Commercial property sector in 2013
As the end of a particularly challenging 2012 approaches, stakeholders and participants in South Africa’s commercial and industrial property sectors should probably be checking that the hatches are still firmly battened down in preparation for an equally challenging 2013. The likelihood of continued slow growth across South Africa’s various property industries will mean that finding good deals against which to lend will remain a key challenge for property finance houses in the coming year.
This can present a significant risk for those that take their eyes off the longer-term nature of the industry.
During protracted economic down cycles, a main risk facing many property businesses – whether involved in finance or development – is giving in to the temptation of chasing after risky deals that can so often come along disguised as opportunities.
Which is why, in this industry, challenging times typically highlight the importance of proven experience, broad market knowledge, and a long-term view.
The good news about credit bureaus
Contrary to what many may think, a credit bureau is not simply a negative database of “blacklisted” information.
Quite the opposite actually, says Michelle Dickens, managing director at Tenant Profile Network (TPN), a registered credit bureau specialising in tenant behaviour across both residential and commercial markets.
Dickens says 80 percent of the tenants on their database enjoy a positive profile.
Indeed, a tenant’s rating at a credit bureau can be useful when applying for a rental, a home loan or car finance.
As an example, think of a young tenant who has not yet built up a comprehensive credit history.
Their positive rental rating will help them to build this profile, making them a more attractive prospect when applying for future finance, she says.
How to deal with special levies
The term “Special levy” can often strike fear into the hearts of owners in sectional title schemes, as is frequently seen in the course of business at Propell.
Owners become liable for paying their portion of a special levy in accordance with their participation quota and these portions can be substantial and hit them without warning.
The annual budget must be drawn up by the trustees and approved by members at the annual AGM. In a perfect world, this budget would include a surplus which allows for a build-up of a reserve fund to cater for ongoing maintenance and upgrades in services such as security and elevators, etc. However, this is often not the reality in a large percentage of schemes today.
The prescribed management rules (PMR) 31(4) gives the trustees the power to raise special levies sometimes, due to unforseen expenses, provided that two requirements are met. Firstly, the expense for which the special levy is raised must be necessary and secondly, the expense must not have been included in the budget approved by owners at the last AGM. The trustees may decide whether to make the special levy payable in one lump sum or in instalments, as the trustees see fit.
Buying property: fittings & fixtures
It is not uncommon for disputes to arise between a buyer and a seller regarding what is classified as a fixture and fitting and what isn’t.
This is according to Adrian Goslett, CEO of RE/MAX of Southern Africa, who says in many cases there are certain items that a seller has installed and would like to remove from the property and take with them when they move.
“Sellers often ask whether they are allowed to do this and the simple answer is 'yes', provided that both parties are in agreement. Alternatively, if the agreement of sale excludes any specific item, the seller is entitled to remove it.”
Goslett points out that the general rule when it comes to fixtures and fittings is that when the purchaser buys a property, they receive the land, the permanent physical improvements such as any buildings erected on the land, along with all items that are permanently attached to the improvements or buildings that are erected on the land.
Cape Town & compliance certificates
Buyers of property should be aware that a valid Certificate of Compliance for the Water Installation as per the City of Cape Town Water By-Law 2010 is by no means a guarantee that the plumbing installation is in full working order.
This is according to Mike Greeff, chief executive officer of Greeff Properties, an exclusive Affiliate of Christie’s International Real Estate.
Greeff says the reality is that in order for the transfer to proceed, only a Certificate of Compliance for the Water Installation is required, and this applies to all transfers initiated after 1 March 2011.
However, the inspection required for this particular certificate is not as complete as that which is required for the granting of a Plumbing Certificate of Compliance, which is obtainable from the Plumbing Industry Registration Board.
VAT & buying property from non-vendors
Thanks to an amendment of the Value Added Tax (VAT) Act No. 89 of 1991 which came into effect on 10 January 2012, VAT vendors who purchase fixed property from non-vendors will enjoy a significantly higher input tax deduction from such transactions than previously provided for.
This benefit arises due to the vendor in these circumstances being allowed to claim the input tax on the immovable property without having their claim limited to the amount of transfer duty paid, as was the situation previously.
The amendment allowing the more favourable VAT input claim to vendors is created by the deletion of the proviso contained in subsection (b) of the definition of “input tax”.
This proviso specifically limited the input tax claimable in respect of second hand goods consisting of either fixed property or shares in share block schemes, to an amount which shall not exceed the amount of transfer duty or stamp duty paid on the respective purchases.
Foreign investments & affordable homes
The need for development of affordable housing in urban areas has increased over the last 10 years.
According to Engel & Völkers Southern Africa, the rate of employment in the main metropolitan areas compared to outlying areas continues to contribute significantly to this increase as more people are inclined to move towards the metropolitan areas in search of greater job opportunities.
The Human Settlements' department annual report states that their goal is to achieve the establishment of 400 000 households by the end of 2012 and also to facilitate 600 000 housing opportunities in the gap market for people who earn between R3 500 and R12 800 monthly - goals that are highly achievable as international investors are now investing in the South African residential property market.
International Housing Solutions (IHS) has to date raised R1.9 billion for both the sales and rental residential market, according to the agency.