Guide to residential home loans

The Home Loan enables you to finance residential property.

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


Documentation to accompany your application.

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


What are the features of the Product?

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





How does the Product work?

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

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

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


Limitations of the Product.

Only residential properties may be financed with the Home Loan.

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


Pricing structure.

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





Interest Rates.

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

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


FICA requirements for opening an account.

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

VARIABLE RATE:


Description of the Product.

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


What are the features of the Product?

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


Limitations of the Product.

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


Related products or alternative Products.

Fixed-interest rate options.


Pricing structure.

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









FURTHER ADVANCES (INCLUDING RE-ADVANCES):


Description of the Product.


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

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

Documentation to accompany your Further Advance application:

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

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


Documents for Further Advance applications using the Building Loan process:

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

What are the features of the Product?

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





How does the Product work?

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

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

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

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

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

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


Limitations of the Product.

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

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


Pricing structure.

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

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


Interest Rate.

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



HOUSEOWNER'S COMPREHENSIVE INSURANCE (HOC):

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

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

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


What are the features of the Product.

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


How does the Product work?

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


Pricing structure.

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

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

VANIA LEONARD
Bond Consultant

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

Seven new rules for the first-time home buyer

NEW YORK TIMES 15-9-2009

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


Robert Neubecker

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Information required to draft a Trust

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

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

2. The following details of the Trustee/s:

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

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

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

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

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

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

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

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

We suggest following be nominated as beneficiaries:

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

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

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

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


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

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

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

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

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

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

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

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

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

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

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


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

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

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

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

Yours faithfully
DELGADO VELOSA KENWORTHY & ASSOCIATES INC.

When lending money doesn't pay - Suze Orman

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

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

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

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

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

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

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

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

Knott-Craig's outlook for 2009

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

www.businesswarriors.co.za

What the market will do in 2009

What do we know about the year ahead?

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

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

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

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


1. Interest rates – the downward trend is positive.

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

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

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

What about house prices?

Property prices are determined by demand and supply.

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

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

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

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

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

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

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

Bargain properties for sale

For bargain properties, please click on this link

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

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

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

www.aspirelistings.co.za

Market expects big rate cut

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

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

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

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

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

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

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

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

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

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

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

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

- I-Net Bridge

Five ways to thrive in the current economic environment

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

Hilton Tarrant
04 December 2008 08:00

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

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

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

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

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

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

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

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

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

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

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

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.

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.”

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.

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

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

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

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!