Bridging the gap!

available from the Estate Agency Affairs Board

Tel: 011 731 5600 or order online www.eaab.org.za

NQF Level 4 & 5 Study Guides

February/March 2013 / Issue 114

The relevant provisions of the education regulations

Department of Human Settlements Housing Projects

Reserve Bank leaves repo rate untouched at 5%

Minister Tokyo Sexwale announces appointment of new EAAB Board

The Official Publication of the Estate Agency Affairs Board

Estate Agency Affairs Board, 63 Wierda Road East, Wierda Valley, Sandton Tel: 011 731 5600, www.eaab.org.za

AGENT | 01

Estate Agency Affairs Board 63 Wierda Road East

Wierda ValleySandton, Johannesburg

Tel: 011 731 5600

www.eaab.org.za

CONTENTS

PUBLISHEREstate Agency Affairs Board (EAAB)

PROJECT MANAGERMargie CampbellEAAB Marketing and Publications

DESIGN & PRINTBhubezi Printers

The EAAB publication has won the Printing Industries Federation of South Africa (Northern Chamber) 2010 Gold Award for best design.

MESSAGE FROM THE ACTING CEO

MYEAAB WEBSITE ONLINE PORTAL

CALLING ALL ESTATE AGENTS AND PRINCIPALS TO UPDATE THEIR CONTACT DETAILS

APPOINTMENT OF NEW BOARD MEMBERS: ESTATE AGENCY AFFAIRS BOARD

STATEMENT BY MINISTER TOKYO SEXWALE ON THE ANNOUNCEMENT OF THE NEW BOARD MEMBER APPOINTMENTS FOR THE ESTATE AGENCY AFFAIRS BOARD - 7 MARCH 2013

SA COMMERCIAL AND INDUSTRIAL PROPERTY SECTORS SET TO FACE CHALLENGING TIMES IN 2013

RESERVE BANK LEAVES REPO RATE UNTOUCHED AT 5%

COMMERCIAL PROPERTY MARKET REMAINS STRONG, DESPITE BEING UNDER CONSTANT PRESSURE

REGISTRATION AND ENROLMENT FOR THE PROFESSIONAL DESIGNATION EXAMINATION ( “PDE”)

TIPS FOR ESTATE AGENTS UNDERTAKING THE PROFESSIONAL DESIGNATION EXAMINATION

DEPARTMENT OF HUMAN SETTLEMENTS HOUSING PROJECTS

HOME BUYING ESTATE AGENT SURVEY

RESEARCH SHOWS ESTATE AGENTS CONCERNED ABOUT AFFORDABILITY AND THE CONSUMER CREDIT ACT

SAICA EXPLAINS POSSIBLE CONFUSION REGARDING PROVISIONAL TAX PENALTIES

BETTER ECONOMY, FASTER RATE, OF RESIDENTIAL PROPERTY OWNERSHIP TRANSFORMATION

EMIGRATION AND FOREIGN BUYING

PROPERTY BAROMETER: HOUSE PRICE INDEX

SELLING YOUR HOUSE?

FINANCIAL INTELLIGENCE CENTRE COMPLIANCE CONTACT CENTRE

RECORD PRICE ACHIEVED R65 MILLION ON THE ATLANTIC SEA BOARD

EDUCATION UPDATE: THE RELEVANT PROVISIONS OF THE EDUCATION REGULATIONS

HOUSEHOLD SECTOR FINANCIAL VULNERABILITY

REASONS FOR SELLING RESIDENTIAL PROPERTIES

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02 | AGENT

As this is my first message for 2013, I wish, at the outset, to express my very best wishes to all readers of AGENT for a healthy, happy, prosperous and economically successful year. I do hope that you all enjoyed and benefited from a good break over the festive season and that you have returned to the workplace enthused, refreshed and recharged.

The EAAB is most gratified to note that the real estate sector has continued to experience a meaningful growth in the number of registered practicing estate agents. During 2012, for instance, some 53 000 fidelity fund certificates were issued to applicants by the EAAB. It is anticipated that a similar number of fidelity fund certificates will again be issued during the current year. I believe that this fact can only bode well for the sector as it, in my view, constitutes an unambiguous indication not only of the ever improving prospects within the estate agency environment but, also, of the emergence and revitalisation of the South African economy in general and the property sector in particular after the sharp declines that have been so characteristic of the property environment since 2008. It would, of course, be imprudent for me to fail to recognise that there are still many systemic impediments which are yet to be overcome. I can, however, acknowledge that the economic path ahead looks increasingly more inviting than has hitherto been the position.

It will, of course, be well known to readers of AGENT that the EAAB, unfortunately, experienced a condition of relative turmoil and confusion during the beginning of 2012. This untenable situation resulted in the direct intervention by the Minister of Human Settlements, including his timely appointment of Mr. Taswell Papier as Administrator during August of that year. The EAAB has been able since that time, acting under the much valued guidance, direction and leadership of both Mr. Papier and the Department of Human Settlements, significantly to enhance the performance of its primary statutory role and function of regulating and guiding the real estate sector in the public interest. To be quite candid, we are all, indeed, greatly indebted to the Minister for his immediate and active involvement and intercession in the resolution of what could easily have become an intractable situation. The judicious ministerial intervention undoubtedly redounded to the direct benefit of the EAAB as well as its many stakeholders.

The Minister, in furtherance of the stated goal and objective of enhancing the resources and capacity of the EAAB, recently announced the appointment of the following new Board members, namely, Mr. Andile Ben-Mazwi; Ms. Jill Corfield; Mr. Sikander Kajee; Prof. Kwandiwe Kondlo; Ms. Seeng Lebenya-Ntanzi; Adv. Tshepo Maake; Mrs. Maletsatsi Maceba-Wotini; Mr. Rhulani Marivate; Ms. Jabhile Mbele; Ms. Dineo Molomo; Ms. Ewaldina Porteous; and Dr. Fazel Randera; Mr Mafanufikile Nsibande;

Mr Leo Mlambo; and Ms Bubele Damane. I wish not only to congratulate the new Board Members on their appointment, and on the faith and trust that has clearly been reposed in them by Minister Sexwale, but also to assure them that both my staff and I confidently look forward to the establishment of a close and mutually harmonious and supportive working relationship in the interests of all stakeholders and, more especially, the efficient discharge by the EAAB of its statutory functions and duties. The new Board Members will be more fully introduced to readers of AGENT in the next edition.

The EAAB, notwithstanding the abovementioned problems, was nevertheless still able to concentrate significant efforts, during the course of 2012, in further refining and developing its essential systems and processes with a view to enhancing the level of service delivery to all stakeholders. Close attention was paid to, amongst others, a reassessment of its financial policies, risk identification and management strategies, investment and procurement policies and fraud prevention policy. A performance management appraisal process was, furthermore, finally implemented in respect of all staff members.

With the close involvement of the Administrator, and acting under his guidance, leadership and direction, the EAAB was able entirely to re-evaluate its scope and activities so as to identify the primary goals and objectives that would be consistent not only with its statutory mandate but also with the mandate and mission of the Department of Human Settlements. The vision of the EAAB, to be a world class regulator, necessarily implies that the EAAB is bound to strategise both on a global level as well as within the particular South African estate agency environment with the ultimate aim and objective of ensuring the efficient and effective provision of services to all stakeholders.

It remains incumbent on the EAAB to provide functionally effective industry regulation, guidance and support so as to encourage the continued growth of a dynamic, vibrant, open, competitive and transformed real estate sector which operates in full alignment with the goals and aspirations of the Department of Human Settlements. The EAAB, as a result, remains obliged actively to empower consumers by ensuring that they are fully aware of their rights and obligations in property transactions and in their dealings with estate agents while, nevertheless, having due regard to the interests of all estate agency practitioners.

The transformation imperative requires the EAAB, furthermore, to offer suitable encouragement and support to previously disadvantaged individuals and communities and to ensure that they are able actively to participate in both the mainstream economy in general and the real estate sector in particular. It is also necessary that the EAAB ensure the ongoing professionalisation of the estate agency sector by providing the foundations for an appropriate and meaningful educational dispensation as well as for the practical training of competent and skilled professional estate agents. These endeavours are indispensable in ensuring that estate agency practitioners remain capable, ethical and proficient service providers and that they are able to earn the trust and respect of the consumers with whom they interact.

AGENT | 03

MESSAGE FROM THE Acting Chief Executive Officer

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The EAAB has, furthermore, determined that it will continue, during 2013, to pursue its steadfast commitment to ensuring improved transparency and communication with all stakeholders including government, real estate sector players and consumers. This objective will be achieved by the continued presentation of countrywide roadshows, consumer awareness workshops, exhibitions and conferences. The EAAB, in addition, proposes using the latest available technological advances in information technology and e-commerce in enhancing its communication initiatives with stakeholders and in enabling them to communicate with the EAAB.

The EAAB is deeply appreciative of the fact that it continues to receive significant comments, both written and otherwise, from the various stakeholders with which it routinely interacts. The overwhelmingly positive views and comments, as well as, in some instances, more constructive criticisms, are welcomed and, as such, are greatly appreciated and encouraged. These mutually beneficial interactions with stakeholders have proven to be invaluable in highlighting their general concerns and aspirations and, as such, greatly assist the EAAB as it constantly reviews, assesses and adapts its various initiatives to the ever-changing and developing needs and situations that presently predominate within the ever-changing real estate environment.

The EAAB intends to continue monitoring and assessing the various apprehensions, concerns and needs of the estate agency industry in a constructive manner and one which positively reflects the increasing levels of cooperation and consensus that have been achieved between the EAAB and its stakeholders.

The EAAB wishes also to implement all steps and interventions necessary to protect the public interest by ensuring that the right to practice as an estate agent is effectively denied to persons who have either been disqualified in terms of the Estate Agency Affairs Act or who are presently operating illegally. It is anticipated that the introduction of an in-house inspectorate will go a long way towards ameliorating the unfair competition that is presently faced by legally operating and compliant estate agency practitioners.

This having been said, it remains the intention of the EAAB to strive to eliminate any artificial or unnecessary barriers that might unreasonably or unjustifiably limit or impede entry into the field of estate agency practice. It stands to reason that any such potential barriers to entry must be identified and positively addressed. Free and open markets within the real estate environment must, furthermore, be actively encouraged through active and continuous communication with identified industry representative groups. The EAAB, in so doing, must remain objective, fair and impartial. The EAAB must always be seen to be acting independently in the execution of its statutory mandate to regulate the real estate industry in the public interest.

I am, in conclusion, more confident than ever that the strongest of foundations have now been laid to enable the EAAB to go from strength to strength in the efficient execution of its statutory mandate. I do hope and trust that the EAAB may continue to rely on the active cooperation, support and assistance of all stakeholders as it furthers the achievement of its mission and continues with the professionalisation of the sector.

Bryan Chaplog (Acting Chief Executive Officer)

AGENT | 05

Calling all Estate Agents and Principals to update their Contact

Details with the Estate Agency Affairs Board

All estate agents are required to update their information so as to enable the Estate Agency Affairs Board (EAAB) to communicate with estate agents effectively.

Some estate agents information that the EAAB has on record still reflects the same as was declared on the original application form. In many instances, agents have subsequently changed their contact details but the EAAB does not have the current information.

So as to improve our communications with our stakeholders and to assist us in providing more reliable statistics regarding all matters including provincial presentation, we require all estate agents to verify their contact information with the EAAB.

Please submit your latest contact numbers and email address to contactdetails@eaab.org.za in order for the EAAB to update their records accordingly.

There is a form available on the Home page of the EAAB website www.eaab.org.za. Please submit completed forms to contactdetails@eaab.org.za

MyEAAB website online portalThe Estate Agency Affairs Board (EAAB), mindful of the need to introduce methods to enhance its service delivery and reduce turnaround response times, introduced a self-service portal, MyEAAB, on its internet site in the latter part of 2011. The self-service portal is an online, secured tool allowing estate agents to access all record information whether as individuals or as enterprises. The portal also accommodates the updating of information to ensure the continued accuracy and reliability of the EAAB’s database. Estate agents should also be able to view their status in respect of education requirements.

The initial phase of the portal development provided a platform for the registration and issue of fidelity fund certificates to intern estate agents and practicing non-principal and principal estate agents alike. The EAAB was assisted in this endeavor by a number of end-users, mainly office administrators from various estate agency enterprises. Their primary role was to manage the registration of new intern estate agents, and to provide feedback to the EAAB. As a result of the invaluable feedback that was forthcoming, enhancements to the portal were made to ensure a seamless online process.

The EAAB is happy to report that, during the last eight month period, over 1 200 intern estate agents were able to successfully apply online for the issue of their fidelity fund certificates.

Coming soon

The development of phase 2 of the programme has been considerably more comprehensive. The EAAB, however, is pleased to advise stakeholders that they will soon be able to undertake the following transactions online:

• Update enterprise contact and employee details (principals only);

• Submit statutory auditor’s reports;• Note changes of employment (change enterprises );• Initiate status upgrades due to qualifications obtained;• Make online payments for services ; and• Reserve enterprise names.

As this is a secured tool, estate agents and principals will only be able to perform online transactions through the self-service portal by using their unique seven digit reference number.

Stakeholders are requested to contact the EAAB by telephone on 011 731 5600 to ensure that they are using the correct reference number which should be maintained of record as the unique identification number for all EAAB transactions whether conducted online or manually.

www.eaab.org.za

In the latter part of 2012, Minister Sexwale appointed Mr Taswell Papier, a senior director of the well-known legal firm Edward Nathan Sonnenbergs (ENS), as Administrator of the Estate Agency Affairs Board (EAAB). Mr Papier was tasked with, among other functions and duties, to restore the stability and credibility of the organisation and to regularise the affairs of the EAAB. Mr Papier was also tasked with facilitating and implementing good corporate governance processes within the EAAB.

Under the current Estate Agency Affairs Act, at the first meeting of the Board, members would be required to elect a chairperson. One of the major functions of the new Board will be to appoint a new Chief Executive Officer whose duties would be, inter alia to provide leadership within the executive and staff and to operationalise the strategic direction of the Board.

Minister Sexwale encouraged the new Board to communicate, exchange, and be transparent. He added that by doing so, the Board could be held accountable for its performance. A problem inherent in the ‘old Board’ seemed to be a patent lack of resolve and communication with the result that the impression was created of a dysfunctional organisation. This should not be repeated by the new Board Members.

Appointment of new Board Members Estate Agency Affairs Board

06 | AGENT

The Minister urged the Board to focus on the urgent imperative of transformation within the real estate sector. Underscoring the fact that of the more than 40,000 registered estate agency practitioners, only 5% were black people. This was an intolerable situation after nearly 20 years of democracy and there was a manifest need to fast-track the transformation process so as to ensure that the real estate sector fully represented the demographics of a democratic South Africa.

The Minister challenged Board Members to address the issue of corruption wherever and whenever it occurred within the regulated profession. Minister Sexwale emphasised that there will be zero tolerance regarding corruption. He urged Board Members to be ever vigilant of this scourge and he stressed the importance of maintaining the integrity of the EAAB and its Board Members.

The statement issued by Minister Sexwale at the Press Conference is reproduced on page 10 for the information of readers of AGENT.

Appointment of new Board Members Estate Agency Affairs Board

AGENT | 07

REAL ESTATE INDUSTRY SUMMIT

SUMMIT KEY RESOLUTIONS

THE WAY FORWARD...

Delegates making their way to the press conference

Minister Tokyo Sexwale andMr Taswell Papier in conversation at the press conference

Delegates and media at the press conference

AGENT | 09

The Estate agency industry is one of the key drivers of our economy. It affects both residential, as well as commercial and commercial industrial property.

The total South African property market is slightly below R5 trillion rands – at 4.9 trillion. More than 60 percent of this total is attributable to the residential property market sector. In this context, the Estate Agency Affairs Board is a regulatory

institution governed by the Estate Agency Affairs Act of 1976 and following a presidential proclamation now is governed no longer by the Department of Trade and Industry but by the Department of Human Settlements.

The property market encompasses investments arising from bonds, loan, salaries and wages of citizens. In a word, this market reflects accumulated incomes of people over a period. Therefore

STATEMENT BY MINISTER TOKYO SEXWALE ON THE ANNOUNCEMENT OF THE NEW BOARD MEMBER

APPOINTMENTS FOR THE ESTATE AGENCY AFFAIRS BOARD 7 MARCH 2013

Minister Tokyo SexwaleDepartment of Human Settlements

10 | AGENT

the integrity of this industry must always be above reproach. For this reason, there was a great deal of consternation last year when the Estate Agency Affairs Board which under the ministry provides regulatory oversight to the industry was racked by instability which included inter alia:

• The Wendy Machanic saga;• The acrimonious parting of ways with its CEO Ms Nomonde

Mapetla;• The Auction Alliance debacle;• Suspension of the Company Secretary; and• Finally, the resignation of its Chairperson Ms Ina Wilken

All these circumstances and other factors compelled me as Minister, to dissolve the dysfunctional Board. As is known, in its place, in terms of the Act, my intervention was to place the EAAB under administration by appointing an independent person – Mr Taswell Papier as Administrator. He was tasked with amongst others – restoring stability; regularising the EAAB; facilitating as well as implementing good corporate governance processes within the agency, and to report back within six months.

Therefore, as Minister, I have not been disappointed with the excellent manner in which he has performed the task to the extent of achieving his mandate which has come to a conclusion. Mr Papier is available for the month of March in order to ensure a smooth handover to the new Board.

On behalf of Government, I wish to thank him for a job well done within the given time. To appoint the Board, an independent selection and interview process was put in place. It gives me satisfaction to announce the following members of the new Board.

ESTATE AGENCy INDUSTRy CATEGORy

Mr Andile Ben-MazwiMs Jill CorfieldMr Leo MlamboMs Dineo MolomoMs Ewaldina Porteous

PROFESSIONAL CATEGORy

Mr Sikander KajeeAdv. Tshepo MaakeMr Rhulani MarivateMs Jabhile MbeleMr Mafanufikile Nsibande

CIVIL SOCIETy CATEGORy

Ms Bubele DamaneProf. Kwandiwe KondloMs Seeng Lebenya-NtanziMrs Maletsatsi Maceba-WotiniDr. Fazel Randera

The Act prescribes three categories from where applicants are

selected and this has been complied with.

• Five from the estate agency industry;• Five from civil society, representing consumer interests, and• Five from related professions and institutions such as the

legal profession, financial institutions, property owners and developers.

Mr Richard DyantyiAdvisor to the MinisterDepartment of Human Settlements

AGENT | 11

Under the current Act, at the first meeting of the Board, Members would choose their own Chairperson. Subsequently, the Board is expected to initiate the process of identifying an employee – a new CEO – whose duties would be to provide leadership within the executive and staff.

In conclusion, it is instructive to reflect upon the Estate Agency Affairs Summit, the first of its kind in South Africa, which was convened by the Ministry and Department late last year. It was attended by more than 600 delegates representing some 40,000 estate agents from many agencies and companies across the country.

The Summit, amongst others, pronounced upon the following:

• To address concerns around the Act. In my view, the Act may need to be amended or repealed, but most certainly it cannot stay the same.

• Some at the Summit expressed disquiet about the Estate Agents Fidelity Fund. We are satisfied with the report of the Administrator that there has not been any form of plundering. At the same time we remain committed to ensuring that there is total transparency around this Fund so as to avoid suspicions.

• Transformation became a key point of discussion, with the observation that the industry performed extremely poorly on transformation. It cannot be that Black people are only five percent of the some 40,000 estate agents and women of all colours are only slightly above 25 percent, with Black women business owners being

Minister Tokyo Sexwale - Department of Human Settlementscongratulates Mr Taswell Papier (Administrator Estate Agency Affairs Board)

Appointed Board Members for the Estate Agency Affairs Board , Minister Tokyo Sexwale - Department of Human Settlements andMr Taswell Papier (Administrator Estate Agency Affairs Board)

12 | AGENT

around 500 of the 11,000 firms. The industry is called upon to fast track its transformation efforts. Without doubt, the new Act will address those issues.

• Investigation on any corruption within the industry were expressed at the Summit and assurances are given that the SIU which as Minister I have mandated to investigate, will hopefully provide us with a report in due course regarding all matters around the investigations.

The tasks facing the new Board are not only challenging, but could also be exciting. The litmus test of the success of the new Board will be premised upon good corporate governance, integrity of their processes, credibility of their decisions, transparency as well as constant interaction with their members for the public good.

After all, this is about accumulated incomes, investments and assets of citizens.

We wish them well.

Minister Tokyo SexwaleDepartment of Human Settlements

Mr Papier, in responding, indicated that these substantial objectives would not have been achievable were it not for the Minister’s decisive and emphatic intervention in the affairs of the EAAB.

He continued that the constructive engagement which he had received from the department had always been phenomenal in contributing to this process, and as a result, much of value had been achieved. Mr Papier added that during the period of his administratorship, the EAAB had forged a close and mutually co-operative relationship with the attorneys’ fidelity fund which managed R3.5bn. A direct result of this relationship will be that the two bodies would share lessons learned and experiences gained. It has also established a good corporate governance framework.

Mr Papier said the legislative review process of the Estate Agency Affairs Act was well under way and stability had been achieved within the EAAB and the sector.

The welcome and continued support that he had received from the EAAB EXCO and Management had been phenomenal.

The EAAB and its 70 staff members have put together a strategic framework to tackle internal bureaucracy to enhance service delivery to the industry and the public.

He noted that the workload was enormous but he remained confident that staff and management were committed to contributing towards dynamic growth, transformation and professionalism of the EAAB.

It has to be transformed into a profession that becomes attractive to youth. The youth must see a future in the EAAB,” Papier said.

Taswel PapierAdministrator Estate Agency Affairs Board

Mr Taswell Papier Administrator Estate Agency Affairs Board

Appointed Board Members for the Estate Agency Affairs Board , Minister Tokyo Sexwale - Department of Human Settlements andMr Taswell Papier (Administrator Estate Agency Affairs Board)

14 | AGENT

Nedbank Corporate Property Finance MD Frank Berkeley says that the likelihood of continued slow growth across SA’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. Which, he points out, 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,” he explains, “which is why, in this industry, challenging times typically highlight the importance of proven experience, broad market knowledge, and a long-term view.”

SA Commercial and Industrial Property sectors set to face challenging times in 2013

After a particularly challenging 2012, 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.

AGENT | 19

As the head of the country’s leading property finance organisations that consistently holds close to 40% of South Africa’s commercial and industrial property market, Berkeley speaks from experience. He attributes the success of Nedbank Corporate Property Finance, as well as its sustainability through all market cycles, to a combination of experienced and insightful people, a long-term lending philosophy that transforms clients into business partners, and a commitment to continuous self-examination and fine tuning of business processes.

Thanks, primarily, to this long-term, relationship-driven approach, Nedbank Corporate Property Finance has managed to buck the economic trend for much of 2012, disbursing more than R15 billion in finance year-to-date – much of it in support of some of the leading property developments that have taken place across the country during that period.

This continued success, even in the face of apparently overwhelming economic challenges, underpins Berkeley’s confidence that, while most areas of South Africa’s commercial and industrial property industries are likely to continue marking time for the foreseeable future, there will continue to be opportunities for those developers and financiers that know where to look for them.

He points to the continued appetite for listed property funds as a key focus for stakeholders who want to maintain a measure of momentum while waiting for the cycle to eventually turn upwards.

“Despite the fact that there are definitely fewer cranes dotting most of South Africa’s city skylines, property stocks are, and probably always will be, a fairly reliable means of investment preservation and steady, albeit marginal, growth,” he says, “because they offer access to a diverse range of established properties instead of the single building exposure and volatility risk of direct property ownership or investment.”

Berkeley also points to the likelihood of continued growth in the number of green buildings in the future, particularly given their rising appeal for sustainability-focused tenants and the potential they offer to deliver quick returns on investment via savings on increasingly costly utilities.

“While it’s unlikely that green buildings will be a game changer on the SA property markets anytime soon, environmentally-conscious building design, construction and management makes excellent economic sense,” he explains, “and since green construction processes typically only cost around 5% to 10% more than traditional methods - while delivering marked longer-term savings - there is every likelihood that we will see the number of green buildings in South Africa continue to rise steadily in the years to come.”

For the immediate future, however, it seems unlikely that anything other than a sustained turnaround in the economic fortunes of South Africa and the rest of the world will prompt a return to significant and sustainable growth for this country’s property markets. Until then, the best approach for its participants appears to be to sit tight, hone your skills, and only act on those carefully considered opportunities you know will strengthen your business over time.

Source: SA Commercial Prop News

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16 | AGENT

Reserve Bank leaves repo rate untouched at 5%

The Reserve Bank’s Monetary Policy Committee (MPC) announced on 24 January 2013 that it had again kept the benchmark repo rate unchanged at 5% in line with market

expectations, thereby seeking to balance weakening economic growth against a deteriorating inflation outlook and a sharply weaker rand. While it was expected that the rand would continue to remain both volatile and sensitive to domestic and global developments, further sustained depreciation was not envisaged in the coming months.

The MPC, thus, emphasised its deep concerns about rising food prices, which could pose a significant near-term risk to the inflation outlook, and a depreciating rand exchange rate in a period of slowing growth. Ms. Gill Marcus, the Governor of the Reserve Bank, indicated that the current stance of the MPC was felt to be both “… accommodative and appropriate, with the real policy rate remaining slightly negative, notwithstanding the expected temporary breach of the inflation target.” She noted, in addition, that further monetary easing was constrained by upside risks to the inflation outlook.

Inflation had risen slightly more during the period under review than had been anticipated. The year-on-year inflation rate, as measured by the consumer price index (CPI) for all urban areas,

was 5,7% in December 2012 as against 5,6% in November. This factor had significantly reduced the Bank’s ability to cut rates so as to spur increased economic activity in a slowing growth environment. The weaker rand, allied with a deteriorating current account deficit, had also weighed heavily on the Bank’s ability to reduce interest rates. The Bank’s current inflation forecast, furthermore, reflected a continuing deterioration in the inflation outlook for 2013 as compared with its previous forecast.It was also believed that domestic economic growth remained not only fragile but below potential. This followed an annualised growth rate of 1,2% in the third quarter of 2012 and an estimated growth rate of around 2,5% for the year. A similar outcome was expected in 2013 with a forecasted growth rate of 2,6% as against the 2,9% that had previously been predicted.

The outlook for significant parts of the mining sector was bleak consequent upon continuing labour disputes and announcements of the possible closures of shafts and mines due to increased cost pressures as well as weak global demand and lower prices.

Business sentiment, furthermore, remained negative as reflected in the continued weakness in private sector gross fixed capital formation. Growth in consumption expenditure by households

AGENT | 17

also moderated in the third quarter of 2012. While the MPC did not assess growth in household consumption expenditure to be either excessive or to pose any significant inflationary risks, it remained concerned about the potential impact on employment and inflation of the higher level of wage settlements. The MPC was especially mindful of the danger of a possible wage-price spiral, which could result in further employment losses, should unaffordable real wage demands be granted at a time when economic growth remained constrained.

Ms. Marcus also noted that the global growth outlook position remained subdued and challenging notwithstanding the noticeably improved sentiment that followed the conclusion by Congress, at the very last moment, of the interim deal to avert the looming fiscal cliff crisis in the United States. It was unfortunate, though, that the major fiscal cliff issues themselves had still to be resolved since vital decisions on expenditure cuts and the debt ceiling had merely been postponed until later in the year. On the more positive side, however, there were continued signs of a much welcomed recovery in the US housing market and, also, improved corporate profitability.

Insofar as Europe was concerned Ms. Marcus indicated that it seemed that the sovereign debt risks in the Eurozone had temporarily abated while bond spreads on peripheral European debt had also narrowed significantly. The region was, however, likely to remain in recession for much of 2013 as fiscal tightening and balance sheet repair by banks and households continued.

Ms. Marcus was far more encouraged by the positive outlook for emerging markets and, particularly, for those in Asia. She pointed out that the Chinese economy had stabilised while general consensus forecasts suggested some growth acceleration for both China and India in 2013. Growth in Africa was expected to sustain rates in excess of 5%. Growth rates in Latin America, while more restrained, would probably also show an improvement over those of 2012.

It had, as a result, come as no surprise - either to the market or to most economists - that the MPC had decided to keep rates steady. The tone of the announcement made by the MPC will, of course, continue to be closely scrutinised for evidence of possible clues as to the future actions of the Bank in the succeeding months. Some economists have already predicted that the next interest rate move will be a 50 basis point increase in 2014.

RE/MAX comments on the interest rate

Adrian Goslett, the Chief Executive Officer of RE/MAX of Southern Africa, commented that the MPC announcement would be met with relief by consumers who were likely to be recovering from their festive season spending.

Mr. Goslett noted that 2012 had proved to be an interesting year. Following an unanticipated reduction of 50 basis points, the prime interest rate had been reduced to 8,5%. Mr. Goslett believes that interest rates will remain range-bound between 8,5% and 9,5% for the next 12 months.

According to Mr. Goslett:

“The real estate market continued to show improvement throughout last year in terms of both sales volumes and property

prices and while lending criteria remained stringent, 2012 was a solid year for real estate across the country. Although some of the same issues that were experienced during 2012 such as high debt-to-income ratios, rising cost of living and a poor savings culture will continue during 2013, pushing demand in the rental market, aspects such as the steady interest rate will bring about opportunity in the housing sector.”

Mr. Goslett believes, furthermore, that house prices will continue to see a measured increase during 2013, especially in the high demand areas and price brackets. This notwithstanding potential buyers, who are credit worthy and have access to finance, will be able to find property investment options that meet both their criteria and their pocket.

Seeff Chairman says that unchanged interest rate reinforces positive sentiment in the housing market

Seeff Chairman, Samuel Seeff, concurred that the decision by the Reserve Bank’s Monetary Policy Committee to keep the interest rate unchanged did, indeed, represent welcome news for home owners and prospective buyers alike. Mr. Seeff believed that while the slowed economic growth and upward inflationary pressure of the second half of 2012 could possibly exert a negative impact on property demand, the sentiment within the property market remained overwhelmingly positive - to the extent that there was presently a greater willingness by consumers to buy property than was the case three years ago.Mr. Seeff noted that trading volumes, however, still fell short of what could be considered to be normal trading conditions. He attributed this to the strained macro-economic environment, high household debt levels and tight mortgage credit granting. He said that, “We are now at the end of a five-year cycle since the introduction of the National Credit Act in 2007 and onset of the economic slump of 2008 and, indications are that trading volumes have settled at stable, albeit flat levels and can surely only go up from here.”

Mr. Seeff believed that, with house prices set to remain flat during combined with the low interest rate, “We are amidst the best buyers’ market in more than three decades. Certainly, those who are able to buy right now should do so.” He added that, “Even a 1% to 2% interest rate hike would still make mortgages more affordable than five years ago, but this will not remain the case for too much longer.”

Mr. Seeff cautioned, nevertheless, that home owners should remain mindful of utility price hikes and, especially, electricity prices which were likely to rise well above inflation over the next two years. Transport costs were also likely to continue climbing this year while basic food prices would, he said, also see upward pressure. He urged home owners and prospective buyers to take a conservative outlook and to focus on bringing their debt levels down by, preferably, buying within their means.

Mr. Seeff concluded by stating that there were, “… plenty of good buys in the market and buyers are certainly able to find good value and smart buyers are taking advantage of the favourable buying conditions. Despite the tight home loan lending criteria, the banks are willing to lend when it makes financial sense and the buyer has a good credit record and is able to invest a deposit.”

Source: SA Commercial Prop News

The commercial property market in South Africa remains resilient despite being under constant pressure, and it is apparent that the containment of operating costs is an increasingly key priority.

Facilities management is rapidly emerging as an important factor which is a key contributor to containing costs and achieving savings – while enhancing the value of commercial property,” says Marna van der Walt, CEO of Excellerate Property Services, which includes, among others, Excellerate Facilities Management, JHI Properties and JHI Project Management.

“Now more than ever, the integration of effective facilities management in the commercial property sector has an increasingly relevant role to play, not only in addressing energy

saving, waste recycling and minimising the use and pollution of water, but also in regard to green issues during both the construction and use phase of a building. By reducing operating costs landlords have the potential to achieve a higher rental rate while keeping the tenant’s occupation costs unchanged and also helping retain tenants,” says van der Walt.

Industrial Property Market

Commenting on the industrial property market Johann Boshoff, MD of JHI Properties says: “This has fared better than most, with transport issues having a significant impact on the choice of location, and easy access to major transport routes even more imperative bearing in mind high fuel costs and Gauteng’s e-tolls. There is an ongoing demand among larger users, mainly from 3 000 up to 20 000sqm, as well as a demand from warehousing and distribution operations seeking more modern space. Certain nodes remain sought after in various regions, for example in

COMMERCIAL PROPERTY MARKET REMAINS STRONG, DESPITE BEING UNDER CONSTANT PRESSURE

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Epping in the Western Cape, traditionally a popular industrial area with good infrastructure and access to transport routes - where older buildings are being upgraded and given a facelift. As the growth node north of Durban continues to increase in popularity among the business sector and residential buyers, the area of Mount Edgecombe is experiencing an increasing demand for industrial space, which is in relatively short supply.“The demand for logistical uses such as warehousing, packing and distribution is especially evident on the East Rand, with the significant opening up of new development nodes to the north of OR Tambo and in the vicinity of the popular Jet Park, Meadowdale, Longmeadow and Linbro Park stretch – where there is good proximity to major routes such as the R21, R24, N12 and N3”. Boshoff says in addition to convenient location, users are seeking good power capacity and access for loading within a secure complex or area, as well as general aesthetics.

Office Market

“In the office market we are seeing a trend towards large businesses seeking cost efficiencies and economies of scale by relocating from a number of different buildings to occupying just one property, thereby capitalising on opportunities to relocate while rentals remain competitive. Increasingly, the emphasis in the office market, particularly among companies with a large staff complement, is towards buildings which offer secure, quality space coupled with convenience of location for easy access for staff and clients. An ongoing trend is interest from national and international businesses seeking large space for call centres in major centres such as Cape Town and Johannesburg.”

Retail Market Positive

In the retail market, although consumers remain under pressure, JHI Properties’ outlook is positive, anticipating a middle to late run on festive season shopping at the year end and into January (2013). Says Boshoff: “In general the retail sector has experienced growth of 6.5 percent from July to August 2012, and in general the fast food category has been very well supported with approximately 20 percent growth during this period. The market is stable and certainly looking more positive than was the case two years ago and at JHI-managed shopping centres vacancies remain low and are being managed downwards as a result of sound management strategies. Here also we are constantly exploring energy saving methods in order to curb costs.”

Commenting on the year ahead (2013), Boshoff says that astute investors are taking advantage of the current economic trading conditions to increase their portfolios at attractive yields. Adds van der Walt: “The emergence of a number of new funds has increased investor appetite for commercial property, where returns are currently on average around 10 percent. And it’s not always the most attractive buildings in the best locations that afford the best returns. Looking ahead we anticipate limited rental growth, stabilising vacancies and an ongoing trend towards landlords looking to implement cost saving measures and concessions in order to attract and retain tenants. We are hoping for an upturn in 2013,” she says.

Source: SA Commercial Property News

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The EAAB frequently receives queries from estate agents who, having been duly certificated against either the National Certificate: Real Estate (for principal estate agents) or the Further Education and Training Certificate: Real Estate (for non-principal estate agents), now wish to enrol to write the relevant PDE.

The intention of this article, therefore, is to provide the necessary guidance to prospective PDE candidates on applicable procedures for enrolling for the PDE and for making application to the EAAB for the cancellation or postponement of the PDE.

The Education Regulations

The Professional Designation Examination is undertaken by estate agents in accordance with the provisions of the Education Regulations, promulgated under Government Notice R.633 on 4 June 2008. The examination itself constitutes the necessary integrated test of knowledge and application that is required of professional practicing estate agents.

To be successful in the PDE it is expected that candidates will be able to:

• apply the prescribed examination study material to actual practical workplace, as well as possibly more novel and innovative, situations;

• analyse elements and relationships; and • synthesise, structure, compare and evaluate.

It is also of importance to note that the Education Regulations provide that no person may be registered as a full status estate agent by the EAAB unless and until that person has successfully completed the requisite PDE, whether for principal or non-principal estate agents, depending on the organisational position occupied by that person.

Examination fees

The PDE enrollment fee payable by candidates wishing to register for the examination is determined annually in advance by the Estate Agency Affairs Board (“the EAAB”).

The examination enrollment fee for the 2013 calendar year is:

• R800,00 for candidates intending to enrol for the PDE for principal estate agents; and

• R590,00 for candidates wishing to undertake the PDE for non-principal estate agents.

Payment of the examination fee by candidates

Candidates are requested to note that the payment of the examination fee may be done by way of:

• an ‘over-the-counter’ cash or credit card payment at the offices of the EAAB (cheques are not accepted); or

• an electronic funds transfer into the correct EAAB bank account; or

• a direct deposit by the candidate into the correct EAAB bank account.

Candidates must always take care to use the correct ‘Individual Payment Reference Number’ as the reference whenever making such a payment. Doing so will ensure that the payment is accurately identified and correctly allocated to the candidate by the EAAB. Failure to use the correct reference number

Registration and enrolment for the PROFESSIONAL DESIGNATION EXAMINATION (“PDE”)

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Registration and enrolment for the PROFESSIONAL DESIGNATION EXAMINATION (“PDE”)

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could conceivably result in the incurrence of untoward delays in the allocation of the payment. This could militate against the candidate being timeously enrolled for the examination in question.

It is also to be emphasised that examination fees, once they have been paid by the candidate concerned, are not refundable. A credit note may, however, be issued by the EAAB to an examination candidate in the event that a written request by that candidate for the postponement of an examination was timeously received and, after due consideration, approved by the EAAB. This matter is more fully dealt with below.

Banking details for payment of examination fees

When paying examination fees for the Professional Designation Examination either by electronic funds transfer or by way of a direct deposit, such payment must be made into the following bank account, namely:

Account name: Estate Agency Affairs BoardBank: ABSA Bank Account Number: 4052033310 Branch Code: 632005 Branch Name: Protea Park

Examination dates for the 2013 calendar year

The dates when the Professional Designation Examination will be conducted during 2013 are:

Thursday 7 March 2013 NQF 4 and 5

Thursday 6 June 2013 NQF 4 and 5

Thursday 5 September 2013 NQF 4 and 5

Thursday 14 November 2013 NQF 4 and 5

Examination centres

The Professional Designation Examination is conducted at appropriate venues located throughout South Africa. Examination venues are determined by the EAAB in advance of each scheduled Professional Designation Examination having regard to such factors as the number of applications received to write that examination as well as the areas where the majority of examination candidates reside and/or conduct business. Examination centres have generally included Bloemfontein, Cape Town, Durban, East London, George, Johannesburg/Sandton, Mbombela/White River, Polokwane, Port Elizabeth and Pretoria.

Allowable period within which to complete the PDE

All qualifying estate agents who have not been exempted from the Professional Designation Examination, either pursuant to the provisions of the Education Regulations or to the EAAB policy pertaining to the educational exemption of certain estate agents who are 60 years of age and older, must write and pass the Professional Designation Examination for either principal or non-principal estate agents respectively within two years from the date when such persons were either certificated against the relevant estate agency qualification or were exempted from having to obtain the relevant estate agency qualification by virtue of previous tertiary qualifications obtained from a South African tertiary institution.

Progression from PDE for non-principals to PDE for principals Intern estate agents and/or non-principal estate agents holding a valid fidelity fund certificate issued by the EAAB who have been certificated against the relevant estate agency qualifications or who were exempted from having to obtain the relevant estate agency qualifications by virtue of previous tertiary qualifications obtained from a South African tertiary institution must write and pass the Professional Designation Examination for non-principal estate agents before proceeding to write the Professional Designation Examination for principal estate agents.

Only practicing principal estate agents holding a valid fidelity fund certificate issued by the EAAB may enrol to write the Professional Designation Examination for principal estate agents. Should a principal estate agent elect, after having completed the Professional Designation Examination for principal estate agents, rather to practice as a non-principal estate agent, such person will also be required to write and pass the Professional Designation Examination for non-principal estate agents.

Candidates who fail the Professional Designation Examination

Candidates who fail the PDE are granted a maximum of two further attempts at re-writing the examination, whether for principal or non-principal estate agents, as the case may be failing which such candidates will be required to wait for a period of at least a further twelve months before being permitted to re-write the PDE. Such candidates are required to follow the usual application process when re-writing the Professional Designation Examination and are required to pay the full examination fee applicable to the Professional Designation Examination.

Pre-registration procedures and requirements

Only examination candidates who duly comply with the applicable qualifying criteria may enrol to write the Professional Designation Examination.

PDE candidates are required to complete the prescribed examination application form:

• which is available for collection at the offices of the EAAB; or

• which may be accessed from the EAAB’s website at www.eaab.org.za; or

• which can be telephonically requested from the EAAB.

An on-line portal for examination registration will also be launched shortly to facilitate the registration process. Additional information will be provided in forthcoming issues of AGENT.

Examination candidates must ensure that all necessary supporting documents are attached to the application form before that application form is sent to the EAAB. Should any of the required documents be missing from the application it will, unfortunately, not be possible for the EAAB to process that application any further.

Examination candidates are required to verify and/or obtain their specific ‘Individual Payment Reference Number’ from the EAAB before making payment of the examination fee. That ‘Individual Payment Reference Number’ must always be used by examination candidates as the reference when payment is made to the EAAB.

Applications for postponement/cancellation of a PDE are not generally considered

No applications for postponement of a PDE will be considered by the EAAB. Applications, however, for postponement by those candidates who failed to present themselves at the examination venue as a result of serious illness may be considered by the EAAB provided that a valid medical certificate, furnishing cogent reasons as to why the applicant was unable to be present, is furnished.

Where such an application for a medical postponement has been approved by the EAAB the candidate concerned will automatically be enrolled for the next scheduled PDE. Failure by the candidate to be present at that next scheduled examination will immediately result in forfeiture by the candidate of the full examination fee paid. Should the next scheduled examination take place in the following calendar year the candidate will then be obliged to pay any additional fee that may be applicable. A Professional Designation Examination candidate who is absent from the examination will forfeit the entire examination fee.

Examination enrolment cancellation procedure and requirements

No request for the cancellation of a PDE by an examination candidate will be accepted by the EAAB if an examination seat number has already been duly allocated to that examination candidate. Examination candidates may, in the event that an incorrect examination venue was allocated by the EAAB, apply for a change in the allocated examination venue provided that such application is received by the EAAB at least five working days prior to the scheduled Professional Designation Examination date. The EAAB will, under such circumstances, ensure that the correct examination venue is assigned to the examination candidate or make any such other alternative arrangements as may be necessary to facilitate the writing of the Professional Designation Examination by the candidate concerned.

Pre-enrolment checking and verification

All applications to undertake the Professional Designation Examination that are received by the EAAB are carefully checked and verified. Only applications that have been submitted in full and which are accompanied by all required supporting documents, including proof of payment of the examination fee, will be processed further by the EAAB. Once the application has been verified the EAAB will issue an examination seat number to candidates while a letter will be sent to those candidates confirming the seat number and examination venue.

Restriction of entries to the examination

As the number of seats available at each separate examination centre may be limited, applications to write the Professional Designation Examination at a particular examination centre will be accepted by the EAAB on a ‘first come, first served’ basis.

When all the seats at a particular examination centre have been fully allocated all subsequent examination applications will either be regarded as applications to write the next scheduled examination at that particular examination centre or the applicants will be granted the opportunity to write the examination at another examination centre of their choice where seats are still available. Applicants will be advised by the EAAB should it become necessary to change the proposed examination date, or examination centre, due to lack of space at the initially requested examination centre.

Candidates should note that the mere submission of an application to undertake the Professional Designation Examination to the EAAB does not constitute an automatic enrolment for the examination. The EAAB, furthermore, reserves the right to cancel any examination centre should an insufficient number of candidates select that centre. Candidates must carefully select, and clearly indicate, their choice of examination centre on the examination application form.

Once a candidate has been registered to undertake the Professional Designation Examination it will not be possible for that candidate to change the chosen examination centre save in the special circumstances mentioned above.

Acknowledgement of receipt of applications

The EAAB will endeavour to acknowledge receipt of all applications to undertake the Professional Designation Examination as soon as possible. Candidates who have not received an acknowledgement of receipt within a reasonable period are requested to contact the EAAB to confirm that the application was, in fact, received. It is the responsibility of the examination candidate to ensure that both the examination application and payment of the required examination fee have been duly received by the EAAB.

Confirmation of registration

All candidates who have been successfully enrolled for the Professional Designation Examination by the EAAB will be allocated an examination venue and seat number. Such information will be confirmed by the EAAB to each examination candidate in writing. The written confirmation to the candidate will indicate the date, time and venue of the Professional Designation Examination for which the candidate has been enrolled. Candidates must, where applicable, print a copy of such confirmation advice. The confirmation advice must be brought to the examination centre to enable the candidate to gain admittance to the Professional Designation Examination. The allocated seat number must, in addition, be used by the candidate when directing any queries to the EAAB pertaining to the Professional Designation Examination and as the required reference number on the candidate’s examination answer sheet.

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Incomplete or non-compliant examination applications

Examination applications that:

• fail to meet the established eligibility criteria; and/or• are not properly completed by the applicant; and/or • do not contain the required supporting documents; and/or • are not accompanied by satisfactory proof of payment;

will not be further processed by the EAAB.

It is the responsibility of all examination applicants to ensure that they comply fully with these requirements. Should any shortcomings in an examination application only be satisfactorily addressed by the applicant concerned after the closing date for the submission of examination applications for that particular Professional Designation Examination that applicant will not be able to gain admittance to such Professional Designation Examination regardless of when payment was effected.

Physically disabled candidates

Applicants having any visual, physical or other disability restricting them from sitting for an examination under normal conditions may request that a special arrangement be made to facilitate their undertaking of the Professional Designation Examination either on a scheduled or on a specially arranged examination date.

Requests for such special arrangements must be made in writing and submitted to the EAAB when the applicant concerned lodges the application form to undertake the Professional Designation Examination. The applicant must sufficiently indicate the nature of the disability to enable the EAAB to understand and accommodate the candidate’s special needs. The applicant will be advised, in writing, of the nature of the special arrangements as soon as possible after receipt of the application.

Studying for the Professional Designation Examination

The study material prescribed by the EAAB for the Professional Designation Examination for principal and non-principal estate agents is contained in:

• the Study Guide for the Professional Practitioner in Real Estate for non-principal estate agents; and

• the Study Guide for the Master Practitioner in Real

Estate for principal estate agents.

The study guides may be obtained by candidates from the EAAB by completing the required Study Guide order form. Candidates are encouraged to obtain the study material well in advance, and not wait until the examination enrollment form is submitted, to ensure adequate preparation time for the examination.

The Study Guide for the Professional Practitioner in Real Estate is, with special thanks to the Services SETA, presently available to candidates free of charge. It is likely, however, that a charge will, in the future, be levied for this study guide once current stocks are exhausted.

The Study Guide for the Master Practitioner in Real Estate was recently re-printed by the EAAB since previous stocks of the work were exhausted. The Study Guide, which comprises 1 600 pages and is contained in two separate volumes, is now available for purchase by PDE candidates at a cost of R500,00 if purchased “over-the-counter” at the EAAB offices. An additional postage and packaging fee of R75,00 per individual volume, making a total of R150,00 for the two-volume set, will be levied where the Study Guide is required to be mailed to purchasers.

The award of professional designations

A Certificate of Professional Designation will be issued to persons who have successfully completed the PDE for non-principal estate agents. Such persons are, in addition, entitled to use the designation ‘Professional Practitioner in Real Estate (PPRE)’ for so long as they hold a valid non-principal’s fidelity fund certificate issued by the EAAB.

A Certificate of Professional Designation is, similarly, issued to persons who have successfully completed the PDE for principal estate agents. Such persons are entitled to use the designation ‘Master Practitioner in Real Estate (MPRE)’ for so long as they hold a valid principal’s fidelity fund certificate issued by the EAAB.

NATIONAL INDABA

The next NAMA NATIONAL INDABA will be held on 19 & 20 September 2013 near the picturesque

Stellenbosch in the Western Cape

Remember to diarize this date now!

More details to follow in the near future.Take note that 24 September is a public holiday.

How about a nice long weekend in Stellenbosch?

Examination candidates are, therefore, expected to:

• Apply the study material to actual practical workplace, as well as novel and more innovative, situations;

• Analyse elements and relationships; • Synthesise, structure, compare and evaluate.

Candidates should provide also valid evidence for any assertions made and should avoid duplicating the study material, providing trite answers or making any unsubstantiated deductions. Candidates, therefore, should NOT underestimate the intense preparation that is required to succeed in an open book examination. As time during the examination is limited, the key to success generally lies in adequate preparation and organisation so that candidates are able quickly to locate any data, quotes, examples and/or arguments for use in answering the questions.

Preparation tips

- Carefully study the relevant material ahead of time and don’t expect to simply find quick answers during the examination.

- Know where to find everything by, for example, creating an index. Observe headings and sub-headings and make your own outlines. Doing so will reinforce the structure of the material in your mind. Mark all important terms with, for instance, sticky notes and flags. Mark your texts wherever

you notice important concepts and terms. Making use of underlining is always helpful.

- Keep current on readings and assignments. - Prepare brief notes on relevant ideas and concepts. Make

your own notes and write down important equations, formulas or concepts.

- Carefully select what you intend to bring with you to the examination and make sure that you bring everything that you will need for the examination.

- Including your own commentary on the information frequently provides fuel for your arguments and also demonstrates that you have thought your answers through.

- Anticipate the examination by using model questions but not model answers. Ensure that you have read, understood and can answer any practical activities or case studies that might be contained in the study material. Challenge yourself with how you would answer questions and what options and resources you may need to do so.

Organise your reference materials - your “open book”

- Make your reference materials as user-friendly as possible so that you don’t lose time locating what you need during the examination.

- Familiarise yourself with the format, layout and structure of your text books and source materials.

- Organise these with your own notes for speedy retrieval and index ideas and concepts with pointers and/or page numbers in the source material. (Develop a system of tabs/

TIPS FOR ESTATE AGENTS UNDERTAKING THE Professional Designation ExaminationIt is timely to point out that, as the Professional Designation Examination (PDE) is an open book examination, candidates are evaluated on their practical understanding of the study, and any other relevant, material rather than on mere recall and memorisation.

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- More complex and/or difficult questions should be left for later.

- Questions seeking facts are often easier and faster to answer. These questions will generally start with expressions such as:

“List five reasons … ?” “What events led up to … ?”

- Candidates should avoid over-answering questions. They should, rather, aim for concise, accurate, thoughtful and meaningful answers that are grounded on available evidence.

- Candidates should never waffle and in the hope that, by so doing, they may provide the required answer. Waffling will not qualify candidates for marks regardless of the length of the answer provided.

- Candidates should avoid word-for-word repetition of the content of the study guide, or any other material. The PDE is a professional designation examination and, as such, candidates are required to apply themselves using current knowledge, practical experience and material that has been thoroughly learned and studied. Although the study guide generally provides valuable information to candidates, if the question requires application based on personal knowledge/experience, candidates who simply repeat the content of the study guide are unlikely to earn any marks.

- It is important to remember that application unavoidably means that some answers to certain questions may not always be found directly in the study guides. In such instances candidates must indicate, from their practical knowledge and experience, how they would tackle the situation at the workplace.

- Candidates must ensure that they clearly understand the nature of the question and what it requires of them before attempting to answer it. This can only be done by reading the question thoroughly and repeatedly and making sure that it is correctly understood.

The unfortunate experience of those candidates, in previous examinations, who failed to provide even one of the required answers and, instead, engaged in waffle, unfounded conjecture and obfuscation was that they did not, of course, earn any marks for their efforts.

Rules and Regulations at the examination venue

- Examinations are conducted in the morning to enable candidates to arrive and depart on the day of the examination without having to stay overnight.

- Examinations commence promptly at 09:00. Candidates must, however, be seated by no later than 08:30.

- Candidates who arrive more than 30 minutes after the commencement of the examination will be refused admission to the examination.

- Candidates must bring the EAAB registration letter with them to the examination venue and must provide positive proof of identity. An identity document, passport or valid driver’s licence will suffice for this purpose.

- While there will probably be a wall clock at each examination, candidates should have their own watch to help them pace themselves during the examination.

- Smoking and/or eating is not permitted during the examination.

- Candidates writing open book examination are permitted to take books or papers of any kind into the examination room.

- No electronic devices of any nature, including cellular telephones, are permitted at the examination venues.

sticky notes, colour coding, draft diagrams, etc., to mark important summaries, headings and sections)

- Write short and manageable summaries of content for each grouping.

- List equations, data and formulas separately for easy access.

IMPORTANT TO NOTE

Format of examination and required pass mark

The examination comprises a knowledge component as well as an application, or case study, component and an ethical case study. All components are open book. The overall examination pass mark is 50%. Candidates will, however, be required to obtain a subminimum of 40% for each of the three separate components (or sections of the examination) to pass the examination.

Examination Questions

The knowledge component of the examination (Section A) comprises short questions, usually, but not invariably, for as total of 45 marks. In answering these questions candidates will be obliged to demonstrate what they should already know. The examination also contains case studies (Section B and Section C). The case studies require examination candidates to understand and clearly comprehend the case studies themselves and then to answer questions directly associated with those case studies. The mark allocation in respect of the case studies differs from question to question.

Important tools to use for examination preparation

The Study Guides for Estate Agents

• Thorough knowledge of the prescribed study material for the Professional Designation Examinations, namely, the Study Guide for the Professional Practitioner in Real Estate (for non-principal estate agents) and the Study Guide for the Master Practitioner in Real Estate (for principal estate agents), with special reference to the practical activities contained in the study material, is a prerequisite for examination success.

• These study guides are obtainable from the EAAB.• Candidates are expected comprehensively to study, and

review, the relevant study guide for the respective PDE level in its entirety.

• Candidates should know, understand and be able to apply the Code of Conduct for Estate Agents and should fully acquaint themselves with the relevant study material dealing with the Code of Conduct for Estate Agents.

During the open book examination

- The first thing candidates should do is to evaluate each question to ascertain whether the question is asking for facts or for an interpretation.

- Candidates should ensure that they read all questions carefully and clearly understand what is expected of them when answering the questions.

- Candidates must make good use of available time. It is always useful to quickly review the number of questions and to note how much time each question will probably take to answer. It is also sensible to first answer the questions that candidates feel more confident of and/or which need less time to research.

The vision of the Department of Human Settlements (“DHS”) is “A nation housed in sustainable human settlements” while its mission is “To facilitate the creation of sustainable human settlements and improved quality of household life.”

Although there is a plethora of legislation impacting, whether directly or indirectly, on the DHS, regard is specifically had of the provisions of section 26 of the Constitution of the Republic of South Africa which enshrines the basic right of all South Africans to adequate housing. The Constitution compels the State to take all reasonable measures, within the limits of its available resources, to work towards ensuring that all South Africans can enjoy this right. Specific legislation promulgated and implemented by the DHS falls directly within this Constitutional imperative.

The constitutional obligation of the DHS to provide adequate shelter to South Africans underlies the various strategies and policies of the Department. The DHS has, indeed, moved away from interpreting the constitutional mandate as one of simply providing houses, whether these are located on poorly located land far removed from sources of economic activity and social services or otherwise, to the provision of amenities that can support the creation of functional communities by providing them with access to transport, social services and employment opportunities.

The DHS has, essentially, undergone a significant paradigm shift from ‘housing’ to ‘human settlements’, accepting, in so doing, that the principles of human settlement development must be responsive not only to housing demands but also the special needs of poor households. This implies that land tenure options must be provided in both an affordable and fiscally sustainable manner. The human settlements approach, indeed, envisages the optimal utilisation of land and the stimulation of private investment in housing and community development through integrated planning and good governance. The shift in emphasis of the human settlements model, furthermore, requires an institutional re-organisation of the housing delivery model. The DHS, accordingly, intends focusing on maximising cooperation and coordination between the built-environment sector departments as well as the rationalisation of existing housing institutions.

The Department has adopted the outcomes-based approach for the realisation of social and economic integration through informed planning, land identification, project packaging and delivery. This approach has created a foundation not only for spatial restructuring but also for the creation of functional and sustainable communities. The DHS, through effective land use, choice of tenure and mixed-income developments, has gone a long way towards entrenching good planning principles in the development of new settlement projects and has directly contributed towards sustainable human settlements and, also, to the improved quality of household life.

To accelerate the delivery of basic services and housing opportunities as well as to improve access to the property market, the DHS, together with provinces and municipalities, has focused on the following medium-term outputs, namely:

Klarinet Integrated Human Settlement Development

Cornubia Human Settlements Integrated Development

Masimong Community Residential Units Housing project

Where we live should be where we learn and leisure, and where we stay should be where we play and prayTokyo Sexwale

26 | AGENT

AGENT | 27

• upgrading 400 000 housing units in informal settlements;• improving access to basic services by providing universal

access to sanitation;• facilitating the provision of 80 000 affordable social and

rental housing units in well-located areas;• facilitating the provision of improved housing finance

opportunities for 600 000 households earning between R3 500 and R12 800 per month; and

• releasing 6 250 hectares of public owned land for housing development.

Interprovincial migration and urbanisation has created pressure points and areas of stress as citizens search for economic opportunities amidst the current low employment rate. This has placed metropolitan municipalities under growing pressure in respect of the growth of existing informal settlements and the emergence of new informal settlements. The DHS has, accordingly, refocused its efforts on strengthening municipal planning to address the upgrading of informal settlements. The Urban Settlements Development Grant for cities is a mechanism that has enabled metropolitan municipalities to improve efficiency, maximise their development outcomes and coordinate their approach to managing the built-environment. The grant aims at supplementing the capital budgets of large cities to ensure integrated national, provincial and municipal planning in support of the creation of sustainable human settlements and improving the quality of household life. The DHS programme for upgrading informal settlements nationwide has provided technical and planning support to municipalities for the upgrading of informal settlements.

The DHS has also played a critical role in providing technical knowledge and policy advice to the government cluster system. This has resulted in the attainment of synergy in policy interpretation, collective planning and management of the delivery value chain towards spatial restructuring and economic integration. The dynamic relationship and oversight leadership provided by parliamentary committees has lent further impetus to the process.

Cornubia Integrated Housing Development Project

This project is a joint venture between government and the private sector, Tongaat Hulett, set to be eThekwini and the Province’s (KZN) largest sustainable integrated Human Settlement initiative. The housing project is being developed along the principles of ‘breaking new ground’ and to promote the achievement of non-racial, integrated society through the development of a sustainable, integrated human settlement with associated economic opportunities. The project will comprise of various types of housing opportunities and forms of tenure which will cater for different income groups while meeting the objectives of inclusionary housing. These will include social housing for rental and, affordable bonded housing. The mixed income portion will provide an opportunity to boost the gap market for an “Improved property market” as envisaged in Outcome 8.

Masimong Community Residential Units Housing project

This project is a private public partnership grand based integrated housing development project between government and Harmony Gold Mines aimed at providing affordable rental housing to low income groups. The project is an example of government’s effort to move away from the previous hostel practices that provided single sex accommodation. In September 2010 the Minister of Human Settlements called on JSE –listed companies and high-networth individuals to come forth in helping government with the backlog of housing. This he called Each One Settle One –

Seshego Community Residential Units Housing Project

Southernwood Square Social Housing Project

an ongoing campaign that has been supported by a variety of corporates including Harmony Gold Mines, Implats, Absa and Old Mutual.

Klarinet Integrated Housing Development Project

This is the first large scale integrated human settlements project implemented in Mpumalanga with Absa DevCo, a subsidiary of Absa bank. The project will comprise of more than 11, 969 mixed housing units, associated public amenities and the internal bulk infrastructure. The project is one of government’s initiatives aimed at deracialising Apartheid cities and towns in the process build new cities and towns in places closer to socio-economic amenities and provide decent affordable accommodation through social housing and affordable bonds in the cities.

Seshego Community Residential Units Housing Project

This is the first rental project of its kind in Limpopo aimed at facilitating the provision of secure, stable rental tenure for lower income persons and households earning between R 800 and R 3 500 per month.

Southernwood Square

The project is the first social housing high rise development in East London in line with the department’s key focus areas aimed at providing quality and sustainable housing, and the mobilisation of well located public land for low income and affordable housing with increased densities. It caters for households earning between R 2 500 to R 7 500.

Southernwood is located within walking distance of the CBD, hospitals, higher learning institutions and a number of primary and high schools.

The FNB Estate Agent Survey showed some mild cooling in residential demand in the 4th quarter of 2012, at the end of what was a relatively good 2012.

ESTATE AGENTS POINT TO SLIGHTLY SLOWER DEMAND IN THE 4TH QUARTER, AFTER PREVIOUS QUARTERS’ IMPROVEMENTS

The 4TH Quarter 2012 FNB Estate Agent Survey, completed in the month of November, came out with a slightly weaker view of the domestic residential property market than the preceding quarter. However, this slight weakening came at the end of a year that, as a whole, was an improvement on 2011.

The survey is of a sample of estate agents predominantly in SA’s major metro regions. The 1st question asked to agents is with regard to their perceptions of residential demand in their areas, a subjective question on a scale of 1 to 10, with 10 being the strongest level of demand.

The 4th Quarter Residential Demand Activity Indicator declined mildly, from the previous quarter’s 6.11, to 5.89. We also statistically seasonally adjust the data, and on a seasonally adjusted basis, the demand rating also declined slightly from a previous quarter’s 6.17 to a 4th quarter 6.11.

This level still remains firmly in the “stable” bracket (a level from 4 to 6), the other brackets being “not very active (1 to 3), “positive” (7 to 8) and “very active (9 to 10)

While the decline was only marginal, one should ask whether agents have perhaps started to feel some effect a weakened economy in the latter half of 2012, hampered by major strike disruptions late in 2012? One quarter’s data won’t confirm much, but it is possible. Nevertheless, the decline in activity in the 4th quarter was mild, and the average demand rating for the entire 2012 was 5.98, which was a mild improvement on 2011’s 5.8 average rating.

6.35

6.11

4

4.5

5

5.5

6

6.5

7

7.5

8

2004 2005 2006 2007 2008 2009 2010 2011 2012

Act

ivity

Lev

els

on a

sca

le o

f 1-1

0

Residential Demand Activity Indicator

National Demand Activity Rating (Scale 1 to 10) Seasonally Adjusted

Examining the percentage change in the Demand Activity Rating, we see a mild tapering in growth momentum in the 2nd half of 2012. On a year-on-year basis, percentage change in the demand activity rating was 4.06% in the final quarter of 2012, slightly slower than the 4.63% and 4.09% year-on-year growth rates recorded in the 2nd and 3rd quarters of 2012 respectively.

On a quarter-on-quarter seasonally-adjusted basis, the easier way to gauge recent growth momentum, we saw the 4th quarter showing negative growth (decline) of –2.9%, after the 2 prior quarters’ positive quarter-on-quarter growth rates of +4.2% and +2.7% respectively.

4.06%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

-30%

-10%

10%

30%

2005 2006 2007 2008 2009 2010 2011 2012

Rate of Change in Demand Activity Levels according to FNB Estate Agent Survey

FNB Estate Agent Survey Rating of Residential Demand Activity - y/y% (Left Axis)

Seasonally adjusted quarter-on-quarter % change (Right Axis)

The best rate of improvement in residential demand in 2012 did thus appear to be in the 2nd quarter of the year.

ESTATE AGENTS SUGGEST THAT THE BALANCE OF DEMAND RELATIVE TO SUPPLY MAY HAVE IMPROVED SLIGHTLY THROUGH 2012

Other indicators emanating from survey suggest that there was some improvement in the balance between demand and supply in the residential market, during the 3rd and 4th quarters of 2012, in response to the mild demand improvements that took place from earlier in the year.

In order to examine the balance between supply and demand, or otherwise put the level of pricing realism in the market, the Estate Agent Survey asks agents to estimate the average time that properties remain on the market in their areas prior to being sold.

HOME BUYING ESTATE AGENT SURVEY

28 | AGENT

HOME BUYING ESTATE AGENT SURVEY

AGENT | 29

15.4

0

4

8

12

16

20

2005 2006 2007 2008 2009 2010 2011 2012

Wee

ks a

nd D

ays

on th

e M

arke

t

Average time that a property is on the market

Weeks and days that the average property is on the market before being sold Smoothed

In the 4th quarter, this average time on the market declined slightly from the previous quarter’s 15 weeks and 6 days to 15 weeks and 4 days, 2 weeks lower than the 2nd quarter’s 17 weeks and 4 days. It must be borne in mind that this estimate can be volatile from quarter to quarter, but the smoothed trend line that we have created, using a statistical smoothing function, also declined slightly through the year.

This is an encouraging development, as it suggests marginal progress in improving the market balance. For 2012 as a whole, the average time on the market was 16 weeks, a little better (lower) than the 17 weeks and 0..25 days average in 2011.

However, 15 weeks and 4 days by year end remained too long to represent a strong market. Judging from the healthier market days prior to 2008, a level nearer to 8 weeks (2 months) on the market appears to be the benchmark for a “strong” market, so there remains some way to go.

RESIDENTIAL SUPPLY WAS MORE CONSTRAINED THROUGH 2012 THAN COMPARED TO 2011

11.0

16

13

5

13

1.0

5.0

9.0

13.0

% o

f Age

nts

citin

g st

ock

issu

es

Agent Stock Constraints

Percentage of agents citing stock issues as a factor influencing expectations of near term activity

Trying to gauge the strength of supply of residential stock through asking survey respondents for their opinion is admittedly a tall order. When asking agents about their market expectations in the near term, we allow them to provide a list of factors that influence their expectations, both in a positive and a negative way. In the 4th quarter of 2012, we continued to see a significant percentage, i.e. 13%, of agents citing stock constraints as an issue. This percentage was up from the 5% peak registered in the previous quarter, and very much in line with the year 2012’s average of 11.75% of agents citing stock constraints. This is well-above the 6.5% average for 2011.

This supports the notion of a broadly improved balance in the market through 2012, compared with 2011, when read with the previous indicator, i.e. the average estimated time of a property on the market.

WHILE PROPERTIES ARE SELLING A LITTLE QUICKER, STILL THE OVERWHELMING MAJORITY HVE TO DROP THEIR ASKING PRICE TO SELL

Despite agents pointing to a shorter period of properties on the market, which is often seen as a good indicator of pricing realism in the market by sellers, they estimated only very slight decline in the percentage of sellers being required to drop their asking price to make a sale, a second indicator of pricing realism.

The percentage of properties sold at less than asking price was 85% in the 4th quarter of 2012, according to the survey, which was insignificantly different from 87% in the 2nd quarter and 84% in the 3rd quarter.

85

10

30

50

70

90

%

Proportion of properties sold at less than asking price

Percentage of properties sold at less than asking price Smoothed

2004 2005 2006 2007 2008 2009 2010 2011 2012

Q4-2008 Q4-2009 Q4-2010 Q4-2011 Q4-2012

Furthermore, we ask agents to estimate the average percentage asking price drop on those properties where a price drop is required to make the sale. This average drop has moderated mildly from -13% in the 2nd half of 2011 to -10% by the 2nd quarter of 2012, where it remained in the last 2 quarters of 2012.

-11%-12% -12%

-11%-12%

-11%

-13% -13%

-11%-10% -10% -10%

-18%

-16%

-14%

-12%

-10%

-8%

-6%

-4%

Average Percentage Drop in Asking Prices

Average percentage drop in asking price by sellers required to drop their price to make the sale

These quarter to quarter moves are not yet significant, and can perhaps be merely due to data volatility. But the smoothed trendline regarding percentage of sellers dropping their price does show some very slight decline since 2011, once again pointing to a slightly more realistic market when read along with the moderate decline in average time on the market and a smaller average percentage drop. But any improvements come slowly and certainly don’t point to a very strong market direction.

THE MORE CYCLICAL 1ST TIME BUYER COMPONENT OF RESIDENTIAL DEMAND HAS WEAKENED SLIGHTLY IN THE 4TH QUARTER

1st time buyer demand tends to be more cyclical than the total market. This is arguably because many young buyers have more flexibility than established households, being able to delay their own formation of a new household by remaining in their parent’s home for longer during tougher property and economic times, or by often remaining in a rental property for longer.

21

5

10

15

20

25

30

%

First time buying activity

First time buyers expressed as a percentage of total buyers Smoothed

The level of 1st time buying, therefore, is also a good indicator of whether market conditions are improving and, given this group’s high dependence on credit, possibly also an indication of whether credit is becoming easier to obtain or not.

For 2012 as a whole, the average 1st time buyer percentage of 23% was unchanged from the 23% of 2011, with both of these years’ percentages reflecting a significantly better performance of 1st time buyers compared with the 2008-2010 period.

However, after a steadily improving trend in the 1st time buyer percentage from the 2008 low, in 2012 it has begun to appear as if this percentage has been flattening out and perhaps starting to decline a little. From 25% in the 3rd quarter, the 4th quarter 1st time buyer percentage declined to 21%. From quarter to quarter this percentage can be volatile, so view that figure with caution. However, the smoothed trendline has also begun to decline slightly through 2012.

ON THE SELLING SIDE, AGENTS SEE SOME IMPROVEMENT IN FINANCIAL STRESS-RELATED SELLING, BUT THE LEVEL IS STILL SIGNIFICANT

18%

14%

0%

5%

10%

15%

20%

25%

30%

35%

% o

f Tot

al S

ales

Downscaling due to Financial Pressure vs Upgrading

Percentage of total sellers downscaling due to financial pressurePercentage of sellers selling in order to upgrade

Our survey respondents in the 4th quarter of 2012 pointed to a decline in financial pressure-related selling of homes among households, but the level still remains very significant. When asked to provide an indication of the reasons as to why people are selling their properties, in the 4th quarter they estimated that 18% of sellers were selling in order to downscale due to financial pressure. This is down from the previous quarter’s 20%, but remains a high number.

This arguably needs to be read in conjunction with the percentage of sellers selling in order to upgrade, which declined mildly from 16% of total sellers in the 3rd quarter to 14% in the 4th quarter, also possibly a small sign of a market settling a little after some previous growth.

These 2 reasons for selling are arguably the 2 most important indicators in the survey of financial pressure/constraints experienced by homeowners. The gap between the two has closed significantly since early-2009, a positive development, but the level of downscaling due to financial pressure remains high, reflecting a still-fragile household sector financial situation.

HOW AGENTS SEE THE NEAR TERM OUTLOOK

0.18

-0.2

0.0

0.2

0.4

0.6

0.8

2004 2005 2006 2007 2008 2009 2010 2011 2012

Scal

e 1

to -1

Near Term Estate Agent Expectations

Home Buying Confidence Indicator (Near Term Agent Expectations

Smoothed

30 | AGENT

2005 2006 2007 2008 2009 2010 2011 2012

Q4-2007 Q4-2008 Q4-2009 Q4-2010 Q4-2011 Q4-2012

2010 2011 2012

AGENT | 31

In terms of expectations of demand in the near term, the 4th quarter agent survey returned a fairly weak response, despite what had for the most part been a good 2012.

We ask them for their expectations of residential demand strength in the near term, i.e. the three months subsequent to when the survey takes place, requesting them to choose between 3 options, namely the market will “strengthen”, “weaken”, or “remain the same”.

In the 4th quarter survey, only 18% of respondents expected an increase in demand levels in the subsequent 3 months. Admittedly, the November survey outlook shows weak near term expectations because agents are mindful of the negative seasonal impact of the December/January holiday period on urban sales, but this percentage is nevertheless the 2nd lowest for a 4th quarter survey in the history of the survey dating back to 2003.

The majority of respondents, namely 57% expected activity levels to move sideways, while 28% predicted a near term deterioration.

This all translates into a decline in the Home Buying Confidence Indicator from a previous of 0.63 to -0.07 (on a scale of 1 to -1).As mentioned, some decline in near term expectations would not be out of place in a 4th quarter survey, given a typically weak summer holiday period looming at the time of survey (November). But there may be a little more than just seasonal factors in the response, because the smoothed trendline on the Home Buying Confidence Indicator also declined mildly in the 4th quarter, from 0.22 previous to 0.18. Is it that agents are starting to feel the effects of recent economic weakness?

When asking agents for the factors influencing their near term expectations, seasonal factors come up as the most common factor, with the holiday season typically a weak period.

1112

48

1113

16

01 02 03 04 05 06 0

Other

Buyer's Mindset

Consumer Positive Sentiment

Area Specific Issues

Interest rates

Pricing and Affordability

Strict Credit Environment

Stock Issues

Economic Stress / General Pessimism

Seasonality

%

Factors that influence perceptions of near term future activity levels

However, ignoring seasonal factors, the next most important factor cited by agents was that of “Economic Stress/Pessimism”. Simultaneously, only 1% of agents perceived an environment of “Consumer Positive Sentiment”. This represents a significant swing from 14% citing “Consumer Positive Sentiment in the 3rd quarter and 11% citing “Economic Stress/Pessimism”.

So, although agents reported only a mild weakening in demand activity in the residential market in the 4th quarter survey, they have become a little less optimistic on the near term future, and noticeably far less perceive any consumer positive sentiment in the market. This may be beginning to reflect the significantly weaker economy late last year, which was severely disrupted by strike action in certain sectors.

IN SUMMARY – LATE IN 2012, AGENTS POINTED TO SLIGHTLY SLOWER, ALTHOUGH STILL GOOD, DEMAND IN THE RESIDENTIAL MARKET. HOWEVER, THEY MAY HAVE BEEN STARTING TO FEEL THE INITIAL EFFECTS OF THE WEAKER ECONOMY IN THE 2ND HALF OF THE YEAR.

The FNB Estate Agent Survey is a useful tool with which to gain insight into residential market trends first hand, because estate agents experience changes in the market arguably before any of the other market role players.

In the 4TH quarter Estate Agent Survey, the overall impression gained from the sample of agents surveyed is one of mild weakening in residential demand, at the end of a relatively strong year. The situation was far from bad, with average time on the market remaining at levels lower than in the 1st half of the year, and a significant percentage of agents still cited stock constraints.

But perhaps slower demand late in 2012 was to be expected, as major industrial action disruptions, along with a global economy slow period, saw our own economic growth slow significantly in the 2nd half of 2012, and this must surely have some negative impact on property. Indeed, as opposed to the 3rd quarter, we saw a swing in the percentages of agents experiencing “consumer positive sentiment” versus those seeing “Economic stress/pessimism”, with those experiencing positive consumer sentiment declining sharply in terms of percentage of total agents.. It would thus appear that they did start to perceive greater economic pressure in the 4th quarter compared to previous quarters.

This slightly more negative situation need not continue for long though, as industrial action disruptions may have subsided significantly, and there are signs that the global economy is moving into a mildly stronger patch once more.

Agents do, also, still point towards a very significant level of financial pressure, which manifests itself in a still-high percentage of sellers downscaling due to financial pressure. However, they indicated a mild improvement in this still-high percentage from a previous 20% to the 4th quarter’s 18%. It is important that this indicator of financial pressure decline significantly further before the next interest rate hiking cycle.

Finally, the agents surveyed harbored slightly weaker expectations regarding near term future activity, even excluding seasonal factors, with the level of the Estate Agent Confidence Indicator, which reflects agent near term expectations of market direction, slightly down on the previous quarter’s levels.

Source: John Loos (FNB)

….but less concerned about green issues Research commissioned by Century Property Developments shows estate agents are primarily concerned with affordability of housing, tighter credit rules and the seller’s transparency in pointing out potential defects in the home. Transparency from the seller has emerged as a major issue for estate agents, as failure by the seller to point out potential defects could negate the sale in terms of the new Consumer Credit Act. Century Property Developments commissioned the research to gauge awareness among estate agents, home buyers, architects and banks on awareness of green residential developments. The findings suggest home buyers and architects are more enlightened on issues surrounding green developments than estate agents and banks. The research, by KLA, canvassed 100 estate agents, as well as 200 potential home buyers, 15 architects and the major mortgage banks. “There is understanding among estate agents of the importance of investing in green residential properties, but they are not positioning this as important when selling to clients. The feedback we got from estate agents is that there is not much demand from home buyers for green properties,” commented Mark Corbett, CEO of Century Property Developments on the research findings. Some 37% of estate agents rated green initiatives as very important. There was a stronger response from estate agents on whether green properties would offer a positive return on investment. Some 55% of agents believed this was “very likely”, versus 52% of home buyers. “This is a subject which requires further research in SA. Green developments are very new to SA, and it will need a few years before we can measure the resale values of green properties, but overseas research clearly shows that green properties have a higher resale value than non-green properties, and they sell faster.”

Corbett adds that the business case for buying green is poorly understood by many estate agents and banks. “There is a perception that the pay-back on investment on a green home is 10 or 20 years, when in fact it is becoming much shorter, particularly in light of rapidly escalating electricity prices.”

Using gas rather than electricity to heat a home is already 30% cheaper, and the difference will grow in the coming years as electricity prices rise. By incorporating other green elements into a home – such as recycled water, energy-efficient design and use of natural materials – the business case for buying green is even stronger, adds Corbett.

One interesting finding of the research is that architects and home buyers are more eco-aware than estate agents and banks. Architects surveyed said more than nine out of 10 of their clients wanted green homes, not because they have to, but because they want to.

Some 63% of home buyers cited energy efficiency as the main reason for going green, while this reason rated only 43% among estate agents. This suggests a perception gap between estate agents and home buyers over the importance of greening.

Research highlights:

There is a strong urge among home buyers to move off the grid.For home buyers, energy efficiency and self-sustainability was the third most important attribute, after safety and security and affordability, in choosing a home.

Some 63% of home buyers surveyed – versus 43% of estate agents – rated energy efficiency as the main reason for going green.

There is a gap between what home buyers and estate agents regard as the important issues in home selection: estate agents are more concerned with the buyer’s ability to afford the mortgage bond and the seller’s transparency in pointing out potential defects, as this could negate a sale in terms of the new Consumer Credit Act. Buyers cite safety and security, as well as affordability, as their chief concerns, but appear to be more eco-aware than estate agents.

Bankers attach little importance to greening. They are more concerned about the risks associated with lending.

International research suggests green homes have a higher resale value, and sell faster.

Estate agents and banks question the return on investment of greening a home, whereas home buyers are more attuned to the cost benefits.

The perception among estate agents is that green homes lack aesthetic appeal, while architects argue that with sufficient budget, homes can be green and aesthetically pleasing.

Source: Century Property Developments

RESEARCH SHOWS ESTATE AGENTS CONCERNED ABOUT AFFORDABILITy AND THE CONSUMER CREDIT ACT

Mark Corbett CEO Century Property Developments

32 | AGENT

AGENT | 33

Johannesburg, 15 January 2013 – The South African Institute of Chartered Accountants (SAICA) has observed that there is some confusion in the market place regarding the penalties that the South African Revenue Services (SARS) can levy, specifically with respect to provisional tax.

Piet Nel, SAICA’s Project Director: Tax says it appears that the source of the confusion may be that taxpayers do not understand the difference between a penalty raised in the event of an understatement of the tax liability in a final tax return (which is levied according to a penalty table and can be from 25% to 200%) and the penalty in the event of taxable income being underestimated for provisional tax purposes.

“The penalty in the event of taxable income being underestimated applies to the second, or final, provisional tax return. The amount of taxable income entered on a provisional tax return will be underestimated if it is less than certain limits”, Nel explains.

These limits depend on whether or not the taxable income finally assessed is less than, equal to, or more than R1 million. This underestimation penalty is fixed at 20%. “In terms of both the Income Tax Act and the Tax Administration Act, this penalty is deemed to be a percentage based penalty levied in terms of the Tax Administration Act and it is clear from the legislation that this is not an understatement penalty”, Nel advises.

For example, if a taxpayer estimated taxable income of R1.1 million in his/her provisional tax returns, whilst the actual taxable income for the year is R1.5m, SARS will levy a penalty at 20%. This 20% penalty will be calculated on the difference between the tax payable on the minimum amount of the estimate and the taxes actually paid by the taxpayer by way of employees’ tax and provisional tax.

SAICA EXPLAINS POSSIBLE CONFUSION REGARDING PROVISIONAL TAX PENALTIES

Consult with a chartered accountant if you are uncertain

Nel warns that provisional taxpayers must remember that they have a duty to estimate taxable income for purposes of provisional tax, for example, for the return due by individual provisional taxpayers at the end of February this year. If a person fails to submit such an estimate, the person will be liable for another penalty for non-submission of an estimate.

“This penalty is fixed at 20% and is basically calculated on the difference between the tax due for the year, calculated on the legal minimum amount of the estimate, and the tax actually paid during the year.” Nel said that it is advisable that people approach a chartered accountant if they are uncertain whether or not they are provisional taxpayers or with respect to making the estimate itself.

He explains that an understatement penalty may be levied where the taxable income in the final tax return submitted is less than the actual taxable income for the year. For example, if on submission of the ITR12, a taxpayer has disclosed taxable income of R1.4m whereas his/her actual taxable income for the year is R1.5m, SARS will impose an understatement penalty on the tax shortfall in accordance with the penalty table, such as a penalty of 25% to 200% depending on the specific taxpayer ‘behaviour’ giving rise to the understatement, as determined by SARS.

For more information visit www.saica.co.za

MEDIA RELEASE issued by: The South African Institute of Chartered Accountants (SAICA).

17

10

20

30

40

50

60

70

80

%

Affordability Perceptions -A gents who believe income levels haven't kept up with

prices

Percentage of respondents stating that buyer income levels have got far behind price levels

The 2 traditional affordability measures are shown in the accompanying graph. The average house price/average employee remuneration ratio, provided in index form (Q3 2000=100), has declined by -25.5% since the peak of “in-affordability” in the 1st quarter of 2008 up until the 2nd quarter of 2012 (labour data for subsequent quarters not yet available).

This decline is the net result of wage inflation significantly outstripping weak house price inflation.

The FNB Estate Agent Survey for the 4th quarter of 2012 completes the residential property picture for the year 2012. Despite agents reporting a slightly weaker residential

demand picture in the final quarter, 2012 as a whole was seen as a better year than 2011, while the Average FNB House Price Index growth rate for 2012also reflected a slightly better year than 2011.

This improved residential market in 2012 in terms of demand and sales volumes, albeit still not a market “firing on all cylinders”, can be viewed as the lagged impact of an improved economic growth rate since the 2008/9 recession, which has gradually improved home buyer confidence levels. Accompanying this has been a steady improvement in home affordability since 2008.

162.10

84.88

162.10

120.76

60

80

100

120

140

160

180

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Inde

x Q

3-20

00=1

00

Affordability of housing

Average-priced house repayment value/average l abour remuneration i ndex (2000=100)

Average house price/average l abour remuneration ratio (Index 2000=100)

34 | AGENT

BETTER ECONOMy, FASTER RATE,OF RESIDENTIAL PROPERTy OWNERSHIP TRANSFORMATION

Q1-2004 Q1-2006 Q1-2008 Q1-2010 Q1-2012

AGENT | 35

BETTER ECONOMy, FASTER RATE,OF RESIDENTIAL PROPERTy OWNERSHIP TRANSFORMATION

26.028.3

21.8

17.815.0 15.8

17.0

23.0 23.0

5

10

15

20

25

30

%First time buying activity

First time buyers expressed as a percentage of total buyers

The 2nd measure of affordability is the “installment repayment value on a 100% loan against the average priced house/average remuneration ratio (also in index format)”. This ratio has declined far more significantly, by -47.6% over the same period, due to the added impact of huge interest rate reduction since late-2008.

Not surprisingly, therefore, the overwhelming majority estate agents surveyed perceive improved affordability too. By the 4th quarter of 2012, only 17% believed that “income levels had not kept up with house prices”, a dramatic reduction from the 1st quarter 2008 peak, where 72% of agents surveyed perceived income levels “had not kept up with price levels”.

It is possible that many agents perceive income levels “keeping up” where it is actually more an interest rate cutting effect. But the outcome is the same, i.e. improved housing affordability since the end of the real house price boom early in 2008.

The results of improved economic performance, and some years of affordability improvements, can be seen in the improved ability of new entrants to enter the residential property market.

The FNB Estate Agent Survey has pointed to some years of improved 1st time buyer activity, with 1st time buyers in 2011 and 2012 estimated at 23% of total buyers. This is significantly higher than the 15% low of 2008.

But it goes further. One of the pressing goals in South Africa is to eliminate the very significant income and wealth gaps that persist on a racial basis. Certainly we hear encouraging indications that this process is happening, with StatsSA’s release of the most recent census results, released late in 2012, pointing to further reduction of the racial per household income gaps since prior censuses. However, the pace of this transformation concerns many.

In terms of race-based home buying, what are we seeing? Well, bear in mind that the FNB Estate Agent Survey is dominated by the “high-volume” former Apartheid-era white suburban areas. Therefore, transaction volumes could still be expected to be dominated by members of the so-called White population group. Indeed this is still the case.

However, since 2005 when our survey question regarding estimated percentage of buyers by race was introduced, we have seen the estimated total percentage of Black, Coloured and Indian buyers in these “suburban” areas broadly rising. From

43% in 2005, the percentage of buyers from these 3 “previously disadvantaged groups” rose to 50% of total buyers by 2008.

Thereafter, however, a sliding economy saw this percentage declining down to 46.2% by 2011. This is to be expected, as a higher portion of the previously-disadvantaged race group buyers are new entrants, have limited wealth yet built up, and are thus more income, employment and credit dependent than many of the older white repeat buyers.

12.0 11.5 11.5 12.3 13.0 11.0 12.3 11.38.0 7.8 7.5 7.8 7.3 7.3 7.3 8.8

23.0 24.0 25.3 30.0 29.5 31.3 26.8 29.5

57.0 56.8 55.8 50.0 50.3 50.5 53.8 50.8

0%

20%

40%

60%

80%

100%

Percentage of Suburban Buyers by Race Group

White Buyers Black Buyers Coloured Buyers Indian/Asian Buyers

In 2012, however, we have once more seen a rise in this percentage to 49.2% of total suburban buyers, implying white buyers dropping back a little to 50.8% from 2011’s 53.8%. This, we believe to be the lagged impact of a better performing economy since the end of the 2008/9 recession, along with lower interest rates, an effect which has also led to an improved 1st time buyer percentage.

The racial breakdown in 2012 for suburban home buying was estimated at 11.3% for Indian buyers, 8.8% Coloured buyers, 29.5% Black buyers, and 50.8% White buyers.

And the simple lesson? The faster the country can grow its economy (in a sustainable manner of course), the more rapidly it can racially transform residential property ownership. This was noticeable in the boom times up until 2008.

We’ve made progress in racially transforming property markets no doubt. But when the economy stuttered in 2008, estate agents started to suggest thereafter that the process had gone backwards a little, before 2012 saw the progress resume once more.

Source: John Loos (FNB)

2004 2005 2006 2007 2008 2009 2010 2011 2012

2005 2006 2007 2008 2009 2010 2011 2012

No noticeable effects yet on the residential property market emanating from 2012’s heightened “socio-political” uncertainty and Rand weakness, but that could be

different in better economic times

2012 won’t go down as one of South Africa’s great economic years. It wasn’t bad if one looks at overall economic growth for the year. But it was very much a “tale of 2 halves”, with the 1st half showing reasonable growth, whereas by the 3rd quarter there was mounting pressure on the economy from widespread industrial action most notably, though not only, in the mining sector.

In addition, the industrial action has sometimes been violent, while service delivery protests have also become quite frequent events. Inevitably, South Africa has had ratings downgrades from various global ratings agencies, undoing some of the good work that had led to upgrades a number of years ago in more positive times.

The recent turbulence has also in part contributed to a bout of rand weakness. Clearly, there appears to be heightened investor concern regarding South Africa’s future stability and prosperity.

These negative developments potentially affect the residential property market in a few ways, including:

• Higher costs of borrowing for South Africa, should they occur due to rating downgrades or heightened risk perceptions by investors, have the potential to restrict economic growth to lower levels than would otherwise have been the case, which is negative for job creation and household purchasing power growth.

• In addition, pressure on the rand can increase imported prices and thus exert some upward pressure on consumer prices. This has the potential to eat into household disposable income.

• Due to upward pressure on consumer price levels, rand weakness also raises the risk of interest rate hiking, although as yet, the rand weakness has probably not been significant enough to warrant rate hikes.

• But while the abovementioned factors can be seen as potential “indirect” impacts on the residential market via negative impacts on purchasing power, there can also be “direct impacts on the residential market. These would occur due to changes in sentiment of local home owners, causing a greater amount to consider emigration, as well as due to a deterioration in aspirant foreign property investor confidence, causing a weakening in foreign buying of local property. The propensity to emigrate amongst skilled South Africans is traditionally high, and this impact on the property market thus has the potential to be significant. The 2008 “spike” in emigration-related selling at around the time of the Eskom “crisis”, at 20% of total selling, reflects this propensity.

Have we seen any possible signs of such direct negative effects on the residential property market to date, emanating from recent negative developments? Fortunately, through 2012 the answer continued to be “not really”, according to our FNB Estate Agent Surveys. In the survey, one of the questions we ask the sample of agents is what estimated percentage of sellers sell properties in order to emigrate. Interestingly, this percentage dropped even further from 4% of total sellers in the 2nd quarter to 3% in the 3rd and 4th quarters, the lowest emigration selling percentages estimated since the start of this survey question at the beginning of 2008. For 2012 as a whole, average emigration-related home selling was estimated at 3.4% of total selling, down from 4.1% in 2011.

20%

3%

0%

5%

10%

15%

20%

%Emigration selling of residential property

Percentage of total sellers selling in order to emigrate

Does this mean that the perceptions of domestic homeown-ers towards South Africa are fine, and that all this hype about negative sentiment is overdone? Probably not. Rather, it is South Africa’s “relative situation” in a troubled world that is perhaps not too bad.

The currently weak global economic times probably masks any changes in sentiment towards South Africa, because even if a heightened number of domestic homeowners were feeling a desire to emigrate in recent times, job prospects in some of the traditionally popular emigration destinations are far from rosy, especially European destinations.

7.00

4.00

6.50

2.00

3.50

1

2

3

4

5

6

7

8

2005 2006 2007 2008 2009 2010 2011 2012

%

Foreign Home buyers as a percentage of total buyers

Estimated foreign home buyers (buying homes in SA) expressed as a percentage of total South African home buyers -2 -Quarter moving average

36 | AGENT

Emigration and Foreign Buying

Q1-2008 Q1-2009 Q1-2010 Q1-2011 Q1-2012

AGENT | 37

With regard to foreign buyers, the 2-quarter moving average (we use a 2-quarter average done for smoothing purposes) for the 4th quarter actually showed some improvement from 3% of total buyers of local residential property to 3.5%. While this remains far from the highs of 6.5% back in 2008, it is a little better than the 2% low reached in late-2010. For 2012 as a whole, the average foreign buying estimate was 3.8% of total buying, up from 2011’s estimated 3%.

Financial times in economies such as Europe and the UK, from where a significant portion of SA’s foreign buyers come, are currently tough, and that could conceivably be putting pressure on foreign buying, so improvements in this source of residential demand have been slow.

21.00

8.50

22.00

0

5

10

15

20

25

%

African Foreign Home buyers as a percentage of total Foreign buyers

Estimated foreign home buyers from Africa (buying homes in SA) expressed as a percentage of total foreign home buyers -2 -Quarter moving average

According to the estate agent sample, however, one group which doesn’t appear to be affected by recent tensions is foreign buyers from African countries. Expressed as a percentage of total foreign buyers, the African contingent has increased further to 22% for the 2 quarters to the 4th quarter of 2012. This continues an upward trend in this percentage from a low of 8.5% back in the 3rd quarter of 2010. Looking longer term, I believe that South Africa is likely to see further increase in the African foreign buyer percentage, as Africa’s economic fortunes continue to improve and its household wealth grows too.

In short, therefore, with regard to emigration selling of local property we do not appear to be seeing any negative impact (increase) from recently heightened domestic tensions. But it is important to understand that our “brain drain” problem has probably NOT permanently subsided. In different (better) global economic times, the negative impact may have been far more significant, as was the case in pre-recession early-2008 during the Eskom load shedding period, when many feared that the “lights were going out”.

Source: John Loos (FNB)

Q4-2009 Q4-2010 Q4-2011 Q4-2012

Property Barometer

HOUSE PRICE INDEX

In January 2013, the House Price Index continued its mild short term dip. From a revised year-on-year decline of -1.1% in December, the index declined further by -2.3% in January.

The causes are believed to be threefold:

-20%

-10%

0%

10%

20%

30%

40%

Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12

FNB House Price Index -R eal and Nominal Growth

FNB House Price Index -y ear-on-year percentage changeReal Average House Price (CPI adjusted) -y ear-on-year percentage change

Firstly, a high base effect has come into play, due to a healthy price growth surge early in 2012 as the residential market showed significant strengthening at that stage. This has a negative impact on the year-on-year growth rate a year later.

Secondly, we appear to have seen relatively healthier transaction volumes on the lower priced end of the market, which has translated into something of a shift in relative transaction volumes in favour of the lower end of the market in recent times

it would seem. That is not entirely unexpected as tough economic conditions drive the search for affordability.

But thirdly, we also saw a considerable deterioration in economic growth in the 2nd half of 2012, after a relatively good 1st half. This was caused by a lull in global economic growth at the time, along with major output disruption locally due to widespread industrial action, especially in the mining sector. As such, it is believed that very little economic growth took place in the 4th quarter, after a dismal 1.2% annualized growth rate in the 3rd quarter. This was bound to slow growth in residential demand somewhat in the latter stages of 2012 as household disposable income growth slowed too.

And so, we simultaneously have seen some weakening in the FNB Valuers’ Market Strength Indices, an indication of FNB valuers’ perceptions of demand, supply, and by implication market balance (see notes at the end for explanation). The Valuers’ Demand Strength Index in January weakened slightly further from a previous months’ 48.9 to a level of 48.6, and although the Supply Strength Index also weakened slightly, the cumulative impact was a slight weakening in the overall Market Strength Index (demand rating minus supply rating) from a previous 45.5 to a January level of 45.4. While such small month-to-month movements are not too significant, viewed over a number of months we have seen a gradual slowing in the year-on-year rate of increase in the FNB Valuers’ Market Strength Index, from a peak 2.7% as at September 2012 to 1.5% as at January 2013. This direction appears to support the notion of a slowing pace of market improvement.

The House Price Index takes a mild decline late in 2012 and early-2013, with high base effects from a year ago, better activity on the lower end, and a weakened economy, all playing a role.

38 | AGENT

AGENT | 39

45.42 48.62

57.779

354045505560657075

Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13

Inde

x Sc

ale

0 to

100

FNB Valuers Residential Market Strength Indices

FNB Valuers' Market Strength Index (Scale 0 to 100 where 50 indicates a balanced market)Demand rating (scale 0 to 100)

Supply rating (scale 0 to 100)

-25%

-15%

-5%

5%

15%

25%

35%

-15.0%

-5.0%

5.0%

15.0%

25.0%

Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12

FNB Valuers Residential Market Strength Index vs House Price Growth

-Y ear-on-year % Change

FNB Valuers' Market Strength IndexFNb House Price Index -y ear-on-year % change

CONCLUSION

Important to emphasise, though, is that after some good improvement earlier in 2012, conditions in the residential property market are still relatively “comfortable”, but recently the improvement just appears to have slowed temporarily. Negative growth in the FNB Index may be little “overdone” due to high base effects and some transaction volume shift in favour of the lower end.

11.1%16.8%

29.5%26.5%

12.6%11.1%6.8%

-2.6%5.9%

3.3% 5.1%2.6%

-3.1%-9.7%

1.6% -1.7% -0.6%

-20%

-10%

0%

10%

20%

30%

40%

FNB Average Annual House Price Inflation

FNB House Price Index - Annual percentage change

Real House Price Growth (Nominal growth adjusted using CPI)

Fore-cast

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013-3.9%

Looking ahead into 2013, it is expected that low positive nominal house price growth will be restored in the near term, with signs of some improvement in the world economy once more, along with the possibility that the domestic economy will benefit from reduced industrial action and production disruptions since late-2012.

As such, we still remain of the view that 2013 will see slow but positive nominal house price growth in the region of 2.5% average for the year.

NOTES:

Note on The FNB Average House Price Index: Although also working on the average price principle (as opposed to median or repeat sales), the FNB House Price Index differs from a simple average house price index in that it could probably be termed a “fixed weight” average house price index.

One of the practical problems we have found with house price indices is that relative activity shifts up and down the price ladder can lead to an average or median price index rising or declining where there was not necessarily “genuine” capital growth on homes. For example, if “suburban segment volumes remain unchanged from one month to the next, but former Black Township (the cheapest areas on average) transaction volumes hypothetically double, the overall national average price could conceivably decline due to this relative activity shift.

This challenge of activity shifts between segments is faced by all constructors of house price indices. In an attempt to reduce this effect, we decided to fix the weightings of the FNB House Price Index’s sub-segments in the overall national index. This, at best, can only be a partial solution, as activity shifts can still take place between smaller segments within the sub-segments. However, it does improve the situation.

The FNB House Price Index’s main features are as follows:

• The weightings of the 10 sub-segments were determined by their relative transaction volumes over the 5 years from 2003 to 2007. The weightings are fixed (to be revised periodically):

- Sectional Title:

o Less than 2 bedroom (Weight – 0.0718) o 2 Bedroom (Weight – 0.2106) o 3 Bedroom (Weight – 0.101) o 4 Bedrooms (weight – 0.0031) o More than 4 Bedrooms (Weight – 0.0002) - Full Title: o Less than 2 Bedrooms (Weight – 0.053) o 2 Bedrooms(Weight – 0.1092) o 3 Bedroom(Weight – 0.3561) o 4 Bedroom (Weight – 0.0811) o More than 4 Bedroom(Weight – 0.0139)

• The Index is constructed using transaction price data from homes financed by FNB.

• The minimum size cut-off for full title stands is 200 square metres, and the maximum size is 4000 square metres

• The maximum price cut-off is R10m, and the lower price cut-off is R20,000 (largely to eliminate major outliers and glaring inputting errors).

• The index is very lightly smoothed using a Hodrick-Prescott smoothing function with a Lambda of 5.

Source: John Loos (FNB)

Consumer protection through effective industry regulation. Ensure you use the services of a registered estate agent.

Tel: 011 731 5600 / www.eaab.org.za.

Thinking beyond!

Consumer protection through effective industry regulation. Ensure you use the services of a registered estate agent.

Tel: 011 731 5600 / www.eaab.org.za.

Thinking beyond!

In terms of the Electrical Machinery Regulations, 2011 an additional compliance certificate is needed to effect transfer of immovable property if

an electric fence system is installed on the property to be sold. This certificate provides proof that the installed electric fence system complies with the legal requirements for such as system.

What constitutes an ‘electric fence system’?

An electric fence system is any electrified barrier consisting of one or more bare conductors erected to prevent the trespass of persons or animals, which system delivers a non-lethal charge of electrical energy to an electric fence.

In the event that an electric fence system has been erected on property to be sold, the new regulations must be complied with in order to ensure that the property can be transferred. An important date to remember is 1 December 2012 as any property that is sold, or otherwise changes ownership after this date, and which has an electric fence system, will require an electric fence system compliance certificate. This will include any property that was sold before 1 December 2012, but which has not yet been registered in the name of the purchaser.

This certificate is in addition to the familiar electrical compliance certificate and may only be issued by a registered person who is in possession of a Certificate of Competence.

Key points in complying with the regulations

The following key points should assist you in complying with the new regulations:

• Every user or lessor of an electric fence system must be in possession of a compliance certificate.

• The certificate can only be issued by a registered electric fence system installer, who is registered with the Department of Labour and in possession of a Certificate of Competence. Any maintenance or repair to an electric fence system may also only be done by such a registered installer.

• The compliance certificate is transferrable from a seller to a purchaser and therefore a new certificate is not required for each consequent transfer of the property, unless of course, an addition or alteration has been effected to the electric fence system since the issue of the compliance certificate.

• Although the regulations do not specify that the current user or lessor (owner or seller) is responsible for obtaining the certificate, it may be inferred that the seller will be the one who must obtain (and pay for) such a certificate as the certificate is transferrable. Parties to an agreement of sale may agree that the purchaser is responsible for obtaining the certificate, although this would not be in line with standard practices for electrical and/or gas compliance certificates.

• When signing a deed of sale or a lease agreement, request your attorney to advise you whether an appropriate clause is incorporated in the contract if there is an electric fence on the property.

• If you are installing an electric fence for the first time or upgrading or altering your existing fence, make sure that your installer is a registered installer, and remember to ask for your certificate of compliance following the installation or alteration.

• Lastly, be aware that this implies no more ‘DIY’ electric fence projects.

Source: Dawid Badenhorst, Director, Phatshoane Henney Attorneys Conveyancing Department Email: dawid@phinc.co.za

Selling Your House? Remember your electric fence compliance certificate

AGENT | 41

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42 | AGENT

FINANCIAL INTELLIGENCE CENTRE Compliance Contact Centre

Kindly note that the Financial Intelligence Centre (FIC) has established a Compliance Contact Centre to deal with queries related to compliance with the Financial Intelligence Centre Act, No. 38 of 2001, as amended (FIC Act).

This dedicated telephone service is geared to handle all FIC Act-related compliance queries, such as:

• Whether or not a business is required to register with the FIC;

• How to register with the FIC;• What types of businesses are required to register with the

FIC;• Technical issues relating to the registration process;• Queries relating to complying with the provisions of the FIC

Act including, but not limited to:

o Establishing and verification of the identity of clients;o Record-keeping relating to your clients;o Reporting of cash threshold transactions;o Reporting of property associated with terrorist and related activities;o Reporting of suspicious and unusual transactions;o Formulation and implementation of internal rules;o Training and monitoring of FIC Act compliance.

The FIC Act Compliance Contact Centre can be reached on: 0860 222 200

The FIC is also still able to receive e-mailed compliance based queries on: fic_feedback@fic.gov.za

For calls unrelated to compliance matters, please call the FIC on: 0860 342 342

Issued by: Financial Intelligence Centre

financial intelligence centre REPUBLIC OF SOUTH AFRICA

AGENT | 43

AGENT wishes to congratulate Dogon Group Properties who were recently instrumental in selling a magnificent home located in Bantry Bay, Cape Town, to a West African entrepreneur for R65 million - the highest price that has ever been achieved for a property on the Atlantic Seaboard. The beautiful site is positioned on the slopes of Lion’s Head and has a glorious view of the Atlantic Ocean.

As will be apparent from the picture published alongside, the splendid lounge opens onto a long pool terrace with a seating pavilion at one end and a BBQ pavilion at the other. The pool runs the full width of the building while a shallow play area, or beach, forms the centre point with a palm island on the one side. The kitchen and family rooms are situated around the courtyard garden while an outdoor boma (African campfire enclosure) occupies a corner of the courtyard garden.

This sale confirms our view that it is becoming increasingly apparent that, despite the voices of the prophets of doom and gloom, the South African residential property market is currently entering a very real and lasting recovery phase. We are, therefore, increasingly confident that the green shoots of prosperity will soon blossom into a full revival to the benefit of all.

The brief was to create a home that felt like a retreat that would maximise the connection with the views and create a spacious garden. The site is positioned in Bantry Bay, on the slopes of Lion’s Head directly overlooking the bay.

One enters from the street into a sculpture courtyard with fever trees, cycads and ground covers. To the left is the entrance gallery,

a 60m2 reception foyer that acts as arrival and gallery space. The reception gallery leads onto the studio ledge overlooking the courtyard; over a small bridge to Stefan’s study overlooking the magnificent view of the Atlantic Seaboard and through the double volume to the living room below.

The arrival in the living room is marked by the subtle change in floor finish from the overall floors which are Neo Sardo granite with a hand hewn soft edge giving it an ancient quality. A Silver Grey veined granite tile from Fuzhou in the North-east part of Fujian Province, China, lines up with the water feature creating a spine running through the house connecting the two wings.

The interiors create an emotional and sensorial journey when moving through the house. By utilising a broad base of textures and finishes, the décor feels natural and subtly organic, comfort being of paramount importance at all times; the overall ambiance is one of calm and serenity. Colour is kept to a bare minimum; the interior works predominantly with a light and shade tonal range, allowing the exterior views, the mountain, the ocean and sky and also the artwork to bring in colour.

The furniture and lighting is predominantly a combination of select designs from the OKHA product range in conjunction with bespoke pieces that were designed specifically for the project. OKHA products are manufactured locally in South Africa and utilise only skilled local artisans and wherever possible locally sourced materials.

Source: Dogon Group Properties - Denise Dogon (082 449 6608)

RECORD PRICE ACHIEVEDR65 MILLION ON THE ATLANTIC SEA BOARD

All practicing estate agents are respectfully reminded that, pursuant to the provisions of regulation of the Education

Regulations promulgated on 4 June 2008:

4(1) No person may perform the functions and activities of:(a) a non-principal estate agent unless that person has completed the Further Education and Training Certificate: Real Estate (SAQA QUAL ID 59097); or

(b) a principal estate agent unless that person has completed the National Certificate: Real Estate (SAQA QUAL ID 20188).

(2) The Further Education and Training Certificate: Real Estate and the National Certificate: Real Estate … will be a prerequisite for admission to the Professional Designation Examination for estate agents;

(3) No person may be registered by the Board as a full status estate agent unless that person has also successfully completed the Professional Designation Examination, conducted by the Board.

Regulation 6 of the Education Regulations provides, further, that an estate agent who was registered as either a principal or non-principal estate agent as at 15 July 2008 is required to undergo a process of Recognition of Prior Learning (“RPL”) to be certificated against the relevant real estate qualification and that the RPL process must, “be completed on or before 31 December 2011 or within such extended period as the Board may, on reasonable grounds, grant for this purpose.”

The completion of the RPL assessment process by affected estate agents

The cut-off date of 31 December 2011 provided for in the regulation has, in fact, already been extended by the Board until 31 December 2013. This effectively means that the finalisation of the RPL assessment process must be completed by all affected estate agents, who must have received a SSETA certificate of competence, by no later than 31 December 2013.

All principal and non-principal estate agents who held valid fidelity fund certificates, issued to them by the EAAB, as at 15 July 2008 and who have not yet completed, or perhaps even commenced, the RPL assessment process for certification against the relevant real estate qualification are, accordingly, strongly urged to do so without any further delay.

Affected estate agents should be aware that due allowance must be made not only for the time reasonably required to satisfactorily complete the RPL assessment process by both candidates and accredited education providers and RPL assessment centres but, also, for the period that it will generally take for the quality assurer to certify and verify the RPL process and issue qualification certificates to successful candidates.

Affected estate agents who have not been certificated will be rendered disqualified in 2014

It is an unfortunate, but inescapable, fact that should affected estate agents not have duly completed the RPL assessment process and, as a result, not have been certificated against the required real estate qualifications by 31 December 2013, the EAAB will then be precluded by the Education Regulations from issuing fidelity fund certificates to such persons for the 2014 calendar year. This is clearly a negative outcome that the EAAB wishes to avoid at all costs. The EAAB, therefore, urgently prevails upon all affected estate agents conscientiously to commit themselves to the timeous completion of the necessary RPL process and, by so doing, ensure that they will, indeed, again qualify to be issued with fidelity fund certificates in the new year.

EDUCATION UPDATE

THE RELEVANT PROVISIONS OF THE EDUCATION REGULATIONS

44 | AGENT

AGENT | 45

Affected estate agents are reminded that they, effectively, have probably less than six months still available to them within which to regularise their educational status.

Applications for an equivalency exemption by qualifying estate agents aged 60 years and older

It is, perhaps, also timely to remind currently registered estate agents who have held a valid fidelity fund certificate for a continuous period of at least five years, whether as a principal or non-principal estate agent and who are 60 years of age or older, that they may apply to the EAAB for the grant of an equivalency exemption against the Further Education and Training Certificate: Real Estate and/or the National Certificate: Real Estate and/or the Professional Designation Examination (PDE) for principal and/or non-principal estate agents, and in accordance with the provisions of the EAAB approved policy.

Only estate agents meeting the qualifying criteria may apply for the grant of an educational equivalency exemption. Such applicants will also be required to provide acceptable proof of both their age and that they have continuously held a valid fidelity fund certificate for a period of at least five years. They must also have been issued with a current fidelity fund certificate.

On receipt of educational equivalency exemption applications from qualifying applicants the EAAB will undertake a comprehensive investigation to satisfy itself that applicants are estate agents in good standing; have no previous criminal convictions; have no convictions in respect of any estate agency related matters or offences; and have not been found guilty of any conduct deserving of sanction by a committee of inquiry of the EAAB during the previous ten year period calculated as from the date of the application. Educational equivalency exemption applications must be accompanied by the fee prescribed from time to time for the consideration of those applications.

Practicing estate agents aged 60 years and older who are required, in terms of the Education Regulations, to be certificated against the relevant educational qualifications by 31 December 2013 must take all steps necessary to ensure that their exemption applications are timeously received by the EAAB. Should any such applications not have been approved by 31 December 2013 the estate agent concerned will not only be rendered disqualified for the 2014 calendar year but will also forfeit the opportunity of applying for an educational exemption.

Estate agents who qualified for a statutory exemption from the Professional Designation Examination

Estate agents who qualified for a statutory exemption from the Professional Designation Examination in terms of the Education Regulations, by reason of having continuously held a full status fidelity fund certificate for a period of not less than five years as at 15 July 2008, are pertinently reminded that they must, if they have not already done so, also be certificated against the relevant real estate qualifications by 31 December 2013, whether by way of an RPL assessment, training or the grant of an equivalency exemption.

As is the case with other affected estate agents, they should be mindful that, in so doing, due allowance must be made not only for the time reasonably required for the satisfactory completion of the RPL assessment process but also of the time period that

it generally takes for the quality assurer to certify and verify the RPL process and issue competency certificates.

Estate agents who have been certificated against the real estate qualifications but who have not yet submitted proof thereof to the EAAB.

All estate agents who have been certificated against one or both of the relevant real estate qualifications are advised to ensure that the EAAB database has been accurately updated to reflect this achievement. Those estate agents who, to their knowledge, have yet to submit proof of the attainment of the real estate qualifications to the EAAB are urged to do so without delay so that the database may be updated accordingly.

Estate agents are respectfully requested to keep the EAAB informed as soon as they are certificated against a real estate qualification to ensure the accuracy of the EAAB’s database. Estate agents who wish to verify their education status are requested to do so either on-line by accessing the “MYEAAB” website portal and following the easy steps provided or, alternatively, directly contacting the Education and Training Department of the EAAB.

The Professional Designation Examination

Intern estate agents

Intern estate agents who have been successfully certificated against the Further Education and Training Certificate: Real Estate, whether through a recognition of prior knowledge assessment, training or the grant of an equivalency exemption, are advised immediately to proceed with their studies towards, and enrollment for, the Professional Designation Examination for non-principal estate agents.

The Education Regulations require that the Professional Designation Examination must be passed before an upgrade from intern to full status non-principal estate agent can be authorised by the EAAB.

Principal and non-principal estate agents

Principal and non-principal estate agents who have been successfully certificated against the Further Education and Training Certificate: Real Estate and/or the National Certificate: Real Estate, as the case may be, are granted a period of two years, calculated as from the date of certification against the real estate qualification in question, within which to pass the Professional Designation Examination for either principal or non-principal estate agents.

If, for example, a non-principal estate agent was duly certificated against the Further Education and Training Certificate: Real Estate on, say, 15 January 2012 that person will have until 15 January 2014 within which to pass the Professional Designation Examination for non-principal estate agents.

All estate agents are, however, encouraged to write the Professional Designation Examination as soon as possible. Successful PDE candidates are also urged to make use of the professional designations granted to them by the EAAB.

HOUSEHOLD SECTOR FINANCIAL VULNERABILITY

The topic of household debt will likely be a major theme in 2013.

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HOUSEHOLD SECTOR FINANCIAL VULNERABILITY

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Expect the topic of household sector indebtedness to be a key theme in 2013. Over the years, perhaps fueled by the consumer boom of last decade, we have seen a seemingly increasing obsession amongst many households over consumption and credit. This seems to be a common phenomenon in societies where things have gone well for long periods of time, and it can be argued that middle and upper income South Africa has “had it good” for a very long time, with no major wars, recessions or depressions (the 2008/9 recession being relatively short-lived when one compares it to for instance the early-1990s recession of over 2 years).

But even the relatively recent 2008/9 3-quarter long recession, and the interest rate peak of 15.5% prime rate in 2008, is fading in the memory of many. A long period of “abnormally low” interest rates by South Africa’s standards has led to a major improvement in household debt repayment performance, and this can be seen in large declines in numbers such as total insolvencies. Home loans bankers, for one, sleep a lot easier at night these days, with non-performing loans well down from the highs of 2008/9. And in the area of non-mortgage household sector credit, the growth in borrowing has steadily accelerated since early-2010 in response to renewed happier economic and interest rate times.

But “all is not well”. If low interest rates lead to improved repayment performance this does not mean that the underlying household financial frailties no longer exist. Increasingly, certain commentators are expressing alarm at the huge growth rates in certain categories of household credit. Total household sector credit growth moved to above 10% as at November, the 1st month of double-digit year-on-year growth since late-2008.

But the discussion broadened late last year. Whereas the debate had typically focused on what the level of bad debt could become should household indebtedness get too high, allegations emerged that high levels of indebtedness maybe linked in part to social unrest.

While links between indebtedness and social unrest may be tough to prove, there is little doubt that over-indebtedness can do a lot of harm to households, and should be kept in check. Certain studies in the UK have even started to draw a link between levels of indebtedness and mental illnesses such as stress and depression. How at risk is SA’s household sector? Relative to what, is the question, I guess.

At least by our own historic standards, though, I would say that the answer is “very high”, given that the household sector debt-to-disposable income ratio is at 76%, not far lower than the 2008 historic high of 82.7% which caused much pain when interest rates hit their peak in that year. Furthermore, 2012 saw some renewed rise in the debt-to-disposable income ratio, after a few prior years of mild decline, and further household credit growth acceleration in the 4th quarter makes it likely that further increase took place in the debt-to-disposable income ratio as 2013 approached.

Our Household Debt Service Risk Index, rose for the 5th consecutive quarter in the 3rd quarter of 2012, to a level of 6.68 (scale of 1 to 10), a very high level compared to the long run average of 5.3. This, therefore, suggests that SA’s household sector is still at a relatively high level of vulnerability by our own historic standards.

Driving the Index higher was a higher debt-to-disposable income ratio of 76% in the 2nd and 3rd quarter, up from late-2011, while abnormally low interest rate levels have also helped to sustain high risk levels (very low real interest rates being viewed as a greater risk than high ones, the reasoning being that rate hiking risk is higher at the lower real levels, as well as because households tend more towards “over-borrowing” the lower the interest rates are).

The high level of household vulnerability has introduced a key policy dilemma. Arguably the most effective way to curb overall household borrowing growth is to hike interest rates. However, given the high level of household indebtedness, the initial effect of rising interest rates is to exert severe pressure on many of those households with high levels of debt, not an attractive policy option in a time when the economy is battling and unemployment is a real problem.

A key challenge is thus to find a way to reduce the household sector’s propensity to borrow, and increase its desire to save, preferably without having to have painfully high interest rates such as those experienced at certain times in the 1990s. Expect this debate, and increasing focus on the “how to achieve it” to be a key theme in 2013.

HOUSEHOLD SECTOR DEBT-SERVICE RISK ROSE FURTHER IN THE 3rd QUARTER OF 2012

According to our Household Debt-Service Risk Index, the vulnerability of the country’s household sector when it comes to being able to service its debt in future still appears to be rising. From a 2nd quarter 2012 index level of 6.63 (on a scale of 1 to 10), the 3rd quarter saw a further increase to a level of 6.68. This represents the 5th consecutive quarter of increase in our simple measure of household debt-service risk.

Of concern is that the Household Sector Debt-Service Risk Index remains well-above the long term (32 year) average level of 5.3, and at current high levels it would be preferable to be seeing a declining trend.

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Household Sector Debt ServiceRisk Index

Composite Debt-Service Risk Rating LT Average (1970 to present)

The index is compiled from 3 variables, namely, the debt-to-disposable income ratio of the household sector, the trend in the debt-to-disposable income ratio, and the level of interest rates relative to long term average (5-year average) consumer price inflation.

The higher the debt-to-disposable income ratio, the more vulnerable the household sector becomes to unwanted “shocks” such as interest rate hikes or downward pressure on disposable income. An upward trend in the debt-to disposable income ratio

contributes negatively to the overall risk index. Then, the nearer prime rate gets to the “structural” inflation rate (using a 5-year average consumer inflation rate as a proxy), i.e. the lower this estimate of real interest rates becomes, the more vulnerable the household sector becomes, the reasoning being that the nearer we may be getting to the bottom of the interest rate cycle and the end of rate cutting relief, and the more the risk of the next rate move being upward becomes, or at least the less the chance becomes of cuts. In addition, households tend to make poorer borrowing decisions, on average, when money is cheap, and far better ones when interest rates are relatively high. That’s a common human weakness, and hence an additional part of the logic of viewing low interest rate periods as higher risk ones, especially when rates are “abnormally low” by a country’s standards, as is currently the case.

EXAMINING THE 3 COMPONENTS, THE HIGH LEVEL OF INDEBTEDNBESS STILL KEEPS THE OVERALL RISK RATING HIGH, ALONG WITH A HIGH INTEREST RATE RISK RATING

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Sub-Components of the Household Debt Service Risk Index

Indebtedness Risk Indebtedness Growth Risk Interest Rate Risk

Examining the 3 sub-indices of the overall Household Debt-Service Risk Index, the Indebtedness Risk Index remains the highest at 8.57, despite having declined moderately from a level of 10 as at the 1st quarter of 2008, the quarter in which the debt-to-disposable income ratio reached its all-time high.

Although the debt-to-disposable income ratio receded mildly to 75.2% by the 4th quarter of 2011, this level still remains extremely high by SA’s historic standards, and more of concern is that in 2012 the figures have shown mild renewed increase to 76% as at the 2nd and 3rd quarters.

Therefore, in 2012 we started to see the “Indebtedness Growth Risk Index” make an increasing contribution to the overall Debt-Service Risk Index, although still relatively low at this stage with a Risk rating of 4.5, the upward move having just begun and the trend not yet being a strong one.

The third component is the Interest Rate Risk Index, which was at a relatively high level of 7.1 as at the 3rd quarter of 2012. The reason for its rise since 2008 has been the sharp decline in interest rates since then, from 15.5% prime at mid-2008 to the current 8.5%. In recent years, interest rates have moved to abnormally low levels by SA’s historic standards, given that “structural consumer inflation appears to be somewhere near to 6%. This decline is due to an abnormal global and domestic economic situation requiring significant monetary policy support.

The reasoning behind lower real interest rates pointing to greater household vulnerability is that certain households that borrow

during low interest rate times tend to be more vulnerable, due often to a lack of forward thinking and planning for the inevitable interest rate hiking cycles. Vulnerability of borrowers who qualify for loans at the peak of the interest rate cycle should thus on average be less than many of those who can only qualify at the low points in the cycle.

OUR MEASURE OF DEBT-SERVICE RISK IS CONCERNINGLY HIGH, AND REQUIRES SIGNIFICANT FURTHER REDUCTION FOR COMFORT

The fact that the Debt Service Risk Index is on a rising trend, at a time when its levels are high by historic standards, should arguably be a cause for concern. The household sector’s financial situation is far from healthy, and significant pain could be felt were we to go into the next interest rate hiking cycle at current levels of household sector vulnerability.

This may seem a strange statement to make, as payment performance on debt by the household sector has improved significantly in recent years, and this is seen in publicly available numbers such as insolvencies, which have fallen dramatically.

However, for this improved credit performance, the household sector has been relying heavily on the Reserve Bank (SARB) to maintain interest rate levels that are very low by SA’s standards, instead of building more significant financial buffers.

With a rising debt-to-disposable income ratio, the debt-service ratio will also start to move higher should interest rates not decline further.

Indeed, it has been the SARB’s huge reduction in interest rates from 15.5% prime as at late-2008 to the 3rd quarter’s 8.5% in 2012 that has been the major contributor to bringing down the all-important debt-service ratio (cost of servicing the household debt, interest + capital, expressed as a percentage of household sector disposable income) from a painful all-time high of 16.3% to a far more comfortable level of 11.4%. This, in turn, significantly improved household credit performance, and the right hand graph below shows insolvencies having dropped dramatically from 2009 to 2012.

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Household Debt Servicing Costs vs Insolvencies

Household debt-service ratio (Left Axis) Insolvencies (number) -R ight axis

The “low risk” way of reducing the debt-service ratio, and thus the more desirable way, would be through lowering the debt-to-disposable income ratio of the household sector. Some mild decline of this ratio did contribute to the lower debt-service ratio up until the end of 2011, but the resumption of a rise in the debt-to-disposable income ratio in 2012 required a further half-of-a-percentage-point interest rate cut by the SARB in the 3rd quarter to prevent the debt-service ratio from rising.

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Ratio vs Interest Rates

Household debt-to-disposable income ratio (Left Axis) Prime Rate

Should interest rates not decline further, and currently accelerating household sector credit growth does push the debt-to-disposable income and debt-service ratios higher, this recent level of debt-service ratio could represent the bottom turning point of the current cycle. Should this be the case, it would be the highest bottom turning point in recorded history. Given that the debt-service ratio is a fairly good predictor of household credit performance, that is a cause for concern.

Interest rate scenarios – still limited room for households to maneuver.

Looking at it another way, I am of the admittedly subjective opinion that a 13% debt-service ratio represents an acceptable maximum at the peak of the cycle. When this ratio rises higher than 13%, that would appear to be where matters become unacceptably painful for the household sector as well as lending institutions. That was the case around 2007/08 as well as in the late-1990s. At the current level of household indebtedness, what would it take for the debt-service ratio to reach a 13% “upper acceptable limit”?

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Prime rate scenarios

Debt Service Ratios at Various Interest Rate Levels

11.4% 11.6% 12.1% 12.6% 13.2% 13.7% 14.2% 14.8% 15.1%

The accompanying graph shows the debt-service ratio at the current debt-to-disposable income ratio, for different hypothetical interest rate scenarios. According to these, a prime rate of 12% would cause the household debt-service ratio to go beyond the 13% “threshold” at a 3rd quarter household debt-to-disposable income ratio of 76%.

That means that the household sector probably only has room for what would be a mild interest rate hiking cycle of 3.5 percentage points. This may sound like a comfortable margin, but it is important to bear in mind that interest rate levels are at currently abnormal (low) levels, and that “normalization may

be required at some future stage. The risk is, therefore, that the next interest rate hiking cycle could be of a bigger than normal magnitude as opposed to expectations from some quarters of it being more mild than normal.

IN CONCLUSION – FURTHER RISE IN THE DEBT-TO-DISPOSABLE INCOME RATIO SEEMS LIKELY, INCREASING HOUSEHOLD SECTOR VULNERABILITY.

In the 3rd quarter of 2012, our Household Sector Debt-Service Risk Index increased (deteriorated) further, implying a further increase in the already-high level of household sector vulnerability to “unwanted shocks”. Such shocks can either be in the form of rising inflation and/or interest rates, or through weaker economic growth which in turn can exert pressure on disposable income growth.

Through 2012, nominal household disposable income growth had indeed been slowing. Simultaneously, growth in household sector credit continued to steadily accelerate, and by November had reached double-digit growth of 10.4%, which in all likelihood exceeded the growth rate in nominal disposable income growth (which was down to 9.2% year-on-year by the 3rd quarter of 2012 according to SARB data).

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Total Household Sector Credit - year-on-year % change

Residential Mortgage Loans by Banks - year-on-year % change

Non-Mortgage Households Sector Credit Growth (Lent by Banks)

At present, the SARB is not expected to raise interest rates any time soon, and the danger exists that the long period of low and stable interest rates causes households to become increasingly forgetful of previous periods of higher interest rates, and propensity for borrowing rises. Certainly this appears to be the case if one looks at total bank sector non-mortgage household sector credit, which by November 2012 had reached year-on-year growth of 25%. Only very low growth in the mortgage credit component to households has kept something of a lid on overall household sector credit growth, but insufficient to prevent total household credit growth from accelerating nonetheless.

In 2012, we saw increasing concern being expressed by the Minister of Finance as well as a growing number of economic commentators. Where do household debt levels become “unacceptably high”? That is debatable. However, South Africa’s household sector with its low savings rate, and high levels of indebtedness at least relative to its own historic standards, appears highly vulnerable to any external economic shocks. This is likely to see the country’s high and strongly growing household debt level being a major topic of debate amongst economists and policymakers alike in 2013.

Source: John Loos (FNB)

REASONS FOR SELLING RESIDENTIAL PROPERTIES

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REASONS FOR SELLING RESIDENTIAL PROPERTIES

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For those downscaling due to financial pressure, the rental option appears to have become relatively less attractive in recent times

The FNB Estate Agent Survey reminds us that, just because extremely low interest rates have lowered the numbers of home loans and many other forms of debt in arrears,

underlying financial weakness is still widespread amongst South Africa’s households.

This is witnessed in the responses to questions regarding the reasons that sellers sell residential properties. Although the estimated percentage of sellers “selling in order to downscale due to financial pressur”e is significantly lower than the 2nd quarter 2009 peak of 34% of total selling, the 3rd Quarter 2012 percentage of 20% of total sellers downscaling due to financial pressure remains in my books a very high one. And the percentage remains stubbornly sticky around the 20% mark over the past year or so.

There is a positive aspect to this, in the sense that it points to many households taking pro-active steps to reduce their financial obligations in order to rebuild the household balance sheet prior to defaulting on debt. But the figure continues to suggest that SA’s household sector remains far from ready to take on the next interest rate hiking cycle when it comes.

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Downscaling due to Financial Pressure vs Upgrading

Percentage of total sellers downscaling due to financial pressurePercentage of sellers selling in order to upgrade

Admittedly not everyone is pressured, however. The other financial strength-related indicator is arguably the percentage of sellers selling in order to upgrade.

This percentage sits at 16% of total sellers as at the 3rd Quarter 2012 Estate Agent Survey, remaining significantly above the 2008/9 recession-lows of around 7%. The question, though, is how financially strong are these sellers that are upgrading? Or is it in many instances the abnormally low interest rates currently in play?

Reasons for selling (As % of Total Sales) Q1-2011 Q2-2011 Q3-2011 Q4-2011 Q1-2012 Q2-2012 Q3-2012

Downscaling due to financial pressure 22% 25% 19% 21% 20% 20% 20%

Downscaling with life stage 20% 20% 23% 22% 23% 20% 21%

Emigrating 4% 4% 4% 4% 4% 4% 3%

Relocating within SA 8% 7% 7% 8% 9% 9% 7%

Upgrading 16% 16% 15% 17% 17% 15% 16%

Moving for safety and security reasons 12% 11% 10% 9% 9% 12% 11%

Change in family structure 11% 11% 13% 12% 12% 13% 15%

Moving to be closer to work or amenities 7% 6% 8% 7% 6% 7% 8%

Another feature emanating from the survey is that the biggest improvement (decline) in the percentage of sellers downscaling due to financial pressure since 2009 has taken place in the lower income markets.

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Percentage of sellers selling in order to downscale due to financial pressure

-4 -Quarter Moving Average

High net worth Upper Income Middle Income Lower Income

Using 4-quarter moving averages to smooth out volatility in the segment numbers, we see the various percentages of selling in order to downscale due to financial pressure to be moving in a far narrower range than was the case back in 2008/9. The “Lower Income” segment (areas with average price=R731,500) , typically having the highest percentage, has shown an average percentage of 23% over the past 4 quarters. This is not far higher than the most expensive “High Net Worth” segment’s 18% (average house price = R3.812m), with the Upper (average house price=R1.972m) and Middle Income Segments (average house price=R1.043m) in between at 20% and 22% respectively.

By comparison, back around the 2008/9 recession and interest rate peak, the gap was far wider, with the Lower Income segment peak of 38%, compared to a High Net Worth area peak of a significantly lower 25%.

For the 3rd quarter 2012 survey alone, the percentages of sellers downscaling due to financial pressure formed a narrow range from 22% in the case of the Middle Income segment to 17% in the case of the High Net Worth segment.

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The bottom line is that the multi-year trends in these percentages point to the more credit-dependent lower income segments taking a bigger knock during recessionary conditions and periods of interest rate hiking than the higher income segments. Thereafter, however, their financial improvements are more impressive off a weaker base.

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Downscaling due to Financial Pressure -Percentage Planning to Rent vs Buy

Percentage of Financial P ressure-related "downscalers" planning to buy propertyPercentage of Financial P ressure-related "downscalers" planning to rent property

Finally, estate agents surveyed also point to the home buying option as becoming a little more popular for those selling in order to downscale due to financial pressure, as opposed to the rental option. Back in the 2nd quarter of 2011, when we started asking agents to estimate what percentage of these downscalers they believed would buy versus rent after selling, the estimate was that 51% would rent and 49% buy a cheaper property. By the 3rd quarter of 2012, this had changed significantly to an estimate that 59% would buy versus a smaller 41% renting.

This does not surprise us too much, as it is our perception that rental growth may have outpaced house price growth mildly in recent years, reducing the relative advantage of renting from a cash flow point of view.

Reasons for selling (As % of Total Sales) Total High Net Worth

Upper income

Middle income

Lower income

Downscaling due to financial pressure 20% 17% 20% 22% 21%

Downscaling with life stage 21% 23% 22% 21% 14%

Emigrating 3% 2% 3% 2% 3%

Relocating within SA 7% 6% 8% 6% 6%

Upgrading 16% 14% 13% 18% 20%

Moving for safety and security reasons 11% 12% 12% 11% 10%

Change in family structure 15% 18% 13% 14%1 6%

Moving to be closer to work or amenities 8% 7% 9% 7% 8%

CONCLUSION

At 20% of total selling, the percentage of sellers downscaling due to financial pressure remains high, a reminder that there still exists widespread underlying financial pressure in South Africa’s household sector. The 2008/9 recession was a major blow to a highly-indebted household sector, from which is still recovering, and there is also the issue of sharp increases in electricity and other utilities tariffs related to housing as well as municipal rates.

The lower income groups have narrowed the gap with High Net Worth households in terms of percentage of selling in order to downscale due to financial pressure, benefiting to a relatively greater degree from major interest rate cuts since late-2008.

The increased percentage of these “financial pressure-related down-scalers” believed to be intending to buy another property as opposed to rent, reflects a combination of rentals perhaps having outpaced house price growth in recent years mildly, but also possibly some increased confidence in their own financial future.

Source: John Loos (FNB)

Q2-2011 Q4-2011 Q2-2012

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