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NATIONAL EXECUTIVE
OFFICE BEARERS 2011/2012
PRESIDENT
Kit Carson
VICE PRESIDENT
Trevor Richardson
LEGAL & CONSTITUTION
Derrick Griffiths (portfolio head),
Roshinee Naidoo, Andre Zybrands
MANAGEMENT & FINANCE
Trevor Richardson (portfolio head), Mark Bakker,
Ben Espach, Jenny Falck
MARKETING & PROFESSIONAL LIAISON
Lientjie Ackerman (portfolio head), Jenny Falck,
Ben Espach
MEMBERSHIP & TRANSFORMATION
Farrel October (portfolio head), Roshinee Naidoo,
Mark Bakker, Lientjie Ackerman, Kit Carson
EDUCATION
Anton Swanepoel (portfolio head), Kenneth Jones,
Alison Stober
ACTING GENERAL SECRETARY
t: 012 348 2757
f: 086 657 3164
www.saiv.org.za
BRANCHES
Southern
PO Box 18041, Wynberg 7824
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THE SOUTH AFRICANINSTITUTE OF VALUERS
THE SOUTH AFRICAN
VALUER 1OCTOBER 2011, NO 106
Dear Colleague,
Greetings from what was the freezing Free State.
Fortunately the worst winter in many years seems
to be a thing of the past, not that there won’t be a
very cold snap just to remind us that the weather
does not always obey expectations. And then we
are into the festive season!
Talking of seasons: it would appear that the ‘Seminar Season’ is
upon us. I attended the Rode Conference which I found most worthwhile. It was interesting,
informative and well presented. Leon Louw, in particular, of the Free Market Foundation,
gave an excellent speech highlighting many things that should be common sense, but
which, unfortunately, are not common or politically correct. If only the politicians would
focus on finding real economic solutions to very real economic problems, we’d all be better
off. But populism seems to be uppermost in every politician’s mind.
Another seminar I attended was the SACPVP conference. It was gratifying to see the large
turnout at the seminar. The keynote address was by the Minister of Rural Development and
Land Reform, the Hon Mr Nkwinti. He gave a rundown on the forthcoming Land Reform
Green Paper which as you know has elicited much comment in the media. It will be inter-
esting to see how this pans out in practice.
Unfortunately some of the speakers did not pitch up, but some of the others such as
Llewellyn van Wyk, Jess Cleland, Thokozane Majozi, Kura Chihota, and Mashilo Pitjeng
gave interesting and enlightening perspectives on their various topics.
On the home front we had various seminars in the near future. The Northern Branch held
a Country Seminar on 14 and 15 October, The Central Branch is holding a Farm Valuation
Seminar on 24 and 25 November, and various activities and seminars will be held during
the week of 1 to 7 November, which is set aside as the International Valuers and Apprais-
ers Week.
For further information about the events and seminars please visit our website saiv.org.za.
This site is being upgraded and will be of greater benefit to all of us. Please update your
details.
Our offices are now settling down nicely and we are satisfying members’ needs much more
effectively and speedily than we used to. Don’t hesitate to call if there is something that
you need to discuss.
The past edition of SA Valuer contained an interesting letter from Jaap du Toit. In essence
he asked whether the SAIV should cosy up to the SACPVP by providing members to serve
on disciplinary committees of the SACPVP, while not providing assistance to members of
SAIV who might be appearing before the disciplinary committee - an interesting thought.
Kit Carson
P R E S I D EN T ’ S LE T T ER
V
continued on page 4
SA Valuer Editorial Panel:
Lientjie Ackerman (Chair)
012 346 2207 / 082 371 0908
Jenny Falck (Southern Branch)
021 423 6400 / 083 270 4587
Kit Carson (Central Branch)
051 448 9431 / 082 821 1214
Mark Bakker (Eastern Cape Branch)
041 396 1400 / 083 227 3496
Roshinee Naidoo
(KwaZulul-Natal Branch)
031 464 9371 / 082 826 3969
Editor:
Patricia Leitich
Advertising and marketing:
Tony Korsten
Lindy Lever
Design:
Alexia Leitich
Publishers:
Pangram Publishing (Pty) Ltd
PO Box 48219
Roosevelt Park 2129
tel: 011 442.2260 or 011 442.1869
fax: 011 442.1852
Printers and mailing house:
Law Print
The editorial panel welcomes contri-
butions (by way of letters or articles)
that are appropriate and that ad-
dress an issue that is topical or of
strategic concern to the sector as
a whole. These should be submit-
ted to the editor at patricia@pan-
gram.co.za for possible publication.
Please, use the SA Valuer as your
platform to promote dialogue be-
tween SAIV members.
The information and data presented
in the SA Valuer are recorded in
good faith, using sources believed
to be reliable.
The views and opinions expressed
in the SA Valuer are not necessarily
those of the SAIV, notwithstanding
the fact the SA Valuer is the official
publication of the SAIV. Neither are
they representative of the opinions of
the publisher or the editor. Copyright
applies to all material contained in
this issue and reproduction in what-
ever form is not permitted without
the written authorisation of the editor.
THE SOUTH AFRICAN
VALUER2OCTOBER 2011, NO 106
C O N T EN T SV
o c t o b e r 2 0 1 1 , n o . 1 0 6President’s letter
International valuation and appraisal week
Letter to the editor
Cover story: the 2011 SAIV Natex seminar16 Students sponsored to attend seminar
SACPVP conference
The valuation profession and the 2008 financial crisis - lessons for South Africa, by Dr Manya M. Mooya
Epropriation: the consitutional court decides, by Leza Kotzé and
Lori Katz
The leagal beagle: disciplinary procedures, by Derrick Griffiths
Court ruling on water use rights welcomed, by Johannes Möller
Extension of Real Right (EORR), by Arie Mooiman
Unconstitutional proposals in green paper on land reform must be removed
SARS land tax ruling shock for developers, by Ben Espach
Let the state take land rents instead of taxes, by Peter Meakin
Commercial property values in SA on the rise
Which property invetment type?
IVSC news: IVSC 2011 launched
SAIV at home:34 President’s report to SAIV AGM38 Life membership: GP Wilkinson39 2011 Northern Branch practical workschool40 From the General Secretary’s office40 Membership statistics41 Professional directory
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P A N G R A M
P A N G R A M
P A N G R A M
In answer I would say that we try to be of assistance to SACPVP wherever possible without
compromising our members in any way. (We did, after all, virtually instigate the creation of
the Council back in the eighties.) But at any hearing before a disciplinary committee, the
person being taken to task is really defending his or her own valuation, which has to stand
on its own. I’m not sure that anyone else could put himself in the mind of the valuer to as-
sist in this way.
To all our members who have, in one capacity or another, commented on the MPRA
amendments, the Green Paper, or on any other matter affecting the profession I should like
to express our gratitude. Should there be anything that you think the Institute should be
doing on your behalf please do not hesitate to bring it to our attention.
Kind regards
Kit Carson
LE T T ER T O T H E ED I T O R
V
Dear Editor,
I am never quite sure if I am reading the same valuation pages as Dr Manya Mooya.
In the first part of his Municipal Valuation articles in November 2010, he wrings his hands about not being able to recommend site
value rating because of inaccuracies which result from a paucity of sales evidence.
Then in March 2011, he explains how impossible it is to determine whether an estimate of the market value of ‘built’ properties
is either right or wrong. He then agonises that reported sales prices are not necessarily an indication of market value and follows
with his opinion that the 10% acceptable margin of error is arbitrary.
I will not argue these issues because of their fundamental complexity but they are professionally dealt with in the International
Association of Assessing Officers ‘Standard on Ratio Studies’ of January 2010 which the City has adopted as its standard. There
the allowable Coefficient of Dispersion, shorthand for an acceptable margin of error, averages 12.5% for large, older as well as
newer residential properties in cities like Cape Town.
(http://www.iaao.org/uploads/Standard_on_Ratio_Studies.pdf)
This sixty-page publication will reassure Dr Mooya that in spite of his misgivings all is well in the compilation and auditing of willing
seller, willing buyer valuations by CAMA methods.
It is disturbing, however, that an analysis of the ratio of a sample of sales to valuations which took place in Cape Town in July
2009, the date of the 2009GV, showed average margins of error of 30%, up or down. That is 250% more than is permitted. An
acceptable result would find all the dots hugging the black horizontal lines at 12.5%.
This goes to the heart of the under and over valuations. Dr Moola is right that there have to be higher and lower results. It is only
the extent of the City errors which raises eyebrows if one ignores the fact that the City cannot identify under-valued properties.
On the question of deciding whether a sale is of an arms’ length nature, as Dr Moola doubts, the IAAO use a comprehensive Sales
Validation Questionnaire to test validity.
More alarming is the fact that there was no independent audit of properties which were sold in and around the valuation date.
Worse, there was no valuation or audit of any of the 95% unsold properties, a sample of which should have been valued manually.
This is not Mr Moola’s fault but is indicative of the complexity, if not impossibility, of valuing properties on a low budget.
So, Dr Moola does at last turn the same page when he concludes that “valuation variation and negligence is the only chink in the
City Valuer’s armour”.
Yours sincerely
Peter Meakin
Registered Professional Valuer
Associate Institute of Valuers SA
continued from page 1
THE SOUTH AFRICAN
VALUER4OCTOBER 2011, NO 106
I N T ER N AT I O N A L VA L UAT I O N A N D A P P R A I S A L W EEK
V
…a celebration by all valuation and appraisal organ-
isations, to raise the awareness of the importance
that valuers and appraisers make to the global
economy.
The SAIV is joining the World Association of Valuation Organi-
sations (WAVO) in celebrating the valuation and appraiser pro-
fession from 1 to 7 November. Both the Northern and Southern
branches of the Institute will present day seminars on 4 Novem-
ber to participate in the launch of the International Valuation Ap-
praisal Week.
WAVO is a body established in 2003 to bring together profes-
sional valuation organisations that represent valuers and related
property consultants employed in private practice, business and
industry, the public sector and education, as well as some spe-
cialised groups that interface frequently with the profession. The
organisation seeks to promote best global valuation practices
and consistent standards for robust growth of the profession. It
provides an international platform for learning, sharing of experi-
ence, knowledge and debates on valuation practices.
In a letter to national valuation organisations, the chair of WAVO,
Dr Lim Lan Yuan, said: “The valuation and appraisal profession
has yet to accomplish any effective and co-ordinated global mar-
keting aimed at increasing its awareness. The growth of our valu-
ation and appraisal profession is continually faced with additional
challenges such as technology changes and the emergence of
automatic valuation models.”
Dr Yuan explained that one of the roles of WAVO is to provide
public information, advocacy and international representation.
Because there is no dedicated time when the profession is glob-
ally promoted, the WAVO board decided at the 5th WAVO Con-
gress held in Singapore in November 2010 to launch this week
in order to raise the profile and awareness of the important role
of valuers and appraisers to the global community.
Dr Yuan urged all national valuation organisations to use this oc-
casion to publicise their activities, provide wide exposure and
highlight the contributions of valuers and appraisers. The more
organisations that participate, the stronger the impact that will
be made.
THE SOUTH AFRICAN
VALUER 5OCTOBER 2011, NO 106
THE SOUTH AFRICAN
VALUER6OCTOBER 2011, NO 106
T H E 2 0 1 1 S A I V N AT E X S EM I N A R
V
The 2011 SAIV Natex seminar took place at the Lan-
zerac Hotel in Stellenbosch on 10 June. The semi-
nar was attended by members of the Institute and,
for the first time, students were lucky enough to be
sponsored to attend the seminar thanks to the gen-
erosity of Rode and Associates cc, Old Mutual, Ap-
praisal Corporation, Douglas Property Valuations,
Auction Alliance and Vcon Civil and Building.
John van der Spuy, master of ceremonies for the day, handed
the mike to the SAIV President, Kit Carson, who opened the pro-
ceedings by applauding the wonderful turn-out, specially wel-
coming those who came from far away. He urged everyone to en-
joy the seminar and also to learn from it. He said that the Institute
was experiencing some stress as far as membership was con-
cerned, but this was being addressed. He added that there was
also stress from clients who were “sometimes a little reluctant
to employ us” and said: “I think this comes largely from a suspi-
cion about the quality of valuation work that is being produced in
some quarters.” Natex continuously strives to encourage valuers
to “up their game” and this occasion was one in its endeavour
to improve standards, to provide information, entertainment and
enjoyment at the same time. Seminars like this help enormously.
Kit expressed the hope that those attending were not present
just to earn CET points. While this is important and will become
increasingly so, he said he hoped that there was a genuine
desire to improve knowledge and standards. Kit thanked the
Southern Branch for organising such an interesting and valuable
programme, and the sponsors who made it possible – and com-
mended the co-operation between members.
John introduced the first speaker,
Rael Levitt, CEO of Auction Alliance,
whose presentation was entitled Mar-
ket value versus auction value. Rael
pointed out that in South Africa the
valuation industry and the auction
industry have not worked together
closely in the past, whereas in the UK
there seems to be a much closer working relationship between
the two industries. Rael ran through some ‘quick stats’ on the
auction industry in South Africa.
• There are some 950 registered operators in the auction industry,
with about 180 operating; and
• some 4 000 employees;
• real estate is the largest auction category, followed by auto-
mobiles;
• African males (35 to 55 years old) make up the largest buyer profile;
• estimated gross asset value sold is R17 billion;
• insolvency auctions made up 19% and 22%, respectively, in
2009 and 2010;
• bank related auctions were 27% and 18%, respectively, in
2009 and 2010.
The majority of auction sales in value does not come from the dis-
tressed sector, but from the commercial property sector – both
institutional and private sellers. The majority of auction sales hap-
pens in Gauteng – some 50%, with 20% in the Western Cape. Al-
most half of all auctions (by number) in South Africa are residen-
tial properties; almost 55% of auctions (by value) are commercial
properties. The rapid growth of the auction industry can be seen
from the advertising spend which increased from under R20 mil-
lion in 2005 to over R195 million in 2009 and R145 million in 2010.
Rael addressed the question: Do auction sales achieve lower
prices than private treaty sales? This is particularly relevant when
it comes to valuations. Rael maintains that there is no truer mech-
anism for establishing value than an auction sale. Very much like
the stock market, where supply and demand meet at a specific
time, an auction produces a price. In the South African property
market auctions have often achieved higher prices, rather than
lower prices, even before the general market has picked up that
the market has been improving. Auctions are immediate, pick up
the trends quicker and react to a surge in demand when prices
also rise quite quickly. Auctions have even set the benchmark
for price precedents in some areas and become the first choice
method of transaction. An auction, with its free floating mecha-
nism, can often determine the value of a property, even above the
expectations of the seller.
On the other hand, when prices deflate, the same situation arises.
Auction prices are spot on in terms of what markets are dictat-
ing, when brokers and estate agents find difficulty in determining
prices, especially with properties which are quite unusual and
are not trading heavily. In countries like Australia, auctions often
set the market value. It can be difficult to explain to sellers why
property prices are dropping dramatically, although this reflects
exactly what valuations are doing in that market; this again de-
termines the benchmark at that time. Rael therefore believes that
auction value is market value. Auction prices are instantaneous
and can be skittish; when the interest rate is changed they reflect
this immediately.
Auctions today are not like the sales in execution of old which
were attended mostly by speculators. Today they are marketed
widely; because people are aware of them and attend, they do
start determining what happens to prices in particular areas.
Banks selling by private treaty give soft funding structures to up
the prices so that the write-offs are not so big, delay repayments,
and give prime minus one or two. Buyers are factoring this into
their pricing. Are those values real? If the bank is, in fact, giving a
special price, are the ultimate valuations the correct ones or can
auction valuations be relied on more and are they more realistic?
Rael does not believe that auctions achieve lower prices. When
questioning whether auctions achieve forced sale prices, Rael
holds that the difference between a forced sale price and an auc-
tion price has always been an anomaly – the difference is time.
In many ways auction prices could be forced prices but they are
what the market determines at that particular moment.
Rael then looked at what auctions tell us if this argument is true.
A large percentage of commercial real estate is sold on auction
today. All listed funds use auctions and aggressive yields are
achieved. Auctions are growing internationally, largely because
of distress. When prices go up and down quickly, auctions are an
easy way to determine value. Some 84% of commercial property
auctions are of a non-distressed nature; these are private sellers
choosing auction as their first choice method of transaction.
In the commercial property market 2011 has become known as
a year of trophy or trauma - a two-tier market – the good is re-
ally good and the bad is really bad and there is not that much
difference between the two. Non-traditional buyers (people look-
ing at commercial property as an investment class) come to auc-
tion sales when a property has a good covenant (good tenants)
and pay prices more aggressively than expected, giving 7 or 8%
yields – unlike a traditional property investor. Strong properties are
getting even better prices. Conversely, prices for vacant tracts of
commercial land and empty buildings are particularly weak.
The average commercial property yields in the second half of
2010 were around 10% throughout South Africa. Bidders are
factoring an interest rate increase into their bidding prices.
Although there has been an increase in distress auctions, South
Africa does not have the same number of these compared with
other countries; no listed property group has gone out of busi-
ness. The increased distress has come from property schemes
which have collapsed or insolvent businesses – not because of
the property itself, but because of the business model where the
property was the secondary part of the distress. There has been
distress in failed property developments. There has been an in-
crease in activity and an increase in buyers; with the low interest
rates, those people who have access to cash bid on the auction
floors. The listed sector is disposing of non-performing assets;
the retail sector attracts great demand; industrial property per-
forms well, particularly in the more established areas; the office
market performs moderately (with a high demand for A-grade
offices, but a weak demand for B- and C-grade offices especially
in non-traditional office areas), but the leisure market is showing
cracks with a lack of demand. Many buildings in the Johannes-
burg and Durban CBDs are bought and converted into residen-
tial/student accommodation and these are in greater demand.
In the industrial sector there is strong demand for modern facili-
ties even if they are vacant. There is weaker demand for the age-
ing buildings in the older industrial nodes in Joburg, Pretoria and
Durban There is concern for these at auction, particularly if ten-
ants are not strong. In the retail sector there is strong demand for
shopping centres with corporate covenants, and even aggres-
sive demand if there are blue chip tenants. There is a moderate
demand for strip malls, suburban centres and centres in rural
areas.
In the leisure market, there is large oversupply across the board,
with non-urban resort areas (such as golf estates) being the
weakest. Hotels are also distressed and the whole leisure sec-
tor is tough at the moment. The recession of 2007 began in the
residential real estate sector. Some 88% by value (and more by
volume) of residential estate makes up distressed sales and there
is a flood of stock on the market. Demand is weak where there is
oversupply because in those areas where development was ram-
pant, prices have deflated the quickest and auctions are most
used in these areas. In the Mossel Bay area there are more sales
in execution per capita than anywhere else in the country. Re-
covery rates to the banks are slowing because of deflation in the
residential property market, with prices softening. This is often
noticed at auctions some three months before it becomes public
knowledge when sales are registered.
The vacant land market is traumatic with little or no market de-
mand and with prices in some areas as much as 70% down from
the peak periods. This is exacerbated by the increase in building
costs. The ‘land bankers’ can buy land at great prices if there is
access to funding and cash. They will be the property developers
of the future if they hold on to this land.
Rael terms the residential market a case of the good, the bad and
the ugly: the good is the sub-R1 million market, which is strong
with many black entry buyers outside of the Western Cape. Both
first time home owners and now residential property investors
are fuelling prices and making this market buoyant. The luxury
c o v e r s t o r y
THE SOUTH AFRICAN
VALUER 7OCTOBER 2011, NO 106
THE SOUTH AFRICAN
VALUER8OCTOBER 2011, NO 106
residential market is bad. This is where bargain hunters go after
houses over R5 million; prices are decreasing even in the most
prestigious areas and sellers are accepting low prices in a weak
market. Contrary to expectations, because of the strong Rand
there are few foreign buyers. The leisure market is the ugly; it
is extremely tough to sell homes on water and on golf estates
where there is a huge oversupply. Because primary homes are
under pressure, secondary homes are under even greater pres-
sure. There are many insolvencies, foreclosures and sales in ex-
ecution as well as distressed properties in those areas. This will
take some time to play out.
Rael turned to insolvency, liquidation and distress, because so
many valuers deal with these issues today. StatsSA, measuring
by number, have reported that insolvencies are down, whereas
when measured by value, bonds of security grew by 350% from
2009 to 2010 because of the value of the liquidations. In this
downturn the South African economy has been amazingly re-
silient in the world of liquidation, without one curatorship of a
bank. In 2010 there was only one listed company that went to
the wall – unique in global terms in this downturn (compared with
20 well known companies in 2001/2). The largest liquidations by
far in 2010 were property developments – two shopping centres
near Johannesburg with an exposure of R1 billion being the big-
gest. No corporates have gone out of business as has happened
internationally. When valuing retail, industrial property or the of-
fice sector, valuers should be aware that failed property develop-
ments have dominated the liquidation scene in South Africa over
the past 18 months. There have been no large scale businesses
going out of business in 2011. This means that tenants are ok,
which is good news for both tenants and landlords. Some line
shops will struggle and there will be renegotiation of rentals.
Business rescue is changing the landscape: companies may
delay liquidation or not go bankrupt. In the property sector the
financial institutions have been innovative in dealing with their
own informal distressed sales and distressed sales channels, by
selling or other ways of keeping people in homes and reschedul-
ing debt. The real distressed sales are on websites, banks them-
selves selling or through the estate agency sector. Banks find
failed developments on large tracts of vacant land and large in-
complete developments difficult to deal with. Certain banks are
completing developments themselves or partnering with devel-
opers and presenting huge opportunity for those developers who
can operate in this market. Distress lags the general economy by
18 to 24 months – when markets start improving liquidations start
increasing. Property is a sticky asset class and it takes time for
fluctuations to be realised.
Insolvencies are picking up because some of the financial institu-
tions and other creditors are taking a more aggressive approach
to insolvency, largely because of debt counselling. They avoid
this by sequestrating.
Professor Francois Viruly, head of
the School of Construction Econom-
ics and Management at the Univer-
sity of Cape Town addressed the
delegates on Densification of South
African cities – what it means for
the property market. He wanted the
presentation to achieve two things:
to share some of the research that is currently being done at
the university and some of the research outcomes; if delegates
have ideas of topics that the university should be researching, he
would like to hear of these. (They could be used productively for
the sector as honours or masters dissertation topics.)
The issue of densification started a few years ago when Francois
visited São Paolo and looked at the highest and best use of prop-
erties. This city of 20 million people has favelas on its outskirts.
Two things struck Francois: the density of the developments and
that they have one rule which is that there may be no building
of wood – brick must be used. This has important implications
for fires and other issues. On questioning why our townships
are not as dense, what immediately becomes evident is that we
are starting to see double story shacks – the densification of our
townships. Land is becoming expensive, even in the more infor-
mal component of the market and people use their land in the
best possible fashion. Neither funding nor building codes or town
planning prevented this from happening earlier. Valuers have to
start asking themselves what this means from a valuation per-
spective. Would you have seen this as the highest and best use
earlier? Perhaps valuers would answer that they should have, but
the market would not have agreed.
The research at UCT has been looking at the property cycle from
1946 – comparing Gross Domestic Fixed Investment (GDFI) Resi-
dential with Non-residential Real Value in real terms. The stron-
gest correlation is with GDP – a 1% increase in GDP suggests
that property returns rise by about 3 to 3.3%. It is often forgotten
that we have not seen a boom of this scale since post-war South
Africa – both in residential and commercial GDFI. But it is not just
a question of looking at GDPs, but rather asking whether struc-
tural issues happening in the property market cause those sort
of booms? The 1950s and 60s saw the industrialisation of South
Africa; the 70s and 80s was the growth of the service sector in
South Africa – the 80s being the decentralisation period. In addi-
tion to looking at the GDP and interest rates, one must look at the
long term structural changes. There are 20-year kuznet cycles.
There is the suggestion that there is a major structural change
happening here. At what point in the seventies would Sandton
have been foreseen, or Century City? Are we able to see the
long term trends and the cycle? Economic growth will give us the
short term ups and downs of the property market but it does not
really assist us in determining highest and best use of properties.
For that we need to look at social changes, political changes,
economic changes and technological changes (STEP), to which
can be added the environment. The first of these which is be-
coming increasingly clear is the issue of densification. South Af-
rican cities have comparatively low densities and some informal
settlements have high densities and rising. The rising densities
have enormous implications on what properties will be used for
in future. Densification leads to a second point – the mismatch
between development rights and infrastructure. This is concern-
ing, especially in the second and third tier of municipalities in
South Africa. The moment densification starts, good infrastruc-
ture is needed to make it work. Transportation changes because
of densities, changing spatial aspects of the South African econ-
omy. There will be need of another city in the Gauteng region in
the next 20 years and this will affect the property market. As we
change the form of the built environment, we create a new as-
THE SOUTH AFRICAN
VALUER 9OCTOBER 2011, NO 106
Lanzerac
THE SOUTH AFRICAN
VALUER10OCTOBER 2011, NO 106
set class. If you create a new high density living environment of
apartment blocks of R400 to R500 million, institutional investors
can react with that. The form of the built environment can create
an asset class. As long as we have a low density environment,
residential will not be attractive to larger institutional investors.
Francois then looked at what is happening in the cities at the
moment. The Johannesburg economy makes up about 13% of
South Africa’s economy, Cape Town 11%, Tshwane and eThe-
kweni 9% each, and the smaller cities much less. The latest
figures show that the Eastern Cape is emptying out towards
Gauteng and the Western Cape region. The forecasts suggest
that Gauteng has some 10 million people and by 2045 this num-
ber will have doubled, which means that densification will hap-
pen. Soweto is likely to go double storey and higher; the urban
environment will become high rise flats (as with São Paulo’s
70km of high rise) and the value of properties will be very differ-
ent, based on the densification that they offer.
A multi-nodal property market will develop. Cities will grow
around our larger metropolitan areas, shifting and becoming ma-
jor places of population growth, economic activity and housing.
If this is done correctly, these cities will be connected by high
speed rail links. Francois compared the current density in Johan-
nesburg (with Hillbrow the highest but little going outwards) with
that of other cities around the world; Joburg is still a low density
area and it is likely that it will move upwards on the scale in the
coming years. We will be left with the dormitory towns created
outside our cities. This dependency path will continue to affect us.
We will also experience urbanisation in smaller towns - the next
boom towns will be Burgersfort and Steelpoort on the platinum
belt. Highest and best use in these areas will change radically. At
a certain point the residential sector outbids the current uses. In
the bid rent curve, close to the CBD retail outbids the other uses
at a certain point from a value perspective. From a densification
perspective, these graphs move and we end up with higher den-
sity residential outbidding the other uses. This is happening in a
number of CBDs across South Africa, where residential property
can provide a higher value than commercial property for the first
time, particularly in the B- and C-grade arena. Those conversions
are taking place.
The regeneration theory: with time the return from the alternative
use increases and surpasses the existing use of a property – the
development point. It is interesting to note that in South Africa
properties take longer to reach this point, often remaining slums
for a long time before development takes place (although slum
lords try to overcome this by putting many people into small flats
to try to keep the IRR at the desired level). By changing and per-
mitting densification conversion should start to happen at a point
where the value of the office building in certain sectors of the
city has come to an end. If cities work properly as far as town
planning and regeneration are concerned, regeneration should
happen before there are derelict buildings.
Francois argued that we have seen the impact of this on the
South African property market. The decline in office vacancy
rates in Johannesburg and to some degree in Cape Town, Preto-
ria and Durban does not come from the increase in demand from
the office sector but rather from the take-up from B- and very
low A-grade space into the residential property market. The den-
sification of our cities, the willingness of people to live in smaller
spaces does mop up some of the former office space. This will
cause a tightening of the office market. The changing use of
space has caused Joburg CBD office values to rise from about
R1 000 a square metre in 2001 to R 6000 and higher.
The future lies in how densification takes place. Some high rise
buildings are simply RDP houses stacked one on top of the oth-
er; the land has become so scarce and the value so high that
this has become the only way to use the land efficiently and get
people close to their work environment. Valuers will need to value
them and it will be interesting to learn the views that banks will
take towards buildings of this sort because when buildings are
regenerated to quality high rise residential, they become a very
real option for institutional investors. The question that the de-
partment at UCT is working on is that as we densify, the cost
of construction goes up (foundations, lifts, etc), but what is the
optimal density that we should consider? At what point does
value start declining because we have hit the optimum point?
What gives us the optimal residual land value with the level of
densification? If we go beyond that point the land value starts
decreasing. This will vary according to the price and area, such
as a township environment.
We have a choice to make – high density, low density, formal and
informal. We can go high density informal like Nairobi and Cairo
(sometimes a floor too far); the informal low density (rural) option
is not sustainable; the South African scenario at present is formal,
low density and this is an environment that needs a different ap-
proach to many things. We can expect shanty towns with the
community participating in building their own developments. At
the higher end of the market we will see mixed use developments
– the rich are slowly buying into this (São Paulo is a good example
where the rich have opted out of the street level traffic by travel-
ling by helicopter taxi from home to work or shopping centre),
even though mixed use does not necessarily mean low risk.
From an investment class perspective, institutional investment
in the residential market is just about zero. Francois thinks that
this will change dramatically in the next few years and within the
next two or three years there will be at least two listed residential
property funds; the way we value these will change completely
– they will become increasingly institutional investments as the
densification of South Africa increases. The funds will lie in the R1
million and below sectors - the higher density developments. The
legal situation also needs to be changed to create an enabling
environment. In Singapore there is a housing provident fund to
build high rise buildings and house people. The housing mar-
ket will start taking a more institutional role – moving out of the
financial crisis initially caused by ‘Ninja’ (no income, no job and
assetless) loans in the US and which caused problems in the rest
of the world. We will see people in a different housing environ-
ment where the risks of financial downturns can become much
more serious.
To end off, Francois focused on the trend in Africa which sug-
gests that we will be operating in more and more highly dense
environments. Some of the countries with the highest growth are
in Africa. Investors and corporates are fully aware of the 9.9%
GDP growth in Ghana, 8.5% in Ethiopia, 8.4% in Congo (Braz-
zaville) and 7.4% in Nigeria, which are extremely high economic
growth figures, with densification of their cities. A middle class is
growing in those countries which South African investors know
about and they have a great opportunity of entering those coun-
tries.
Students are taught that when you undertake a development you
start with town planning, you then service, build and occupy. In-
creasingly in the South African market, especially with densifica-
tion, it is happening in exactly the opposite sequence. The former
method will attract the interest of investors, the latter will not. The
five trends are the densification of South African cities (demo-
graphics) in the social category, a mismatch between develop-
ment rights and infrastructure (social and political), transportation
alters markets – the technological, changing special aspects of
the economy and a changing investment universe (economic).
Instead of getting stuck in short term property cycles, as prop-
erty economists and valuers we have a role to play in determin-
ing market value based on highest and best use with a level of
credibility. This means looking ahead at what land values could
be based on social, economic, technological and political trends
– transport systems, changing spatial aspects, and with long term
views looking at what this means for values and the type of inves-
tors, what sectors will grow in the longer term.
The third presentation of the morning
was on The Implication of the new
Consumer Protection Act on the
property market – by Antony Arvan
of Morris, Phillips, Wisenberg Attor-
neys. The CPA came about because
South Africa has lagged behind the
rest of the world in relation to con-
sumer rights; instead of catching up with our legislation, we have
overtaken the rest of the world. This new legislation is compli-
cated and badly drafted which makes it difficult to understand,
despite its call for plain language; it was drafted by a Canadian.
It will change the way people do business from now on. It affects
every transaction which is entered into if conducted by a person
acting in the ordinary course of business of the person selling the
goods or rendering the service. This cuts out many transactions.
One of the many purposes of the act is to promote consumer
rights but it can be abused by people who try to avoid obligations
they have entered into.
The act is wide ranging and also affects immovable property to
the same extent as it applies to movable goods. This is alien to
the way things have always happened in South Africa - one does
not simply give land back, especially when it is registered in one’s
name. This could apply to a lease agreement and therefore to the
value of the property for rental purposes; it could apply to a sale
agreement or any other sale relating to immovable property. The
only exclusion is if the consumer is a juristic person (company,
closed corporation, partnership or trust – the definitions have
been extended) with an asset value or a turnover of more than
R2 million. So banks and large companies are not protected in
terms of the act. Care must be taken in dealing with the act.
In future all terms and conditions in a contract must be in plain
and understandable language – so that a person with average
literacy skills and minimal experience would understand it. This
could be a moving target. No goods or services must be sup-
plied at a price or on terms which are unreasonable and unjust,
ie if it is excessively one-sided, inequitable or if the consumer
relied on false, misleading or deceptive misrepresentations. This
would include unfair marketing leading to an unfair price. (Is this
the introduction of price fixing in normal business transactions?)
This could be significant in relation to immovable property. This
piece of legislation will have to be interpreted by the courts to
give meaning to it (similarly to the National Credit Act and the
new Companies Act).
One of the contentious areas in the act relates to leases or the
expiry of fixed term contracts. The aim was to put an end to
abuse of fixed term contracts such as for cell phones or gym
memberships where people were locked into contracts. These
are not dealt with separately; the act simply disallows fixed term
contracts which are longer than two years, although the regula-
tions allow this if there is a demonstrable benefit to the consumer.
The consumer can cancel a fixed term contract on giving 20 days’
notice without any reason. The penalty imposed cannot be so
high that it bars the consumer from cancelling, but the percent-
age is still unclear.
It is important to know whether this applies to commercial and
residential leases. If the contract is between two juristic per-
sons, it cannot be cancelled, but a natural person can cancel.
This could have significant consequences for property valuation
where there is a rental stream and the tenant is a natural person.
Because there are contradictory (badly drafted) clauses in the act
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VALUER12OCTOBER 2011, NO 106
bonds and equities, and increasingly, private equity. The Old Mu-
tual property research team looks at things from a top-down as
well as a bottom-up perspective. The first are the international
and domestic macro economic indicators: What is our economic
forecast? What drives property demand and supply? How strong
is the relationship? What do we expect to happen over the next
three years? Looking at the property space – international and
domestic property indicators: How is the property market seg-
mented? How is each segment performing? What is driving that
performance? What do we expect to happen over the next three
years? Moving down to the portfolio experience the team starts
forecasting those portfolio returns by asking: How is the portfolio
performing? How do we compare with the benchmark? What do
we expect to happen over the next three years? How can we max-
imise portfolio income given these forecasts? Where should we
build, buy and sell property (in South Africa and internationally)?
Phil went on to explain why we tend to look at things through a
cyclical lens. We know that equity portfolios have for years in-
cluded equity and stock cyclicality in the optimisation of stock;
we know that the drivers of property demand and supply are
linked to the economic cycle; even though property is not as
easily traded as equities, the rationale is transferable to property
portfolios. We take this perspective into the business through
leasing, development and sector allocation strategies; but the
secret is to recognise the fallibility of any research and forecast-
ing, and the value of common sense.
There are three ERU global scenarios for 2011/2013: The base
case scenario - out of ICU but fragile (55%) - in essence the
team believes that the global recovery is on track and the emerg-
ing markets will continue to outperform developed markets in
terms of growth; that inflation is on the way up and that interest
rates will continue to tighten. Alternative 1 (30%) is the overdose
scenario where there is too much money in the system, inflation
increases and the cycle ends in trouble. Alternative 2 (15%) sees
a great growth slump where nothing takes off and more money is
pumped into the system to get things going. Phil looked at recent
global events – Greek and Eurozone debt, as well as the bigger
US debt, and food supply and inflation. The picture is changing
and the uncertainty continues.
As far as South Africa goes: the base case for a good recovery
with no surprises is 66%, with moderate growth, increasing in-
flation, a slightly weaker Rand and no further monetary easing;
alternative 1 (15%) we expected a little more with no real growth,
with inflation down, recovery slow and a possible cut in interest
rates; and alternative 2 (25%) – surprise decline with emergency
treatment such as inflation increase, growth as in the base case
or slightly better and an interest rate rise.
Phil then demonstrated the concept of cyclicality with graphs. In
this market we need to show two things: growth before the GFC
it will be for the courts to decide whether rentals are meant to be
included or not.
The marketing of property, terms and conditions, and the product
sold are also affected by the act. It prohibits the use of false or
misleading representations relating to the product. Property may
not be marketed by using, implying or neglecting to correct false
information about the proposed use of the property. This may
relate to the price of the property or the possible cancellation of
the agreement.
The other contentious issue in the act is the quality of the proper-
ty being bought. It should be reasonably suitable for the purpose
for which it is intended – is of good quality, free of defects, us-
able, endurable and complies with applicable standards – unless
faults are specifically pointed out to the buyer. This only applies
to a transaction in the ordinary course of business. If these provi-
sions are not complied with consequences apply, and in certain
circumstances, the goods can be returned. If the property cannot
be used for the purpose for which it was bought, does not meet
the required standards, is unsafe (has material defects) or deliv-
ery is late, six months after delivery the good or property can be
returned – without reason or penalty. If the product is purchased
as a result of direct marketing the agreement can be rescinded
five days after the transaction was concluded or five days after
delivery of the good. With immovable property this could have
serious consequences if delivery is deemed to mean on registra-
tion of the property. Although this was not meant to cover im-
movable property, because there is no qualification of this right of
the consumer, immovable property is included. Antony contends
(contrary to the opinion of others) that delivery in this instance
means occupation rather than registration (which takes much
longer). The courts will have to decide what ‘delivery’ means in
this context.
As far as valuers are concerned, there are many obligations in
terms of the act on service providers which govern how and when
they perform, and consequences for late performance relating to
consumers (eg home owners). Consumers are entitled to timely
performance, completion of services and timely notice of any
unavoidable delays as well as expected standards of service;
otherwise they can demand remedy or refund of a reasonable
portion of the price already paid, Unless otherwise agreed, it is an
implied agreement that if the service is not delivered on time, the
consumer can cancel the agreement and keep the good without
paying for it, unless they have agreed to accept late delivery; the
consumer can claim a refund with interest for an advance pay-
ment because this would then fall into the category of unsolicited
goods or services. This would also apply to a late valuation report.
After lunch Phil Barttram of Old Mu-
tual Properties addressed the del-
egates on A research perspective
of SA property cycles. Phil started
by saying that he is a big fan of long
term trends and because valuers
tend to value in perpetuity he thought
they would have something in com-
mon. Phil first gave a detailed breakdown of his team – Old Mu-
tual Property Research (which sees property as a separate asset
class – a hybrid of equities and bonds) which has access to a
wealth of information, and then gave a cyclical perspective - in-
ternational and domestic macro picture (courtesy of OMIGSA
economists), some property indicators, industry performance in
2010, expectations for 2011 and beyond, and cyclical applica-
tions to property.
Property returns are highly correlated to the economic cycle –
more so in the downturn than the upturn – and compete against
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THE SOUTH AFRICAN
VALUER14OCTOBER 2011, NO 106
(global financial crisis) and growth recovery. We are back to simi-
lar absolute (the absolute amount produced) levels and growth is
doing ok. The leading indicator of GDP growth is starting to turn
and it is expected to slow down. Private consumption growth is
slowing but back to pre-crisis levels. Real retail sales growth is
slowing but is back to solid absolute levels and not giving rise to
much concern; trading densities have started to come off with
spend per square metre in shopping centres coming down. Ris-
ing operating costs in centres have brought margins under pres-
sure and this needs addressing by landlords and tenants (and
perhaps valuers). Manufacturing is a worry - growth is patchy
and levels very low, with unused capacity. Commercial building
plans passed are recovering but off highs; we are not building
because banks are not lending as before, so valuers do not have
to value so many buildings as supply is constrained - a structural
shift. Banks are lending on risk. Up to 2007/8 developers were
using banks’ and communities’ money to build developments
and taking a lot of the profits. Now the loan to value ratio has
rectified some of this and developers must use their own money
and there is less building than before.
Inflation is the worry – we must keep an eye on food prices, as food
creates unrest; food inflation leads to transport inflation and further
trouble, although inflation is expected to remain at 5½ to 6%.
Direct property trends continue to provide a telling story. Invest-
ments in property did very well over the past three, five and ten
years, relative to other asset classes. Why therefore do institu-
tional investors only have 4 to 5% of their total investment in
property? Sector returns since 2005 show industrial leading, fol-
lowed by retail and office total returns, although office has led the
way over the past year. It is important to take advantage of both
the ups and downs. Vacancies in all three sectors experienced a
dip, returned and are starting to level out. Base rental growth is
between 5 and 9%. Capitalisation rate movements show retail
has started to move up so values have started to improve; there
is also an improvement in both industrial and office – so values
are getting stronger overall in property.
The IPD valuation report showed that capital values standing in-
vestments in retail increased by 5.9%, industrial by 9.6% and
offices by 10.5%. The IPD sample showed that valuers are fairly
conservative because 70% of all transactions sold for more than
their market adjusted value, with a range between 13 and 14%.
So banks should be making more than the market adjusted value
in their books.
Looking at office vacancy rates by region, Cape Town is stabilis-
ing, Joburg has turned and Durban and Pretoria are still strug-
gling. Office rentals are flat, but stable across all grades. (Phil
asked where the valuers’ data was because he could not “think
of a better database to have than the valuers’ database”.) Com-
pleted available office space is quite high but not much is be-
ing developed. The trend in the retail cap rate and retail growth
expectations show margin pressure. Landlords pass this on to
tenants who then take strain.
Forecast returns by sector and segment (total property returns
cycle) inform allocation decisions. Income return has remained
fairly consistent all the way through the cycles from 1995 to 2010.
It is expected that property returns will be between 14 and 17%
over the next three years. Sector returns are closely correlated in
this cycle, so there is no real call to fund managers regarding in-
vestment but they are important when deciding on segments, eg
super regional compared with community shopping centres. In
the retail property cycle there should be some occupancy take-
up over the next three years. Figures show that community cen-
tres have been growing faster than other retail centres in a down
cycle while super regionals have held their own. This shows the
importance of research and taking a cyclical view on how to buy
and manage property.
Old Mutual Property now looks at their shopping centres as
though they were stock exchanges; the categories are sectors;
each tenant is an independent business (stock), and the mix of
category and tenant maximises the sustainable risk return. The
mix is important if there is an economic recession. Cyclical think-
ing therefore extends to a category and tenant level – some per-
form better in an upturn than others and property owners/man-
agers should consider those that pay a higher rent and perform
better. Leasing strategies should look at what is going to happen
rather than at what has just happened, ie in an upturn, taking ac-
count of the cyclical view of category mix and tenant efficiency.
Taking an overweight and underweight view and looking at the
data we can ask ‘why’ and come up with long term retail attribu-
tion analysis. This looks at the weighted contribution of category
mix and tenant efficacy, and this gives their relative performance.
The final speaker of the day was
James Hallinan, Heritage Resource
Manager of the City of Cape Town;
his topic was The Value of Heritage
Resources. James started with a
quote from the Senagalese environ-
mentalist, Baba Dioum: “In the end
we will conserve only what we love.
We love only what we understand. We will understand only what
we are taught.” James holds that if heritage resource managers
have one great failure in nature and heritage conservation over
the years, it is that they have not really mastered the skill neces-
sary to convey to an ever growing number of people just what it
is they do and why it is of value, not only afficionados of nature
and heritage resources, but to each and every person out there.
What is a heritage resource? The head of the British heritage in-
dustry said it is whatever you want it to be – whatever a signifi-
cant number of people of any society deem is worth passing on
to future generations. There are many things which are of heri-
tage value, but many people have not been initiated or sensitised
to them.
James then gave an overview of the tiers of historical significance.
Historical buildings are graded into local, provincial and national
heritage sites. South Africa is a signatory to the World Heritage
Convention Act 49 of 1999 which incorporated the Convention
into South African law. We are responsible for looking after world
heritage sites, particularly on the Cape Peninsula in ways that
are consistent with the International Convention of Monuments
(ICOMOS) and other international conventions. These include
Robben Island, Table Mountain and the Cape floral kingdom, as
well as the new Cape Winelands Cultural Heritage Landscape.
The history of heritage legislation goes back to 1911 with the
Bushman Relics Protection Act – to prevent artifacts being re-
moved and taken out of the country. This was followed by the
Natural and Historical and Monuments Act in 1923, the Act on
Natural and Historical Monuments, Relics and Antiques in 1939,
the Historical Monuments Act in 1969 and the Natural Heritage
Resources Act 25 in 1999, which is the present day applicable
heritage legislation. Until 1999 if you had an old building which
was not a national monument or a provisional national monu-
ment, you could knock it down – this demonstrates how ‘young’
our heritage awareness is in South Africa. James went on to
show slides of individual buildings and urban conservation ar-
eas and to expand on the three tiers of heritage sites, which can
sometimes be subjective. Heritage can enhance property value
considerably, not only because of the building itself but because
it retains the architectural language and character of the area.
This means that you are not just buying or selling a house in the
area, you are buying a way of life.
James illustrated the quote “public sentiment is everything”
(Abraham Lincoln) by describing his signposting of the Cape
of Good Hope some years ago. This has turned into one of the
most important tourist destinations in South Africa and possibly
in the world. He elaborated on the importance of the discovery
of the passage to India and the east. Adam Smith described it as
the most important event in the history of mankind – this in time
led to the globilisation of the world. The sight of Table Mountain
could not be missed or mistaken for anything else; the fate of
nations over the years has often been determined by who held
control over the Cape of Good Hope.
Some exciting finds are also coming out of the coast of South
Africa today – the oldest evidence in the world of anatomically
modern people and of people using seashore resources – some
dated before they appeared in Europe. All the people who came
to the Cape in bondage have enriched the cultural heritage of the
area, resulting in the multi-racial city of Cape Town – a world in
one country. The slave uprising of 1808 was commemorated in
2008. James mentioned the maritime history and the enthusiasm
of tourists who follow the lighthouse route around the coast to
Namibia. The Cape of Storms saw many shipwrecks which also
have a fascination for people – 450 wrecks have ended up on
Salt River and Woodstock beaches. Ships are still wrecked today
in the same area. James talked about the strategic importance
of the Cape, both in peace and in times of war, when coastal
defence also left heritage resources.
As far as natural heritage goes, the Cape Peninsula is 460km in
extent and 291km are set aside as nature area; 99% of the bio-
diversity that existed on the Cape Peninsula when Van Riebeeck
arrived here still exists. South Africa is the only country in the
world to have an entire floral kingdom within its own boundaries
– the fynbos bio. There are more species of plant between Cape
Town and Cape Point than anywhere else in the world for an area
of that size. This should be flaunted as a tourism resource to
attract people to the country. The marine resources of the Cape
Peninsula are also magnificent. False Bay is the meeting place
of two oceans – or two marine provinces as far as marine organ-
isms are concerned. Our natural and cultural heritage resources
should be promoted to attract visitors, and in this way create
greater employment. Once you put a value on something it will
never go extinct.
James, as a heritage resource manager, works to maintain the
personality of Cape Town because every day the natural environ-
ment is eroded a little more by injudicious development creeping
up the mountainside. James reiterated that in the end we will
conserve only what we love; we love only what we understand;
we will understand only what we have been taught.
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THE SOUTH AFRICAN
VALUER16OCTOBER 2011, NO 106
On 10 June 2011 the Southern Branch of the South African Insti-
tute of Valuers hosted a National Seminar at Lanzerac in Stellen-
bosch. This one-day seminar proved exceptionally popular with
over 200 delegates in attendance. Among the delegates were
members as well as a noteworthy group of students. This year
the Student Liaison Committee of the Southern Branch extended
a special invitation to students studying towards a possible ca-
reer in valuations. Cape Peninsula University of Technology stu-
dents were sponsored by their employers; students from the Uni-
versity of Cape Town benefited from the generosity of members,
for which we are most grateful.
The committee pitched the initiative to certain members and the
response was overwhelmingly positive. Funding was secured
to allow twelve students chaperoned by their lecturer, Dr Manya
Mooya, to attend. We would like to thank the five sponsors, Auc-
tion Alliance, Eris Property Group, Westernpro Valuers, Capval,
Douglas Property Valuations and OMIGSA-Valuations for their
support. Students were afforded the opportunity to attend and
listen to speakers on a variety of interesting topics relevant to the
valuation industry. The event also gave the students a chance to
interact with industry practitioners and build their property network.
The committee had decided to pursue this initiative because it
recognises the importance of attracting students to the valua-
tion profession. For this reason the committee engages actively
with the students, exposing them to the industry through Insti-
tute members and showing them support. We believe that trans-
formation of the industry is not just about race and gender but
about introducing young people to the valuation profession. We
plan to invite students to other functions which take place during
the course of the year and hope that we receive a similar level of
support for these functions from SAIV members.
Comments from some of the students:
• Matthew de Klerk: “I would like to thank you for organising for
us to all attend the SAIV event. I truly believe that it was an
excellent experience for all the students who attended, with
some insightful topics. I was particularly impressed by Rael
Levitt from Auction Alliance who believed that auction value is
a better indicator of OMV. I'm not sure I completely agree, but it
would definitely make for an interesting exam question! Thanks
again for the invite!”
• Rahla Schaffer: “Very interesting.”
• Wing-See MA: “It was really useful and informative to be able
to engage with SAIV members and listen to current topics
that impact the industry. I feel privileged to have been invited.
Thank you.”
• Grant Little: “It was an interesting day for me as a UCT student.”
• Tracy Morris: “The passion of some of the conference attendees
for the valuation profession was inspiring. It was a enlightening
experience.”
• Catherine Thornton: “Thanks for the opportunity – I really
enjoyed the event.”
S AC P V P C O N F ER EN C EV
The Second SACPVP Conference was held at the
Birchwood Hotel and Conference Centre on 23 Au-
gust 2011.
The morning session began with welcome and opening remarks
by Molefi Kubuzie (SACPVP President). He gave a short review
of the global and local economic status and touched on transfor-
mation and public perceptions of the valuation profession.
The proposed new office of Valuer General was discussed by
Hon G Nkwinti (Minister of Rural Development and Land Reform).
He stated he wanted the participation of professional valuers re-
garding this new office which, he believed, was necessary con-
sidering the changing circumstances in South Africa. He was of
the opinion that social capitalism was to be preferred over the
current system of conservative capitalism. He maintained that
current protest actions are the direct result of non-ownership
of property. The Valuer General would be required to be highly
qualified and satisfy high standards. No further details regarding
the qualifications of the Valuer General and the composition of
the office were forthcoming.
Llewelyn van Wyk gave an interesting address on changes in
building regulations that were anticipated as a result of increas-
ing focus on the development of green buildings.
Jess Clelland discussed the correlation between values obtained
in valuations compared with the actual price paid in sale transac-
tions. Unfortunately A Mathope did not arrive to speak on ‘The
Consumer Protection Act and its impact on valuation’.
Prof Thokozane Majozi gave a presentation on ‘Valuation as part
of the built environment and its future dynamics’ and stated that
transformation was still not where it ought to be. Moves were
being made to give bursaries to deserving previously disadvan-
taged individuals. A further aim was to ensure that valuation firms
were headed by full time qualified valuers, not just consultants.
Unfortunately Humphrey Mmemezi (MEC of Gauteng Infrastruc-
ture) did not arrive to deliver his presentation on ‘Monitoring of
the MPRA Bill and the role of appeal boards’. His replacement
was not well versed in the subject. Further discussion on this
matter took place later in a panel discussion ably facilitated by
George van Schalkwyk. The audience participated well in this
discussion.
The afternoon session kicked off with Kura Chihota speaking on
‘The future of commercial rentals and risk management’ followed
by Gilbert Adams and Andrew Brink on the ‘Use of geographic
information systems’; ‘The MPRA Bill and criteria of how govern-
ment secures the services of valuers’ by Yunus Carrim, Deputy
Minister of Cooperative Government and Traditional Affairs and
Mashilo Pitjeng on ‘Challenges of mortgage lending valuations’.
The presentations were followed by a second panel discussion
and a networking session, before the conference closed with a
cocktail party.
Students sponsored to attend Natex seminar
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VALUER 17OCTOBER 2011, NO 106
By Ali Su Smith, Southern Branch Student Liaison Committee
We believe that transformation of the industry is not just about race and gender but about introducing young people to the
valuation profession.
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VALUER18OCTOBER 2011, NO 106
T H E VA L UAT I O N P R O F E S S I O N A N D T H E 2 0 0 8 F I N A N C I A L C R I S I S – LE S S O N S F O R S O U T H A F R I CA
V
Introduction
Most of the serious financial crises that have struck
in the past have had property markets as a cen-
tral feature. These crises have frequently brought
to the fore issues related to valuation, or pricing
of property. Major reviews of, and changes to, the
valuation (or appraisal) profession have therefore
often followed in the wake of every major financial
crisis. The appraisal profession in the United States,
for instance, is said to have originally emerged as
a response to the Great Depression of the 1930s
(Martin, 2009), with its modern reincarnation di-
rectly linked to the ‘savings and loans’ crisis of the
1980s. The Federal Government responded to this
crisis by insisting on uniform appraisal standards
and the licensing of valuers in each state (Gilbert-
son & Preston, 2005). In the UK, the 1970s prop-
erty crash resulted in the famous RICS Red Book,
which set out standards of valuation, and profes-
sional conduct expected of valuers (Gilbertson &
Preston, 2005).
It is not surprising therefore that the 2008 global financial crisis
has placed the valuation profession in the spotlight. Questions
have been raised about the role and potential culpability of the
valuation profession in precipitating the crisis, or at best in the
collective failure to avert it. Valuers, after all, played (and still play)
a central role in the loan origination process widely accepted as
being a key part of the problem.
This paper has three principal objectives. The first is to outline the
role of the valuation profession in the events that led up to the cri-
sis. The second aim is to summarise the response by regulatory
bodies in the US to crisis and to the very uncertain market envi-
ronment obtaining at the height of the crisis, and subsequently.
The final aim is to draw out lessons that may be usefully learnt by
the South African valuation profession.
The financial crisis
The sequence of events leading up to the crisis of 2008 is well
documented in the literature. What follows is therefore a brief
summary. The boom in the property market in the period leading
up to 2006 set up the stage for the financial crisis. From 1997
to 2006 US home prices increased by 124% (The Economist,
2007). Easy credit arising from low interest rates and financial
wizardry in the form of complex derivatives instruments facili-
tated the expansion of sub-prime mortgages, fuelling demand
and further price increases. In contrast to increasing housing
prices, household income did not increase, thus affordability de-
teriorated significantly. The bubble in the housing market in these
circumstances was unsustainable and the inevitable had to hap-
pen sooner or later.
It was the collapse of the housing bubble that was the spark that
ignited a string of events, which led to a full-blown crisis in the
fall of 2008 (FCIC, 2011). The pinprick was a rise in interest rates,
which doubled between June 2003 and June 2007, precipitat-
ing massive default on mortgages (Rottke, 2008). By January
2009 as many as 6 million (or 12% of mortgage holders in the
US (Moseley, 2009)) had been foreclosed or were close to fore-
closure. This massive default on mortgages in turn precipitated a
banking crisis. The banking crisis was manifest in a credit crunch,
as banks stopped lending both to each other and to the wider
markets. This in turn created liquidity problems in the banking
sector, with many banks in the US on the verge of bankruptcy.
The disruption to the financial cycle arising from the credit crunch
curtailed household consumption and corporate investment ac-
tivity, leading to massive job losses and economic recession. Be-
cause of globalisation and the integration of financial markets,
the knock-on effects were felt worldwide (Rottke, 2008).
With the debt market frozen, the impact on property markets was
catastrophic. Buyers were driven from the market, prices de-
clined dramatically and transactions severely curtailed. Accord-
ing to DeWeese (2009), for example, the volume of commercial
real estate transactions (in the US) went down as much as 90%
from the peak in the second quarter of 2007, with transactions
virtually non-existent in the fourth.
These market conditions created unprecedented challenges for
the valuation profession. The lack of transaction activity meant
that there was no reliable market evidence for valuation. Such
evidence as existed was from ‘forced sales’. In addition, wide-
spread fears about continuing declining prices/values and tenant
distress made the forecasting of cash flows and value a hazard-
ous exercise. A particularly difficult problem from a valuation per-
spective was the decoupling of market prices and investment
values, with vendors selling below their calculation of worth/in-
vestment value and purchasers only prepared to buy at prices
well below their calculation of worth/investment value (Peto,
2009).
The role of the valuation profession
Could valuers and other professions working in the real estate in-
dustry have foreseen the price bubble in the US housing market?
A price bubble is defined as a dramatic rise in real prices, where
such an increase is not supported by ‘fundamentals’, followed
by a fall to at least the pre-increase levels (Lind, 2008). Bubble
indicators therefore normally attempt to identify cases where a
strong increase in the price is likely to be followed by a decrease
(Lind, 2008). Studies undertaken in the period leading up to 2008,
and after, suggest that there were clear signs of overheating in
the US housing market, and that a sharp downward correction
was warranted.
Two indicators are frequently used in the analysis of bubbles in
housing markets, namely, the price-to-income ratio and price-to-
rent ratio. The latter is more widely known to the valuation profes-
sion as the cap rate. The price-to-income ratio is a measure of
affordability. Thus if the ratio of the median house price to medi-
an household income is high, households should find mortgage
payments difficult to make, resulting in reduced demand and
downward pressure on home prices (McCarthy & Peach, 2004).
Similarly, a high price-to-rent ratio suggests that the return on the
housing asset is low relative to other assets and thus unlikely to
persist. For the return to rise to competitive levels home prices
would have to fall (McCarthy & Peach, 2004).
A study done just before the onset of the crisis using these two
indicators supported the notion of a home price bubble in the US
(McCarthy & Peach, 2004). According to this study, the median
home price was at that point three times higher than household
income, surpassing the peak seen in the previous bubble in the
late 1970s and early 1980s. That bubble was of course followed
by a significant decline in real house prices. Similarly the price-
to-rent ratio had reached an historic high. The authors report that
the last time the ratio rose above its long-run average - the late
1980s - real home prices had subsequently declined significantly.
Evidence of a bubble in the US housing market has been con-
firmed by other studies. For example, nominal house prices in
the US, as measured by the S&P/Case-Shiller index saw a 124%
increase in the period 1997 to 2006 (The Economist, 2007). Baker
(2008) reports evidence showing dramatic changes in real house
prices in the US in the period leading up to 2008. According to
Baker (2008), real house prices nationwide had on average re-
mained essentially the same in the hundred years prior to 1995.
By 2002, real house prices had risen by nearly 30%, strong
evidence that house prices were being driven by a speculative
bubble rather than fundamentals. In comparison, rents in this pe-
riod had risen by less than 10% in real terms and were trailing
off already by 2002. Further evidence in support is provided by
Kaizoji (2009) who illustrates how prior to 1995 the price-to-rent
ratio always remained below 20. However from 1995 onwards
the price-to-rent dramatically increased, peaking at the end of
2006 at 32.
Several indictors available to the valuation profession therefore
showed that many of the houses in the years leading up to the
crisis were ‘overvalued’ and that valuers could, in theory, have
raised the alarm bells. But the price drop, when it occurred, ap-
peared to have been totally unexpected. Charles Prince, the for-
mer chairman and chief executive officer of Citigroup, in testi-
mony to the Financial Crisis Inquiry Commission (FCIC), called
the collapse in housing prices wholly unanticipated (FCIC, 2011).
Warren Buffet told the Commission that “very, very few people
could appreciate the bubble”, which he called a “mass delusion”
shared by “300 million Americans” (FCIC, 2011 p 3).
Given that several of the bubble indicators did suggest the ex-
istence of a bubble, the key question is, why didn’t the valua-
tion industry make the call? It is important to note that in their
professional activities valuers were in direct and intimate contact
with pricing trends in the housing market, and were therefore
best placed to make the judgement as to whether these price
changes reflected fundamental or speculative forces. Valuers
could have, in a systematic and concerted way, called the bubble
but did not, or could not.
While questions about the role of the valuation profession in
failing to provide advance warning for the price collapse have
remained out of the public domain for the most part, other as-
pects of professional conduct did achieve a degree of notori-
ety. In the popular imagination, appraisers in the US have been
placed squarely in the cast of villains responsible for the crisis of
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2008, together with mortgage originators, ‘greedy’ bankers and
estate agents. The main charge levelled against the profession
has been that of making inflated appraisals.
According to Abernethy and Hollans (2010) inflated appraisals
were common during the housing boom and helped contribute
to the crisis. It is said that deliberate overvaluations were motivat-
ed either by the attraction of higher fees from higher appraisals
or by lender and/or loan broker pressure to hit the ‘right number’.
In their final report, the FCIC found that property values were
being inflated to maximise profit for appraisers and loan origina-
tors (FCIC, 2011). The Commission heard evidence about lend-
ers opening subsidiaries to perform appraisals, “allowing them
to extract extra fees from ‘unknowing’ consumers and making it
easier to inflate home values”. Further, the report cites evidence
of pressure on appraisers to place artificially high prices on prop-
erties, and the blacklisting of those who resisted these unethical
practices. According to the FCIC (FCIC, 2011: 91)
One 2003 survey found that 55% of the appraisers had
felt pressed to inflate the value of homes; by 2006 this had
climbed to 90%. The pressure came most frequently from
the mortgage brokers, but appraisers reported it from real
estate agents, lenders, and in many cases borrowers them-
selves. Most often, refusal to raise the appraisal meant los-
ing the client.
Dealing with the aftermath
From a valuation point of view, the crisis and its aftermath present-
ed two key problems. The first of these had to do with the problem
of ‘inflated appraisals’, arising from the relationship between valu-
ers, and lenders and mortgage brokers. In technical terms this re-
fers to the universal problem of ‘moral hazard’ that lies at the heart
of valuer-client relationships, wherein valuers are reliant for their
livelihoods on clients who have vested interests in the outcome of
their valuations. Moral hazard creates incentives and opportuni-
ties for client pressure to corrupt the valuation process.
Responses to this problem predictably sought to increase valuer
independence (and therefore objectivity) on one hand, and valuer
competence on the other. In the US this ethos has been encapsu-
lated in the Home Valuation Code of Conduct (HVCC), promulgat-
ed in May 2009. The code aims to increase the objectivity of valu-
ers by protecting them from undue influence. Further, the code
attempts to deal with the problem of moral hazard by restricting
the involvement of valuers in loan origination (Abernethy & Hol-
lans, 2010). The code prohibits (Abernethy & Hollans, 2010 p. 87)
• withholding and threatening to withhold future business or
timely payment of fees;
• promising future business, increased compensation, or alter-
native forms of compensation in return for reaching a value
estimate;
• lenders and their agents from requesting a value estimate prior
to the completion of an appraisal or to provide an appraiser
with an anticipated value estimate;
• the removal of appraisers from lists of approved appraisers
without prompt written notice, that includes written evidence of
illegal conduct, violation of USPAP or state licensing standards,
substandard performance, or improper behavior;
• the ordering of a second or subsequent appraisal, except when
it is part of an appraisal review or when there is a reasonable
belief that the initial appraisal is flawed;
• the use, in the underwriting process, of appraisal reports prepared
by an appraiser employed by the lender, a lender affiliate, or
an entity in which it has an ownership interest. The exception
is where the appraiser reports to a function of the lender inde-
pendent of the lender’s sales or loan production;
• members of the lender’s sales and loan production staff from
having direct contact with the appraiser or having any hand in
the selection process;
• disclosures to the appraiser of a targeted value or loan amount.
Finally, the Home Valuation Code of Conduct creates the Inde-
pendent Valuation Protection Institute (IVPI). The IVPI will receive
confidential complaints from appraisers, individuals, and entities
that believe there has been improper influence on an appraiser
or the appraisal process. It also mandates that the IVPI publish
materials promoting best practices in the area of independent
valuation (Abernethy & Hollans, 2010).
The second problem arising from the crisis had to do with the
practical difficulties of doing valuation in a market that had ef-
fectively seized up. As Charleson (2009) put it, how could one
value property in market conditions where there was no debt
available, no buyers and the only transactional evidence from
forced sales? The main response to this problem came from the
accounting profession in the form of ‘mark-to-market’ valuation.
Mark-to-market or ‘fair value accounting’ refers to accounting for
the value of an asset based on current market prices. In terms of
property valuation ‘mark-to-market’ meant “if a relatively healthy
vendor puts a property up for sale and is only offered a derisory
price by ‘bottom fishers’, that is, in fact, the true value” (Barrie,
2009). The concept might have sounded novel to many valu-
ers but in principle it described nothing valuers did not already
routinely do in practice, that is, using current market prices as
measures of property value. What was problematic at the height
of the financial crisis was the decoupling of market prices and
investment values described above. In these circumstances
many felt that market prices had fallen way below what could be
regarded as ‘fundamental’ or ‘true’ values of properties, as re-
flected in their respective cash flows. Marking to market in such
conditions could be highly misleading. Indeed marking to market
forced banks to write down steeply the values of real estate in
their loan books, exacerbating the liquidity crisis.
Other than the marking to market concept, there have not been
proposals for new approaches to valuation, or major changes to
the existing valuation methods. It is instructive to note, however,
that the Appraisal Foundation, the independent regulator of stan-
dards and appraiser qualifications in the US, has in the wake of
the crisis established the Appraisal Practice’s Board (APB) as its
third arm. Established in July 2010, the APB has been charged
with the mandate of identifying and issuing opinions on recog-
nised valuation methods and techniques. The APB will offer guid-
ance in topical areas which appraisers and users of their services
feel are the most pressing.
Lessons for South Africa
South African property markets escaped the global financial cri-
sis relatively unscathed. The crisis, however, presents an oppor-
tunity to review the capacity of the local institutional framework in
general, and the valuation profession in particular, to deal with a
serious crisis in property markets, were one to occur. Key players
in this regard include the Department of Public Works, The Na-
tional Treasury, the South African Council for the Property Valu-
ers Profession (SACPVP), the South African Institute of Valuers
(SAIV), higher education institutions offering valuation/property
programmes and various research and other bodies with an in-
terest in property valuation.
Lessons of experience from the crisis suggest that the South Af-
rican valuation profession needs to pay greater attention to the
issue of valuer independence. The potential for client influence
does of course exist in South Africa. There needs to be better
information about how big the problem is, sectors most affected
and likely effects. Two sectors that immediately come to mind are
the property funds and the financial services sector. Regarding
the former, there is an inherent conflict of interest, whereby the
annual performance of these funds depends on valuations done
by valuers, potentially selected by the fund managers them-
selves. The use of in-house valuers in some banks, on the other
hand, and their relationship to the lending process, may poten-
tially create adverse incentives that need examination.
In the absence of official regulation or standards, anecdotal evi-
dence suggests that the issue of ensuring valuer independence
is treated as a corporate governance matter. Thus the practice
in some corporates is to rotate valuers regularly and/or ensure
that external consultants do a minimum proportion of valuation
work. Leaving this matter to the discretion of individual compa-
nies is, however, neither prudent nor sufficient. Official standards,
regulations or codes of conduct specifically addressing this is-
sue need to be developed, backed by appropriate enforcement
mechanisms. The US HVCC discussed above would be a good
framework to work from.
The question of why valuers in the US did not perceive the price
bubble suggests that South African valuers need to acquire, or
enhance, the capacity to provide high-level advice about market
trends. This means going beyond the provision of standard valu-
ation advice, to be able to recognise when prices have deviated
sufficiently from fundamental values so as to presage a price
bubble. This requires that the education provided to valuers be
revised, particularly strengthening the economics and statistical
content of the curriculum, so as to enhance local capacity for
market analysis. In addition, applied research in valuation-related
topics needs to be strengthened, led primarily by higher edu-
cation institutions, but requiring the support of the industry and
other stakeholders.
The above issues raise a broader question about the national
framework for the perception and diagnosis of valuation-related
problems in the economy, and for the formulation of remedial
standards/measures and ensuring compliance. At present, this
framework can be described as having blind spots or gaps, and
suffers from capacity problems. The lead statutory body in this
regard, the SACPVP, has (in practice) too narrow a mandate, fo-
cusing mostly on the accreditation of educational programmes
and the registration of valuers. The SACPVP needs to broaden its
mandate (in practice) to include the formulation of standards and
their enforcement. Even where a decision has been made to sub-
scribe to IVSC standards, there is a responsibility to interrogate
these standards, to see the degree to which they are appropriate
to local circumstances.
An expanded mandate does imply that the SACPVP will need to
enhance internal research and general technical capacity. This
will have the added advantage of increasing its independence,
and therefore credibility, as an industry regulator. This may allow
it, for instance, to take the running of ‘work schools’ in-house, as
opposed to the current arrangement where the SAIV does this on
behalf of the Council.
The SAIV, on the other hand, appears to have better capacity for
the formulation and enforcement (among its members) of stan-
dards. It is, however, a voluntary organisation with no statutory
powers. This greatly limits its effectiveness, particularly if a crisis
situation were to arise. Further, while the SAIV appears to have
a strong education focus, its research orientation appears to be
relatively weak. There is scope therefore for the SAIV to increase
its research promotion activities. As a high-level signal, the SAIV
could, for instance, reconstitute its NATEX Education Committee
as the “Education and Research Committee”. Alternatively a new
“Research and Standards Committee” could be created. More
practically, the SAIV could help promote research in universities
by funding research students and faculties working on valuation-
related topics.
The universities for their part have a critical role to play, in both the
education of the next generation of professional valuers, equal to
the demands of a more complex economic environment, and in
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the provision of evidence-based solutions to practical valuation
problems in the South African context. In terms of education, an
urgent priority should be the revision of valuation courses at uni-
versities, to raise analytical standards and to make these courses
more aligned with international best practice. It seems that, as
currently configured, university courses in valuation are merely
carbon copies of the old technikon syllabus, raising questions
about whether graduates from these programmes have addi-
tional competences in valuation above those of holders of the
national diploma.
In addition to raising education standards, there clearly needs
to be greater research output, and public commentary, on valu-
ation-related topics from South African universities. This will re-
quire structural changes in the relevant departments, to increase
the profile of (and staffing by) ‘mainstream’ property academics.
For historical reasons, these departments have tended to be
dominated by construction management and quantity surveying
interests, a legacy that is manifest in relatively low interest, and
research output, in property valuation.
Finally, given the potential that property markets have for destabi-
lising the financial system and the macro-economy, the National
Treasury and the Reserve Bank need to show greater interest in
the operation of the valuation industry. As the financial crisis in the
US has demonstrated, a poorly regulated valuation industry could
cause severe problems. At present there is no indication that those
entrusted with the management of the national economy regard
the valuation profession as being of strategic national importance.
Concluding comments
The global financial crisis of 2008 underscored the importance of
property markets in general and within that of perhaps the single
most significant statistic, that of market prices or values, to the
health of the economic system. That property has been at the
centre of several of the most serious financial crises that have
plagued major economies around the world is hardly surpris-
ing. Property’s role as a financial asset and a basis for collateral
makes it the anchor of the financial system.
The measurement and reporting of market value is therefore par-
ticularly important. The magnitude of market prices and valua-
tions does not only indicate the state of supply and demand in
property markets at particular points in time, but also provides
powerful incentives, as economic agents respond to their varying
levels to make consumption and investment decisions.
For these reasons, a well-regulated and robust valuation industry
is vital. Stakeholders in the South African valuation profession
need to heed the lessons of experience arising from the recent
crisis, and to take the necessary steps to strengthen the profes-
sion and ensure that potential problems are headed off.
References
Abernethy, A.M. and Hollans, H. (2010), “The home valuation code of conduct and its potential impacts”, The Appraisal Journal, winter,
pp. 81-93.
Charleson, D. (2009), “Taking a gamble?”, RICS Commercial Property Journal, February-March, pp. 14-15.
DeWeese, G.S. (2009), “Deriving capitalization rates and other valuation metrics from the REIT Market”, The Appraisal Journal, fall, pp.
357-364.
FCIC (2011), The Financial Crisis Inquiry Report, US Government Printing Office Washington, DC.
Gilbertson, B. and Preston, D.A. (2005), “Vision for valuation”, Journal of Property Investment & Finance, Vol. 23 No. 2, pp. 123-140.
Kaizoji, T. (2009), “Root causes of the housing bubble”, MPRA Paper No. 16808, available at: http://mpra.ub.uni-muenchen.de/16808
(Accessed 10 April 2011).
McCarthy, J. and Peach, R.W. (2004), “Are home prices the next “bubble?”, FRBNY Economic Policy Review, December, pp. 1-17.
Lind, H. (2008), “Price bubbles in housing markets: concept, theory and indicators”, International Journal of Housing Markets and
Analysis, Vol. 2 No. 1, pp. 78-90.
Martin, V. (2009), “Preventing fraud and deception”, The Appraisal Journal, spring, pp. 136-146.
Moseley, F. (2009), “The U.S. economic crisis: causes and solutions”, International Socialist Review, Issue 64, March-April, available at:
http://www.isreview.org/issues/64/feat-moseley.shtml (Accessed 8 November 2010)
Peto, R. (2009), “The value of worth”, RICS Commercial Property Journal, February- March, p. 5.
Rottke, N.B. (2008), “Real estate between the poles of public and private debt and equity markets”, in Rottke N.B. (Ed.), Handbook of
Real Estate Capital Markets, Rudolf Muller, Cologne, pp. 25-48.
The Economist (2007), “CSI: credit crunch: Central banks have played a starring role”, available at: http://www.economist.com/
node/9972489 (Accessed 9 April 2011).
By Dr Manya M. Mooya, Senior Lecturer in Property Studies, Univer-
sity of Cape Town
E X P R O P R I AT I O N : T H E C O N S T I -T U T I O N A L C O U R T D E C I D E S
V
A recent Constitutional Court decision on the ques-
tion of expropriation of property prior to deciding
the amount of compensation to be paid to the own-
er has important implications for property owners.
The matter was brought before the Constitutional Court on 25
August 2011 by the YGM Haffejee Family Trust in Durban after a
seven-year battle with the eThekwini Municipality.
In 2004 the eThekwini Municipality resolved to expropriate prop-
erty owned by the YGM Haffejee Family Trust for a canalisation
programme to minimise the extent of flooding of the Umgeni
River. The municipality started eviction proceedings in 2006. In
2008, subsequent to further negotiations with the trust’s trustees,
it offered the trust full market value for the property. The offer was
rejected.
The trustees argued that various provisions of the Expropriation
Act (Act 63 of 1975) were unconstitutional as they allowed for
expropriation and dispossession of land without first determin-
ing the amount and manner of compensation to be made to the
owner and that therefore the eviction order previously granted
against the trust should be reversed.
The applicants relied on section 25 of Chapter 2 (Bill of Rights)
of the Constitution. This section states that property may be ex-
propriated only “subject to compensation, the amount of which
and the time and manner of payment of which have either been
agreed to by those affected or decided or approved by a court”.
This section also provides that the compensation, time and man-
ner in which it be made must be just and equitable, and must
reflect a balance between the interests of those affected by the
expropriation and the public interest. The Applicants argued that
a prior determination is a constitutional pre-requisite for expro-
priation under this section.
The Court did not agree. It held that there could be extenuating
circumstances, such as urgent expropriation in the face of a nat-
ural disaster, which would make prior determination impossible.
It further held that there could be circumstances where it would
indeed be unjust to simply evict people who would stand to lose
their homes should such a prior determination not be made.
However, if the requirement for prior determination were inflex-
ible, the section 25 requirement that a just and equitable balance
must be found between the public interest and the interests of
those affected by the expropriation would not be met.
The Court therefore held that the determination of the amount,
manner and time of compensation to be paid in terms of the
Expropriation Act must as far as possible be decided prior to the
eviction of the occupants of the land, but where this is not pos-
sible, it must be made as soon as is reasonably possible after the
expropriation.
The judgment, handed down by Judge Froneman with Judge
Mogoeng concurring, means that the court has decided that
each instance of expropriation should be dealt with on an indi-
vidual basis, weighing up the ‘public interest’ in having the land
expropriated and the need for the immediacy of eviction against
the ‘private interest’ of the land owner.
Property owners should note that should public interest super-
sede their private interest as property owner, their property could
be expropriated and they could be evicted prior to compensa-
tion having been agreed upon. Therefore, land owners could find
themselves in a situation where they have been evicted from their
land and are without a place of residence or an income generat-
ing asset until such time as agreement is reached in respect of
the compensation to be paid to them.
By Leza Kotzé and Lori Katz, Shepstone & Wylie Attorneys
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t h e l e a g a l b e a g l e : D I S C I P LI N A RY P R O C ED U R E S
V
The difference in the role of the South African Insti-
tute of Valuers and that of the South African Coun-
cil for the Property Valuers Profession was dealt
with in an article on disciplinary matters in issue
103, November 2010, of The South African Valuer.
In short it means that any complaint of unprofes-
sional conduct should first be lodged with the
Council and only after the Council has dealt with
the matter will the Institute get involved where the
offending valuer is a member of the Institute.
However it seems from the number of enquiries received by the
branch secretaries and executive members of the Institute that
there is some uncertainty as to how the procedure works. The
diagram on page 25 should shed some light on this.
As it appears, disciplinary matters in the Institute are dealt with
at branch level. This is mainly because branches are better
equipped to handle these matters. Historically it may also be as a
result of sensitivity at provincial level. This procedure has to date
served the Institute well and is still considered the most cost ef-
fective and expedient way to deal with disciplinary matters. The
question arises, however, as to why the constitution would make
provision for national disciplinary functions and that currently
there is no portfolio at Natex level to handle these matters. For
example, what happens where a member of one branch lays a
charge against a member of another branch; or what if a member
were to submit a complaint to the General Secretary and insist
that it be handled on national level because of a suspicion of
favouritism; and what if a member is unhappy about the manner
in which a branch has dealt with a complaint and wishes to take
the matter further.
In the first example above, to date these matters would have
been handled by the branch where the offending member re-
sides but there is no procedure to deal with the other two exam-
ples. It was therefore proposed at the recent Natex meeting that
a Disciplinary Portfolio/Committee be instituted at national level.
This body would function as an appeal body. Members who are
not happy with a decision of a branch could then appeal to the
Natex disciplinary body. This includes matters where a branch
may have refused to investigate a complaint, or where a decision
was made after an investigation, either to charge the member, or
to dismiss charges at the hearing.
This could possibly require an amendment of the Constitution and/
or Regulations and is currently being investigated. Should a Natex
disciplinary body be instigated, the procedure for filing a disciplin-
ary complaint would take the route shown on page 25.
By Derrick Griffiths
THE SOUTH AFRICAN
VALUER 25OCTOBER 2011, NO 106
Member or public
lodges complaint
Complaint by
received branch
Received by
General Secretary (GS)
Received by
SACPVP
Refer to
GS
GS refers member/
public to SACPVP
SACPVP
decision
GS informs
all branches
SACPVP
notifies GS
GS informs
other branches
GS refers to Natex
Disciplinary (ND)
Published finding in
Government Gazette
ND refers
to branch
Branch appoints
Inquiry Committee (IC)
Decide not to appoint
Inquiry Committee
IC
investigates
Appeal to
ND
IC decide not to
proceed with complaint
IC holds
hearing
ND may appoint
IC or not
Complainant may
appeal to ND
If found guilty-
take steps
If found
not guilty
ND may appoint
IC or not
Member may
appeal to ND
Complainant may
appeal to ND
THE SOUTH AFRICAN
VALUER26OCTOBER 2011, NO 106
C O U R T R U LI N G O N WAT ER U S E R I G H T S W EL C O M ED
V
Johannes Möller, President of Agri SA, welcomed
the ruling of Judge James Goodey in favour of the
transfer of water use rights in the lawsuit between
Goede Wellington Farming (Pty) Ltd and the De-
partment of Water Affairs, as well as the Minister of
Water and Environmental Affairs. Möller described
the verdict as a notable turning point in the history
of water use rights in South Africa, after this case
was heard in the Gauteng North High Court on 2
August 2011.
The frustration of many commercial farmers over the past few
years about the Department of Water Affairs’ refusal to grant per-
mission to transfer water rights from one irrigation site to another
or from an authorised water user to another applicant compelled
Agri SA to challenge the particular dispensation. An application
by Goede Wellington Farming, which was dismissed by the Wa-
ter Tribunal, was consequently brought before the High Court.
Since 2007, Agri SA has been unsuccessful in its endeavours - by
means of numerous negotiation initiatives with the Department of
Water Affairs - to reach an agreement about the implementation
of section 27(1) of the National Water Act. Several applications for
the transfer of water use rights were rejected merely on grounds
of non-compliance with section 27(1)(b) - a regulation that refers
to the need to rectify the race and gender discrimination of the
past. The other considerations and terms, as prescribed in sec-
tion 27(1) of the Water Act, were apparently subordinate to the
regulations of article 27(1)(b).
Against this background, Agri SA welcomes the verdict in the
Goede Wellington Farming case in which the judge ruled that
the Department of Water Affairs and the Water Tribunal erred by
enforcing the need of affirmative action in section 27(1)b of the
National Water Act as a predominant factor in the review of ap-
plications for water use rights or the transfer thereof. As stipu-
lated by section 27(1), this factor is only one of eleven factors
that should be taken into consideration. The other factors include
the effective and beneficial use of water in the public interest, the
socio-economic impact of water use if authorised as well as the
socio-economic impact of water allocation.
In the case of Goede Wellington Farming, the judge concluded
that the decision of the Water Tribunal is not only dismissed, but
must also be replaced by a new decision to authorise the transfer
of the specified water use rights to Goede Wellington Farming.
The reasons for the judge to take such an extraordinary step and
also order the Water Tribunal to pay Goede Wellington Farming’s
legal expenses, were explained as follows:
This is the only reasonable decision that can be taken if all pre-
scribed factors are fully taken into consideration; any further de-
lays will be unfair and to the disadvantage of Goede Wellington
Farming; and the Water Tribunal’s actions demonstrate ineptness
and incompetence. The Department, in conjunction with the Wa-
ter Tribunal, was ordered to pay all legal costs because it con-
tinued with its wrongful implementation of section 27(1)(b) of the
National Water Act.
In a recent survey conducted by Agri SA, only four applications
for the transfer of water use rights were approved out of 138 cas-
es that were analysed. The survey indicated that approximately
2 100 hectares were relevant with an estimated loss of income
of R308 million, whilst almost 2 600 employment opportunities
were sacrificed. Another Agri SA survey indicates that there is
water available for nearly 97 000 additional hectares of irrigation
land in seven of the 19 water catchment management areas that
have been specifically earmarked for emerging irrigation farmers.
Only a limited portion of this has been developed for emerging
farmers to date.
“Agri SA would like, as a matter of urgency, to enter into discus-
sions with the Minister of Water and Environmental Affairs to ad-
vance practical steps in terms of the court order for the wider
irrigation community in order to optimise potential development
and job creation opportunities in the irrigation sector. An altered
approach by the state pertaining to the transfer of water use
rights could result in a positive contribution to government’s de-
velopment goals whilst, at the same time, promote food security,”
says Möller.
Statement issued by Johannes Möller, President of Agri SA, and Nic
Opperman, Director: Natural Resources, 22 August 2011
Developers came up with a unique idea to improve
their cash flow: instead of developing a complex in
phases, they register several real rights on the un-
developed part of the stand.
These real rights are sold to individual buyers together with a
building contract. Instead of carrying the cost of the develop-
ment until all units are sold, the developer now only carries the
cost of the land until the individual right of extension is sold. The
end buyer has to secure a loan to cover the cost of the land
as well as the building cost. In principle it is no different from a
phased development where the developer sells his right on the
development of further phases. The main difference being that
the ‘phases’ are small, allowing for only one unit per phase.
All the advantages of this scheme are with the developer, and all
the risk with the financial provider and end user as well as with
the valuer - who will no doubt be blamed when things go wrong.
The developer
• secures an appropriate stand;
• surveyes the stand to maximise the usage according to town
planning requirements;
• in order to open a sectional title register at the Deeds Office,
a minimum of two buildings must be erected, Unit 1 and Unit
2; these two buildings may be a dwelling unit with a separate
outbuilding, or a gatehouse and a storeroom; the ‘register’ can
now be opened with the remaining land numbered and regis-
tered as ‘real right numbers’;
• the real rights can now be sold by the developer as plot and
plan, and on registration of the bond, the developer receives
the ‘land’ portion of the bond with the ‘building’ portion being
retained for completion; as each unit is completed, it is incor-
porated into the sectional title plan with a unit number.
The developer will have a greatly improved cash flow whilst his
risk has been minimised. In a ‘worst case scenario’ he will be left
with a number of vacant stands and two units, as opposed to a
number of completed units.
As this is high risk lending for any financial institution, the valuer
should approach this case with extreme care. Before attempting
the valuation it should be discussed with the requesting bank to
ensure that the valuer is fully aware of the requirements of the
bank as well as to ensure that the bank is fully aware of the na-
ture of the development. This type of development is only suited
for loose standing units and not recommended for high rise or
E X T EN S I O N O F R E A L R I G H TV
attached units. Imagine the disaster if a unit in the middle of the
third floor is not sold – there will be a huge gap in the building!
The valuer must bear in mind that this will always be a devel-
opment loan and that he/she is valuing potential. The value will
only be realised once the unit and all common property has been
completed and incorporated into the sectional title scheme. We
are all aware of the cases where a swimming pool or clubhouse
promised in the last phase was never built - obviously this has a
detrimental effect on the value of the units in the complex.
The valuer
• must ensure that the development has been approved by the
bank requesting the valuation and that they are aware that this
is an extension of real right;
• must state in the valuation report that it is an EORR development;
• must use extreme caution and give attention to detail to unit
identification because of the existence of unit/flat numbers
(usually numbers issued by the developer), EORR numbers
(which form the initial security) and finally the correct section
number;
• must be certain that the ‘footprint’ of the proposed complex
has been approved by the Surveyor General before the valu-
ation is done (copy of the approved footprint must be on file
with the valuer);
• must ensure that the land is not loaded upfront; the ‘land’
portion of the loan must be released on registration of the bond;
the land value must be market related and enough money must
be retained for completion of the unit, based on market related
building costs;
• must have - before doing the valuation – at least a draft copy
of the sectional title plan to ensure adherence to the submitted EORR,
including materials to be used and standards of the new units;
• must ensure enough money is retained on final payment to
ensure conversion; on completion of the unit, the real right
must be converted to a section on the sectional title plan;
• must ensure that all infrastructure including but not limited to
walls, drive ways, drainage, etc must be completed before any
money may be released;
• should not consider high-rise and/or semi-detached units; only
loose standing units should be valued, unless written confir-
mation is obtained from the bank stating clearly that they will
accept the risk.
THE SOUTH AFRICAN
VALUER 27OCTOBER 2011, NO 106
By Arie Mooiman
SARS land tax ruling shock for developers
THE SOUTH AFRICAN
VALUER28OCTOBER 2011, NO 106
U N C O N S T I T U T I O N A L P R O P O S A L S I N G R EEN PA P ER O N L A N D R EF O R M M U S T B E R EM OV ED
V
The South African Property Owners Association
(SAPOA) supports a land reform process that is a
‘win-win’ scenario, in which the rights of present
and future landowners are protected. However, the
Green Paper on Land Reform 2011 falls short of this
objective in a number of areas and, in fact, could
fall short of the Constitution.
“A key challenge facing South Africa is how to reverse the racial
inequalities in land ownership resulting from our colonial past
and the violent dispossession of indigenous people of their land,”
says Neil Gopal, Chief Executive Officer of SAPOA. SAPOA is
concerned about some of the proposals in the newly released
Green Paper on Land Reform.
Gopal says SAPOA believes there is still much debate needed
and lots of work to be done, especially if SA hopes to achieve
a White Paper that is supportive of the basic policy imperatives
without eroding the principles of a society cognisant of property
rights and a need for a thriving, competitive economy. “We un-
derstand that the country cannot afford to protect private proper-
ty with such zeal that it entrenches privilege,” says Gopal. “That
would be a recipe for instability. Fundamental to a stable democ-
racy is a guarantee of private ownership as well as addressing
the ills of the past, with regard to property,” says Gopal.
Of explicit concern to SAPOA in the Green Paper is the establish-
ment of a Land Management Commission which, SAPOA be-
lieves, infringes on the jurisdiction of SA courts. The commission
gives a state official, the valuer general, control of determining
the amount of compensation payable for expropriated land, and
a state bureaucracy is given the job of “invalidating” title to land.
“These are processes the SA Constitution already allocates to the
courts,” says Gopal.
The Green Paper suggests that more and more land will come
under state ownership, by introducing ceilings on land in private
ownership. It implicitly requires commercial farmers with more
land than the maximum to dispense with the ”excess”. The state
could decide to expropriate ‘excess’ land at valuations decided
by the valuer general – who will be a state official if the Green
Paper proposals go forward.
“We believe this is unconstitutional as it impinges on Section 25 of
the SA Constitution* which enshrines the right to property, which
is a standard international human right,” says Gopal. Gopal also
notes that, as the state could be a stakeholder in these appro-
priations, decisions should, in fact, be made by a body indepen-
dent of the state. The judiciary, to which this task already falls in
terms of the Constitution, is fittingly independent as required for
any democratic society. “Section 25 of the Constitution* makes
detailed provisions on compensation. If the Constitution clearly
highlights this important matter, why then should South Africa
have a Land Management Commission doing the same?” ques-
tions Gopal.
“Regrettably it seems the Green Paper issues highlighted clearly
bypass the judiciary and are intended to establish a new norm,”
Gopal stresses.
It also leaves the door wide open for malpractice and conflicts
of interest. “If the appointment of a land valuer general finds ap-
proval past the White Paper process, then the establishment of
a legal office with a qualified panel of valuers could assist in ad-
dressing this problem,” says Gopal. “However, this only goes
part of the way. A supplementary panel is required for audit pur-
poses to ensure consistent, fair function.”
SAPOA also notes that the Green Paper on Land Reform is not
clear on the qualifications of a valuer. “Valuers should be reg-
istered with the South African Council of Property Valuers Pro-
fession and have relevant experience in the applicable field. All
reports should be in accordance with, and as prescribed by the
International Valuation Standards Committee, as adopted by the
South African Institute of Valuers,” points out Gopal. “However,
this is not stated in the Green Paper.” He elaborates that the
statutory and/or legislative provisions for valuers in respective
categories also need to be considered.
Gopal stresses that the historic challenges that the Green Paper
on Land Reform seeks to address are recognised and accepted
as critical and inherent realities that the South African community
has inherited and has to disown in a manner that is morally, but
legally, fair and just. “SAPOA embraces the principles underly-
ing land reform. However we do so by supporting the vision and
aspects of the implementation strategy of the White Paper on
South African Land Policy of April 1997, which, amongst other
things, recognised the underpinning of economic growth,” says
Gopal. “We hope that the White Paper on Land Reform will be
cognisant of this vision and further it by balancing the interests
sought to be addressed by the Green Paper with those of a need
for the growth of the commercial property sector,” notes Gopal.
*Section 25 of the Constitution also notes:
• The amount of the compensation and the time and manner
of payment must be just and equitable, reflecting an equitable
balance between the public interest and the interests of those
affected, having regard to all relevant circumstances.
• For the purposes of this section the public interest includes
the nation’s commitment to land reform, and to reforms to
bring about equitable access to all South Africa’s natural re-
sources; and property is not limited to land. The state must
take reasonable legislative and other measures, within its
available resources, to foster conditions which enable citizens
to gain access to land on an equitable basis. A person or com-
munity whose tenure of land is legally insecure as a result of
past racially discriminatory laws or practices is entitled, to the
extent provided by an Act of Parliament, either to tenure which
is legally secure or to comparable redress. A person or com-
munity dispossessed of property after 19 June 1913 as a result
of past racially discriminatory laws or practices is entitled, to
the extent provided by an Act of Parliament, either to restitu-
tion of that property or to equitable redress.
• No one may be deprived of property except in terms of law of
general application, and no law may permit arbitrary depriva-
tion of property. Property may be expropriated only in terms
of law of general application for a public purpose or in the
public interest; and subject to compensation, the amount of
which and the time and manner of payment of which have ei-
ther been agreed to by those affected or decided or approved
by a court.
Companies selling unused land will now have to pay tax on the
proceeds, which the South African Revenue Service (SARS) re-
gards as income. Paying a hefty tax bill on such sales could re-
tard the development of land, property and tax analysts warned
yesterday. They said a landmark judgment delivered earlier this
month by the Supreme Court of Appeal would have profound tax
consequences for landowners and property developers.
The Supreme Court of Appeal ruled against chemicals company
AECI, which had formed an asset realisation company, Founders
Hill, to develop and sell its land. Founders Hill sold a large portion
of land in Modderfontein, Johannesburg, for housing purposes.
SARS taxed the proceeds of the sale as income. The judgment
overturns longstanding principles in the income tax laws where
the proceeds of property sales were regarded as capital in nature
and not taxed. Property economist Erwin Rode said the judg-
ment could have a long-term effect on the property sector and
retard development of land because of the scarcity of funding.
Ben Espach, Rates Watch
THE SOUTH AFRICAN
VALUER 29OCTOBER 2011, NO 106
THE SOUTH AFRICAN
VALUER30OCTOBER 2011, NO 106
LE T T H E S TAT E TA K E L A N D R EN T S I N S T E A D O F TAX E S
V
The only expropriation that works at all, and it
works wonders, is where the state forswears its
dependence on income taxes and VAT and ap-
propriates land rents instead, a multiple of current
rates and taxes.
Citizens are gradually relieved of ‘bad’ taxes on their work, enter-
prise, profits, interest and trade. Instead, we will pay ‘good’ user
charges based on the values our lands enjoy, which are not of
our making. These are nature’s endowment (fertility, weather and
views) and community-driven values of location, infrastructure,
amenities and services, population increase and governance.
In economic speak, this is the gradual nationalisation, or sociali-
sation, of land rents, not land, and the simultaneous privatisation
of all income taxes and VAT. This is a fiscal reform, not a land
reform, which will end the state-sanctioned theft of work, sav-
ings and trade, replacing it with user charges of taxpayers’ pref-
erences, higher in Clifton than Langa.
There is no tampering with title deeds, a sure sign of integrity, It
also resonates with the preamble to the Constitution, “that SA
belongs to all who live in it”, to which one can add, “except for
manmade improvements and buildings”, the legal basis of every
piece of private property. For how can one own something one
has not built, was not itself produced, is not reproducible and
does not depreciate in any sensible way?
People cannot own the earth, but merely need exclusive use of it.
This is all worthy and mostly because it transforms a dysfunc-
tional land price system where an average vacant plot now costs
an impossible R500 000 (and more for a smallholding) into one
in which everyone, including all 5 million unemployed, can own a
hectare or two of unused arable land by payments of rent.
There, with a bit of training and hard work, they can build them-
selves a wine estate or fruit farm with a study three-bedroomed
brick house, stables, swimming pool and a dairy with all the trap-
pings of a country gentleman or woman. That was common a
hundred years ago and today everyone can own an estate worth
R1 million in three or four years, if they can get land. That is a
quantity surveyor’s estimate using the R55 000 housing subsidy
to buy the plumbing and electrics.
One is told that this won’t work because people want jobs, not
land, and it is true that a drowning person will cling to any branch.
Does that mean that, given the chance, he or she won’t clamber
into a nice big lifeboat with steaming chocolate and warm clothes?
The irony is that when land becomes affordable, economic
growth (and job opportunities in the towns and cities) will take off.
That is because “gross national product will falter when wages,
salaries, profits, interest, capital, property and trade are taxed
because they then all fail”. This is an iron law which I have dis-
tilled from Adam Smith, David Ricardo and Henry George, as well
as Nobel laureates including Joseph Stiglitz.
Land prices are the Achilles heel of free market economies, pulling
them down. Many economists warn that a “rent for revenue” regime
means the state and not landowners decide what is best for their
assets, whether natural or manmade. But there will be no more in-
terference with what people do with their land than now. The fact
that unused land will begin to pay the same charges as neighbouring
mansions will increase the supply of land as owners seek relief from
higher holding costs. But this can also be due to higher interest rates.
While it is unique that land rents increase the supply and lower
prices, it is anticipated in the Constitution, in section 25(5): “The
state must take reasonable legislative and other measures, within
its available resources, to foster conditions which enable citizens
to gain access to land on an equitable basis.” Equitable here is
interpreted to mean affordable and so free of any capital cost.
All this points to the exasperating fact that land prices are ac-
tually a state subsidy arising without any effort on the owner’s
part. The hard evidence for this is that state-funded installation
and maintenance of infrastructure raises land prices, as research
around the new Gautrain stations or offramps will show.
Maybe even Julius Malema will warm to SA’s “free land tax ha-
ven” economy. But who cares when the Constitution speaks?
By Peter Meakin, professional valuer,
member of the SAIV. This article was pub-
lished in Business Day on 28 June 2011
Investment Property Databank’s (IPD) July Valu-
ation Report shows an improvement in South Af-
rica’s commercial property values but cautions that
a full market recovery has yet to take off.
“Renewed optimism in the second half of 2010 and better market
conditions saw a moderate but notable increase in commercial
property values by December 2010,” says Stan Garrun, manag-
ing director of IPD SA.
The IPD Valuation Report examines commercial real estate val-
ues in the current market, and explores some of the trends, re-
sults and challenges. The report covers some 1800 valuations
of assets owned by listed and unlisted funds. Sales analysis in
the IPD report shows that around 70% of sales in 2010 were
concluded at a price above the market adjusted valuation. This
figure was higher for retail and office properties but significantly
lower for industrial properties.
Head of Research for IPD, Jess Cleland, noted that around one
quarter of properties still experienced a write down in capital
value in 2010 implying that there is still uncertainty in the market
and a full market recovery has not yet begun. “This, however, is
C O M M ER C I A L P R O P ER T Y VA L U E S I N S A O N T H E R I S E
V
a significant improvement over the 40% of properties with value
write downs in 2009,” says Cleland.
The importance of valuations to the property industry cannot be
underestimated, according to Garrun. “In an industry where li-
quidity is low and transactional evidence is relatively infrequent,
a vast amount of measurement, analysis, reporting and decision
making is drawn from the assessments of valuers. Especially
around the turning points in a cycle, which we are likely currently
experiencing, we need to understand the fundamental drivers of
the market in order to effectively reflect market conditions,” ex-
plains Garrun.
“We have a mature and competent valuation industry with interna-
tionally comparable standards. Investors rely on valuations which
employ robust methodologies based on market understanding
and reliable data. For this reason the valuers profession requires
more information and transparency in the property market.”
IPD offers its members the latest Valuation Report as an interac-
tive statistical spreadsheet which is available by contacting IPD
on 011 656 2115 or [email protected]
THE SOUTH AFRICAN
VALUER 31OCTOBER 2011, NO 106
The importance of valuations to the property industry cannot be underestimated.
THE SOUTH AFRICAN
VALUER32OCTOBER 2011, NO 106
W H I C H P R O P ER T Y I N V E S T M EN T T Y P E ?
V
It is generally accepted practice, depending on
investor needs, that any well constructed invest-
ment should include an appropriate split between
shares, property and cash. A good property port-
folio should include an appropriate split between
industrial, office, retail and residential investments,
in order to spread the risk as each property type
performs differently at different times of the cycle.
What are the major differences between these four alternatives
and what are the supposed advantages, or disadvantages of
each? A major reason for investing in property is the need for a
regular, secure long term income with capital growth, essentially
maximising cash flow over an investment period.
If one accepts that net cash income is the main criterion, which
investment will maximise cash flow?
Residential: The impact of The National Credit Act and the
newly promulgated Consumer Protection Act affords tenants
opportunities to vacate early, thus adding additional risk to the
investment. Under current financial institution practice, however,
where buyers are struggling to get finance, demand for residen-
tial rental accommodation is high, ie tenants are plentiful.
Industrial - offers an affordable investment range of R1 million
to multi-million Rand properties. Routine maintenance, remedial
work at lease-end, painting, and minor refurbishment paid by
landlord, little or no new tenant installation costs. Expenses in
the R9/m² - R11/m² range, generally between 15% and 18% of
gross income.
Offices have the same investment range as industrial - from R1
million to multi-million rand properties. Operating costs are high,
particularly for buildings with extensive common areas and lifts.
Routine maintenance, minor refurbishment paid by landlord, new
tenant installation costs could be significant from R 400/m² to R
800/m². Expenses range from R15/m² to R25/m², between 20%
and 25% of gross income.
Retail: There is a dearth of retail sectional title schemes, so
entry level is normally over R3 million. As retail tenants gener-
ally require particular finishes, they bear the costs of installation.
Landlord costs include routine maintenance, remedial work at
lease-end including painting and minor refurbishment. Little or
no tenant installation costs are offset by rent free periods for the
tenant. Expenses in the R 20/m² to R 25/m² range can be as high
as 30% to 40% of gross income. Landlord costs increase dra-
matically in shopping centres with 24-hour passive and manned
security, cleaning and facilities management as well as centre
and promotions management. In a shopping centre the loss of a
tenant will impact less on cash flow as the risk is spread, unlike
with a single-tenanted stand-alone retail property.
Operating costs, rates, CID, sectional title or business park levies
should be covered by tenants, or at least the increases should be
paid by tenants. If the building is empty these will all be covered
by the owner. Routine internal maintenance should also be cov-
ered by the tenant, but periodically this cost falls on the owner
when space is vacated. Operating costs are far higher in multi-
tenanted buildings than in stand-alone buildings.
Utility/consumption charges include electricity, water, sewerage,
gas, chilled air for air conditioners, etc. Ideally tenants pay utility
charges, but availability of these services is borne by the land-
lord when the space is vacant. There is the risk of no income
when a single-tenanted property loses its tenant, possibly over
an extended period of time, while a multiple tenant investment
minimises this risk.
Industrial property is easier to manage as it involves less refur-
bishment and is less subject to location demand changes and is
therefore ideal for an inexperienced property investor. Sectional
title offices and retail are an uncomplicated investment, but multi-
tenanted buildings are more complicated and require more so-
phisticated management. Office tenants are often viewed as the
most stable, while retail tenants and locations are vulnerable to
many factors.
Economists say that we are heading for a double dip recession
- which explains why vacancies are all still increasing. As with
any property investment, a proper due diligence assessment is
always recommended.
By Wall & Smith Property Consultants, [email protected]
I V S C n e w s : I V S C 2 0 1 1 L A U N C H ED
V
IVS 2011 was launched on 19 July. The bound vol-
ume, that includes all international valuation stan-
dards issued as of 1 June 2011, can be ordered via
the IVSC website, priced at GBP£40, with discounts
for volume orders. The individual standards will be
available to view only free-of-charge on the web-
site. Registration will be required prior to viewing
each standard.
The IVSC has introduced a new policy on the reproduction of its
technical documents.
IVSC contributes to Report on Regulatory Convergence for G-20
The Private Sector Taskforce of Regulated Professions and In-
dustries, of which the International Valuation Standards Council
(IVSC) is a member, has released its final report to G-20 Deputies.
The IVSC has been a member of the taskforce since it was estab-
lished in May 2011, at the request of the presidency of the G-20,
to provide an analysis of gaps in regulatory convergence and to
make recommendations on how to close such gaps across a
number of professions and industries that fall within the financial
sector.
The taskforce’s report recommends that the G-20 maintain its
momentum and ambition for global regulatory reform and con-
vergence, in addition to discouraging unilateral national regula-
tory reforms that are inconsistent with international standards. It
also calls for the G-20 to encourage and support the develop-
ment, adoption, and implementation of one set of globally ac-
cepted high-quality international standards for each of financial
reporting, auditing, valuations, and actuarial services.
Michel Prada, Chairman of the IVSC Board of Trustees, com-
ments: “The IVSC fully supports the analysis and recommenda-
tions of the Private Sector Taskforce. As the on-going economic
turmoil confirms the need for a more efficient approach to the
valuation of all types of assets, the IVSC is actively engaged, like
its fellow private sector standard setters, in delivering a compre-
hensive set of international standards in order to restore confi-
dence in the good functioning of financial markets. We are also
convinced of the need for a stronger architecture of international
financial regulation and enhanced cooperation between regula-
tors and private sector organisations.”
IVSC and IPEV to co-operate on valuation standard-setting
The International Valuations Standards Council (IVSC), the inter-
national standard-setter for valuations across a wide range of as-
sets, has signed a memorandum of understanding (MoU) with
the International Private Equity Valuations (IPEV) board.
The parties have agreed to co-operate with a view to ensuring
that the IPEV Valuation Guidelines are consistent with the Inter-
national Valuation Standards and that the IVSC considers the
needs of private equity and venture capital investors in its future
work plan. From now, the two bodies will collaborate in the prep-
aration and publication of technical guidance and methodology
for valuations of private equity and venture capital investments.
The agreement is a further landmark in the global acceptance of
IPEV’s valuation best practice for companies backed by private
equity and venture capital funds.
The IVSC produced its first standards in the 1980s and today
has a set of comprehensive standards covering a wide range
of assets, especially those that will be relied upon by investors
and other third party stakeholders. The financial crisis brought
renewed focus on valuation issues and has led to a significant
expansion in the organisation’s work plan.
Michel Prada said: “Establishing a set of comprehensive valua-
tion standards that are accepted and followed globally is an es-
sential contribution towards better financial governance and very
much in the public interest. International standards are only built
through consensus and collaboration between all those with a
stake in the process, and therefore we are delighted to have for-
malised this agreement with the IPEV Board as it represents an
important part of the global investment community.”
Herman Daems, Chairman of the IPEV board, said: “This agree-
ment is further testament to the robust and relevant nature of the
IPEV guidelines and their acceptance among institutions globally.
On behalf of IPEV, I am delighted to enter this agreement with the
IVSC, the recognised standard-setter for valuations.The positive
impact of the IPEV Valuation Guidelines has been clearly seen
over the last crisis. Consistent valuation processes – during good
times and bad times – have delivered stakeholders of our indus-
try with the required level of transparency regarding the value of
their investments.”
THE SOUTH AFRICAN
VALUER 33OCTOBER 2011, NO 106
S A I V a t h o m e
P R E S I D EN T ’ S R EP O R T T O S A I V AG M 9 J U N E 2 0 1 1 AT L A N Z ER AC H O T EL , S T ELLEN B O S C H
V
Welcome
It is with pleasure and humility that
I present you with my President’s
report for the period May 2010 to
June 2011.
Membership
I do not have exact figures of mem-
bership as we have been working tirelessly to clean up our re-
cords. This job is still not over but it would appear that our mem-
bership levels have been relatively stable with the exception of
student members who have dwindled in number as a result of
the closing of the Unisa Diploma course.
On another note, on behalf of the Institute, I should like to extend
our sincere condolences to the families of those members who
passed away this year. If we can help in any way please let us
know. These members are FN Swanepoel, TW Blewitt, HO Wig-
gins, R van Selm of the Southern Branch, OJ van Heerden of
the KZN Branch, and TD Cullinan, P Randall-Smith, FEA Belling
and A van der Merwe of the Northern Branch. Would you please
rise for a few moments’ silence in memory of these friends and
colleagues.
Thank you.
Still with membership we have pleasure in informing you that we
have bestowed Life Membership on Mr G Wilkinson. We shall be
making an award to him at the dinner tonight.
Reorganisation
We have taken occupation of offices in Pretoria and we are ac-
tively looking for a professional general secretary. We are con-
vinced that this is the only way forward for the SAIV. All the other
professional bodies falling under the Built Environment Act have
professional secretariats. We believe that we will become a stron-
ger body with better performance and this should rub off onto ex-
tra members who will then take up any extra costs. While we are
establishing the secretariat and getting the new offices properly
up and running, and believe me, despite the great improvements
over the last few months, there is still a large backlog to make up,
we have extended the contract of Ms M Vallun to continue as our
GS until such time as a permanent appointment can be made.
Website
This is closely linked with membership and it, too, is being up-
graded and will be handled by the GS so that members will de-
rive full benefit from it. Please update your profiles on the website.
It’s not too difficult and I know of a number of cases, my own ex-
perience included, where members received work assignments
straight after having updated their profile. So please visit and ef-
fect – it’s the right thing to do!
We are also hoping to publish The SA Valuer in electronic form on
the website for viewing by members only. This will be in addition
to the usual hard copy, but it does represent an attempt to cut
costs without cutting the benefit of the magazine to members
and we would ask you to respond to the survey we will be con-
ducting. Could I please just have a show of hands now to see
how many of you would prefer to receive your copy of The SA
Valuer in electronic form?
Disciplinary
We are busy with two disciplinary cases at the moment, neither of
which makes for pretty reading. I can’t go into details now as the
matters have not been finalised, but suffice it to say that we are
determined to maintain close adherence to our Code of Conduct
and that we will pursue complaints without fear or favour. This
is the only route to take to raise our reputation in the eyes of the
public.
The minister
Those of you who have read The SA Valuer will see that I have
had correspondence with Minister the Hon Nkwinti who accused
‘valuators’ (sic) of being criminals. Very disappointingly we have
not received any response to our follow-up enquiries. But we will
continue to pursue this matter.
Transformation
This was going to be a major focus point of the Institute this year,
but I regret to advise you that we have not achieved what we
wanted to. The reorganisation of the administration of the Insti-
tute had quite a lot to do with this, but now that we have this un-
der control, we are reprioritising the transformation issue and you
will see some intense activity in this regard in the not too distant
future. We are putting together a comprehensive business plan
including, as just one example, the highlighting of this matter in
the World Association of Valuation Organisations (WAVO) which
is launching an International Valuation and Appraisal Week in No-
vember this year.
Bursaries and education
We have healthy bursary funds but, unfortunately, they don’t
seem to be taken up by worthy students. One of the problems is
definitely the demise of the UNISA diploma course. We strove for
its retention but the SACPVP is determined to make valuation a
degree course. This is eventually the right way to go, but in the
meantime there is a dearth of new valuers coming into the pro-
fession. I think a better transition period could have been worked
out. Notwithstanding this, please try to encourage anyone you
might think would be a worthy recipient of a bursary to apply
to us for assistance. We have just transformed one of the prize
funds into a bursary to augment the general bursary fund, and we
shall also be adding a box on your subs account for extra monies
that will be ring-fenced for transformation. By adding to this fund
you will also benefit by earning points towards compliance with
the requirements of BEE and demonstrating your awareness of
your social responsibilities.
Conclusion
Thank you for the opportunity to share some of the topics that are
discussed and thrashed out at National Council meetings with
you. We might not get everything right, but it’s not for lack of
trying, or a matter of not placing the members’ interests first. No-
body is on Natex for personal gain, in fact most of the members
are reluctant councillors. Fortunately they do feel the continued
need for a vibrant body that tries to look after its members’ in-
terests at all times. And here I can only express my deep and
sincere appreciation to all the councillors on Natex for the time,
effort and sacrifice that they have made on behalf of the Institute.
I applaud you.
We do, incidentally, have the lowest annual fee of all the profes-
sional bodies. Unfortunately, as with everything else, costs rise
and while we were able to keep the subs unaltered last year, we
now find it unavoidable to increase the subs to R1350 per annum.
This represents an increase of slightly less than 10% or R10 per
month.
Closure
Thank you for your attention. Before closing I should also like
to express my, and Natex’s, gratitude to Farrel October and the
Southern Branch for the arrangements for two days of heavy
meetings, three nights of good dinners, and what I’m sure will be
a crackerjack of a seminar tomorrow. Well done guys!
I’m happy to receive a proposal for the acceptance of the report.
Second?
M J Carson
President
Lientjie Ackerman and Melanie Vallun Hanlie Brembridge and Claire Everatt Francois Viruly and Ken Jones
THE SOUTH AFRICAN
VALUER 35OCTOBER 2011, NO 106
THE SOUTH AFRICAN
VALUER34OCTOBER 2011, NO 106
R e l a x i n g a t L a n z e r a c . . .
Back: Ben Espach, Derrick Griffiths, Ken Jones, Mark Bakker, Dirk Coetzee, Anton Swanepoel, Farrel October
Front: Jenny Falck, Melanie Vallun (acting General Secretary), Kit Carson, Trevor Richardson, Roshinee Naidoo
Absent: Michael Gibbons
Back: Ben Espach, Lientjie Ackerman, Derrick Griffiths, Ken Jones, Mark Bakker, Anton Swanepoel, Farrel October
Front: Jenny Falck, Alison Stober, Kit Carson, Trevor Richardson, Roshinee Naidoo
Inset: Andre Zybrands
N a t e x 2 0 1 0 - 2 0 1 1
N a t e x 2 0 1 1 - 2 0 1 2
V
V
THE SOUTH AFRICAN
VALUER 37OCTOBER 2011, NO 106
THE SOUTH AFRICAN
VALUER36OCTOBER 2011, NO 106
L a n z e r a c - C a p e h e r i t a g e
S A I V a t h o m e
LI F E M EM B ER S H I P G P W I LK I N S O N
V
Gert Petrus Wilkinson, FIVSA, was
elevated to life membership at the
SAIV national dinner on 9 June,
2011.
Gert Wilkinson entered the valua-
tion profession in 1973, after being
involved in the construction sector
since 1956. He completed the National Diploma in Property Valu-
ation. He was a member of the Cape Branch executive of the
SAIV and member of the National Executive of the SAIV and his
membership of the Institute was elevated to Fellow.
Gert was initially involved in property valuation for rating purpos-
es for seven years. Since 1981 he has been involved with valua-
tions of all kinds for clients from the commercial sector, including
national and provincial government departments as well as mu-
nicipalities. Two of the highlights of his career were the valuation
of one of the first large golf estates in the Southern Cape (a num-
ber of phases during development stage) and the valuation of the
official residency in Brussels for the Department Of Public Works.
Gert was a lecturer in Property Valuations at the Cape Technikon
for 14 years and lectured at the University of Stellenbosch as a
guest lecturer for three years. He was also an examiner in Proper-
ty Valuations and moderator in Property Valuations and Property
Development and Management.
Gert also served as a Member on the SA Council for Valuers for
three years from October 1988 and as a member of various Valu-
ation Appeal Boards in the Western Cape region. Gert had his
own valuation practice in Cape Town and was co-founder of Ad-
val Valuation Centre in 1989, where he practised with distinction
until his retirement in 2005. He is still active as member of the
Cape Town Valuation Appeal Board.
Gert is highly acknowledged and respected in the property valu-
ation industry. Many of the present professional valuers in the
Western Cape (some of them said to be in the top bracket in the
country) went through his hands as students. He always made
time for students and student affairs, sometimes even to his own
financial detriment. He is always approachable for advice and is
highly respected for setting and upholding high standards and
ethics.
To acknowledge his significant contribution over a long period
to the Institute, the SACPVP, students, education and to main-
taining high standards in the valuation profession, Gert was hon-
oured with elevation to life membership of the Institute.
2012 eventsS A I V a t h o m e
• 9 February 2012 National Executive Meeting (Mini Natex) General Secretary’s Office, Pretoria
• 10 February 2012 Northern Branch One-day Seminar Gauteng
• 6 & 7 June 2012 National Executive Meeting The Regent Hotel, East London
• 7 June 2012 National Annual General Meeting and Dinner The Regent Hotel, East London
• 8 June 2012 National One-day Seminar The Regent Hotel, East London
THE SOUTH AFRICAN
VALUER 39OCTOBER 2011, NO 106
THE SOUTH AFRICAN
VALUER38OCTOBER 2011, NO 106
S A I V a t h o m e
2 0 1 1 N O R T H ER N B R A N C H P R AC T I CA L WO R K S C H O O L
V
The Practical workschool was conducted during
the last week of July on behalf of the SACPVP.
This year marked the coming-of-age of the workschool as it was
the twenty first time that it was presented. Intitially, Andre Zy-
brands was responsible for organising the workschool on behalf
of the Institute; soon after this Ben Espach took over and cur-
rently the workshool is organised by Lientjie Ackerman, Dirk Coe-
tzee and Ben Espach.
The programme has remained mostly the same over the years.
This year, however, Town Planning and Sectional Titles were in-
troduced. As in the previous year, the practical assignment con-
sisted of the valuation of an income-producing property by mak-
ing use of the Income Model developed by the SAIV.
A total of 118 learners attended the full-day lectures and wrote
the examination. Although most of the learners have completed
studying or were in their final year of study, the pass rate of ap-
proximately 50% did not meet the expectations. It was once
again observed that a large number of students need practical
training and were looking for opportunities in the workplace. It is
clear that work exposure and assistance by ‘mentors’ are difficult
to obtain in the profession.
A call is made to valuation organisations and valuers to join
hands with the Institute to create opportunities and to employ a
student or two even on a temporary basis, in order for them to
gain the necessary experience. Indications and remarks also in-
dicated that a one-on-one mentorship programme between the
student and mentor is urgently needed.
Sponsorships
Funds were made available by valuers or their organisations to
assist students who needed financial assistance to attend the
workschool. The Institute expresses its sincere thanks to those
who made contributions to sponsor students.
The National Executive Committee of the Institute has consid-
ered the possibility of encouraging individual members of the In-
stitute to make voluntary monetary contributions to establish and
fund a transformation sponsorship fund which will be used to
assist specifically previously disadvantaged students to attend
the workschool, workshops and seminars.
Students are welcome to contact the General Secretary or branch
secretaries of the Institute for more information about this fund.
The purpose of the sponsorship is part of the transformation ef-
forts to assist students to get exposure to colleagues and to do
networking with them at the seminars and workshops.
We are confident that the transformation programme will grow
from strength to strength and look forward to report back on the
progress thereof in the next issue of The SA Valuer.
It is not just our duty but also our privilege to assist the students
in any way that is needed for them to grow into confident profes-
sionals.
S A Va l u e r S u r v e y
At their meeting in June the National Executive decided to conduct a survey in order to establish SAIV members’ preference regarding
the distribution of The South African Valuer. Look out for communication in this regard.
Please remember that DVDs of Institute seminars may be obtained from the Northern and Southern Branch secretaries.
THE SOUTH AFRICAN
VALUER40OCTOBER 2011, NO 106
It is great to report to you that the General Secre-
tary’s Office is busy and active. We (branch secre-
taries and debtors’ clerk included) are constantly
looking at improving systems and processes to
streamline the workload which will ultimately lead
to an improved service to our members.
We are happy to advise that we have appointed Mariza Potgieter
as the SAIV’s first dedicated debtors’ clerk. Mariza, from that far
away place called Bloemfontein, joined us on 1 August. She has
already made great headway with the bookkeeping and has ef-
fectively handled all queries. Most of the bookkeeping problems
are experienced because members do not use their member-
ship number or unique number (with online registrations) as refer-
ence when submitting payment to the SAIV. Contacting Standard
Bank to obtain more detail on payments is costing us money, not
to mention cheque deposit fees!
We urge you to ensure that you use the correct reference number
when submitting payments.
S A I V a t h o m e
F R O M T H E G EN ER A L S E C R E TA RY ’ S O F F I C E
V
For all your account queries contact Mariza:
Email: [email protected]
Tel: 012 348 2757 / 086 100 SAIV
Fax: 086 693 3966
We would also like to welcome the KwaZulu-Natal branch secre-
tary, Linda Ellis. Linda will be running the Kwa-Zulu Natal branch
office from her home in Morningside, Durban. She is already up
and running and ready to assist members who have queries.
Linda Ellis can be contacted on
Email: [email protected]
Cell: 083 262 7792
Tel: To be advised. Please feel free to contact the General Sec-
retary.
Fax: 086 657 3031
Melanie N Vallun
Acting General Secretary
Members
Fellows
Life members
Retired members
Retired fellows
Life fellow members
Retired life fellow members
Non-practising members
Resident affiliates
Affiliate members
Non-resident members
Retired non-resident members
Active members total
Honorary
Students
Inactive members
All members total
S A I V m e m b e r s h i p s t a t i s t i c s a t 1 O c t o b e r 2 0 1 1Central Eastern Cape KwaZulu-Natal North South General secretary Total per category
31
3
4
38
13
13
51
53
2
11
1
67
21
21
88
124
6
30
3
1
164
1
69
70
234
406
20
61
1
1
1
1
491
6
185
191
682
189
16
23
4
3
1
236
2
71
73
309
4
12
7
23
0
23
803
47
0
129
8
4
2
3
0
4
12
7
1019
9
359
368
1387
THE SOUTH AFRICAN
VALUER 41OCTOBER 2011, NO 106
