Property for Sale

Rental agents and property brokers were yesterday warned by the South African Property Owners Association (Sapoa) to be careful in relation to lease agreements, until the governement gives clarity on how The Consumer Protection Act may affect leases worth an incredible number of rands.

The Department of Trade and Industry was approached by Sapoa so that they can clarify some of the provisions within The Consumer Protection Act. An area of great concern may be the section in the act, which makes it possible for tenants to arbitrarily cancel rental agreements within 20 working days.

Currently 90% of all industrial and commercial property in South Africa is controlled by Sapoa members. The value of this property portfolio is estimated to be around R150bn. Although the act provide remarkable protection to consumers, there was recently a grave concern by Real Estate Agents that it might impact negatively on the livelihoods.

Although Sapoa fully sports ths additional protection offered to consumers, CEO Neil Gopal said yesterday that the act had "severe implications for landlords, developers and business owners". Landlords could possibly be affected very negatively. The act might have far-reaching consequences for landlords who have existing leases worth huge amounts of rands set up in shopping malls.

One will see a huge impact through the Consumer Protection Act on general lease agreements for property to date. Among the provisions in the process that may possess the biggest effect on landlords is that lease agreement of immovable property is limited to a maximum period of two years. Once the lease agreement expires, a fresh lease agreement can be signed, otherwise the lease continues on a month-to-month basis.

Mr Gopal said that banks won't give start-up credit to businesses if a lease agreement was signed for a limited period of 2 yrs. The main reason for this is that a two-year period is insufficient time for customers to recoup start-up costs for the business.

He's also with the opinion that the provisions of the act will create uncertainty for customers because they will never be sure if they could stay on in the premises, following your expiry of the lease agreement. Another point of worry is that busnesses do not want to have to move to a brand new premises every couple of years.

A further onus is put on landlords by The Consumer Protection Act. Landlords must make sure that tenants understood the implications of a lease agreement. This might lead to this situation where tenants can say that they didn't view the agreement, they didn't understand the agreement or the landlord forced them into signing the agreement. The only real way possible to counter this argument is to amment the act and make provision whereby the tenant confirms in his or her own writing that the content of the lease agreement is understood.

A meeting request was sent by Sapoa to the department, which Mr Gopal hopes will be honoured shortly.

Numerous suggestions were provided by Sapoa to the deparment around the draft Consumer Protection Act, ahead of the closing date in January. Sapoa issued a reminder to all its rental agents and real estate professionals working with rental properties to make sure that the new law and its impact is brought under the attention of landlords and tennants.

It would appear that we are set for some quite interesting times in the near future when it comes to rental of property.

Based on year–on–year growth, the average value of small, medium and large houses in the South African market continued to show relatively low growth according to Jacques du Toit, ABSA Senior Property Analyst. The current low level of year–on–year price growth is largely due to the base effect of a recovery in home values twelve months ago and will continue to be a factor in the first six months of this year. Low inflation and interest rates, a decrease in unemployment numbers towards the end of 2010 and a higher level of real economic growth contributed to a moderate growth in month–on–month price across all three segments since the late part of last year.

The price of medium-sized houses declined in real terms over the last three months compared to twelve months ago, while the trend for large houses shows a decline over the last seven months when comparing to the same period twelve months prior. The headline consumer price index is used when calculating house prices in real terms.

Small-size houses (80–141sqm). Average price R784 600. Nominal growth y/y for February = 4.3%. (January = 6.3% y/y) Real price growth for January = 2.6% y/y.

Medium-size houses (141-220sqm). Average price R982 200). Nominal growth y/y for February = 1.5%.( January = 2.1% y/y) Real price decline for January = 1.5% y/y.

Large-size houses (221-400sqm). Average price R1 494 600. Nominal growth y/y for February = 3.7% (January = 3.5% y/y). Real price decline y/y for January = 0.2%y/y.

The South African economy is forecast to grow between 3.5% and 4% in real terms this year.

The residential property market is expected to be supported by rates remaining low, the lowering of transfer duty and a moderate growth in employment however consumer price inflation is set to increase on the back of international oil prices, exchange rates, a fuel tax of 18 cents/liter, (expected in April) and an increase in food price inflation. Added to this, household finances will be further impacted by increases in the cost of electricity as well as rates and taxes, which will ultimately impact on the residential property market.

Taking the above into account as well as recent trends in house prices, the current forecast in nominal house price growth is around 1.5% for 2011. Based on the average consumer price inflation rate of between 4.5% and 5% this year, house prices are set to decline further in real terms during 2011.

Any kind of savvy purchaser recognizes that acquiring rental property is a good method to generate extra recurring revenue. Like with any investment, there are several dangers, which go along with investing in a home intended for rental purposes. Take your time and energy and do your own homework before you take the plunge and purchasing any house. Down below can be a list of several points to consider prior to buying any kind of property.

Come with an Evaluation: The most important step in a leasing procedure is having a professional inspection and an evaluation for the property. In case you actually don’t wish to be shelling out all of your rental revenue on maintenance, an examination will help you find out just what kind of improvements this particular house will need.

Meet the Tenants: It can be a wise decision to purchase rental properties having a lease contract already in place. This ensures you will have tenants and perhaps you can acquire a home with trustworthy renters who have resided there for decades. In the event that the property is lived in, you’ll want to take time to meet the renters and obtain an understanding for his or her character. Also, you should think about just how nicely they take care of the residence; this will often be shown in the condition of their living area.

Meet the Neighbours: Take a moment to knock on the neighbour’s front door and introduce yourself. This is a good way of getting a honest opinion on the home, considering that the seller is normally only planning to let you know what you would like to know. Neighbours can provide you with input regarding the current tenants, neighbourhood problems and the condition of the house.

Investigate Other Local Rent Prices: Go through the neighbourhood or local newspaper and obtain a concept of how much other comparable houses are renting for. Make sure that there's not a large difference between those rental rates compared to the rental being paid at the home you are looking at.

Think about the Structure of the Building: If you might be acquiring an older home or one that could require some work, you’ll want to consider the construction of the home. Often cedar shake roofs as well as wooden sided structures can equate to significant problems. In the event that you can find a house with brick or cement walls, you'll help reduce your odds of having to pay for significant structural work.

Look into the Area: Find out if the location of the home you are interested in is favorable to locating qualified tenants. In many cases, certain neighbourhoods will probably be packed with tenants who are renting from various investors. You may want to consider steering clear of neighbourhoods which are mainly university rentals since this can result in parties, crime and also possible damage to your premises.

Buy at the Ideal Price: If you might be mortgaging this specific rental property, generally you’ll need a minimum of 10% deposit on the loan amount. Calculate exactly what your total monthly home loan payment will be and assess whether you will be making a profit as soon as the mortgage and any property upkeep expenses are spent. The overall rental income minus the sum of your entire expenditures will provide you with your anticipated monthly profit. Naturally, unanticipated circumstances could cause your numerous property payments to fluctuate.