Here's a 2 bed apartment in Claremont described which "can only be a fantastic investment", on the market for R1 495 000 and which has a net rental of R6 050 (R6 500 gross rental - R450 levies). That means with a 100% bond the difference between the bond payment (R19 093) and the net rental is R13 043, twice the net rental itself! Here's the payment and yield graph:
Paying all in cash gets you a 5% return on investment, about 5.5% below inflation. To break even on cashflow requires a hefty 68.3% downpayment (nearly a million Rand!) and even with a 50% downpayment you need 2.9% capital appreciation (which is going to be rare when every bank is forecasting price delcines) to not lose any money at all. The returns will be even less one rates, maintenance and vacancy are taken into account.
3 comments:
Educate me, CT.
Why would what looks like a standard 2 bedroom in Claremont be
listed for 1.5 when half a mil is a ballpark figure for much of the Cape Town metropole?
And since the flat is empty, isn't 6500 gross rental per month as opposed to 3500 just a little on the wishful side?
"Why would what looks like a standard 2 bedroom in Claremont be listed for 1.5 when half a mil is a ballpark figure for much of the Cape Town metropole?"
Because the speculator who bought it needs 50-75% more than the purchase price to make up for buying costs and paying in the difference between the rent and the bond for the past two years to get that mythical 20% return on investment.
The property bubble is bursting.
In 10 years time, Cape Town property owners will rejoice if they manage to sell for 25% of 2008 property values.
Reason for this prediction? A huge outflow of white property owners as they become increasingly disenchanted with South Africa.
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