Investment Properties That Aren't

There was an ad for a 2 bedrooomed aparment in St Martini Garden's advertised for sale. Asking price R1.595 million with a tenant (until September) paying R4950. Now if you bought the flat for that price and put in a new tenant at that rental what kind of investment returns are you looking at?

Down Payment	Monthly Cash Flow	ROI
100000	-10481	-126
300000	-8417	-34
500000	-6352	-15
700000	-4288	-7
900000	-2224	-3
1100000	-159	0
1300000	1905	2
1500000	3969	3

3% ROI with nearly a 100% deposit? Ouch.

Western Cape IOL Index

SA Banks Told To Tightnen Lending Standards

Ombudsman cautions SA banks against reckless lending

THE Ombudsman for Banking Services has warned banks against reckless lending which could land consumers in financial trouble.

The ombudsman says banks may be doing this to grow their customer bases ahead of strict new lending criteria that will be introduced under the National Credit Act (NCA) next June.

Investment Properties That Aren't

Here's an ad in today's paper for a flat for sale in Moullie Point:

MOUILL POINT Investors 1 bed, R1 190 000 incl. tenant - R7 000 p/m.

Let's run those numbers:

Down Payment	Monthly Cash Flow	ROI
100000	-4251	-51
200000	-3219	-19
300000	-2186	-9
400000	-1154	-3
500000	-122	0
600000	910	2
700000	1942	3
800000	2974	4
900000	4007	5
1000000	5039	6
1100000	6071	7

So to break even you'll need to put down a 50% deposit. And that rental is waay too high for a one bedroom. Two bedroom flats can easily be found for R6500 with one bedroom flats going for less than R4000/month.

Rates Are Going Up Again

Bargain on another rate hike in August

Economists are overwhelmingly of the opinion that the South African Reserve Bank will raise rates another 50 basis point as soon as August.

This is a radical about-turn from the market view of a few months ago, before global and local financial markets hit turbulence – and before the surprise 50 basis point interest rate increase on June 8.

Asking Rents Drop in De Waterkant

Since I've started this blog there's been a 2 bedroom townhouse for rent for R3850 in De Waterkant. Well it's been 3 months and it's still there but the asking rent has dropped to R3700.

Advertising To Flippers

Here's a development that is going out of it's way to advertise to flippers... er I mean investors.

CASH FLOW SITUATION FOR THE FIRST YEAR AFTER THE DATE OF REGISTRATION (R 729,900)

If a 30 year bond is obtained, the monthly bond repayment will be R 6229 pm and the positive cash flow R921 pm.

RETURN ON CAPITAL INVESTED AFTER TWO YEARS

* Capital growth on R729,900 at 8% over two years equals R121,455
* Total capital invested : deposit of R20,000
* Return on capital invested (R121,455 over R20,000) = 600%. The positive cash flow above has not been included in the above calculation. It could be used for any possible rental vacancy that might be experienced.

But they don't want speculators. I repeat NO SPECULATORS!

* No sharp increases in the bond rate expected which will continue to stimulate the property market
...
* We expect lower property capital growth rates over the next two years in property up to R1,5 m. Property experts expect the residential market to lift its head high again in 2008. Property is now a long term investment and does not present much opportunity to speculators over a short term.

The same experts expecting the residential market to 'lift it's head high' are the same ones who couldn't see bond rate hikes coming despite Tito Mboweni telling them months before he was going to do it. And of course every one is expecting at least another 1% increase in the bond rate, possible more.

So get in and get out in two years but please no speculators. And property experts were predicting no rate increases till Tito raised it 50 base poi

I also love the R5000 a month rental subsidy they give you in the first year. Nothing says strong investor market like incentives from the developer.

Western Cape IOL Index

Truth In Advertising

There was ad for a new development in Malmesbury in the property section today. They had a tag line "30 min to the city!". Yeah 30 minutes if you leave at 4am for work.

Urgent Landlords In Gordon's Bay

Why are all the ads with the words "URGENT" in the title coming out of Gordon's Bay?

Brand new!!!!!!!! 2 Bedroom!!!!! VERY URGENT!!!!!!!!!!!!!

Fully furnished bachelor flat.URGENT!

The Edge: Rents Are Dropping

In May we wrote that you could rent an apartment in The Edge for R5800 a month. Well it seems there were no takers and the same unit is now renting for R5000 a month. Added to that is the fact that almost half of the block is still for sale.

First Article To Mention Lower Prices

Sound the alarms! Here's the first article to mention...gasp...lowering hice prices!

Time for speculators to cash in?

Typically, there is a higher probability that an investor will sell his property when the market is expected to decrease than that owner-occupants will do so. This, of course, will exacerbate the cooling off in the housing market

Every single 'investor' who bought in the last two years just crapped their pants when he mentioned the word 'decrease'.

This is the best quote though:

The current lull in the market is temporary and will pick up towards the middle of next year

"This time it's different!"

Western Cape IOL Index

Desperate Investor Spotting

After never having seen desperate ads from 'investors' before we finally saw one a few days ago. And then today yet another! Check it out:

Quiet, secure, 2 bedrm, garage. URGENTLY NEED NEW TENANTS (R4,200 pcm)
Quiet and secure 2 bedroom flat, bic, fridge, stove, dstv dish, wooden floors, lock up garage. AVAILABLE IMMEDIATELY.

Smell the desperation!

De Waterkant: Rent Vs. Rent

De Waterkant, R 11,000 - 2 beds/ 2 baths aparment
OR
De Waterkant, R3850 - 2 beds/ lounge townhouse.

I didn't know an extra bathroom is worth an extra R8000 a month.

The Edge: Still Half Empty

The Edge is a development we've written about before. They completed building in April 2006 although they were pre-selling units in 2004. At the time I last wrote 11 units were up for sale (not sure how many of those were resales). According to the developers page (dated May 2006) that has now increased to 15 units on the market! That's just under half the 34 apartments on sale!! If I was an "investor" who is trying to sell and there are still developer owned units (or other "investors" units trying to sell) similar to mine in the building I'd be getting nervous...

Western Cape IOL Index

Economists Now Predict Two More Rate Hikes

A month ago 9 out of 10 economists were predicting no interest rate hikes. Then Tito hiked the rate 50 basis points and now all of a sudden:

12% prime rate looming: survey
Economists have reconsidered most of their key economic forecasts over the past month, according to the latest Reuters Econometer survey.

The central view of the fourteen economists surveyed is that the Reserve Bank could lift interest rates at least twice more, taking prime rate to 12% by the first quarter of next year. The rand-dollar rate could reach R7,40 by the end of next year.

Oops.

First Sighting Of A Desperate Investor

Here's my first sighting of a desperate investor trying to find a renter for a newly built and empty unit. It's in Gordon's Bay so it's a helluva drive to Cape Town. The title:

Brand new!!!!!!!! 2 Bedroom!!!!! URGENT!!!!!!!!!!!!! (R2,200 pcm)

just screams "Help! Mortage payments are bleeding me dry!". And check out the last line:

If you are serious, we can talk about the rent !

so there's even room to negotiate down from R2200 a month.

St Martini Garden: Rent Vs. Rent

A while back I reported on St Martini Garden and how a 1 bedroom flat rents for about R2600 and sells for R699 000. Well now it looks like someone bought and is trying to reduce their massive negative cash flow by trying to rent a similar 1 bedroom unit for R4500 a month! Considering you can get larger, better flats for R1000 less a month without looking very hard (this flat for example) I think this particular 'investor' is going to be bleeding cash for a while.