Tax Concession - Trust, Co or CC

Introduction
There was a time when there were advantages to owning property through a company or a close corporation. Instead of selling the property, one could sell the shares/members interest and loan accounts of the company or close corporation which would mean that the purchaser did not pay transfer duty. This resulted in the purchaser saving large amounts of money and accordingly one could either ask for a higher selling price or sell the “property” easier. However in 2002 legislation was passed in terms of which a company, close corporation or trust which owns residential immoveable property is treated as if it is immoveable property. This designation means that the sale of the trust or the shares or members interest and loan account in such company or close corporation is subject to payment of transfer duty calculated on the value of the immoveable property.

With the introduction of capital gains tax (CGT) in 2001 companies and close corporations were placed at a disadvantage in relation to individuals in that they could not claim the primary rebate (at present R1 500 000.00) provided to individuals on their primary residence. Further the effective rate for capital gains tax payable by a company or close corporation is higher than the rate payable by individuals.A further disadvantage is that when a company or close corporation disposes of its property and proceeds to distribute the profit to its shareholders or members, the company or close corporation pays secondary tax (STC) or dividends tax. Furthermore in terms of the Companies Act of 1973 an annual fee is paid by companies.

In light of the above the owning of residential property through a company or close corporation no longer makes sense. As a result of this more individuals wish to transfer their properties out of their companies into their own name. At present if a company or close corporation were to transfer a property to an individual it would be liable for CGT and STC or Dividends Tax and the individual purchasing the property would pay transfer duty. Now with the passing of the Taxation Laws Amendment Bill of 2009 individuals will from the 1st January 2010 for a period of two years be able to acquire property from their company, close corporation or trust without such entity paying STC or Dividends Tax or CGT. In addition, no transfer duty will be payable. Effectively the liability for the capital gains will roll over to the purchaser i.e. the base cost for the property will be what the base cost would have been for the seller. This will only be applicable when the purchaser sells the property and the purchaser will have the benefit of the primary residence exclusion.

How to qualify
To qualify the Bill requires the following:1. The property must be the sole asset of the company or close corporation or trust;2. The property must be a residence used exclusively for domestic purposes. Effectively the property must be your primary residence. Residence includes “any structure including a boat, caravan or mobile home which is used as a place of residence by a natural person, together with any appurtenance belonging thereto and enjoyed therewith”.3. An interest in a residence must be transferred from a company, close corporation or trust to a natural person.4. Shares or member’s interest must have been held directly by a natural person alone or together with his/her spouse or by a trust.5. Period – The company, close corporation or trust must have owned the property on or before 11 February 2009 and must distribute the property between 1 January 2010 and 31 December 2011.

Application of the Bill does not apply
The Bill will not apply where:1. The company has more than one shareholder or the close corporation has more than one member;2. The company or close corporation owns more than one property;3. Where the shareholder of a company is not a natural person or trust but a legal entity

Trusts as shareholders of company
Originally the Bill did not cater for residences owned by companies which in turn were owned by a trust. However the concession now also extends to trusts. Consequently the Act provides that a company which owns a residence and whose shares are held by a trust may distribute the property to the individuals who are the beneficiaries of the trust without adverse tax consequences.AdvantagesAt present a company or close corporation pays STC and CGT without any primary rebate and the purchaser pays transfer duty.
Now if the property qualifies for the concession the seller will have the benefit of not paying the following:

CGT – The seller will not pay CGT on the transfer of the property to the individual natural person. However the individual is not exempt from CGT. The CGT that would have been paid by company is effectively transferred and rolled over to the individual who takes the transfer of the property. Thus the individual will ultimately become liable to pay CGT on the sale of the property. However if the individual maintains the property as his/her primary residence he/she will now have the benefit of the primary rebate of R1 500 000.00 provided for CGT.

STC – On the sale of the property the company or close corporation would distribute the profits to its shareholders. Such award would constitute dividend for STC purposes. Under the amendment the individual will not be liable for STC.

Transfer Duty – Prior to the passing of the Bill the purchaser would be liable for transfer duty on the sale of the property. If the transfer of the property is done within the period there will be no transfer duty payable on the transaction.DisadvantagesAlthough the concession is very generous there is a disadvantage in respect of properties that are owned by trusts. Once the property is transferred into the beneficiaries own names their personal estate is increased which results in an increase of their estate for estate duty purposes thus undermining the objective of creating a trust.

Cost involved
The purchaser will still incur other ordinary costs of transfer such as conveyancing fees. Since there would be no purchase price the calculation of fees would likely to be based on the municipal value of the property. If the property was mortgaged to secure a loan the shareholder or member would need to discharge the loan and pay for the bond cancellation. The purchaser could apply for a new loan to be secured by the registering of a mortgage bond against the Title Deeds of the property. The cost of registering such bond would also be borne by the shareholder or member.

Information supplied by Dykes van Heerden, Attorneys
E-mail: info@dykedsvanheerden.co.za
Web: http://www.dykesvanheerden.co.za/

Chas Everitt Introduces Unique Fly 'n Buy Package

Chas Everitt International Property Plettenberg Bay has introduced a unique Fly 'n Buy package for serious buyers wishing to purchase Plettenberg Bay property. This unique offer results in Chas Everitt reimbursing buyers for airfares, accommodation and car rental. The package conditions are available on Chas Everitt's websites such as http://www.everitt-plett.co.za/ and http://www.goosevalleygolf.com/. Simply click on the Fly 'n Buy logo in these websites and the PDF document will open providing full details of the qualifying procedure and applicable conditions.

John Fuller, Principal of Chas Everitt Plettenberg Bay says that although only just launched several buyers have already decided to make use of the offer. John says that even in tough market conditions estate agents need to be innovative to ensure that they proactively grow market share, and this offer ensures that our sellers improve their chances of selling their homes as quickly as possible. Chas Everitt has applied for registration of the Fly 'n Buy trademark so the product will be unique to the group.

Huge Tax Break On Properties

Monique Vanek
27 July 2009

What you should know to transfer your property out of a company and get a 22% tax saving.

Seldom does the South African Revenue Service (Sars) open a tax-free window period, and rarely does it do it twice. So when it announced in a June draft amendment that individuals who own their primary residence in either a company, or a closed corporation (CC) can transfer their property tax free into their own name for the second time it came as a surprise and should be taken advantage of.

The draft amendment is likely to be finalised in the next few weeks, here's the lowdown. All individuals who own their primary residence in either a company or CC can transfer their property into their own name without having to pay capital gains tax (CGT), transfer duty and secondary tax on companies (STC) from January 1 2010 until December 31 2012. This is a huge tax saving of just under 22%.

They can only do this if their domestic residence is exclusively used for domestic purposes, says Mike Teuchert, a tax partner at Grant Thornton. However, "no clarification has been given to the meaning of the term domestic purposes, although it would exclude the situation where a person also uses their residence for the purposes of running a part-time small business", says Teuchert.

Unfortunately the exemption does not apply to those who own their primary residence in a trust, as was the case in the previous window period, however this could change in the final draft, notes Deborah Tickle, a member of Saica's National Tax Committee.

Also if the property is not in your own name you can not take advantage of the exemption.
For those who transferred their properties out of a CC, or company after the 2001 window period and before this new one starts you will not be reimbursed, says Tickle. Of course this exercise is not without costs, says Teuchert. You will still be responsible for costs associated with the transfer of you property, such as conveyancing fees and bond cancellation costs, reckons Teuchert.

So how do you go about transferring your property out of your CC or company? Firstly, you'll have to visit a conveyancing attorney to transfer your property, cancel your bond and register it in your own name. Secondly, you will need to make sure your books are in order and close them off. Thirdly, you will have to fill in a tax return and supply Sars with your latest set of accounts. Finally you will need to deregister your company with the Register of Companies, says Tickle.

Ntombikayise Baepi a senior associate at ENS reckons Sars has provided this second window period to cleanse the Register of Companies of inactive and dormant companies. Tickle says it has also done so to help individuals avoid the high costs of being a registered company when the Companies Act comes into full force next year.

The best way to sell your property

Isn't it interesting how in these times we read that the best way to sell a property is by public tender or auction? The truth is that in a Buyers' Market it is only bargain hunters who attend auctions or submit tenders. Quite simply, they are the investors with cash and are looking for bargains. Auctions and tenders will only realise decent prices if the seller has a unique one of a kind property, such as the last piece of prime beachfront land.

I'll let you into a secret. The ONLY factor that sells property is PRICE! Price is relative to position, location, condition, age and other similar factors. If your property has not sold in the current market IT IS OVERPRICED. A few years ago there may have been 50 buyers in any month looking for property like yours. Today there are 20 buyers and they are comparing prices of all similar properties. If your property is overpriced it is compared to lower priced properties and those are the ones that are selling.

So, if you need to sell now, listen to a reputable Estate Agent and price your property competitively to sell in the current market. Estate Agents are not motivated to sell overpriced properties, but overpriced properties do fortuitously help them sell the better priced ones!

So what is the best solution? Deal with a reputable Estate Agent with a proven record of sales in your area, grant them a Sole Mandate and ensure that you receive a written marketing plan for your property. Make sure the mandate can be cancelled should the Agent not implement the marketing plan! Your Agent will then work hard on marketing the property, and spend money doing so, and is unlikely to accept a Sole Mandate appointment if the price is not market related.

Plettenberg Bay's Brackenridge Estate leads the way with penalty levy moratorium

John Fuller, Principal of Chas Everitt International Property in Plettenberg Bay says that the Brackenridge Homeowners Association in consultation with the Developers have taken a bold decision to provide a two year building moratorium to buyers of vacant stands in Brackenridge Estate. Brackenridge is one of Plett's most exclusive and secure residential estate developments. He says it is a commendable move that will hopefully attract more buyers to Brackenridge.

Brackenridge Estate has sold very well and approximately eighty new homes have already been built, but the original deed of sale provided for penalty levies if houses were not built within a required time frame. These penalties were implemented against many owners, but for 2009 (expiring in February 2010) a moratorium on penalty levies was granted to assist owners during the current economic crisis.

Fuller said that while this moratorium assisted existing investors, it affected the interest of potential new buyers who require clarity regarding the imposition of penalties beyond 2008. He said that as an estate agent he had made suggestions to the Homeowners' Association and he hoped that other developers would realise that the secondary residential property market had changed forever and it could be a very long time before a sellers' market is seen again. If bold decisions were not taken to encourage buyer interest, demand would decline further, negatively affecting the value of all properties in the developments. Brackenridge's decision will therefore hopefully increase demand for stands in the development from serious buyers, help to underpin declining stand prices and also boost construction activities on the Estate.

The communique from the Chairman of the Brackenridge Homeowners' Association states:

"In order to facilitate potential new sales of stands in Brackenridge it has been agreed in principle, (subject to periodic review) by the Developer, after due consultation with ourselves to introduce the following with immediate effect:

1. A Moratorium on Penalty Levies will be granted to all new individual buyers of stands in Brackenridge for a period of 2 years from the date of the conclusion of the Sale Agreement.

2. This moratorium is to be granted to buyers who have a genuine intention of buying to build and is designed to facilitate the process of Architectural Planning, BARC and Council plan approvals, appointment of Building Contractors and arranging appropriate funding.

3. Should building not begin within the 2 year time frame the normal 5 time penalty levies will apply.

4. Should the property be resold the new buyer will only assume the remaining term of the two years still to run.

This moratorium will be introduced with immediate effect and is unrelated to the existing General Penalty Levy Moratorium currently in place which expires on the 28th of February 2010".

Fuller says that superb 1500 square metre stands at Brackenridge are the best bargains in Plettenberg Bay with some resale prices having dropped as low as R400 000. He says such entry level prices are ridiculously cheap in an estate that is probably Plett's best residential housing estate development and anyone seriously considering building a home in Plett should place Brackenridge at the top of their list.

For Further information or to purchase property at Brackenridge please contact Zelda Kruger on +27 (0)82 320 0664, email her at zeldak@everitt.co.za, or go to http://www.brackenridgeproperty.co.za/ or http://www.everitt-plett.co.za/

New Electrical Regulations

The Government has promulgated the new Electrical Regulations 2009 which repeals the old 1992 regulations. The old Certificate of Compliance (COC) has been replaced with the Electrical Certificate of Compliance (ECC). The new regulations affect owners in the following way:

• Whereas the old COC was valid indefinitely as long as the owner had not made any electrical alterations to the premises, the new regulation provides that the new ECC will only be valid for a period of two years. Sellers will therefore have to provide Buyers with a new ECC where the certificate is older than two years.
• Transfer cannot be effected without a valid ECC.
• The new regulations became effective from 1 May 2009

Snow in Plett

The drought has finally been broken with some very strong winds and driving rain over the past week. A fair amount of damage was done with trees uprooted and signs destroyed, but fortunately nothing too serious. Big seas have been running and waves have again come over the Bird Island sand spit separating the Keurbooms Estuary from the Bay. But the best news of all is that the Tsitsikammas and Outeniquas are covered in snow! The falls have far exceeded that of the previous three years and we are all waiting for the clouds to lift so that some spectacular pictures can be taken. There is simply nothing more beautiful than our beautiful Bay being surrounded by a ring of snow!

Banks Clip Mortgage Originators' Wings

Banks have recently renegotiated commissions payable to mortgage originators and this has resulted in a substantial deduction in the future income potential for originators and Estate Agents who are the prime source of mortgage referral business to originators. Banks claim that the commissions were too high and have reduced their returns and increased their bad debts, but is this really so?

The mortgage originator's cost is paid up front when a bond is registered. Previously an originator could have expected to receive R24 000 against a R1 million bond. This being based upon the assumption that the originator's commission rate was 2,4%. Recently renegotiated commissions appear to have been reduced to 1,5%. If a bank charges its client a nominal interest rate of Prime (i.e. 11%) then the nominal interest cost of the originator's commission to the bank over 20 years is 0,22% for a 1,5% commission and would have been 0,36% for a 2,4% commission rate. The bank would therefore earn 11% minus 0,22% = 10,78% net). This is surely a small cost for any bank to acquire business and is much much lower than it would cost to implement their own sales infrastructure?

So why have originators' commission rates been reduced? Perhaps it is a result of the high life that has been exhibited by some leaders in the origination field who have perhaps naively flouted their wealth and extravagant lifestyle in the print and electronic media that has resulted in bankers and non-executive directors expressing displeasure at Board level, or perhaps the banks have begun to feel uncomfortable with the originators taking control of their client relationships, and cross selling other products such as insurance to their client base that has raised alarm bells!

While banks claim that the cost of commission to originators, which is paid upfront, has had a considerable impact on their income, it seems a little far fetched to justify how a R7 500 commission against a loan of R500 000 could have much of an affect on their total write offs or interest income.

Of course, banks don't only pay out costs for registering new bonds, they also charge clients substantial new mortgage documentation fees of at least R4500 per bond and also debit the client's account with a monthly administration fee; and sell householders insurance at inflated premiums, charged annually in advance (not monthly), and also often debited to the client's account a few months before expiry of the current premium. All these amounts are capitalised (unless the client pays additional cash into the bond) and earn substantial interest for banks. And while banks are accounting for the additional interest income each month, the capital outstanding is increasing - not reducing, and this is a major contributory factor to bad debts when the client cannot service the bond repayments, particularly in the first ten years when most of the payments go towards servicing interest, with very little capital having being repaid. At a later stage, when the outstanding capital is still high, the losses are accordingly also high and the additional income that has been earned in prior years is conveniently forgotten.

Then there are early settlement penalty fees. Clients need to give their banks 3 months notice of intention to settle their bond. If one does not, the bank will in all likelihood charge an early settlement penalty. On a R1 million bond, this penalty would amount to R25 500! This is of course far more than what the mortgage originator originally received as a commission. Is it possible that banks may have shrewdly negotiated their early settlement penalties into the new National Credit Act legislation to cover the cost of recouping mortgage origination commissions?

If banks are concerned about the costs of their up-front payments to originators, then it could be argued that there is a case for documentation fees and early settlement penalties to be off-set against the commission paid to the originator.

At the moment banks are not able to service direct mortgage applications with speed and do not have the infrastructure to compete with the service of mortgage originators. It will be interesting to see what happens when the economy improves. Will banks want to acquire origination companies or will they attempt to further strangle them hoping that their staff will join the banks?

The banks have long since abandoned personal relationships with their clients (motor vehicle finance on dealer floors and call centres are prime examples) and the originators, who provide a personal touch with face to face client interaction, may already be too powerful for banks to ignore if they want to be amongst the future mortgage growth market leaders.

Nominal Interest Rates vs APR Rates

John Fuller, Principal of Chas Everitt International property, Plettenberg Bay, reports, "I read with interest the comments made by Mr CHUKA UROKO of Nigeria in the CyberProp Newsletter of 12th June regarding his comparison of interest rates in several countries, and especially his comparisons with Dubai, South Africa and the UK. It always brings a smile to my face when I hear comparisons being made about our finance rates and those of many other countries, and I have on several occasions had the pleasure of educating buyers from Europe when they have compared our mortgage rates to theirs. Most people are unaware that there is a vast difference between the calculation methods used to determine financing rates in most African and European countries compared to South Africa. As a Banker in my previous life before starting the Chas Everitt franchise in Plettenberg Bay I worked in all the English speaking African countries, plus Egypt, Mauritius, India, France, UK, and Dubai; and all these countries quoted their finance rates on a different basis to us.

South African interest rates for the financing of fixed and movable assets are quoted as Nominal Annual Compounded Monthly (NACM) Rates. Nominal Rates can be calculated and quoted for monthly, quarterly, half-yearly and annually, etc., e.g. a rate where payments are made quarterly will be quoted as NACQ. With NACM interest is calculated on a reducing balance basis, based upon the capital outstanding each month. We often hear this being referred to as the "Mortgage Redemption Method". If the NACM interest rate is 11% then interest is calculated at one twelfth of 11% per month on the balance outstanding each month. What is nice about using NACM rates is that it is easy to calculate your true cost over different periods as your interest rate stays the same regardless of the financing period. This is a particularly useful method to use where rates vary during the term of finance, or if one intends settling the transaction early.

The other countries that I have referred to use a calculation which is referred to as the 'Annual Percentage Rate yield', which is commonly called the 'APR Rate'. This is commonly used in Europe and in other countries wherever there there has been a past colonial influence in their economy. APR is calculated on a simple interest basis on the Present Value (finance amount required), and the interest cost on the PV is then simply multiplied by the number of years finance required. APR rate quotes provide a lower and often misleading interest rate percentage compared to the equivalent NACM percentage rate of interest. South Africa used APR rates until 1980, when we converted to NACM and Asset Based financiers for the first time included variable interest rate clauses in their finance agreements to cater for changes in the Prime Overdraft Rate. In fact, in those days Prime was 9,5% and our Banks were financing cars at 11,6% APR over 36 months, which was actually 21% NACM. No wonder banks are squealing today! The introduction of NACM rates created transparency and consumers have been much better off since its implementation.

If the Real Estate fraternity is made aware of the differences between the two different rate methods it will help in advising clients that our mortgage finance rates are not as ridiculously inflated as is often assumed. For example, in the Nigerian article Mr Uroko refers to an interest rate of 4%. I happen to know this will be APR, and the equivalent interest rate on an NACM rate basis over 20 years is 6,58%. It is important to remember that the quoted NACM rate always stays the same, while the APR rate varies with the finance term. For example, 4% APR over 10 years is 7.11% NACM, and over 5 years the NACM equivalent is 7,42%. Where we are also very fortunate is that few countries offer home finance over 20 and 30 years. Many go no longer than 10 years. In fact, when I retired in 2005, I was trying to introduce mortgage finance to Dubai. At that stage a home could only be leased over 10 years, with a method of passing ownership being tied to the payment of 1 Dirham thereafter. Whilst our interest rates may seem high, South Africans are fortunate to have access to generous finance terms, and our monthly repayments (monthly cash flow) is still amongst the most affordable in the World.

Therefore, next time we are in London or Paris, walk past a car showroom, take a look at the sign on the roof or windscreen. It will in all likelihood say 'Interest Only 6% APR'. As South Africans we can walk on with a smile knowing that over 60 months this rate is equivalent to 10,85% NACM, just proving that we are not so badly done by after all! Quoting APR percentages can be extremely misleading and consumers can be easily hoodwinked by the true cost of interest, especially where finance periods are not the same. For example, if finance is quoted at the same APR rate but payments are payable monthly in advance, then the nominal yield to the financier will be higher than that for monthly in arrear payments.

I hope we will all bear in mind the difference in future when we hear or read about financing rates in other countries, and ask the question - 'Is it Nominal or is it APR?' "

FNB Quick Sell Plan

First National Bank and Chas Everitt International Property have teamed up to assist FNB clients who are experiencing distress in meeting their mortgage payments in the current market.
This service is to assist FNB clients to dispose of their homes at the best possible market price, rather than face inevitable foreclosure, which could lead to a much lower selling price on a forced sale basis.

FNB clients requiring assistance should discuss their needs with their bank. The bank then values the property, agrees a reserve price with the client, signs a mandate with the client and then forwards the transaction to Chas Everitt or two other national agencies that are also participating in the programme.

Chas Everitt has contracted to perform extensive marketing of the property under the "FNB Quick Sell Plan" banner, for a reduced rate of commission.

View Chas Everitt's FNB Quick Sell Properties

100% Mortgage bonds are available from FNB to approved buyers, plus a 50% reduction in conveyancing fees during the transfer process. This system has already proved a great success for many clients. We commend FNB for their proactive approach in supporting their clients!

Chas Everitt - Wetherlys Discount

Chas Everitt International Property Plettenberg Bay has arranged a special 5% discount for any homeowner wishing to purchase goods from Wetherlys furniture stores. This discount is obtainable nationally from any Wetherlys store.

All you need to do to obtain your discount is quote our Account Number to your local Wetherlys store when purchasing. Its as simple as that!

E-mail our Office Coordinator Tracey Clague at plett@everitt.co.za or call her on +27 (0)44 533 5250 for the Account Number. This service is absolutely free to you from Chas Everitt.

Please also remember that Wetherlys not only provides the widest range of furniture in South Africa, but that they will also quote you on furnishing your entire home, including all furniture, linen, curtains and accessories, all at most competitive prices. Please ask your local store to visit your home should you require their decorating service.

Plett Estate Agents police their own conduct

Plettenberg Bay Estate Agents have joined forces to set their own standards of conduct to ensure a high standard of compliance. Most Agencies support the concept, with only a few not wishing to participate. Remax Principal Graham Anley chairs the meetings and initial discussions have mainly centered around estate agent For Sale and Show House boards.

The Municipality used to monitor Estate Agent Boards, but some six months ago their employee resigned and a subsequent new appointment only lasted a month. This is when Brokers, led by Graham decided to take charge of their own conduct. Meetings are held every second month and the cooperation amongst Agencies has improved markedly. Open communication now exists amongst Brokers and there has been a marked improvement in levels of conduct regarding the use and placement of boards.

The forum is an excellent one which will result in further cooperation in future and a number of additional issues will be tackled in due course. Everything possible will be done to welcome the Agencies who have thus far chosen to ignore invitations to attend the meetings.

Plettenberg Bay Estate Agents face challenging times

As the economic noose tightens, the number of Estate Agents in South Africa has declined quite dramatically. A recent report from the Institute of Estate Agents reveals that the number of registered Estate Agents has declined from 80 000 to 38 000 in the past year.

While times may be tough at present, those Agents who can survive will no doubt benefit in future. It is highly unlikely that the number of Agents will dramatically increase when the market improves. The new Agent qualification criteria, the costs of training, as well as expected increased EAAB registration fees, will ensure that only the serious and professional agents will remain in the industry.

The Pettenberg Bay property market has not been immune to the effects of the current recession, and a number of agencies have already closed and left town, while one has indicated that they will operate from an Agent's home until the market improves. Amongst those who have closed their branded offices are Durr, Aida, Rawsons, Bitou Properties, ERA, and Jawitz.

Using 2007 sales as a benchmark, the local property market shrunk by two thirds in 2008, and 2009 is only looking slightly better with sales expected to be no more that 50% of the 2007 levels. For many Agents and Agencies its now a matter of getting through 2009 and hoping that 2010 will show a marked improvement. One thing is certain - the shakeout will continue, with some more casualties expected, before better times return.

Harcourts Opens In Plettenberg Bay

The Australian Property Group, Harcourts, have signed up a franchisee for Plettenberg Bay. The new office will be operated by Debbie Cairns, for a number of years the top Agent at the local Remax office. Debbie will be joined by Lisa Ritchie, another top Remax Agent. Debbie will focus on sales with Lisa running the office. Stephen Ritchie is also leaving Remax to join the new franchise. Chas Everitt International Property wishes Debbie, Lisa, and their new team all the best of luck in their new venture, especially during these challenging times. The new Harcourts office will open in the Main Street premises recently vacated by Jawitz Properties

New Plettenberg Bay Developments At Risk

Plettenberg Bay property, especially vacant land, will go through a period of consolidation and low capital growth over the next five years. John Fuller of Chas Everitt International Property, Plettenberg Bay, says there is an enormous surplus of vacant stands on the market following large scale real estate developments in the town over the last ten years. These new developments include areas such as Brackenridge, Whale Rock, Schoongezicht, The Hill and Baron's View. Baron's View is being marketed for the third time by new developers, following two previous failed attempts by previous developers to sell the stands. The other developments have many stands which have either not sold or have been sold to investors who are now unable to resell their stands at a profit. John says that Plettenberg Bay remains the most beautiful resort town in South Africa, and an exceptionally desirable place to live, but being mostly a secondary home environment it has been hit hard by the current world and local economic crisis, and property sales have dropped dramatically because of consumer debt and the introduction of the National Credit Act and Banks' reluctance to finance vacant land without substantial deposits.

Many investors snapped up stands at launch or on resale thereafter thinking that the high annual price inflation being experienced then would continue, but have since unfortunately discovered that the market has fallen back to 2005 price levels. Those who do not reduce their inflated asking prices and ignore that the market has changed forever will find that their holding costs will be considerable. Their high price expectations will only assist the better priced properties to sell first.

Two new golf estate developments have been in the pipeline in Plettenberg Bay for some time and the developers will need to introduce some exceptionally creative marketing strategies if these are to be successfully launched during the next three years. Garden Route golf courses like most courses elsewhere are struggling to generate positive cash flows and simply cannot survive without strong demand from international investors and increased international tourism into South Africa. Developers normally attempt to cover the basic annual running costs for the golf course from owner membereship subscriptions, but if the properties are not sold the course can collapse. There are simply too many new residential golf estates on the Garden Route competing for a diminishing buyers' pool. Supply far exceeds demand at this time.