Farmer Wins Landmark Case
An article published on the IOL website discusses the results of what some are calling a landmark case for South African farmers and other citizens with business interests in crisis torn Zimbabwe. On Tuesday, the Pretoria High Court ruled in favour of a Bothaville farmer who lost a number of farms and businesses in Zimbabwe due to the ongoing political upheaval.
The Judge, Bill Prinsloo, ruled that Crawford von Abo had the right to diplomatic protection of his assets in Zimbabwe from the South African government, specifically regarding the violation of his rights by the Zimbabwean government. Prinsloo also ruled that the government had 60 days to remedy the situation and report back to the court regarding the steps taken to restore his rights in Zimbabwe.
Von Abo has been struggling for more than six years to get the South African government to act against the Zimbabwean government’s confiscation of land owned by South African citizens. Up until now, his pleas have fallen on deaf ears and von Abo’s counsel told the court that his efforts to obtain help from the government were like “the Yellow Brick Road – the road to nowhere”.
According to von Abo, in 1997 the Zimbabwean government violated his rights by destroying his property interests in a number of farms in the country, which occurred as part of its national policy to expropriate white-owned farms. To this end, he was not paid compensation for his loss.
Judge Prinsloo said he regretted how difficult it had been to resist the conclusion that “the respondents (government) were simply stringing the application along and never had any serious intention to afford him proper protection”.
Prinsloo went on to say, “Their feeble efforts, if any, amounted to little more than quiet acquiescence in the conduct of their Zimbabwean counterparts and their ‘war-veteran’ thugs”. According to the judge, von Abo had demonstrated that his rightful property in Zimbabwe was unlawfully expropriated under international law and that he had not been compensated for it.
Von Abo’s attempts to protect his interests by suing the Zimbabwean government within the country had proved futile. Prinsloo said that given the state of the country’s legal system and the government’s disregard for the orders of its own courts, particularly in light of expropriation, no more remedies were available to him.
Prinsloo added that the South African government had dealt with the von Abo matter in bad faith and irrationally. “For six years or more, in the face of a stream of urgent requests – they (government) did absolutely nothing to bring about relief to the applicant and hundreds of other white commercial farmers in the same position. Their ‘assistance’ was limited to empty promises”.
He went on to say, “They (government) exhibited neither the will nor the ability to do anything constructive to bring their northern neighbour to book. They paid no regard, of any consequence, to the plight of valuable citizens such as the applicant with a 50-year track record in Zimbabwe and other hard-working white commercial farmers making a substantial contribution to the GDP in Zimbabwe and providing thousands of people with work in that country”.
The judge thus concluded that von Abo qualified for diplomatic protection from the South African government, which “may involve effective diplomatic pressure on the Zimbabwean government to restore the properties to the applicant and his companies and to pay compensation for losses and damages”.
As part of the ruling, Prinsloo indefinitely postponed von Abo’s claim for damages against the government regarding the farms and business interests he had lost in Zimbabwe. Von Abo indicated during the trial that the conservative total in damages pertaining to his six farms, including the implements and other assets lost, amounted to around R60 million.
According to Ernst Penzhorn, von Abo’s lawyer, in response to the verdict, his client indicated that he “is grateful that he could have turned to a court in his own country to protect his rights. This is comforting if one looks at how he was treated with no sympathy by members of the executive”.
Penzhorn said that the next step would be to approach the Constitutional Court to confirm the judgment. He said he believed that the decision would open the door for many South African citizens who lost business interests in neighbouring Zimbabwe. Regarding the claim for damages, he said that they would first see what the government’s response is before going any further.
The information in this article is courtesy of Zelda Venter (“Landmark win for SA farmer”, Pretoria News, 30 July 2008).
Visit www.realty1capeagulhas.com if you would like to buy or sell property in Cape Town's Overberg region.
Thursday, July 31, 2008
Tuesday, July 22, 2008
No Need to Pull Out of the SA Market
Experts Say Keep Investing
An article published on the Personal Finance website draws attention to concerns over the current downturn in the South African market and urges investors not to bail out just yet. You will lose the substantial gains of the past five years and this may seriously hamper your ability to retire financially secure.
The article likens the hammering being experienced by the property and equity markets in the current economic conditions to a war zone, suggesting that investors will most probably have to “keep their heads below the parapet for some time”. However, the equity and property experts are of the opinion that survival is possible if investors don’t panic and aren’t strangled by debt.
Prices of property and equity have been falling fast this year; with Standard Bank’s house price data reflecting a 9% drop in median house prices in the year to April. Equity markets, both local and foreign, have been in the spotlight since May, with the FTSE/JSE All Share Index (Alsi) down to 27 995 at the close of trade on Thursday, after having capped 33 000 in May.
Of course, the weakening of property and equity values this year has been impacted by the rising inflation rate. In factual terms, any nominal returns are reduced and any losses are increased by the loss of real value due to an inflation rate of 10.9% for the year to May.
Considering the previous five years of growth up until now though, most people don’t have to panic, as they have rarely seen it so good. As Paul Hansen of Stanlib puts it, investors in his company’s Small Cap Fund may have received a “huge klap” by the fund’s 40% drop from a record high last year, but the fund “is still triple the value it was in 2003”.
According to Rian le Roux, chief economist at Old Mutual, over the past five years investments in almost all sectors in South Africa have fared exceptionally well. The average annual return for unit trust funds in the domestic general equity sub-category has realized over 30% each year, while the ABSA house price index increased by 18% each year. Over the same period, inflation was stable at an annual average of 6%.
Essentially, this translates into a sharp growth in the wealth of most South Africans who invested in residential property and equity over the past five years, mainly through retirement funds, insurance policies and unit trusts. However, le Roux asserts that such high returns could not be sustained and the current slowdown was to be expected.
“Investors who invested in the past year or two are hurting, especially those who invested in financial and industrial shares,” says le Roux. He warns that during “bear markets”, investors “need to guard against any inclination to panic as they see their wealth falling”.
Instead of panicking prematurely, investors should rather remind themselves of the volatility of markets and that historically, those who have chosen to ride out the storm have been rewarded in the long term. Most asset managers are following their own advice and hanging in, even if their short term performance is negative, as they believe that the current volatility will reflect better pricing in the medium term.
Johan de Lange, director of South Africa’s top performing asset manager Allan Gray Investor Services, says that his company focuses on finding shares that offer basic value, with an investment horizon of at least four years. He adds that individuals should be considering long term investment objectives and “guard against acting irrationally”.
Trevor Pascoe, head of investment services at Old Mutual, says that many investors are tempted to move their money from equities to cash, even when their budgets are not really under pressure, simply because they are afraid the markets will continue to fall.
“Even investment professionals struggle to get market timing right on a regular basis. Investors who panic and disinvest from the market during downswings and reinvest during upswings usually destroy value. Smart investors realize the importance of continuing to invest through a dip, making the bear market work for them by picking up equities cheaply,” says Pascoe.
Le Roux insists that those facing difficulties in the current economic climate are people are entrenched too deeply in debt. He goes on to say that Old Mutual estimates that household debt interest repayments increased from 6% of household after-tax income at the end of 2003 to 11.5% currently.
His advice seems to be not to give into temptation and dip into your long term savings to see you through the rough times, as this may be beneficial in the short term, but in the long term it may leave you with insufficient funds for retirement. “If budgets are under pressure, you should rather try to reduce your monthly spending”.
According to Jeremy Gardiner, of Investec Asset Management, the two primary risk factors investors now face are being overweight in either commodities or cash. “While the long run commodity story is fundamentally sound, a significant correction within the next two years is quite possible. Commodities are an important part of any investment portfolio, but your exposure should be appropriate to your risk profile. Similarly, be careful of being overweight in cash for too long. The risk of being out of the market when it turns up is as high as the risk of being in when the markets turn down,” says Gardiner.
The information in this article is courtesy of Bruce Cameron (“Now is the wrong time to stop investing”, Personal Finance, 19 July 2008).
Visit www.realty1capeagulhas.com if you would like to buy or sell property in Cape Town's Overberg region.
An article published on the Personal Finance website draws attention to concerns over the current downturn in the South African market and urges investors not to bail out just yet. You will lose the substantial gains of the past five years and this may seriously hamper your ability to retire financially secure.
The article likens the hammering being experienced by the property and equity markets in the current economic conditions to a war zone, suggesting that investors will most probably have to “keep their heads below the parapet for some time”. However, the equity and property experts are of the opinion that survival is possible if investors don’t panic and aren’t strangled by debt.
Prices of property and equity have been falling fast this year; with Standard Bank’s house price data reflecting a 9% drop in median house prices in the year to April. Equity markets, both local and foreign, have been in the spotlight since May, with the FTSE/JSE All Share Index (Alsi) down to 27 995 at the close of trade on Thursday, after having capped 33 000 in May.
Of course, the weakening of property and equity values this year has been impacted by the rising inflation rate. In factual terms, any nominal returns are reduced and any losses are increased by the loss of real value due to an inflation rate of 10.9% for the year to May.
Considering the previous five years of growth up until now though, most people don’t have to panic, as they have rarely seen it so good. As Paul Hansen of Stanlib puts it, investors in his company’s Small Cap Fund may have received a “huge klap” by the fund’s 40% drop from a record high last year, but the fund “is still triple the value it was in 2003”.
According to Rian le Roux, chief economist at Old Mutual, over the past five years investments in almost all sectors in South Africa have fared exceptionally well. The average annual return for unit trust funds in the domestic general equity sub-category has realized over 30% each year, while the ABSA house price index increased by 18% each year. Over the same period, inflation was stable at an annual average of 6%.
Essentially, this translates into a sharp growth in the wealth of most South Africans who invested in residential property and equity over the past five years, mainly through retirement funds, insurance policies and unit trusts. However, le Roux asserts that such high returns could not be sustained and the current slowdown was to be expected.
“Investors who invested in the past year or two are hurting, especially those who invested in financial and industrial shares,” says le Roux. He warns that during “bear markets”, investors “need to guard against any inclination to panic as they see their wealth falling”.
Instead of panicking prematurely, investors should rather remind themselves of the volatility of markets and that historically, those who have chosen to ride out the storm have been rewarded in the long term. Most asset managers are following their own advice and hanging in, even if their short term performance is negative, as they believe that the current volatility will reflect better pricing in the medium term.
Johan de Lange, director of South Africa’s top performing asset manager Allan Gray Investor Services, says that his company focuses on finding shares that offer basic value, with an investment horizon of at least four years. He adds that individuals should be considering long term investment objectives and “guard against acting irrationally”.
Trevor Pascoe, head of investment services at Old Mutual, says that many investors are tempted to move their money from equities to cash, even when their budgets are not really under pressure, simply because they are afraid the markets will continue to fall.
“Even investment professionals struggle to get market timing right on a regular basis. Investors who panic and disinvest from the market during downswings and reinvest during upswings usually destroy value. Smart investors realize the importance of continuing to invest through a dip, making the bear market work for them by picking up equities cheaply,” says Pascoe.
Le Roux insists that those facing difficulties in the current economic climate are people are entrenched too deeply in debt. He goes on to say that Old Mutual estimates that household debt interest repayments increased from 6% of household after-tax income at the end of 2003 to 11.5% currently.
His advice seems to be not to give into temptation and dip into your long term savings to see you through the rough times, as this may be beneficial in the short term, but in the long term it may leave you with insufficient funds for retirement. “If budgets are under pressure, you should rather try to reduce your monthly spending”.
According to Jeremy Gardiner, of Investec Asset Management, the two primary risk factors investors now face are being overweight in either commodities or cash. “While the long run commodity story is fundamentally sound, a significant correction within the next two years is quite possible. Commodities are an important part of any investment portfolio, but your exposure should be appropriate to your risk profile. Similarly, be careful of being overweight in cash for too long. The risk of being out of the market when it turns up is as high as the risk of being in when the markets turn down,” says Gardiner.
The information in this article is courtesy of Bruce Cameron (“Now is the wrong time to stop investing”, Personal Finance, 19 July 2008).
Visit www.realty1capeagulhas.com if you would like to buy or sell property in Cape Town's Overberg region.
Wednesday, July 16, 2008
How to Beat the Tax Man When You Own Property
Property Tax Pointers
An article published by Real Estate Web provides some excellent insights on how to beat property tax. “For expenses to be tax deductible against rental income, there must be a genuine intention to conduct the trade of letting” (David Warneke, tax fundi).
In cases where the property was not let fully during the tax year then reasonable steps must have been taken to find another tenant and if losses were incurred, there has to be a reasonable prospect of the investment turning a profit (even after a number of years). Where losses did result, these may be “ringfenced”, which means that they might not be deductible against income from any other trade. This only applies to an investor who is a natural person.
The following is a list of the most common income tax deductions on residential property that is rented out:
§ Interest on bond or other loans
§ Repairs and maintenance
§ Rates
§ Letting agent’s commission
§ Sectional title levies
§ Advertising
§ Insurance
§ Wear and tear on movable assets let with the property
§ Accounting fees
§ Bad debts
§ Bank charges
§ Write-off of the cost of the property in terms of section 13 (relating to certain properties in ‘Urban Development Zones’)
The following are not tax deductible, but can be added to the base cost for CGT, which is calculated when the property is sold:
§ Transfer duty or VAT on the purchase of the property
§ Bond registration fees
§ Conveyancer’s fees
§ Cost of improvements to the property (provided that these are still reflected in the state of the property when it is sold)
§ The remuneration of a surveyor, valuer, auctioneer, lawyer or consultant relating to the acquisition of or disposal of the property
§ Any expenses incurred to establish, maintain or defend a legal right or title in the property.
When it comes to the various problems related to the expenses outlined above, these include:
Interest:
The loans must be used to finance the property. This will preclude cases where the bond is raised using the property as security and the funds are then used to finance private expenses.
Repairs versus improvements:
There are a multitude of income tax cases that deal with the distinction between repairs and improvements to property. While repairs are tax deductible, improvements may qualify for inclusion as part of the base cost of the property for CGT. In other words, for an expense to qualify as a ‘repair’, there has to be damage or deterioration and the intention of the taxpayer must be to restore the item ‘repaired’ to its original condition. The repairs also have to apply to a part of the property and not amount to the reconstruction of substantially the entire property.
Wear and tear on assets let with the property:
Wear and tear can be claimed only if the assets have not been integrated into the building. Once an asset becomes integrated, it loses its status as a separate asset in its own right. For example, this applies to light switches and fittings.
Bad debts:
The debt must have gone bad in order to claim it. This means that the taxpayer must be able to produce evidence that the amount has become irrecoverable during the tax year – it cannot simply be doubtful.
Although these pointers are relatively straightforward, it is still optimal to seek professional advice when discussing tax deductions.
The information in this article is courtesy of David Warneke, a tax partner at Cameron & Prentice, senior lecturer on Tax at UCT and author of a text used at universities throughout South Africa. (“Property tax beaters: 24 quick pointers”, Real Estate Web, 14 July 2008).
If you would like to buy or sell property in Cape Town's Overberg area, please visit www.realty1capeagulhas.com.
An article published by Real Estate Web provides some excellent insights on how to beat property tax. “For expenses to be tax deductible against rental income, there must be a genuine intention to conduct the trade of letting” (David Warneke, tax fundi).
In cases where the property was not let fully during the tax year then reasonable steps must have been taken to find another tenant and if losses were incurred, there has to be a reasonable prospect of the investment turning a profit (even after a number of years). Where losses did result, these may be “ringfenced”, which means that they might not be deductible against income from any other trade. This only applies to an investor who is a natural person.
The following is a list of the most common income tax deductions on residential property that is rented out:
§ Interest on bond or other loans
§ Repairs and maintenance
§ Rates
§ Letting agent’s commission
§ Sectional title levies
§ Advertising
§ Insurance
§ Wear and tear on movable assets let with the property
§ Accounting fees
§ Bad debts
§ Bank charges
§ Write-off of the cost of the property in terms of section 13 (relating to certain properties in ‘Urban Development Zones’)
The following are not tax deductible, but can be added to the base cost for CGT, which is calculated when the property is sold:
§ Transfer duty or VAT on the purchase of the property
§ Bond registration fees
§ Conveyancer’s fees
§ Cost of improvements to the property (provided that these are still reflected in the state of the property when it is sold)
§ The remuneration of a surveyor, valuer, auctioneer, lawyer or consultant relating to the acquisition of or disposal of the property
§ Any expenses incurred to establish, maintain or defend a legal right or title in the property.
When it comes to the various problems related to the expenses outlined above, these include:
Interest:
The loans must be used to finance the property. This will preclude cases where the bond is raised using the property as security and the funds are then used to finance private expenses.
Repairs versus improvements:
There are a multitude of income tax cases that deal with the distinction between repairs and improvements to property. While repairs are tax deductible, improvements may qualify for inclusion as part of the base cost of the property for CGT. In other words, for an expense to qualify as a ‘repair’, there has to be damage or deterioration and the intention of the taxpayer must be to restore the item ‘repaired’ to its original condition. The repairs also have to apply to a part of the property and not amount to the reconstruction of substantially the entire property.
Wear and tear on assets let with the property:
Wear and tear can be claimed only if the assets have not been integrated into the building. Once an asset becomes integrated, it loses its status as a separate asset in its own right. For example, this applies to light switches and fittings.
Bad debts:
The debt must have gone bad in order to claim it. This means that the taxpayer must be able to produce evidence that the amount has become irrecoverable during the tax year – it cannot simply be doubtful.
Although these pointers are relatively straightforward, it is still optimal to seek professional advice when discussing tax deductions.
The information in this article is courtesy of David Warneke, a tax partner at Cameron & Prentice, senior lecturer on Tax at UCT and author of a text used at universities throughout South Africa. (“Property tax beaters: 24 quick pointers”, Real Estate Web, 14 July 2008).
If you would like to buy or sell property in Cape Town's Overberg area, please visit www.realty1capeagulhas.com.
Monday, July 7, 2008
Homeowners Taking Out New Bonds Beware
Negative Equity the Latest Risk
An article published on the Business Report website draws attention to the latest trend in the property market, where homeowners now face the risk of negative equity on their homes as house prices continue to drop.
Standard Bank’s median house price in June dropped by 11.3% year-on-year to R550 000, which only increases the possibility that some homeowners now owe more on their homes than they could sell them for. The moving average growth in median house prices over the last five months stands at minus 7.8%.
Standard Bank’s property economist, Sizwe Nxedlana has said that these negative numbers had been distorted somewhat by the surge in median house prices at the same time last year, ahead of the National Credit Act implementation.
This entire year, Standard Bank has recorded either flat or negative median house price growth. In January and February, the figures were at zero, with minus 5.2% registered in March, minus 8.6% in April and minus 13.2% recorded in May.
According to Nxedlana, declines of this magnitude and duration in the demand for property “are not inconsistent with national house price deflation”. He added that negative equity in mortgage bonds was now a possibility, particularly for those who bought houses at the peak of the property boom.
However, this would only become an issue if a sale of the property were to take place in the current climate. Homeowners might be better served to stay in the property and ride out the storm rather than sell it for a price that would be much lower than expected.
A senior property analyst at ABSA, Jacques du Toit said that a homeowner who obtained a 100% bond early this year and now wanted to sell the property might well be unable to sell it for a price that covered the bond. Essentially, the more recently a bond has been taken out, the higher the likelihood of this happening.
Another important contributing factor is the size of the mortgage bond as compared to the cost of the property. “Those who have not put down a deposit and [have] taken out a 100 percent bond are more at risk,” said du Toit.
It is also possible that some homeowners have “dipped into their bonds” and taken out some of the equity to finance or pay off other debts, but it would be impossible to determine to what extent this has occurred. The problem is that those who have done so will have accumulated more debt as a result.
Eventually, these homeowners would no longer be able to afford the bond repayments and would not have equity left in their bonds. Nxedlana maintains that the short-term outlook for the residential property market remains bleak.
The information in this article is courtesy of Roy Cokayne (“Homeowners risk negative equity as house prices drop”, Business Report, 2 July 2008).
If you would like to buy property in South Africa's Overberg area, please visit www.realty1capeagulhas.com.
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