Risk analyst says mining companies dismiss the prospect of nationalisation at their peril.

(Bloomberg) The ruling party may institute some form of mine nationalisation, a step that could throttle investments in the world’s biggest producer of platinum and chrome, according to a confidential report prepared for mining executives by a risk analyst.

 A drive to seize mines, banks and land is being spearheaded by Julius Malema, 30, who won an uncontested second term as the leader of the youth league of the ruling African National Congress in June. The ANC in November instituted a study into the viability of nationalisation. The findings will be the “key political issue” in party leadership elections in December 2012, Claude Baissac, the Johannesburg-based founder of country- risk consultants Eunomix, wrote in the report.

 “The possibility of the ruling party voting for a major policy shift affecting security of tenure and ownership of the mines is now greater than at any point since the end of apartheid,” Baissac wrote in the report obtained by Bloomberg News. Mining companies “will now dismiss the prospect of nationalisation, whichever form it ultimately takes, at their peril.”

South Africa is the continent’s largest producer of gold, supplies European and Indian power plants with coal and depends on mining for half of exports. In April 2010, Citigroup valued the country’s mineral resources at $2.5 trillion, the most of any nation.

“It is only our policy conference that is going to bring some finality to the matter,” Jackson Mthembu, a spokesman for the ANC, said in an interview from Johannesburg on July 29.

“Studies are being conducted. We can’t therefore jump the gun.” Malema told reporters in Johannesburg on Sunday that the party is studying how to implement nationalization rather than whether to go ahead with the policy.

An ANC vote for nationalisation “would represent the crossing of the Rubicon for both the ANC and for the country,” Baissac wrote. Shares of companies “with a large exposure to South Africa would tumble. Foreign capital would rush out of the country, bringing an immediate collapse of the rand”.

On July 26 2002, shares of Anglo American (JSE:AGL) Plc, the biggest investor in South African mining, plunged as much as 12% after the Mines Ministry said it was considering a proposal that would require mines to be 51% black-owned. The rand declined as much as 1.9% against the dollar.

 

 

Christopher Joye
Published 6:25 AM, 6 Jul 2011 Last update 10:30 AM, 6 Jul 2011
 
Property Observer <http://www.propertyobserver.com.au/>

In one corner we have journalists at The Economist newspaper, who in a recent survey made the extraordinary claim that Australian house prices are overvalued by 55 per cent using their preferred benchmark. In the other corner we have a crowd of the most respected economic minds in Australia, including the Reserve Bank of Australia, the Commonwealth Treasury, almost all market economists, and leading house price index providers, such as RP Data and Rismark.

This latter cohort essentially contends that The Economist does not know what it is talking about. They argue that Australian house prices are not materially overvalued, and there is no reason to believe that they must suffer precipitous price falls in order to obtain some more desirable valuation benchmark.

This group has also produced vast reams of analysis showing that robust demand and supply-side fundamentals underpin Australian housing valuations while dwelling-price-to-income ratios remain unexceptional by international standards. In fact, recent research by Rismark has demonstrated that house price growth in Australia’s capital cities and our regional areas has not kept pace with disposable household income growth since the end of the last cycle in 2003.

It was only a few months ago in The Economist’s backyard, the city of London, that RBA governor Glenn Stevens was tossed a question about whether he was worried about Australian housing valuations. In the past – most notably in 2002 and 2003 – the central bank has not hesitated to express reservations. Yet Stevens responded:

“Well, let’s establish a few facts… For the past year or two, house prices haven’t done anything much at all… We continue to see arrears rates on mortgages very low by global standards ...We don’t have a gearing up going on now… I don’t think we have huge rises going on... that’s probably not top of my list of worries…

“The other thing I’ll say is that it’s quite often quoted very high ratios of price to income for Australia, but if you get the broadest measures, a country-wide price and a country-wide measure of income, the ratio it about 4 ½ and it hasn’t moved much either way for 10 years. And that is higher than it used to be, but it’s actually not exceptional by a global standard as far as I can see.”

While the typically conservative RBA thinks Australia’s housing market is sitting pretty, The Economist’s survey suggests it is massively overvalued. In order to decipher who is right or wrong here, one has to dive into the detail.

The Economist arrives at its 56 per cent estimate by taking the ratio of median house prices to median rents, and then comparing current levels with their “long-run average”. There are many technical problems with this approach. One obvious issue is that we do not observe rents for more than two-thirds of the entire housing stock, which is ‘owner-occupied’. So The Economist is actually comparing the yields on rental properties with the prices of owner-occupied homes. Imputed owner-occupied rents are likely to be different to those deriving from investment properties given the far greater control rights associated with the former.

But this is a trivial error in the scheme of things. There is a much deeper problem with The Economist’s logic, which both the RBA and we here at Rismark have repeatedly highlighted. Let me explain.

Anyone can compare the current observed values of a range of economic indicators, such as interest rates or inflation, with their ‘long-term’ averages. But we need to ask ourselves whether this is an informative exercise, or potentially misleading.

For example, applying The Economist’s way of thinking to Australian interest rates would lead one to conclude that current rates are much too low. Indeed, the analysis implies that Australian government bonds are massively overvalued since today's 10-year yields of 5.5 per cent are more than a third lower than the 30-year average of 9 per cent.

Yet the body that sets interest rates – the RBA – has repeatedly told us that present-day lending rates are, in fact, “a little higher” than their long-term averages. So what is going on?

As an alternative, let’s examine inflation. Today the RBA believes that the acceptable rate of consumer price inflation is around 2.5 per cent per annum. Yet the 30-year average rate is 4.2 per cent per annum. Does this mean that the RBA should substantially revise up its inflation target? Of course not.

These variables were not selected by chance. The truth is that the crux of this debate hinges on how inflation, interest rates, household debt, and house prices have varied over the last three decades.

In its survey, The Economist takes median house prices and median rents over the last circa 30 years – which is the longest horizon over which these data are publicly available – and calculates a long-term ‘average’ ratio, which it assumes to be the ‘correct’ benchmark. It then compares current house prices and rents to this 30-year benchmark. If current ratios are above (below) this 30-year average, The Economist claims they are over- (under-) valued.

The Economist does not question whether the old housing ratios might be nonsensical to today’s home owners as a result of: (a) fundamental changes in the structure of the economy wrought by the fact that interest rates over the past 15 years have, on average, been 43 per cent lower than interest rates in the 15 years that preceded that period (see first chart below); (b) the fact that average inflation since the middle of the 1990s has been 55 per cent lower than inflation in the 15 years prior (see second chart); or (c) the fact that the rise of two-income households and the female participation rate in concert with a near halving in the nominal cost of debt might have triggered a once-off upward increase in household purchasing power, and hence housing valuations.

http://www.businessspectator.com.au/bs.nsf/0bd6ea4d7e0e401eca257300000473fc/73880cd2c8e548f9ca2578c400199230/bodyrich/28.47AA!OpenElement&FieldElemFormat=gif <http://www.businessspectator.com.au/bs.nsf/0bd6ea4d7e0e401eca257300000473fc/73880cd2c8e548f9ca2578c400199230/bodyrich/28.47AA!OpenElement&FieldElemFormat=gif> click the image to enlarge <http://www.businessspectator.com.au/bs.nsf/0bd6ea4d7e0e401eca257300000473fc/73880cd2c8e548f9ca2578c400199230/bodyrich/28.47AA!OpenElement&FieldElemFormat=gif>
http://www.businessspectator.com.au/bs.nsf/0bd6ea4d7e0e401eca257300000473fc/73880cd2c8e548f9ca2578c400199230/bodyrich/60.2EBE!OpenElement&FieldElemFormat=gif <http://www.businessspectator.com.au/bs.nsf/0bd6ea4d7e0e401eca257300000473fc/73880cd2c8e548f9ca2578c400199230/bodyrich/60.2EBE!OpenElement&FieldElemFormat=gif> click the image to enlarge <http://www.businessspectator.com.au/bs.nsf/0bd6ea4d7e0e401eca257300000473fc/73880cd2c8e548f9ca2578c400199230/bodyrich/60.2EBE!OpenElement&FieldElemFormat=gif>
Now we have tried to replicate The Economist’s analysis using the longest publicly available time-series of median houses prices and median rents in Australia, which one can purchase from the Real Estate Institute of Australia. This covers the period June 1982 through to December 2010.

If we adopt The Economist’s method, we conclude that the current ratio of median Australian house prices to median rents is about 38.7 per cent above its 28-year average. We do not know how The Economist gets its 56 per cent estimate, but ours is in the same general ballpark.
Interestingly, we can get a 56 per cent number if we look at inflation over this exact same period. Australia’s current inflation rate of 2.7 per cent would have to rise by 56 per cent to agree with its long-term average of 4.2 per cent since June 1982. But, of course, nobody in their right mind would claim that this makes any sense. It is just that The Economist uses this logic when it analyses housing.

One can undertake a similar exercise with interest rates. The headline mortgage rate today is 7.8 per cent. The average headline rate since June 1982 is 9.9 per cent. Does this then mean that Australian mortgage rates are currently way too low? Applying The Economist’s method, Aussie home loan rates should rise by 27 per cent in order to correspond with this historical benchmark.

As we mentioned earlier, imposing that logic on the Australian government bond market would imply that it is in the throes of an enormous bubble since yields are more than a third lower than their 30-year average.

To really understand what is going on here one needs to examine the time path of three economic variables: inflation; interest rates; and rental yields.

As you can see from the chart above, Australian inflation has steadily declined from its high and volatile double digit levels in the 1980s to sit within the RBA's 2 to 3 per cent per annum target band during most of the past two decades. This has allowed the central bank to in turn reduce interest rates.

In the RBA’s view, the long-term reduction in inflation has mainly been a function of the early 1990s recession and its adoption of what is known as an ‘inflation target’. The RBA’s 2 to 3 per cent target was first taken up in about 1993, and more formally enshrined in an agreement between the RBA and the Treasurer in 1996.

Between 1982 and 1995, mortgage rates in Australia averaged 12.8 per cent. Since the start of 1996, they have averaged 7.3 per cent (or 43 per cent less). The RBA considers today’s mortgage rate of 7.8 per cent to be slightly “above” its historical average because the RBA believes that the history that is relevant to today starts with the application of the inflation targeting approach to monetary policy in the early 1990s. Yet we don’t hear The Economist claiming that Australian mortgage rates are too low. (In fact, Australian mortgage rates are today amongst the highest in the developed world.)

The RBA has regularly argued that the structural decline in inflation, and the resultant downward shift in nominal interest rates, in turn drove a once-off upward shift in household’s borrowing (and purchasing) power. This has been reflected in the once-off jump in household debt levels, which basically occurred between 1996 and 2003. This marked rise in household borrowing power also boosted their purchasing power and hence the value of readily leveraged assets, such as houses.

In the following chart, we track the change in Australian mortgage rates and rental yields since 1982. The message is clear: the secular decline in nominal interest rates has propagated a corresponding fall in yields.

http://www.businessspectator.com.au/bs.nsf/0bd6ea4d7e0e401eca257300000473fc/73880cd2c8e548f9ca2578c400199230/bodyrich/92.4DBA!OpenElement&FieldElemFormat=gif <http://www.businessspectator.com.au/bs.nsf/0bd6ea4d7e0e401eca257300000473fc/73880cd2c8e548f9ca2578c400199230/bodyrich/92.4DBA!OpenElement&FieldElemFormat=gif> click the image to enlarge <http://www.businessspectator.com.au/bs.nsf/0bd6ea4d7e0e401eca257300000473fc/73880cd2c8e548f9ca2578c400199230/bodyrich/92.4DBA!OpenElement&FieldElemFormat=gif>
Our final chart tells the same story by comparing Australia’s dwelling price-to-disposable household income ratio (bottom line) with Australia’s rent-to-dwelling price ratio (top line) over the last two decades. Observe how these ratios look like mirror images of each other. The common driver has been inflation and interest rates.

The RBA believes that as interest rates started to stabilise at their new, much lower levels in the late 1990s, and households got comfortable with the idea that both rates and inflation were unlikely to jump back to the double digit levels of the 1980s, there was a consequential upward increase in the valuation 'level' of housing assets. This had been fully priced by the early 2000s, which is why the two ratios track sideways thereafter.

To be clear, the RBA's ability to get inflation under control (and thus cut the long-term level of nominal interest rates) caused increases in the household debt-to-income, household debt-to-GDP, house price-to-income, and house price-to-rent ratios. In the jargon, these were 'level effects' rather than 'growth effects'. This means that the very rapid double digit credit growth of the 1990s and early 2000s will not be repeated anytime soon.

http://www.businessspectator.com.au/bs.nsf/0bd6ea4d7e0e401eca257300000473fc/73880cd2c8e548f9ca2578c400199230/bodyrich/126.2A62!OpenElement&FieldElemFormat=gif <http://www.businessspectator.com.au/bs.nsf/0bd6ea4d7e0e401eca257300000473fc/73880cd2c8e548f9ca2578c400199230/bodyrich/126.2A62!OpenElement&FieldElemFormat=gif> click the image to enlarge <http://www.businessspectator.com.au/bs.nsf/0bd6ea4d7e0e401eca257300000473fc/73880cd2c8e548f9ca2578c400199230/bodyrich/126.2A62!OpenElement&FieldElemFormat=gif>
Unless you believe that we are going to get double digit inflation and 17 per cent mortgage rates, which most observers think are near impossibilities, the housing market benchmarks of the 1980s are irrelevant to home owners in the second decade of the 2000s. The same principle applies to The Economist’s analysis.

It would, of course, be wonderful if our ever-changing, multi-dimensional world could be judged by crude long-term ratios that blissfully ignore all sorts of key facts. Unfortunately, that's just a recipe for confusing further an issue that already has many confused.

Looking ahead, it is highly likely that Australian house prices will track household earnings in what PIMCO's Bill Gross has aptly described as the 'New Normal'.
This article first appeared Property Observer <http://www.propertyobserver.com.au/>  on July 5, 2011. Republished with permission.
 

 

 

Dr Hannes Dreyer, the global leader in Wealth Creation, will interview Scott Picken, IPS CEO. Scott Picken has helped over 2000 people invest in international property to a value of R1.6 billion as is the leading expert in South Africa on Offshore Investment and International Property.

What will be covered:

i.              What is happening in global markets?

ii.             5 fundamental risks facing all South Africans

iii.            Why invest offshore?

iv.           Where? USA, UK, Aus, other markets?

v.            Risks and Growth

vi.           Analysis the investment?

Over 80% of people who invest overseas actually loose money for a number of reasons. Learn what you have to know to ensure you don’t join them and you achieve your goals of Wealth Preservation, a Plan B and most importantly Peace of Mind for your family and you.

We won’t leave until all the questions are answered and you have the knowledge and your plan!

·         Date: 24^th May 2011

·         Time: 7pm – 8:30pm (SA time)

·         Price: R250 (first 100 & IPS Gold and Platinum Clients are free)

·         Click here to book - https://www2.gotomeeting.com/register/998941203

 

 

RP Data – Rismark Home Value Index Release (31 December 2010) Capital city (-0.2 per cent) and ‘rest of state’ (-0.1 per cent) home values both fell in seasonally-adjusted terms in November. In raw terms, the declines were larger (-0.6 per cent and -0.8 per cent, respectively). RP Data & Rismark expect further weakness in 2011 as rates rise. Drawing on more than 340,000 sales in the year-to-date, Australia’s leading measure of movements in the value of residential real estate, the patented RP Data-Rismark Hedonic Home Value Index, recorded falls in the month of November in both the capital city (-0.2 per cent) and ‘rest of state’ (-0.1 per cent) housing markets across all dwelling types. In raw terms, the declines were unsurprisingly larger (-0.6 per cent and -0.8 per cent, respectively) given the seasonal slowdown that occurs at this time of the year. In the capital cities, Australian home values are now lower than the levels they reached in March 2010. That is, there has been no capital growth since the end of the first. Similarly, in the ‘rest of state’ markets, which account for around 40 per cent of all homes by number, dwelling values are now below their January 2010 peak. The key drivers of the soft-landing in Australia’s housing market in 2010 has been the RBA and the banks, which have lifted the headline variable mortgage rate from 6.3 per cent in November 2009 to 7.8 per cent in November. RP Data’s director of research, Tim Lawless, observed that the decline in Australian home values had been reasonably modest, “Since their peak in May 2010, capital city home values have fallen by 1.0 per cent in raw terms. The rest of state areas peaked in April 2010, and have suffered a similar 0.9 per cent fall. In the broader scheme of things, these are fairly modest adjustments in value.” The soft-landing in Australia’s housing market has been evidenced in all capital cities and across each segment of the market. When RP Data-Rismark divide up their hedonic dwelling value index into ‘cheap’, ‘middle market’, and ‘expensive’ suburbs, they document a synchronous downturn in capital growth rates across all these areas. Christopher Joye, Rismark’s managing director, added "Since the middle of the year, we have had a somewhat bearish view on housing over the 2010-11 period as a function of our projections for interest rates. If for some unlikely reason the RBA does not raise rates further, we would expect to see national dwelling prices stabilise over 2011 and grind out capital gains in excess of headline inflation, which we anticipate will breach 3 per cent by the end of the year.” “Assuming, heroically, that there are no more increases in the cost of mortgage debt, we would forecast capital city dwelling price growth of 4-6 per cent in 2011. This is not, however, our base-case”, Mr Joye said. Joye continued, “We believe that there is a risk of at least three cash rate increases in 2011. In this event, our central case is that there will be little-to-no nominal dwelling price growth over 2011, with a chance of small nominal declines. This is no bad thing, and will only further improve asset-class valuations. Indeed, Rismark has recorded an improvement in Australia’s dwelling price-to-disposable household income ratio, which has fallen from a peak of 4.7 times to 4.4 times in the third quarter of 2010. We believe that the likelihood of substantial national house price falls is remote.” The under-performance in Perth and Brisbane has persisted in line with their higher repossession rates that came about care of the GFC. Over the three months to end November, Perth home values were down 3.0 per cent and Brisbane values were down 1.0 per cent in seasonally-adjusted terms. The best performing markets over the three months to end November have been Darwin (up 1.9 per cent), Canberra (up 1.2 per cent) and Melbourne (up 1.2 per cent). Financial markets are currently pricing in a further two 25 basis point RBA cash rate increases over 2011 while the economic community expects a more aggressive 3-4 rate hikes. According to Mr Lawless, the prospect of further rate hikes is likely to keep market conditions in the doldrums over the coming year, “The expectation of higher mortgage rates will be enough to keep a lid on capital gains across most parts of the country. Consumers have become very sensitive to interest rate adjustments to the extent that the nation seems to hold its breath on the first Tuesday of each month when the RBA’s decision is announced.” Christopher Joye added that the RBA had pioneered a new form of monetary policy, “The RBA has well and truly led the central banking world on the subject of asset prices. The RBA has recently adjusted the way it sets interest rates to take more explicit account of changes in asset prices, which, in principle, include shares, commercial property and residential housing. The RBA accelerated its rate hikes in 2009 and 2010 more rapidly than it would normally have done so in order to engineer a cooling in a housing market that it perceived to be growing at unsustainable rates. Other central banks, such as the Swedish Riksbank, are now following the RBA’s innovative lead.” “This expansion in the RBA’s policy remit is not, however, without considerable risks: it is always possible that this benign autocrat overplays its hand and lifts rates too far in response to non-inflationary events. Mistakes in this vein arguably occurred in the late 1980s, which led to a peak mortgage rate of 17 per cent in January 1990 and the recession ‘we had to have’. As a consequence, unemployment soared to around 11 per cent. The independence of central banks, and the RBA’s hard-won inflation-fighting credibility, are historically recent innovations. The non-democratically elected leaders of these institutions would, therefore, be wise to exercise their considerable powers with the utmost humility and care”, Mr Joye cautioned.

Audio Version You Tube Version

A true story of 2 brothers and the lessons about Offshore Property

 

18 months ago, Scott Picken, IPS CEO, met two brothers and they were explaining their concerns about their future. Piet was concerned about the future and wanted to immigrate with his family to Australia. John, was very happy in South Africa, but was worried about the long term future. Both had great businesses in South Africa and strong balance sheets.

Scott, who has helped over 2000 people invest internationally to an amount of R1.6 billion, explained to them both that it was essential to starting accumulating assets overseas so that they could grow their asset base in a first world economy and have first world assets and income. This would provide them with wealth preservation, a plan B and most importantly peace of mind for them and their family. Scott also explained how it was imperative to start as soon as possible and to use their income streams in South Africa and their asset base to enable them to purchase the properties overseas, effectively starting the process of wealth migration while the Rand was strong.

18 months later it is a very different picture ............

Piet didn’t listen to Scott and sold up everything in South Africa and decided to move to Australia with his family. 18 months later he is still renting as he could not get a mortgage due to not being able to show an income stream. He tried to start a business and failed as he did not know the business landscape and had no networks and then could not find a job.  His resources have dried up and he now relies on his brother from South Africa to support him, living a very impoverished lifestyle.

John on the other hand, completely understood. He realised that there is huge opportunity in South Africa, with allot higher growth opportunities and risks in the short term that he could manage. Therefore he continued to grow his business, but with the extra wealth that he created he started to buy properties in Australia. In the last 18 months he has already bought 3 properties and with the growth in the Australian property market, he accumulated nice equity on his balance sheet in Australia – well on the way to having the asset base and foreign income stream he wanted!

Scott met with John recently and this is what he had to say. “It is a real pity about my brother Piet. I wish he had stayed here and build his asset base first before he moved. I love South Africa and at the moment things are great. My business is doing well and I am not sure I will ever leave. The thing I love though is that now, each time Julius Malema says something ‘stupid,’ I don’t worry anymore as I have a great Plan B. It is so comforting to live in South Africa and experience everything this country has to offer, but have the peace of mind to know that no matter what the future holds I have a plan for my family and I!”

The morale of the story is very important. Scott Picken is passionate about South Africa, but as Clem Sunter said recently, it is also very important to do the scenario planning and have a plan should certain outcomes transpire. Betting everything on one outcome is like going to the casino, playing roulette and betting everything on black or red. What happens to you if the future is not as you planned? Scott says, “For me it is common sense and so I invest 70% of my assets locally and 30% overseas in first world economies.”

Scott Picken and IPS will be hosting a breakfast on the 1^st of December 2010 to discuss the 5 most dangerous trends effecting South Africans today. Scott will examine what is happening in the global property markets from his travels this year, review 2010 and show you some of the solutions for 2011. However Scott warns that more than 80% of people who invest overseas lose money. So if you would like to understand some of these dangerous trends and what is happening in the Offshore Property Markets, then this is not a breakfast to be missed. Please click here to book. Finally please contact Scott at scott@ipsinvest.com should you want the FREE report of the 5 fundamental things you need to know before you invest offshore.

Dear Potential Offshore Investor

Napoleon said, “Information was nine tenths of any battle.” The challenge is do you have the right information, are you choosing the right partners, making the right investments and most importantly asking the right questions?

1.       Information – like water, the right information makes you finically healthier, but the wrong information is like poison.

a.       80% of people who invest offshore lose money and the investment becomes a tremendous headache in a short space of time! According to Real Estate Web -http://www.realestateweb.co.za/realestateweb/view/realestateweb/en/page206?oid=54920&sn=Detail – you could also make far better returns in South Africa.

b.      The reason for this is that people make decisions without the right information.  Sure the sales person gives them allot of information, but invariably they will give people what they want to hear?

c.       An example of this is in the last few months South Africans have bought $184 million on the Gold Coast in Australia. They think they are getting a real bargain, but when you talk to Richard Dunn, OzInvest Acquisition Manager, a company who spends millions on research, says, “We get offered opportunities on the Gold Coast every day! At the moment we would never offer these to our investors as there are huge vacancies and the property values are in real trouble.” Similar examples are Manchester or Leeds, where South African investors believed they were buying real value (perceived huge discounts) and yet there is huge oversupply, banks are not lending and there are huge rental problems. Do we need to talk about the information presented on Dubai and how that has changed?

d.      The questions you need to be asking:

                                                               i.      “How much do you spend on your research monthly?”

                                                             ii.      “Can you show me how you have communicated this research over the last couple of years, so that I can see you really understand your market?”

                                                            iii.      “Can I see the research from an entity that doesn’t have a vested interest in selling something to me and who substantiates this information?”

                                                           iv.      If someone is based in South Africa – “How often do you travel over to the investment country to understand the market and make sure you are keeping up to speed with current trends?”

 

2.       Partners – the key to the vault of success!

a.       In life there is a saying, a chain is only as strong as its weakest link.

b.      Investors often underestimate how important the choice in your partner is to your long term success. Dr Dolf DeRoos, the World Famous International Property Investors says, “You are only as strong as your team.”

c.       Many investors invest because they like the salesmen, they have been referred by a friend or they associate with a brand. This can be catastrophic to your success!

d.      The questions you need to be asking:

                                                               i.      “How long have you been helping people invest internationally?”

                                                             ii.      “How many people have you assisted to invest in this specific country?”

                                                            iii.      “Is this your core business, or something which is supplementary to your estate agency business where you help people buy homes?

                                                           iv.      “Are you a property investor yourself and have you bought international property?”

 

3.       Rentals – the life blood of property investment!

a.       Property Investment fundamentals live and die on cashflow. Experienced property investors understand this and it is why they succeed in all property cycles. Inexperienced investors are always chasing the bargain, and yet often they find a great bargain or focus on capital growth, only to realise there is no rental market. This often destroys the investment and in many instances them financially.

b.      Examples of this are Manchester where you can get 60% discounts but there are 2000 units oversupplied on the market. Dubai which is also at a 60% discount, but has massive oversupply problems (The numerous developers who offered rental guarantees who have gone bust are testament to this). And then Las Vegas which is 70% down, but there are 5000 families leaving a month as tourism is down by 60% and there are 32 000 homes on the market.

c.       If there is one thing you have to be certain on is the rental market and where this demand is going to come from. You need to ask:

                                                               i.       “How can you ensure me of the demand for my property when it is ready to rent?”

·         I am not talking about a 1 or 2 year rental guarantee from the developer, which has often been included in the price. I am talking about me receiving long term sustainable rental income at market related rates from the demand which exists.

                                                             ii.      “Are you prepared to put your money where your mouth is based on this guarantee or assurance?”

·         How would you sustain this long term if you were wrong?

 

4.       Local & International Offices – geography is so NB!

a.       Many salesmen will travel to South Africa with a suitcase, put on a classy presentation, meet you in a hotel, sign you up, take your money and then leave in a couple of days. This is where all the problems start and you can’t get hold of them or find out what is happening, etc. and this is how a “great investment” (supposedly) turns into a lemon.

b.      To be successful you need to ensure the partner you choose to invest with, not only has offices in the foreign country, but also offices and a physical presence in South Africa. It makes such a difference when you can speak to a local South African on the phone, on the same time scales and if needs be come and see them in their office whenever it suits you.

c.       Questions you need to be asking:

                                                               i.      “Where are you offices in South Africa and in the country I am investing in?”

                                                             ii.      “If you don’t have offices in South Africa, how can I ensure that you will still be here in a couple of months or years when I need help with the investment I have bought?”

                                                            iii.      “I would like to visit the property. Who is going to show me around overseas?”

                                                           iv.      “How do you understand the market unless you have someone who is permanently looking for opportunities and living in the property market?”

 

5.       After Sales Support – the helping hand you need! Trust me!

a.       Most investors only focus on the purchase of the property and they forget how important it is to manage the sale. Salesmen are also only interested in closing the sale, but most importantly not to help you right through the process, when you are investing from afar. Many companies claim to provide the full service to you, but where are they based and how are they going to do it?

b.      Questions which you need to ask:

                                                              i.      “How big is your aftersales team and who will be assisting me personally making sure the property transfers timeously into my name?”

·         Sorry I am not talking about the salesmen, I want an Aftersales Professional who has been dealing in this for many years and understands the nuances between South African property and overseas property.

                                                             ii.      “What happens when the property is ready? Who will be assisting me with transfer of the property, inspections, etc?”

                                                            iii.      “Can I see referrals from people who were happy with your service?”

With these simple questions you can ensure you don’t buy lemons and you can take advantage of the significant opportunities. It is not only wise it is prudent to invest some of your wealth in foreign markets. In the Real Estate article above it talks of the tremendous opportunities locally. We completely agree with this and continue to make great money in South Africa, through the use of strategic partners as they suggest. However once you have made this money, it is essential, if not irresponsible not to, to take some of this wealth and invest overseas. To achieve your goals of Asset Preservation, Capital Growth, a Rand Hedge, Diversification and Positive Cashflow in first world currencies – you need the right information and partners and most importantly to be asking the right questions!

Good luck!

Scott Picken

IPS CEO

www.ipsinvest.com

 

Boom, credit crisis and subdued aftermath