Joburg throwing millions at billing crisis

The City of Joburg has spent another R13.1 million on trying to get the City of Joburg’s billing system right. This, despite already having spent R800m in the past few years trying to get the systems right, but failing dismally.

And to add further insult to injury, the council approved this spending, even though it was done without following proper procedures in terms of Municipal Supply Chain Management Regulations.

The council on Thursday approved R135m worth of contracts without going through proper tender procedures. This happened in the space of 30 days between February and March. A total of 19 deviations were approved and 10 contracts ratified, all of which were not approved in terms of council regulations.

The R13.1m was supposed to have been spent on improving the billing problems within four months of March 31, yet there is very little evidence that it has had any impact.

Although details provided in the report submitted to the council asking for approval of contracts are sketchy, it was stated that the money was needed because of “billing challenges” in the Revenue and Customer Relations Management unit.

The report says that the company, EOH, was “at that stage” involved with the billing systems, enhancements, configurations and billing developments to address system challenges post-Phakama implementation. It had the “necessary system business knowledge and all the necessary background to assist the city with the billing challenges,” said the report and the deviation from tender procedures was required to “ensure continuity and completion of work in progress.”

The approvals for deviations from tender procedures were asked for after the auditor general, in issuing his qualified report for the year 2010/11, issued a warning to the council that such deviations from procurement processes were not in accordance with legal regulations.

Other examples include property leases not extended before expiry date, extension of contracts prior to the commencement of new ones, the non-inclusion of escalation clauses in contact negotiation and decisions made by employees without consultation.

The contracts include one for R3.7m for the establishment of new offices for the housing department in Braamfontein, R7m for a maintenance contract for digital high-speed copiers, R1.3m for extending a lease which expired for the Region F municipal offices, R35m for the extension of a contact for city fleet cars, R500 000 for the scrapping of taxis for the Rea Vaya and R2m for the appointment of legal representation for Rea Vaya former taxi drivers who wanted their own team, and not the one appointed by the city. According to the Municipal Supply Chain Management Regulations, the council can bypass tender procedures under certain circumstance which include emergency circumstances or in exceptional cases where it is “impossible or impractical to follow official procurement processes.”

The City of Joburg’s member of the mayoral committee responsible for finance, Geoff Makhubu, said the situation was not accept able.

Makhubu, while not providing details, said they were “implementing systems” to address this.

DA Joburg leader Mmusi Maimane said this was “deplorable”, especially in the light of the city’s recent qualified report.

“The criterion for deviations is weak and open to interpretation. It is open to abuse and can lead to corruption,” he said.

Maimane said proper planning was needed, especially in the cases where leases were about to expire, to avoid relying on emergency clauses to extend them.

Councillor Alan Fuchs said that no disciplinary action had been taken against any official involved in these deviations, except in two cases where letters of reprimand had been written to the heads of departments concerned.

“Now that Makhubu himself has expressed concern over the matter, he should call for investigations to establish who has acted unlawfully and to lay charges against those involved,” he said. - The Star

 

Residential property prices to deteriorate

JOHANNESBURG - Housing prices have been coming down in real terms for much of 2011 and this negative growth trend is something that property analysts expect to continue for at least the rest of the year, probably longer.

With investment in residential property more likely to lose the average homeowner money in the near term, Moneyweb asks whether those consumers who have a choice should be opting to rent or to buy.

SA’s housing price boom, which saw year-on-year price increases of around 30%, began tapering off as far back as 2004, according to Absa’s senior property analyst, Jacques du Toit.

But it will come as no surprise that housing prices saw their strongest declines following the financial crises of 2008/2009 with nominal housing price growth dipping sharply into the red for much of 2009.

They have never really recovered.

According to FNB, since February 2008, residential properties have shown a real-term (ie, when adjusted against inflation) cumulative price decline of just under 15%.

The nominal (ie, in simple rand terms) increase has been placed at a dismal 6.4% over that period.

Recent performance, too, has been bleak.

After picking up (off a very low base) in the first half 2010, housing price indices from FNB, Absa and Standard Bank have all been saying pretty much the same thing for 2011: prices have been increasing nominally but at a snail’s pace.

Nominal growth for 2011 has hovered at around 1-2% for most residential markets. Prices have seen a recent upswing, growing at around 5% in July, but those who view that as the start of a sustained upward trend are badly mistaken, according to the analysts spoken to.

Going forward, it is essentially that same theme which hammered property markets in 2009: an increasingly bleak-looking global economy.

While a host of local ailments such as a diminishing local GDP outlook, consumer over-indebtedness, below-inflation salary increases, rising cost of living, slumping consumer confidence and tightening bank lending criteria provide the bread for this rotting sandwich, it is a dire global outlook that provides the nutrition-less margarine.

With talks of a second recession now beginning to circulate, analysts see marginal (1-3%) nominal housing price growth in the near term (up to five years) at best, with real-term growth expected to continue to decline.

FNB’s July index states that “July’s economic data releases and events lead to the belief that we could see increased pressure on the market in the near term”.

According to Absa’s July 2011 index, homeowners are likely to experience a further 2.5 – 3.5% real-term price decline on their properties by the end of the year.

John Loos, FNB’s home loans strategist, says: “The next time we’ll get nice real house-price growth will be at the next interest rate cutting cycle, which is probably a few years away.”

But we all need a place to sleep, so would renting be the way to go?

“The most important consequence (of current and forecasted real-term house price deflation), according to property economist Erwin Rode, “is that ,especially for new entrants, there’s no urgent reason to buy, it’s not like the markets are going to run away from you ... Renting is the savvy option at the moment”.

Loos essentially agrees, but with a caveat.

“The impression is that rental yields (payments) are still on the low side … very often you can rent a property for cheaper than a 100% instalment payment on a new 100% bond”.

However, he warns this current cost-saving opportunity through renting is not necessarily going to continue as rental prices will tend to increase while longer-term interest rates (which affect the repayment amounts on mortgages) tend to fluctuate.

“It’s a tough one to say but what I would say is that if you’re under financial pressure the rental option can be very attractive.

“If you do rent ,and you save money, you consume it …[so] often borrowing big amounts of money for a house with a contractual obligation to pay it back does enforce financial discipline on a household,” he said.

So if you are going to rent in the near term ensure that you are financially prudent.

Du Toit is not entirely for the rental option but suggests that consumers may not have much choice.

“In some instances it can be even more expensive to rent a property than to buy that same property,” he said.

With current levels of poor savings and over-indebtedness, most consumers will simply not be able to come up with the deposits required to secure mortgage loans.

“The deposit issue is a major thing at this stage,” but “if you have that deposit, mortgage repayments are currently 33-34% lower than at the end of 2008 … and that is the difference,” Du Toit concluded.

 

The number of people selling their property with a view to emigrating is the lowest since 2008, according to the second quarter FNB Estate Agent Survey released on Monday.

JOHANNESBURG - The number of people selling their property with a view to emigrating is the lowest since 2008, according to the second quarter FNB Estate Agent Survey released on Monday.

"From a peak of 20 percent [of total residential selling] in the third quarter of 2008, the percentage of residential sellers believed to be emigrating has declined to four percent for both the first and second quarters of 2011," said FNB Home Loans strategist John Loos in a statement.

FNB has since the first quarter of 2008 been asking agents for estimates on why people were selling their homes.

Loos said it was not clear why the rate had dropped.

"But... flows of investments and people between countries have to do with 'relative sentiment or environment changes' between countries," Loos said.

There had been a significant drop in confidence levels in many European countries, including the United Kingdom, and the United States due to their declining economic fortunes.

"Sentiment aside, high unemployment rates in many developed countries probably mean that they aren't nearly as welcoming to immigrants from the likes of South Africa, compared to a few years ago in the global boom years, and even where they are welcoming of immigrants the job prospects just aren't as promising as a few years ago."

Loos said agents' estimates indicated that the percentage of expatriates buying property in South Africa had been relatively stable at around two to three percent of total buying since mid-2009.

"This is not perfect, as expats buying property in South Africa don't always do so with a view to returning permanently.

"Nevertheless, we assume that this is a partial indicator of skills returning or intending to return," he said.

The gap between emigration sellers at four percent of selling and expatriate buyers at two percent of total buying, appeared to have narrowed, suggesting that the net skilled labour outflow may have subsided in 2011, Loos said.

Will Property Stay In A Slump

Indicators point to weakening demand in fragile economy; office vacancy rate at 2004 highs.

JOHANNESBURG - Despite showing year-on-year gains, the news from FNB’s latest housing price index is not altogether positive.

When viewed within the context of a range of other indicators, the index becomes another voice in a growing choir chanting local and economic ailment.

Sustained growth in the property market is unlikely; real-term growth is not on the visible horizon.

FNB’s index on Monday reported a “further acceleration” in year-on-year growth in housing prices which is now at its highest level since August 2010.

The nominal year-on-year (as compared to the same month last year) growth rate for July was at 4.6% , growth for June sat at 3.1%.

However, when adjusted for consumer price inflation (CPI), the real growth rate remained in negative territory to the tune of -1.8% against a recorded CPI of 5% for June.

This implies that homeowners are continuing to effectively lose money on their property investments barring rental returns.

Says John Loos, FNB Home Loans Strategist, “the year-on-year growth uptick is still a reflection of what’s past in the summer. We had, in addition to seasonal demand… some increased demand on the two rate cuts late last year”.

“I think that’s all we’re seeing now coming through into the numbers with a bit of a lag”.

Says Loos, with the marginal effect that record low interest rates have had on the property market now beginning to “wear thin” and with a range of negative news painting a gloomy picture for the local and global economy, the outlook for property does not look good.

According to FNB’s report, “economic data releases and events lead to the belief that we could see increased pressure on the market in the near term.”

Says Loos, FNB’s estate agent survey, which acts as a leading indicator to the housing index, suggests that that uptick from the summer didn’t last and that “already in the second quarter there has been a weakening in demand”.

 He notes that FNB valuers also point to “some weakening in their demand rating”.

The same interpretation may be drawn from the South African Property Owners Association’s (SAPOA’s) Office Vacancy Survey which has revealed moderate increases in office space vacancies.

At just above 10% SA’s overall office vacancy rate is now at its highest level since 2004.

According to Marc Schneider, director of business strategy at Investment Property Databank, which conducted the survey, these increasing levels of vacancy come as office space supply is constrained.

With constrained supply, increasing levels of vacancy imply a weakening demand for office space.

“What you are finding is that the take-up generally has suffered a bit and as a result you are finding a moderate increase in vacancies,” said Schneider.

Says Schneider this weakened demand is, in turn, linked to reduced levels of business confidence.

Business confidence is strongly correlated with the current and expected performance of the local economy as a whole.

Ultimately, says Loos, this weakness in residential and office property demand is a consequence of an adverse global and local economic environment which is reflected in a host of leading macro-economic indicators.

Included here is the Reserve Bank’s leading economic indicator, which is closely correlated to statistics for new residential loans granted both of which are now showing negative growth year-on-year for a three month moving average.

Another major indicator is SA’s non-USA trading partners, this too, has by now slowed in terms of month-on-month and year-on-year percentage change.

Statistics for new residential loans provides a forward looking indication of movements in demand for residential buildings which in turn affects their price.

All-in-all, in case you hadn’t noticed the stubbornly high oil price and the worryingly high levels of debt in Europe and the US, it would seem that dark clouds may be starting to form on the horizon of the global and local economies.

Property, as always, is not likely to do well in such an environment