Here's the text from an ad for a house in Tamboerskloof. Read it and pay special attention to the emphasised part.
Set in a treed garden with avocado and lemon trees, this 3 bedroom home has well preserved features such as marble fireplaces, Oregon floors and spacious reception rooms with high ceilings. In addition, there is secure off street parking and a large cellar. Indoor and outdoor living from country style kitchen to sunny patio and garden. In need of some renovation, this property is a wonderful investment for young families or couples.
For young couples and families so it should be affordable right?
Now go look at the asking price. R3 195 000. What young family or couple could possibly afford these monthly payments? Especially for a house that would require even more money to be spent on it for renovations?
| % Deposit | Down Payment | Monthly Payment |
|---|---|---|
| 0% | R0 | R39730.49 |
| 10% | R319500 | R35757.44 |
| 20% | R639000 | R31784.39 |
| 30% | R958500 | R27811.34 |
Even if our young couple paid a 20% down payment (a whopping R639 000) they would be paying close to R32 000 a month to the bond. That would mean that their househould income would have be about R100 000 a month, following the guideline that you shouldn't pay more than 1/3 of your salary for your bond.
The market of young couples earning that kind of cash has got to be extremely small. Either that or I am being seriously underpaid.
1 comment:
A very nice web-site and loads of examples highlighting the huge discrepancy between cost of capital and rental yields: Either interest rate or property prices will have to drop.
Judging by the CPI outlook (PPI at +/- 10%), a surging oil price at $ 100 per barrel coupled with the vulnerability of the ZAR (political uncertainty coupled with a huge current account deficit at 8% of our GDP which could both lead to ZAR weakness resulting subsequently in higher import prices and inflation), I am somehow rather more bullish than bearish on interest rates…. which leaves little hope to real estate in my mind!
The supply & demand may support the entry point of the market (< R 1,000,000) whilst high net worth individuals may still buy in the top end of the market (> R 5,000,000) as these investors are unlikely to require credit (or be adversely affected by the New Credit Act and higher cost of capital) but I am really wondering which growth there could possibly be for the intermediate segment (R 1,000,000 to R 5,000,000)!!!
There a hundreds of houses / flats for sale in that segment in Cape Town (if not thousands) and the asking prices are way out of reach from most households with Prime standing at 14.5% !
Best Regards,
Mathieu
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