difficulty in finding markets for our exports which have to compete with those from high productivity, low labour-cost countries such as China, corruption, which continues to go unpunished, a disappointing growth rate, still hovering below 3% and the likelihood of a further downgrading of our economic status by the major rating agencies in the next few months.

This type of uncertain scenario, commented Rawson, always leads to people looking to property – and that, he believes, is exactly what is happening now. This, he said, is understandable in view of how well property — especially residential property — performed in the last ten to 15 years.

“In the Rawson Property Group we have investors who, for example, bought units in Parklands for R250,000 which have appreciated to R750,000 in 12 years. We have also seen rents rising at a rate of 7% to 8% per annum and excellent returns being achieved on brand new units from the day of handover. What is more, the rent increases seem likely to continue.

“While it is almost certain that the spectacular rises in property values are now a thing of

the past (and we have to acknowledge that many of those who invested from 2007 to 2009 have had to accept quite severe losses) it is also fair to say that price stabilization, right across the board (even in the upper bracket houses), is now the trend. If, however, investors are concerned about South Africa’s position and are looking for a safe haven, residential property is quite clearly the place to be.”

Asked to what extent an investor should commit to property, Rawson said that figures from First World analysts such as Knight Frank indicate that high net worth individuals worldwide have 25% to 30% of their assets in property. This, he said, is widely accepted as a good level – although there are many others, himself included, who are content to invest as much as 80% or 90% of their wealth in property.

Please subscribe to our landlord property newsletter here.

The post South African residential property increasingly seen as a safe haven for uneasy investors appeared first on Landlords South Africa.

Take the case of a tenant or lessee who paid her rental on time and in full and did not violate any condition of the lease. Her landlord failed to carry out the repairs needed to the dwelling. The tenant eventually informed the landlord that she intended to lodge a complaint with the Rental Housing Tribunal for ignoring her numerous requests and demands that he perform his duties.

Shortly after this communication, the landlord served her with a calendar month’s notice to vacate the dwelling.

This notice would appear to be a vindictive response, but our courts, unlike the courts in the US, for example, are reluctant to consider vindictiveness as a ground to set aside the notice to vacate.

In terms of the Rental Housing Act 50 of 1999 (RHA), a notice to vacate must state that there is no unfair practice.

Unfortunately, there is no provision in the RHA specifically dealing with vindictiveness as an unfair practice. The tenant will find no relief from the Consumer Protection Act 68 of 2008, which has limited applications in its protection of tenants, and these relate to fixed-term residential leases only. The tenant therefore has no legal recourse and is obliged to move out.

Even if we assume that the right to challenge a vindictive action is available, the tenant would not be allowed to withhold rental. As long as the tenant continues to occupy the dwelling, he or she is legally obliged to tender rental in full.

Recently, a tenant contacted the Organisation of Civic Rights for assistance regarding a notice to vacate. The notice was based on alleged rental arrears for three months: January, February and March.

The landlord’s attorneys wrote to the tenant informing her she was in arrears and that should she fail to make payment of the full amounts within seven days, the lease would be cancelled.

The tenant’s rental payment history was meticulous – she

e-mail ceiving proof that this had been done, would send a letter to the landlord’s attorneys confirming her payment and challenging the notice of cancellation.

Subsequent discussions with the tenant revealed that she was not willing to tender April’s rental because of having been “falsely accused” of being in arrears. She was also adamant that she did not have to tender rental as the lease hd been cancelled.

Cancellation of a lease may transform the right of occupation to an alleged illegal status, but the tenant is liable for rental for the period of occupation, irrespective of the dispute about the legality of the cancellation and alleged arrears.

The tenant would incur legal costs if she received summons, at least the costs of her legal representative’s entering an appearance to defend and consultation costs.

Article by Dr Sayed Iqbal Mohamed, Chairman, Organisation of Civic Rights.

Please subscribe to our landlord property newsletter here.

The post Landlord’s rights are still strong in South Africa appeared first on Landlords South Africa.

Sunell Afrika, rental manager at IHPC, says it is important to know what constitutes “fair wear and tear” and what the tenant’s responsibilities are.

According to the Rental Housing Act and the Unfair Practises Act a “landlord must let a dwelling which at the commencement of the lease is in a condition reasonably fit for the purpose for which it is let and keep and maintain the dwelling in compliance with all the ordinances, health or safety regulations or any other law”.

“This is a mouthful,” says Afrika, “but in simple terms, it means that when you are renting out residential property the landlord must make sure that everything is in good working condition and make sure that the lease clearly states what the tenant’s responsibility is in maintaining the property in that order. If the property rented out is a well kept one, you will attract good tenants, who will look after the property as they would their own.”

There is sometimes wear and tear on carpets, for example, where over time it becomes frayed or starts tearing – in this case the landlord must take steps to replace this. If it is a matter of steam cleaning the carpet because of dirt that has built up, it is the tenant’s responsibility.

Some landlords specify in their leases, for instance, that a garden service is supplied and must be used by the tenant or that certain items must be done by the tenant, such as cleaning dirty marks off walls or keeping the oven clean.

The chances of being able to charge slightly more for a well maintained unit are higher, as well as being able to increase the rental on the unit each year, she said.

It is important for tenants to note that they cannot withhold their rent if they are unhappy with the landlord’s maintenance or repair of the building. They can, however, enter into an agreement whereby they pay for repairs and it is deducted off the amount owed to the landlord.

IHPC will be running regular workshops to help educate the public on owning and renting property and are running a free workshop for landlords which will cover “Unlawful evictions, the CPA’S affect on landlords”, on 6th June from 19h00 to 20h30. This will be held at the Institute of Estate Agents Western Cape offices in Sheldon Way, Pinelands. The guest speaker is Marlon Shevelew, who specialises in residential, commercial, industrial and retail property law.

Please subscribe to our landlord property newsletter here.

The post What is a landlord’s responsibility towards property maintenance? appeared first on Landlords South Africa.

The longer you own a property, the more likely its growth in value is likely to approximate the long-term trend line of 9 percent a year, and deliver a good return on investment.

That’s the word from Lew Geffen, chairman of Sotheby’s International Realty in SA, who has been tracking residential property price growth in SA for the past 30 years. He says the average price of homes sold by his company has grown from R240 000 to R2.6m over the past 20 years – despite all the market ups and downs.

“It also shows, for instance, that while the value of properties bought in 1990 had gone up by an average of just 4 percent a year by 1998, owners who held on to them for another four years would have seen the rate of growth rise rapidly, to bring them back up to the 9 percent a year level.

“Then over the next five years – the ‘boom’ years from 2003 to 2007 – the value of their properties would of course have experienced an even greater rate of growth, so that if they had sold then, after 18 years of ownership, they would have done very well indeed.”

Similarly, he says, those who had the foresight to invest in property ahead of the last boom – in about 2000, say, when home prices were still relatively low – were able to reap the maximum benefit of the boom after just seven or eight years of ownership.

“Of course, those who waited to buy at the peak of the boom in 2006/7 have not been so fortunate during the past seven years, which have included a recession and the resulting decline in home values. But prices have stabilised again now in line with the long-term growth trend, so they still stand to make good returns if they can wait to sell for another few years, or if they are buying now for the first time and don’t leave it too long.”

The return to the rising trend in house prices, Geffen points out, is confirmed by the latest available statistics from other sources. The FNB House Price Index shows cumulative nominal house price growth of 19 percent since May 2009, and quarter-on-quarter house price growth of 0.4 percent at the end of March this year.

According to the Absa House Price Index for March, middle-segment house price growth came to 11.8 percent year-on-year in March 2013, after rising by a revised 10.9 percent year-on-year in February, while mortgage originator ooba says prices showed year-on-year growth of 3.4 percent in March.

Meanwhile, Geffen says that an average growth of 9 percent a year delivers good returns on geared money.

“If, for example, an investor puts down a deposit of R200 000 on a R2m home, and the value of that home grows by 9 percent or R180 000 in the first year, he will have made a 90 percent return on his investment.  And the longer he owns the property, the more likely it is that the annual growth will average out at 9 percent.”

Please subscribe to our landlord property newsletter here.

The post Keep your property longer for better returns appeared first on Landlords South Africa.

As rental yield potential on residential property improves in Cape Town, the buy-to-let market continues to grow.

High rental yield isn’t guaranteed, however, and is influenced by a number of factors investors should be aware of before choosing properties to let.

Residential letting services company PayProp says that rental yield before costs is currently 6.2 percent, which is promising because it is the first time in 12 months that the firm has seen net rental yields above 5 percent.

Jenny Rushin of bond originator ooba says the main reason a high rental yield is attractive is that it means property owners have more money to put into their mortgages.

“The faster you pay off your mortgage the less you owe the bank down the line. With a higher rental yield you can afford to pay off your bond over a shorter period. If you bought a home for R500 000 and paid it off over 20 years at an interest rate of 10 percent, the total loan would be R1.158 million after the 20-year period. If you repaid the bond on the same R500 000 home at the same 10 percent interest rate, but on a 15-year bond, the total loan would accumulate to R967 140. This represents a significant saving in interest.”

“Rental yield is affected by a number of variables,” says Lew Geffen, chairman of Lew Geffen Sotheby’s International Realty. “These include location, the size of a property, and the type of property you buy.”

Areas with potential for growth are those close to developing infrastructure like MyCiTi bus routes, in or close to inner city renewal areas. Buy-to-let in areas like Stellenbosch, close to Stellenbosch University, and in the southern suburbs, close to UCT, are perennially in demand but can be more expensive than properties in up-and-coming areas.

“In Parklands and surrounds, where new permanent MyCiti bus routes are being established, a surge of demand for properties is being experienced. Investing in areas like this before demand soars can result in a larger return on your investment,” says Geffen. “Buying on spec, however, is riskier than investing in an area that is already established.”

The size and type of property you invest in are important considerations when it comes to rental return, among other things. One of the biggest risks to your investment is the non-payment of rent.

According to the 2012 fourth quarter Tenant Profile Network (TPN) rental monitor, the biggest risk for tenant non-payment in 2012 was encountered in rental properties in the sub-R3 000 and above-R12 000 rental brackets. Tenants in the sub-R3 000 rental bracket are hampered by inflation, whereas tenants who pay rent of more than R12 000 tend to be more indebted, and adversely affected by interest rates. Tenants in the R3 000 to R7 000 and R7 000 to R12 000 value brackets performed best.

“Properties that break this rule are at the very top end of the market, where investors are showing a keen interest. A record number of 15 apartments on the market for an excess of R20m were sold on the Atlantic Seaboard in April. Most were three-bedroomed apartments with two bathrooms,” says Geffen.

Before considering investing in rental property, no matter the value of the investment, it’s important to do the maths. Ideally, you’d like your rental income to cover more than 100 percent of your monthly bond repayments. And if you can put down a deposit on the property, do so.

It’s also important to note that, besides your mortgage, there will be other expenses involved in buying the property. Among other fees you need to be prepared to pay bond initiation and administration fees, transfer costs, removal costs, insurance and utility bills and rates and taxes.

An estate agent will be able to help guide you through this, as well as help with the bond application process, says Geffen.

Please subscribe to our landlord property newsletter here.

The post High rental yield key in buy-to-let property appeared first on Landlords South Africa.

A rental agent will vet possible tenants by performing a full credit record check with credit bureaus such as ITC, as well as check references from previous landlords and get confirmation of employment.

However, just because the tenant is willing to rent the property, doesn’t mean they should, says Jerry van der Merwe, broker/owner of RE/MAX Proprentors, whose offices specialise in rental properties and tenant selection in the west and north rand areas.

He notes that with changes to the South African law pertaining to landlords and tenants, along with the generic risk that is natural when letting out property, it is important for a landlord to make sure they select the right tenant. Van der Merwe says eviction of a defaulting tenant can be a complicated and costly exercise, so selecting a suitable and reliable tenant from the outset is essential to the success of a buy-to-let investment.

The landlord should never base their decision merely on gut-feeling, but rather on the results of a full background check, he says, and this is where the services of a specialised rental agent become invaluable.

Van der Merwe explains that a rental agent will vet possible tenants by performing a full credit record check with credit bureaus such as ITC, as well as check references from previous landlords and get confirmation of employment. Once this is complete, a file of each tenant will be given to the landlord for selection and approval before any lease is concluded. This gives the landlord the best chance of selecting a tenant who is not going to default. “However if they do, a rental agent can assist the landlord with a strategy to deal with the situation in the most effective manner.”

The landlord should never base their decision merely on gut-feeling, but rather on the results of a full background check.

He says that for landlords who choose to do their own property management and rental collection, RE/MAX Proprentors offers the service of a once-off lease. A rental agent will list and market the property and vet possible tenants through the normal process. Then once a tenant has been found, the responsibility of managing the property will be handed back to the landlord.

According to van der Merwe, for further protection against defaulting tenants, landlords have the option of taking out a Landlord Protection Policy (Rental guarantee). The policy guarantees the monthly rental income, covers legal costs and provides the necessary qualified legal resources to achieve tenant eviction if required. He says it is advisable for any owner of a fixed property who enters into written lease agreements for residential purposes to have some kind of income guarantee. The premiums are 3.5 percent of the monthly rental income, which can be deducted from the rental income when determining a landlord’s tax position. The policy provides cover for loss of income for up to six months and covers legal fees of up to R120 000. This alleviates much of the emotional strain when dealing with a tenant who is no longer paying their rent.

Adrian Goslett, CEO of RE/MAX of Southern Africa, says that if a landlord decides to use the services of a rental agent, it is important that they select a real estate agent that deals with rentals, due to the often intricate laws surrounding the relationship between landlords and tenants. “It is advisable that landlords use an agent who deals with rentals as part of their normal daily business practice.”

Leasing a property without the assistance of a rental agent can be a time consuming and labour intensive exercise. Van der Merwe says a specialised rental agent can ensure that the process of owning and renting out a property is easier and will provide the landlord with peace of mind.

Please subscribe to our landlord property newsletter here.

The post Landlords need to be diligent when selecting tenants and minimising their risk appeared first on Landlords South Africa.

1. Making the offer

If you laid your eyes on the home of your dreams while house-hunting and you’re ready to make an offer, make an appointment to inspect the property thoroughly.

Ask the current owners (or their agent) if there is anything that would hinder the transfer process. If you’re happy that the property is unencumbered, sit down with the estate agent to sign an offer to purchase.

2. Signing the offer to purchase

All contracts for the buying and selling of properties must be in writing, contain certain information, and be signed by both buyer and seller to be binding.

Typically, you’ll sign an offer to purchase, which will become an agreement of sale if the seller accepts your offer. Once you’ve made an offer to purchase, you are bound by it if the seller accepts your offer.

These contracts are fairly standard in their content and structure, but you’re advised to get advice from an independent lawyer if you are buying a property for the first time to ensure you understand the implications of the documents you are signing.

It is worth noting that the Consumer Protection Act, which came into play on 1 April 2011, forces agents to ensure property sellers and buyers understand the wording and legal effect of all contracts they enter into. Agents will also not be able to use the “voetstoots” clause in most agreements of sale as a defencefor non-disclosure of information about faults and flaws in the property.

3. Effecting the transfer

The registration of a property transaction is handled by a legal practitioner known as a conveyancer, who is usually appointed by the seller. The buyer is usually responsible for the conveyancer’s fees as well as for transfer duties paid to the government.

The conveyancer prepares the documentation that is lodged with the Deeds Office to effect the transfer of the property to the new owner. A conveyancer appointed by your bank will register your bond with the Deeds Office. A separate law firm will cancel the owner’s bond on the property with the Deeds Office.

You will be registered as the new owner of the property and your deposit and money from your bond will be paid to the seller (or the seller’s bank, if he or she has a mortgage).

You will usually need to personally sign documents with the various conveyancing firms. If you live abroad, you may be able to grant a general power of attorney to someone who can sign on your behalf.

4. What about the deposit?

A deposit is not mandatory, but is a sign of good faith and also serves as an indication of financial ability to the seller and the bank granting your bond. (In the present climate many sellers are struggling to secure bonds without a deposit of at least 10% of the property’s purchasing price).

To safeguard your deposit, ensure that it is paid to the conveyancer handling the transfer rather than to the estate agent. All attorneys are covered by a Fidelity Fund which guards against theft or negligence by attorneys. You can claim from this insurance if the attorney is unable to come up with the money when it is due to the buyer (or due to be returned to you because the transfer falls through).

Until the transfer goes through, the money will be held in an interest-bearing account. The interest will be paid over to you once transfer takes place.

5. Taking occupation

By mutual agreement with the seller, you can take occupation of the property before the transfer is affected. At this point, you usually assume all risks and responsibilities associated with the property. If you take occupation before the transfer takes place, you will pay a monthly rent at a rate that both parties have agreed to.

Closing words

There are a number of potential pitfalls to look out for when buying a new home and a mistake can cost you dearly. If you have any concerns about your prospective purchase, seek legal advice to ensure that you make informed decisions throughout  the process. – Yusuf Boda, Legal & Tax

Please subscribe to our landlord property newsletter here.

The post Legal ins and outs of buying property appeared first on Landlords South Africa.

IHFM invites landlords to their free landlord workshop in Cape Town with Marlon Shevelew:

Venue:
IEASA offices, Howard Studios, Pinelands, Cape Town.

Date:
Thursday, 6 June 2013.

Duration:
19H00 to 20H30.

Welcome & Introduction:
19H00 to 19H05 Welcome

Guest Speaker:

Marlon Shevelew, senior attorney at the firm Marlon Shevelew and Associates Inc, author of the TPN Residential Leasepack and presenter of the Advanced Residential Rental Property Law Seminar endorsed by the University of Cape Town, Marlon will discuss landlord’s rights, evictions and the effect of the Consumer Protection Act on rentals. Marlon and his team offer expert advice in all areas of residential, commercial, industrial and retail property law and general commercial, consumer and contractual law.

Please rsvp before end of business on Wednesday, 7 June 2013 as there are only limited seats available.

Free entry for landlords. Sorry no managing agents or estate agents allowed.

To rsvp, please contact Sunell on 021 9090 301 or sunell@ihpc.co.za

We are planning more landlord workshops in Cape Town, Durban, Johannesburg, and Pretoria. Stay tuned.

Please subscribe to our landlord property newsletter here.

The post Free Landlord Workshop in Cape Town with Marlon Shevelew appeared first on Landlords South Africa.

With the ever increasing established need for student accommodation and the ability for homeowners to create an additional income by letting out rooms, there are some constraints that need to be considered, says Lanice Steward, managing director for Knight Frank Anne Porter.

According to the latest STBB news, Stellenbosch Municipality v Van Wyk and Others, it was held that she contravened zoning provisions by letting the rooms out to students.

Although it can be deemed to be an easy route to earn money, do it within the law, she said.

In this matter, the property zoning for this area only allows a dwelling to be occupied by one family. Stellenbosch Municipality in this case applied for an interdict preventing Ms van Wyk from renting her residential property, stating she was in contravention of the applicable zoning.

Ms van Wyk lived in the home with her two daughters, she also rented the remainder of the home to seven students, which her neighbours complained about. The municipality, after carrying out an inspection, issued a letter advising her that she was contravening the zoning laws of that area. She then lodged a “special development rights” application, which would allow for four additional people to live in the home.

While waiting for the special development rights and after the municipality had sent Mrs van Wyk another letter asking her to stop her rental activity, they then applied to the courts for an interdict prohibiting her illegal activity. Her special development rights application had subsequently failed as well.

Although Mrs van Wyk used the argument in court that there was a shortage of student accommodation and appealed for the court to use its discretion in this case, they found in favour of the municipality as she was acting illegally. The courts could not be seen as condoning criminal behaviour and that the neighbours’ complaints showed that their property rights were impinged upon.

“This is a serious matter as there are many people in Cape Town who have indeed turned their homes into student accommodation instead of renting their property out to one family. It is best to check on the zoning of your property first before you go ahead and sign leases to rent your property out to students,” she said.

Please subscribe to our landlord property newsletter here.

The post STUDENT ACCOMMODATION IS A GOOD WAY TO EARN EXTRA INCOME BUT BEWARE OF ZONING RESTRICTIONS appeared first on Landlords South Africa.

Tenant obstinacy, when it is encountered, said Rawson, is often based on their not appreciating that the landlord himself may well be paying monthly bond repayments on the property and has no other means of meeting this debt. Here again, however, if the tenant is open and upfront with the landlord or his agent it can make it possible for the landlord with a bond to deal with the bank, where, if the situation has not got out of hand, he is likely to receive a sympathetic hearing, as banks dislike repossessing properties.
“The basic lesson, therefore,” said Rawson, “is to talk to one another and if possible hold onto good tenants.”

Please subscribe to our landlord property newsletter here.

The post Be open with your agent or landlord as soon as possible appeared first on Landlords South Africa.