Real Estate Investor Magazine South Africa September 2013 | Page 20

NEWS ALERTS BY MONIQUE TERRAZAS In The Property Headlines The Good The Bad The Ugly Buy-to-let boom on the cards Bolstering prospects for buy-to-let investors, Generation Y - most of whom are still in their 20s – is also rapidly also becoming known as “Generation Rent” in property circles. According to Berry Everitt, MD of the Chas Everitt International property group, many members of Gen Y are too weighed down by student loans, other debt and a lack of savings to buy a home, while others are simply not ready to settle down, preferring to rent. Either way, the trend is positive for buy-to-let property investors. The average age of first-time buyers in South Africa has shifted from about 27 years of age to 35 over the last 20 years, which means that a significant number of young people are staying in the rental pool for at least eight years longer than they used to. The rental demand has also been boosted since the 2008/09 recession by homeowners who had to sell their properties to relieve financial pressure and have been unable or unwilling to buy again. “And the pressure on supply continues to grow, because there has been so little new housing development in the past f ive years,” adds Everitt. “In short, with interest rates at their lowest in almo st 40 years and the demand for rental accommodation set to keep growing especially when interest rates start to move up again – and with annual rental yields rising and property value increases starting to get ahead of inflation again, the current market is offering some outstanding buy-to-let opportunities.” Joburg clearance certificates debacle The lengthy period it takes to get clearance certificates from the City of Johannesburg to facilitate property sales has become a serious issue. Instances have been reported in which it has taken more than eight months to get a clearance certif icate from the council, significantly delaying the transfers of property in the Deeds Office. In Cape Town, clearance certificates are usually obtained within four to five days. Some conveyancing legal practices have set up separate divisions to deal with the problem, while others are charging a consultant’s fee of around R950.00 to obtain clearance certificates, strongly suggesting to clients to make use of these consultants as it “can take the council a very long time to issue figures if we do not make use of a consultant and this will cause unnecessary delays in the transfer process”. There can be little doubt that the issue will be exacerbated by what has been termed a “bizarre” move by the City of Johannesburg, which has objected to the new valuations of almost 63 000 properties on the recently released general valuation roll - after the 3 May 2013 cut-off date for objections. There are now some 88 000 objections – an astounding 11% of the valuation roll – which begs the questions: Did the valuers do a proper job in the first place? What are these objections going to cost the council and, more importantly, the rate payers? And how will 88 000 valuation objections be handled by a council who is already struggling just to issue clearance certificates? Bank of America sued by government In August, the US Government sued the Bank of America for defrauding investors in the sale of $850 million in mortgage-backed securities, alleging that the bank deceived investors regarding the riskiness of the mortgage loans backing the securities and intentionally avoided performing adequate due diligence, leading to investor losses of more than $100 million. According to media reports, the mortgages in question were sold as “prime” loans, implying a low likelihood of default and signifying “a safe and conservative investment”, which “justified” the high prices of the investments. However, at least 23% of the mortgages in the securities have defaulted or were delinquent as at June 2013. The government claims that more than 40% of the loans in one of the bonds did not meet Bank of America’s own underwriting standards, with “glaring” problems such as overstated income for the borrowers or fake employment data, which made them “wholly inconsistent” with a prime rating. Unsurprisingly, the Bank of America denied it was responsible for the losses, claiming that the “prime” designation was justified, noting that the investments were sold to “sophisticated investors who had ample access to the underlying data” and saying that the loans in question had performed better than similar loans originated and securitised at the time by other financial institutions. The bank blames the losses on the general downturn of the market and economy. In parallel action, the Securities and Exchange Commission also levelled fraud charges against the bank over the same 2008 mortgage security offerings. 18 September 2013 SA Real Estate Investor www.reimag.co.za