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...
Thursday, December 4, 2008
Tuesday, December 2, 2008
Properties in Possession
Standard Bank's list http://www.standardbank.co.za/SBIC/Frontdoor_02_02/0,2454,176061_8796173_0,00.html
Email: hlpipmarketing@standardbank.co.za
0860 103 869
Fax no : 011 227 4512
Standard Bank's Sales in Execution http://www.standardbank.co.za/SBIC/Frontdoor_02_02/0,2454,176061_8796171_0,00.html
FNB PIP List https://www.fnb.co.za/personal/borrow/easyborrowing/pip.html
For ABSA 's list, you have to phone 0861 221 221 or email absapip@absa.co.za. You can go to the www.property24.com website and search under 'repo's' to see ABSA stock, but you're usually too late going that route.
Nedbank is the least organised on this. You have to call 011 6675247 and talk nicely to them about faxing the next monthly list as soon as it is ready.
email: steves.websites@gmail.com
web: http://www.propertyforsalecapetown.co.za
Email: hlpipmarketing@standardbank.co.za
0860 103 869
Fax no : 011 227 4512
Standard Bank's Sales in Execution http://www.standardbank.co.za/SBIC/Frontdoor_02_02/0,2454,176061_8796171_0,00.html
FNB PIP List https://www.fnb.co.za/personal/borrow/easyborrowing/pip.html
For ABSA 's list, you have to phone 0861 221 221 or email absapip@absa.co.za. You can go to the www.property24.com website and search under 'repo's' to see ABSA stock, but you're usually too late going that route.
Nedbank is the least organised on this. You have to call 011 6675247 and talk nicely to them about faxing the next monthly list as soon as it is ready.
email: steves.websites@gmail.com
web: http://www.propertyforsalecapetown.co.za
Thursday, November 6, 2008
Property prices continue to decline
Property prices have continued to fall in a depressed local market, with many lower-income owners selling their homes because of financial strain, a scenario economists expect to worsen before turning closer to 2010.
Economists say that lowered inflation pressure could mean we are at the peak of the interest rate cycle and can expect interest rate cuts in April next year, followed by an upward swing in the property market.
However, the effects of the global economic crisis mean debt risk has shifted to the economic slowdown, and banks' cautious lending practices will remain for some time.
FNB's house price index released yesterday revealed a real (ie adjusted for inflation) year-on-year decline of 9,6 percent. The average house price is now R743 517.
FNB property strategist John Loos said: "The lower-priced freehold two-bedroom and less sub-segment appears to be the weakest area of the market, with average price deflation of -11,6 percent in the third quarter year-on-year, possibly reflecting more severe financial strain among lower-income households."
According to agents working in lower-income areas, up to 40 percent of home owners are selling to downgrade.
Lower-income owners have lower job prospects and less room to manoeuvre in their budgets, knocked by spiralling food and transport costs, the main drivers of overall inflation. CPIX inflation peaked in August at 13,6 percent before falling to 13 percent in September.
A decline in first-time and buy-to-let buyers may also have negatively impacted the two-bedroom and less segment.
However, sellers in the middle and upper segments are holding out on selling in a market in which 88 percent are not receiving their asking price.
The average time on the market in the third quarter rose dramatically from 14 weeks and six days to almost five months.
"Despite horror stories of a surge in bad mortgage debt, repossessions and distressed sales, and the levels have risen sharply, the reality is that the majority of formal South African home owners are not in financial trouble, and many potential sellers would choose not to sell at present in a very depressed market.
"Even among those selling in this thin market, agents estimate that 26 percent are selling because of financial stress, a significant number, but still the minority," Loos said.
On average, the most common reason for selling was because of financial pressure, followed by emigration (20 percent) and downscaling as a result of family restructuring (13 percent).
Cycle
Standard Bank's median house price index recorded a decline of 2,5 percent year-on-year in October, following a rise of 3,6 percent in September.
The median property price transacted with the bank for the period was R580 000. The bank expected the negative growth to continue over the short to medium term.
"South Africa's intensifying economic slowdown, and the positive developments on the inflation front for early next year, suggest that we could be at a peak in the monetary policy tightening cycle," it said.
"The residential property market is expected to improve meaningfully only once fundamental drivers, such as disposable income and interest rates, improve and households feel more comfortable with their debt levels. This is unlikely to happen before late 2009 or early 2010," the report said.
It said Standard Bank expected headline CPI inflation to average 11,7 percent this year and 7,7 percent in 2009 with below-6 percent readings in September 2010.
Loos said First Rand's view was that South Africa could keep out of recession, growing positively, albeit more slowly, but it was difficult to gauge whether or not the credit crunch was ending.
lyse.comins@inl.co.za
o This article was originally published on page 2 of The Mercury on November 05, 2008
Economists say that lowered inflation pressure could mean we are at the peak of the interest rate cycle and can expect interest rate cuts in April next year, followed by an upward swing in the property market.
However, the effects of the global economic crisis mean debt risk has shifted to the economic slowdown, and banks' cautious lending practices will remain for some time.
FNB's house price index released yesterday revealed a real (ie adjusted for inflation) year-on-year decline of 9,6 percent. The average house price is now R743 517.
FNB property strategist John Loos said: "The lower-priced freehold two-bedroom and less sub-segment appears to be the weakest area of the market, with average price deflation of -11,6 percent in the third quarter year-on-year, possibly reflecting more severe financial strain among lower-income households."
According to agents working in lower-income areas, up to 40 percent of home owners are selling to downgrade.
Lower-income owners have lower job prospects and less room to manoeuvre in their budgets, knocked by spiralling food and transport costs, the main drivers of overall inflation. CPIX inflation peaked in August at 13,6 percent before falling to 13 percent in September.
A decline in first-time and buy-to-let buyers may also have negatively impacted the two-bedroom and less segment.
However, sellers in the middle and upper segments are holding out on selling in a market in which 88 percent are not receiving their asking price.
The average time on the market in the third quarter rose dramatically from 14 weeks and six days to almost five months.
"Despite horror stories of a surge in bad mortgage debt, repossessions and distressed sales, and the levels have risen sharply, the reality is that the majority of formal South African home owners are not in financial trouble, and many potential sellers would choose not to sell at present in a very depressed market.
"Even among those selling in this thin market, agents estimate that 26 percent are selling because of financial stress, a significant number, but still the minority," Loos said.
On average, the most common reason for selling was because of financial pressure, followed by emigration (20 percent) and downscaling as a result of family restructuring (13 percent).
Cycle
Standard Bank's median house price index recorded a decline of 2,5 percent year-on-year in October, following a rise of 3,6 percent in September.
The median property price transacted with the bank for the period was R580 000. The bank expected the negative growth to continue over the short to medium term.
"South Africa's intensifying economic slowdown, and the positive developments on the inflation front for early next year, suggest that we could be at a peak in the monetary policy tightening cycle," it said.
"The residential property market is expected to improve meaningfully only once fundamental drivers, such as disposable income and interest rates, improve and households feel more comfortable with their debt levels. This is unlikely to happen before late 2009 or early 2010," the report said.
It said Standard Bank expected headline CPI inflation to average 11,7 percent this year and 7,7 percent in 2009 with below-6 percent readings in September 2010.
Loos said First Rand's view was that South Africa could keep out of recession, growing positively, albeit more slowly, but it was difficult to gauge whether or not the credit crunch was ending.
lyse.comins@inl.co.za
o This article was originally published on page 2 of The Mercury on November 05, 2008
Friday, October 31, 2008
Buying property as an Investment
Buying Property as an Investment
23 Oct 2008
Article by Property Power
Over the last few years, many people in South Africa have turned to property as an investment class and entered the property market as investors. Like any other investment, you need to understand how the investment works before you decide to invest your hard earned money. It would be foolish to rush into an investment without understanding that investment.
Bear in mind that you are interested in:
Wealth creation; and
Wealth protection.
In other words, what we are saying is that once you have created wealth, you need to also protect it and sustain it. In addition, you may have other people who depend upon you and you need to worry about their futures as well. There are so many products and financial services out there. We all need help to get through this minefield and hence the need for the services of a financial planner, those with experience in growing wealth.
It is important to remember that...
Your financial planning is as much your responsibility as it is your financial planner's that is assisting you. Do not wait for your advisor to call you; take the initiative and be pro-active. Your circumstances may change and as a result it may become necessary to modify your portfolio.
Things that may happen include:
Having a child
Starting a new business
Getting married
Getting divorced
Being involved in an accident
Getting a new job
Paying off your debt
Property as an Investment
The purchase of your home is probably the largest purchase that you will ever make. The same care that you take when buying a home should go into the property that you wish to purchase as an investment. Perhaps even more so, because of the financial implications of the property that is bought as an investment. It is important that you are not pressurised by estate agents, your spouse, yourself or anyone else. You need to take your time over your investment decision and consider all of your options. The principles of investing in property is a vast subject area. We aim to introduce you to some important concepts in this article and to point out certain issues to keep in mind with respect to the purchase of investment property.
Costs excluded from the purchase price
It is important not to forget that there are significant costs that you will incur when buying or selling investment property. These costs have to be taken into account when buying a property as an investment, because they will affect the return on your investment. These costs are:
The purchase price.
Transfer duty - this is a tax that is paid to the government on the transfer of every property from one person to another as a result of the alienation of property, which is defined as a sale, donation or exchange of immovable property.
Bond registration costs - most people require the assistance of a bank to purchase their property. The bank will loan you money and in return you will have to provide the bank with some form of security, which is usually a bond registered over the property. The bond allows the bank to take the property away in the event of default. The bond registration will also be done by a conveyancer (not necessarily the same conveyancer doing the transfer) and the cost is also determined by a tariff.
Property transfer costs - this is different to the transfer duty that needs to be paid. In order to effect the transfer, you will need an attorney who is also a conveyancer. This is a specially qualified attorney who is allowed to attend to the transfer of property. The amount that you will pay is set out in a tariff guideline and varies with the value of the property.
Miscellaneous costs – people often forget to add up all the other costs, such as, levies, new carpets and curtains and various little maintenance jobs that may need to be completed before a tenant can move in.
Monthly costs of ownership – remember that you also have your monthly costs to pay, such as, rates and taxes, levies, water and electricity, home loan charges and administration fees, homeowners and loan protection insurance, household insurance, and so on.
Estate agents Commission – when you sell.
Capital gains tax - incurred when selling at a profit.
Financial Aspects
One of the most important aspects of purchasing property as an investment is the financial aspect of the transaction. Potential investors will often need to borrow money from a bank in order to finance the purchase of the property. The amount of debt that is required is also called the level of gearing. The higher the level of gearing, the greater the risk of financial distress should you lose your tenant or if interest rates go up. The advantage of gearing is that the interest that you are paying is tax deductible and therefore makes the investment more tax efficient.
You need to think about the following questions and issues before you purchase your investment property:
What is the return that I will be getting? – you need to determine what rental you will reasonably be able to charge and then you can calculate your gross yield from the property. The gross yield is calculated by taking the annual gross rental and dividing it by the price that you pay for the property. Compare the yield that you will earn with the interest rate that you will be able to get if your money was in the bank. Bear in mind that a holiday home will not generate a return if you do not want to let it out. Generally, holiday homes are not good investments as they stand empty for most of the year and are not able to generate any income.
What if I lose the tenant or interest rates increase? – can you afford to pay the bond as well as all the other expenses, like rates and taxes or the levy, if your tenant moves out and you cannot find a new tenant for a month or two? Will you be able to afford the bond repayments if interest rates go up by 2 or 3 percent? This is very important for you to work out as it may severely impact upon your cash flow.
Will the property produce positive cash flow? – there are many people who advocate using as much debt as possible when buying investment property. Although this will increase the amount of interest that you are paying and therefore reduce your taxable income, it does increase the risk of the investment for the reasons explained above. Ultimately, you want the property to produce positive cash flow for you. This means that you eventually want the property to be providing you with income, especially as you get closer to retirement. A property should be purchased because it will make you money, not save you tax. It is also pointless getting into a lot of debt to buy a property because you hope that it will increase in value. The property’s value may not increase the way you thought it would or at the same rate as might have expected.
Are you prepared to sell the property if you need to? – you must have an exit strategy if you need to get out of the investment. You cannot afford to be sentimental about the property and you must be prepared to sell it if the circumstances dictate that the time has come to move on.
How many properties can I afford to buy? – based upon the manner in which you have financed the purchase of your first investment property, how many properties could you afford to purchase? It is easy to get caught up with the excitement of buying investment properties, but it must be affordable and you need to ensure that you do not get into financial difficulty.
Have you done all your research? – you must do your research correctly and check that all of your facts and figures are correct. You need to think carefully about your intended property investment. We are all aware that property prices have risen tremendously and this means that the returns that you will be able to achieve are not as good as they were, say five years ago. This means that the property will probably not produce positive cash flow initially and you may therefore have to be subsidising your investment from your own pocket.
Are you prepared to manage your investment? – any investment needs to be properly managed and property is no exception. The question that you need to think about is whether or not you want to manage the property yourself or appoint a rental agent to look after the property for you. It can be a great burden to look after the property yourself and deal with your tenant directly. A rental agent can be very useful to use and it relieves you of a significant amount of stress.
As mentioned above, any investment needs to be correctly managed. We strongly advise you to obtain professional advice before committing your funds to any investment and you must be aware that you need to assess the performance of your investment on an annual basis. It is also important to educate yourself about the advantages and disadvantages of any investment before you spend any money.
23 Oct 2008
Article by Property Power
Over the last few years, many people in South Africa have turned to property as an investment class and entered the property market as investors. Like any other investment, you need to understand how the investment works before you decide to invest your hard earned money. It would be foolish to rush into an investment without understanding that investment.
Bear in mind that you are interested in:
Wealth creation; and
Wealth protection.
In other words, what we are saying is that once you have created wealth, you need to also protect it and sustain it. In addition, you may have other people who depend upon you and you need to worry about their futures as well. There are so many products and financial services out there. We all need help to get through this minefield and hence the need for the services of a financial planner, those with experience in growing wealth.
It is important to remember that...
Your financial planning is as much your responsibility as it is your financial planner's that is assisting you. Do not wait for your advisor to call you; take the initiative and be pro-active. Your circumstances may change and as a result it may become necessary to modify your portfolio.
Things that may happen include:
Having a child
Starting a new business
Getting married
Getting divorced
Being involved in an accident
Getting a new job
Paying off your debt
Property as an Investment
The purchase of your home is probably the largest purchase that you will ever make. The same care that you take when buying a home should go into the property that you wish to purchase as an investment. Perhaps even more so, because of the financial implications of the property that is bought as an investment. It is important that you are not pressurised by estate agents, your spouse, yourself or anyone else. You need to take your time over your investment decision and consider all of your options. The principles of investing in property is a vast subject area. We aim to introduce you to some important concepts in this article and to point out certain issues to keep in mind with respect to the purchase of investment property.
Costs excluded from the purchase price
It is important not to forget that there are significant costs that you will incur when buying or selling investment property. These costs have to be taken into account when buying a property as an investment, because they will affect the return on your investment. These costs are:
The purchase price.
Transfer duty - this is a tax that is paid to the government on the transfer of every property from one person to another as a result of the alienation of property, which is defined as a sale, donation or exchange of immovable property.
Bond registration costs - most people require the assistance of a bank to purchase their property. The bank will loan you money and in return you will have to provide the bank with some form of security, which is usually a bond registered over the property. The bond allows the bank to take the property away in the event of default. The bond registration will also be done by a conveyancer (not necessarily the same conveyancer doing the transfer) and the cost is also determined by a tariff.
Property transfer costs - this is different to the transfer duty that needs to be paid. In order to effect the transfer, you will need an attorney who is also a conveyancer. This is a specially qualified attorney who is allowed to attend to the transfer of property. The amount that you will pay is set out in a tariff guideline and varies with the value of the property.
Miscellaneous costs – people often forget to add up all the other costs, such as, levies, new carpets and curtains and various little maintenance jobs that may need to be completed before a tenant can move in.
Monthly costs of ownership – remember that you also have your monthly costs to pay, such as, rates and taxes, levies, water and electricity, home loan charges and administration fees, homeowners and loan protection insurance, household insurance, and so on.
Estate agents Commission – when you sell.
Capital gains tax - incurred when selling at a profit.
Financial Aspects
One of the most important aspects of purchasing property as an investment is the financial aspect of the transaction. Potential investors will often need to borrow money from a bank in order to finance the purchase of the property. The amount of debt that is required is also called the level of gearing. The higher the level of gearing, the greater the risk of financial distress should you lose your tenant or if interest rates go up. The advantage of gearing is that the interest that you are paying is tax deductible and therefore makes the investment more tax efficient.
You need to think about the following questions and issues before you purchase your investment property:
What is the return that I will be getting? – you need to determine what rental you will reasonably be able to charge and then you can calculate your gross yield from the property. The gross yield is calculated by taking the annual gross rental and dividing it by the price that you pay for the property. Compare the yield that you will earn with the interest rate that you will be able to get if your money was in the bank. Bear in mind that a holiday home will not generate a return if you do not want to let it out. Generally, holiday homes are not good investments as they stand empty for most of the year and are not able to generate any income.
What if I lose the tenant or interest rates increase? – can you afford to pay the bond as well as all the other expenses, like rates and taxes or the levy, if your tenant moves out and you cannot find a new tenant for a month or two? Will you be able to afford the bond repayments if interest rates go up by 2 or 3 percent? This is very important for you to work out as it may severely impact upon your cash flow.
Will the property produce positive cash flow? – there are many people who advocate using as much debt as possible when buying investment property. Although this will increase the amount of interest that you are paying and therefore reduce your taxable income, it does increase the risk of the investment for the reasons explained above. Ultimately, you want the property to produce positive cash flow for you. This means that you eventually want the property to be providing you with income, especially as you get closer to retirement. A property should be purchased because it will make you money, not save you tax. It is also pointless getting into a lot of debt to buy a property because you hope that it will increase in value. The property’s value may not increase the way you thought it would or at the same rate as might have expected.
Are you prepared to sell the property if you need to? – you must have an exit strategy if you need to get out of the investment. You cannot afford to be sentimental about the property and you must be prepared to sell it if the circumstances dictate that the time has come to move on.
How many properties can I afford to buy? – based upon the manner in which you have financed the purchase of your first investment property, how many properties could you afford to purchase? It is easy to get caught up with the excitement of buying investment properties, but it must be affordable and you need to ensure that you do not get into financial difficulty.
Have you done all your research? – you must do your research correctly and check that all of your facts and figures are correct. You need to think carefully about your intended property investment. We are all aware that property prices have risen tremendously and this means that the returns that you will be able to achieve are not as good as they were, say five years ago. This means that the property will probably not produce positive cash flow initially and you may therefore have to be subsidising your investment from your own pocket.
Are you prepared to manage your investment? – any investment needs to be properly managed and property is no exception. The question that you need to think about is whether or not you want to manage the property yourself or appoint a rental agent to look after the property for you. It can be a great burden to look after the property yourself and deal with your tenant directly. A rental agent can be very useful to use and it relieves you of a significant amount of stress.
As mentioned above, any investment needs to be correctly managed. We strongly advise you to obtain professional advice before committing your funds to any investment and you must be aware that you need to assess the performance of your investment on an annual basis. It is also important to educate yourself about the advantages and disadvantages of any investment before you spend any money.
Monday, October 27, 2008
Rand will claw back - Manuel
http://www.thetimes.co.za/Business/BusinessTimes/Article1.aspx?id=870399
Minister believes fear — not reality — is driving volatility, writes Tamlyn Stewart. Minister of Finance Trevor Manuel told Business Times on Friday that the huge swings in exchange rates were “worrisome”.
“I think we’re in serious overshoot territory now,” said Manuel. “It appears to me that there is still the close-out of positions and, as always happens in these circumstances, these foreign exchange markets overshoot. They overshoot very radically and then they claw back,” he said.
Asked how long the recovery would take, Manuel said: “The problem is I can’t answer that question because there are just so many ideas in play at the moment all over the world.”
The rand did regain some ground on Friday to trade at around R10.85 to the US dollar late on Friday evening, after a dismal week that saw the local currency sink to its worst levels since 2002.
Manuel referred to December 2001 when the rand touched R13.89 to the dollar: “Its traverse up out of that trough was probably faster than the route down. I think over the past 15 years you would find those kinds of movements and during the period we’re living through there’s likely to be quite a bit of that.
“Look at the intra-day highs and lows on the Dow. It can’t be rational movements that drive it through a thousand points in a single trading day,” he said.
Markets around the world plunged on Friday as investors sold stocks in a panic over fears of a global recession.
“Fear is the key, and I think that arises from circumstances where hedge funds have operated in a highly leveraged world with highly leveraged capital and they need to close out positions,” Manuel said.
“These oscillations are going to be there because it’s not informed by reality.”
Stanlib portfolio manager Hlelo Giyose said of the rand’s dismal week: “What has happened is that the world associates South Africa with commodity prices, and if commodity prices go down it means South Africa will have a tough time and its growth rate will suffer.
“But mining contributes about 6% to GDP, so to overly punish South Africa because of commodity prices is a thing of panic and short-sightedness.”
The battered rand and the global credit crisis will make it far more difficult for Eskom to raise the R340-billion it needs to finance its infrastructure build.
But Manuel said Eskom was already exploring financing options. “Eskom, for instance, has been talking to the African Development Bank and the World Bank with us. Those discussions have started,” he said.
Despite previous reluctance to source capital from the World Bank, the minister of finance said Eskom was an “exception”.
“I think in many respects what happens with Eskom is an exception — it is a big number; we need to do it.”
However, there are still concerns about the long lead times before World Bank loans become accessible. Manuel said R60-billion from government would buy Eskom time, but discussions had to start now.
“I’d rather have loans approved permitting draw-downs at short notice. ”
He said issues on the table in respect of World Bank loans were: “ Can we deal with the exchange rate risk, and can we borrow at a rate that is competitive with the rate at which we’d be able to borrow in capital markets?
“For many years we had the luxury of choice. That luxury has gone.”
Manuel said the admission by former chairman of the US Federal Reserve Alan Greenspan “that he may have misread the situation, misunderstood what was happening” was significant.
“When Alan Greenspan said in Congress on Thursday that financial markets have to be regulated, the scale of the change is actually quite phenomenal.
“ The next few months is likely to be a huge period of reappraisal of what went wrong, what needs to go right, and what the mechanisms are going to be to resolve some of the issues.
“Part of the message of the present to policymakers is that somehow we need to manage this so these polar extremes don’t arise, because it’s that that makes decision-making difficult.”
He noted that there had been more financial crises in the last 20 years than ever before.
“Many of them have tended to be in the developing world, now this is G7 stuff. (The G7 is the group of wealthy countries.)
“The sense I have about the future is that there’s no decoupling possible; I think countries are going to be locked into a globalised world.”
Minister believes fear — not reality — is driving volatility, writes Tamlyn Stewart. Minister of Finance Trevor Manuel told Business Times on Friday that the huge swings in exchange rates were “worrisome”.
“I think we’re in serious overshoot territory now,” said Manuel. “It appears to me that there is still the close-out of positions and, as always happens in these circumstances, these foreign exchange markets overshoot. They overshoot very radically and then they claw back,” he said.
Asked how long the recovery would take, Manuel said: “The problem is I can’t answer that question because there are just so many ideas in play at the moment all over the world.”
The rand did regain some ground on Friday to trade at around R10.85 to the US dollar late on Friday evening, after a dismal week that saw the local currency sink to its worst levels since 2002.
Manuel referred to December 2001 when the rand touched R13.89 to the dollar: “Its traverse up out of that trough was probably faster than the route down. I think over the past 15 years you would find those kinds of movements and during the period we’re living through there’s likely to be quite a bit of that.
“Look at the intra-day highs and lows on the Dow. It can’t be rational movements that drive it through a thousand points in a single trading day,” he said.
Markets around the world plunged on Friday as investors sold stocks in a panic over fears of a global recession.
“Fear is the key, and I think that arises from circumstances where hedge funds have operated in a highly leveraged world with highly leveraged capital and they need to close out positions,” Manuel said.
“These oscillations are going to be there because it’s not informed by reality.”
Stanlib portfolio manager Hlelo Giyose said of the rand’s dismal week: “What has happened is that the world associates South Africa with commodity prices, and if commodity prices go down it means South Africa will have a tough time and its growth rate will suffer.
“But mining contributes about 6% to GDP, so to overly punish South Africa because of commodity prices is a thing of panic and short-sightedness.”
The battered rand and the global credit crisis will make it far more difficult for Eskom to raise the R340-billion it needs to finance its infrastructure build.
But Manuel said Eskom was already exploring financing options. “Eskom, for instance, has been talking to the African Development Bank and the World Bank with us. Those discussions have started,” he said.
Despite previous reluctance to source capital from the World Bank, the minister of finance said Eskom was an “exception”.
“I think in many respects what happens with Eskom is an exception — it is a big number; we need to do it.”
However, there are still concerns about the long lead times before World Bank loans become accessible. Manuel said R60-billion from government would buy Eskom time, but discussions had to start now.
“I’d rather have loans approved permitting draw-downs at short notice. ”
He said issues on the table in respect of World Bank loans were: “ Can we deal with the exchange rate risk, and can we borrow at a rate that is competitive with the rate at which we’d be able to borrow in capital markets?
“For many years we had the luxury of choice. That luxury has gone.”
Manuel said the admission by former chairman of the US Federal Reserve Alan Greenspan “that he may have misread the situation, misunderstood what was happening” was significant.
“When Alan Greenspan said in Congress on Thursday that financial markets have to be regulated, the scale of the change is actually quite phenomenal.
“ The next few months is likely to be a huge period of reappraisal of what went wrong, what needs to go right, and what the mechanisms are going to be to resolve some of the issues.
“Part of the message of the present to policymakers is that somehow we need to manage this so these polar extremes don’t arise, because it’s that that makes decision-making difficult.”
He noted that there had been more financial crises in the last 20 years than ever before.
“Many of them have tended to be in the developing world, now this is G7 stuff. (The G7 is the group of wealthy countries.)
“The sense I have about the future is that there’s no decoupling possible; I think countries are going to be locked into a globalised world.”
Friday, October 24, 2008
6 easy steps to finding the right life insurance
1. Work out how much life cover you actually need
Firstly you need to consider how much you owe your creditors. Should you pass away, is there anyone who will come knocking at your door, demanding a fist full of cash? Secondly, if you are the primary breadwinner, will there be sufficient capital to provide income for your dependants? Finally, you need to consider the hidden expenses like capital gains tax and estate duty, which become applicable on your passing.
2. Go shopping
Once you have determined how much life cover you actually require, its time to shop around.
We suggest going to one reliable source for all quotes. Using one source will mean that all variables (premium patterns, guarantee terms, benefit structure, etc) will be taken into account. In addition, using a single independent source, such as an independent website like ThinkMoney.co.za, a broker or financial planner, ensures that you will be able to compare apples with apples when assessing the various quotes.
3. Don’t buy a product unless you’ve compared it to something else in the market
Certain brokers and advisors only supply information relating to offerings from one company. This is not a true reflection of what is available in the market so insist on two or three quotes from different organisations in order to truly compare.
4. Never buy a life insurance product based purely on price
Cheap cover is not necessarily good comprehensive cover. You want the best deal, but you should never sacrifice the benefits for price.
5. Be aware of life insurance policies that waive medical underwriting
It is important to note that when you take life cover with no medical test, the underwriters may not pay out on death due to non-disclosure of a serious illness.
Although the conventional route of having the tests takes a little longer, it is still the safest choice to ensure a payout on death. Also, disclose all health related issues to the underwriters on application of your cover and let them make a decision based on all the information at hand. By following this route, there should not be any dispute when it comes to the policy payout.
6. Check the terms and conditions before you buy
This is a factor that is so often ignored. Remember that an insurance policy is a contract between the insured (you) and the insurer. Every contract comes with a set of rules by which each party needs to abide. You must take the time to understand what you are buying before you buy it.
Firstly you need to consider how much you owe your creditors. Should you pass away, is there anyone who will come knocking at your door, demanding a fist full of cash? Secondly, if you are the primary breadwinner, will there be sufficient capital to provide income for your dependants? Finally, you need to consider the hidden expenses like capital gains tax and estate duty, which become applicable on your passing.
2. Go shopping
Once you have determined how much life cover you actually require, its time to shop around.
We suggest going to one reliable source for all quotes. Using one source will mean that all variables (premium patterns, guarantee terms, benefit structure, etc) will be taken into account. In addition, using a single independent source, such as an independent website like ThinkMoney.co.za, a broker or financial planner, ensures that you will be able to compare apples with apples when assessing the various quotes.
3. Don’t buy a product unless you’ve compared it to something else in the market
Certain brokers and advisors only supply information relating to offerings from one company. This is not a true reflection of what is available in the market so insist on two or three quotes from different organisations in order to truly compare.
4. Never buy a life insurance product based purely on price
Cheap cover is not necessarily good comprehensive cover. You want the best deal, but you should never sacrifice the benefits for price.
5. Be aware of life insurance policies that waive medical underwriting
It is important to note that when you take life cover with no medical test, the underwriters may not pay out on death due to non-disclosure of a serious illness.
Although the conventional route of having the tests takes a little longer, it is still the safest choice to ensure a payout on death. Also, disclose all health related issues to the underwriters on application of your cover and let them make a decision based on all the information at hand. By following this route, there should not be any dispute when it comes to the policy payout.
6. Check the terms and conditions before you buy
This is a factor that is so often ignored. Remember that an insurance policy is a contract between the insured (you) and the insurer. Every contract comes with a set of rules by which each party needs to abide. You must take the time to understand what you are buying before you buy it.
Thursday, October 16, 2008
Shock for ABSA Home Loan clients
Shock for Absa home loan clients
Oct 16 2008 08:47 Elma Kloppers
Johannesburg - Of Absa's home loan clients, 130 000 or less than 17% will be affected by the decision to restrict access to the equity (own capital) in home loans.
The equity in a home loan is the difference between the outstanding bond amount and the original loan.
The decision resulted in shocked Absa home loan clients on Wednesday threatening to either move their bonds to other banks or withdraw the equity from their home loan accounts.
Responding to the uproar, Gavin Opperman, Absa's group chief executive for securitised loans in the retail division, explained that the economic climate left the bank with no choice other than to tighten its lending criteria in line with the regulations of the National Credit Act.
He said Absa's decision applies only to customers who use the 261 Flexi facility. Those using the 264 Flexi facility for access to capital will still at all times have access to it. These are clients who have paid a lump sum into their bond account.
Those affected will include clients who merely pay their instalments each month, but now need cash and want to draw some of the capital that they have built up via the 261 Flexi facility. In such cases clients will now have to apply and, in terms of Credit Act criteria, have their ability to repay the debt assessed.
Opperman says where the risk comes in is when these clients begin to nibble away at the money they have already paid off, while the term of the loan has not been extended. This means that their monthly bond instalments will increase because interest rates are high, and clients will consequently fall deeper into debt.
Those who have paid more than their monthly instalments will also in future also have to apply for access to their capital.
They will not, however, have to comply with the credit criteria. Opperman explains that the reason for the decision is that the bank is attempting to reduce future risk for both clients and itself, with all indications being that the housing market is in for an exceptionally difficult 2009.
The current cycle will continue for much longer than expected and it's better to take these prudent steps now, he adds.
- Sake24
Oct 16 2008 08:47 Elma Kloppers
Johannesburg - Of Absa's home loan clients, 130 000 or less than 17% will be affected by the decision to restrict access to the equity (own capital) in home loans.
The equity in a home loan is the difference between the outstanding bond amount and the original loan.
The decision resulted in shocked Absa home loan clients on Wednesday threatening to either move their bonds to other banks or withdraw the equity from their home loan accounts.
Responding to the uproar, Gavin Opperman, Absa's group chief executive for securitised loans in the retail division, explained that the economic climate left the bank with no choice other than to tighten its lending criteria in line with the regulations of the National Credit Act.
He said Absa's decision applies only to customers who use the 261 Flexi facility. Those using the 264 Flexi facility for access to capital will still at all times have access to it. These are clients who have paid a lump sum into their bond account.
Those affected will include clients who merely pay their instalments each month, but now need cash and want to draw some of the capital that they have built up via the 261 Flexi facility. In such cases clients will now have to apply and, in terms of Credit Act criteria, have their ability to repay the debt assessed.
Opperman says where the risk comes in is when these clients begin to nibble away at the money they have already paid off, while the term of the loan has not been extended. This means that their monthly bond instalments will increase because interest rates are high, and clients will consequently fall deeper into debt.
Those who have paid more than their monthly instalments will also in future also have to apply for access to their capital.
They will not, however, have to comply with the credit criteria. Opperman explains that the reason for the decision is that the bank is attempting to reduce future risk for both clients and itself, with all indications being that the housing market is in for an exceptionally difficult 2009.
The current cycle will continue for much longer than expected and it's better to take these prudent steps now, he adds.
- Sake24
Tuesday, October 14, 2008
Trusts, Asset Protection and Estate Planning
Trust information courtesy of iProtect - www.iprotect.co.za
Introduction
The concept of a Trust is over 900 years old and originates from English law. Over time the South African law on Trusts has been developed by legislature, the Courts and legal practitioners into the law have today.
A Trust can be described as a legal relationship which has been created by a person (known as the founder), by placing assets under control of another person (known as the trustee), during the founders lifetime (known as an Inter Vivos Trust) or on the founder’s death (known as a Testamentary Trust) for the benefit of third parties (the beneficiaries).
The Founder is the person who creates the trust and makes the initial funds available to the trust and is also known as the “Donor” or “Settlor”.
The Trustees are responsible for the administration of the trust property. They must act within the law and comply with the provisions of the Trust Deed.
The Beneficiaries are the persons who benefit from the trust, either now or in future. There cannot be a valid trust if there is not at least one beneficiary.
An Inter Vivos Trust is created by means of agreement (a contract) between the founder and the Trustees, during the lifetime of the founder. The agreement is called the trust instrument (the Trust Deed) and is signed in accordance with the Law of Contracts and registered with the Master of the High Court.
The Trust Deed is a legal document, requiring specialized legal expertise to draft.
A Testamentary Trust is created on the death of the testator in terms of specified provisions as set out in the testator’s Last Will and Testament.
Let’s start with what we may think we know about trusts:
These are some commonly perceived disadvantages:
• Firstly many people are under the impression that one needs to be wealthy to set up a trust, nothing could be further from the truth, in fact the best time to set-up your Trusts is just before you start to acquire your large assets or when you set up your business or practice – protection from day one.
• A further common myth that pervades is that the Government is “looking” at trusts. Trusts were previously not defined in the Income Tax Act as tax payers, this clearly gave rise to serious abuse of trusts for tax purposes. The Government has since 1991 made various amendments to the act to combat these practices. Since 2002 there have been no more amendments, so we can safely assume that there is a degree of stability in that area. Furthermore, the manner in which we will advise that you use your trusts, and the way they hold assets and trade, are securely within in the ambit of all existing laws and specifically the Income Tax Act.
• Transfer duty: duties payable on immovable property is higher in a trust as the transfer duty is levied at a flat rate of 8 %. However this is lower than the VAT that you pay when buying from a developer (14%). The comparison of the cost of the duty is further skewed when one acquires property at the lower end of the market, as there is a sliding scale that applies to natural persons (5-8%). The initial extra cost is well worth paying when one considers asset protection and death costs and taxes.
• The issue of Control: legally and technically, once a trust is formed, the assets that are held in trust are separated from the individual. The control of the assets is no longer in the hands of the individual. The reality however is that the individual, by being a trustee of the trust, will be privy to all decisions and retain negative “control”.
• Administration: a trust must be properly administered. The Trust Property Control Act requires that a simple set of annual financial statements be submitted. Please note that it is not mandatory that the financials be audited, as this will result in unnecessary further costs.
• The higher tax rate opinion: trusts are the most highly taxed entities or person in South Africa, they are taxed a flat rate of 40%. However there are mechanisms to minimise tax payable through the use of a trust. Paradoxically, by use of the “conduit principle”, tax efficiencies can be achieved through a Trust that cannot be achieved personally or through a Company. In short whether you have an income tax or capital gain, the taxation in the Trust can be minimized if not avoided.
Here are the facts – and compelling reasons why a Trust is the only legal vehicle affording holistic Asset Protection and Estate Planning for your assets, during and after your lifetime.
The concept and benefits of a trust:
• A trust is a separate entity from an individual, totally distinct as one person from another, however not unlike a Close Corporation (CC) or Private Company (Company) but quite unique, in that it is not a creature of statute, but it is the product of a contractual arrangement. The Income Tax Act, Deeds Registry Act, Transfer Duty Act, Value Added Tax Act and the Insolvency Act afford a Trust legal personality.
• A CC or a Company are entities created by completing and registering certain statutory forms with the Registrar of Companies which then registers the CC or Company and it comes into being. In contrast, a Trust is created by contract in a legal document, commonly referred to as a Trust Deed. The following points are important to remember: a Trust, while not a legal persona is separate from you; a trust is not owned by any natural or juristic person; and a trust never dies or terminates, unless it is terminated by agreement or sequestrated if it is unable to pay its debts. The latter qualities make a Trust the only entity which will afford total asset protection and estate duty savings along with a myriad of other benefits.
• There are various types of trusts, namely;
o Testamentary Trust,
o Vesting or Bewind Trust,
o Special Trust and
o Discretionary Trust
Only Discretionary Trusts are used for our purposes, as the other forms of trusts are of no benefit in affording the necessary asset protection and estate duty savings and Capital tax saving benefits that Discretionary Trusts are able to offer.
Trusts Benefits
Asset Protection
As individuals we face a number of possible situations which can result in us losing all of our hard earned assets, cash, investments and properties.
o Divorce
o Business creditor claims
o General creditor claims
o Other claims
o Retrenchment
o Sureties
The following are common scenarios which can result in substantial personal and corporate loss:
• A distressed business (new or established) will result in short-term obligations to creditors, for unpaid rental, supplier invoices, staff salaries, SARS taxes, bank loans, bank overdrafts and the like;
• Surety signed for any person or business will result in exposure to any claims for outstanding debt.
• Divorce is an emotional time, and very often irrational decisions are made which may result in assets being sold or liquidated unnecessarily.
• If married in community of property, you may face claims by creditors of your spouse.
• Generally your creditors may lay claim to your assets if you cannot pay your debts.
• Retrenchment for any variety of reasons, can leave you financially vulnerable, unable to meet your obligations, and place your assets at risk to creditors.
• Any individual may face a claim for damages, potentially resulting in the attachment of assets.
The above scenarios paint a bleak picture, but can be avoided and contained through the establishment of a Trust, or a combination of Trusts. The Trust is the only legal vehicle which can offer the individual total asset protection, achieved by virtue of the fact that a trust is not owned by the individual, and has a legal personality of it’s own quite distinct from the individual.
Once assets have been moved into a Trust, they no longer belong to an individual. There are certain laws that need to be borne in mind before the assets are secured. There is a window period prescribed in the Insolvency Act, which affords creditors protection from delinquent creditors. The Act prescribes that if a creditor has a claim against an individual who is solvent, and who has moved, sold, transferred or donated his assets, the creditor may within a 6 month period reverse such transactions and attach the assets. Assets must be timeously transferred into a trust so that this time period elapses, and the transferred assets are not liable to attachment under the relevant sections of the Act.
The situation is even worse if the individual is insolvent at the time of the transfer of assets, as the window period is extended to 24 months before the assets are secured from a creditor attachment
Benefits on Death
Proper Estate planning is essential to ensure a seamless flow of the benefits of your estate to your heirs, and to minimize or eliminate the Duties and Taxes triggered by death. A Trust is the only vehicle that eliminates any of these triggered events, and a smooth transition of your life’s hard-won assets is achieved.
• No Capital Gains - Capital gains tax is a form of tax levied on natural and legal persons, it was introduced on the first of October 2001. The tax normally only comes into effect when an asset is sold that has appreciated in value, there are other instances where the tax will be deemed to have been triggered, one such event is your death, you are deemed to have sold all your assets to your deceased estate. Therefore all the assets that you own at the time of your death, including properties, will attract CGT at a rate of 10% (we will for simplicity sake ignore roll-overs and exemptions for now) this is further exacerbated by the fact that the tax is due in cash, even though no money has changed hands or been received, this could leave your estate in a illiquid position. This can be avoided by merely placing all the assets in trust. The trust does not die and therefore the CGT will not be triggered, saving the investor substantial amount of CGT (10% of the value of the growth of any assets in your estate at the time of your death).
• No estate duty - On the death of an individual the receiver of revenue lurks ever so near to get a further portion of the investor’s estate in the form of estate duties. Any person who dies or who owns property in this country will be subject to Estate duties, please note that this covers all your world-wide assets. This also affects any non-resident or foreign national who has property in this country. The scope of property and assets is very widely defined and covers numerous classes of property and assets and all forms of rights to property, policies, annuities, investments and business. The tax is levied at a rate of 20 % of the net value of any assets you have in excess of 3.5 million, after certain deductions have been made. This is a massive amount of money to have to part with as a result of your death; the real sting in the tail is that this is a tax on after-tax money and assets, and in certain cases, intangible assets such as goodwill, which might be worthless after your death but yet attract Estate Duties.
It is crucial to establish the correct structure in order to ensure that you pay a minimal amount (if not Zero) of death duty. An average estate will pay approx 30% of any net value of such estate. It is important to note that certain assets which are not directly owned by an individual could be deemed to be their assets i.e. Usufruct rights, any interests in property, assurance policies. The latter along with all assets, business properties, movable assets, investments, cash unit trusts, shares, time share are valued and will form part of the estate of the individual, and after certain deductions of debts and exemptions, the net estate in excess of 3.5 million is taxed at 20%.
The solution to this frightening proposition is simple, by establishing the Family Trust and ensuring that all the assets are held by trust, the trust never dies, our law allows for the Trust to continue in perpetuity. On the death of the individual they should pay zero Estate duty.
• No executors fees - The investors death is again a hunting ground for further costs, not only is the estate subjected to CGT, and estate duties but also to executor’s fees. An executor is the person or company or firm that winds up the estate of the individual, for this task they are entitled to a maximum fee of 3.5 % of the gross value of the estate plus VAT in certain circumstances (please note the GROSS value of the estate before deducting liabilities etc). This is one of the most under-stated costs, and the impact is not adequately explained to people. Ordinarily an individual’s gross estate is quite substantial, and accordingly executor’s fees will be substantial. Again the solution to this is the formation of a trust, as the individual will not own any assets, and as all the assets are held by a trust or combination of trusts, the estate should have zero or inconsequential value, thereby eliminating the executor’s fees payable.
• Protection of minors - Our law does not allow for minors to directly inherit, therefore an individual who wants to leave all or any assets to minor persons will not be able to do so, or persons not adequately addressing the issue in their wills or via testamentary trusts will end up with a situation where all the assets will be liquidated into cash. This is the position as the funds or the cash needs to be held by the Guardians Fund. The fund can only hold cash as they do not have the ability or resources to administer assets, this great fund is controlled by the Government, and pays interest of +- 2%. In the event monies are not claimed, they are forfeited to the state, a wonderful thought!
In the interim the minors will have limited or no access to the fund for their needs, education, health, well being housing. Your dream of passing the fruits of your hard earned work in establishing your legacy to heirs is impossible as the Guardians Fund can only hold cash, and all your efforts will come to zero. The solution is to have all your assets and your properties in a trust, as the trust survives your death; any beneficiary may benefit and access assets immediately. Also bear in mind that property administered by your appointed Trustees will accrue at a much better rate than the interest earned in the Guardians Fund.
Saving of costs on death, in establishing a trust a host of costs can be saved as the entity continues in perpetuity.
Donations tax: This is another one of SARS anti avoidance mechanisms; you are not even allowed to give your assets away, other than to your spouse, and certain tax exempt institutions. You are limited to donations of R 100k per annum, this places you in an invidious position, if you wish to give assets or cash to children or parents or family or dependents, if you do you will face a taxation of 20% on any amount over 100k, this can be resolved by making these persons beneficiaries of your trust, a trust is exempt from donations made in pursuance of the trust.
Important: There is no necessity for a trust to terminate, a trust does not die and can therefore continue in perpetuity. This allows for the continuation of the assets which allows for future generations to benefit from your labour, no costs, no transfer, no cancellation of bonds, there is no Estate Duty, CGT or executors fees.
On the death of any individual, their estate is frozen, this is necessary in order for the Executor to wind up the estate, i.e. collect assets, pay debts, taxes, and only after that to make over bequests then distribute benefits to the beneficiaries and Heirs. All the while Spouse and dependants of the deceased have no access to any monies or assets; complex estates could take numerous years between 2-5 years to wind up.
As a Trust holds the assets and cash, they are immediately accessible versus the situation where an individual dies and takes it 2-5 years to wind up, causing unnecessary and untold hardship to the spouse and dependants.
As a professional graduate / practitioner / businessperson / entrepreneur have you seriously considered the following issues?
1. What events could result in jeopardising my financial position in my personal capacity or affect my business?
2. Could a change in legislation affect my business? E.g. Pharmacists and Medical practitioners should seriously consider this one.
3. How do I conduct or carry on my business or practise? Is the business correctly structured? Is the business set up in the most tax efficient manner? Is the business secure? Are the business assets secure?
4. Where are my profits and or dividends flowing?
5. Could my business affect my personal financial status?
6. Could one or more of my businesses affect each other?
7. What is my marital status? Could my spouse’s insolvency affect me or my business or have an impact on my or our assets?
8. Could a change in my marital status affect my financial position or affect my business?
9. Could my spouse’s insolvency result in me being able to practise my profession or take on a position on the board of directors or act as a trustee?
10. Could one or more of my partners, death, divorce or insolvency affect our business and in turn my personal financial position?
11. Are my personal assets secure? Are my business assets secure? Can I continue to carry on or conduct my business or practice with out these assets?
12. Could my staff / personnel affect the future of the business as a result of a claim against the business or as a result of their negligence or acts committed or omitted?
13. In my personal capacity, do I have any creditors?
14. Who or what could be construed or classified as a creditor? A spouse in a divorce action? My bank for unpaid loans, overdrafts, credit cards, home mortgage, store cards, claim from a domestic employee, damages claims, suretyships which could be acted on, If so what would transpire if I could not meet my obligations?
15. Who or what are my business creditors? My clients, customers, patients, suppliers, creditors, financiers, personnel, SARS, landlords, professional regulatory bodies, partners? You will soon realize the list is quite lengthy.
16. What do I stand to lose if a creditor were to make a claim on my assets or business assets?
17. If a partner / shareholder joins or leaves the business or practice, through death, disability or through purchasing or sale, what are the tax consequences?
18. Am I or we in the case of partnership adequately protected and do we have the liquidity or cashflow to deal with any consequences that may flow from an event arising as set out in 13 above?
19. What are the tax consequences of introducing new capital to the business or practice through the introduction of a new partner?
20. Who owns my business? Who controls my business?
21. If I am only a shareholder do I have limited liability? Can SARS or creditors attach my assets even though I am only a shareholder /member of a Close Corporation?
22. Can a creditor or SARS attach or claim assets in a trust?
23. What is my liability or rights in an insolvency or liquidation?
24. Can the business continue with out me or key personnel? Are there solutions to address the latter if the business can not continue?
25. Do I have a succession plan to ensure continuity of the business or practice?
26. Do I know what my estate is worth? Do I have sufficient liquidity in my estate to deal with estate duties, capital gains taxes and executors fees? How can I best minimise if not avoid all the duties, taxes and charges on death to ensure that my spouse, partner, ascendants or descendents get what I intended them to?
27. Do I have a proper estate plan in place? Do I have a will?
28. Are my minor children adequately catered for on the event of my death?
29. What is my total exposure to creditors? What am I really worth?
30. Is my home protected? Should I really retain my home in my name and what are the ramifications if keep the home in name or not?
31. Have I correctly planned for my retirement? Do I have sufficient liquidity and cash flow?
32. How do I exit from my business or practice? What are the tax consequences?
33. Could I be held liable for any claims or taxes even after I sold my shares or portion / percentage of the business or practice?
If you have concerns about any of the above questions and scenarios, you should seriously consider proper personal and corporate structuring to minimize your risk.
www.iprotect.co.za
Introduction
The concept of a Trust is over 900 years old and originates from English law. Over time the South African law on Trusts has been developed by legislature, the Courts and legal practitioners into the law have today.
A Trust can be described as a legal relationship which has been created by a person (known as the founder), by placing assets under control of another person (known as the trustee), during the founders lifetime (known as an Inter Vivos Trust) or on the founder’s death (known as a Testamentary Trust) for the benefit of third parties (the beneficiaries).
The Founder is the person who creates the trust and makes the initial funds available to the trust and is also known as the “Donor” or “Settlor”.
The Trustees are responsible for the administration of the trust property. They must act within the law and comply with the provisions of the Trust Deed.
The Beneficiaries are the persons who benefit from the trust, either now or in future. There cannot be a valid trust if there is not at least one beneficiary.
An Inter Vivos Trust is created by means of agreement (a contract) between the founder and the Trustees, during the lifetime of the founder. The agreement is called the trust instrument (the Trust Deed) and is signed in accordance with the Law of Contracts and registered with the Master of the High Court.
The Trust Deed is a legal document, requiring specialized legal expertise to draft.
A Testamentary Trust is created on the death of the testator in terms of specified provisions as set out in the testator’s Last Will and Testament.
Let’s start with what we may think we know about trusts:
These are some commonly perceived disadvantages:
• Firstly many people are under the impression that one needs to be wealthy to set up a trust, nothing could be further from the truth, in fact the best time to set-up your Trusts is just before you start to acquire your large assets or when you set up your business or practice – protection from day one.
• A further common myth that pervades is that the Government is “looking” at trusts. Trusts were previously not defined in the Income Tax Act as tax payers, this clearly gave rise to serious abuse of trusts for tax purposes. The Government has since 1991 made various amendments to the act to combat these practices. Since 2002 there have been no more amendments, so we can safely assume that there is a degree of stability in that area. Furthermore, the manner in which we will advise that you use your trusts, and the way they hold assets and trade, are securely within in the ambit of all existing laws and specifically the Income Tax Act.
• Transfer duty: duties payable on immovable property is higher in a trust as the transfer duty is levied at a flat rate of 8 %. However this is lower than the VAT that you pay when buying from a developer (14%). The comparison of the cost of the duty is further skewed when one acquires property at the lower end of the market, as there is a sliding scale that applies to natural persons (5-8%). The initial extra cost is well worth paying when one considers asset protection and death costs and taxes.
• The issue of Control: legally and technically, once a trust is formed, the assets that are held in trust are separated from the individual. The control of the assets is no longer in the hands of the individual. The reality however is that the individual, by being a trustee of the trust, will be privy to all decisions and retain negative “control”.
• Administration: a trust must be properly administered. The Trust Property Control Act requires that a simple set of annual financial statements be submitted. Please note that it is not mandatory that the financials be audited, as this will result in unnecessary further costs.
• The higher tax rate opinion: trusts are the most highly taxed entities or person in South Africa, they are taxed a flat rate of 40%. However there are mechanisms to minimise tax payable through the use of a trust. Paradoxically, by use of the “conduit principle”, tax efficiencies can be achieved through a Trust that cannot be achieved personally or through a Company. In short whether you have an income tax or capital gain, the taxation in the Trust can be minimized if not avoided.
Here are the facts – and compelling reasons why a Trust is the only legal vehicle affording holistic Asset Protection and Estate Planning for your assets, during and after your lifetime.
The concept and benefits of a trust:
• A trust is a separate entity from an individual, totally distinct as one person from another, however not unlike a Close Corporation (CC) or Private Company (Company) but quite unique, in that it is not a creature of statute, but it is the product of a contractual arrangement. The Income Tax Act, Deeds Registry Act, Transfer Duty Act, Value Added Tax Act and the Insolvency Act afford a Trust legal personality.
• A CC or a Company are entities created by completing and registering certain statutory forms with the Registrar of Companies which then registers the CC or Company and it comes into being. In contrast, a Trust is created by contract in a legal document, commonly referred to as a Trust Deed. The following points are important to remember: a Trust, while not a legal persona is separate from you; a trust is not owned by any natural or juristic person; and a trust never dies or terminates, unless it is terminated by agreement or sequestrated if it is unable to pay its debts. The latter qualities make a Trust the only entity which will afford total asset protection and estate duty savings along with a myriad of other benefits.
• There are various types of trusts, namely;
o Testamentary Trust,
o Vesting or Bewind Trust,
o Special Trust and
o Discretionary Trust
Only Discretionary Trusts are used for our purposes, as the other forms of trusts are of no benefit in affording the necessary asset protection and estate duty savings and Capital tax saving benefits that Discretionary Trusts are able to offer.
Trusts Benefits
Asset Protection
As individuals we face a number of possible situations which can result in us losing all of our hard earned assets, cash, investments and properties.
o Divorce
o Business creditor claims
o General creditor claims
o Other claims
o Retrenchment
o Sureties
The following are common scenarios which can result in substantial personal and corporate loss:
• A distressed business (new or established) will result in short-term obligations to creditors, for unpaid rental, supplier invoices, staff salaries, SARS taxes, bank loans, bank overdrafts and the like;
• Surety signed for any person or business will result in exposure to any claims for outstanding debt.
• Divorce is an emotional time, and very often irrational decisions are made which may result in assets being sold or liquidated unnecessarily.
• If married in community of property, you may face claims by creditors of your spouse.
• Generally your creditors may lay claim to your assets if you cannot pay your debts.
• Retrenchment for any variety of reasons, can leave you financially vulnerable, unable to meet your obligations, and place your assets at risk to creditors.
• Any individual may face a claim for damages, potentially resulting in the attachment of assets.
The above scenarios paint a bleak picture, but can be avoided and contained through the establishment of a Trust, or a combination of Trusts. The Trust is the only legal vehicle which can offer the individual total asset protection, achieved by virtue of the fact that a trust is not owned by the individual, and has a legal personality of it’s own quite distinct from the individual.
Once assets have been moved into a Trust, they no longer belong to an individual. There are certain laws that need to be borne in mind before the assets are secured. There is a window period prescribed in the Insolvency Act, which affords creditors protection from delinquent creditors. The Act prescribes that if a creditor has a claim against an individual who is solvent, and who has moved, sold, transferred or donated his assets, the creditor may within a 6 month period reverse such transactions and attach the assets. Assets must be timeously transferred into a trust so that this time period elapses, and the transferred assets are not liable to attachment under the relevant sections of the Act.
The situation is even worse if the individual is insolvent at the time of the transfer of assets, as the window period is extended to 24 months before the assets are secured from a creditor attachment
Benefits on Death
Proper Estate planning is essential to ensure a seamless flow of the benefits of your estate to your heirs, and to minimize or eliminate the Duties and Taxes triggered by death. A Trust is the only vehicle that eliminates any of these triggered events, and a smooth transition of your life’s hard-won assets is achieved.
• No Capital Gains - Capital gains tax is a form of tax levied on natural and legal persons, it was introduced on the first of October 2001. The tax normally only comes into effect when an asset is sold that has appreciated in value, there are other instances where the tax will be deemed to have been triggered, one such event is your death, you are deemed to have sold all your assets to your deceased estate. Therefore all the assets that you own at the time of your death, including properties, will attract CGT at a rate of 10% (we will for simplicity sake ignore roll-overs and exemptions for now) this is further exacerbated by the fact that the tax is due in cash, even though no money has changed hands or been received, this could leave your estate in a illiquid position. This can be avoided by merely placing all the assets in trust. The trust does not die and therefore the CGT will not be triggered, saving the investor substantial amount of CGT (10% of the value of the growth of any assets in your estate at the time of your death).
• No estate duty - On the death of an individual the receiver of revenue lurks ever so near to get a further portion of the investor’s estate in the form of estate duties. Any person who dies or who owns property in this country will be subject to Estate duties, please note that this covers all your world-wide assets. This also affects any non-resident or foreign national who has property in this country. The scope of property and assets is very widely defined and covers numerous classes of property and assets and all forms of rights to property, policies, annuities, investments and business. The tax is levied at a rate of 20 % of the net value of any assets you have in excess of 3.5 million, after certain deductions have been made. This is a massive amount of money to have to part with as a result of your death; the real sting in the tail is that this is a tax on after-tax money and assets, and in certain cases, intangible assets such as goodwill, which might be worthless after your death but yet attract Estate Duties.
It is crucial to establish the correct structure in order to ensure that you pay a minimal amount (if not Zero) of death duty. An average estate will pay approx 30% of any net value of such estate. It is important to note that certain assets which are not directly owned by an individual could be deemed to be their assets i.e. Usufruct rights, any interests in property, assurance policies. The latter along with all assets, business properties, movable assets, investments, cash unit trusts, shares, time share are valued and will form part of the estate of the individual, and after certain deductions of debts and exemptions, the net estate in excess of 3.5 million is taxed at 20%.
The solution to this frightening proposition is simple, by establishing the Family Trust and ensuring that all the assets are held by trust, the trust never dies, our law allows for the Trust to continue in perpetuity. On the death of the individual they should pay zero Estate duty.
• No executors fees - The investors death is again a hunting ground for further costs, not only is the estate subjected to CGT, and estate duties but also to executor’s fees. An executor is the person or company or firm that winds up the estate of the individual, for this task they are entitled to a maximum fee of 3.5 % of the gross value of the estate plus VAT in certain circumstances (please note the GROSS value of the estate before deducting liabilities etc). This is one of the most under-stated costs, and the impact is not adequately explained to people. Ordinarily an individual’s gross estate is quite substantial, and accordingly executor’s fees will be substantial. Again the solution to this is the formation of a trust, as the individual will not own any assets, and as all the assets are held by a trust or combination of trusts, the estate should have zero or inconsequential value, thereby eliminating the executor’s fees payable.
• Protection of minors - Our law does not allow for minors to directly inherit, therefore an individual who wants to leave all or any assets to minor persons will not be able to do so, or persons not adequately addressing the issue in their wills or via testamentary trusts will end up with a situation where all the assets will be liquidated into cash. This is the position as the funds or the cash needs to be held by the Guardians Fund. The fund can only hold cash as they do not have the ability or resources to administer assets, this great fund is controlled by the Government, and pays interest of +- 2%. In the event monies are not claimed, they are forfeited to the state, a wonderful thought!
In the interim the minors will have limited or no access to the fund for their needs, education, health, well being housing. Your dream of passing the fruits of your hard earned work in establishing your legacy to heirs is impossible as the Guardians Fund can only hold cash, and all your efforts will come to zero. The solution is to have all your assets and your properties in a trust, as the trust survives your death; any beneficiary may benefit and access assets immediately. Also bear in mind that property administered by your appointed Trustees will accrue at a much better rate than the interest earned in the Guardians Fund.
Saving of costs on death, in establishing a trust a host of costs can be saved as the entity continues in perpetuity.
Donations tax: This is another one of SARS anti avoidance mechanisms; you are not even allowed to give your assets away, other than to your spouse, and certain tax exempt institutions. You are limited to donations of R 100k per annum, this places you in an invidious position, if you wish to give assets or cash to children or parents or family or dependents, if you do you will face a taxation of 20% on any amount over 100k, this can be resolved by making these persons beneficiaries of your trust, a trust is exempt from donations made in pursuance of the trust.
Important: There is no necessity for a trust to terminate, a trust does not die and can therefore continue in perpetuity. This allows for the continuation of the assets which allows for future generations to benefit from your labour, no costs, no transfer, no cancellation of bonds, there is no Estate Duty, CGT or executors fees.
On the death of any individual, their estate is frozen, this is necessary in order for the Executor to wind up the estate, i.e. collect assets, pay debts, taxes, and only after that to make over bequests then distribute benefits to the beneficiaries and Heirs. All the while Spouse and dependants of the deceased have no access to any monies or assets; complex estates could take numerous years between 2-5 years to wind up.
As a Trust holds the assets and cash, they are immediately accessible versus the situation where an individual dies and takes it 2-5 years to wind up, causing unnecessary and untold hardship to the spouse and dependants.
As a professional graduate / practitioner / businessperson / entrepreneur have you seriously considered the following issues?
1. What events could result in jeopardising my financial position in my personal capacity or affect my business?
2. Could a change in legislation affect my business? E.g. Pharmacists and Medical practitioners should seriously consider this one.
3. How do I conduct or carry on my business or practise? Is the business correctly structured? Is the business set up in the most tax efficient manner? Is the business secure? Are the business assets secure?
4. Where are my profits and or dividends flowing?
5. Could my business affect my personal financial status?
6. Could one or more of my businesses affect each other?
7. What is my marital status? Could my spouse’s insolvency affect me or my business or have an impact on my or our assets?
8. Could a change in my marital status affect my financial position or affect my business?
9. Could my spouse’s insolvency result in me being able to practise my profession or take on a position on the board of directors or act as a trustee?
10. Could one or more of my partners, death, divorce or insolvency affect our business and in turn my personal financial position?
11. Are my personal assets secure? Are my business assets secure? Can I continue to carry on or conduct my business or practice with out these assets?
12. Could my staff / personnel affect the future of the business as a result of a claim against the business or as a result of their negligence or acts committed or omitted?
13. In my personal capacity, do I have any creditors?
14. Who or what could be construed or classified as a creditor? A spouse in a divorce action? My bank for unpaid loans, overdrafts, credit cards, home mortgage, store cards, claim from a domestic employee, damages claims, suretyships which could be acted on, If so what would transpire if I could not meet my obligations?
15. Who or what are my business creditors? My clients, customers, patients, suppliers, creditors, financiers, personnel, SARS, landlords, professional regulatory bodies, partners? You will soon realize the list is quite lengthy.
16. What do I stand to lose if a creditor were to make a claim on my assets or business assets?
17. If a partner / shareholder joins or leaves the business or practice, through death, disability or through purchasing or sale, what are the tax consequences?
18. Am I or we in the case of partnership adequately protected and do we have the liquidity or cashflow to deal with any consequences that may flow from an event arising as set out in 13 above?
19. What are the tax consequences of introducing new capital to the business or practice through the introduction of a new partner?
20. Who owns my business? Who controls my business?
21. If I am only a shareholder do I have limited liability? Can SARS or creditors attach my assets even though I am only a shareholder /member of a Close Corporation?
22. Can a creditor or SARS attach or claim assets in a trust?
23. What is my liability or rights in an insolvency or liquidation?
24. Can the business continue with out me or key personnel? Are there solutions to address the latter if the business can not continue?
25. Do I have a succession plan to ensure continuity of the business or practice?
26. Do I know what my estate is worth? Do I have sufficient liquidity in my estate to deal with estate duties, capital gains taxes and executors fees? How can I best minimise if not avoid all the duties, taxes and charges on death to ensure that my spouse, partner, ascendants or descendents get what I intended them to?
27. Do I have a proper estate plan in place? Do I have a will?
28. Are my minor children adequately catered for on the event of my death?
29. What is my total exposure to creditors? What am I really worth?
30. Is my home protected? Should I really retain my home in my name and what are the ramifications if keep the home in name or not?
31. Have I correctly planned for my retirement? Do I have sufficient liquidity and cash flow?
32. How do I exit from my business or practice? What are the tax consequences?
33. Could I be held liable for any claims or taxes even after I sold my shares or portion / percentage of the business or practice?
If you have concerns about any of the above questions and scenarios, you should seriously consider proper personal and corporate structuring to minimize your risk.
www.iprotect.co.za
Property owners need to bite the bullet
Property owners need to bite the bullet
We certainly find ourselves in some very dynamic times! We have a new president in our country, and despite the flutter in the financial markets following the resignation of our Finance Minister Trevor Manual, the impact on the country and the property market is not expected to be substantial.
As John Loos of FNB puts it "This market has far bigger fish to fry!" He refers to the re-emergence of the sub-prime crisis and the economic forces in the country that will have a far bigger impact on the market.
Perhaps the lack of reaction to the political upheaval has got to some extent to do with the fact that South Africans are too busy trying to survive these tough economic times to be concerned with the political bickering.
Payment defaults by debtors have been escalating sharply for almost two years, and there appeared to be no let-up in this trend, according to Luke Doig, senior economist at Credit Guarantee. "The 17.6% year-on-year increase in July liquidations to 320 was exactly in line with expectations of a 20% increase."
Fred Steffers, managing director of the Consumer Profile Bureau, also confirmed that there had been a substantial increase in adverse credit judgements. "We have seen a steady rise over the past 18 months in both insolvencies and adverse judgements which confirms that consumer debt is busy catching up with consumers."
Property owners need to bite the bullet for just a little longer. Things will soon start looking up as inflation is expected to decrease later this year, the interest rate cycle is expected to turn in April, and real disposable income is expected to increase early next year. However, until then, property owners need to take very tight control of their financial affairs.
Don't wait until the situation becomes critical before you take the necessary steps to ensure you can survive this tough time, especially now when the end is already in sight. Speak to your creditors to make alternative payments arrangements and if need be, get assistance from a debt councilor.
Bond repayments are often the biggest expenses, but don't assume that selling is your only option. In fact, now is not the best time to sell and it may be a far better option to hold on to the property. Your bond originator can assist you to restructure your repayments.
If you have capacity in your budget, and you are thinking of expanding your property portfolio, there has not been a better time to buy for several years. Don't miss Module 2 of our Property Ownership Coach course that provides an insightful look at how to buy the right property.
The Property Ownership Coach team
www.propertyownershipcoach.co.za
Tel: (011) 979 0315
Fax: (011) 979 0123
Email: info@propertyownershipcoach.co.za
30 Villa Valencia, Cnr Monument and Anemoon Str, Glen Marais,
Kempton Park
PO Box 12316, Aston Manor, 1630
We certainly find ourselves in some very dynamic times! We have a new president in our country, and despite the flutter in the financial markets following the resignation of our Finance Minister Trevor Manual, the impact on the country and the property market is not expected to be substantial.
As John Loos of FNB puts it "This market has far bigger fish to fry!" He refers to the re-emergence of the sub-prime crisis and the economic forces in the country that will have a far bigger impact on the market.
Perhaps the lack of reaction to the political upheaval has got to some extent to do with the fact that South Africans are too busy trying to survive these tough economic times to be concerned with the political bickering.
Payment defaults by debtors have been escalating sharply for almost two years, and there appeared to be no let-up in this trend, according to Luke Doig, senior economist at Credit Guarantee. "The 17.6% year-on-year increase in July liquidations to 320 was exactly in line with expectations of a 20% increase."
Fred Steffers, managing director of the Consumer Profile Bureau, also confirmed that there had been a substantial increase in adverse credit judgements. "We have seen a steady rise over the past 18 months in both insolvencies and adverse judgements which confirms that consumer debt is busy catching up with consumers."
Property owners need to bite the bullet for just a little longer. Things will soon start looking up as inflation is expected to decrease later this year, the interest rate cycle is expected to turn in April, and real disposable income is expected to increase early next year. However, until then, property owners need to take very tight control of their financial affairs.
Don't wait until the situation becomes critical before you take the necessary steps to ensure you can survive this tough time, especially now when the end is already in sight. Speak to your creditors to make alternative payments arrangements and if need be, get assistance from a debt councilor.
Bond repayments are often the biggest expenses, but don't assume that selling is your only option. In fact, now is not the best time to sell and it may be a far better option to hold on to the property. Your bond originator can assist you to restructure your repayments.
If you have capacity in your budget, and you are thinking of expanding your property portfolio, there has not been a better time to buy for several years. Don't miss Module 2 of our Property Ownership Coach course that provides an insightful look at how to buy the right property.
The Property Ownership Coach team
www.propertyownershipcoach.co.za
Tel: (011) 979 0315
Fax: (011) 979 0123
Email: info@propertyownershipcoach.co.za
30 Villa Valencia, Cnr Monument and Anemoon Str, Glen Marais,
Kempton Park
PO Box 12316, Aston Manor, 1630
Tuesday, September 30, 2008
Questions about the market
Questions about the market
By Coert Coetzee www.treoc.com
I recently answered the following two questions:
Question
I've read that various experts are predicting an upturn in the property market for 2009. But I can't see how this can be possible if the National Credit Act keeps preventing people from getting bonds. In my opinion the credit act is actually the main reason for the market performing so poorly, and not the high interest rates as everyone thinks. What is your opinion?
Answer
Your reasoning is very good, and if people keep on buying in the conventional way they’ll continue to have problems, even if the interest rates come down considerably next year. I agree that the credit act implemented in June 2007 is actually the big fly in the property market's ointment. Since its implementation almost all role players in the property industry have been struggling to make a living. As far as I know the Treoc Group is the only role player that is not being affected by the credit act, and the reason for this is the structures that we use for property purchases. We operate exclusively with the specialised double trust structure.
Treoc’s double trust structure consists of two levels of trusts with unique trust clauses that are actually the reason for the success. We spend a few hours presenting on this topic at our seminars, and it’s impossible to cover it fully in this question-and-answer column, but it comes down to the fact that we legally and continually separate our expenses from our income, in the same way we’ve always separated our assets from our liabilities. We never place these things in the same entity, and so since June 2007, when the National Credit Act was implemented, Treoc investors have been qualifying for far more bonds than ever before. One entity holds the income and the other one deals with the expense, and the two have nothing to do with one another. One does not belong to the other. By the way, trusts are entirely exempt from the National Credit Act!
Question
Buyers’ market, buyers’ market, buyers’ market! I am reading and hearing it ad nauseam these days, but at the same time I’ve read that property sales in the country have dropped by almost 50%. Who should one believe?
Answer
Yes, this is one of the curiosities of the world. When a clothing store or wine shop holds a sale everyone is there, because of course prices are low during a sale. So it benefits the buyers of those products to buy during those products’ “buyers' market”. This reaction and behaviour from buyers during a sale is normal, and one would imagine it would always be this way. But it is always only like this with consumer goods: when the prices of shares on the stock market are low, few people buy. People associate low prices on the stock market with collapse and they don't want to be a part of that. People associate high share prices with success and they would rather be a part of that. So most people rather buy shares when prices are high. But most people are not at all successful with shares. It makes you think...
The motto of the world's most successful share investor, Warren Buffett, is: "Be afraid when people are greedy and be greedy when people are afraid.” Buffett usually only buys when the price is low, and his big criterion is that the value must be higher than the price. This makes sense, doesn't it?
Get your mind right about these things. We all have the same opportunities, but only a small percentage of us are able to make use of it. I attended a powerful Robin Banks session in Durban last week and Robin explained how the same winds blows for all of us, but only a few of us know how to set our sails. Let Robin help you to permanently set your sails for opportunity. His next free Mind Power Session is at the Sheraton Hotel in Pretoria on 1st and 2nd October 2008 at 19h00. You can book with Teresa Araujo on 083 624-1017
In the South African property market property prices are currently lower than values. Everyone knows it, and yet they don't think it is a good time to buy property. A certain well-regarded property economist is even advising people to rather rent now than buy. Unbelievable!
Every day there are journalists telling people how badly the property market is doing. This sticks in the subconscious, and people buy nothing. They even become panic-stricken and try to sell their houses. Of course, what the property economist and the papers don't tell people is that property prices always work in cycles. What we have at the moment, we have had before. Even worse than now, in fact. In 1998, interest rates were at 25.5%. That was the best buyers' market in the history of South Africa, and that year I became a full-time property investor. It was a time of great panic and very few people bought property then. At some auctions I was the only buyer. It was a carnival! An entry-level house that cost less than R100,000 at that time is now worth more than R500,000.
I think it is safe to assume that no economist or journalist bought a house in South Africa in 1998, or in our current buyers' market. So decide for yourself who you would like to believe. Mr. Economist or Mr. Buffett?
Happy House Hunting!
By Coert Coetzee www.treoc.com
I recently answered the following two questions:
Question
I've read that various experts are predicting an upturn in the property market for 2009. But I can't see how this can be possible if the National Credit Act keeps preventing people from getting bonds. In my opinion the credit act is actually the main reason for the market performing so poorly, and not the high interest rates as everyone thinks. What is your opinion?
Answer
Your reasoning is very good, and if people keep on buying in the conventional way they’ll continue to have problems, even if the interest rates come down considerably next year. I agree that the credit act implemented in June 2007 is actually the big fly in the property market's ointment. Since its implementation almost all role players in the property industry have been struggling to make a living. As far as I know the Treoc Group is the only role player that is not being affected by the credit act, and the reason for this is the structures that we use for property purchases. We operate exclusively with the specialised double trust structure.
Treoc’s double trust structure consists of two levels of trusts with unique trust clauses that are actually the reason for the success. We spend a few hours presenting on this topic at our seminars, and it’s impossible to cover it fully in this question-and-answer column, but it comes down to the fact that we legally and continually separate our expenses from our income, in the same way we’ve always separated our assets from our liabilities. We never place these things in the same entity, and so since June 2007, when the National Credit Act was implemented, Treoc investors have been qualifying for far more bonds than ever before. One entity holds the income and the other one deals with the expense, and the two have nothing to do with one another. One does not belong to the other. By the way, trusts are entirely exempt from the National Credit Act!
Question
Buyers’ market, buyers’ market, buyers’ market! I am reading and hearing it ad nauseam these days, but at the same time I’ve read that property sales in the country have dropped by almost 50%. Who should one believe?
Answer
Yes, this is one of the curiosities of the world. When a clothing store or wine shop holds a sale everyone is there, because of course prices are low during a sale. So it benefits the buyers of those products to buy during those products’ “buyers' market”. This reaction and behaviour from buyers during a sale is normal, and one would imagine it would always be this way. But it is always only like this with consumer goods: when the prices of shares on the stock market are low, few people buy. People associate low prices on the stock market with collapse and they don't want to be a part of that. People associate high share prices with success and they would rather be a part of that. So most people rather buy shares when prices are high. But most people are not at all successful with shares. It makes you think...
The motto of the world's most successful share investor, Warren Buffett, is: "Be afraid when people are greedy and be greedy when people are afraid.” Buffett usually only buys when the price is low, and his big criterion is that the value must be higher than the price. This makes sense, doesn't it?
Get your mind right about these things. We all have the same opportunities, but only a small percentage of us are able to make use of it. I attended a powerful Robin Banks session in Durban last week and Robin explained how the same winds blows for all of us, but only a few of us know how to set our sails. Let Robin help you to permanently set your sails for opportunity. His next free Mind Power Session is at the Sheraton Hotel in Pretoria on 1st and 2nd October 2008 at 19h00. You can book with Teresa Araujo on 083 624-1017
In the South African property market property prices are currently lower than values. Everyone knows it, and yet they don't think it is a good time to buy property. A certain well-regarded property economist is even advising people to rather rent now than buy. Unbelievable!
Every day there are journalists telling people how badly the property market is doing. This sticks in the subconscious, and people buy nothing. They even become panic-stricken and try to sell their houses. Of course, what the property economist and the papers don't tell people is that property prices always work in cycles. What we have at the moment, we have had before. Even worse than now, in fact. In 1998, interest rates were at 25.5%. That was the best buyers' market in the history of South Africa, and that year I became a full-time property investor. It was a time of great panic and very few people bought property then. At some auctions I was the only buyer. It was a carnival! An entry-level house that cost less than R100,000 at that time is now worth more than R500,000.
I think it is safe to assume that no economist or journalist bought a house in South Africa in 1998, or in our current buyers' market. So decide for yourself who you would like to believe. Mr. Economist or Mr. Buffett?
Happy House Hunting!
Thursday, September 25, 2008
Positive on SA - John Mauldin
Positive on SA - John Mauldin
Interesting letter by John Mauldin, one of the US's top investment advisors - recently voted second only to Warren Buffet as an investment guru.
I start this week's letter somewhere over the Atlantic, halfway through an 11-hour flight from Frankfurt to
Dallas. It has been an altogether marvelous 11 days in South Africa, speaking to over 1,000 people at 12 venues, giving a half dozen media interviews, and meeting with many individuals.
This week, I want to give you some impressions of not only South Africa, but talk a little about emerging markets in general.
Finding Value in South Africa
I realized about halfway through my recent trip that it had been sometime since I was in an emerging-market country. I have been to over 50 countries over the past 20 years, but recently most of my travels have been to Europe and Canada, with the occasional vacation trip to Mexico.
As I observed South Africa, it was forcefully brought home to me that there is more to the emerging-market story than China, India, and Brazil. There are any number of countries that are seeing robust growth and contributing to the world economy. It was reported at Davos this year that for the first time the developing world has a larger share of world GDP than the developed world. Today, we focus on an emerging-market country that does not make as much news as it should.
As I mentioned above, the mood among those I talked with in South Africa in the early 1990s when I was traveling often to South Africa was quite pessimistic. The economy was not good, due to international economic sanctions stemming from worldwide protests over the policy of apartheid. Changes and elections were coming, and it was not clear what would happen.
I traveled for (mostly) business into 14 other sub-Saharan countries in Africa. With a few notable exceptions, most countries were not doing well and things had progressed from bad to worse over the previous 10-20 years. It was a tough time to try and do business, but it was a great education.
The contrast today is amazing. Before we get into some facts, let me give you a few impressions. First, there are construction cranes everywhere in the four cities I visited: Johannesburg, Pretoria, Durban, and Cape Town. Twelve years ago the thirty miles from Johannesburg to Pretoria was mostly agricultural land. Today it is one big city, with offices, malls, and homes lining the freeway. There was a significant number of rather nice new housing developments, many if not most being built on speculation all along the freeway.
Johannesburg is a world-class city, on a par with New York or London or any major city in terms of facilities, shops, infrastructure... and traffic. There were new shopping malls all over, and the stores were busy. The restaurants were excellent. The hotels I stayed in and spoke at were excellent and modern. The Sandton area is particularly pleasant.
Durban is a tropical jewel on the Indian Ocean. Again, there was construction everywhere - a green, verdant city of 1,000,000 people, with modern roads and great weather.
I have been to Sydney, Vancouver, and San Francisco. I love all of them. But for my money, Cape Town is the most beautiful city I have been to in the world. Amazing mountains, blue water harbors, white sand beaches, with wineries nestled in among the mountains and valleys. The Waterfront area, where I stayed, is fun and vibrant. Again, an amazing amount of construction everywhere, especially in the waterfront area, as investors from Dubai are pouring huge sums of money into creating a massive residential/business/ retail/restaurant development.
There are several similar, quite large developments going up in different parts of Cape Town. I ate dinner on Friday night at a restaurant called Baia at the Waterfront. I find I really love the better South African chardonnays. My friends know I am something of a chardonnay snob. I like the better California wineries. I was pleasantly surprised to find more than a few South African chards the equal of their US counterparts, but at a third to half the price for the same level of quality. (I should note that a decent chardonnay in London or Europe is twice the US price.)
The two of us had the best chardonnay in the restaurant and one of the better meals I have had in a long time, and the bill was less than $100.
The next day my partner Prieur du Plessis informed me that Baia was one of the most expensive restaurants in town. By way of comparison, you can easily spend 2-3 times that at a comparable restaurant in Dallas, and 4-5 times that in New York. Forget London.
I began to ask about the bills for food, drinks, and such for the rest of the trip. The country was uniformly about half what I would pay in Texas for the same quality. I stayed in a very nice five-star hotel (The Commodore) for six nights for less than $1,000, including several meals, laundry, and my bar tab. Their walk-up price was much higher, but clearly you can get deals, and it is tourist season at that. The service was terrific and uniformly delivered with smiles.
The exceptionally nice private game reserve (Itaga) we stayed at when I first arrived, trying to get over jet lag, was only a few hundred a night, including meals, wine, and game runs. In short, after having been to London and Europe for my last few overseas trips, South Africa seemed like a bargain.
And it was not just the people I spoke to that were optimistic. Grant Thornton (a large international accounting firm) did a survey in the 30 countries in which they do business. The four countries with the most optimism and confidence were India, Ireland, South Africa, and Mainland China. Why such confidence? I think there are several reasons. The economy has been growing at a reported almost 5% a year for the past several years, which is quite strong. They have had 32 consecutive quarters of positive growth. But the official figures may understate the reality by a significant amount. If you look at the VAT (value-added tax) receipts, as well as other tax figures, some economists estimate the economy may be growing by 7% or more. Why the difference?
There is a large "informal" economy in South Africa. While much of the income may not be reported, when something is bought and sold in the retail sectors, taxes are collected.
The stock market has grown by over 25%, 47%, and 41% for the last three years. Such a bull run is always a boost to confidence. But there are also some real fundamentals underlying the emerging-market Bull markets. South Africa has a strong commodity sector, with numerous commodities and not just gold. JP Morgan thinks that earnings growth for South African companies, even adjusting for some anomalies, will be 20% this year, which should mean another good year for their local markets.
This link between commodities and stock market prices is reflected not just in their stock market, but in emerging markets worldwide. Look at the close correlation for the last ten years between the prices of commodities and the emerging-market equity index. I think this rather clearly shows the link between the recent rise in commodity prices and emerging markets. It is more than just a China story.
Football as an Economic Driver The attention paid to football (or soccer in the United States) is rising to fever pitch in South Africa. And for good reason: they will host the World Cup in 2010. They expect some 300,000 fans to show up.
The government is using the occasion to spend some 400 billion Rand (a little over US $50 billion) on all sorts of infrastructure projects. They are doubling the size of the major airports, which had already been significantly improved.
Walking past the construction at the Johannesburg airport, you have to be impressed with the size of it. New roads and other forms of infrastructure are being added to prepare for the influx, but it will have the added effect of making the country more competitive, just as infrastructure in China has been a boost to that country, and a lack of infrastructure has limited India.
The World Cup will also be a boost to tourism, already one of the most important sectors of the economy. Cape Town is becoming an international destination for vacations and conferences. The growth in tourism has been strong, showing 20% growth last year from 2005. 2006 was a record year.
Interestingly, 75% of the traffic reported in the tourism growth is from Africa and the Middle East. While a lot of the people are vacationers, I think a goodly portion are businessmen and women from all over sub-Saharan Africa who look to South Africa as a deal-doing financial centre. South Africa has a quite strong, very competent, and growing financial services sector that is a magnet for entrepreneurs from all over Africa seeking to find capital. South Africa also has a strong entrepreneurial class which is the base for much of the new business and development, not just in South Africa but in all of Africa. The rest of the world rightly sees South Africa as the place to launch into the rest of Africa.
Are there problems in South Africa? Of course, and some of them are quite serious. But that is the case in nearly all (I cannot think of an exception) emerging-market economies. While the overall crime rate is dropping, it is still far too high. Some rather high-profile crimes of late have resulted in a strong outcry for serious change.
Corruption is an issue, but that is the case in almost every emerging-market country. The high levels of poverty are evident. Although employment is growing and more and more of the poor are being brought into the economy, there is still a lot of room for progress.
The telecommunications infrastructure is hampered by a lack of serious competition. Access to the internet is limited in many areas, and it is really slow where it does exist. This will improve in the coming years, but it is a serious handicap to business. There are power shortages and the need for more power-generation plants to keep up with the growth.
But all these areas are (mostly) going to improve. I see a lot of opportunity in South Africa in particular and Africa in general. Let's look at one area where there may be more than a little potential in the future.
I think there is deep long-term value in African (not just South African) farmland. Right now, given the nature of US and European subsidies to agriculture, it is hard for developing-world farmers to compete. But that will change in the next decade.
As I have written before, "Old Europe" the US and even Australia are going to come under intense government budgetary pressure due to the high levels of pension and medical costs they have promised their retiring boomers. Europe is particularly vulnerable. Quite simply, Europe cannot afford to keep the pension promises they have made and pay for any other normal government expenses without raising taxes. Except that they already have economy-stifling high taxes.
Budgets are going to have to be cut in other areas. At some point, sooner rather than later, agricultural subsidies are going to come under pressure, as politicians must decide where to find the money to pay for the promised pensions and health care. There are more voters who are older and on pensions than there are farmers. I can count votes, and it is not hard to predict the result. It will be with a lot of fighting, but in the medium run, the agricultural subsidies in Europe are going to have to go.
When the writing is clearly on the wall, Europe will start to negotiate on those subsidies, trying to get something for what they will have no choice but to give. Part of that will be to reduce US subsidies as well. Africa will become a breadbasket for much of Asia. With China pressed for water and much of its agricultural land being used for development, China will need to import more food. And as the rest of the world becomes more developed, there will be an increased demand for meat, which means an even bigger demand for feed grains for livestock. The growing use of ethanol is increasing demand for corn, absorbing more of the world's land use for energy corn rather than for food.
The simple fact is that as the world grows more prosperous we are going to need more grain and other foods. Where is the land we are going to need to feed the world There is an abundance in Africa, along with the needed water and labour.
And as African countries upgrade their infrastructure, it will improve the ability of farmers to get their grains to market at profitable levels.
There is much to like about emerging markets. That is where a great deal of the real potential growth in the coming decades will be. And South Africa will be one of the better stories. If you are not doing business there already, you should ask yourself, why not?
Home Again, Tulsa
I want to give special thanks to my South African partners Prieur du Plessis and Paul Stewart and the rest of the team at Plexus Asset Management. I have never been treated so well on a trip. They made all the hard work a pleasure, taking care of a thousand small details so I could focus on the tasks at hand. And they did arrange for some fun, relaxation, and great sightseeing. I am looking forward to going back soon. I was particularly impressed with South African Air. Very comfortable business-class seats, impeccable service, and great wines. I have trouble sleeping on planes, but I could actually sleep in these seats. But it still took over 40 hours to get to Johannesburg, rather than under 20, so I was exhausted when I got there. Jet lag this trip was as bad as I have ever had. Coming back has been easy. It is getting late and time to hit the send button. Have a great week and enjoy the ones you're with.
Your tired but happy analyst, John Mauldin-
Interesting letter by John Mauldin, one of the US's top investment advisors - recently voted second only to Warren Buffet as an investment guru.
I start this week's letter somewhere over the Atlantic, halfway through an 11-hour flight from Frankfurt to
Dallas. It has been an altogether marvelous 11 days in South Africa, speaking to over 1,000 people at 12 venues, giving a half dozen media interviews, and meeting with many individuals.
This week, I want to give you some impressions of not only South Africa, but talk a little about emerging markets in general.
Finding Value in South Africa
I realized about halfway through my recent trip that it had been sometime since I was in an emerging-market country. I have been to over 50 countries over the past 20 years, but recently most of my travels have been to Europe and Canada, with the occasional vacation trip to Mexico.
As I observed South Africa, it was forcefully brought home to me that there is more to the emerging-market story than China, India, and Brazil. There are any number of countries that are seeing robust growth and contributing to the world economy. It was reported at Davos this year that for the first time the developing world has a larger share of world GDP than the developed world. Today, we focus on an emerging-market country that does not make as much news as it should.
As I mentioned above, the mood among those I talked with in South Africa in the early 1990s when I was traveling often to South Africa was quite pessimistic. The economy was not good, due to international economic sanctions stemming from worldwide protests over the policy of apartheid. Changes and elections were coming, and it was not clear what would happen.
I traveled for (mostly) business into 14 other sub-Saharan countries in Africa. With a few notable exceptions, most countries were not doing well and things had progressed from bad to worse over the previous 10-20 years. It was a tough time to try and do business, but it was a great education.
The contrast today is amazing. Before we get into some facts, let me give you a few impressions. First, there are construction cranes everywhere in the four cities I visited: Johannesburg, Pretoria, Durban, and Cape Town. Twelve years ago the thirty miles from Johannesburg to Pretoria was mostly agricultural land. Today it is one big city, with offices, malls, and homes lining the freeway. There was a significant number of rather nice new housing developments, many if not most being built on speculation all along the freeway.
Johannesburg is a world-class city, on a par with New York or London or any major city in terms of facilities, shops, infrastructure... and traffic. There were new shopping malls all over, and the stores were busy. The restaurants were excellent. The hotels I stayed in and spoke at were excellent and modern. The Sandton area is particularly pleasant.
Durban is a tropical jewel on the Indian Ocean. Again, there was construction everywhere - a green, verdant city of 1,000,000 people, with modern roads and great weather.
I have been to Sydney, Vancouver, and San Francisco. I love all of them. But for my money, Cape Town is the most beautiful city I have been to in the world. Amazing mountains, blue water harbors, white sand beaches, with wineries nestled in among the mountains and valleys. The Waterfront area, where I stayed, is fun and vibrant. Again, an amazing amount of construction everywhere, especially in the waterfront area, as investors from Dubai are pouring huge sums of money into creating a massive residential/business/ retail/restaurant development.
There are several similar, quite large developments going up in different parts of Cape Town. I ate dinner on Friday night at a restaurant called Baia at the Waterfront. I find I really love the better South African chardonnays. My friends know I am something of a chardonnay snob. I like the better California wineries. I was pleasantly surprised to find more than a few South African chards the equal of their US counterparts, but at a third to half the price for the same level of quality. (I should note that a decent chardonnay in London or Europe is twice the US price.)
The two of us had the best chardonnay in the restaurant and one of the better meals I have had in a long time, and the bill was less than $100.
The next day my partner Prieur du Plessis informed me that Baia was one of the most expensive restaurants in town. By way of comparison, you can easily spend 2-3 times that at a comparable restaurant in Dallas, and 4-5 times that in New York. Forget London.
I began to ask about the bills for food, drinks, and such for the rest of the trip. The country was uniformly about half what I would pay in Texas for the same quality. I stayed in a very nice five-star hotel (The Commodore) for six nights for less than $1,000, including several meals, laundry, and my bar tab. Their walk-up price was much higher, but clearly you can get deals, and it is tourist season at that. The service was terrific and uniformly delivered with smiles.
The exceptionally nice private game reserve (Itaga) we stayed at when I first arrived, trying to get over jet lag, was only a few hundred a night, including meals, wine, and game runs. In short, after having been to London and Europe for my last few overseas trips, South Africa seemed like a bargain.
And it was not just the people I spoke to that were optimistic. Grant Thornton (a large international accounting firm) did a survey in the 30 countries in which they do business. The four countries with the most optimism and confidence were India, Ireland, South Africa, and Mainland China. Why such confidence? I think there are several reasons. The economy has been growing at a reported almost 5% a year for the past several years, which is quite strong. They have had 32 consecutive quarters of positive growth. But the official figures may understate the reality by a significant amount. If you look at the VAT (value-added tax) receipts, as well as other tax figures, some economists estimate the economy may be growing by 7% or more. Why the difference?
There is a large "informal" economy in South Africa. While much of the income may not be reported, when something is bought and sold in the retail sectors, taxes are collected.
The stock market has grown by over 25%, 47%, and 41% for the last three years. Such a bull run is always a boost to confidence. But there are also some real fundamentals underlying the emerging-market Bull markets. South Africa has a strong commodity sector, with numerous commodities and not just gold. JP Morgan thinks that earnings growth for South African companies, even adjusting for some anomalies, will be 20% this year, which should mean another good year for their local markets.
This link between commodities and stock market prices is reflected not just in their stock market, but in emerging markets worldwide. Look at the close correlation for the last ten years between the prices of commodities and the emerging-market equity index. I think this rather clearly shows the link between the recent rise in commodity prices and emerging markets. It is more than just a China story.
Football as an Economic Driver The attention paid to football (or soccer in the United States) is rising to fever pitch in South Africa. And for good reason: they will host the World Cup in 2010. They expect some 300,000 fans to show up.
The government is using the occasion to spend some 400 billion Rand (a little over US $50 billion) on all sorts of infrastructure projects. They are doubling the size of the major airports, which had already been significantly improved.
Walking past the construction at the Johannesburg airport, you have to be impressed with the size of it. New roads and other forms of infrastructure are being added to prepare for the influx, but it will have the added effect of making the country more competitive, just as infrastructure in China has been a boost to that country, and a lack of infrastructure has limited India.
The World Cup will also be a boost to tourism, already one of the most important sectors of the economy. Cape Town is becoming an international destination for vacations and conferences. The growth in tourism has been strong, showing 20% growth last year from 2005. 2006 was a record year.
Interestingly, 75% of the traffic reported in the tourism growth is from Africa and the Middle East. While a lot of the people are vacationers, I think a goodly portion are businessmen and women from all over sub-Saharan Africa who look to South Africa as a deal-doing financial centre. South Africa has a quite strong, very competent, and growing financial services sector that is a magnet for entrepreneurs from all over Africa seeking to find capital. South Africa also has a strong entrepreneurial class which is the base for much of the new business and development, not just in South Africa but in all of Africa. The rest of the world rightly sees South Africa as the place to launch into the rest of Africa.
Are there problems in South Africa? Of course, and some of them are quite serious. But that is the case in nearly all (I cannot think of an exception) emerging-market economies. While the overall crime rate is dropping, it is still far too high. Some rather high-profile crimes of late have resulted in a strong outcry for serious change.
Corruption is an issue, but that is the case in almost every emerging-market country. The high levels of poverty are evident. Although employment is growing and more and more of the poor are being brought into the economy, there is still a lot of room for progress.
The telecommunications infrastructure is hampered by a lack of serious competition. Access to the internet is limited in many areas, and it is really slow where it does exist. This will improve in the coming years, but it is a serious handicap to business. There are power shortages and the need for more power-generation plants to keep up with the growth.
But all these areas are (mostly) going to improve. I see a lot of opportunity in South Africa in particular and Africa in general. Let's look at one area where there may be more than a little potential in the future.
I think there is deep long-term value in African (not just South African) farmland. Right now, given the nature of US and European subsidies to agriculture, it is hard for developing-world farmers to compete. But that will change in the next decade.
As I have written before, "Old Europe" the US and even Australia are going to come under intense government budgetary pressure due to the high levels of pension and medical costs they have promised their retiring boomers. Europe is particularly vulnerable. Quite simply, Europe cannot afford to keep the pension promises they have made and pay for any other normal government expenses without raising taxes. Except that they already have economy-stifling high taxes.
Budgets are going to have to be cut in other areas. At some point, sooner rather than later, agricultural subsidies are going to come under pressure, as politicians must decide where to find the money to pay for the promised pensions and health care. There are more voters who are older and on pensions than there are farmers. I can count votes, and it is not hard to predict the result. It will be with a lot of fighting, but in the medium run, the agricultural subsidies in Europe are going to have to go.
When the writing is clearly on the wall, Europe will start to negotiate on those subsidies, trying to get something for what they will have no choice but to give. Part of that will be to reduce US subsidies as well. Africa will become a breadbasket for much of Asia. With China pressed for water and much of its agricultural land being used for development, China will need to import more food. And as the rest of the world becomes more developed, there will be an increased demand for meat, which means an even bigger demand for feed grains for livestock. The growing use of ethanol is increasing demand for corn, absorbing more of the world's land use for energy corn rather than for food.
The simple fact is that as the world grows more prosperous we are going to need more grain and other foods. Where is the land we are going to need to feed the world There is an abundance in Africa, along with the needed water and labour.
And as African countries upgrade their infrastructure, it will improve the ability of farmers to get their grains to market at profitable levels.
There is much to like about emerging markets. That is where a great deal of the real potential growth in the coming decades will be. And South Africa will be one of the better stories. If you are not doing business there already, you should ask yourself, why not?
Home Again, Tulsa
I want to give special thanks to my South African partners Prieur du Plessis and Paul Stewart and the rest of the team at Plexus Asset Management. I have never been treated so well on a trip. They made all the hard work a pleasure, taking care of a thousand small details so I could focus on the tasks at hand. And they did arrange for some fun, relaxation, and great sightseeing. I am looking forward to going back soon. I was particularly impressed with South African Air. Very comfortable business-class seats, impeccable service, and great wines. I have trouble sleeping on planes, but I could actually sleep in these seats. But it still took over 40 hours to get to Johannesburg, rather than under 20, so I was exhausted when I got there. Jet lag this trip was as bad as I have ever had. Coming back has been easy. It is getting late and time to hit the send button. Have a great week and enjoy the ones you're with.
Your tired but happy analyst, John Mauldin-
Save money rehabbing a house
Rehabbing a house can be a very expensive task that can easily get out of hand and over budget. Today more and more people are looking for ways to save money remodeling their home. I'd like to share some of my insight and experience on ways to save money when doing a rehab property or flip piece of real estate.
Here is my list of the top 10 ways to save money Rehabbing / Remodeling a house.
1. Be Your Own General Contractor - Being your own general contractor could save you substantial money. However, I don't recommend this approach to many people. You really do need some knowledge of the house remodeling industry before you try to take on this large of a task. You must have good negotiation skills, a sense for the construction trades, and an eye for design. If you're successful at being your own general contractor you could save as much as 5% to 10% on your construction project.
2. Buying the right piece of investment property - can save you money when you begin your remodel project. The type of house you select can be one of the best ways to save money when you invest in real estate. Buying old or out of date construction types can cost you a lot of money because of the investment necessary to bring the property up to code. Choosing a simple rectangular house with simple roof lines and standard windows compared to a complicated geometric house can save you lots of money. Choose nice siding, paint and landscaping instead of an unusual house design.
3. Sweat Equity - There's no better way to save money than to role up your sleeves and put some sweat equity into the project. Home Improvement and DIY are so popular today that most home owners have tackled a project or two trying to save money. You can take those skills and apply them to your remodel construction project. Most contractors will agree to let you do certain phases of the project if you discuss them before construction begins and identify those items in the contract. If you have certain skills that you feel comfortable with then discuss them with your contractors so you can save some money. I'll discuss some of the more popular tasks below.
4. Job Site Clean Up - Helping keep the site clean is one of the simplest ways I know how to save money when remodeling a house. Having a clean and orderly job site makes everyone work a little more efficient and careful. Having the sense of an organized job site will ensure your project gets finished sooner with few problems and that means less money from you. Even slight delays in the project can mean substantial interest payments and temporary housing costs.
5. Salvage Materials - Using salvage materials will help you save money and it's the Green Thing to do. Today there are salvage yards that specialize in recycling building materials. Things such as doors, windows, cabinets, plumbing and electrical fixtures are all available at very discounted prices. You'll be saving money while helping out the environment so it's certainly an idea worth considering.
6. Reduced Price Products - Buying floor models, remnants and slightly damaged products is one area that I've seen many of our real estate rehabbers save big money. Many building material stores sell discounted projects at huge summer time yard sales. When you're looking for fixtures make sure to consider about floor models, discontinued models and even damaged products.
7. Painting - Most people that consider themselves DIY'ers have no problem painting. If you paint your remodeling project inside and out you can save $2,000 to $10,000 easily. Painting your rehab house is a project the whole family can help out with. I've seen people that have a painting party with family and friends and paint an entire house in one weekend.
8. Flooring - Flooring is another project that I've seen customers save a substantial amount of money on. Most types of tile and wood flooring a re easy to install with very little tools. Even if you can't install the flooring yourself check out sales for discounted materials. You can often find discontinued material and use it to tile the basement or laundry areas.
9. Landscaping - Doing the landscaping yourself can save thousands of dollars. It takes very little skill to do and can save you a ton of money. Bring along friend and family to help. It makes for a great group project. Chances are you'll save money and do a better job in the process. You can easily plant your own trees, shrubs flowers to save money.
10. Keep It Simple - I have seen too many investors and flippers over build a rehab project and finish it exactly the way that they would want it. The problem is that no two families have the same taste. I have often driven past these homes months later to find the paint a different color, the landscaped ripped out, or even worse, everything is dead. Build the project to meet the standards of the neighborhood and make sure that everything is clean, operational, and that the home is ready to move in. NOTHING MORE. Give them a clean slate to start their new life with in the rehab home you've remodeled. You waste a lot of money on things that the new buyer may not like. It is better for you to save that money and offer it to the buyer as an incentive for buying or to help them with closing costs. It will end up making the deal close faster.
Doing any one of these items the next time you build a new house can save you money. The most important advice I can give you is to be speak with your builder openly about these ideas. Tell your builder you'd like to save some money by doing certain tasks yourself. Most builders will be open to this arrangement so long is it's discussed ahead of time and properly addressed in the contract.
Need to sell your investment properties?
As every property ‘guru’ worth their salt will tell you, property investors should never sell a property unless there are extreme and unusual circumstances. Here are some options investors should consider before thinking of selling their properties.
· As soon as there is a possibility of repayment problems or an indication of future difficulties, contact the bank
· Fix or cap the interest rate if you are unable to endure any future rate increases
· Renegotiate the bond rate – your bond originator could help you negotiate a better rate
· If your bank won’t assist with a lower rate, consider switching, but be sure you understand all the financial implications
· Extend the mortgage term from 20 to 30 years and reduce the monthly repayments
· Negotiate a payment holiday - suspension of payments for a period
· Negotiate reduced repayments for a specified period
· Negotiate special arrangements to pay the arrears over a stipulated periods
· Access the equity in your properties by refinancing it to cover your short-falls
· Consider taking on a private investment partner
· Make multiple bond repayments in a month. Mortgage interest charges are calculated on your daily outstanding balance, so if you divide your single repayment on the 30th into two payments made on the 15th and 30th days of each month, you can shave months and thousands of rands off your bond.
With all that said, we realise that some of our investors may find themselves extremely over-exposed at the moment, particularly with two more interest rate increases predicted for this year.
If you have exhausted all the other options, and you have no alternative left but to sell an investment property, send us the details of your property and we will list it on Property Bargain Finder for you, provided that it meets our stringent 10-point quality plan.
While the market conditions are tough and there is an oversupply of properties on offer through traditional estate agency channels, there are many Property Bargain Finder investors among those on our 60 000 strong database who are looking for good deals to expand their property portfolios at the moment, and Property Bargain Finder can help you reach those who are looking to buy properties.
Listing conditions will be negotiated once the property has been evaluated.
Tuesday, September 23, 2008
Development Coach
Get the first module free! Please download the first module of the Development Coach E-course for FREE on our website by clicking on this link http://www.developmentcoach.co.za/freemodule.php It is packed with some fascinating insights detailing why developing property is the ultimate wealth creation strategy!
If you have ever stood in front of a beautiful residential development with 6 or 20 or even 100 units, all filled with happy families, and wondered just how it happens and who pocketed all the money, you are definitely in the right place.
Development Coach is for future and current property developers who understand that developing a property can allow you to transform a relatively inexpensive piece of land into a multi-million rand development (and a spectacular return on your investment!) by simply adding your knowledge, skills, management ability and expertise.
Sorry! No magic ingredients!
Perhaps it is because you can achieve such high returns on your investment, in such a short period of time, that people believe there must be some insider secret or some mystery process behind property development.
Fortunately, I can vouch that this is entirely not true. There are some characteristics that are common among property developers, but most of these can be learnt or acquired.
How I made a million with just one development
I do not have a fancy degree, a rich dad or a silver spoon that I was born with. I am just an average guy that was willing to learn and apply the knowledge I gained to change my financial destiny. And now I am just an ordinary guy with a string of successful developments behind me, and a healthy bank account that can withstand all of my wife's monthly shopping sprees!
Now it is your turn
The fact that you have signed up for this newsletter indicates to me that you, too, are ready to change your destiny. If you were wondering if property development is for you, my short answer is YES! Anyone can learn the processes behind developing property. Anyone can find out how to get the finance, put a development team together, and start and complete a project. Development Coach just makes it so much easier than learning through the school of hard knocks!
In my experience, here are the characteristics that make a property developer successful:
a.. An entrepreneurial spirit
b.. Being market aware
c.. The ability to see opportunities
d.. The willingness to take calculated risks
e.. Being a doer - actually taking the first step, and then the next, to make it happen
f.. Effective time management and the ability to manage yourself
g.. Surrounding yourself with experts and delegating effectively to them
Are you an entrepreneur?
Let's just look at having an entrepreneurial spirit. It really encapsulates all the other characteristics. Entrepreneurs are always looking out for opportunities and spot them where others see only problems. They can find the positive in every situation, and can innovate solutions that will also make money.
Let's take the Eskom power crisis as an example. It will certainly affect the property development market and many developments will be delayed. But an entrepreneur will also see that these delays will serve to increase the demand for housing even more and recognise the opportunities this will bring.
Another example is the slump in the property market in 2008. House price inflation was down, interest rates were up and the National Credit Act made it more difficult for people to get home loans. Everyone talked about how badly property was performing and how hard it was to sell a property. Entrepreneurs will understand that this is, in fact, the bottom of the property cycle, and realise that the cycle is about to turn up again. They will know that the best time to buy is when the market is down and they will set themselves up to take advantage of this.
Just doing it
But mostly, entrepreneurs are doers. They don't just talk, dream or think - they go out and take advantage of the opportunities. And since it is estimated that 97% of people who have the knowledge to do something, will never actually apply what they know, there are endless opportunities for the 3% of entrepreneurs who are willing to take the risk and the first step.
You have already taken the first step! The next step is as simple as signing up for the rest of the modules. Set your entrepreneurial spirit free and be one of the 3% of people who actually do something with the knowledge they have. You already know that property development is the ultimate strategy for wealth creation - now is the time to turn this knowledge into real returns.
Here's to your property development success!
Pierre van Wyk & the Development Coach team
The Development Coach team
Tel: (011) 979 0315
Fax: 0866 55 08 62
Email: info@developmentcoach.co.za
30 Villa Valencia, Cnr Monument and Anemoon Str, Glen Marais, Kempton Park
PO Box 12316, Aston Manor, 1630
If you have ever stood in front of a beautiful residential development with 6 or 20 or even 100 units, all filled with happy families, and wondered just how it happens and who pocketed all the money, you are definitely in the right place.
Development Coach is for future and current property developers who understand that developing a property can allow you to transform a relatively inexpensive piece of land into a multi-million rand development (and a spectacular return on your investment!) by simply adding your knowledge, skills, management ability and expertise.
Sorry! No magic ingredients!
Perhaps it is because you can achieve such high returns on your investment, in such a short period of time, that people believe there must be some insider secret or some mystery process behind property development.
Fortunately, I can vouch that this is entirely not true. There are some characteristics that are common among property developers, but most of these can be learnt or acquired.
How I made a million with just one development
I do not have a fancy degree, a rich dad or a silver spoon that I was born with. I am just an average guy that was willing to learn and apply the knowledge I gained to change my financial destiny. And now I am just an ordinary guy with a string of successful developments behind me, and a healthy bank account that can withstand all of my wife's monthly shopping sprees!
Now it is your turn
The fact that you have signed up for this newsletter indicates to me that you, too, are ready to change your destiny. If you were wondering if property development is for you, my short answer is YES! Anyone can learn the processes behind developing property. Anyone can find out how to get the finance, put a development team together, and start and complete a project. Development Coach just makes it so much easier than learning through the school of hard knocks!
In my experience, here are the characteristics that make a property developer successful:
a.. An entrepreneurial spirit
b.. Being market aware
c.. The ability to see opportunities
d.. The willingness to take calculated risks
e.. Being a doer - actually taking the first step, and then the next, to make it happen
f.. Effective time management and the ability to manage yourself
g.. Surrounding yourself with experts and delegating effectively to them
Are you an entrepreneur?
Let's just look at having an entrepreneurial spirit. It really encapsulates all the other characteristics. Entrepreneurs are always looking out for opportunities and spot them where others see only problems. They can find the positive in every situation, and can innovate solutions that will also make money.
Let's take the Eskom power crisis as an example. It will certainly affect the property development market and many developments will be delayed. But an entrepreneur will also see that these delays will serve to increase the demand for housing even more and recognise the opportunities this will bring.
Another example is the slump in the property market in 2008. House price inflation was down, interest rates were up and the National Credit Act made it more difficult for people to get home loans. Everyone talked about how badly property was performing and how hard it was to sell a property. Entrepreneurs will understand that this is, in fact, the bottom of the property cycle, and realise that the cycle is about to turn up again. They will know that the best time to buy is when the market is down and they will set themselves up to take advantage of this.
Just doing it
But mostly, entrepreneurs are doers. They don't just talk, dream or think - they go out and take advantage of the opportunities. And since it is estimated that 97% of people who have the knowledge to do something, will never actually apply what they know, there are endless opportunities for the 3% of entrepreneurs who are willing to take the risk and the first step.
You have already taken the first step! The next step is as simple as signing up for the rest of the modules. Set your entrepreneurial spirit free and be one of the 3% of people who actually do something with the knowledge they have. You already know that property development is the ultimate strategy for wealth creation - now is the time to turn this knowledge into real returns.
Here's to your property development success!
Pierre van Wyk & the Development Coach team
The Development Coach team
Tel: (011) 979 0315
Fax: 0866 55 08 62
Email: info@developmentcoach.co.za
30 Villa Valencia, Cnr Monument and Anemoon Str, Glen Marais, Kempton Park
PO Box 12316, Aston Manor, 1630
New property training courses
Dear Investor,
We are delighted to announce the launch of two new training courses from Property Bargain Finder! Following the phenomenal response to our Development Coach course launched earlier this year, our Property Investment Coach course and our Property Ownership Coach course have just been launched.
There was a great demand from the industry and from our investors for training for property investors as well as a basic property ownership course. Our training courses now include:
Property Ownership Coach - Free!
This Property Ownership Course will introduce you to a new paradigm – becoming an Asset Owner instead of an Income Earner. We will share with you the basic fundamentals of successful property ownership, including success strategies to buy the right property, get the right finance, increase the value of your property, pay the bank less interest and how you can use the cash locked up in your property to, for example, start a business or buy more property.
And best of all, this exciting journey into smart property ownership is absolutely FREE!
Click here link to for more information www.propertybargainfinder.com
Property Investment Coach
This is an exciting, inspiring journey to creating wealth through investing in property, at the end of which you will have the know-how to retire young and wealthy, so you can have the life you deserve!
You can look forward to a thrilling, exciting journey through 13 training modules, each packed with practical information, top investment tips, inside info, how to’s, step-by-step guides, and much more to empower you to understand how property investment works, and how to start your own property investment portfolio.
Click here for more information and download the first Module for free! www.propertybargainfinder.com
Development Coach
An exciting, inspiring journey through the fascinating world of property development, at the end of which you will be able to start your own property development. Development Coach offers you a 25-module course completed over 24 months, giving you the real, practical information, tips and success strategies to develop a property. And, our course tracks the development of a real brick-and-mortar development, so you will get a feel for the timelines and the process flow of a real-life development project.
Click here to find out more and download the first Module for free! www.propertybargainfinder.com
We invite you to have a look at the new websites and register for the newsletters and online courses. Each course is a practical step-by-step guide to creating wealth through property. During the next few months we will be adding plenty of resources for our subscribers, so be sure to register and stay on the cutting edge of the property game.
There are also some very exciting new courses under development and we are currently in the process of obtaining SETA accreditation for our courses. Watch your inbox for more exciting news!
Warmest regards,
The Property Bargain Finder team
Tel: 086 72 77 052 or (011) 979 0315
Fax: (011) 979 0123
Email: vania@propertybargainfinder.co.za
30 Villa Valencia, Cnr Monument and Anemoon Str, Glen Marais, Kempton Park
PO Box 12316, Aston Manor, 1630
Usufructs, trusts, property transfers, etc
Property Bargain Finder is constantly looking for ways to add even more value to the Property Bargain Finder investors and to provide cutting edge services and products for our Property Bargain Finder Investor’s Club members.
In line with this, we are delighted to announce a new Property Bargain Finder service for our investors and Club Members: usufruct transfers.
Zita Hage, a qualified attorney, who specialises in usufruct conveyancing, is able to offer Property Bargain Finder investors and Club Members this essential service.
What is a ‘usufruct’?
Although the name sounds strange because it is a Latin term, the word ‘usufruct’ simply means ‘the use of the fruits’. Applied to property ownership, this simply refers to the right to use of the property for personal use or to receive the benefit of any rent from the property, as the case may be.
In practical terms, the rights to use the property can be separated from the title (ownership) of the property and this clever legal trick holds a solution for property owners wanting to transfer property registered in their names to their trust at a cost effective rate.
How this can help Property Bargain Finder investors and Club Members
Some of you may have faced the problem of how to deal with current properties already owned and registered in your personal names. You may want to transfer the ownership of the property to a trust, but not want to pay the full transfer fees all over again which can run in to tens of thousands of Rands.
This is where a usufruct could be useful. The effect of a usufruct is that the usage portion of the rights of ownership (the usufructuary rights) is separated from the title (dominium) to the property. The owner would therefore keep the usuage rights in his name (the usufruct) and transfer the title (ownership) to the property to the trust. As the ownership of a property which is encumbered by a usufruct is not worth much, the price tag for such ownership is negligible and it is this amount that transfer duty would be payable on.
However, since the ownership of the property is now held in the trust, investors enjoy the same asset protection they would have had if the full property rights and ownership were held by the trust as well as the estate planning benefits of having the capital growth accumulating in the trust rather than in their personal names.
Contact Vania on vania@propertybargainfinder.com - 0794855355 for more info.
Warm regards,
The Property Bargain Finder team
Web: www.propertybargainfinder.co.za
Monday, September 22, 2008
How to retire young & early
It is extremely exciting for me to be involved in, and to introduce to you, to one of the most liberating and positive new approaches in wealth creation.
We have all heard the very sad statistics that show that 95% of South Africans will retire without enough money to be financially independent, which means they will have to rely on their families, or worse, yet, the government to survive their retirement years.
The fact is that the traditional methods of saving for retirement simply don’t add up, and as the statistics show, they have an incredibly high failure rate.
The good news is that there is another way – a way that will not only ensure that ordinary South Africans can retire wealthy, but also so they can retire young!
This new approach to wealth creation has the objective to help normal people to retire younger and wealthier, so they can live the lives they deserve!
Even better news is that you don’t need a lump sum or extra cash every month to invest. You don’t need a degree or connections in the right places.
All you need is to change your paradigm from being an Income Earner to becoming an Asset Owner, and to allow Property Bargain Finder to show you the process of building wealth through property. www.propertybargainfinder.com.
This is a simple, but very effective and safe process that has created great wealth for many South Africans.
We will show you:
• how to buy a R1 million house for R29 000,
• how to pay off your bond in record time,
• how you can restructure your current affairs to create cash flow to buy even more properties,
• how to buy multiple properties, and
• how to maximise your passive income
• and how to minimise your risk by using the right structures
In short, how to retire young and early!
Simply email me on vania@propertybargainfinder.com, and I will invite you to attend a free seminar or a free personal consultation during which we will create your personal wealth creation strategy taking into account your current circumstances, whatever they may be.
There are no obligations or catches! Property Bargain Finder can assist you through the entire process or you can do it on your own.
Since I know that most of you will say:
o You lack of the knowledge and experience in choosing the right property
o Don’t have time to search through hundreds of websites, property listing magazines, and newspaper property sections
o Don’t have time to educate yourself on the finer points of successful property investment.
o And don’t have time or experience to manage a buy-to-let property
We have created a solution that makes it both easy and safe for you to create wealth. What we do offer is:
- We find the right investment properties for you
- We help you obtain the finance
- We assist you with the rental and management
- We provide preferential access to experts in tax, trusts, and financial planning
Property Bargain Finder is also the only property club that puts its money on the line – offering a guaranteed buyback on certain properties. This means if you are not completely satisfied, we will buy the property back from you at the price paid for it.
Our investors also benefit from our negotiation and bulk purchasing power, so you can enjoy cash back and pre-launch prices, and have access to launches of residential developments.
We also offer seminars and training courses, some of which are absolutely free, since we believe every South African has the right to know how they can create wealth through property.
We have three levels of Property Bargain Finder Investors Club memberships to ensure every South African can learn the basics of the Power of Property.
Our free membership includes a training course on basic Property Ownership principles, including how to buy the right property, how to beat the banks at their own game and how you can use your property to buy more property or start a business.
The Gold membership focuses on property investment and the Platinum package focuses on property development – from renovations to developing a townhouse complex.
This concept has been so successful that the AIDA property group has adopted our model to create their own AIDA Property Club, and Property Bargain Finder distributors have set up offices all over the country. www.aidapropertyclub.co.za
All you have to do is put aside an hour or two for us to show you how. Email vania@propertybargainfinder.com and take a step towards ensuring that you are not one of the 95% of South Africans that will retire without enough money to survive.
You can retire young and early and live the life you deserve!
vania@propertybargainfinder.com
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