27 April 2008
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.
24 April 2008
INFLATION rocketed by more than 10% last month, scaling a new five-year peak that was well above expectations and encouraging speculation the Reserve Bank will raise interest rates at its next policy meeting in June.
The annual rise in CPIX, SA’s main inflation gauge, speeded up to 10,1% from 9,4% in February — its highest since December 2002, data from Statistics SA showed yesterday.
The next rate hike is guaranteed. I suspect the odds for two more after that are greatly increased.
17 April 2008
There is a 70% chance of another 50 basis points interest rate adjustment, taking prime to 15.5%, and an even chance of two additional hikes before year-end, according to senior economist from Credit Guarantee Insurance Corporation, Luke Doig.
"Most confidence surveys paint a bleak picture, while expectations don't indicate any imminent recovery," he says.
16 April 2008
Paying for it in cash gives you a 5.65% return on investment, with 64% required just to break even on cash flow. Even with a 50% downpayment you need 2.25% capital appreciation just to not lose any money. The actual returns will be lower once levies, rates, maintenance and vacancy costs are taken into account. But you do "save" R17 000 because the transfer duty is included in the price, which is barely 2 1/2 months shortfall if you buy it with no money down.
14 April 2008
Today in Business Day Herschel Jawitz, CE of Jawitz Properties states he believes there will only be a decline in about 10 000 - 15 000 agents. However Lew Geffen of Sotheby's International Realty repeated Neville McIntyre's conclusion:
I think by year end there will only be about 36000 estate agents
12 April 2008
This 2 bed apartments in Noordhoek seems to be one of the apartments they're trying to sell off. It's for sale for R615 000 and has a gross rental of R3 000. Here's the yield and payment graph.
Paying in cash yields a 5.85% return on investment, with a 63% downpayment needed to break even on cash flow. Just to not lose any money at all with a 50% downpayment requires just over 2% capital appreciation. Again this is before rates, levies, maintenance and vacancy costs.
11 April 2008
over 1.5 times the rent itself. Here's the yield and payment graph:
Before rates, levies, maintenance and vacancy costs are taken into account purchasing the place for cash gets you a mere 5.89% about 3% below official inflation numbers. A 62% downpayment is required to break even on cash flow and even with 50% downpayment 2% capital appreciation is required to not lose any money at all.
Buying for cash gets you a 4.31% return on investment with a 72.7% downpayment required to break even on cash flow. Putting down a 50% downpayment requires 3.59% capital appreciation just to not lose any money at all.
After what we heard today, I am still expecting another rate hike in June or August, given the way Mboweni was talking how the Bank has reacted to the electricity price increases, and how we can see inflation into double digits.
I won't be surprised to see another hike in June.
10 April 2008
The South African Reserve Bank's (Sarb) Monetary Policy Committee (MPC) ended its two-day meeting on Thursday by announcing it would hike the repo rate by 50 basis points, bringing the rate at which it lends to banks to 11.5 percent.
In line with new policy, the repo decision was announced first as opposed to at the end of the statement.
Commercial banks prime overdraft rates will almost certainly rise by 0.5 percent to 15 percent from the current 14.5 percent.
I think we might see further rates hikes this year.
During the past week, we contacted all the owners of property on the market in Observatory and asked them to reduce their asking prices in an attempt to make house prices more affordable. Below is the result of our efforts:
87 ARNOLD STREET: REDUCED FROM R780 000 TO R750 000. An immaculate lock-up-and-go property with low maintanace. Two huge bedrooms with built-in cupboards here, an open plan lounge that overlooks the back garden, a fitted kitchen and pleasant bathroom.
17 IRWELL STREET: REDUCED FROM R845 000 TO R795 000. Two bedrooms, two bathrooms and an outside room with a w/c and basin in this sunny home in a tree-lined street.
6 ROBINS ROAD: REDUCED FROM R915 000 TO R865 000. Modernized Victorian home in excellent condition. Two bedrooms with open plan living between the kitchen, lounge and private courtyard.
31 LOWER COLLINGWOOD ROAD: REDUCED FROM R1 100 000 TO R995 000. Freestanding home with three bedrooms, two bathrooms, a study and large garden. Secure parking too, in a quiet position close to the greenbelt area by the Liesbeek River.
22b. ASH STREET: REDUCED FROM R1 150 000 TO R1 100 000. Most unusual home with two bedrooms and a big and private garden and a separate self-contained wooden house hiding in one corner of the property. Secure parking too.
The largest drop was 9.5% (from R1 100 000 to R995 000) the smallest 3.8% (R780 000 to R750 000).
09 April 2008
Sub 6% returns if you buy it for cash witha 66% downpayment required to break even on cash flow and 2.46% capital appreciation required even if you put down a 50% deposit and of course these numbers will be lower once rates, maintenance and vacancy costs are taken into account. But hey you've got a tenant locked in till December! The sucker!
So paying for the place in cash gets you a dismal 5% return on investment (about half current inflation). You're cash flow positive with 67% downpayment (well over R1 million) and even with a 50% downpayment you need 2.68% capital appreciation to not lose any money at all. And once again that's before rates, maintenance (which will be considerable on a property this size) and vacancy costs.
08 April 2008
The green line is what people expect to happen - x appreciates by 20% and then depreciates by 20% to come back to x - the red line is what actually is required - x appreciates by 20% and then only has to depreciate by 16% to go back to x.
So when Standard Bank says that the median price has depreciated 5%, this means that in fact that 5.25% of appreciation is wiped out. Larger drops wipe out even more - 10% depreciation wipes out 11% appreciation, 20% depreciation wipes out 25% appreciation and 30% depreciation wipes out 42% appreciation.
Reject today's offer at your peril - agents
Greedy, stubborn sellers will regret holding out for a higher price. That's the message from a number of estate agency bosses, as residential market volumes drop off dramatically.
The latest to issue such a warning is Lew Geffen, chairman of Sotheby's International Realty SA, who believes the residential property market is much worse than recent figures from Absa suggest.
Geffen goes on to say that last year's prices are now unobtainable. With every bank predicting further weakening in the market how long before Geffen starts begging sellers to forget about 2006 prices? And then 2005 prices?
07 April 2008
A 5.79% max return on investment, and that's before rates, maintenance and vacancy costs, isn't great. With a 50% downpayment you need 1.9% capital appreciation to not lose any money and break even on cash flow is at 62% downpayment.
03 April 2008
Paying in cash you get a pitiful 4.62% return on investment. To break even on cash flow requires a 70% downpayment and with a 50% downpayment the capital appreciation needs to be just over 3% to prevent you losing money.
The second property isn't much better. It's a 42m^2 one bed on sale at the Four Seasons (a specuvestor favourite) for a whopping R829 000 (that's about R20 000/m^2!) with a net rental of R3 300 (R4 000 minus R700 in levies). Here's it's yield and payment graph:
A 4.8% return on investment if you pay in cash, which is about half the inflation rate. Break even on cash flow with a 70% downpayment and 2.9% capital appreciation required to not lose any money even with a 50% downpayment.
So if you buy the place in cash you can expect a 4.67% return on income, about 5% below inflation. With a 50% downpayment the property still has to appreciate 3% to prevent you from losing money and breaking even on cash flow is only possible with a 70% downpayment. Yields would be even less if you took into account rates, levies, maintenance and vacancy costs.
So if you pay in cash you van expect a 3.58% return on investment. With a 50% downpayment the property has to appreciate by 4.4% just to not lose any money at all. a 76% downpayment is require d to break even on cashflow.
So a 70% downpayment is required to break even on cashflow, and with a 50% downpayment you still need 3.12% capital appreciation to not lose any money at all. If you do plonk down a bar to buy the place outright you can look forward to a 4.56% annual return on investment. That's only 4% below inflation (well the official numbers at least). And of course there's the tiny fact that this excludes rates, levies, maintenance and vacancy costs.