Rent Vs Buy: Diep River - Great Opportunity For Suckers

This 2 bed apartment in Diep River ("
GREAT OPPORTUNITY FOR INVESTORS!" shouts the ad) is on sale for R925 000 and is tenanted till April 2009 at R4 800 a month. With a 100% bond the difference between the rent, and the R12 523 bond payment is R7 723 a month, 1.6 times the monthly rent itself. Here's the rental and yield graph:




So if you buy the place in cash you can expect a 6% ROI (about 5% below inflation and 7%-8% below just leaving your money in a fixed deposit). With a 50% deposit you still need 1.9% capital appreciation to not lose any money and you'll only break even on cash flow with a 61% downpayment. Factor in ownership costs like levies, rates, maintenance and vacancy and your returns are even less. What an opportunity. I'll take two!

Woodstock: Asking Prices Drop - Down R50 000 in 5 Months

This 2 bedroom flat in Woodstock is for sale for R830 000. Back in March it was on sale for R880 000. Perhaps it is better to sell without a tenant...

Expect A Rate Hike In August

Credit uptick boosts case for rate hike

GROWTH in demand for credit by the private sector quickened in the year to June, data showed today, undermining the case for interest rates to be left on hold next month.

The Reserve Bank has increased rates by a total of 500 basis points since June 2006, partly to curb credit-driven consumer demand that was adding to inflationary pressure.

Discussion Thread: Income Vs Property Values - Is 3.5X Income Sufficient?

Following this comment in our Saturday Open Thread, longtime reader Bean Counter sent the following email:

Someone on your site asked a question about property values in relation to income. For some reason in this country nobody has heard of the old yardstick that "healthily" priced properties are about 3.5 times the average annual income.

Obviously this yardstick is problematic in SA. I know Thabo Mbeki's "two economies" theory has taken extreme flak, but the fact remains that we've got maybe 250,000 people who earn more than R400,000 per year, then another 3 or 4 million who earn perhaps R100,000 p.a., 20 million who earn between R40k and R90k, and finally 20 million who live on under $2 a day, or under R6,000 per year.

So the question is this: when we look at 3.5 times earnings, which group are we looking at? I don't think we should look at the top group, because they top end of the market is always in Cloud
Cuckooland, whichever country it happens to be. I'm sure you could still fork out two or three million US dollars on mansions in disaster zones like Liberia and Zimbabwe. Not that you'd want to, but it just shows that property prices in the top end of the market have no
correlation to the overall health or stability of a country. Just because Pam Golding sells a chunk of Clifton for R20 million, it doesn't mean prices in Durbanville aren't crashing...

This suggests to me that we're left with two core property-buying groups in SA: the R100k crowd, and the much larger R40-90k crowd. Two economies, and therefore two markets.

Does this mean that we should be looking at average 3-bed houses / 2-bed flats in all but elite suburbs to average R350,000?

Likewise do your township/lower working class suburban houses need to average R210,000 before they're healthily priced?

It seems logical, but it's still a little shocking: if Absa says the average price is somewhere in the 900k's, does that mean we've still got to undergo a 60% drop to get to R350,000?

Wow.

Or is the 3.5 rule only really applicable in stable, more equal societies?

Sellers Aren't Distressed, They're Despairing

Desperation that translates into a bargain

DESPERATE sellers of residential property were described as “distressed” this week by Rael Levitt, CEO of The Alliance Group. “Despairing” may be closer to the mark.
...
One estate agent trying to flog an immaculate two-bedroomed flat in a dodgy part of town informed us when we entered that the owners were asking for R650000. As we left without showing any hint of putting in an offer, she brought the price down to R540000. She called me the following day to say the owners might accept R450000.

I wouldn't be suprised if they accepted less than that in the end.

Saturday Open Thread

Time for our weekly Saturday open thread. If you've got anything you want to discuss about housing and real estate in Cape Town and South Africa, this is the place.

Our Favourite Simon's Town Foreclosure Still Isn't Selling

It's been a month since we last saw our favourite Simon's Town McMansion is still on the market for R3.6 million. Someone please buy it already and put it's owners (and the bank) out of their misery.

Nedbank Kills R1.6 Billion Property Development

Thanks to reader TA for the link. This may be in Sandton but it's indicative of what's going to happen to developments that have not yet started, or even those that have. And also I would guess so much for the top end of the market being strong.

Nedbank axes R1.6bn development

Some of SA’s richest business executives and families have been refunded between R3-million and R25-million for apartments they bought in one of Johannesburg’s priciest residential developments.

Billed as Sandton’s most sought- after address, apartments at La Residence in Sandton were priced at R40000/m² — off plan.

But banking group Nedbank yesterday confirmed that plans for the R1.6-billion project had been shelved.

...

Reynolds said this week that recent changes in the residential property market since the launch of the development, with prices falling, had required the financial institution rethink.

Rent Vs Buy: De Waterkant - Opportunity is Calling You... To Lose A Lot Of Cash

And speaking of the De Waterkant, this ad describes a dual level apartment/house (I can't tell) in De Waterkant on the market for a modest R9 250 000. If you wanted to you could sectionalise it into four units (which sounds like a helluva tight squeeze) and then rent then out for what the agent estimates could be +- R40 000/month. That means on a 100% bond you would be paying a killer R125 233 a month, and the difference between that and the rental income is R85 233 a month, over two times the total rental income. We've seen worse for De Waterkant though. Here's the income and yield graphs:

Paying the full asking price of R9.25 million will net you a pretty dismal 5.19% return on investment. To just break even on cash flow, that is to make no money at all, requires a deposit of 68%, over R6.2 million!!! Even with a 50% deposit of over R4 500 000 you still need just under 3.3% capital appreciation to not lose money at all.

And after costs such as rates, levies, maintenance and vacancy are taken into account, returns will be even less.

Rent Vs Buy: Gardens - R850 00 Invested = R0 Returned

This 2 bedroomed apartment in Gardens (Thanks to reader GH for the link) is on the market for R1 100 000 and is rented out till the end of August for R4 200/month. Once you take off R389 for rates and R454 for levies then the net rental income is reduced to R3 357/month. Which means that on a 100% bond you'll be paying R14 892 a month and the difference between that and the rental income is a whopping R11 535/month, 3.4 times the rental itself! That's approaching De Waterkant levels of moneylosingness (see I just made up a new word). Here's the income and yield graph, and believe me it ain't pretty:

It's hard to read off the graph but if you bought the place in cash you can expect a handsome return on investment of 3.66%, which is about 7% below the current levels of inflation and about 8-10% below of what you could expect your money to earn in a decent fixed deposit. Even worse to just break even on cash flow you need to plonk down a massive 77.46% deposit, over R850 000! Putting down a 50% downpayment still requires 4.46% capital appreciation to still be able to sell this turkey at break even.

But folks the ad says "Affordable" so you know it's good deal. Why rent when you can buy at four times the monthly cost?

Stellenbosch: The New De Waterkant?

This is a puzzling ad. Here's a 42 m^2 1 bedroomed apartment in Stellenbosch on the market for a mindblowing R1 080 000 which is just over R25 000/m^2. I think there are properties in De Waterkant going for less per m^2. Anyway here's what just over a bar will get you:

Stunning. Definitely worth the R15 000 a month bond payment. I do love this line in the ad though:

Total piece of mind for your student child

Well if you're prepared to spend a cool million on total piece of mind for your student child why not just send them to Harvard?

Rent Vs Buy: Green Point - So Much For The "World Cup Effect"

The World Cup stadium is being built in Green Point (right across the road judging from the pictures in this ad) so that means high demand and massive yields right? Well... now. Here's a bachelor flat in Green Point on sale for R705 000 and tenanted for 12 months at R3 500 a month. With a 100% bond you'll be paying R9 544 a month on the bond and the difference between that and the rent is R6 044, 1.7 times the rent itself. Here's the income and yield graph:

Buying the apartment for cash at the asking parice gets you a 5.96% return on investment, probably about 5% below inflation. A 63.33% downpayment (R446 483) is required just to break even on cash flow and with a 50% deposit you still need 2.17% capital appreciation to not lose any money at all.

Rent Vs Buy: Milnerton - New Suckers Required

Here's a 2 bed apartment in Milnerton that needs a "new landlord". It's priced at R830 000 and has a gross rental of R4 200, but once rates and levies are taken into account (R234 and R789) the net rental is R3 227. Which means that with a 100% bond you'll be paying R11 237 a month for a bond and the difference between that and the net rental is a hair over R8 000 a month; nearly 2.5 times the rental itself! Here's the income and yield graph:

Putting down the entire asking price nets you a 4.67% ROI. I think I've seen checking accounts with competitive returns on investment. A 71.28% deposit is required to break even on cashflow alone.

One Property, Two Prices: Milnerton Ridge

550 m^2 Milnerton Ridge Plot - R685 000
550 m^2 Milnerton Ridge Plot - R650 000

Rent Vs Buy: Rondebosch East - And Your Bank Balance Goes South

Here's a 3 bed house in Rondebosch East on sale for R1 390 000 with a current rental of R6 000 a month. With a 100% bond you'll only be losing just under R13 000 a month. The difference between the bond and the rent is over two times the rental income itself!




So buying the property for cash will get you a 5.18% return on investment. A 68% downpayment (nearly R950 000!) is needed to just break even on cash flow. Even with a 50% downpayment a 2.94% appreciation in capital is required to not lose any money at all.

Open Thread: Best Suburb In Cape Town?

If we had the cash (and even if the market bombs I still don't think we could afford it) we'd pack up our bags for Upper Fernwood.

Open Thread: Worst Suburb In Cape Town?

You know our choice, it's Parklands and surrounds by a mile. What's yours?

Open Thread: SA Cities

How is the property market doing in Johannesburg, Durban, Bloemfontein and other cities around the country?

Open Thread: The UK And The EU

The UK and EU have traditionally been strong economic partners of South Africa? Will the market troubles there exacerbate any issues in South Africa?

Open Thread: The USA

How will the economic downturn in the US affect SA? Will SA follow the same path as the US?

And to all the yanks reading: Happy 4th July!

Open Thread: Politics

How will the political landscape affect the housing market in South Africa. Will a Zuma presidency help or hinder the market? And how will the crisis in Zimbabwe further affect South Africa's economy?