New SA REIT Association to boost listed property
The new SA REIT (Real Estate Investment Trust) Association is tasked with representing the listed property REIT sector, one of South Africa’s most active and innovative sectors on the JSE. The Property Loan Stock Association (PLSA), which championed the introduction of the groundbreaking new REIT dispensation for the listed property sector in South Africa, has been renamed and constituted as the SA REIT Association to represent the country’s new REIT sector.
Chairman of the SA REIT Association, Norbert Sasse, says: “Over six years ago, the listed property sector came together in pursuit of this single, significant goal. The road to REITs for South Africa has been extraordinary; it is a success story, with the private sector, government and regulatory bodies working hand-in-hand. The South African REIT dispensation has created a foundation from which the sector can grow with tax certainty and become more internationally competitive. Now, the SA REIT Association will build on this foundation of positive partnerships and development, so the sector remains at the forefront of good governance and international best practice.”
The official launch of the SA REIT Association, sponsored by Rand Merchant Bank, was held in Sandton. The landmark event included representatives from National Treasury, South African Revenue Service (SARS), Financial Services Board (FSB), Johannesburg Stock Exchange (JSE) and sector stakeholders.
The SA REIT Association is a representative umbrella body comprising voluntary members of all the listed SA REIT companies and trusts. This association is modelled on NAREIT (National Association of Real Estate Investment Trusts) in the United States and EPRA (European Public Real Estate Association) in Europe. The SA REIT Association consolidates and replaces the old PLSA and Association of Property Unit Trusts.
The association has the considerable task of being ambassador for the most active sector on the JSE over the past 12 months. South African listed property has a market capitalisation of some R250-billion. In 2014 it is likely to become the eighth largest REIT market globally, with around 26 REIT entities and potentially more to come. Over the past 10 years it has outperformed local equities, bonds and cash. It has also outperformed REITs in the developed world.
The SA REIT Association’s goal is to advance and protect the interests of this substantial sector, comprising both company REITs (formerly property loans stocks) and trust REITs (formerly property unit trusts). The association will engage members on best practice for accounting and reporting. Estienne de Klerk, head of the REIT Committee, reports that this includes an initiative that will provide investors with improved reporting quality, which will assist them in comparing and understanding the different REITs.
De Klerk says: “The purpose of compiling this best practice accounting disclosure and reporting standards is to improve consistency in accounting policies and disclosure in the sector, and make it easier for accurate comparison of different local REITs.”
Tenants can expect to dig deeper into their pockets over the next 12-18 months with rentals on the rise and a shortage of rental stock developing in many areas. This is particularly true in the gated communities and sectional title complexes. The strongest demand nationally is for two-bedroom units around the R4 500-R5 500 a month bracket, and insufficient stock is providing further support for rental growth. This is according to Andrew Schaefer, managing director of the Trafalgar Property Group, who also notes resistance to rentals above R6 500 per month in this market.
Schaefer predicts that the return to pre-recession rental increase levels of around 10% last year will continue. The rise in demand is being driven by a number of factors, says Schaefer. He supports the view that as South Africa’s population gets younger, it is increasingly joining the mindset of the Europeans, which is towards flexibility and liquidity, enabling them to travel and follow job opportunities rather than be tied down by mortgages. “In a few cases, we are witnessing younger people renting in the more expensive trendy areas, and buying in areas where they can afford as an investment.”
Trafalgar’s managed rental pool of around 8 000 units across South Africa bears this out, with areas such as Pretoria West, the West Rand, Midrand, and Illovo in Gauteng and Berea in KwaZulu-Natal receiving the highest level of enquiries.
Research has further backed this with the fact that the age of the first-time homebuyer has risen. This means that people are waiting longer to move into the homeownership market and renting is the preferred option for younger families and individuals. The slowdown in supply of new affordable homes onto the market, rising building costs and a decline of 13% in the number of new plans being passed this year, will contribute to this trend.
Not all bad news for tenants, however, as some areas will always buck the trend.
Johannesburg Inner City is an interesting exception, says Schaefer, with office block conversions and buy-to-let stock flooding the market with stock over the last two years. “Here we have seen rentals decrease and, for example, bachelor flats are achieving around R650 less rental per month, and increases of only 5-8% are realistic. This is beginning to stabilise, however, and vacancies have halved over the last 12 months.”
“Generally, however, the shortage of affordable houses to buy is a definite driver for the rental market,” comments Schaefer. “Current low interest rates and the move of mortgage lenders like SA Home Loans into the sector will have a positive impact on affordability. However, as prices inevitably rise, the pressure on rentals will continue and, in my opinion, is here to stay.”
ADVICE TO ESTATE AGENTS MANAGING A RENTAL PORTFOLIO
There are many pieces of legislation in South Africa that prescribe an estate agent’s duty with regards to the management of a rental portfolio. As a processor of public, third party funds, the rental agent has a specific fiduciary duty on managing these funds with care. Unfortunately, it is often the practical application of the legislation that places many agents and their businesses at risk.
Louw Liebenberg, CEO of SA’s largest residential letting transactions processor, PayProp, says that there are essentially two risks that any estate agent managing rental funds needs to be acutely aware of: “The first is the misappropriation of funds, be it deliberate or through accidental error, and the second is the risk of not complying with the reporting requirements as outlined by the Estate Agency Affairs Board (EAAB).”
Liebenberg says there are five crucial things that real estate firms managing rentals should be undertaking:
1. Invest in a proper management system
The risk with running a rental portfolio is that it typically consists of a large number of smaller transactions when compared to a typical sales portfolio. This creates a challenge for the business owner to stay on top of every financial approval that occurs. The typical agency on PayProp currently automates around 350 transactions each and every month – if you use a manual tracking system you need to know that it is comprehensive enough to ensure that you know exactly why each of these transactions has been made and be totally confident that all supporting documentation for these transactions match up.
2. Know (and regularly review) who has permissions in your business
Often we see agencies where ex-employees still have access to some of the agency’s systems. Or where access to banking services was given to someone in an emergency situation, but the password never changed back again. Be sure that you have an internal system where you clearly keep track of who has permission to what, and regularly change banking and system passwords.
3. Insist on regular and accurate reporting
There are three vital figures that any principal needs to constantly be updated on: which tenants have outstanding balances due, what the deposit value held for each tenant is and finally the value of invoices that will be issued to a tenant in the next 30 days. Knowing these figures on a per-tenant basis allows the agency to form a risk profile on each tenant, i.e. a tenant in arrears with a high value invoice being issued in the next 30 days, but for whom there is no deposit held, is a high risk tenant and needs to be managed pro-actively
4. Confirm banking and reporting balances
If the agency is not using a system where the banking and reporting data is integrated, it is vital that regular checks be done to ensure that balances being reported on are actually held in the bank. The law prescribes a trust reconciliation exercise every 30 days, but in our experience weekly checks are a safer route to go with.
5. Check that tenants and owners are being communicated with
Owners of agencies should have a way to verify which tenants and owners have received statements, and which ones have not. The reasoning for this is simple: if a tenant is not receiving statements it means that there are fewer parties monitoring the integrity of the transaction. If all transactions are accurately and immediately shared with tenants and owners as they happen, the chances of disputes arriving at the end of the lease are limited.
Liebenberg says that an important guiding principle to remember is that the money a rental agent manages does not legally belong to the agency, but to its clients. “The agency has been placed in a position of trust by consumers and should do its best to ensure that it is able to manage these funds accordingly.”
Trustees in arrears with levies
Feathers are set to fly in sectional title complexes around South Africa following amendments to sectional title regulations, warns specialist sectional title attorney Marina Constas, a director of BBM Attorneys and co-author of the book, Demystifying Sectional Title.
She explains that one of the new sectional title regulations specifies that a sectional title owner who has arrears levies may not serve as a trustee. “This is an issue we have been lobbying for, and it is heartening to see that it has finally been addressed,” Constas states. “It will ensure that trustees can now be relied on to hand over the debtors of the complex for legal action. In the past, a trustee who himself was in arrears would be loath to initiate legal action, as he would be implicated.”
The amendment – to Annexure 8, Rule 7 – states the nomination or appointment of a trustee cannot be made if that trustee is in arrears with any contributions payable by him in respect of his section and his undivided share in common property. In addition, there can be no nomination or appointment if the individual has persisted in breaching conduct rules, despite written warning by the trustees or managing agents.
“This will get especially interesting when an individual who has been nominated disputes that he is in arrears, or that he is in breach of conduct rules. We suspect that many lively annual general meetings lie ahead,” she adds.
Also a potential problem situation is where a trustee is already in his position, and falls in arrears. “The latest amendment now says that if he is in arrears for more than 60 days with any levies or contributions payable by him, and he fails to bring such arrears up to date within 7 days of being notified to do so, then he ceases to hold office,” Constas explains, adding that she believes this amendment is way overdue.
Another new amendment relates to a rule that has been deleted, Rule 31(4A), which catered for the temporary increase in the levy between the financial year end of the scheme and the annual general meeting, by allowing an escalation of 10%. Constas elaborates: “Since this rule was deleted, there was a question mark hanging over what would replace it. The answer may lie in the insertion of Rule 31(4B), which states that ‘the trustees may, from time to time, when necessary, make special levies upon the owners or call upon them to make special contributions in respect of all such expenses as are not included in the budget’. In other words, you could utilise this new regulation to raise the levy during the interim period between financial year end and the annual general meeting.”
An amendment has also been made to the regulation of the Deeds Registries Act, which is relevant to sectional title, Constas reports. “Effective from 2 May 2013, this amendment stipulates that a fee of R500 will apply when any person seeks to resolve a dispute by applying to the Chief Registrar for an arbitrator.”
The next development in the pipeline for sectional title role players will be the passing of the Sectional Title Schemes Management Act and Ombudsman Act, which Constas believes should become effective within this year. “We are aware that a board has been constituted, and once the Ombudsman’s office has been set up, the Acts will be passed into law. Exciting times lie ahead, but only time will tell how the sectional title industry will be impacted,” she concludes.
GEXsa protects agents
Guarantee Exchange South Africa (GEXsa) launched this week to provide much-needed guarantees to long- and short-term rental agents and owners should a tenant abscond or leave the property in a bad state. The company also provides financial flexibility for cash-strapped consumers who are credit worthy but struggle to come up with a three-month rental deposit.
This is great news for consumers who in the past were hampered financially by having to pay a two to three month’s deposit. Now they sign an agreement and pay a nominal fee based on their monthly rental in lieu of the deposit. After checking the credit worthiness of the individual, GEXsa is able to have a guarantee issued to the owner or agent within a matter of minutes.
“Due to changes in the macro-environment, a one-month security deposit has become insufficient. With the demand now for two to three months rental as a security deposit, it is difficult to conclude rental agreements,” says Cathy Foster, GEXsa CEO. “The biggest challenge facing landlords and rental agencies for both short- and long-term rentals is securing a reliable tenant who has the correct credentials, can afford an adequate security deposit and firmly commits to return the property in the same condition as it was when handed over to them.”
“The cost to the lessee is determined by the rental contribution, which is marginal in comparison to a three-month rental deposit, which is the norm,” says Foster. GEXsa Guarantees are underwritten in partnership with SA Guarantee Specialists, a registered UMA dedicated to this specialist sector of the market. All the guarantees will carry a claims paying ability rating of AA (or better). The lessor will therefore always have peace of mind that all of the guarantees will be honoured and that SA Guarantee Specialists will facilitate the claim process in the event the lessee fails to pay rental or the cost relating to damages. The lessor is settled in full and SA Guarantee Specialists will pursue outstanding debt from the tenant.
Pan-African online data portal improves its reach and depth
AfricaEye, an online solution designed for investors, businesses, researchers and entrepreneurs, today announced the launch of its improved portal, which now has the ability to give its clients access to market analysis and demographic insights to an even greater number of both South African cities and cities across Africa.
AfricaEye, which was originally launched by Fernridge Consulting, a pan-African research and consulting firm, in November 2012, provides registered users with accurate demographic and expenditure data by area for South Africa and selected African cities, resulting in better decision-making for store expansion, entry to new markets and property development.
Underpinned by Fernridge Consulting’s 10-year track record and methodologies based on geographic information systems (GIS), AfricaEye’s visual interface displays the market potential of a user-defined area, together with competitor and complementary information, and the number of households by income group.
In its premier offering, AfricaEye gives users access to data from 100 South African and 20 African cities and major towns that provides an in-depth report for a user-defined catchment area. AfricaEye aims to make its service as accessible as possible by offering a more basic product with the ability to source data from 650 South African and 30 African cities and major towns resulting in a standard report.
“With AfricaEye, any individual or institution around the world now has access to affordable, industry-tested, reliable, granular, household income and retail expenditure data to improve planning and map their market potential and African expansion more accurately,” says Sybrand Strauss, managing director of Fernridge Consulting.
AfricaEye was developed to make Fernridge Consulting’s existing datasets available in an automated, customisable and user-friendly manner to a broader market. The portal provides granular information and map displays that drill down into the specific demographics of any area as selected by the user. Improvements in mapping technology and bandwidth capacity mean that the data can now be made available in a more cost effective manner.
The AfricaEye dataset makes use of aerial photography, property research, demographic data, global positioning system (GPS) fieldwork and industry-tested consulting experience and methods.
“For many individuals and organisations, the cost to access this type of data is prohibitive,” says Strauss. “With AfricaEye we are able to provide on-demand access to data that was previously only available to large retailers and property developers – information like micro-area household income and retail potential – to anyone globally who needs this kind of data for sub-Saharan Africa.”
Fernridge’s methodology and approach displays each data point as a dwelling on the AfricaEye data platform, with households classified in terms of ‘type of dwelling’ and ‘household income’. The income ranges are derived from up-to-date property values. AfricaEye takes into account the dwelling type, size, age and area as lifestyle indicators. The methodology takes into account living standards of areas comparative to each other, incorporating fluctuations in the property market by means of the affordability of dwellings.
“We believe our market knowledge and 10-year relationship with customers such as The Spar Group and McDonald’s is proof of the value of this type of information, as we are able to provide our customers with analysis, such as accurately predicting sales forecasts, for new stores that open within our regional footprint,” concludes Strauss.
Redefine ups holdings in Australian property group
Redefine Properties seized the opportunity to increase its direct holding in Australian-listed Cromwell Property Group this week by taking up Aus$65.6-million of Cromwell’s capital raise, which will partly fund Cromwell’s successful acquisition of a portfolio of government properties.
Marc Wainer, CEO of Redefine, says: “It’s our stated intention to deepen our presence in Australia. This take-up of capital grows Redefine’s interest in Cromwell from 10% to 12.5%.”
Cromwell has acquired a Aus$405-million portfolio of seven office properties from the New South Wales (NSW) government in Australia. It raised Aus$250-million in capital to fund a portion of the transaction.
Three of the properties acquired are in Sydney CBD, including the A-grade Symantec House and B-grade McKell Building and Bligh House. The remaining four buildings are all regional assets in NSW. The acquisition boosts Cromwell’s investment property portfolio to around Aus$2.3-billion.
“This attractive portfolio includes five properties that have 15-year leases with the New South Wales government. Of the remaining two, one has a five-year lease in place and the other is a multitenant building. Properties of this quality are achieving a 9% yield in Australia. This highlights how expensive comparable properties are becoming in South Africa,” adds Wainer.