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Property 24/10 - 154

2 May 2013

Buying an investment property
Why would anyone purchase a second home as an investment? 

This is usually asked when discussing different investment options, and property versus stocks and shares as a retirement plan is often the debate, says Lanice Steward, managing director of Knight Frank Anne Porter. 

After five years of negative capital growth in property and all the indicators being that the market is improving, now is the time for property investors to re-examine the market, she says. 

Given the stringent lending criteria of the banks over the last five years, if you were interested in investing in a property now would be a good idea to contact a bond originator first to establish what finance you qualify for, she says. 

Why property?  
Steward says property, over a long period (20 to 25 years) has been proven to keep pace with inflation while giving the investor around a five to six percentage return. The return, however, must be seen as the combined capital appreciation that the property achieves over time.  
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How to avoid dodgy builders
With buy-to-let investors moving back into residential property in a big way, there is a growing tendency to purchase homes, especially sectional title units, which can be upgraded, for relatively low sums - thereby putting the owners in a position to charge a higher rental.Commenting on this trend, Bill Rawson, Chairman of the Rawson Property Group, says those going this route have to be aware that there can be serious dangers in employing contractors from the informal sector, who often come in with seductively low quotes.

“No one denies that South Africa’s ‘bakkie builders’ have played a useful role in home renovations. However, it has to be acknowledged, as Jason Lee has explained at length in his book Making Money Out of Property in South Africa, that some of these informal contractors have time-and-again let down their clients in a very big way – and cost them a lot of money.”
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Build wealth, grow your home equity
Home equity is not just a “paper profit” when you sell your home. It is the very basis of the assertion that home ownership builds wealth. That’s the word from Rudi Botha, CEO of mortgage originator BetterBond, who explains: “In simple terms, the equity you have in your home at any point is the difference between the amount still outstanding on your home loan and the estimated amount you could realise on the sale of the property. 

“But it is also much more than that. It is a critical measure for homeowners and potential sellers because it represents the return they will make on their own cash invested in the property – that is, the deposit they have paid – and could make all the difference to their lives in future. 

“The amount of equity you have in your home can of course increase quite rapidly in a strong real estate market when home sale prices are rising quickly. Significant improvements to a home or its amenities and garden can also increase its value and thus your home equity. 
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Tips for landlords in managing tenants
Acquiring buy-to-let properties within the investment portfolio offers long-term capital growth while providing short- and medium-term income from tenants occupying the house.  However, a property can be beautifully designed and in a highly desirable areas, but if tenants are not correctly managed and the occupancy not maintained at sufficiently high levels, the profitability of that rental property will collapse. 

Unhappy tenants vacate at the end of their leases if not beforehand. This reduces the income due to unpaid rents and incurs costs in finding new tenants either via advertising fees or in the commissions paid to agents for vetting potential new tenants. 

Those fees are paid upfront and amortised over the period tenants occupy the residence - and basic logic and mathematics show the return on investment is boosted the longer that initial payment covers a single tenant's stay. 
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Overgrown tree problems in sect. title
When large trees in sectional title schemes become overgrown and possibly unruly, they can cause problems in the owner’s garden and unit, as well as the neighbours’.  This can lead to tension between the two parties if things are not dealt with properly, says Michael Bauer, general manager of property management company IHFM.

Whichever side of the boundary the tree is on, it is that owner’s responsibility to cut back branches, trim roots causing damage and prevent damage to the fence or wall which may be caused by the tree, he says.

What must first be established is whether the garden is an exclusive use area or common property. The trustees have to establish on the sectional plans how the area is demarcated as it could be an exclusive use area or part of a section or common property. If it is common property, the body corporate should bear the cost of maintaining it.
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Debt counselling and consumer rights
An increasing number of over indebted consumers are starting to turn to debt counselling as an option to stay afloat in the tough economic times we are faced with. Once a debt counselling matter has been terminated, the consumer is no longer afforded the protection that is provided by being under debt counselling and credit providers are able to proceed with legal action against the consumer.

Recent statistics from the National Credit Regulator indicate that 24 913 consumers applied for debt counselling in the first three months of this year, according to Credit Ombud, Manie van Schalkwyk.

"It is encouraging that more consumers are starting to exercise the rights afforded to them by the National Credit Act (NCA) and apply for debt counselling.”

With the growing number of debt counselling applications, we need to make consumers aware of the drawbacks they could face when going though the process, says Van Schalkwyk.

At times however, the process fails due to administrative oversight or human error and this has severe consequences for the already distressed consumer. The results of such mistakes are often terminations by the credit provider. 
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Construction firms admit bid-rigging
A total of 21 big South African construction companies have admitted to the Competition Commission that they were involved in bid-rigging to a combined value of R26 billion, Parliament’s Portfolio Committee on Public Works has heard.  Furthermore, action will be taken against a total of 22 other large South African construction companies that had not taken up an offer from the Competition Commission to present evidence of bid-rigging.

Investigations into their alleged collusion will start once settlements with the 21 companies have been reached.

These 21 companies, which can't be named at this stage, accepted the offer and are in discussions with the Competition Commission. These companies were allegedly involved in 131 rigged projects, which have a value of R26 billion.
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