All in all pretty bad. Sub 6% return on investment with 62% downpayment required to break even on cash flow. With a 50% downpayment you still need 2% capital appreciation to not lose any money at all.
27 April 2008
Rent Vs Buy: City Bowl
Here's a 2 bed victorian cottage in the City Bowl on sale for R1 350 000 which will attain a rent from R6 600 from June, so I estimate it gets about R6 000 now. With a full bond the difference between the rent and the bond payment is a touch under double the rental alone. Here's the income and yield graph:
All in all pretty bad. Sub 6% return on investment with 62% downpayment required to break even on cash flow. With a 50% downpayment you still need 2% capital appreciation to not lose any money at all.
All in all pretty bad. Sub 6% return on investment with 62% downpayment required to break even on cash flow. With a 50% downpayment you still need 2% capital appreciation to not lose any money at all.
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Hi CT
Here's a nice graph for you to plot -
The CPI inflation figures found here -
http://www.statssa.gov.za/keyindicators/CPI/CPIHistory.pdf
The FNB home loan rates found here -
https://www.fnb.co.za/aboutus/rates/homeLoanHistory.html
And the Home loan "real" rates by subtracting the CPI for that time.
I plotted the graph but don't know how to post it - these were my conclusions -
What was interesting is that the last time the 3 figures were exactly the same as they are now was back in 1994 - ie bond rate 15%, CPI 10%, real bond rate 5 %. What happened next was inflation flattened for a year and a half and then ranged between 6 and 9 percent for 6 years - the real house bond rate soared to 15 % over the next 5 years and didn't return to present levels for 9 years. The house bond rate itself soared to 24 % over 5 years returning to present levels within 7 years. Bearing in mind the hugely over valued housing market I suspect this is the scenario which will happen again - soaring house bond rates and crashing house prices for at least 5 years.
According to the SA real house price graph you plotted last year, I calculated that real prices must drop 64% to return to the base as they have always done in the past.
If we assume that inflation does the same in the next 10 years as it did back in 94 then this is what will happen - bond rates will rise to 24% over the next 5 years and house prices then will be 20% less than they are now. After that inflation decreases to 2%, climbing to 10% after another 4 years. So house prices will climb again and in 10 years time from now they will be back again at the peak rates we saw at the end of last year.
It all fits. A long drawn out crash, crucifying bond rates, and at the end the graphs and charts will have all returned to normal and property will have a bad stink hanging over it as an investment - that might be the time to pile in again. Until then it ain't gonna be pretty.
Maybe you could use your vastly superior graphing skills to plot these graphs for us.
Here is the end of those 2 urls as they seem to got cut off
/CPI/CPIHistory.pdf
s/rates/homeLoanHistory.html
Send me the graph and I'll post it.
Hi Guys
I saw the graph of 1984 property crash, and it looks very much like this crash. Except that this time the property prices went much higher in respect of inflation than 1984! It is amazing how properties which cost over a million rand, now suddenly cost under R900 000! What you should do is getting old articles where people, like Seeff, Remax and our favourite Loos, said that property prices will never go lower. I am so tempted to call my estate agent from which I rent and ask her to repeat what she told me two years ago. She said that property prices never drop... yea what ever!
Thanks guys for keeping our hopes high of one day owning a affordable house! I really sorry for the people who rather listened to the estate agents and not to you.
Last idea... if somebody bought a house for an investment from an estate agent. Can you not sue him for bad advice? If houses is an "investment" are they also not suppose to be under the fsb law? I bet you that suddenly houses will not be called an investment again!
Regards
Renter
"Last idea... if somebody bought a house for an investment from an estate agent. Can you not sue him for bad advice? If houses is an "investment" are they also not suppose to be under the fsb law? I bet you that suddenly houses will not be called an investment again!"
I guess they should be under FSB or the EAAB should have strict rules such as the FSB does about making predictions about future performance.
But they don't so agents have become financial prophets.
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