Scott Picken, CEO of International Property Solutions (IPS) believes a paradigm shift is occurring: 8 years ago, people would only invest in property in their own neighbourhood. Now, investors are starting to seek the best investments globally. IPS was created 5 years ago to facilitate international investments and provide an end-to-end solution to ensure that investors can invest with confidence!

Friday, December 5, 2008

Thursday, December 4, 2008

Buyers can 'get better deals' in the UK property market

People looking to purchase a UK property in the immediate future could find themselves securing a value-for-money deal, according to independent information website Designs on Property.

Speaking at the Landlord and Buy-to-Let Show in Birmingham, the website's managing director Kate Faulkner said now was a "fantastic time" to purchase a property for the long term."Low confidence in the market means that you, as a buyer, can get better deals," she said. "You can get better deals on anything at this moment in time."Ms Faulkner added that, despite now being a good time to purchase, buyers need to be "a lot more careful" about the type of property they buy and carefully consider its location.

Research from the Royal Institution of Chartered Surveyors published in September revealed that the average UK property was selling for nine per cent below its asking price. The widest gap between asking and selling prices was in the north (12.5 per cent) while there was an 8.5 per cent gap in London and a 2.4 per cent gap in Scotland.

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Will the SARB cut by 0.5% or 0.75% or 1%

By Cees Bruggemans, Chief Economist FNB
03 December 2008

The local interest rate debate still seems to be mired in the idea of having no December cut as opposed to perhaps having a 0.5% cut.

But what if the SARB is preparing a surprise for next week’s interest rate decision, joining a lengthening global queue, including the Fed, BOE, Switzerland, Sweden, probably the ECB, but also Aussie, Kiwi, India, Turkey, Hungary, and others?

It is a long list of countries that have recently done more, much more than expected in cutting rates, and abruptly too in bigger dollops than foreseen.

Happily, we don’t have a malfunctioning banking system, even if bank bad debts are cyclically rising.

We also aren’t as yet experiencing a dire drop off in economic activity as some other countries are, although our motor trade, building trades, real estate agents, platinum miners, purchasing managers in manufacturing and a few others could be forgiven for thinking they are being made to walk the plank.

So yes, we have a weakening economy which when excluding agriculture may already have been experiencing mild recession as of 3Q2008, and in which momentum is probably still being lost steadily on a daily basis.

Yet the real question for the SARB pertains to inflation. How low will CPI go next year and in 2010, given the global backdrop and domestic conditions, and what risks remain potentially affecting the outcome?

As things stand today, CPI may drop back into the 3%-6% target by 3Q2008, and fall towards 5% (or lower) by mid-2010. This view takes cognizance of lower priced oil, falling food price inflation, the coming statistical rebasing and reweighting, including the important owner equivalent rental, the second-round salary effects, still somewhat elevated inflationary expectations among labour and business (though probably eroding) but much lower already in the bond market, higher Eskom tariffs, and not forgetting the weak Rand at 10.30:$.

The main upside risk for inflation during 2009-2010 is the large current account deficit, the still unfolding global financial adjustment and the severest global recession since WW2 and the manner in which these could impact still on the Rand.

This risk is not entirely negative for the Rand, for if the Dollar were to weaken anew later in 2009 under the weight of excessive US government debt and Fed-provided liquidity, the Rand could conceivably be impacted positively, and so to our inflation.

It would seem that today, unlike prior to October, the world has moved on in important ways. Following the Lehman fiasco, no other major global bank is likely to be allowed to go bankrupt.

Similarly, the Fed, the ECB, the European Union, the IMF and World Bank have all become very active in providing Dollar swap lines to emerging market countries or provide other loan facilities to countries experiencing external funding strains, again with the apparent understanding that no country will be without a sympathetic ear in case of problems under present global circumstances.

This probably changes the nature of the Rand risk scenario somewhat from the far direr expectations ruling earlier in the year. Besides, the Rand today is already some 30% undervalued in fundamental terms. How low could one go from here on a persistent basis?

If the SARB adjusts its October economic and inflation forecasts lower for its December meeting, the question is by how much? What will guide it?

CPI at 12.1% is already down from its 13.7% peak, but effectively level pegging with the SARB intervention rate at 12%.

Supposedly, the SARB wants to maintain real rates. Prime at 15.5% is only showing a minimal 3.5% real rate, as opposed to a more comfortable 5.5% longer term.

But then consider the six month forecast in which CPI could fall by 6% and possibly more. That would take the real rate environment uncomfortably higher, by as much as 400 points if we use long-term norms.

So starting the rate cutting cycle early, by next week for instance, would seem a foregone conclusion. But there are only four SARB meetings through June 2009.

If the SARB were to cut by 0.5% at each of these meetings, it would lower interest rates by a cumulative 2% by mid-2009, during which period CPI inflation is projected to fall by 6% from present levels. Thus real rates would rise by 4%, and probably still be 2% too high by mid-2009, and that in a very weak economy by then.

The financial markets are handling this conundrum by discounting BIGGER rate cuts than 0.5% per meeting. For December 2008 there is already 0.75% discounted, and by the February 2009 meeting the market is discounting a cumulative 2%, with 400-450 points of cuts on a two year view through 2010.

That may be too fast and too far for the SARB, bearing in mind our large current account deficit (even if this may shrink somewhat next year, despite falling commodity export prices) and reduced Rand exposure to global crisis (even if difficult to quantify).

But how much rate cutting is too much?

Cutting by 1% next week, in the excellent company of so many central banks overseas, would be impressive, except that we don’t quite have their problems, only an impressively collapsing inflation forecast.

Also, what kind of expectations would one create for future SARB meetings, presumably immediately discounted in today’s yields? More, Sir, give us ever more? And that is precisely not what the SARB would want, given its sensitive awareness of lingering risks globally and over the balance of payments.

So the SARB could ‘disappoint’ with a base case of an 0.5% cut, considering such a move already enough in an environment where so many people still expect a late and slow start to rate cutting from February, April or even June 2009.

But then again the market is signaling a view of inflation and risks that isn’t unrealistic in today’s global environment. The SARB may well share this key premise, that inflation will decline strongly next year and that the risks preventing it doing so are milder than assessed before.

Under these circumstances a ‘compromise’ trajectory would be to settle for 0.75% rate cuts, next week and in February, April and June 2009, provided the inflation outlook remains as benign as what it now looks.

This would lower rates by a cumulative 3% by mid-2009, prime falling to 12.5%, compared to a CPI inflation rate by then of 6% or lower, still making for a real prime of 6.5% by then, still well above the longer term norm and that in a very weak economy, though one exposed to some external risks.

Such a move would acknowledge the lingering upside risks to the inflation outlook, as well as the deteriorating domestic and global outlook for economic activity and its potential to depress future inflation yet more than expected (and also capable of setting in motion negative feedback loops if foreign investors no longer like our depressed growth outlook).

In summary, the two outlier surprises next week would be a decision to leave rates unchanged (prime staying at 15.5%) or to cut by 100 points (prime falling to 14.5%).

The most likely outcome remains a middle-of-the-road, steady-as-she-goes, let’s-not-get-anyone-overly-excited decision of cutting by 0.5%, followed by similar cuts in February, April and June, and possibly beyond, if prospects continue benign. This could target prime of 13% by 3Q2009 and possibly 12% by late 2009, if everything plays out according to current expectations.

A pleasant-but-feasible surprise would be a cut of 0.75%, prime easing to 14.75%, except to the financial markets which have already priced in just such a move.

Cees Bruggemans is Chief Economist of First National Bank. Register for his free e-mail articles on www.fnb.co.za/economics

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Sunday, November 23, 2008

SA own bootstrap recovery possible - by Cees Bruggemans

JOHANNESBURG (November 20) - After two years of deepening hardship, in which interest rates have been increased ten times, prime rising to 15,5%, we may finally be coming to a turning of the financial cycle. Other shock absorbers have already been operational for some time, protecting the economy from the worst fallout of recent events.

The Rand weakened by 10% in 1H2008, and a further 30% in 2H2008, shielding many producers, especially miners, farmers, manufacturers, but also some service providers (tourism) and building contractors from adverse business conditions. The ultimate giveback was oil, collapsing in four months from $150 to $50, one of the more bizarre and rather unexpected developments of 2H2008. This oil gift assisted in protecting the country from the impact of falling export prices.

The Finance Minister furthermore continued government spending even as his tax revenue started to suffer from the slowing economy, indeed spending more on public salaries (pushed higher by inflation) and infrastructure. Thus despite private sector slowing this year, the public sector remained an important growth anchor. But with inflation finally peaking over 13% in 3Q2008, the die looks cast for a plunging inflation rate in 2009, with interest rates following at least a part of the way. With oil and food prices easing, and overdue statistical changes, the CPI inflation rate is set to plunge towards 6% by mid-2009. And this despite the weakened Rand and its implications for higher imported inflation. As the SARB acquires greater confidence regarding the upside risks governing the inflation prospect, especially regarding second-round salary effects and the global financial crisis implications for the Rand, the more willing it should eventually become to start easing interest rates. Prime could fall as low as 13% by mid-2009, and possibly somewhat lower by end-2009, depending on actual developments.

Such interest rate easing is likely to assist in stemming the inventory and private fixed investment cutbacks, if with a lag. Also importantly, it may influence replacement decisions by households regarding important consumption purchases such as cars, furniture and other household appliances and necessities. With the risk of higher interest rates waning as we move deeper into a rate-cutting cycle, and the debt servicing burden of households reducing as nominal incomes keep growing even as interest rates decline, households should become more confident to take on longer term commitments.

In the course of next year, especially by 2H2009, we may have some hope of the economy gradually reviving once again. If so, it will likely do so in tandem with the world economy, which by then is also expected to be growing again. Such global growth will be very much a function of a successful ending to the present financial crisis, the very aggressive interest rate easing we can observe around the world in progress today, and the equally aggressive fiscal boosting, especially in China and America but not limited thereto. Thus South Africa will probably pull itself up mostly by its own bootstraps next year, but it will be importantly assisted by the rest of the world also doing so. Together we will make it come true! If end 2008 will probably still be a rather bleak festive season as we collectively tighten belts going through the roughest patch of this cyclical adjustment, the 2009 festive season should already be a much more upbeat affair, by then well launched on our road to the 2010 World Cup. That would be great timing.

Cees Bruggemans is Chief Economist of First National Bank.

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Property sales rise in October

Property sales rose by 8% in October, according to the latest figures from HM Revenue & Customs (HMRC).

At 65,000, sales were 5,000 higher than in September, the first monthly increase since May.
However, they were still 50% down on a year ago, with banks and building societies reluctant to lend because of the credit crunch.

Some experts are worried that sales may start falling again because the economy is heading for recession.

Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors (Rics) said the figures were evidence that the dramatic slump in sales over the past year had stabilised recently.

"This improvement is broadly consistent with CML mortgage lending data and the Rics new buyer enquiries," he said.

"Falling house prices and lower interest rates are encouraging some buyers back into the market but the big risk is the worsening economic climate and the knock-on impact on employment," he added.

Mortgage tap

The recent peak in sales was in December 2006 when 154,000 homes were sold.
But transactions started to collapse in September last year, as lenders turned off the mortgage tap in response to the growing credit crunch, in turn triggering the most rapid fall in UK house prices since the early 1930s.

Banks and building societies found that the market for borrowing money from other financial institutions closed down, and the mortgage market imploded.

This was highlighted by the near-collapse of the Northern Rock bank and the more recent government rescue of the Bradford & Bingley and HBOS.

With the economy now widely believed to be heading for recession there is the obvious possibility that would-be buyers will be deterred further, either by a lack of confidence or by losing their own jobs.

As a result, many commentators believe that prices will continue falling well into next year.

Story from BBC NEWS:http://news.bbc.co.uk/go/pr/fr/-/2/hi/business/7742048.stmPublished: 2008/11/21 13:56:23 GMT© BBC MMVIII

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Buying power does not equate to value

Buying power does not equate to value By Coert Coetzee

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 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!

New deals set to save Wharf from ghost town future

New deals set to save Wharf from ghost town future
Nick Mathiason
guardian.co.uk, Sunday November 23 2008 00.01 GMT
The Observer, Sunday November 23 2008

As the number of bankers losing their jobs grows, there is speculation that Canary Wharf, the steel and glass east London office complex, will become a ghost town.

Dubbed Wall Street on the Water, Canary Wharf was the world's securitisation factory, the place where some of the arcane financial instruments that have destroyed the world's economy were devised.

Some real estate experts believe the controversial 14 million sq ft development, which received hundreds of millions of pounds of taxpayers' money, will once again suffer as the world financial crisis worsens.

But such talk could be misplaced. Canary Wharf, owned by a collection of tycoons including Paul Reichmann and Saudi Arabian prince Al-waleed Bin Talal, is 99.7 per cent let on leases, with an average 18.4 years unexpired.

Even the demise of Lehman Brothers, a key tenant, has been shrugged off. Canary Wharf is guaranteed to continue receiving rental income. If Lehman's new owner in London, Nomura, defaults on the lease, US insurance giant AIG, which itself received a £120bn US bail-out, will pay the rent for up to four years.

And last week, JP Morgan, the giant US bank, agreed to develop with Canary Wharf Group a 1.9 million sq ft office building in east London. The US giant spent £237m to buy the land.
In the next 18 months, the ranks of Canary Wharf's 92,000 workers will be swelled by KPMG, State Street and two other giant businesses, which will be renting a total of 1.3 million sq ft. And they could be joined by a host of other companies with huge space requirements. They include Deutsche Bank, Bloomberg and UBS.

Many believe that once Crossrail is built to Canary Wharf after the London Olympics, Docklands will no longer be a bankers' ghetto but fully integrated into the capital. To many the Wharf is the perfect encapsulation of Margaret Thatcher's economic vision. Temples to capitalism were built on the site of what at the turn of the 20th century were the world's most important docks.
And, as Canary Wharf has matured, new London office centres are being developed. The latest, behind King's Cross station, is receiving significant tenant interest. BNP Paribas is rumoured to be close to taking a building there and could be joined by fellow French bank Société Générale.
While trillions of pounds are lost in the global meltdown, London property bosses believe that Chinese and Indian banks will be the next to commit to the capital, ensuring it retains its global pre-eminence - though such talk seems like a pipe dream as the City braces for more job losses.

guardian.co.uk © Guardian News and Media Limited 2008

Thursday, October 23, 2008

Rental demand up by 50 per cent in the UK

Buy-to-let investors have reason to cheer with rental demand on the rise as first-time buyers stay away.

By Paul FarrowLast Updated: 1:32PM BST 22 Oct 2008

The number of people signing up for rented accommodation rose in September, with demand up 50 per cent year on year, according to the UK's second largest lettings agent Your Move, which has 250 branches nationwide. The number of leases commencing in September jumped 4.34 per cent compared to August 2008 - far beyond normal seasonal fluctuations, the agent added.
Your Move said that has the increase in demand coincided with mortgage advances being at an all-time low, it indicated that would-be buyers are renting rather than buying property. It is estimated that there are 1.6 million 20 to 39-year-olds who are renting because they cannot afford to get on the property ladder, according to Hometrack, the property data company. A 20 per cent fall in house prices would still open the market up to only 600,000 young buyers.
The increase in demand will be a fillip for novice landlords. They have been dealt a bitter blow with record levels of buy-to-let loans being withdrawn from the market in recent months. Those that have remained are almost half a percentage point higher potentially adding hundreds of pounds to a monthly repayment.

Managing director of Your Move, David Newnes, said: “As banks stopper the bottle of mortgage finance, potential buyers have to stay in rented homes for longer than they have in the past. The lettings market is thriving across the UK – we are seeing the strongest tenant demand we’ve ever had, far beyond normal seasonal fluctuations.”

“Mortgage finance is still expensive – as a result, people are choosing to rent. But in spite of the larger number of rental properties coming on to the market, as disillusioned sellers become ad hoc landlords, would-be buyers are picking up the slack. They’re biding their time in the hope that they’ll bag a bargain when the market bottoms out. With demand consistently strong, landlords could clean up.”

Last month over three quarters of those questioned for the third quarter Association of Residential Lettings Agents Review and Index said they would not sell their investments because of falling house prices. Instead, they expect to keep their property portfolios for an average of over 16 years. A further quarter intend to hold their investments for more than 20 years.

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Thursday, September 25, 2008

UK Property - is the time right, or should one wait?

Due to uncertainty from the Sub Prime Crisis and liquidity problems from the banks, mortgage approvals have decreased 70% in the last 12 months. The Royal Institute of Chartered Surveyors believes sales are at a 30 year low and that transaction volumes from 2007 to 2008 will drop to 17%. However interest rates are actually holding if not decreasing (currently 5% and expected to be 3.5% by the end of next year - 2009) and the property fundamentals are in place with demand far outstripping supply in the medium to long term.

The Housing Green Paper of 2007, showed the country need 260 000 homes a year built and yet for the last 5 years they have only delivered 170 000. Due to economic factors in 2008 they are only expecting 60 000 and so the gap between supply and demand continues to grow, even though the UK government has promissed an additional 26% or £1 billion investment in housing.

With this in mind a investor with a medium to long term view will understand that now is a great time to take advantage of this uncertainty as we can still get access to finance with a 70% to 80% mortgage like in 2007. An example of this is City Peninsula where the developer tried to purchase the site last year for £584 per square foot. They were going to on-sell for £650 per square foot. However with the uncertainty this year they have negotiated down the land owner and are now bringing the project to the market at £496 per square foot which is 26% below the price last year!

The Chinese only have one word for Crisis and Opportunity. Understand the fundamentals and you will understand this financial uncertainty represents great opportunity for the medium to long term investor!

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"If you help enough other people get what they want, you can have anything you want!"

Zig Ziglars