Guide to residential home loans

The Home Loan enables you to finance residential property.

The general repayment term is 20 years. However, this can be structured up to a maximum of 30 years. Vacant land, however, is repayable over a maximum of 15 years.


Documentation to accompany your application.

In order to apply for a Home Loan, please send the following documents:
• Your bar-coded ID document
• Latest salary advice
• Offer to purchase
• The original document or a certified copy of one of the following documents verifying your residential address, not more than three months old: Municipal account, lease or rent agreement, Telkom statement, etc.
• Original document or certified copy of a South African Revenue Services document reflecting your personal details and income tax number (where issued).


What are the features of the Product?

• Choose the interest rate option that gives you the repayment structure you prefer – fixed or variable.
• Different repayment methods may be utilised to repay your home loan (for
example debit order, salary deduction, electronic transfers, cash or cheque deposits).
• You can register a larger bond than the amount of the loan granted, which will cut the cost and time when increasing your loan in future (via a Further Advance).
• In certain instances, banks provide finance in excess of the property value. In these cases, the amount exceeding the property value will be maintained on a separate loan account at a higher interest rate.
• You can have electronic access to your home loan via Internet Banking and Telephone Banking.
• The maximum term of your loan is 30 years. The term may be increased/decreased at any time at no additional cost.
• Further Advances: Further loan amounts may be applied for as soon as your property value increases sufficiently or when you want to extend/improve your property.
• Additional deposits can be made at any stage, which will immediately reduce your interest cost.





How does the Product work?

Your home loan is used to finance your residential property, whether it is your existing home or the purchase of another property. A Building Loan is also available to assist you with the building of a new dwelling or enhancing an existing home.
When you purchase another home, a new application for finance will have to be submitted and a new home loan set up.

In all cases, a Mortgage Bond is registered over the property as security for the home loan.

Interest is calculated on the daily outstanding balance and then capitalised/debited monthly on the instalment due day. Instalments must be paid into the loan account on the required instalment due day. Monthly repayments must be met in terms of the mortgage loan agreement. Unless another date is selected, the due day will default to the 1st of the month.


Limitations of the Product.

Only residential properties may be financed with the Home Loan.

Banks calculate the maximum home loan that you can afford based on your monthly home loan repayment not exceeding a calculation of your surplus (discretionary) monthly income.


Pricing structure.

Once the bond has been registered, there are other costs that are debited to the home loan account. These are:
• Initiation fee: This is a once-off fee charged by the bank for processing the application and setting up the home loan.
• Administration fee: This is a monthly administration fee which is added to your monthly instalment.
• Assessment fee: This is a once-off fee charged for performing an assessment on the property.





Interest Rates.

Our range of interest rate options enable you to make the best deal based on your personal circumstances. You have a choice of fixed rates or a variable interest rate.

By selecting the variable rate option, you could qualify for a concession (a rate reduction) based on your income, loan size and the amount of loan relative to the value of the property. The interest rate will then vary with changes to the Mortgage Lending rate.


FICA requirements for opening an account.

• Bar-coded ID document
• The original document or a certified copy of one of the following documents verifying your residential address, not more than three months old: e.g. Utility bill, lease or rental agreement, Telkom statement, etc.
• Original document or certified copy of a South African Revenue Services document, reflecting your personal details and income tax number (if issued).

VARIABLE RATE:


Description of the Product.

The variable interest rate is the conventional fluctuating interest rate, which is based on the bank’s mortgage lending rate as it changes from time to time.


What are the features of the Product?

• Any fluctuations in the bank’s mortgage lending rate would influence this interest rate option.
• You can switch from this rate option to one of the fixed-rate options at any time.


Limitations of the Product.

This rate option cannot be fixed for a pre-determined period.
It will be affected by movements in the bank’s mortgage lending rate.


Related products or alternative Products.

Fixed-interest rate options.


Pricing structure.

You may qualify for a concession on the bank’s mortgage lending rate, based on your income, the loan size and the amount of the loan relative to the value of the property. Any concession will be negotiated with you when we process your application.









FURTHER ADVANCES (INCLUDING RE-ADVANCES):


Description of the Product.


A Further Advance is nothing more than the process to increase your home loan. You have various options available:
1. Increase your loan back to the original loan granted (we call that a readvance) – your existing mortgage bond will cover it – no additional bond to be registered (we recommend that you use FlexiReserve in this instance).
2. Increase your loan up to the current value of your property* (in some cases we will allow up to 10% more than that value).
3. Increase your loan to extend/improve your home* (using the Building Loan option)

*Unless you previously registered a larger bond, this will require registration of an additional bond.

Documentation to accompany your Further Advance application:

In order to apply for a Home Loan, please bring the following documents along:

• Your bar-coded ID document.
• Latest salary advice.
• The original document or a certified copy of one of the following documents verifying your residential address, not more than three months old: Municipal account, lease or rent agreement, Telkom statement, etc.
• Original document or certified copy of a South African Revenue Services document reflecting your personal details and income tax number (where issued).


Documents for Further Advance applications using the Building Loan process:

In addition to the above-mentioned documents:
• Copy of Provisional/Approved Plans.
• Copy of detailed tender/quotations.
• Minimum specifications and schedule of finishes.
• Waiver of Builders Lien.

What are the features of the Product?

• A Further Advance is a cost-effective way to finance other purchases (consolidate your more expensive debt into your home loan).
• Further Advance funds can be used for any purpose, from home improvements, education, to dream holidays.





How does the Product work?

To explain a Further Advance, let's use the example of Customer A below:

Home loan originally granted: R180 000
Original bond amount registered: R180 000
Value of property: R300 000

Customer A needs an amount of R80 000 and wants to increase his home loan and as such applies for a Further Advance. In this case, a higher bond (second bond) of R80 000 would have to be registered (R180 000 bond amount + R80 000 second bond = R260 000 total bond amount.)

Remember when you apply for a Further Advance (normal credit and affordability criteria will apply), Absa will have to do an evaluation on your property to determine the security value. Certain fees such as a valuation fee will be charged.

Further to this, there will also be legal fees applicable to the registration of the second bond.

In order to make the process easier and cheaper, we recommend that when taking out a new loan, a larger bond be registered than needed for that loan. When applying for a subsequent Further Advance, the result is lower legal costs overall and a shorter time before funds are made available.


Limitations of the Product.

A further advance can only be approved where either:
• The property value is sufficient to cover the increased amount, or
• The property value will be increased by the improvements made to the property.

The increased loan will always need to be secured by a mortgage bond of at least the same value.


Pricing structure.

Besides the costs levied by attorneys for attending to the registration of any additional bond, the loan will also be debited with an assessment fee to cover the cost of assessing the property.

The assessment fee for a building loan process is higher, due to the number of assessments required during the building process (See Building Loans).


Interest Rate.

The Further Advance effectively resets your home loan with the bank and the interest rate applicable to the loan will be negotiated with you as part of the process.



HOUSEOWNER'S COMPREHENSIVE INSURANCE (HOC):

With a Home Loan it is compulsory* to have Houseowner’s Comprehensive Insurance (HOC) as it insures the property mortgaged as security for your loan. HOC is short-term insurance cover that protects your home (probably your most valuable asset) against fire, flooding and other disasters. This insurance covers the replacement value of the structure and fixtures of your home but does not cover the contents such as your TV, hi-fi, etc, which you would have to specify and insure separately under a different product (Householder’s Insurance).

HOC covers the immovable property (such as the dwelling, outbuildings, fixtures and fittings, paving, walls, swimming pools, tennis courts, etc.) against damage caused by specific events. These events include damage caused by fire, storm, flood, burst pipes and geysers to name a few. Some insurers offer Subsidence and Landslip cover as well.

*Note: Where the property is a unit in a Sectional Title complex, it is the responsibility of the Body Corporate to arrange this type of insurance on all units, with the premiums added to your monthly levy. Thus HOC is not compulsory on Sectional Title properties.


What are the features of the Product.

Houseowner's Comprehensive Insurance protects your home against unforeseen loss or damage (giving you peace of mind that your home, probably your family's most valuable asset, is protected against unforeseen events).


How does the Product work?

The HOC premium is charged annually in advance and capitalised to your home loan. A portion of this premium (1/12th) is then included in your monthly home loan instalment.


Pricing structure.

The premiums charged by insurers vary. At the "standard" rate applied in the market the annual premium on a home with a replacement value of R250 000 will amount to R600* per annum or approximately R50 per month.

* Please note that these rates are an indication only and are subject to change at any time.

VANIA LEONARD
Bond Consultant

Tel 021 975 3404
Fax 021 413 2023
Mobile 079 485 5355
Email vania.leonard@betterbond.co.za

Seven new rules for the first-time home buyer

NEW YORK TIMES 15-9-2009

Your Money
Seven New Rules for the First-Time Home Buyer


Robert Neubecker

Yes, the financial system almost collapsed because mortgage bankers and brokers told lies about loan terms and loosened standards in dangerous ways, and investment bankers packaged those loans into bonds that were far more toxic than ratings agencies predicted.

But the roots of the mortgage contagion lie with all of us and our desire to own just a bit more house.

So as the one-year anniversary arrives of our near financial collapse, it’s a good time to blow up a long-standing but underexamined maxim of real estate — that you should always stretch financially when buying your first home.

No one is quite sure who came up with this idea, though suspicions rest on real estate agents or kindly parents with the best of intentions who never expected that real estate prices could fall. Whatever its origin, the economists and financial planners I spoke with this week are almost unanimous in their rejection of it.

Here’s how they dismantled the old saw — and a list of seven suggestions they offered up in its place.

START WITH THE BASICS Let’s begin with some other standards, tried and true advice that served banks and borrowers well for years, until they forgot all about them in the race to write more loans and buy bigger houses. Put 20 percent down, so you have less of a chance of owing more than your home is worth if prices fall again. Get a fixed-rate mortgage, so the biggest part of your monthly housing bill remains stable.

If you’re determined to be truly conservative, don’t spend more than about 35 percent of your pretax income on mortgage, property tax and home insurance payments. Bank of America, which adheres to the guidelines that Fannie Mae and Freddie Mac set, will let your total debt (including student and other loans) hit 45 percent of your pretax income, but no more.

That said, if you end up with an adjustable-rate loan, banks may not be concerned with whether you’ll be able to afford the maximum possible payment when the interest rate adjusts in five or seven years. But you should be worried about it.

CONSIDER YOUR INCOME The best case for stretching for a first house is that first-time home buyers in their 20s and 30s will probably see their incomes grow more quickly than older people buying their second or third home.

Harvey S. Rosen, a Princeton economics professor, finds in a forthcoming Journal of Finance article that he co-wrote with two Federal Reserve Bank economists, Kristopher Gerardi and Paul S. Willen, that the size of a house that someone buys tends to be a good indicator of what their income will be later. “People can, on average, make reasonably good predictions of their future incomes and act on them in sensible ways by buying bigger houses,” Mr. Rosen said.

Indeed, much of the mess in the mortgage market has been because of people borrowing money with loans that they didn’t understand — or betting that housing prices would continue to rise enough that they would be able to refinance their loans before the payments rose. Income overconfidence may have had something to do with it (and high unemployment worsened the problems), but it’s probably not the primary cause.

BOW TO UNKNOWNS This research is all well and good as long as you continue to work. But if you’re buying your first home before you have children, you may feel quite differently about work once you become a parent. And if you do, you may not want a mortgage boxing you in to going back to the office three months after the baby is born.

Bobbie D. Munroe, a financial planner with Fraser Financial in Atlanta, encourages younger clients in this situation to model out their budget, including any proposed mortgage, three ways — with both spouses working full time, one working part time and one staying at home for a few years. She also suggests imagining or even practicing living on one income, to see if it’s truly realistic.

“What people should do is ultimately their own decision,” she said. “But they should do it with eyes wide open.”

Even people who don’t want to have children need to consider this. Besides the obvious possibility of sustained unemployment, what about the need to escape a dying industry or an early midlife crisis that necessitates career change to stave off depression? Even government employees and medical residents who believe that their incomes are set for life ought to consider this possibility.

MAP OUT EXPENSES It stands to reason that anyone tempted to stretch for a house will be inclined to play down the expense of maintaining it. These costs are anything but ancillary, though.

For many years, Dennis G. Stearns, a financial planner in Greensboro, N.C., has been alarmed enough by clients’ unrealistic expectations that he’s maintained a home cost spreadsheet that he shares with clients shopping for houses. He also updates it periodically with aggregate, real-world data based on their subsequent experiences.

Mr. Stearns estimates that owners of a newer home that do some work for themselves but contract major work out to others will pay 3.6 percent of the original purchase price annually for maintenance and 4.5 percent if it’s an older home. So if you own a $400,000 home, your costs will probably hit the five figures each year — and may rise with inflation. These expenses will be another 20 percent or so higher if you live in a severe weather area. He does note, however, that the tax benefits of home ownership can offset half or more of these costs in some areas of the country.

BUY BEST (OR CHEAPEST) All of these caveats have given rise to some unusual strategies. Michael Kalscheur, a financial planner with Castle Wealth Advisors in Indianapolis, suggests buying the dream house you covet (if you can afford it) or an inexpensive starter house but not anything in the middle.

“If people have their heart set on something, inevitably, if they can’t afford what they really want, they buy the next best thing,” he said. “That’s absolutely the worst thing you can do. Not only do you not get what you want, but it sucks you dry.”

Why? Well, if you buy that entry-level home instead of the silver-medal home, you can save a lot more money each month after making the house payment (as long as you’re disciplined) than you would if you were paying a big mortgage toward that next best house. And all of your other housing costs will be lower, too. Then, several years later, you’re in a much better position to buy what you actually want.

STRETCH THE HOUSE Better yet, keep in mind that you don’t ever have to move from that first home — and incur all of the transaction costs associated with selling and buying and moving again.

J. Michael Collins, an assistant professor in the department of consumer science at University of Wisconsin’s School of Human Ecology in Madison, suggests paying less for a home that you can upgrade periodically when your income is stable and your savings or available credit make it possible.

In other words, stretching out your tenure in a home (and the physical boundaries of the home itself) may make more sense than stretching for each successive mortgage in a series of two or more houses.

THE EIGHT-HOUR RULE One rule about all of these rules is that it’s unlikely that every one will apply to every circumstance. Individuals and their income streams are too varied, and real estate markets are themselves unique.

When all else fails, however, you can always fall back on the eight-hour test. Whatever the size of your mortgage, you have to be able to sleep soundly at night. So if an impending loan has you stretching for the Ambien, it’s a pretty good sign that the loan is a bit of a stretch as well.

Information required to draft a Trust

In order to draft the Trust, we require the following information:

1. Name of the Trust/s. There is no restriction on the choice of name of the trust, although it is advisable that you do not utilise your first, maiden and/or surname in the name of your Trust;

2. The following details of the Trustee/s:

2.1 Full Name;
2.2 Identity Number;
2.3 Occupation;
2.4 Relationship to you i.e. friend, accountant, brother, etc.; and
2.5 Residential address.

In respect of a Family and residential Trust we advise that you appoint yourself and your spouse as Trustees along with the independent Trustee (discussed in point 3 below). In the event that you are single we suggest that only yourself, along with the independent Trustee, be appoint Trustees of the Trust.

In respect of the Property Trust, in the event that you are married out of community of property, we advise that you appoint yourself along with the independent Trustee. As a trustee of the trust, you will need to sign surety when registering the bonds. If your spouse is also appointed a trustee then she/he to will need to sign surety which will unnecessarily place both of you at risk.

In respect of a Share Trust we advise that you appoint yourself along with the independent Trustee. In the event however, your spouse is involved with the business, it would then follow that he or she would be appointed a Trustee as well. The aforementioned information would also apply to any Business and/or Asset Trust that you may establish.

3. The independent Trustee. We advise that an independent Trustee be appointed e.g your Auditor, Broker or our offices. Please note, if there are only two trustees on your trust, the independent trustee should be a legal entity in order to comply with the National Credit Act. If you appoint our offices, your trust will then be exempt from the National credit Act. We require the following information in respect the independent Trustee:

3.1 Full Name;
3.2 Identity Number;
3.3 Occupation;
3.4 Relationship to you i.e. friend, accountant, brother, etc.; and
3.5 Residential address.

In the event that you wish our offices to be appointed as the independent Trustee, we advise that a monthly fee of R220,00 (excluding VAT) will be charged per client (irrespective of the amount of trusts that you register).

4. The beneficiaries of the Trust. These are the nominated persons who will benefit from the income capital of the Trust. We require their full names and relationship to yourself.

We suggest following be nominated as beneficiaries:

4.1 Yourself;
4.2 Your spouse (if applicable);
4.3 Any descendant of yourself and your spouse (we advise to not specifically name the children to avoid problems with FICA and related legislation and to simply state ‘your descendents’); and
4.4 Any other trust established by yourself (we again, do not specifically name the trusts).

The aforementioned is only a guideline and you are free to nominate any person/s that you so wish

5. In the event that any Trustee is unable to act as a Trustee, it is advisable to appoint a replacement Trustee who will then manage the trust on your absence (essentially on the death of yourself and your spouse). If your children are over the age of 18, we suggest you nominate them. If they are not then we suggest you nominate a family member until such time as they attain the age of 18 (or older if applicable). We require his/her full name and the relationship to you; and

6. Bank. In order to register the trust, The Master of the High Court requires the bank and branch where you will open a Bank Account for the Trust on registration thereof.


In order to draft your wills, we require the following information:

7. The full name, identity number and residential address of yourself and your spouse (if applicable);

8. Please provide us with the full names of your Executor (the individual who will administer your estate on your death) and his/her relationship to yourself;

8.1 In the event that you are married, we suggest that you appoint your spouse as the Executor of your estate.

9. In the event that your Executor named above, has passed away or is unable to act as an Executor, we suggest that you appoint an alternate Executor, please provide us with his/her full names and relationship to yourself;

10. An amount as determined by the Estate Duties Act (currently R3 500 000,00) is usually left to the Family Trust in order that your estate benefit by way of a reduction in estate duty. Please advise if you wish us to implement this. Further, in the event that you wish to leave any specific item to certain individuals, a description of the items and the full names and relationship to yourself of the beneficiaries will be required. Please note, firearms cannot be bequeathed to the trust. You are therefore required to nominate an individual alternatively instruct your Executor to sell the firearm and the proceeds are then left to the Trust;

11. Please provide us with the full names of the Heir to your estate. This is usually your spouse. Spouses benefit in terms of estate duty if they leave their estate or a portion thereof to one another. If you are not married it is advisable to leave your entire estate to the Trust. Please advise whether you wish us to implement this;

12. In the event that you have minor children please provide us with the full names (and relationship to yourself) of the person that you wish to appoint as their guardian;

13. Please advise as to whether you wish to be buried or cremated (with or without organ donation);

14. Please advise whether you require a living will. This is a document indicating your wish not to be kept alive through artificial means; and

15. Please advise as to your Marriage Regime, if applicable (i.e married in community of property or out, with or without accrual).


The fees (excluding VAT) to implement same will be as follows:

setting up the initial trust R5 950.00 each,
any further trust R5 500.00 each,
Perusal and revamping of current trust R5 950.00 each
which would include all attendances, stamps, registration etc,
wills R500.00 each,

Please note that we require EACH and EVERY point to be addressed before we can draft the documentation. We request that you consider every point carefully as once we have received the information and have drafted the documentation, an extra administration fee of R100,00 (excluding VAT) will be charged should you wish to make any amendments.

Should you have any queries in regards to the above, please do not hesitate to contact our offices, alternatively, please email through the requested details in order that we may attend to the necessary.

Yours faithfully
DELGADO VELOSA KENWORTHY & ASSOCIATES INC.

When lending money doesn't pay - Suze Orman

http://www.oprah.com/article/omagazine/200903_omag_suze_loan

You won't hear me argue against the fact that helping family or friends who are in need is an act of grace. You will, however, hear me argue against lending them money if you can't afford to do so. No matter how wonderful your intentions are or how desperate someone is, you must think twice about loaning money if doing so will imperil your own financial security in any way. Here are four ways to figure out if you can afford to lend a friend a financial hand:

1. You have no credit card debt, your family has an eight-month emergency fund tucked away in a federally insured bank or credit union account, and you are on target with your retirement savings.

2. You can make the loan from extra savings. The last thing you want to do is increase your own debt load to help someone else.

3. You—and your relationship with this person—will be just fine if you are never repaid one penny. You must go into the deal thinking, "I hope to be repaid, but I'll be okay if I am not."

4. Your friend or relative agrees to draw up a simple loan document (for $8 you can download a promissory note from Nolo.com). It should spell out the amount borrowed, when repayment will start, and the interest you will be paid. Yes, you are to collect interest; it's a sign of respect from your borrower.

If you and the potential borrower can't fulfill all these requirements, I don't recommend that you lend them the money. It is not selfish to make choices that protect your financial security; to do otherwise puts you at risk, and no friend or relative would ever wish that on someone they truly love. And if they would, well, they're not much of a friend.

Suze Orman's latest book is her 2009 Action Plan: Keeping Your Money Safe & Sound (Spiegel & Grau).

Knott-Craig's outlook for 2009

Another interesting article written by Alan Knott-Craig (MD iBurst) - to his employees ....

Hi guys, Why am I writing this email? Because I'm getting the impression there are some depressed people walking around. So let's recap:
At the beginning of the year people were panicking about the oil price, inflation, electricity and economic recession. Of those big 4 concerns, 3 have taken care of themselves.

Oil is now below $40 a barrel, almost one Quarter of the price of 4 months ago inflation is not such big deal because oil is cheap nowadays so food & all other costs are falling and .. we haven't had any crazy power outages since February (the Eskom saga is a complete mystery to me - The NEWSPAPERS said it would last 4 years??)

What about the Recession? Well, as it turns out, that was something that deserved panic. Especially if your name is Dick and you run a New York investment bank... Fortunately we don't have any Dick's at iBurst.

After the merry-go-round of bad news at the beginning of the year, capped by the xenophobic attacks it's been quite surreal to watch the "u-turn" executed by those heading for the exit door! It's a bit like watching naïve tourists run into the sea off Camp's Bay, scream in pain, and then race back onto the beach. The water looks so nice.. but don't go in there unless you're an Eskimo! Suddenly foreign shores aren't as attractive when there are no jobs, no credit, and no sunshine so people who left are returning to tell those who haven't left not to go.

Just to put a couple of Financial things in perspective, here is some info on the year-to-date performance of world stock markets (as of 10 Nov):

Iceland -89%
China -64%
Russia -64%
India -48%
Hong Kong -46%
Brazil -40%
Japan -40%
USA -36%
Australia -35%
UK -32%
New Zealand -29%
South Africa -26% ..SA is not so bad is it?

I'd rather be here than in Iceland?? !!

Sunny SA is certainly not immune to the global economic crisis. Our companies are suffering too, which means fewer bonuses and more retrenchments (always a winning recipe for unhappiness). How long will it last? Who knows, but brace yourselves for a tough 2009. The good news is that after every tough time comes good times, so at least we all have something to look forward to!

What is the silver lining for SA? Our interest rates are still high, but will decrease soon to ease the burden on your back pocket. The UK and USA do not have that luxury, their interests rates are already too low to cut further and it hasn't helped them at all yet!

What else? "Mad Bob" can't last forever. When he heads off into the sunset there will be an absolute bonanza of investment and aid flooding into Zimbabwe, and a large chunk of that windfall will be via sunny SA... oh happy days. Who said there were no plusses to having a failed state as a neighbour?

What else? Anyone noticed the cranes everywhere you look? Seen the Gautrain progress? I went down to CT 2 weeks ago, and virtually the entire highway is under construction. Durban has a new Stadium; a bigger harbour AND a new Airport all finishing in the next 18months The unintended consequence of the government procrastination on infrastructure investment over the past 10 years is that now that it's finally underway - just in time to prop up our economy! Gotta love those bureaucrats.

What else? The Soccer World Cup is coming. If we get it right we'll be the hottest spot on the planet - and we'll have a real shout for hosting the Olympics in about 2020.

But don't crack open the champagne just yet, we still have our fair share of challenges. Your average Yank may be swapping his house for a trailer, but at least he's not worried about being shot in the head on the way to his next job interview. If any of you have a relative or friend in the government, please pass on this message, "Crime is out of control and most of our schools and hospitals are in disarray." Don't for a second fool yourself that we can ignore these structural problems and live the rest of our lives in blissful ignorance. We must constantly remind the politicians to do their jobs, but we cannot absolve ourselves of our responsibility to make individual contributions.

It is our business to make this land a success. Report crime, pick up litter, give to the needy, create jobs, look after the children, practice safe sex, drink filter coffee. We've all got a responsibility to make the magic happen, otherwise you'll just end up lying in bed in 50 years time, looking back and saying "What if?"

The time of opportunity is upon us, now it's up to us to seize the day. I've said it before, I'll say it again: Life is not about waiting for storms to pass, it's about learning to dance in the rain.

Looking forward to dancing in 2009
__________________
Peter Carruthers
Your Humble Servant at Warrior Central

www.businesswarriors.co.za

What the market will do in 2009

What do we know about the year ahead?

- Economists are in agreement that inflation is under control and that we will see interest rates drop steadily during 2009. One may differ on the pace at which interest rates will come down, but what is certain is the downward trend.

- The petrol price is on a downward slide and given the recession being experienced by most of the largest economies of the world, demand for fuel will remain low, hence prices should remain low.

- Recent reports indicate that economists are "cautiously optimistic" about the South African economy for 2009. Growth of about a 2% average over the year is projected with a gradual improvement into the second half of the year.

There are four key factors which affect the property market and prices


1. Interest rates – the downward trend is positive.

2. Affordability – buyers will reap the benefits of reduced mortgage payments and lower petrol prices. The growth spiral in food prices also seems to have slowed down.

3. Economic growth – this factor creates jobs and affords people the opportunity to earn income. Whilst the predictions do not indicate that we will see the average 5% growth experienced over the past three years, we are still in positive territory, unlike the economies in the USA and Europe. It is also my view that the preparation for the 2010 World Cup Football extravaganza has assisted in ensuring continued growth in our economy.

4. Sentiment – plays a major role in whether sellers and buyers will venture into the property market and one certainly gets a sense that, after the battering consumers took in 2008, thoughts will be much more positive. The main beneficiaries of dropping prices in 2009 will be the consumer.

What about house prices?

Property prices are determined by demand and supply.

Early in 2008 we experienced a supply surplus i.e. too many homes on the market with too few buyers. This situation was reflected in the significant increase in the length of time a property was on the market before being sold.

Many potential sellers have taken their properties off the market and those that needed to sell have dropped their asking price. In our trading area we have experienced market values drop by as much as 20% depending on the area.

We find ourselves in a situation in January 2009 where the demand/supply ratio is changing. The supply of properties on the market has reduced and our view is that improved sentiment, lower house prices and improved buyer affordability will cause previously wary buyers to enter the market, thus increasing demand. It is also pertinent to note that property developers have also reduced the amount of new stock they introduce to the market for sale.

The one tempering factor here is that South African banks have tightened their lending criteria and in most applications for a mortgage loan, a buyer will need at least a 10% deposit. This can be a significant amount of money but sellers will have the comfort that they are dealing with a qualified and serious buyer.

What does this mean for property prices? A reduction in supply of homes for sale and a steadily increasing demand as buyers come back into the market will result in price stabilisation. It is our view that house prices may have bottomed but we will not see any serious movement up or down over 2009.

Serious sellers and buyers will find the right price between them with the assistance of a good real estate agent.

Just as the local economists are cautiously optimistic about the growth in the economy, we are confident that we will see a steady recovery in the property market over 2009. One must not expect big change within the first quarter but buyers and sellers will enter the market spurred by improved confidence and the knowledge that the property market will continue to be a viable investment avenue within the context of Southern Africa.

Bargain properties for sale

For bargain properties, please click on this link

http://www.aspirelistings.co.za/agentProperty.fst?&searchID=ALLPROPERTY&agentid=SB0880045

Clients will look at offers below the listed price. Properties are for sale for prices well below the market value.

Contact Vania on 079 4855 355 or vania@bondapply.com

www.aspirelistings.co.za

Market expects big rate cut

http://www.fin24.com/articles/default/display_article.aspx?ArticleId=2452060

Johannesburg - South Africa's money market is expecting 300 basis points worth of rate cuts in the current loosening cycle, which would take the repo rate to 9% and reach levels last seen in December 2006. The first cut of 50 basis points came in December last year, with the repo at 12% prior to that decision.

For consumers this would translate into a more palatable 12.5% overdraft rate from a current 15%.

Rates were first hiked in June 2006 to 7.50%, with the total tightening cycle amounting to 500 basis points until December 12 last year.

The repo rose as high as 13.5% in September 2002, before receding to 7% in April 2005, with the current tightening cycle then beginning in June 2006.

"A lot can influence this, but including December, I would say there will be at least 300 basis points as inflation comes down from January to March and growth comes down substantially. There will be room," a senior money market dealer told I-Net Bridge.

According to today's data, the 12-month negotiable certificate of deposit (NCD) has weakened just a little from levels seen late last year, but at a rate of 10.000% is seen "close to the top" ahead of the February rates meeting. On December 22, this one-year rate was at 9.700%, but had reached to a worst of 10.025% in the interim period as well.

The short end of the money market is unchanged at 11.350% from the level seen in late December.

"The short end should come down following a 50 basis point cut and there may be a bit of discounting into the lead-up to the meeting," said the dealer.

While consumer inflation in November was reported at a slightly worse-than-expected 12.1%, the new methodology from February and the drying up of demand is expected to push inflation down quicker than expected. Added to this is that the country's growth numbers are expected to be a lot lower, a fact currently being reflected by manufacturing growth at a concerning ?12% on a seasonally adjusted and annualised basis - the worst in over ten years.

The combination of these two factors - low inflation and low growth - should see to the cuts to come.

South Africa's Monetary Policy Committee decides on interest rates again on February 12.

- I-Net Bridge

Five ways to thrive in the current economic environment

It's not as simple as cutting costs: Some advice the world's leading computer networking company is taking to heart...

Hilton Tarrant
04 December 2008 08:00

Peter Ford, emerging markets head of service provider at global giant Cisco's consultancy division sees five strategies that companies should adopt to see them through and grow out of the current downturn.

Ford works at Cisco's Internet Solutions Business Group, an in-house strategic consulting arm that provides advice to partners and clients. The consulting arm aims to help companies become more competitive through the deployment of technology; it focuses on trends and market transitions it sees to help guide strategic decisions.

It's one thing giving guidance, but another actually heeding it. Ford says that in the current economic climate, Cisco as an organisation is "incredibly focussed" on these five things (which he calls "five to thrive"). He points to other things that need to take a backseat, and have. CEO John Chambers has often spoken about the need for both "core" and "context" but, in tough times, Ford says there needs to be a "ruthless focus" on the core.

1. Save to invest
"This is different to just cost-cutting," Ford says. The temptation, he adds, is to simply strip out as many costs as you can and boost the bottom line. This is unsustainable, and while it may please shareholders this quarter or next, it's hardly going to help once all your costs are stripped down. Rather, Ford says companies should use those saved costs to invest. Companies should be "unlocking employee potential", especially with the now escalating (rather counter-intuitively) war for talent.

2. Retain and motivate
Companies need to retain and motivate their superstars. "Collaborative tools have a role to play," Ford says. Work has changed into something that's a lot more fluid, he says. If you make it easier for employees to work remotely or while mobile, you not only drive productivity but you save on transport costs (and time), which employees appreciate. Motivation goes further than "just salary. You need to look more broadly than that", he says.

3. Collaborate with partners
Historically, Ford says, partners have always been seen as external. Suppliers and other role players were never really involved in decision-making, even when it impacted them. "Now," he adds, "they play and need to play a much more active role in the ecosystem." Companies can work on high-levels of customisation of goods and services together with their partners, and also reduce costs. There could be synergies and innovation opportunities that neither party is aware of, if they continue to work in a traditional supplier/customer paradigm.

4. Be the first out the other side
It seems obvious, but what tends to happen in an uncertain economic climate or in a downturn is that companies "batten down the hatches" and focus only on surviving, says Ford. When the cycle turns, there's a significant lag before companies start expanding and really innovating. "Here's an opportunity to distance yourself from the competition," he says. Cisco, for example, has a red team and a green team internally. The red team is focused on being cautious and conservative in decision-making and operations, obviously necessary in a downturn. But, the green team is still active, looking aggressively for growth and expansion opportunities. When we turn the corner, you'll be agile and these kinds of decisions and strategies don't have to be started from scratch.

5. Transition to a borderless enterprise
Cisco has embedded the idea of collaboration in almost everything it does. Chambers has abandoned the idea of a command and control system at the company. By using collaboration, the company is able to focus on more than the three to five priorities it used to be able to. Now with boards and councils, it can manage 23-25 priorities effectively. The crux, he says, is that companies "have to believe" in collaboration starting at the top. Breaking down borders internally means more effective interactions with customers. Teams are structured around the needs of a customer - they only see one team. In that team, there'd be a sales function, a support function, an admin function, instead of the customer being passed around between "departments" like a hot potato.

* Hilton Tarrant contributes weekly to "Broadband" a column on Moneyweb covering the ICT sector in South Africa. He chatted to Peter Ford during Cisco Live! at the Sandton Convention Centre on Wednesday...