Tentative recovery likely, Bank warns

The leading indicator of business activity in SA dipped slightly in August after a strong rise in July, adding to evidence that the recovery is tentative and may slow down over the rest of the year.

The leading indicator, which points to trends six to 12 months ahead, declined 0,1% in August, after a robust 1,3% rise during the month before, figures from the Reserve Bank showed.

The Bank’s economist, Iaan Venter, said that while it was dangerous to look at one month in isolation, the monthly dip was part of a sideways trend, suggesting that growth remained subdued.

“I still believe it’s indicating a moderate growth trend,” he said.

Other figures yesterday showed that company failures rose 2,1% last month compared with September last year, after a fall of 8% in August.

“Business is still struggling,” Investec economist Kgotso Radira said. The data from Statistics SA did not bode well for household finances and consumption going into the festive season, he said.

Consumer spending is the economy’s main growth engine, accounting for 60% of demand.

“This is a further indication that more jobs were lost in the third quarter of this year,” Mr Radira said in a research note.

“Employment growth is only expected to start emerging in the latter part of 2011 when growth starts gathering momentum.”

SA’s economy shed more than 1-million jobs since the start of last year, making it one of the hardest- hit emerging markets during last year’s recession, in terms of jobs.

Last week, Finance Minister Pravin Gordhan said the economy would expand faster this year than the 2,3% predicted in the national budget last February.

Updates to official forecasts are due in the Treasury’s medium- term budget policy statement tomorrow, with market consensus betting the economy will grow about 3% this year. The Treasury’s estimate will probably be lower, reflecting its traditional caution.

The “basically unchanged” leading indicator pointed towards “stability and recovery” in the economy, said Brait ’s Colen Garrow.

But no one should be “wildly optimistic” that growth would be more than 3% this year.

Mr. Garrow sees the economy expanding just 2,3% next year — well below market consensus.

The Reserve Bank’s data showed that six of the leading indicator’s 11 components were negative during August.

This included the average number of hours worked by factory employees, probably due to strikes in the vehicle industry.

Building plans approved also had a negative effect.

The value of plans passed by municipalities between January and August this year fell 7, 8%, or by R3, 3bn, compared with the corresponding period last year, official data showed last week.

The weak performance of the leading indicator was in step with SA’s main trade partners, according to the Bank’s data yesterday.

Compared with the same month last year, the index rose 18,8%, but this reflects the “base effects” of last year’s recession.

It was also lower than the 20, 4% increase seen in July.

This suggested that although growth in the economy would slow in the months ahead, it might not be as severe as expected given strength in the rand, Stanlib economist Kevin Lings said.

The rand scaled a 33-month peak at R6, 76 to the dollar earlier this month, but has since relinquished some of its gains, trading at R6, 90/ yesterday.

“There is a reasonably good relationship between the leading indicator and overall economic activity,” Mr. Lings said.

“This suggests that the South African economy should show solid growth in 2010, with some loss of momentum into the second half of this year … but not a very significant slowdown,” he said.

Last month’s rise in liquidations was driven by failures in finance, insurance, real estate and the business services industry. Most were voluntary.

Other data from Statistics SA yesterday showed that the number of individuals and partnerships that were declared insolvent dived 47,2% in August compared to the same month last year.

That was the ninth successive year-on-year decline.

This was “further evidence that the number of individuals and partnerships that cannot pay their debt is declining relative to last year”, Mr. Radira said.

Household finances would take some time to improve due to high debt levels — which are still hovering at 87% of disposable income — and the rising cost of living, which was outstripping growth in income, he said.

“The deleveraging process will take some time … the rapidity will largely depend on the pace of employment growth.”

The indicator has a good correlation with the Organisation for Economic Cooperation and Development (OECD) leading indicator, which tracks the global economic cycle, with a short lag.

The OECD leading indicator has moderated downwards slightly on an annual basis over the last few months, suggesting that SA’s leading indicator would also move lower in the months ahead, Mr. Lings said.

Written by Alistair Anderson
This article has been reprinted with the kind permission of Betterbond
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Website: www.betterbond.co.za

Benefits and Disadvantages of Pricing a Property

The Benefits of Correct Pricing:

• It gives the impression of good value to your purchaser
• It increases the response from your advertising
• It projects Seller Commitment
• It achieves the maximum response in optimum time and maintains the Seller negotiating advantage.

THUS the consequences of Correct Pricing are:

• A maximum number of acceptable offers
• A maximum Seller price is achieved
• The marketing period of the property is minimized and the property is not overexposed, thus the Seller’s lifestyle is not disrupted continuously
• Bargain Hunters are discouraged and the property is sold within the shortest period of time possible.

The Disadvantages of Over-Pricing:

• Potential buyers lose interest as the property is over-exposed
• Marketing time is prolonged and advertising is expensive, therefore properties are not advised as well as they should be
• Lower offers are attracted as a result of a reduced advertising response
• Buyers become reluctant to make an offer, as they wonder what is wrong with the property – why it has not been sold. Is it a sound investment?
• The property gains a stigma and competing properties become more attractive
• Bargain Hunters now “stalk” the property, waiting for it to become an urgent sale

This article has been reprinted with the kind permission of Masilo Freimond Inc.
Tel : 011 958 0488
Fax : 086 610 0276
E-mail : info@masiloincjhb.co.za

National Health Insurance – “Wishful thinking”

“It is estimated that about R11bn is required to start implementation of the NHI by 2012. Government has indicated that it will roll out the NHI over 14 years, starting with rural areas in 2012. The scheme will be publicly funded and administered, providing high quality healthcare free of charge. Speculation, however, is rife that government is planning to increase tax in 2012 to support the NHI.

SA’s official population is 49.9m, of which 8m contribute to a medical aid scheme. The NHI will cost the government an initial R128bn in 2012, R267bn in 2020, and R367bn in 2025. The GDP spend by 2025 is estimated to be 7.8%.

Commentators indicate that South Africa cannot afford the NHI with the current taxpayers. It is “wishful thinking” and we need to think carefully about it. It is not possible with 5m taxpayers. If we increase tax on professionals they will leave the country. The country has about 5.5m registered individual taxpayers, of which about 4.8m actually earn enough to pay taxes. Of the 4.8m, about 25% earn 60% of the taxable income but pay 75% of all individual taxes.

With South Africa’s tax already around 30% of GDP, the cost of the NHI may increase the already heavy burden carried by taxpayers and will have a negative impact on the morale of taxpayers.”

Written by Stiaan Klue
This article was originally printed by The South African Institute of Tax Practitioners (SAIT)
PO Box 73, Featherbrooke, 1746
Tel: 011 662 2837
E-mail: info@thesait.org.za

What is Bridging Finance?

It is an advance of money which the seller expects from the sale of his/her property.

It allows sellers to have access to cash before the registration and transfer process has been completed. The seller is able to use the funds to pay outstanding rates and taxes, for example.

Bridging finance can be a useful tool to help you out of a “catch-22” situation, like having to wait for the profit of the sale of your house to pay for the registration and transfer costs of your new home.

However, it is very important to make sure you understand all the costs involved when using this type of short term lending. Find out if there are administration costs, what interest will be levied – each institution offering bridging finance have their own rates, there is no standard. Be aware of this type of financing, it can be expensive.

 Most institutions that provide bridging finance will only finance up to 80% of the surplus money which you will receive from the sale of your property. They evaluate the risk to themselves before deciding on what percentage they are willing to loan. It is seldom, if ever, that a 100% loan is granted.

This article has been reprinted with the kind permission of Masilo Freimond Inc.
Tel : 011 958 0488
Fax : 086 610 0276
E-mail : info@masiloincjhb.co.za

South African Property – the way to go!

Foreign interest in South Africa’s property has escalated in the past 500 odd years since the discovery of the Cape of Good Hope. It has resulted in South Africa becoming a veritable property investor’s mecca. The country is a popular holiday and business destination complete with a diverse range of properties, from basic bachelor flats to luxurious seaside manors set against magnificent backdrops.

South Africa’s political past created something of vacuum in the property market, slowing development and removing millions of citizens from the buying pool. Although that is the case, things seem to be looking much brighter for the future of the country, with the economy seemingly sound – 2010/2011 growths has been estimated at 5%, trumping that of the US and the UK. World-class banking and foreign exchange practices also continue, and a strictly regulated property purchase system is in place.

Commercial property growth exhibits the vibrancy of the residential market. Getting your money’s worth is amongst the best in the world as the cost of living in South Africa is relatively low in comparison to the exchange rate perspective of many Western currencies.

Buying property in South Africa is reasonably simple and there are no restrictions on foreign ownership, unless the person has run into some troubles in the past (ex. Criminal record, illegal aliens). It is advisable to visit South Africa numerous times before deciding to purchase property, preferably at different times of the year. Doing so will provide a fairly accurate gauge of the kind of weather and other important factors, ensuring that when the decision is made, it is the correct one.

Having found a suitable property, it’s crucial to employ a legal conveyancer who has experience in foreign property transactions and who is able to manage your transaction.

Transfer and bond documents can be signed at a South African embassy or consulate in case the investor is unable to sign the documents in South Africa. There are other possibilities available to those who do not want to commit to purchasing South African property immediately. There is an option is open to purchase within an agreed period of time that can be incorporated into lease agreements in certain instances.

The buyer is also able to exercise first option rights to acquire the property should a third party display an interest.  South African property can also be bought in instalments. This process is provided for South Africa’s property legislations.

Things just got a whole lot Better

We are heading into the end straight of 2010, a year that has held hope for a recovery from the doldrums of 2008 and 2009. While the outlook does not look terribly rosy for consumers as far as their debt-to-income ratios are concerned, the hope for improved market conditions has been vindicated to a degree, particularly for the property industry, with estate agents around the country reporting an increase in sales volumes.

However, affordability will continue to feature strongly as the National Credit Regulator’s first quarter report indicated that credit bureaus had records for 18.21 million credit-active consumers as at the end of March 2010. Of these credit-active consumers, only 54% were classified as in good standing while the number of consumers with impaired records continued to increase reaching 8.37 million. This h indicated a deterioration in the credit records of 191 000 consumers quarter-on-quarter and 915 000 year-on-year.

However, while consumer’s debt issues have not shown much of an improvement, the continual steady increase in market activity has restored faith in property as an investment and as a career option. But it is only those forward thinking, solution-oriented people who need apply – real estate is no longer merely an order-taking business, but rather one where agents need to be motivated, professional, innovative and involved in order to make their mark. There are those individuals who excel at this, who go above and beyond to elevate their communities, the industry and their careers in real estate as was evident at this year’s annual Nedbank Property Professional of the Year awards.

For the past 11 years the winners of the coveted Nedbank Property Professional title have raised the bar, and this year was no different. Congratulations to the overall winner, all 16 finalists whose incredibly high standards made the competition tougher than ever, as well as the Young Lions, Movers & Shakers and other award recipients. At the end of the day, achieving success comes down to how you create and establish your own personal brand.

If you live up to your brand promise, your brand can be a strong marketing tool that will ensure loyalty, repeat customers, and ultimately, success. This is one of the reasons that the PA Group has embarked on a rebranding campaign that is currently being rolled out. Up until this point in time, the PA Group and its subsidiary companies followed a multi-branding strategy. This means that none of the names are related and all the different companies function independently of each other in the market place.

However, as the storms of the recent recession set in, it became evident that a multi-branding strategy is more costly to support and didn’t allow for the optimisation of synergies that exist between the different subsidiaries of the PA Group. After much deliberation it was decided to move from a multi-branding strategy to a single-branding strategy, where the subsidiaries of the PA Group will become interlinked. As South Africa’s leading mortgage originator, the Betterbond brand was the best known in the Group, so we decided to leverage off the name by adding “Better” as an adjective to both the Group and its subsidiaries. This means that the PA Group has changed to BetterGroup, Betterbond has changed to BetterBond, Paforma has changed to BetterBridge and Aspire has changed to BetterCredit.

The Group’s new slogan, “Getting you Ahead”, is central to its value proposition of getting you ahead by streamlining the home loan application process, organising quick access to funds in terms of bridging finance and all in all providing a better service than ever before.

They say that a chain is only as strong as its weakest link – now the PA Group’s link will be as strong as the brand that it is building up. In line with our new brand identity, we have also introduced a new icon of two interlinked circles. The icon will ‘link’ all the companies in the Group together and also represents what we do in linking clients to their home by facilitating the home loan. In the same way we bridge or link clients with funds through providing bridging finance. The same holds for BetterSure and BetterCredit. No experience, prestigious award or qualification will ever make a lasting impression if you don’t proactively and consistently build and manage your personal brand and reputation with integrity. As Abraham Lincoln said, “Character is like a tree, and reputation is like a shadow. The shadow is what we think of it; the tree is the real thing.”

Written by Rudi Botha
This article has been reprinted with the kind permission of Betterbond
Tel: 011 516 5500
Fax: 086 677 1162
Website: www.betterbond.co.za

Home Loan Talk – Access / Flexi Bonds

Banks offer a home loan package with an access facility should you wish to take it up – but what does it mean? It provides you with access to the cash you already have invested in your home. The difference between the value of your home and the amount that you owe the bank is the EQUITY in the property. Equity can be as a result of paying in a deposit, or through the appreciation in value of the property, or even the savings that you have invested in your home loan by paying it off at a faster rate.

It is advisable to request an access facility when applying for a home loan. What are the benefits?

• Most banks offer access to your equity in the property via internet banking or even from an ATM, which makes accessing cash very convenient and easy.
• By depositing your savings into your home loan account, you can enjoy tax-free savings at the prevailing bond rate that you are eligible for at that particular point in time. Take a good look at the interest that you earn in your savings account and compare it with what the bank charges you to lend that money back to you. Then consider that you will also pay tax on the interest that you have earned in your savings account.
• You have flexible access to equity in your home loan for those high-value items that traditionally you would have financed through hire-purchase, lease or rental agreement. Advantages include flexibility i.e. you could pay your car off over 20 years and save on interest. Repayments are calculated at the bond rate that you are enjoying, which could be as much as 5% lower than lease or HP rates!
• You now have flexibility with your repayments – you can double the bond repayment, but still have access to that ‘extra’ cash.

When you need to access the funds you will still go through a similar re-advance approval process with the same forms and proof of earnings. The bank needs to assess your ability to service the additional amount.

This article has been reprinted with the kind permission of Masilo Freimond Inc.
Tel : 011 958 0488
Fax : 086 610 0276
E-mail : info@masiloincjhb.co.za

Myplan – The Equity Market’s Surge

After a surge in equity markets during July, August saw global equities sell off across the board. Global equities declined by 3.9% in Rands. Catalysts for the sell-off included further declines in high-frequency leading economic indicators in the US, China, Japan and the Eurozone and further declines in US and Chinese new orders to inventory ratios. The significance of the latter is that inventory rebuilding will be less of a growth driver going forward.

Disappointing US payrolls data and a sharp decline in US housing data added to the negative sentiment on markets, reigniting fears of a double dip recession. The VIX Index (measure of global risk appetite) also increased during August in line with the market’s overall risk aversion, ending August at a level of 26.05%, up from 23.5% at the end of July.

Global bonds were the best performing asset class in August as fears of a double dip recession intensified following indications that the slowdown in the world economy was more pronounced than previously anticipated. Domestic bonds yielded 3.0% in August, underperforming global bonds (3.3%) and emerging market bonds (3.6%).

The Myplan Assertive Wrap managed to mitigate a significant amount of downside in tough market conditions presented in August, producing a return of -0.21% when the equity market declined by -3.58%. The Portable Alpha strategy (Prudential Optimal) was the best performing strategy and managed to outperform cash, due to value add through the manager’s stock selection. Even though the Value Biased Equity (Coronation Absolute and Re:CM Flexible Equity) and Protected Equity (Prescient Positive Return) strategies underperforming relative to the other underlying strategies, the must be commended for the downside properties they exhibited in August, producing – 0.15%, -0.87% and -0.10% respectively. This further instills conviction in our approach to managing absolute return portfolios.

SMMI remains of the view that a cautious approach is prudent, given the market volatility. Equities, still however, look reasonably attractive over the next 2-3 years, but over the short term we believe the market to be fairly priced. Bonds both locally and globally are quite expensive, given the recent purchases of these instruments and an underweight position is well warranted.

This article has been reprinted with the kind permission of Myplan.
Tel: 011 475 0946
www.myplan.co.za