General interest in fractional ownership in SA is on the rise, with interest from the UK, USA and Canada showing good growth.

“Month-on-month we are seeing higher numbers of unique visitors (separate individuals) entering our fractional ownership pages across all websites in The Fractional Network, which is now averaging 7,000 to 9,000 unique visitors per month. The number of visitors from the UK, USA and Canada is on the rise, and we are finding that visitors are really looking at many resorts, since the number of separate pages viewed during each person’s visit to our websites is also increasing, to about five pages per visit,” says Dirk Wilson of fractionalownership.co.za.

Wilson says consumers are shopping around to compare the three L’s – location, leisure amenities and luxury. In terms of price, he says that now more than ever before, fractional investors are seeking as many value-added benefits as they can, at the best possible price.

“Fractional investors are willing to pay less for the privilege of owning smaller blocks of time; subsequently, fractional promoters are releasing products that offer smaller (more flexible) usage periods in luxury fractional residences. Investors now have the option of purchasing two weeks as opposed to four weeks, naturally at a lower price per share. More promoters are offering 7, 14, 21 and 28 days’ usage per annum. Down the line fractional owners will be able to upgrade by purchasing more time in the same residence or resort, or in another resort offered by another promoter.

“It appears that the general consumer perception of a fractional ownership purchase is one of a direct real estate investment with lifestyle benefits such as usage, exchange and formal resale (or exit) agreements. Most consumers are also seeking substantial rental returns on unused time.”

Wilson says that although consumer interest is increasing, sales conversions are down, which he attributes to a number of factors, including fractional promoters withdrawing or advertising less, general uncertainty about investing in real estate due to economic pressures, lack of cash or access to specialised lending, as well as confusion between shared vacation ownership purchase options (timeshare, fractional, condos, private residence membership, destination and points clubs).

He says the landscape for fractional promoters is set to change through their adoption of a shared ownership body, as in the US market with ARDA (the American Resorts Development Association) and Europe with the RDO (Resort Development Organisation). The newly formed Vacation Ownership Association of South Africa (VOASA) now encompasses the various vacation ownership products (such as timeshare, fractional ownership and private residence clubs) under one umbrella organisation.

“We think that consumers will now be more informed as to the different shared ownership products available to them, and how they vary from one another. VOASA will take a major role in assisting and supporting the public here. This is timely, since another trend is that more and more resorts are offering timeshare, private residences, fractional, condos and whole ownership products, all on one site and managed by one hospitality operator.”

Source:

I’m amazed at how the smart people are not as smart as they think. I’m referring here to the prophets of doom and the economists who are telling the world how house prices are falling at the moment, and explaining how the prices of houses being sold now and the size of bonds being registered now compare to those that were sold or registered last year. One such clever bond originator, who is now providing “statistics” too, came to the educated conclusion that house prices have fallen by 5.5% since last year. And it isn’t just the smart bond originator who has come to this conclusion. The banks are doing the same, although at least they believe that property is still growing positively. You’re probably wondering why I am suggesting that this bunch is stupid, so let me explain.

Let’s say that 10,000 first-time buyers bought houses in September 2007. With their income and affordability they could each buy a house for R500,000. One year later the interest rate has gone up by one percentage point. In the meantime they’ve also had a salary increase, but this was immediately cancelled out by the high inflation rate. This means that with exactly the same affordability amount or buying power they can now, due to the higher interest rate, only afford a house of R470,000. So that is what they buy.

Let’s summarise. In 2007 they bought R500,000 houses. In 2008 they are buying R470,000 houses. But this doesn’t automatically mean that they are buying R500,000 houses for R470,000. They have moved into a different price bracket as a result of inflation and interest rates. So it’s not the prices of the houses that have fallen; it’s the buying power that has decreased.

I know some people are now probably confused, so I am going to explain with reference to a fictitious and extreme example: if things go very well in year one, most people buy expensive houses of R1,000,000. If things go very badly in year two, most people buy houses of R500,000, because that’s all they can afford. If you now compare year one’s sales with year two, and you have exactly the same number of transactions, it will appear at first glance as though the prices have dropped by 50%. But that’s not the case. Instead it is the buying patterns and buying power that have changed. Year one’s houses are not the same houses as year two’s. They may not even be in the same area!

This is the fundamental problem with these smart people’s indices. They are comparing apples with pears. I know growth rates are down, but I think the economists are being irresponsible with their incorrect analyses. These statistics create the wrong perceptions and fan negativity.

Is it bad or is it good?

Let’s leave the economists now, and turn our attention to the wonderful world in which we live. There are two sides to everything. How bad or how good something is depends on you. Some people see problems, while others see only opportunity. Today I want to take a look at how recent world events might influence us. I’m going to list a few events, and then look first at the downside , before looking at the upside. The downside is generally the opinion of pessimists, while the upside is my opinion. Of course, you know that I am the eternal optimist!

National Credit Act

Bad: Some people, like some estate agents and bond originators, are still blaming the National Credit Act for their misery that started at the time of its implementation in June 2007. After nearly a year and a half, they still don’t know how to deal with it; so they are retrenching people and closing businesses.

Good: Companies and clients who use the Treoc double trust structure are not being affected by it at all. On the contrary, they are benefiting from it. Trusts with at least two trustees, one of whom is an independent trustee, are excluded from the National Credit Act.

Electricity Shortage

Bad: Developers are complaining because municipalities are turning down proposed new developments due to their inability to provide electricity.

Good: The shortage of new developments will result in a shortage of housing. This will in turn eventually lead to good capital growth, once demand starts to exceed supply. On average it takes four years to take a new development from planning through to occupation. So those developments that are being completed now were already in planning a few years ago. And most of those that should be completed in 2012 are not even in planning right now. I think 2012 is going to be a bumper year for the capital growth farmers!

High Interest Rates

Bad: People who didn’t plan and take precautions are now losing their houses.

Good: People who planned and took precautions, like the Treoc Investors, are buying the houses of those mentioned above at low prices.

High Oil Price

Bad: It chases inflation up and causes interest rates to go up or to remain high. Uninformed people think the high interest rate is permanent, and so they panic.

Good: Thanks to inflation the interest rates are high, and this keeps property prices low. The buyers’ market is getting better every day. Informed investors know that this is a cycle, and so they don’t panic. They know that everything that goes up will come down again – as has been happening for centuries already.

The Global Credit Crisis

Bad: Fear causes people to make wrong decisions; they think that debt and credit are evil, or they think that the bank’s money is all gone and so they don’t even try to get credit. They don’t buy houses.

Good: Well-informed people know that the banks’ main source of income is credit extension, and they use this opportunity to get bonds. They buy houses like never before. I myself have bought six houses in the last two weeks – without it costing me a single cent!

ANC Split

Bad: We are going to have a civil war.

Good: The government immediately pulls up its socks. It’s been a long time since they made so many of the “right” noises in such a short time. They are even going to tackle corruption! Strong opposition will do wonders for our country.

American Presidential Election

Bad: The bottom has dropped out of the world for white racists.

Good: To me, a change is as good as a holiday, and I think most people feel that way. A holiday feeling is an optimistic feeling, and I think Obama has caused a worldwide optimism to take hold. Let us hope it continues to grow, because if there is one thing that the world needs right now, it’s optimism!

Happy House Hunting!

Source: http://www.treoc.com/

The FNB Property Barometer for the third quarter of 2008 declined to an average activity level of 4,1 – the lowest in the history of the Barometer – from a level of 4,4 in the second quarter, reflecting further weakening in demand activity levels as experienced by estate agents.

A further indication of the weakening trend is to be found in the average length of time that a home stays on the market before getting sold. From an average time of 14 weeks and 6 days in the second quarter, the average time frame shot to 20 weeks and 1 day in the most recent quarter, the survey, released on Monday, found.

First-time buyers made up a mere 12% of the market, the lowest percentage on record, while the percentage of sellers not obtaining their asking price rose further from 85% previous to 88%.

The buy-to-let market portion of the market, too, remains subdued with only 13% of total buyers believed to be buy-to-let buyers.

Looking forward, John Loos, FNB Home Loans property strategist, said that there have been a few encouraging signs emerging with regard to the future well-being of the residential market.

Most notably, a recent decline in oil prices, resulting in domestic petrol price cuts, and some softening in global food price inflation bode well for domestic consumer price inflation, and FNB believes that the CPIX inflation rate may be around its peak.

The start of an expected decline in inflation would mean inflation eating less into disposable income going forward, while also expected to translate into interest rate cutting as from April 2009. In addition, the household sector’s debt-to-disposable income ratio has begun to decline, suggesting an improving household sector ability to service its debt burden.

But while inflation and interest rate risks look set to subside, which is great news for a property market under pressure, Loos cautions against too much excitement just yet. Moving in to replace the above risks is the current threat to global economic growth emanating from the United States.

Loos believes that it would be naïve to think that South Africa’s property and financial sectors are not significantly exposed to potential fallout from the United States financial and housing sector crisis via the potential impact of the crisis on our economy.

While the US financial sector’s bailout plan is a fait accompli, it remains to be seen as to how strictly the recovery plan is regulated, and how tight lending policies to households in that country become in an effort to restore responsible lending practices.

The combination of tight household/consumer lending and falling house prices can have a major impact on already-low US consumer confidence and thus on economic growth in the world’s largest economy. If things get bad enough, and Loos believes that we probably don’t really know how bad that country’s financial crisis is yet, South Africa would not be immune from recessionary conditions and financial stress.

So, while FirstRand’s most likely scenario is one of slower domestic economic growth but remaining positive, which would lead to a recovery in residential property demand from next year as interest rates decline, one ignores the current global growth risks at one’s peril. If matters get significantly worse than expected from a growth point of view, the residential property market will not escape unscathed, Loos said.

He suggests, therefore, that caution with regard to one’s spending and borrowing practices should be the motto until such time as there are more reliable indications as to whether the US crisis is near its end or not, because despite some encouraging inflation and interest rate signs, “we’re far from being out of the woods yet”. – I-Net Bridge

Source: Property24

Recently it has been said than more and more bond originators are charging clients with extra costs, which is illegal. This shocked me as I realized then, that this is something that happens often in South Africa.

Anthony Smook, managing director of a mortgage loans said that, in the recent weeks he had come across three cases where origination consultants are invoicing clients for fees to obtain a bond for them.

Legally, the only way when a bond originator is able to charge their clients for extra fees, is when the bank is not paying any commission to the bond originator. The Bond Originator then has to put this into writing before he/she goes through with the application. If he does not then the applicant should demand to know why not.

So whenever you are applying for a home loan, be sure to ask the necessary questions to your bond originator so you don’t get ripped off like a lot of the other people out there.

If you need more questions on the subject you can contact SecuBond at 086 111 5024 ext 101

It seems like getting you home loan accepted in South Africa has just became much more difficult! Certain factors that contributes to this is of course the rising interest rates and the National credit act.

Bond Originator, ooba said that over 50% of the home loan applications were rejected by the banks last month (June 2008), up from just over 40% of applications made last year.

One should keep in mind that, while some applications gets rejected by certain banks, other banks does accept it sometimes. So it doesn’t mean that when one bank declines your application, other banks will not.

At the moment it looks like only FNB and Nedbank are still granting some 100% loans with other banks requiring deposits of between 10% and 20%.

It has been reported that South Africa is still the 10^th best performing property market in the world. Last year, when South Africa was the sixth biggest property rising market in the world, it was at a rise of 13,6%. This year, we are placed, number 10 in the world with a property market rise of 8,8%.

However, South Africa’s is not the only country which has shown a decrease in inflation rising. Apparently some of the countries also mentioned here include the likes of the UK, Canada, New Zealand, and Norway.

Global house price inflation came to an average 6,1% in first quarter 2008, down from 9,8% last year.

A small white lie in real estate loan application constitutes mortgage fraud, and it’s certainly a big concern and with increasing fraudulent document registration by lenders, brokers or borrowers it becomes essential for both parties to escape themselves from going to be the next victim of mortgage fraud. False assess of the value of the property to inflate the lending amount or any kind of misrepresentations regarding income or employments are some common ones.

Taking a hard look of the incomplete mortgage loan, any penalty provisions, hidden cost, need of credit insurance, direct contact with lenders for deal verification or transaction are certain things that needs to be carefully considered prior to the execution of the mortgage deal.

South African consumers should brace themselves for possibly the toughest time in 10 years — and economists warn that it is likely to get a lot worse before it gets better.

Nine successive rate hikes, soaring fuel, food, electricity and water prices have taken their toll on a broad sweep of society — from the poorest to middle-class property owners, and even small businesses.

Signs that consumers are not coping include:

• Nearly 2000 properties across the country are being auctioned each month;

• Some property sellers are so desperate they are settling for as little as half their asking price; and

• Vehicle repossessions have shot up by 25% — one bank took back 1400 vehicles in the first two months of this year.

The financial crunch will only be exacerbated by Reserve Bank Governor Tito Mboweni’s promise of yet another interest rate hike on Thursday.

Economist Mike Schussler warned: “It’s going to get a lot worse before it gets better — it’s difficult to say how much worse.”

Schussler added that if oil prices continued to hover around current levels — yesterday crude prices posted their biggest one-day gain ever, rising 11 a barrel to above 139 — the situation could rival the late ’80s — when economic conditions were even worse than the economic shock of 1998.

Christa Chidrawi, executive director of Lifeline, said there had been an increase in people seeking help due to financial difficulty, some of whom were on the verge of suicide.

“Middle-class people (who) have built up something in the past few years are suddenly being exposed to the position that they may lose quite a number of those assets,” Chidrawi said.

Anticipating Mboweni’s announcement of a further rate hike on Thursday, financial institutions have warned struggling consumers to seek help before losing their homes and cars.

Although the current interest rate of 14.5% is nowhere near the 1998 high of 25%, it is having a greater impact on consumers, said FNB property strategist John Loos.

Consumers’ ability to weather higher interest rates is far lower now than it was in the ’90s, given that households generally have higher levels of debt now, Loos added, pointing out that the debt-to-income ratio has risen to 78% from 58% 10 years ago.

Three months ago household debt stood at R952-billion, and consumers are further burdened by soaring food and transport prices.

The petrol price has almost doubled in the past year, and many motorists are struggling to meet the cost of simply getting from home to work and back.

It now costs R627 to fill up a BMW325i — a middle-class favourite — R160 more than in January. A diesel-powered Land Rover Freelander costs R734 to refuel, R241 more than six months ago.

In the past six months, the cost of refuelling a Toyota Yaris has risen by R100.

Fuel Retailers’ Association chief executive Peter Morgan said his Mercedes-Benz cost R740 to fill up, so he put R300 worth of petrol in his tank twice a week because “it feels better”.

Morgan said many motorists were no longer filling their tanks, asking instead for “R100 and R200 worth” when they pulled into garages.

Supermarket giant Pick n Pay yesterday put the price of an extremely basic food basket of brown bread, maize meal, chicken, sugar and milk at R186 a week. For a breadwinner domestic worker earning the legal wage of R1067 a month, this is nearly 70% of pay.

Pensioner Ros Carroll, 72, from George in the Southern Cape, shops with her calculator in hand as her R600 allowance for groceries does not stretch that far any more.

Reunert Kharivhe, an accountant who runs a debt counselling agency in Johannesburg, said only 15000 people had applied for counselling at the country’s registered 362 service providers.

This figure should be much higher, considering the level of debts in South Africa, said Kharivhe who sees, on average, 60 new consumers a month. Martin Feinstein, managing director of the Business Place and who is also on the board of the Small Enterprise Development Agency, predicted 18 to 24 months of “hell for small businesses”.

Feinstein said the massive surge of personal debt incurred prior to the National Credit Act was now coming home to roost, with debt servicing now one of the top expense items.

“People will cut their own hair, do their own garden maintenance and that dent in the car that would have been fixed a year ago will now just be ignored,” Feinstein added.

Last month estate agents and auction houses confirmed there had been a substantial increase in the number of small businesses for sale, ranging from franchised restaurants to construction companies.

Ferdie van Greunen, a senior broker at Aldes, the largest business broking company in the country, recorded 250 business sales in Gauteng alone in December. According to Aldes data, 40% of these businesses were supermarkets, bottle stores, butcheries and petrol stations and another 20% were restaurants and fast-food outlets.

Aucor Auctions managing director Shannon Winterstein said vehicles ranging from old Toyotas to Aston Martins were being auctioned. “We are seeing cars on the floor that have barely been used,” he added.

Winterstein expects the value of cars sold to decline; dealers are paying less than the trade price, and the oversupply is set to grow.

Rael Levitt, chief executive of auctioneers Alliance Group, said the company had received data from financial institutions of an estimated 55000 families showing “mortgage stress”.

The financial pinch was especially acute in the R1.5-million to R3-million market, he said.

Monthly payments on a R500000 bond over 20 years have increased from R4992 in June 2006 to R6399; a R1-million home loan now costs an extra R2815 a month; a R1.5-million home loan means an additional R4223 and on a R2-million bond the extra monthly amount is R5631. — Additional reporting by Nicki Gules and Xolile Bhengu

Article source – The Times