Monthly Archives: November 2008

Investors suffer as "buy to let" market slumps.

Posted on by

Recently there have been many reports stating the major increase in demand for rental properties.However more recent information provided by experts has indicated that there is actually only a small increase this year and in some cases even a decrease in the demand for rental properties.

This will come as a surprise to most investors who expected a big increase because of the high cost and difficulty in obtaining a bond.The low demand is said to be due to the high cost of living these days because of the increase in interest rates recently.This will of course make food,petrol and other basic living essentials more expensive which in turn tightens the household budget.

The tenants then either downscale and move to smaller more affordable accommodation or decide to pool their resources and live together with family.So this is leaving investors with empty properties,defaulting tenants and major shortfalls on their bonds.

Many owners of rental properties can’t lower what they charge in rent either because of the effect this will have on their monthly shortfall.They have also been affected by the interest rate increases and have stretched their finances as far as they can go in most instances.This reality may further increase the percentage of distressed selling and properties in possession.

We, as South Africans, are still waiting for the full impact of what the global financial market has suffered through recently.Hopefully we are as resilient and protected as Trevor Manuel has indicated and we continue to grow as a country.We are still hoping for that interest rate cut to come soon and offer some relief to us all.

Mbeki vs. Zuma.

Posted on by

I began wondering a few days ago about how Jacob Zuma and Thabo Mbeki would interact if put in the same room together after the the former Presidents ousting by fellow members of the ANC,supposedly Jacob Zuma supporters.

I guess I will get my answer on Friday when the two come face to face in a Bloemfontein courtroom.They will both attend the appeal by the National Prosecuting Authority(NPA) against a judgement made by Judge Chris Nicholson earlier this year.

Only people accredited by the court will be allowed in to the proceedings and the former President has applied to be allowed to attend the proceedings as  amicus curiae (friend of the court) or as an intervening party.

Former President Mbeki has a vested interest in the appeal because of passing comments Judge Nicholson made in his earlier judgment.One comment was that Mbeki and other members of his cabinet had been involved in and affected the decision by the NPA about Jacob Zuma.

I am sure all South Africans hope that this controversy surrounding Jacob Zuma, likely to be our next president, would get resolved one way or the other as soon as possible.I don’t think investors will be as willing to inject cash into South Africa if the President is constantly tied up in serious legal accusations,be they true or not.Besides investors, South Africans themselves need to have confidence in the Government and the President to be able to put an effort into the country.If their troubles are constantly overshadowed by the scandals of the officials they will eventually lose faith in the country.

So lets all hope for a fair and final outcome to this latest installment in the story of Mbeki and Zuma.I doubt the two gentlemen would ever come to blows no matter what the situation,but i am sure we are in for a great display of subtle snubs and very dirty looks.

What if your tenant wants to cancel the lease?

Posted on by

There are many things a landlord should be concerned about, getting the rent on time,maintaining your rental property and of course having a tenant.This sounds like a relatively easy thing in this time of high rental demand,However what if your tenant wants to downscale or move out for any number of reasons before the agreed upon end of the lease.

This could be a potential disaster.That is why it’s a great idea to have a cancellation policy in your lease agreement from the beginning.This will certainly save you many headaches in the future.One of the ways to do this is to state that the tenant is responsible for a certain percentage of the total monies owed for the remainder of the lease.

You could do that or have a fixed cancellation fee, as long as everything is legal and both parties agree ,this could really help you find a quick resolution to a potentially sticky situation.It is probably not a situation that occurs very frequently but it could also work to your advantage, you could then negotiate a completely new rental agreement with a new tenant.

In other cases where there is no such agreement the tenant will be liable for the payment of the rent for the remainder of the lease even after they have moved out if the landlord has been unable to find a replacement tenant.That said a landlord may never receive full rental payment for a property from two different tenants,because one of them will be paying for nothing in return.

The biggest reason a tenant will want to cancel their lease agreement early is because of financial strain and being unable to keep up with the payments.Another reason they may want to cancel their lease is for health reasons related to the specific type of property they rent.For instance ,if for some reason they can no longer climb stairs and their current home is on the second floor and their is no lift.

Job transfers to other cities and the landlords poor maintenance of the property are of course other factors to consider.The landlords maintenance of a property should be up to standard at all times as poor maintenance thereof is also considered a breach of contract on the landlords part,if the tenant can prove this they can cancel their lease without any negative implications for them as tenants.

Alot of times the tenant really doesn’t have any option but to move and there is no reason why you shouldn’t have protected yourself ,and indirectly the tenant , by already having a legal,satisfactory clause in your lease agreement that will resolve these situations smoothly.

Some agents lower their commissions.

Posted on by

We have all become accustomed to agents charging between 5% and 8% of the purchase price of a home to bring the buyers and sellers together.This may all be changing due to the poor performing property market we are currently experiencing.Some agents are hoping to sell more properties by reducing their commission fee.

There have been some agents coming forward to say that they have reduced their commission to under 5%, and have gone so far as to say this is helping their property sales.On top of that there are those agents who are also then giving discount of up to another 1% on that already incredibly low rate.Although there are many who support this move there are many more who disagree with the idea.

Some are saying it may set a dangerous precedent for future sales and other agents who are not willing to lower their commission.Those not willing to reduce their commission have said that anything under 5% would greatly affect their income in a very negative way.

Most experts involved in the debate are advising to not decrease commissions any further and to rather take that step when the market improves and there are more buyers.They add that while the seller may be paying a wonderfully low commission to the agent this may affect the marketing of the property for sale in a very negative manner if there are no more funds available.

So many people are affected when market conditions change for the worse.We tend to focus on the owner of the property because they have the most to lose if things go wrong, but maybe we should spare a thought for the people who make alot of the deals happen.For the most part they rely on us for their income and sometimes have to take drastic measures to make ends meet.Hopefully the market improves soon for all concerned.

Trusts: a description in layman’s terms (with a twist of Latin)

Posted on by

Introduction

I trust you are all well. (Excuse the pun). The first time I heard about a Trust, I thought it had something to do with leaving your youngest daughter alone with the neighbor’s teenage son and “trusting” they were only going to watch the Disney channel. When I heard about an Inter Vivos Trust, I was floored and went to the Doctor to have my cholesterol checked.

With this article I will attempt to summarize the different Trust structures and what they are all about and hopefully not confuse you too much.

Trusts are normally created through clauses in a will referring to a Trust which is known as a Testamentary Trust or an agreement in writing between the founder/donor and the first trustees during the founder’s lifetime, known as the Inter Vivos trust. The latter agreement is also known as a Trust Deed. A Trust is controlled by the trustees each having equal voting rights. They make decisions on behalf of the Trust and must always conduct business in accordance with the provisions of the Will and/or Trust Deed and the Trust Property Control Act.

Testamentary trust (mortis causa)

Testamentary trusts are the most common trusts in use. They are suited to the protection of the interest of minors and other dependants who are not able to look after their own affairs. These types of trusts come into being only after the death of the testator and in accordance with the Will.

The trust is administered by trustees appointed in terms of the Will this usually ends after a predetermined period or at a determined event like a minor turning 18 or the death of an income beneficiary.

A testamentary trust may further be both a discretionary or vested trust.

  • Discretionary trust
    The payment of income or capital is subject to the discretion of the Trustees. All non-allocated income is taxable in the hands of the Trust. This type of trust may thus be utilized to save on income tax by splitting income amongst Beneficiaries.( Capital beneficiaries need only be determined at a later stage if required)
  • Vested trust
    The income and capital beneficiaries will already be determined and described. The income would be taxable in the hands of the Income Beneficiary, who could also be the Capital Beneficiary. The Capital Beneficiary thus gets immediate property rights according to the terms of the will or trust act.

Living trust (inter vivos)

Living Trusts are a superb medium for keeping growth assets out of an estate and to limit estate duty, protecting assets from generation to generation. A living or inter vivos trust comes into being during the lifetime of the settlor or founder with the signing and registration of a trust.

A living trust is formed by the founder/settlor who takes the initiative to create a trust and is an arrangement between the founder/settlor and the trustees.

After signature of the Trust Deed, the Trust is registered with the Master of the Supreme Court in whose jurisdiction most of the assets are situated.

The interested parties in a living trust are the beneficiaries or person who, in terms of the trust act, is entitled to the income and/or capital of the trust, the founder/settlor, the trustees and the persons or company appointed to take control over the assets to take responsibility for the administration and management thereof.

A living trust can take several forms and in Part 2 we will discuss these in a bit more detail:

  • Family trust
  • Charitable trust
  • Umbrella trust
  • Guardian’s trust
  • Special trusts

Just a note of caution…. The discussions held in these essays are of a general nature. When you have special needs, it is always advisable to get in touch with reputable Lawyers to cater for specific requirements. Remember you are catering for future generations in your legacy which will be affected if the Trusts are not set up correctly.

Next time round I will be looking at the above in more depth and discussing why Trusts are formed with specific emphasis on property.

“Trust” you have a wonderful day.

…To part 2

Would you allow a tenant to run a business from your property?

Posted on by

There is often a certain amount of tension between a landlord and a tenant,whether it be due to a landlord’s poor maintenance of a property or a tenant paying their rent late.These are usually issues that can be resolved with both parties feeling happy with the outcome,but what if your tenant makes their living by using your residential property as a business premises.This is a situation with no easy resolution and as a landlord or property owner you need to protect yourself from it happening in the first place.

The first thing you need to do is check your lease agreement and ensure that there is a clause stating that the premises be used for “private residential purposes only” and “no other purpose whatsoever.” You could also then include something saying the tenant needs written consent from the owner to perform any kind of business from the rental property.These simple inclusions in your lease agreement could save you ,as a landlord, many headaches in the future.

The main reason a landlord should be concerned about this kind of activity on their property is that they could be liable in labour law issues if an accident should occur on the rental property being used as a business.Other concerns are complaints from neighbours, and these could be never ending.There is a possibility of noise complaints,complaints of where customers of the business park their cars, the kind of people utilising the business and of course security concerns about theft and the amount of people coming to the area.

If you currently have a tenant running a business from your property and you are not happy with the situation check what the lease agreement says.If the lease has the clauses stating the property may only be used for residential purposes or specifically prohibits the running of a business from the premises you are entitled to cancel the lease agreement following legal requirements.In terms of the breach of contract clause you could either notify your tenant of your wish to cancel the lease agreement or give them written notice stating they have to immediately cease any business activities or face the cancellation of the lease agreement.Alot of what the landlord may do in these situations will be determined by the lease agreement, so read it carefully.

Depending on your specific property and your relationship with the tenant you can make your own decision regarding this subject.However most property owners are of the opinion that a tenant running a business from your property is far to much of a hassle and you should protect yourself from it.As in all things ensure you follow the legal route and get advice from qualified people.

Maintain your property.

Posted on by

All homeowners want to be surrounded by beauty and cleanliness,take a good look at your home and see if it is up to standard.There are many things that you are comfortable to ignore at your own home,for instance the state of the back garden.However if you intend on selling your home you may want to reconsider a few points on maintaining the state of your property.

As we have said before your home needs a certain amount of street appeal and thus needs to look good from the outside as it’s the first impression a buyer will get.So paint the outside if necessary and have a good look at the state of your front garden or driveway.Most people will be put off buying a property with a very overgrown garden as they begin to imagine all the work involved in bringing back up to standard.If you have the funds available and feel it is necessary have a professional give you a quote.

If you have a pool you absolutely need to ensure it is crystal clear at all times.Buyers may view a pool as a hassle and if they see that the current owner has not been able to maintain it they will be even further discouraged.Pool safety is also a major concern for buyers with children so ensure that yours is well maintained and up to standard.

Concerning the inside of the home be aware of the state of your electrical wiring,if you suspect there may be problem have it checked out.Buyers may say the sale is dependant on having a professional electrician check the state of the wiring.Any problems in this area my result in an unforeseen cost that you may struggle to cover on top of other costs involved in the sale of your property.

The same goes for your plumbing,maintain it well while you live on the property so that you don’t have to fork out large sums of money to repair things when you want to sell.

Your geyser is also a very important and often overlooked appliance in the your home.A good geyser has years of life in it and shouldn’t give you any problems.However an old or badly maintained geyser is extremely dangerous.They can literally explode in extreme cases and cause severe water damage over time if they leak unchecked.Always get a professional to check your geyser unless you really know what you are doing, they have a system that releases internal pressure and can be complicated.Don’t attempt to repair anything you aren’t qualified for.

Some of the things in your home need to be carefully maintained for your own safety and to encourage a successful sale when you put it on the market.Take pride in your home and buyers will feel far more comfortable imagining themselves living in it.

Record wait to sell your home.

Posted on by

It seems there is some more bad news for sellers.Currently the average waiting period to sell a home is 5 months.This sounds like an extremely long time when you compare it to 2004 when the average waiting period was just over 1 month.This is all related to what has been happening in the last 2 years, the National Credit Act and the incredible interest rate hikes are among the reasons.

We all want to get the best price for our home and some may even face going into negative equity if they don’t, but if you can it may be prudent to re-evaluate your asking price as this may really help you out in the long run.There are a few reasons why a speedy sale is better, one of which is that you may end up paying the bond for your old home and the new home you may already have purchased.I am sure no one wants to end up paying an extra bond.

A seller should always be realistic and get advice from professionals who can advise them about all the pitfalls involved in waiting for your asking price in the specific market conditions you are faced with.

Some other information of concern is that in FNB’s latest barometer has indicated that there has been a major increase in homes being sold because the owner is immigrating.At the moment immigration accounts for 20% of house sales,this is more than double the 9% we saw at the end of 2007.The rate of immigration also shows no sign of slowing down and is second only to downsizing due to financial strain in the reasons for selling.

Most experts are still holding to their predictions that we will see an improvement in the housing market in the 3rd quarter of next year.That seems like a long way away and many homeowners may be giving up hope.There is help out there for anyone suffering under the strain of trying to keep up with the demands of paying a bond. Contact your lender before it is too late and inform them of your situation, sometimes they can offer a solution that really will work for you.

Eskom's new station set for 2017.

Posted on by

We all know how frustrating load shedding can be and are all eagerly anticipating a permanent solution to the problem.Well, Eskom is planning on having a nuclear facility capable of producing 3500MW of electricity completed by 2017.

That seems like a step in the right direction and Eskom has also stated it is debating whether or not to enter into a power buying deal with EDM, a Mozambican power company.2017 does seem a long way away when we are faced with rolling blackouts on a regular basis at the moment.

Nothing is final yet and Eskom still needs to finalize the location of the new plant and the group who will build it.Eskom will take until the end of 2008 and then announce who has won the tender to build.There are two major contenders for the tender,Areva and Westinghouse.Hopefully the company who wins will remain on track as a major delay will only further extend the current situation and become extremely detrimental to the country’s future growth.

Eskom also has to take into account the environmental effects another nuclear power station will have, and they have conducted three environmental impact studies for this purpose.Oyster Bay, Duynefontein and Skulpfontein were chosen for the studies and the data collected from them will aid in the decision making process.

I suppose we can only wait for Eskom to announce the location of the new plant and then wait some more for the plant to be completed.It really does seem like a long time to wait until you find out how complex and time consuming the process of building a nuclear plant is.I would rather wait a little longer and be assured it was built correctly.

Make your property transfer a smooth process.

Posted on by

We all hate to wait.I think that most people will agree with that statement,especially when it comes to the transfer of your property.Whether you are the buyer or the seller you want the deal to go as smoothly as possible so that you can move on to your next venture.The way to ensure a smooth transfer is to make sure that all your affairs are in order,from your tax to the period of notice you have to give the bank.

Depending on the bank you have your bond with they may have included a clause stating that you the owner must give them 90 days notice of your intention to cancel your bond.This is very important to know because if you do not give them this period of notice you can be held liable for the interest you would have paid over 90 days even if transfer has already gone through.So as a seller check with the bank as to whether or not you have this clause on your bond and if so give them notice early enough so that you don’t end up paying all that extra interest.

Another major thing that could ruin the chance of a speedy transfer is the status of your tax history with SARS.Keep in mind that if your tax affairs are not up to date SARS will not issue a Conveyancer with a transfer duty receipt.This goes for both the buyer and the seller,if either party is not up to date there could be major delays.

The information regarding ownership of the property is also vitally important to keep up to date.In the case of multiple owners of a single property make sure any deaths or divorces are accurately reflected in any important documentation.Be aware of what is important and check that the sale agreement reflects information correctly,whether it’s the method of payment agreed upon or who exactly is selling the property.

So you may feel you can leave all the details up to the professionals but first make sure that there will be no unnecessary delays due to oversights that could have been avoided.