This document summarizes a business plan for Cygnet Financial Services, a property investment company. It will source funds from private investors to invest in commercial and industrial properties. Investor funds will be held by auditing firms while Cygnet acquires properties, manages the portfolio, and distributes profits back to investors. The business plan analyzes South Africa's property market and argues that factors like low interest rates, urbanization, and economic growth will support continued property price increases.
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4. Reason #1 A Reserve Bank bias towards low interest rates: Over recent months, interest rates have held steady. Investors know that in this environment interest rates will remain low and fixed-rate mortgage debt remains reasonably priced. Reason #2 Urbanization and the influx of people from other African states: Although urbanization certainly has its critics, the upside is that economic development and open borders have bolstered the growth and development of South African cities. Moreover, South Africa’s main metropolitan areas continue to attract entrepreneurially minded migrants from neighboring countries and smaller provinces. Reason #3 Uncertainty overhangs in the equities market: The broader equities market has been unpredictable. Corporate profits have been stable and governance is strong. However, price-earnings (P/E) ratios have fallen and the market is generally moving sideways. A large amount of uncertainty originates from three major sources: commodity prices, the Rand and domestic politics. Reason #4 The supply side has slowed: At one stage, there was great concern that we were building too many new shopping centers, office blocks and industrial centers.
5. However, with localized exceptions, supply has moderated and has slowed down in the medium term. Reason #5 Momentum in listed properties flow: Looking at the strength of listed real estate, capital is starting to flow towards selected commercial property. Reason #6 Improved risk management: We believe that cap rate compression may be coming to commercial real estate. It has previously come in the form of higher P/E ratios to the broader equities, so why not real estate? In fact, there are very good financial economic reasons for lower long-run cap rates (and they are not just related to lower interest rates). Reason #7 South African corporations are doing well: Despite the occasional bad results from certain listed companies involved in construction and property development, our local companies have done really well. Notwithstanding a recessionary environment since late 2008, we have not seen one listed company go bust as we did a decade ago. Auction Alliance Press Release
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7. There will be many more opportunities, especially on the outskirts of the central business districts, and double storey shacks because land will become more valuable as property prices increase.“ Viruly said the increased population in cities would lead to bigger retail centers and new opportunities, adding the property market environment in the next 10 to 15 years would be one where public transport played a role in providing commercial property opportunities and Chinese investors moved into the market. He said the property market now played a more prominent role in the country's economic policy and the Reserve Bank was paying more attention to this market because it did not want to see another boom. However, Viruly said in the longer term there would be important structural changes in the market with the commercial and residential markets competing more for space. Viruly said much work had been done on social housing in central business districts by converting vacant offices into residential but the prices were now too high for the market.
8. He anticipated old industrial estates would be the focus for residential opportunities. Viruly said a slowdown in the economy made it extremely difficult for the commercial property market to perform because tenants could not afford higher rentals. He said there was a very clear correlation between the economy and the property market, adding that the moment the economy "kicks up 1 percent" it increased property market returns by 3 percent. However, he said the property market only started moving again after four consecutive quarters of economic growth. Viruly said the South African property market had a natural vacancy rate of between 7 percent and 8 percent and at the moment vacancies were above this level, which meant rental increases would not beat inflation. Viruly expected rentals to start exceeding inflation from the third quarter of 2013 and an increase in construction from next year onwards.
9. Viruly said brokers should not expect to do many deals involving new developments because the property market was still in the cycle of mopping up vacant space. Big new developments, such as major office towers, would not come to market until 2014, 2015 and beyond. Business Report The Case for Whole Stock Portfolios." One of the underlying tenets is that specialization within equity portfolio management has gone too far; thus resulting in sub-optimal portfolios and high service costs. CYGNET is structured as a close corporation designed to capitalize on industry research performed by one of the founding members, Sagren Pillay. The team presents this business plan as a "start from scratch" outline of what a successful property portfolio management organization should look like as the industry evolves in response to political, social, technological, and global sentiment .
10. CYGNET will offer high net worth investor’s opportunity to maximize profits and a capital growth element in exchange for contributions to CYGNET’S operating capital and for providing seed funds to establish the investment products described herein. This document alone does not constitute an offer of any type, nor does it provide any guarantee, financial, or otherwise. Risks associated with the CYGNET FINANCIAL SERVICES business plan are not limited to those detailed in this document.
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15. LISTED PROPERTY OUTSHINES ALL SHARE FOR A SIXTH MONTH Listed property last month posted higher returns than the JSE all share index for the sixth consecutive month but was overshadowed by the performance of the bond market. The Property Loan Stock Association of SA (PLSA) reported yesterday that the listed property sector achieved an overall monthly return of 2.6 percent last month, which was up from the 1.4 percent return achieved in July. By comparison, the all share index last month achieved a return of minus 1.8 percent. However, the all bond index reported a 7.4 percent return in August. Property loan stocks, which form part of the listed property sector, posted a return of 2.5 percent last month compared with 1.3 percent in July. There has been a steady resurgence of listed property prices since March after losing 7 percent in total returns between January and mid-March due to the negative impact of inflationary risks at the beginning of the year on all interest-rate sensitive asset classes.
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17. Ndlovu said this was not bad compared with the average inflation rate of 4 percent, although there were some notable disappointments, such as Hyprop's lower-than-expected income growth and Emira forecasting negative income growth. He added that there was a general downward trend in overall vacancies across the portfolios reporting and the retail sector, especially the larger shopping centers, continued to do better than other sectors. "The retail sector, and particularly bigger shopping centers, continues to outperform the office and hospitality sectors, which are still feeling the effects of a weaker economy and oversupply," he said. However, Ndlovu stressed there were still some major risks to note and at macro level, slower economic growth and rising bond yields were a concern for asset managers, while steep increases in operating costs, particularly utilities and taxes, were making it difficult for landlords to negotiate better rentals with tenants. Ndlovu said Stanlib was forecasting a slowdown in income growth to about 5.5 percent for the coming year with an 8.4 percent forward yield for the listed property sector, which was likely to be better than cash and bonds. Business Report
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20. The housing backlog under his watch had increased from 2.1 million houses when he became minister to 2.3 million, despite his department building 200 000 houses a year. Sexwale attributed this situation to the increasing number of households and the decrease in the size of households, admitting that the government had got itself into "a very tight situation since 1994" by providing free houses for the poor."It was not the best thing to do. We can't provide free housing forever but we have got to do that because we can't turn our backs against the poor. It's not their fault they are in that situation," Sexwale said. He stressed that the new campaign was not aimed at bringing all corporate social investment involving housing under one umbrella. The government knew about the social investment by corporates. The campaign was aimed at telling corporates "what is not happening".
21. "We have to go the extra mile. Something else has to be done. We need all hands on deck," he said. Sexwale warned that if there was a second recession in the country it would introduce social instability. "The protests of our people are beginning to get violent every day. It's worrying. The police are shooting every day. Let's work together to try and stem the tide.“ Sexwale said housing was not just a social expenditure item but an economic dynamo because it contributed massively to economic growth. "It stimulates the whole financial system and when it doesn't happen, the world starts burning and we just don't know where it ends.“He said it was easy for firms to hide behind corporate social investment but it would "not keep this problem at bay". A social investment desk had been created in the department to manage the activities of the campaign and projects on a project-by-project basis.
22. Khanyisile Kweyama, the executive head of human resources at Anglo American Platinum, said it embraced the campaign and was contributing R1.4 billion towards facilitating the building of 20 000 houses for its employees over the next 10 years. Leon van Schalkwyk, the group executive of strategic finance at Impala Platinum, said it had a proven track record in community-based housing solutions through its extensive home ownership programme in the North West to uplift its employees, which had resulted in the construction of more than 1 500 freestanding units over a three-year period. It therefore made perfect business sense to get involved in this campaign, he said. Business Report