Keep an eye out for water damage

Water damage in a home is often overshadowed by more noticeable problems such as a messy garden, a bad paint job or lack of light.But it can have far-reaching consequences and chew up huge amounts of time and money to rectify. Even a small hole in a roof can result in a rotting rafter or a waterlogged wall that requires replacing.

And that is why, says Dr Piet Botha, chairman of the Nationlink estate agency group, a thorough pre-purchase inspection of any home you are buying is so important – whether you do it yourself, as is most common in this country, or pay a professional to perform it.

Possible water problems to look out for include the following:

– Upward water seepage into walls from cracked foundations or lack of damp-proofing.

– Poor drainage. Surface water runoff should drain away from the house and gutter downspouts should be directed away from the foundation.

– Roof leaks, especially around flashings, skylights or chimneys, and any downward water seepage into walls.

– Poor water pressure, which can be a sign of water service supply deficiencies or the necessity for costly piping upgrades, especially if the home is fitted with old galvanised piping.

– Mould, which is becoming more prevalent in modern homes due to the increasing use of air conditioners, dehumidifiers and clothes dryers, may require the installation of exhaust fans, the replacement of infested carpets and the repainting or retiling of certain areas.

Botha says at the very least, being aware of such problems before you buy a home will put you in a stronger negotiating position when it comes to making an offer. “And it could even save you from making a very costly mistake, so it is worth going over even the best-looking properties with a fine toothcomb.”

Article from Property24 

Credit Act Gets Blame for Home Sales Slump

The number of property sales in Cape Town in the past few months is sharply down, and foreign buyers’ enthusiasm for luxury homes in the city is waning, say estate agents.

They blame rising interest rates and the cumbersome provisions of the National Credit Act for the local situation, and crime and a global economic slowdown affecting foreign buyers.

But several agents believe the downturn is a temporary one, and that things will be looking up again by the first quarter of next year.

First National Bank’s residential property barometer survey of estate agents showed that 75% of sellers across the country had failed to get their asking price.

It cited the National Credit Act as having a significant impact in slowing the pace of mortgage approvals, especially for lower-income earners. Other negative factors include rising interest rates, no personal-tax and transfer-duty relief this year after quite a windfall last year, and a gently slowing economy.

John Loos, FNB’s property strategist, said: “I believe that 2007 is so far the worst year of what is probably the best decade on record. But the situation is still good because downturns in an accelerating economic growth environment are not nearly as rough as downturns back in the 80s and early 90s when the economy was stagnating.

“In short, by historic property downturn standards, it looked set to “remain a pretty good story where real house-price inflation can continue for the most part”.

Despite the problems, Loos did not believe “a crash was on the horizon”. He remained optimistic that early next year there would be a gradual recovery as interest rates hit their peak.

A further 50 basis-point hike was expected before the global and local economic growth began to turn the corner for the better.

He confirmed that foreign buyers were losing enthusiasm for local properties, and said this could be due to the threat of foreign buyer restrictions in South Africa and a global economic slowdown.

Bill Rawson, chairman of Rawson Properties, said there had been a major drop in property sales in the past three months, but there had still been an increase in the rand value of properties sold. It was currently a buyer’s market as the market had stabilised.

The new credit act and interest rates were having a negative impact on sales, especially in the lower- and middle-income bracket.

“Interest rate hikes on a bond of R500 000 have led to a monthly increase of R1 000 on repayments. This is a lot of money for this sector. Interest rates have increased far too fast, making it difficult for entry-level buyers.”

Estate agent Willie Oosthuizen of Homeright Properties in the northern suburbs said he had noticed less demand for lower-income property as buyers were no longer qualifying for loans for which they would previously have qualified.

The foreign buyers’ market had quietened down in the past 18 months by a whopping 90% in his turf.“

I dealt with foreign buyers daily but I have not dealt with one in the past three to four months.”

He attributed this slowdown to foreign buyers’ concerns over Cape Town’s crime rate.

Carina Nieuwoudt of the Realty 1 IPG agency’s northern suburbs office, said property in the higher ranges had been most affected.“We had one home on the market for R3.7 million, which sold for R2.9m. Another one was on the market for R5.3m, eventually selling at R4.2m.”

Six months ago there was “a seller’s market, now it is more favourable for buyers”.

But Pam Golding’s chief executive officer Andrew Golding said he did not see the recent slowing down of the market as “a downturn”, as property prices had been appreciating this year by 10% to 12%.

But he warned that the effects of the new credit act would “become apparent over the next few months”. He also attributed the cooling down of the residential property market to interest rate hikes and it being mid-winter.

“Because these have occurred simultaneously, it is difficult to attribute the slowdown to any one factor. I believe the current trading conditions will continue for the next six months. By the first quarter next year I anticipate there will be an increase in the number of transactions made.”

Mike Bester, chief executive officer of Reality 1 IPG, said the residential property slow-down was not caused by a lack of interest.

“It’s not because people don’t want to buy houses, but because they cannot get a loan.”

He believed the slump was temporary because there was a huge need for property, and economic growth was good.He believed the affordability issue would be worked through in the next few months. 

Article from Cyberprop 

CGT on fractional re-sales?

The rapid growth in fractional ownership sales has raised questions about the tax implications of this relatively new type of property ownership.The thorny taxation issue becomes particularly relevant now that the industry is starting to establish a strong secondary or resale market.

Mike Teuchert, partner at auditing firm Grant Thornton, says the owner of any kind of holiday accommodation – whether it’s timeshare, sectional or fractional title – will be subject to tax on the sale thereof.

However, the type of tax will be dependent on the intention of the owner at the time of purchase. Teuchert says it’s by no means conclusive that merely because one acquires a share in a fixed property that the profit at resale will be subject to Capital Gains Tax (CGT).

Whether CGT or normal income tax comes into play will, in short, depend on whether one bought the holiday accommodation purely for its potential resale value (to earn a capital gain) or for holiday/rental purposes.

Teuchert says if the South African Revenue Services (SARS) believes that you bought into a fractional ownership property with the intention of reselling it, any profit gained from the resale could be regarded as being of a revenue nature. In that case, the entire nett proceeds of the sale will be subject to income tax.

However, if the intention was to buy the property for bona fide holiday purposes or to earn a rental income, there is an argument to be made that the proceeds of the sale would be of a capital nature. Teuchert says that means the nett proceeds will then be subject to CGT.

The exact CGT liability will depend on the size of the profit (or loss) made at resale, but fractional ownership sellers will probably be paying less tax in terms of CGT than what the case would be if they were liable for normal income tax.

But Teuchert points out that the intention of a taxpayer is, of course, a subjective test. Factors that would be considered by SARS include how long the fractional ownership asset is held, availability of the necessary finance, the nature of the taxpayer’s business and the reason for the sale. – Joan Muller 

Article from Property24

Lower brackets still struggling

In recent announcements, South Africa’s banks ensured the public that they are committed to providing finance for those property buyers in the more affordable sector of the property market, but these assurances come at a heavy price.The reality, says Tony Clarke, managing director of Rawson Properties, experienced by many property buyers in the price category below R300k is that most banks still reject their loan applications.

“This could be due to many reasons, including that the applicant has credit judgements against him/her or that the bank cannot find value in the property that justifies the loan amount.”

Clarke says that the stricter application procedures imposed by the National Credit Act (NCA) could also have a dampening effect on this end of the market.

“It is unfortunate that those who are struggling to create their own wealth have been hit the hardest by the new regulations, resulting in the widening of the gap between the rich and the poor in this country.

“Even more disturbing is the fact that in the event of a bank approving such a loan, the applicant is charged with higher rates. In one specific case, a property buyer was charged interest of 3% above the prime lending rate,” he says.

Clarke explains that the procedures according to which banks approve applicants, vary.

“That is why certain applicants might be declined by all banks, except one, but then this approval is charged at a high interest rate. Unfortunately, the property buyer is not left with much choice in the matter and is forced to go with this unfair deal they receive from the bank if they want to become property owners.

“The irony of the situation is that these applicants do not have a large amount of disposable income or they have a history of bad repayments. Now they are the ones who are being charged at such a high rate that the buying of property becomes a very expensive exercise.”

Clarke explained his statement by referring to a specific case where a loan of R290k was applied for. If repaying at prime rate, this buyer would pay R3 500 per month to service the home loan. However, in this case, the bank charged him 3% above prime, which increased the amount to R4,144 – almost R650 more.

“If the buyer was paying off R4,144 on a property at prime rate, it would mean that he would be able to qualify for a loan of R343,330 – an additional amount of R53,330 that he could have spent on his investment – instead of paying it to the bank.”

Clarke says that it is unfortunate that those who are desperate for a home loan have to pay more than those who are less desperate. “We predicted that the lower brackets would be hardest hit by the increased interest rates and stricter regulations of the NCA and it seems that cases like this one prove our point.”

Article from Property24