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!