My Eyes!

Here's a listing in Oranjezicht for a tidy R7 000 000. It's got 5 beds, 4 bathrooms and the outside looks quite nice.



But yikes it's obvious no one's lived in it for a while because whoever did the 'staging' (I cry for the real estate industry when they have to do things like this) should be taken out back and beaten. I've seen hospitals with more warmth:





Brrrrr.... I'm cold just looking at it.

Investment Properties That Aren't

Here's another property touting itself as an investment:

Investment Property(Private) (R520,000 )
Two bedroom,first floor flat with parking bay,in newly build block,in Durbanvill. Have people renting @ R2 400.00 p/m

Let's run the numbers, and remember these numbers do not take into account maintenance, rates, insurance or vacancy:

Down Payment	Monthly Cash Flow	ROI
100000	-1793	-22
200000	-795	-5
300000	204	1
400000	1202	4
500000	2200	5

So with a R100 000 downpayment your investment will cost you R21 500 a year. To get less income than what you'd earn in a low yield fixed deposit (R500 000 will get you 6%+ interest) you'd need to pay almost full price.

What R20 000 A Month Gets You

Here's an ad for townhouse in Higgovale going renting for R20 000 a month:

Unfurnished 3 bed 2 bath, seperate toilet townhouse with stunning views. Open plan lounge / diningroom. Kitchen with scullery. Large balcony, double parking bay, security and braai.

But why not save R5000 a month and get a better house in Camps Bay for R15 000 a month:

Beautiful, clean, secure, modern unfurnished home for long lease. Available immediately. 3/4 bedrooms, 2 bathrooms, pool, double garage, garden, views, very close to the beach.

Investment Properties That Aren't

Here's another property going for R850 000 that is being touted as an investment:

Fantastic rental investment as it is situated directly behind the cape tech (constitution street). Currently rented out for R5,500pm and has been rented every day since i bought it. Upcoming body corporate redecorations will cost approx R25,000 per unit (5 flats in complex).

Let's run the numbers and remember these are returns before rates, insurance and maintenance.

Down Payment	Monthly Cash Flow	ROI
100000	-2237	-27
200000	-1239	-7
300000	-241	-1
400000	758	2
500000	1756	4
600000	2754	6
700000	3753	6
800000	4751	7

So to get a maximum return of 7% you need to invest almost the full mortage. A 50% downpayment of R400 000 gets you a measly 2% return. Hell, 3 month fixed deposits start at 6%...

Back On The Market

Remember this house in Fernwood that was for sale for R6 500 000 then for rent for R15 9000? Well it's back on the market (and still for rent) except it's price is now "POA". I guess they're expecting low ball offers now but don't want to publish "Take it off our hands PLEASE!!".

Property Ad Bungles

WOODSTOCK Semi detached cottage, close to police station, R3200

Because when I'm looking for a place to stay the first place I want to know is how close the police are. Why didn't they just say "Semi detached cottage, expect to be burgled"???

Investment Properties That Aren't

This past weekend there was an an ad in the property section for a house in Rosebank that read:

Great Investment! Rental income of R4000 a month. Only R799 000.

Now that sounds pretty good until you actually do the math. Below is a table showing the cash flow you would have and the annual return on investment for different down payment amounts assuming 10.5% interest and a 20 year payment period.

Down Payment	Monthly Cash Flow	ROI
100000	-2989	-36
200000	-1990	-12
300000	-992	-4
400000	6	0
500000	1005	2
600000	2003	4
700000	3002	5
800000	4000	6

So you need R400 000 just to break even (ie make no money) and the full property price to get 6% return which is what you'll get in a fixed deposit at a bank. And to make things worse the above does not take into account rates, insurance, maintenance and vacnacy so your returns would be even less.

Harbor Views (Not!)

Harbour Views is a new development in Woodstock (lower Woodstock, not upper). Here's a bachelor unit for rent for R3500 (which is a but much considering you can find bachelors are going for R2000 - R2500 in the City Bowl) but the price isn't really the issue here. Check out this view!

More like Decrepit Warehouse and Railways Views. And that is Cape Town's main railway line to boot. Why did the owner even put that in the ad?

Truth In Advertisiing

Here's an ad for a 2 bedroom apartment in a new development in town. The actual apartment isn't important (though if you ask me it's a bit pricey for what you can get elsewhere) but check out the tagline at the end:

Join the Hype of Trendy City Living!

Join the hype indeed.

De Waterkant: Chasing The Market Down?

The worst thing you can do in a declining market when trying to sell is to "chase the market down", that is to lower your price but not low enough so that other investments are still cheaper than yours. The De Waterkant is supposedly one of the most in demand areas in Cape Town (Which begs the question if it's so in demand why are so many units for sale?) and yet it seems people are struggling to get rents they want. A few days ago I mentioned a townhouse for rent for R4700 a month. Well that's now been reduced to R4500 a month, plus a new unit is available for R3850 a month:

DE WATERKANT Loader Street. renovated 2 beds, lounge/dining room. R4 500. 2 beds, lounge/dining room 1 June R3 850. Phone o/h XXX XXX. (CAPE ARGUS - 11/05/2006)

Compare those prices to this ad:

Really lovely loft apartment in the heart of the Waterkant, close to Town, Convention Centre, the Latin Quarter, Greenpoint, Waterfront, great location, own parking, swimming pool, 1 bedroom, lounge/diner/kitchen, own balcony with table mountain view. Available early June (unfurnished)

And that's going for R6000 a month. Who do you think is chasing the market?

Shoeshine Boys

A popular story in American business folklore centers on a wealthy investor (supposedly Joseph Kennedy) in the booming American market in the 1920's who was getting his shoes cleaned when the shoeshine boy described his stock portfolio and began giving him investment tips. He went straight back to his office sold all his shares and 6 months later the 1927 stock crash hit. The moral of the story is that there are people out there who really shouldn't be investing and when they are it's time to get concerned.

The same thing is true in the property market. In the past 3 years anyone with a pulse could put 10% down on a pre-construction apartment and 18 months later when it's completed sell it for a profit. Those days are coming to an end. If you're going to make money in the upcoming market you need to know what you're doing. And this person doesn't:

CENTURY CITY Island Club, 3 beds, fully en suite R12 000 unfurn. Occup
immed. % 021-XXX XXX (CAPE ARGUS - 11/05/2006)

R12 000 for an 3 bedroom unfurnished flat? In Century City? I think someone's stuggling to make that mortage payment. Let's see what R12 000 gets you elsewhere:

CAMPS BAY luxury 3 1/2 bedr, 2 1/2bathr, braai, rim pool, garage, views
and balconies, R12700 082XXXXXX (CAPE ARGUS - 11/05/2006)

So you can have a flat in Century City (along with a 30 minute commute to town) or a house in Camps Bay. Decisions, decisions...

Manuel: Very Concerned With Household Debt

Another warning shot across the bow of consumers and homeowners from Minister of Finance Trever Manuel that interest rates are going up:

Finance Minister Trevor Manuel said he is "very concerned'' about record high consumer debt levels, warning that higher interest rates will make it difficult for some people to repay their debt.

"The question we have to ask ourselves repeatedly is what happens when interest rates go up,'' Manuel told journalists in Johannesburg on Tuesday. "I am very concerned. I am concerned in the same way that the governor of the Reserve Bank is concerned.''

Bargain Of The Week(Month? Year?)

You probably thought living in Clifton would be expensive? Even the tiniest flat has extravagent rents right? WRONG. R2500 a month for a one bedroom flat and parking bay (itself alone worth R2500 a month in the high season) in Clifton is pretty damn cheap. In fact it's pretty damn unbelievable.

The Edge: Rent Vs. Buy

The Edge is a new development right at the top of the CBD in Buitensingel Street. It has just been completed and of the 34 units and according to it's pricelist (dated Dec 2005 so it might be a bit off), 11 are on the block for resale. If you want to buy a 2 bedroom/2 bathroom unit it will cost you at least R1 300 000 (the listed price for a 2bed/1 bath unit). With a 20% deposit that's R10 383 a month plus R1151 in levies. Or you can rent it for R5 800 a month.

A Busy Piece Of Land

The piece of land on the left is probably the busiest piece of land in the CBD. It's going to be home to not one, not two, but three seperate developments built by two different companies. If all goes according to plan that little chunk will be home to The Metropolis, Quayside and Dockside. All in all a total of 192 units will be available (althought Metropolis has all but sold out I'm sure plenty will hit the resale market the second construction is complete). I'm unsure what the initial sale numbers are on Quay/Dockside.

FNB: Property Price Hikes Slow Down

First National Bank Property Analyst John Loos says property will still earn 10% this year although they have made a few assumptions:

This was based on FNB's view of a further mild decline in interest rates and real economic growth of between 4 percent and 5 percent a year for the rest of the decade.

Well considering the Reserve bank has indicated that interest rates are going up and that last quarter GDP growth dipped below 4% their prediction might not be entirely accurate.

The Rockwell: Slow Selling Could Lead To Price War

The Rockwell is a new sectional title apartment complex being built (follow their progress) in Green Point De Waterkant. According to their availability page they've only sold 50 of their 103 apartments. If the people who bought pre-construction try and sell once construction is complete, the developer might drop prices to sell the remaining units and the investors will have to compete against someone with much larger margins who can afford to drop their price more and still make a profit. Could get nasty.

Upper Fernwood: Rent Vs. Buy

While taking a drive through the top of upper Fernwood in Newlands I came across a newly built modern house that was on the market for a tidy sum of R 6 995 000. In later ads in the property section offers from R6 500 000 'will be considered'. Today I found it on letting agency Trafalgar available for R15 900 a month. If you had bought it you'd be paying R52 000 a month in mortage with a hefty R 1 300 000 20% downpayment. To just break even you would need to put a massive R 5 000 000 down payment.

If the house was built for say R 4 000 000 you'd be earning a pitiful 4.7% return on capital. What's a fixed deposit pay these days? 8%?

SOHO On Strand: Rent Vs. Buy

SOHO on Strand is a redevelopment on the De Waterkant/CBD border. You can buy a 63 sq.m loft for R1 175 000 (R9000 a month with 20% down) or you can rent a 65 sq. m loft for R3800 a month.

Reserve Bank warns about home loan 'complacency'

The South African Reserve Bank has warned banks against "complacency" in granting more home loans to consumers as overdue mortgages start to rise and speculation mounts that interest rates may increase.

Overdue mortgage loans rose 5.5 percent in February from a year ago, after declining last year, the Reserve Bank said in its Financial Stability Report on its website.

"Although not posing a threat to financial stability currently, lenders would be well advised to guard against complacency as experience has shown that the worst loans are made near the top end of the business cycle," the central bank said.

Business Report

De Waterkant: Rent Vs. Buy

Want to buy in De Waterkant? You'll be paying at least R1.5 millionfor a flat (R12000 a month mortage with 20% down). Want to rent? It'll cost you about R4700 (at least that's what the ad said in todays classified).

Want to buy a 4 bedroom/2 bathroom house? It's gonna cost you around R5 million, R40 000 a month, with a whopping 20% downpayment of R1 million. Renting a 4 bedroomed/2 bathroom house will cost you R14000.

If that doesn't indicate some kind of fundamental disconnect between property prices and and rentals I don't know what does.

International News: Australia Property Downturn To Worsen

The central bank today lifted the official cash rate by 25 basis points to 5.75 per cent, the first time it has raised interest rates since March 2005. The rise took official rates to a five-year high.

Herald Sun

Interest Rates Going Up

Following international trends and concern over rising household debt the Reserve Bank has indicated that interest rates will be going up.

On a R800 000 bond if the rate goes up 0.25% to 10.75% then you'll be paying an extra R130 a month, a 0.5% increase will mean an extra R270.

Villa Italia: Rent Vs. Buy

Villa Italia is a new development in the process of being completed in Century City. Unfurnished you can rent a 2 bedroom/2 bathroom unit for R3700 (Update: Just went up R600 to R4300! Guess the demand drove it up eh?) a month. On their sales page the cheapest unit I could find (from the 53 still available!) was this one for R740 000 and with a 20% deposit on a 20 year mortage at an interest rate of 10.5% it'll cost you R5191.58 a month. So if you're renting unfurnished that's some major negative cashflow and that is before you have to pay levies.

Welcome!

Welcome! In this blog we'll be taking a look, not always serious, at the Cape Town property market. Feel free to leave comments as we would like to hear from all opinions.

Just a quick disclaimer, I am not a real estate guru, hell I'm not even a property owner, I'm just an interested oberserver.