Property prices going down

[Marq]

If I have to pay a monthly amount to the municipality, that is greater than my bond, just to retain title, then I submit that while you may have a title deed in hand, it is a huge liability and certainly not an asset. As such - you do not own your property - the council does.

The Durban rates scenario is slowly gathering momentum with rate payers association and opposition parties giving it stick. The municipality received over 50 thousand objections and the valuations continue to be challenged. Dictator Sutcliff carries on denying and remains arrogant and petulant as ever, according to the latest news from the Mercury.

[meakin]

If I have to pay a monthly amount to the municipality, that is greater than my bond, just to retain title, then I submit that while you may have a title deed in hand, it is a huge liability and certainly not an asset. As such - you do not own your property - the council does.

The Durban rates scenario is slowly gathering momentum with rate payers association and opposition parties giving it stick. The municipality received over 50 thousand objections and the valuations continue to be challenged. Dictator Sutcliff carries on denying and remains arrogant and petulant as ever, according to the latest news from the Mercury.

Marq, true. But say all your taxes and rates too are confined to a single land tax based on the benefits which your land(s) enjoy and not your work, profits, interest and VAT. If I may make a plug have a glance at my booklet "A Creative Solution to Poverty and Unemployment" and perhaps you will want to join us. Peter

[Marq]

a single land tax based on the benefits which your land(s) enjoy and not your work, profits, interest and VAT.

Got me here Peter - I have no idea what this means.

My land does not enjoy anything - it just is. The utilisation of the land is another thing. How I work and what I generate is another.

Perhaps you would like to expand your theory a bit?

[meakin]

Marq, I will try to answer your question. You say "My land does not enjoy anything - it just is".
PIM: 1) If it does not enjoy anything then, excuse me, why does it have a price? Why is the average vacant plot price in the upper R3Ks and small-holdings double this? Land prices are a multiple of land rents: PRICE= LAND RENT times its P/E RATIO, like share prices.
PIM : 2) Does your land not enjoy any natural endowments; no fertility, no rain, no sun, no view?

PIM : 3) Does your land not enjoy any infrastructure such as roads, pipes, telekoms, electricity.

PIM : 4) Does your land not enjoy any access to jobs, hospitals, schools, shops and other ammenities?

PIM: 5) If it lacks all of these then it has no benefits and is worthless.

PIM: 6) But note here that all of these benefits come from nature or society not from you personally.

PIM: 7) So these benefits are entirely at taxpayer's (community) expense which become crystallised into private land prices. The big one is the Gautrain which you and I pay for in Cape Town and Durban but which those who own properties near the new stations will benefit from to the tune of R22Bn in improved land prices.

PIM: 8) My case is closed but the solution is to tax land fully and to replace taxes on efforts which you personally make to earn a salary, profits, interest and to trade (VAT).

I must now go and mow the lawn so as to keep my house saleable" You will find more about this at www.sacprif.org in out booklet.

Peter

[Marq]

I have always battled to understand economics theory because it just does not appear to be logical.

Here is an economic theory that has been around since 1879 and Peter you are correct - years of research lie behind your proposal - not a new one - but why has it not been implemented anywhere as a total system?

The formula put forward that "When the tax rate equals 100% of the rent then the land price becomes zero", adds to what I said that we never own the land we live on or use. It is just set up as a liability in our system. The price of land is derived from my expectation of how I can use it, so excuse me if I differ from your opinion that land has this ability to enjoy itself.

I also do not agree with the Physiocracy theory that there is no personal accrual of lands benefits. If it was not for personal effort nothing would ever happen in the first place. So I still think land does not enjoy anything; we do, after we as individuals work it as such. The roads, hospitals etc. are for our benefits not the lands. This system proposed still penalises the user. Either for not using it or for adding value and thereby creating a basis for the tax.

Neither can I agree with your use of the example of the Gautrain. Those whose land was expropriated to make way would not agree with your benefits assumption and I cannot say that living next to a train station or rail tracks has ever increased any property value. The probability is that there will be a large reduction in values. Your billions in increased values, is from what I can determine, based on a model of the Jubilee railway in London - an entirely different world with hundreds of thousands of commuters likely to use it over a much shorter distance. The Gautrain it appears will cost more than the average person can afford and only services a few specific areas of the community who are unlikely to use it anyway. It is not a good example of 'community' structures to benefit all but more likely a good example of how the Government is keen to waste taxpayers money and fund their gravy train.

You also do not mention where the land is coming from or put forward any financial numbers to prove the point. I looked at the numbers briefly and they went like this - The current income required is about 400billion. Halve this as we will not need all the grants and social stuff and we do not need so much admin, tax offices etc. So we need to now raise 200billion There are 30million in the potential work force, all of who are given this 12 hectares that you mention. No other taxes are involved. The answer therefore is that each land owner (everybody) must contribute 6,7million each a year from their small piece of land....mmmm - I wonder.

Good luck with your legal action though. On this point I agree fully even though I think you are arguing against yourselves.

[murdock]

over the top for me...back down to earth... simple things...
if i purchased a house just to live in...so that i dont have to pay off someone elses bond as i have in the past 8 years...the most recent 4,5 years i paid off just over 300 000 of the landlords bond...kept the property in good order and did all repairs at my cost...then still got scr*wed for my deposit again...had to write off another R4500...there is always an excuse why they cant pay.

so now a simple question for a simple person...do i have to pay rates at the value the council valued it at... or do i pay rates on the amount i have just paid for it?

i paid 60% of the value because the property needs some serious attention.

[meakin]

Marq says 1. "I said that we never own the land we live on or use. It is just set up as a liability in our system."
PIM says "Marq, believe me you own the land described on your title deed. You can sell it or destroy it or build on it which you cannot do with other's land. Currently you also own the Physiocrat or Ricardian rents. That is you can lease the land to others who will pay you a rent depending on what you both agree are the monetary benefits to be enjoyed there, if you prefer."
Marq says "I also do not agree with the Physiocracy theory that there is no personal accrual of lands benefits."
PIM says I do not understand this but I do know that if you have two identical farms owned by identical twins except that one has no ground water [geologically] and the other has then the extra rent which someone will pay for the watered farm, when capitalised, will show a higher capital value. This is a personal acrual.
Marq says "This system proposed still penalises the user. Either for not using it or for adding value and thereby creating a basis for the tax."
PIM says "If this means that two adjoining identical plots pay the same tax whether or not a house, barn, shop or factory are built on them then sure. If I own a mansion and my neighbour has not made any improvements then that is right to me because in contributing to the City costs (call them a levy if you prefer) I am not paying more then he or she even though I have invested in a house and pay wages, maintenance, depreciation etc."
Marq, on the Gautrain and the leakage of value to those around the new stations you will have to give me the benefit of the doubt. Firstly huge developments are under construction which would not have happened before and secondly if even a gravel road is tarred it will raise the cost of raw land in that road. A bridge saves petrol. All public infrastructure will raise land values unless it is completely inappropriate. But why not let those who benefit from a road or hospital or rail link pay for it. That saves you some anyway.
Marq, I can also send you the calcs about what what land taxes we will all pay but it is not necessary. What happens is that the 2008/2009 R620Bn in domestic taxes is divided up between resource owners in accordance with the value of the land or mineral or whatever values. The new taxes from vacant lands are used to reduce the overall tax take or to improve services.
Marq, do I hear you say that you are content to give up some of the rewards which your work, savings and trade bring in. If so you are the first I have ever met.
Regards, and PS Governor Craddock of the Cape installed a land tax in the early 19th century to encourage indigent people from England [who had lost their land to the Norman Baron descendents] to immigrate to the Cape to escape their landlessness due to the Enclosures Act. It was called perpetual quitrent tenures.
PPS You can always change your mind and help with SACPRIF. I am told nothing so bold has ever been tried as this!

[meakin]

You pay on the value at the date of valuation which is not necessarily what you paid for it. Peter Meakin. In Durban the date of valuation was July 2007, I believe.

[Dave A]

Local property in the doldrums

I remember talking to a bank property valuer years ago and he mentioned that bank data tends to lag behind what is actually going on in the market.

An index tracking median house prices in South Africa fell 1,8% in August from a year earlier as tough financial conditions continued to weigh on the sector, a survey showed on Monday.

Standard Bank's monthly residential property gauge has been in negative territory since March because higher interest rates and stricter credit laws introduced on June 1 2007, have weighed on the sector.

Property affordability has fallen since the central bank has raised rates by five percentage points in the past two years, stretching consumers to the limit at a time when they already face high inflation.

The median house price was R550 000 while the five-month moving average growth was recorded at 7,7% year-on-year.

Standard Bank said the August data might be a signal that the sector was stabilising, although it would remain under pressure.

"Over the short term, economic conditions are expected to deteriorate further," said Standard Bank in a statement.
full story from M&G here

Well, it's the mean average, I guess. But still not pretty.

I expect the fact that investing in property overseas is pretty attractive right now isn't going to help local markets much either.

A change in thinking among the investor community towards offshore diversification is becoming increasingly evident, driven in part by attractive yield value in several overseas property sectors.

Historically, South African property companies have been precluded from investing offshore.

Exchange-control issues aside, forward yields on foreign property investments in highly developed countries such as the United States, the United Kingdom and other European centres have been far too low to be attractive to South African listed companies. This was because the acquisition of such foreign assets would be income dilutionary to local funds, which in turn would have had a negative effect on the acquirers' share price.

But according to Brian Azizollahoff, chief executive of Redefine Income Fund, the advantages of limited offshore diversification have made even dilutionary acquisitions somewhat palatable as there is a mitigation of risk from the perspective of geographic concentration, as well as a natural rand hedge when the local currency weakens. "What is very attractive in the current world economic climate is that there is value in the property sectors in the US, Europe and Australia never before offered. Yields on both direct property as well as listed property companies are at highs even above yields in South Africa."

So what is the significance of all this for South African offshore investors? It is, Azizollahoff says, that the significant drop in property value is by no means confined to the listed property sector. Anecdotal evidence is of prime real estate in the UK trading at yields of 8% and 9% and in the rest of Europe (for example Germany) between 10% and 12%.
full story from M&G here

[Karenwhe]

"I expect the fact that investing in property overseas is pretty attractive right now isn't going to help local markets much either."

That is not exactly true, unless you speak about speculating = that is not investing.

I see what is advertised in other countries that SA investors are looking most places they are buying into another boom market. Which can land them in the same place the boom in SA did.

Professional speculators can make a fortune right now overseas in certain places. But that is really not investing as they are looking at capital growth and then sell in 1 to 3 years.

Capital growth in "ghost money", until the time and moment that is realized. But it has to be realized.

In what country do you see prices so low (as in some areas right now in SA) that you can make money when you buy and reduce the risk of the purchase to minimum?

[Dave A]

I see what is advertised in other countries that SA investors are looking most places they are buying into another boom market.

That would be putting the "opportunity" too strongly, surely.

I'd say it is a good buying moment in a depressed market just like here - with the bonus of being a Rand hedge, relatively low interest finance and good long term prospects of being able to collect the rent.

I agree you still got to pick them and not get swept off your feet with agent sweet talk overamping the pitch

[Karenwhe]

The overseas market that are sold are in boom markets. In other words you rentals will NOT cover the bond.

This also means that you are exposing yourself to stronger currency shortfalls. In simple words you pay MORE for the pleasure of risking your money, when you could do it just as well at home with less risk if you are into taking risk in the first place.

I really don't understand why people are so blind to shortfalls.

Yes, of course if you are a multi-millionaire and you can buy outright and keep until "the cows come home" or with some bonds and you don't really care if you lose it because these buys are speculations (in case the markets will not go further up in some boom areas) - then it is not a problem.

But I see these places are sold to hard working people with high salaries. A salary is a salary and a shortfall is a shortfall and it HAS to be sustained not to lose the property.

Most people still don't get the difference between speculation and investing and will pay a high price for it. Most are already paying a high price for it in SA for buying high and wanting to sell to the "last fool in line" (as they say on the stock market). All you have to do is check the repo lists and auctions in execution to see the state of the affairs.

Now the market is depressed here so we are looking to make the same mistakes overseas. How does that make sense?

Really, there is no rocket science here, it is simple maths.