28 June 2007

Asking Prices Drop

Reader TVM has been keeping track of a number of houses over the past few months and has been noticing some asking price declines.




































Price Now Price Before Change in Rands % Change
4000000 4500000 -500000 -11.11
1640000 1969000 -329000 -16.71
275000 324000 -49000 -15.12

21 June 2007

R300 000 Price Drop

Reader B from Zim(!) sent us this link from Durban: I have dropped original asking price by R300 000.

The Greater Fool Theory In Action

The Greater Fool Theory is the idea tha no matter how overpriced an asset is or how disconnected it's value from the unerlying fundamentals are, it's worth buying as long as there is a greater fool than yourself willing to buy it. And here's a perfect example on sale for R1 050 000:
...remember that it is predicted by the banks that the value of houses will double over the next four years, this house in four years will be worth R2,160,000:00 not even interest in the banks can match that, and what will it cost you to gain that growth, call me and I will tell you. At present the property has a tenant at R4,500:00 pm rental income.


Wow! In four years it will double in price to over R2 million! So... uh... why are you selling? You're throwing away R250 000 a year in appreciation!

Maybe it's because you're earning R4 500 a month in rent. With a purchase price of R1 050 000 your potential buyer is barely making 5% ROI with R700 000 deposit just to break even at cashflow. And if the price doubles? I suspect the next buyer after that will have bit of a hard time suddenly doubling the rent...












Down PaymentMonthly PaymentCash flowAnnual IncomeROI
R0R12301.54R-7801.54R-93618.54
R105000R11071.39R-6571.39R-78856.69-75.10%
R210000R9841.24R-5341.24R-64094.83-30.52%
R315000R8611.08R-4111.08R-49332.98-15.66%
R420000R7380.93R-2880.93R-34571.12-8.23%
R525000R6150.77R-1650.77R-19809.27-3.77%
R630000R4920.62R-420.62R-5047.42-0.80%
R735000R3690.46R809.54R9714.441.32%
R840000R2460.31R2039.69R24476.292.91%
R945000R1230.15R3269.85R39238.154.15%
R1050000R0.00R4500.00R54000.005.14%

20 June 2007

Rent Vs. Buy: Stellenbosch

2 bedroom flat being marketed as student accomodation (and that means maintenance costs are a lot more). Asking price R965 000, rents for between R3 800 and R4 500 a month. Let's give them the benefit of the doubt and say it rents for R4 500.













Down PaymentMonthly PaymentCash flowAnnual IncomeROI
R0R11305.71R-6805.71R-81668.47
R96500R10175.14R-5675.14R-68101.62-70.57%
R193000R9044.56R-4544.56R-54534.77-28.26%
R289500R7913.99R-3413.99R-40967.93-14.15%
R386000R6783.42R-2283.42R-27401.08-7.10%
R482500R5652.85R-1152.85R-13834.23-2.87%
R579000R4522.28R-22.28R-267.39-0.05%
R675500R3391.71R1108.29R13299.461.97%
R772000R2261.14R2238.86R26866.313.48%
R868500R1130.57R3369.43R40433.154.66%
R965000R0.00R4500.00R54000.005.60%


5.6% ROI. Break even on cash flow (before rates and maintenance... a whole lot of maintenance) at R580 000 down. As the ad says "GREAT INVESTING OPPORTUNITY".

15 June 2007

Rent Vs Buy: Kraaifontein Property Portfolio.

Here's something strange, an entire property portfolio up for sale comprising 3 free standing homes and 3 apartments located in Kraaifontein. Asking price is R3 255 000 and the rental income is R17 700 a month. What kind of returns should you expect if you bought this portfolio?












Down PaymentMonthly PaymentCash flowAnnual IncomeROI
R0R38134.79R-20434.79R-245217.47
R325500R34321.31R-16621.31R-199455.73-61.28%
R651000R30507.83R-12807.83R-153693.98-23.61%
R976500R26694.35R-8994.35R-107932.23-11.05%
R1302000R22880.87R-5180.87R-62170.48-4.77%
R1627500R19067.39R-1367.39R-16408.74-1.01%
R1953000R15253.92R2446.08R29353.011.50%
R2278500R11440.44R6259.56R75114.763.30%
R2604000R7626.96R10073.04R120876.514.64%
R2929500R3813.48R13886.52R166638.255.69%
R3255000R0.00R17700.00R212400.006.53%


Ow. You need to put down a R1.8 million just to break even on cashflow. And this is before rates and maintenance (and Kraaifontein ain't exactly known for the workmanship of it's houses). Paying for the whole thing in cash gets you 6.53% ROI. Which is about 2% less it would earn sitting in the bank.

13 June 2007

More Wishful Thinking Rent Prices

2 bed/2 bath flat in the CBD - R12 000 a month. I've seen flats in Clifton rent for less.

3 bed/2 bath flat in Knightsbridge at Century City - R11 000. Oh oh... someone needs to cover their mortgage. We were given a rent pricelist for Knightsbridge a few months ago and 3 beds were going for R7 000, and even that is a stretch in my opinion.

12 June 2007

How long do you think this will stay empty?

Here's a two bedroomed apartment for rent in Woodstock. Asking rental is only R15 000 a month. What a bargain! Me thinks that landlord is doing a bit of wishful thinking. Never mind that similar properties in Woodstock barely get past R4 500 a month. I've seen 4 bedroomed houses in Camps Bay rent for less.

07 June 2007

Golf Estates Decline In Value

Here's a first. An article actually talking about a decline in property prices.

Golf estate prices in the rough
Five years ago golf estates were setting new price records in South Africa. However, that seemingly insatiable appetite for big-ticket properties in luxury developments appears to have waned somewhat, with price growth in many of the more established golf estates slumping to less than 10% over the past year.

The recent slowdown from the dizzy heights seen two to three years ago has admittedly been off a high base. Nevertheless, latest house price data of the Knowledge Factory's SA Property Transfer Guide (SAPTG) shows that in some estates prices have even dropped.

But property only goes up!?!

05 June 2007

Interest Rates Going Up

Interest rates are going up by at least 50bp bringing the repo rate to 9.5%. Although I wonder what are the odds of a 100bp hike?