Who is recovering in the Worlds Housing markets?

According to data compiled by the Economist, only one national housing market has recovered to “fair value” after the real estate boom of the late nineties and early 2000's

Disregarding the housing markets in Germany and Japan, which did not witness a property boom in this period, the US is now the only global market (which the publication analyses) where prices are below the long run price to rental income ratio.

South Africa, seems to be OK, but its very up and down even though slaes seem fine in the lower brackets and banks are offering mortgages albeit tentatively.

According to data compiled using the Case Shiller national index, prices are now 11.5% below “fair value” which compares to overvaluations of 48.5% in France, 39.2% in Spain and 27.8% in the UK.

Although there is some debate over the Economists measure of “fair value” (house prices are more a function of affordability and therefore real incomes and interest rates rather than rental incomes) the conclusion is probably a sound one. The US housing market is in better position than most Western markets.

At the turn of the year, we tipped the US market as one of the best markets for investors and agents. The news since then has been far from positive with prices continuing to decline in most regions (although sales volumes have picked up in many states such as Florida)

The best property market in the world?

Well you certainly can pick up awesome deals for properties in possession and these lists are easy to come by, with 100% homeloans and cheapper trasnfer or no transfer fees.

Although the social consequences have been awful, in pure economic terms, the US property market is arguably one of the best functioning real estate markets in the world.

The US fell earlier and more rapidly than almost every other national market. A big reason for this is the US system of non-recourse loans. Home owners in negative equity can walk away from their debts and developers and lenders have no recourse to reclaim the debt. The result has been a flood of supply and sharp price corrections.

Almost every Western economy is going through a process of painful debt reduction. There are only four ways out:

Save more (austerity at both a personal and government level)

Earn more (increase real incomes and/or economic growth)

Inflation

Debt default

Through a process of mortgage debt default, the US has put itself in a strong position to recover strongly from the credit-bubble-inducued recession (although it still has severe sovereign debt issues).

As Robert Shiller points out, US house prices may decline another 10-25% so the crisis is not over but its long term position is much healthier than most European markets.

The UK and Spain for example face a long period of “deleveraging” which means either high inflation, austerity or a sharp rise in repossessions. Without a mix of all three for a sustained time period, there can be no return to a “normal” market and that means no short-term bounce back in the lifestyle market of overseas property.

A Tough Market - So how do I raise Private Equity funds????

So I am sure you agree that without doubt, 2009 was the worst year to raise a private equity fund.


Everyone could see that PE fund-raising suffered a significant drop in 2009 in most emerging markets in general.  this was particularly in Middle East and North Africa. In this reagion, MENA, only four funds were successfully closed in 2009, compared to 13 funds in 2008, less than 50%.

Whats important to know is that there are very few Pan african funds and many of the African funds are actually Gulf or Middle east funds that only overlap in Egypt.

So with this in mind and the turbulent financial market and stagnant PE industry, there are key guidelines that a PE fund should follow in order to overcome the tough fundraising environment. . These guidelines represent the ingredients for successful fund-raising, in our opinion:

Outstanding relationship with historical LPs

It is vital for a fund to manage the expectations of its LPs and try to go beyond the already-set objectives. Maintaining excellent relationships with LPs and winning them over have proven to be of utmost importance, especially in unfavorable market conditions. This relationship comprises good quality and regular reporting, regular visits and communication, a continuous and full respect of the funds' guidelines as well as offering them co-investment opportunities. The derived result of this is securing recurrent investment by these LPs.

Good track record in a turbulent market, both in terms of the performance of the existing portfolio companies andexiting from companies

In times of crisis, the ability of the fund management team to monitor the performances of its portfolio companies and assist their top management to adapt to exceptional market conditions is of major importance. This will result in portfolio companies developing greater resistance to the market downturn in turbulent times and improvement in portfolio valuation.


Ensuring seed financing from trusted institutional investors

Ensuring solid seed financing early on in the fundraising process can give a great boost. In difficult times, having international institutions with abundant capital (but strict conditions) aimed at emerging markets early on in the process is crucial. This requires a very strong relations and trust between the two parties built over time. In 2009, almost all of the funds raised in MENA had one or more international institutions.

These institutions provide great added-value in terms of the development of the portfolio companies (such as SME businesses in the region) as well as additional credibility vis-à-vis other LPs. Procuring funds from these institutions is not easy; they require strict adherence to their internal regulations, strong governance schemes and high accountability.

Good relations with shareholders and managers of existing portfolio companies they are the best marketing agents for the fund

Good relationships with shareholders and managers of portfolio companies is essential. They provide good referral base about the fund management team and they could well be potential investors in the fund in addition to being the best marketing agents for the fund management team.

A strong relationship between the GP and the Fund Management Team

A strong relation between the GP and the Fund Management team, along with a complete alignment of interests is essential and gives great comfort for LPs. Clearly, fundraising in difficult times is very tough, thus increased co-ordination between the two parties is crucial.

A strong and serious pipeline of potential deals

Transactions are usually on hold during crisis. It is as difficult to exit in good conditions as it is to invest in good conditions. Thus, having a serious pipeline of potential deals is key to attracting interest and funding from LPs, whose focus on this issue is much more than in normal times.

A strong and dynamic Fund Management Team

Finally, money is worthless with no human capital supporting it. Funds should be handled by a strong, dynamic, motivated team that has shown its ability to deal with changing environments and cope with different situation, as well as entertaining good relationships with the LPs, the fund advisors, and portfolio company managers, etc...

We believe the prospects for 2010 are positive for private equity in Africa and MENA as the markets are showing signs of recovery and higher potential for investing in good opportunities at reasonable valuations.

Fund-raising though, could still be shy in 2010 as there is significant dry powder for investment before the managers return for additional fundraising.

thanks to Euromena Funds for this insight....

MAKING DRAW DOWNS ON A BUILDING LOAN

I think most people really struggle when it comes to how the banks pay builders when you have a building mortgage or bond.

Mortgage Originators understand this, but often this is lost on the client until its too late.

So here are some tips, hints, tricks etc from your favourite SA property info site!!!

TAKE CAREFUL NOTE OF THE ITEMS IN RED.

ALWAYS READ THE SMALL PRINT!!!!

BUILDING LOAN/MORTGAGE - If you have paid for the land and now want to start building, make sure if you have an ACCESS type bond, that you move your access money into a different bank account while the building bond starts, else it will be frozen. Bummer.

PAYMENTS - PROGRESS PAYMENTS

Your builder will want payments for work that he has done. This is called progress payments.

The lending bank, will make these payments to the builder:

1. After receiving a signed request form to release funds from you. You can get these at any branch or ask your mortgage originator to get them. Make sure it gets to the bank 5 days before the money is required.

2. The payment will be based on the estimated cost of building work completed.

3. The lending bank will always calculate this payment and ensure that sufficient money is retained to complete your building. - They look after you.

4. This retained money is calculated by the banks. They value the work against the building contract.

5. Remember, get a reputable builder BECAUSE the bank will not pay for poor workmanship nor will they pay for building material on-site.

6. The bank WILL ONLY pay on the assessors amount not what you or the builder estimate (So dont ask for more than what has been done).

7. Never, never, never - sign a blank progress payment form and give it to the builder.

8. Its good to have a solid honest payment relationship with your builder, because he will always want payments. YOU ARE RESPONSIBLE FOR THIS - NOT THE BANK.

9. Normally 3 to 4 progress payments to complete your mansion.

SO IS THIS ALL I AM LIABLE FOR; OR ARE THERE OTHER COSTS RELATED TO PROGRESS PAYMENTS? YES YES YES YES YES

NOTE: Interim interest is calculated on each of these progress payment amounts. This is over and above your loan.

WHAT TO DO:

1. Because part of your original loan money will be used up by interim interest you may not have enough money from your loan.

2. Make some partial payments to cover the interim interest as soon as the first progress payment has been made by the bank.

3. Or you must save some money and keep this as a provision to cover the interim interest since this can add up over the building period.

4. Dont get caught having to find a portion of the final progress payment from other funds.

SHORTFALL? YES/NO

Progress payments may differ from the actual cost versus the banks estimated cost.

Keep some funds available right up front before you start building, to overcome a possible shortfall.

Why the shortfall occurs is normally due to:

1. Loan you request is less than the contract price.

2.The builders contract price is LESS than the banks estimated cost to complete the building.

So remember that the bank, in the case of a shortfall, will insist that you have funds from other sources and these funds must be applied to the property prior to the Bank considering progress payments against the bond.

FINAL PAYMENT

When the builder completes the contract and asks for final payment:

1. Check that you are 100% happy.

2. Only then sign off your happy letter for the bank.

3. get your certificate of occupation from the local authorityIn addition, a signed copy of the certificate of occupancy, which is obtainable from the local authority

4. Lastly CHECK if the banks requested anything else when they granted your loan.

READ the SMALLPRINT

Then the last payment will be made.

Simple - HA! Never. Enjoy your mansion.