Rent Vs. Buy: The Rockwell

The Rockwell is complete (despite 20% of the apartments still being on sale) and rental units are also now available.

A 1 bedroomed unit is renting for R 5 500 while the cheapest 1 bedroomed unit I can find for sale costs R1 520 000.

Down Payment	Monthly Payment	Cash flow	Annual Income	ROI
R0	R18352.10	R-12852.10	R-154225.14
R152000	R16516.89	R-11016.89	R-132202.63	-86.98%
R304000	R14681.68	R-9181.68	R-110180.11	-36.24%
R456000	R12846.47	R-7346.47	R-88157.60	-19.33%
R608000	R11011.26	R-5511.26	R-66135.09	-10.88%
R760000	R9176.05	R-3676.05	R-44112.57	-5.80%
R912000	R7340.84	R-1840.84	R-22090.06	-2.42%
R1064000	R5505.63	R-5.63	R-67.54	-0.01%
R1216000	R3670.42	R1829.58	R21954.97	1.81%
R1368000	R1835.21	R3664.79	R43977.49	3.21%
R1520000	R0.00	R5500.00	R66000.00	4.34%

Meanwhile a two bedroomed unit is renting for R7 500 and the cheapest I could find an equivalent one for is R1 810 000.

Down Payment	Monthly Payment	Cash flow	Annual Income	ROI
R0	R21853.48	R-14353.48	R-172241.78
R181000	R19668.13	R-12168.13	R-146017.60	-80.67%
R362000	R17482.79	R-9982.79	R-119793.42	-33.09%
R543000	R15297.44	R-7797.44	R-93569.25	-17.23%
R724000	R13112.09	R-5612.09	R-67345.07	-9.30%
R905000	R10926.74	R-3426.74	R-41120.89	-4.54%
R1086000	R8741.39	R-1241.39	R-14896.71	-1.37%
R1267000	R6556.04	R943.96	R11327.47	0.89%
R1448000	R4370.70	R3129.30	R37551.64	2.59%
R1629000	R2185.35	R5314.65	R63775.82	3.92%
R1810000	R0.00	R7500.00	R90000.00	4.97%

In both cases you've got to put over a million in down payment just to get positive cashflow and that's before rates, maintenance and vacancy. And those sub 5% ROIs don't exactly look promising.

Rent Vs. Buy: Century City

Here's a flat for sale in Villa Italia in Century City. Asking price is R799 000 and it's tenanted for the next six months. "Great!" you say "what's the rental income?". How about R3 000 a month. Less monthly levy R806.71 and monthly rates about R350. That comes to a whopping R1843 rental income. I actually don't want to calculate the yield here because I know it's going to be horrible but here goes...

Down Payment	Monthly Payment	Cash flow	Annual Income	ROI
R0	R9646.92	R-7803.92	R-93647.08
R79900	R8682.23	R-6839.23	R-82070.78	-102.72%
R159800	R7717.54	R-5874.54	R-70494.47	-44.11%
R239700	R6752.85	R-4909.85	R-58918.16	-24.58%
R319600	R5788.15	R-3945.15	R-47341.85	-14.81%
R399500	R4823.46	R-2980.46	R-35765.54	-8.95%
R479400	R3858.77	R-2015.77	R-24189.23	-5.05%
R559300	R2894.08	R-1051.08	R-12612.93	-2.26%
R639200	R1929.38	R-86.38	R-1036.62	-0.16%
R719100	R964.69	R878.31	R10539.69	1.47%
R799000	R0.00	R1843.00	R22116.00	2.77%

Egads! 2.77% ROI when you pay in cash and R700 000 needed just to break even. What an investment. I'll take two!

Buy My House Then Let Me Rent From You

This ad is hilarious. The seller wants to sell the house to you for R850 000, then rent it from you for R3500 a month. What's that? 1/3rd of the cost of the bond? At least you don't have to search for a tenant right?

Down Payment	Monthly Payment	Cash flow	Annual Income	ROI
R0	R10262.68	R-6762.68	R-81152.22
R85000	R9236.42	R-5736.42	R-68837.00	-80.98%
R170000	R8210.15	R-4710.15	R-56521.77	-33.25%
R255000	R7183.88	R-3683.88	R-44206.55	-17.34%
R340000	R6157.61	R-2657.61	R-31891.33	-9.38%
R425000	R5131.34	R-1631.34	R-19576.11	-4.61%
R510000	R4105.07	R-605.07	R-7260.89	-1.42%
R595000	R3078.81	R421.19	R5054.33	0.85%
R680000	R2052.54	R1447.46	R17369.56	2.55%
R765000	R1026.27	R2473.73	R29684.78	3.88%
R850000	R0.00	R3500.00	R42000.00	4.94%

5% ROI when you pay cash and break even at a mere R600 000 down. Meanwhile our seller puts his R850 000 in a 9% fixed deposit and the interest pays the rent and he still has R35 000 left over at the end of year for a nice holiday.

Gordon Institute of Business Science: Property bubble collapse "could be severe"

Associate Professor in Finance and Economics Adrian Saville from the University of Pretoria Gordoon Institute of Business Science wrote the following about the SA property market:

In short, not only is SA residential property over-valued, but the economic conditions and the market psychology on which a property price bubble thrive are in place.

If we are in a bubble, then the implications are potentially significant. The collapse of a bubble would have adverse wealth effects, which in turn would place a brake on consumer spending. Where property has been financed through debt, the effects on individuals’ balance sheets could be severe.

Thanks to Chuckmeister who posted this link in our comments section. I thought I'd highlight it on the front page.

Same House: Two Prices

Here's two listings for the same 4 bedroomed house in Kalk Bay with a R250 000 price difference between the two.

REMax - R2 950 000
Engel & Volkers - R3 200 000