Johann Rupert, who spoke in the afternoon, was equally pessimistic about the state of the world economy. Rupert is also convinced that the worst of the financial crises is still to come and that the bad debt has only been moved from private to the public domain.

When asked about where they would invest if they wanted to retain their investments they were of similar mind. Taleb casually suggested FARMLAND, as well as selected commodities. It’s nice to know that in the case of financial meltdown, great minds still would put their money into Property, even if it is for the purpose of agriculture.

So let’s digest the farmland investment. Buying a farm as a business is not viable unless you are in the business of farming and understand the risks associated with it. Most farmers will tell you that it is a lifestyle, a labour of love, and not really a means of generating wealth. So at best you will earn is a nominal rent for your farmland and have a tenant that maintains and protects it. Your yield will be low, really low. And what about capital growth? Farmland has not performed well, especially in South Africa, so you had better hope that the financial meltdown is catastrophic and the intrinsic value of the farm land is highly sought after as food supplies become a scarce and reach a premium value. Also you had better hope that lawlessness does not prevail and your asset is not invaded by those seeking food and shelter.

I still believe that even in meltdown conditions, shelter will be a primary human need, and people will barter whatever they can earn for food, clothing and shelter. And shelter may not be the 5 bedroom house on the beach, but a small apartment in a secure complex, in a good area. Sure the rent will not match what is currently generated it will still be in the priority basket for those who have some means. Interest rates will be low, and the banks will have bigger problems than repossessing properties with arrears.

Thanks Taleb, but if we are talking about property, I still bet on entry level residential apartments as a “safe as houses”.

In fact the day after the summit I signed for 5 units in a complex advertised recently on this newsletter.

Discovery are doing a repeat in 2010, and if you are interested in what makes business leaders tick, money, politics, and business strategy, and can afford the registration fee then I really recommend the event. It is not Real Estate focussed but will motivate you and perhaps encourage a little lateral thought.

Speakers include Rudolph W. Giuliani, the former Mayor of New York City, South African businessmen Johann Rupert and Adrian Gore; South African businesswoman Dr. Mamphela Ramphele; global financial meltdown guru, Nassim Nicholas Taleb, and co-author of two of this decade’s top 10 best selling books Freakonomics and Superfreakonomics , Stephen Dubner.

The Discovery Invest Leadership Summit will be held at the Sandton Convention Centre on the 11th August 2010. To find out more or book your place at this must-see event go to: www.theleadershipsummit.co.za and for bookings call 0861 000 749 or visit bookings@theleadershipsummit.co.za.

It was not only the bureaucrats who performed admirably, policing crime like few believed possible, home affairs getting hundreds of thousands of visitors through immigration at the airports courteously and efficiently, municipalities implementing transport plans, cleaning organising, and many more dysfunctional government and quasi government departments that seemed to wake up and get into gear, but our formal economy who put together the world leading stadiums, roads, airports and modern railways in very tight timelines, showing what we can achieve and that we still have the skills to pull off hairy audacious projects.

But the most exciting thing for me was the way ordinary South Africans got stuck in as a huge family, supporting out team, sure, but also becoming ambassadors in small ways, cumulatively adding up to the biggest PR and marketing expose ever in Africa.

So let’s now move into a period of working to win (and not for the elite few). Lets no longer be blackmailed by political rhetoric that belongs in the past. Lets shut down the “tendopreneurs”, the leeches who suck, steal and poison the poor and the vulnerable, while at the same time pretending to represent them.

And housing can be a creator, a huge driver in this new era. The old Western economies are not going to be growing fast enough to pull us up by our bootstraps, and our exports are expensive in international terms, so growth will have to be domestic. We will have to do it ourselves….but we can.

I say drop interest rates again, get the bank’s lending, get some skills into the municipalities so developers can build houses. Not only will the building sector create the right type of employment, but the secondary industries including furnishings and fittings which will give the local economy a big boost. Increased receipts from company taxes and transfer duties will prop up the huge social spend that we have to have. Lets encourage international investment, in fact I would take it a step further and market South Africa as a retirement destination for wealthy foreigners. Government will have to act, showing the world clearly what our policy is to foregion investment in local real estate and how important the constitution is to the people.

According to ‘Economist’ magazine, The publication’s Global House Price Index shows that SA house prices rose by a cumulative 418% over the past 12 years (1997-2009). That far outstrips any of the other 20 housing markets tracked by the index. The next best performers were Australia, Britain and Spain with growth of 181 %, 175% and 167% respectively. While some of those countries may have relapsed recently, South Africa escaped the global crises very well, and most of our losses have been recovered in terms of house prices.

So would that not mean that South Africa should be a safe haven property investment destination for foreigners?

And that gets me back to my point of the successful world cup. Lets follow up with proudly presenting property, and lifestyle investments to those foreigners who got to see the true South Africa. And lets not forget about the million or two skilled South Africans that are living abroad – come back, bring your skills and capital and we can show Brasil, China, Russia and India how to eradicate poverty in 10 years.

Its really that easy, just like hosting the biggest world event, SUCESSFULLY. It depends if you really want to do it?

I am sure Robert Collier would agree that the opposite is also true. By “reducing supply will eventually increase demand” as too much money chases too few goods. It’s no secret that we are coming out of one of the worst recessions on record, which has had a marked effect on demand for property, especially residential property. (Commercial usually follows the cycle months later). Demand decimated the supply side of the industry. If demand is depressed for long enough, the supply of new houses will dry up as developers and speculators leave the market in increasing numbers, and in fact that is what has happened.

Stats released by ABSA on the 15 June show further deterioration in the volume of housing units completed so far in 2010 and an equally low number of new plans approved. Let’s face it 2009 was a bad year for property and any developer still submitting plans for approval was pretty determined, but look at what has happened in 2010, the year of the world cup and an economy surprising even the most optimistic of economists!

In the chart below “buy to let” products, predominantly flats and townhouses, decreased a further 46.2% from a pretty poor period of 2009!

I accept that reading the residential property market involves looking at all the fundamentals together. We will have to look at the effect of Job losses, the surplus stock left over from the boom, as well as the residential rental market.

I will argue in favour of house price increases for all these examples in a separate blog, but if you have strong opinion please comment below.
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A recent NEWS article on the PP features a town called Lephalae. The town (previously Ellisras) is the place where Eskom’s new multibillion rand Madupi power station is being built, and already rentals have increased to the point where you can’t find a 2 bedroom apartment to rent for less than R6500 per month. The shortage of stock means that investors buying into residential developments can expect a rental yield of over 12 % plus strong capital growth. (If you don’t believe me look at the development featured below)

There was a lot covered and I hope the other speakers will share some of their topics here on this blog. I spoke about my current view of the residential property market at the moment.

A mistake that investors make as a rule is misreading the market, buying high and running when the market turns sour. While property investment is not always driven by capital growth, or the increase in the value of the real estate, it is capital growth that motivates us mostly in residential investment, so it is important to buy at the right time.

No matter if you are a person who always the sees the glass half empty, or half full, you can’t ignore the signs that are shouting at us. We have the lowest interest rates since 1974, replacement costs of homes have swung firmly in favour of second hand homes creating a disincentive to create new houses. New emerging middle class buyers are entering the market and buying or upgrading adding more demand to the equation. On the supply side Developers are building half of what they were producing last year and the surplus stock that they were holding is being soaked up. And finally if you are not looking at the fundamentals that drive prices up, look at what is actually happening in the market. Rentals are firming, and all the indices are showing positive growth, even real growth.

And if you argue that i have a bias towards property, i will show you why:

This graph shows how house prices fared against other asset classes. The graph, compiled by Jacques du Toit, Sectoral Analyst at Absa Retail Bank, shows that house price increases outperformed Gold, Shares, Fixed deposit and CPI Inflation over 5, 10, 15 and 20 years.

That is why Real Estate is in my view the best place to protect, hide and create wealth.

A bubble, defined as a “trade in products or assets with inflated values” is really hard to predict and as most of you experienced over the last 2 years, is only evident when prices of houses deflate fast and we realise that the air escapes between the traded price of the house and the real price that a willing buyer will pay for it when the air of speculation escapes and value finds a new base.

It would be really cool to have an indicator that jumps up and punches us in the nose when we want to buy a property at a time when spin is driving up house prices, not fundamentals, but as history proves it would have to knock us out to keep us sensible. Investors follow the crowd, and when prices move strongly, investors dive in.

A wise economist once professed ( I believe it was Erwin Rode) that when the price of a new house is the same or less than a second-hand home a bubble exits. This makes sense to me as clearly second hand houses are older and should be trading below what a new modern house would trade for, but if demand is so high that demand is driving up prices to beyond replacement cost, then supply of new houses should saturate the market bringing prices down and deflating the bubble. Does this ring a bell? Developers are still sitting on surplus stock that they have been unable to sell at launch prices, and very few are building.

But what I really want is a sign… to know is when is a great time to buy?

Surely the opposite applies, and when developers stop building because the large differential between new and second-hand homes exits, we have a buy signal? Take a look at the graph below, taken from the FNB Market Analytics:

Note how from 2004 the bubble started to develop as replacement cost relative to value dropped till it cost the same to build new than to buy second-hand. And we know what happened to property prices at the end of 2007 till 2009!

So put simply, the cost of replacing your home is becoming far more than your home is worth, showing surely that there is fundamental value in the property and at some stage the value will be pulled in line with the replacement cost or developers will not go back to work and a shortage of houses will come about, driving prices up again.

If you are interested in this topic or are interested in property investment, come meet and listen to myself and 7 property opinion leaders, book now to attend the PROPERTY WEALTH NETWORK function at a venue near you.

Creating wealth is undoubtedly the road less travelled by. Only a few have taken this path, not because they had a certain level of education, or a certain amount of money, or even connections in the right places. They simply came to the place where the road diverged and chose the one less travelled by, the road to wealth.

The majority unfortunately choose the other road. These travellers also include 100% of the people who are not making any form of provision for their retirement – the vast majority of people in South Africa. These travellers further include 100% of those who pin their dreams of wealth and financial freedom on luck, whether hoping for an inheritance, gambling or playing the lottery.

Alexander Forbes recently released some sobering statistics regarding staking your future on luck, particularly with regard to the lottery. They note that your chances of winning the lottery are 0.0000072%, but perhaps even more disturbingly, that playing the lottery regularly can cost R804 000 over a lifetime.

The calculations made by Alexander Forbes are based on the assumption that ticket prices stay stable at R3.50 per draw each Wednesday and Saturday, interest rates are at 10% and historical payouts are a good indication of future payouts. Their calculations look like this:

• Five tickets per draw twice a week between the ages of 25 and 60 will result in a loss of R286 785.96.

• If this money was saved, R517 535.85 could have been accumulated over the same period, leaving you R804 321.81 better off.
Indeed, most people are not careful about spending R3.50 or other small amounts on lottery tickets, coffees, take-aways and lunches. Saving on these expenses could add millions of rands to your pocket, but this, indeed, is a road less travelled by.

Another road rarely travelled is the property investment path to financial freedom. And yet, there is no lack of evidence that this road does in fact lead to wealth and financial freedom.

Consider, for example, the recent findings of the Global Wealth Report, a survey among Citi Private Bank’s international high-net-worth clients – those with assets worth more than $10 million (around R70 million). The survey showed that 33% of these wealthy individuals are invested in property.

Furthermore, residential property – excluding investors’ own homes – was the clear favourite for those invested in property, accounting for 50% of the typical portfolio. Commercial property made up 30% of the typical portfolio, with property funds and Real Estate Investment Trusts (REITs) at only a combined allocation of less than 5%.

Many people know about the power of property investment to create wealth, and yet when they arrive where the two roads diverge, they continue to choose the highway to nowhere, in financial terms. Indeed, it takes courage to choose the road less travelled by, and that, perhaps, is precisely the reason why wealth and financial freedom are enjoyed by less than 5% of the population.

The good news is that arriving at the point where the two roads diverge is not a once-in-a-lifetime event. In fact, every morning when we get up, we find ourselves at this point. Every day, it is entirely up to you which road you will choose.”

Article courtesy of www.lightminded.com

It is well documented that it comes to investing in Property knowledge is power. The world economy is improving and property will regain its status as a safe haven for investors, a perfect time for a seminar on property. Eight Thought leaders have got together to bring you an evening of thought provoking and informative topics including, international investment, opportunities in Emerging countries, new local opportunities in the buy to let and sectional title hotel category, as well as a range of other topics. The seminar will be held in the evening, over 3 hours, with presentations of 15 minutes each followed by a panel discussion with question and answers. Networking, and refreshments will be provided afterwards.

WHO AND WHAT

Speakers are industry leaders in their respective fields:

Neale Petersen – How to invest now! What are the new elements of investment in dramatically different market.
Jose’ Delgado – Dealing with death, taxes, creditors, divorce, etc. and the benefits of trust and corporate structures.
Janine Barry – “Property Afri-nomics”, the way of business in Africa and purchasing property in The Fourth Economy – the experience economy.
Meyer de Waal – Financial fitness to manage your own finances. Rent to buy the new lending rules that apply to everyone.
Justin Clarke – Change and how online tools have made investing in property easier. Searching and finding the right property.
Scott Picken – Property trends happening in US, UK, Europe, Australia, and China & the impact it will have in SA markets.
Kura Chihota – The Search for Value – Real Estate In Africa” Case studies from Zimbabwe and Ghana.
Andrew Thompson – Sectional Title Hotel Room Investments – Why it works as an investment model

WHEN

Pretoria Country Club – 17th May 2010
Johannesburg – Grayston Southern Sun – 18th May 2010
Durban – Riverside Hotel – 19th May 2010
Cape Town – Radisson CPT – 20th May 2010

COSTS

The fee per person is R495.00 but book now and qualify for an early bird discount – Price only R395.00

BOOKING

Online booking – click here
Early Bird Bookings per delegate, before 30 April: R395
After 30 April: R495 per delegate

Account Name: Delgado Velosa Kenworthy & Associates
Bank: Standard Bank
Trust Account
Account No: 072620552
Branch Code: 025109

Reference: PWN and surname
Email proof of payment to rochelle@propertywealthnetwork.co.za or fax to 021 790 8760
Email Booking and City to rochelle@propertywealthnetwork.co.za

Rochelle Cell 083 259 0562, Office 021 790 0238

According to the latest ABSA house price index, house prices lower range (sizes of between 80m²-140m²), the average value were UP by 9,6% (y/y), with an average value of around R725 200 in March. So quite simply, if you own a small house it is appreciating again at a rate faster than inflation, or if you want to think of it another way, the value is most likely going up by more than you are paying on your bond. Great if it is an investment property and you have a rental income as well, yielding probably in the range of 5% to 9%. That’s a combined gross return of 14.6% to 18,6%!

But the fact is buy to let investors have not yet piled into the market, even though there is lots of great value to be had.

If you are sitting on the fence then here is my view. Take a look at the graph below and there can be no doubt that growth is happening again. The question is where will it go.

The cycle operates in waves, with prices growing fast, then slowly, then fast again, and it has done since the beginning of time. The plotted line (see below) shows in a classic V shape since 2008 and we are moving up the side of the V. If you can time your purchase at the bottom of the V the higher your return will be.

But sometimes factors converge to cool growth, and the recovery falters and prices drop off again, forming a W shape.

I blogged earlier about fundamentals in our economy and the dangers of inflation, and I still have a firm view that this will cut our new up cycle short. The combination of inefficiencies in government, increased rates and taxes, stiff electricity price hikes, and food price hikes are the obvious local drivers of inflation are not going to be shoved under the carpet, but external factors are even more dangerous. It is a popular view that the rand is overvalued, and when this corrects we could face more rampant inflation, as the cost of imports increases especially Oil.

Inflation is a friend of those with highly geared and although using banks money will become expensive, but your borrowings will devalue, and your income will increase as salaries and wages correct.

But for the meantime the projections are good and the economy should continue to improve through the year, pushing property prices along with it.

Just a few days later, on 1 April, the 25% Eskom electricity tariff increase came into effect, the first of three 25% increases granted to Eskom by NERSA over the next three years. In addition, municipalities that supply electricity direct to consumers are expected to increase their charges from July. Perhaps even more concerningly, Eskom has confirmed it would not be able to meet demand for electricity from 2011, despite the tariff increases. So we are paying more, but the crisis has not been averted.

Unfortunately this is no April Fool’s joke. The cold reality is that whether for the sake of the planet, or for the sake of financial survival, or simply for the sake of avoiding future blackouts and load shedding, energy savings will have to become a way of life for all of us.
So, what does this mean for property investors? Actually, it has significant implications. Firstly, in future, tenants will highly value rental properties that are energy efficient, as they watch every cent in their budget. Property investors can expect that tenants will give preference to rental units that are fitted with energy efficient lighting, geyser thermostats and blankets, and other energy-saving devices, and are well-insulated to reduce heating and cooling costs.
Secondly, property investors will have to manage their tenants and their monthly expenses far more stringently. Because utility bills are only received a month after consumption and landlords must collect money for electricity and water in arrears, the risk of tenants running up water and electricity accounts they cannot afford is greater than ever in light of the massive price hikes. Insisting tenants open their own accounts with the municipality is also not a solution, because if a tenant defaults and the municipality is unsuccessful with the collection any arrears, the outstanding utilities are still reflected against the property. This means the owner will have to settle the arrears to have the utilities reconnected before placing another tenant or to obtain a clearance certificate before selling.

Since the tariff increase has already taken effect, property investors need to take swift and urgent action. Some options include using a rental management company to ensure the utilities amounts are collected, including the utility payments in the rental guarantee, and installing pre-paid electricity and water systems. Primary prepaid metering solutions are available from municipalities, but a privately owned secondary prepaid solution is the more efficient, and sometimes even cheaper, alternative. Tenants prepay their electricity and can monitor their usage. The risk of non-payment and disputes are eliminated.

Thirdly, the increasing cost of living will affect the size and features of properties in the future. The FNB Property Barometer Q4 notes that the first and obvious way for people to counter home operating cost increases is to buy a smaller home on a smaller stand, with less electricity and water-consuming luxuries such as a large garden, swimming pool and domestic workers’ quarters. “We accept that infrastructure investment demands along with environmental issues may make more costly water and electricity a ‘necessary evil’ in years to come. The declining average size of stands and of homes… has arguably been a long term gradual trend taking place for a few decades. But adding sharp rapid increases in services costs to the mix can speed up the trend in increasing demand for smaller properties relative to big ones.”

The report also notes that as household budgets are squeezed and transport costs rise, while people become more aware of the environmental impact of long commutes, properties near public transport facilities and near work centres will become highly sought after.

The flipside of these trends towards smaller properties and units, and densification around transport nodes and work centres, according to FNB, is a premium on private space and properties close to well-maintained public parklands.

The impact of climate change and the economic imperative of saving energy will have a far reaching impact on the way we live. As a result, property investors are well-advised to monitor the developments in this regard, to manage their increased risks, but perhaps most importantly, to identify the opportunities it will create.”

Article courtesy of treoc.com