Work is still kicking my ass so unfortunately updates are going to be reduced over the next couple of weeks. If you've got a story feel free to send it to capetownbubble@gmail.com. Here's the Saturday open thread.
58 comments:
Anonymous
said...
The fact that there arent any posts shows what a rubbish site this is. Its usually just a few rubbish dudes like 'Bean Counter' and 'Sakkie Tshaberfuckla' who smother comments from folks who happen to wander onto this site looking for some information and a few answers. They just want to have a bit of power over unsuspecting folks because in their own lives they are cuckolds.
Good gracious, what a sad little post! By "some information and a few answers" do you mean "unthinking validation for a knee-jerk purchase of a grossly inflated property"? And "unsuspecting" was very apt I think. Your word, not mine. You really can't make this stuff up!
Do you have any facts or data that would refute the central premise of this blog, IE that CT property is trapped in a massive price bubble inflated by unpayable debt and massive, ill-advised speculation? If you have anything to share the forum you are dissing is the perfect place to do it. I would agree that property news has been pretty thin in the business pages lately, but that might be because a huge chunk of what is called "news" is actually propaganda paid for in full by the real estate and mortgage industries. It's a pretty narrow, one dimentional topic but we would always welcome insight backed by some facts as opposed to childish insults spewed by bitter house-flippers staring into a negative equity black hole. Don't take it so personally, bro. You are not your bank account. You are not your obscenely over-priced Mcmansion and Iron Maiden of everlasting debt induced slavery.
Okee dokee, so this blog is about people dissing the blog and then people dissing the disser. Uh, is there any new insight on the property market? I think right now we are just in a holding pattern-will the market really sink and get the media coverage of a bursting bubble, or will it hold until the rand is worthless and a loaf of bread costs 1000R?
Serious question here. I would like to know why property in Cape-Town costs so much more than other cities in South Africa. Not just a little more but insanely more?
Also added to that. I earn very good money. I rent an awesome flat and can live a good life but looking at buying property the only place I'd be able to buy is a tiny bach pad or a house so far in the sticks I might as well become a farmer then.
Anon, I think there are many reasons Cape Town is so ludicrously expensive but the most important one is geography. Cape Town invented apartheid town planning, but because most of the expensive bits are on a thin peninsula no amount of development is going to change its layout. A lot of wealthy people are happy to pay for a geographical guarantee that they'll never have to live next door to poor people. Basically there is no organic way rich and poor will ever meet in Cape Town, unlike most other SA cities. Yes, the government could legislate and force mixing (Hout Bay, and shortly Constantia), but that's a fairly extreme approach, and let's not forget that the new black elite are just as keen as the old white money is on making sure the masses stay out on the Cape Flats.
There's also a trickle-down effect from the Atlantic Seaboard. For some reason I'll never understand the in-bred super-rich are happy to pay tens of millions for glass-and-concrete shoeboxes in Clifton, where your view is of a crane and there's a 24-7 traffic jam outside your garage. That means the shoeboxes in neighbouring areas are that much more expensive. And round the mountain we go, slowly dropping prices the further away we get from the Germans in Kleine Deutschland, aka Clifton.
Capetonians are also pretty arrogant about the Visdorp, which helps drive up prices. I've always thought Cape Town is a very mediocre urban space, with loads of ugly buildings and very few public spaces, but it had the good fortune of being built on a really spectacular bit of coast. It bugs me when Capetonians say the city is beautiful. Sorry. Rome is beautiful. Paris is beautiful. As a native I can proudly state that Cape Town is a half-finished Victorian abortion with a gigantic sprawl of shyte all around it. But the mountain and the sea tend to blind the locals.
The Cape has the beach and thus many foreigners from cold European countries end up there. Also, Cape Town, like any other major hub, has industries and jobs that pay decently. Lots of financial sector jobs and it is the media center of the country, to name a few.
Nobody wants to live too far from work and even though the Northern SUburbs are not too far, the highway infrastructure is horrible if you want to get into die Kaap. You basically have to leave the Durbanville area no later than 515 in the morn in order to get into town at a reasonable clip. Leave at 525 and you will be sitting in traffic for 1.5 hours.
How on earth can you say that properties in Cape Town is more expensive than in other cities?
Cape Town expensive? Name me a disproportionally priced address in Cape Town vs. PE, East London, Durban and I will name you an exact match. Unless of course you mean why Clifton in the Cape is more expensive than Greenside in Johannesburg.
And to the statement on prices falling to fair value, well now, there's a subjective and abstract comparison if ever I've heard one. But then again, the bit that suggests some people's (agents maybe?) denial can actually determine market prices explains the state of mind of the author.
And while I'm here, does anyone of you actually believe that we must all wake up, de-value property for the sole purpose so that those of us who do not have any yet, can get it cheaply?
Because if property in Cape Town really is overpriced, then go and build yourself a house. Go on. It will quickly become very clear that you cannot get a cow for the price of a pound of meat.
It's been a razor laff reading over the past couple of weeks how armchair property bulls and bears take swipes at each other. Could we be entering the period of disillusion? of sheer frustration at how incredibly short sighted buyers and sellers both are; depending on your POV?
Rather, I think a majority of these posts, which include some profanities, are from ignoramuses who 'invest' at the top of cycles and then liquidate at the bottom.
Anyway, bull or bear, it doesn't matter to me. As one of the many who make up the market, I can remain irrational a lot longer than a gamble on illiquid assets can remain solvent.
On the debate around rent v buying... do rents go up? Do prices come down? or vice versa?Again, what does nominal pricing really matter when both rents and bonds find themselves struggling sideways because they're inextricably linked to macro fundamentals they have absolutely no control over?
Far, far too many people buy or sell, or even rent, with a herd mentality. Let me prove my point: Is there even one single reader on this blog who has ever asked for (provided) a Bill of Quantities (BOQ) when buying/selling a property? If you've ever wondered why building standards here are so shockingly bad, well then, you have your answer. (Just be careful when you ask a 'developer' for a BOQ as you may get a knuckle sandwich for your efforts).
Back to my main topic, bulls or bears, who wins? Who cares? What really matters is liquidity. Anyone notice how the 'West Coast & Surrounds' insert in the Weekend Argus has quietly disappeared? Anyone notice how the main property insert has thinned out quite a bit lately? Would that be due to 'no sellers' or 'no buyers' or some of both I wonder? Is it just seasonal? I don't really have an opinion on this and don't rightly care as it's not a statistic I base my decisions on.
What does interest me is a debtor nation with tin-pot economics, a folding manufacturing base, stagnant to negative personal income growth, and real growth forecasts that are nothing more than a cosmic roll of the dice.
So the question begs: Property prices stabilise in 2009 and even start to recover; rents go up... but who pays for it? Tell me who? (well the banks have somewhat answered that one by turning down +70% of bond applications)
So you think that MacMansion is worth today more than it was in 2006? Fine, the clowns in the town council certainly agree with you when it comes to rates and taxes revaluations. But seriously, please keep it for now, I, and many like me, really don't want it, not at your price, not at my price, not at any price, not until there's a base under this economy, and that base is NOT infrastructure spending, which is just a loud fart in a crowded room.
Oh!, so you want to hike the rent because of perceived future supply shortages induced by foreclosures and people unable to get bonds? Whatever! If the numbers of property developers presently going arse-over-kettle is anything to go by then that prediction is some way off. Anyway, I just realised I'm paying too much rent for the place I now live in whatwith interest rates coming down for a looong time yet and I expect to see some of that benefit or else I'll just go rent from a grateful developer who is unable to move inventory at a locked-in 2006 pricing model. With unemployment stats, personal income growth expectations and real economic growth propsects over the next 5 years I'm not too seriously worried over rental increases... or price increases... there are other much better investment opportunities out there
actually Peter? That's exactly what I intend to do since it's much cheaper to build than buy, but that will be eventually, when economic realities prove it is safe to do so, maybe in 5 or 6 years time. For now, I'll sit back and watch buyers buy and sellers sell
Come on, that's exactly what I am saying. You are not in the market for a house, yet you want to discuss the MERITS and VALUE of property and dare say that it's cheaper to build. Please, when you are ready to move into a house of your own, then talk to me about BOQs and economic risk. Rich coming from someone accusing others of shortsightedness. And if you want to see lack of liquidity, look at the millions of pension funds after the economic downturn. Goodness!
A few key points to indicate that housing is in the doldrums for some time -
Rents are much cheaper than the monthly costs to buy. That means rents are either too low or houses too high. Rents are governed by salaries and in these tough times renters can't afford to pay more. So the conclusion is, house prices need to come down.
Ditto the ratio between salaries and bonds. 3 to 3.5 X annual salary is about right. Globally the ratio went much higher. It is now heading back to the norm and will probably overshoot somewhat. Again, salaries can get higher or houses fall in price. We are entering recession and possibly depression so it will probably be house drops that get us there.
Housing goes in cycles. A 18 year cycle seems to happen in some overseas markets like the UK. We are not even 2 years off the peak so under a normal cycle we are no where close to boom times again.
And thanks to us entering a period where the baby boomers will be downsizing, this will be a particularly long period of bust.
There is a strong correlation between the US real price peaks and the SA peaks. On lows there is usually a 3 year delay - so watch for the US low which still looks a few years off, then add 3 years for SA's low.
For those talking about building costs, remember land is a major part of a houses costs and in a property crash, land plummets as well.
Finally, we had the biggest boom - why should we not have the biggest crash.
Who says it was the biggest boom? For SA you only have economic data going back to '94 - so sorry, try your models on a place like Germany. Property lagged and just caught up - only now realisticly priced.
And sorry to tell you, but rents are not governed by salaries, but rather WHERE you rent is determined thereby. But even if it was, salary increases follow inflation and Tito cannot even stop it despite 3.5 points drop. And watch this space, he'll continue to drop it, because in his mind he has to stimulate growth. So I'll spell it out for you - the government of the day will make sure that we see huge inflation. The people voted for it.
And with less people buying in the short term, see how popular renting will become. Now think ...
Now, I have to just say this. These few key points you are putting out are YOUR OPINIONS. Please do not write it as if they are factual. If you think so or wish it could be like this, then fine. Just DO NOT make as if they are some factual arguments based on reality. 3 times salary !!! Yeah, that would be nice, but hey, in your dreams.
Do you think the salary-to-car or salary-to-flatscreen ratio in SA should be set? Or comparable be comparable to the States? C'mon! Where were you the last 20 years?
I can tell by reading this blog that most of you are white yuppies. Either speculators or envious little greenhorns looking to get your little white feet in the property market. Well, I am here to tell you it doesn't matter what you do. SA is the next ZIM. That house you are in or the house you want will be taken from you and given to that black man who does your garden, or the one you ignore as he begs for bread money, or that one with no legs who stays in front of Gardens. Yes, bicker all you want, your time is going to come. I suggest you book a flight to the UK while tickets are cheap!
Peter, if you think property is realistically priced in SA, consider this: You can buy a "decent" (in quotes, SA standards) 2 bed flat in Century City for 2M. This is about $200K. For the same price you can buy a 4-5 bed MacMansion in the south of the US (say GA, TN, probably even cheaper now). Just think about it, 2 bed flat in a third world country with one of the highest crime rate in the world costs the same as a 5 bed house in the US. Realistic? I say insane.
Plus, jackasses in the US can easily make 30-40 grand a year. In a few years that jackass can be making 50-70 just in a sales job. I can't even make 10,000 rand a month in SA...
In Sout Africa people spend all they can on their mortgage and use the rest to get by and eat and feed themselves. In America those fat bastards are saving for early retirement.
Have you seen what the $200k house looks like!? But if you insist, have a look at the 5 bedroom houses in Swellendam. You'll find that they are far better value for money than the McMansion you are refering to. Plus, this American dream home that you are talking about will be situated in a treeless, barren new development with empty houses.
Property in SA is very decently priced at the moment, unless you want to use the exceptions. Then, yes, it is insane. But it is as insane to pay R3m for a car without a boot! If you want to use those type of examples
I just dont understand why people who can afford a house will rent rather than buy. I just dont get them.
I am renting, becuause I cannot afford to live in my own house, but damn, if only I had the money to buy... with the prices the way they are at the moment.
Its silly to suggest we are still in a bubble in CT. And the bubble here was, unlike the US, more like a blip that has been well- (if not over-) corrected.
Peter,affordability..... therin lies the problem. either your job is not paying you what it should to allow you to buy the house you obviously feel you should live in, or those houses are too expensive for your salary scale. If buying is so important to you, then buy what you can afford and get on the property ladder. you say property is relatively cheap now and as we all know it only goes up and up...........
Sorry Peter, but my comments are based on information which is out there.
Yes, rents ARE based on salaries for the simple reason that if you don't have the money you can't afford the rent.
And yes, the SA 380% boom was much higher than the UK 250% boom and the US 150% ? boom in the same period.
Agreed, SA has inflation which these other countries don't have at present. That means our real prices can fall 10% even if house prices are flat. This will prevent to some extent the nominal falls from falling so much. But remember, a real fall is still a fall - if salaries go up 10% and houses remain the same, then the house is cheaper in comparison to your salary.
You want to know why I rent my house rather than buy it. Well, if I had bought it a year ago, after buying costs, 20% fall in value, interest payments, maintenance, rates etc I would be R1.4m worse off if I had bought than if I had rented.
Peter ..., I am also renting, and I could afford to buy. But here is the question. Do you want a house because you want to have your own, and you are willing to pay the price? Or are you just considering what is the better financial option. That calculation is very simple. Renting is much cheaper. Not long ago, I read two in depth articles in the New York times and in the Frankfurter about the financial behind renting and buying. To cut things short: In the long run, on average, people are better of buying a property. And you know what the main reason for this is? When people are buying, they are forced to save. Pure and simple, they can not spend their money on junk. If you have the discipline to save without a mortgage in your neck, you area always better of renting. These articles looked at various scenarios and places across the US and Germany. For my part, I will rent and save until I can pay my house cash. I am not willing to pay the bank millions of rands in interest. In regards to comparing house prices here and in the US, I would have on example at hand. A friend of mine just sold is Long Island home for 500,000 USD (he bought for 560,000 4 years ago). Thats about 4.5 Million Rand. The area he lives in is very nice, the house is a freestand 3 Bedroom with basement/air conditioning and central heating. Plot is small, I guess 1000 m2. So how do we compare this to Cape Town. That's always difficult. But what do you get for 4.5 lets say in Rhondebosch. I guess it would be something similar. Now compare the income of equivalent jobs. Lets say a IT Project Manager here and in New York. In New York you are looking at minimum 150,000 USD. Here you are looking at 300,000 Rand. Something is wrong here.
I only just recently stumbled upon this site while looking for property, and so you should not take my comments personally. But I was extremely surprised to see that there are still people who think that property is expensive.
Do you choose to rent? So can you afford a nice house, yet prefer to rent?
And to the other post, no, I am not looking to buy an expensive plush pad on the hills that I cannot affor. I just dont have the money for a deposit and R15/month for the bond yet. Just a 3 bedroomed 30 year old house in Claremont or Rondebosch or Pinelands. So not too extravagant, or am I delusional to think that for me, a 30-something accountant, and the mrs this is not too over the top.
The Great Man said it, not I, and he said it just yesterday... "But even as we clear away the wreckage of this recession, I have also said that we cannot go back to an economy that is built on a pile of sand" (sic) and I sure heard him include high house prices in that statement. Did you hear him include high house prices? I'm sure I heard it! Anyone else hear it? Dunno, maybe he was referring to high rentals?
Peter? In your words: "You are not in the market for a house, yet you want to discuss the MERITS and VALUE of property and dare say that it's cheaper to build" ... Joe sits back and takes a peek at his per project, the last BOQ he got from Penny Pinchers for a 280 sqm custom pad with medium cost fittings, trimmings, double-glazing and sound-proofing panels (not costed by PP and seperately imported and a bit expensive), insulation, and under-floor heating, and he wonders what Peter is on about? Joe smiles and hums the opening bars to 'The Good, The Bad, and the Ugly' while fondly stroking the tail feathers of his pet Cape Vulture 'El Cuchillo' who is happily picking scraps off the carcass of the last estate agent who dared utter the words "market related price".
And if you want to see lack of liquidity, look at the millions (sic) of pension funds after the economic downturn ... I wonder what percentile of 2009's MacMansion buyers are also members of one of those pension funds?
"And while I'm here, does anyone of you actually believe that we must all wake up, de-value property for the sole purpose so that those of us who do not have any yet, can get it cheaply?" Peter dearie? I don't think you get the point. Most of us here really, really don't care whether prices go up or down. If you have bought and sold more than a couple of properties then you will know that prices fit between upper and lower bands relative to long term cycles. Above the band you sell and below it you buy, none of that 'market related price' crud involved in that decision. In 2004 your's truly saw an upper band and got out of the flipping business in 2005, and staying out for now since you can't really short local real estate (bit of a pity actually). Some nice shorts were had on the comm prop funds and are still in the making.
It will quickly become very clear that you cannot get a cow for the price of a pound of meat. ... but you sure can buy a pound of meat for the price of a cow!
Detroit, MI: Average House Price is now $18,500 (R160,000 at 8.5) and unemployment is 21%. SA: Average house price somewhere above R500k (about $60,000) and unemployment north of 30%.
Wolf, your comments make sense to me. When I say that I cannot afford the house, I meant that I do not want to take our savings yet. There certainly is cash flow to service a bond, but it still seems expensive and therefore I rent. But I would definitely buy today if I could.
So no, it is not just for the sake of owning a house - it is purely a financial decision. I do not want to use 1/2 my cashflow on a house.
So what do you think of the prices these days? And if you had cash, would you buy? Would you buy with 50 or 80% deposit or completely cash fully paid?
Still not sure that I believe that property values in CT are so astronomical, although I can see that the US pays much better. But lets see - I am sure that there are many Americans who will gladly take a 50% pay cut just to keep their jobs, because they come off an extremely high base.
Also, it will cost me $50,000 per annum to put my son through varsity there as opposed to R15000 here.
Peter? Buddy? ... "There certainly is cash flow to service a bond, but it still seems expensive and therefore I rent. But I would definitely buy today if I could. So no, it is not just for the sake of owning a house - it is purely a financial decision. I do not want to use 1/2 my cashflow on a house.",... You're going in circles and confusing the rest of us. I think you just answered your own argument about house prices in SA?
some good points. But you have to say what a '280 sqm custom pad with medium cost fittings, trimmings, double-glazing and sound-proofing panels (not costed by PP and seperately imported and a bit expensive), insulation, and under-floor heating' will cost before you attempt to make such statements. Come on, say it's R8000/sq.m. and I add, say, another R1m for a 750 sq.m. stand. Or what figure does Penny P. give you per sq.m on that size house?
Show me the figures and name an example of a place where you will build, and I will show you that similar existing houses are better priced. I'll take off 1% per annum for age.
Joe, it's not the price of property, it's my means at this stage. 1/2 my cash flow is nothing for the next guy. There are many people to whom it will be very affordable. Especially with prices the way they are.
CJ please explain this 380% boom that you are talking about - I suspect that you are not talking about a boom or about facts. I suspect that what you are talking about smells like grass digested by male cattle. Unless you took the 1950 price of the cottage on the Clifton boulders as your reference for SA property
Peter, the 280sqm is a pet project (as I absolutely will not buy in the present economic cycle) comes in at 1.86 bars, with 1100sqm erf included if I can get it knocked down to 900/sqm (unlikely), while the bricks 'n mortar come in at 6300/sqm (sans the double glazing, sound proofing and underfloor heating, just too expensive for now). The key here is to take control of your own project and not to let a developer cost it or control it. Hey, if you give me 8k/sqm I'll get you some rose marble for the kitchen and a gold plated john straight from some bankrupt Dubhai developer's stock? How do you think agents and developers got so rich over the past 10 years? And at 1.3k/sqm for a vacant erf? Bugger me, it better have a real good view at that price. I'm sure you're not referring to erven in Parklands or similar now?
Anyway, a BOQ is a very subjective thing and applies only to individual projects. There's quite a difference in price between breeze blocks and face brick nuh? Too many variables involved. The biggest problem with current house prices here is the profit premium that agents and developers engineered into prices over the past decade or so. Buyers walked into real estate developments with their eyes wide shut because credit was easy, while not cheap. The party is over and many, many home owners are now stuck with over priced mullets.
As to figures? Give your local Penny Pinchers a tinkle, they'll be happy to punch out a BOQ (sans labour components) for you if you just provide them with the basic details (though there are quite a lot actually for as an accountant you'll know accurate costings are all in the detail)
At least you're smart enough to do your own means test. You're a small minority. Most SAfricans just piled into the buy-buy-buy at any price mantra since the middle nineties and never stopped to figure out whether they're actually getting value for money.
Be patient and plug your savings into the right investments (just not illiquid pension funds :-). The rule of thumb is simple: Don't put your money into anything that you either do not control directly or else cannot liquidate imediately.
And yes, inflation (hyperinflation?) is coming, just not yet, and not for credit based assets while there's no bottom in this economy, or the global economy.
Peter? You really need to go do some homework before you tear into other people on this blog.
A 1997 property that sold for 400k is today priced at roughly 1.6 bars nominal value (I take it you know what nominal value is?). That's a linear 400% growth (remember we are not allowing for compound growth here as that's quite another calculation and a bit more involved). The inflation adjusted real price of that same property is around 680k today in 97 Rands if you allow for an average 8% to devalue the purchasing power of your ZAR.
So, CJ is quite right, a 400% linear price boom in one decade.
Peter, a lot of us having been tracking this bubble for a long time (I got interested in it in about 2005), so please trust us when we tell you that SA's bubble is probably the biggest in the world.
Back in 2005 The Economist put our bubble ahead of those in the US and UK. It's figure was a 244% increase in prices from 1999 to 2005. Given that we peaked in 2007 - another two full years of insane bubble inflation after The Economist published its figures - CJ's figure of 380% might not be far off.
I know statistics can be deceptive, but before you start accusing people of talking bullshit just cast your mind back to about 2003, when a nice 100-meter two-bed flat cost about R250,000. And doesn't it seem strange to you that the same flats start at R750,000 today, given that 10% inflation should only have take the price up to R440,000 today?
And I wasn't tearing into CJ, I was jokingly questioning his info. As I've said before, anybody can use extreme examples. I bought a small flat some years ago, and I certainly did not see 380% growth in value, so obviously CJ isn't making sense (or talking digested grass).
The same goes for Beancounter, I agree that there are examples of nice flats that appreciated by 150 or 200 % in 5 years, but I bet you could also show me one that didn't
wasn't 2003 another 'bottom of the cycle'? Prime was sitting at 17%. So prices should increase substantially quicker than CPI between then and the peak last year, just as they might now increase slower than CPI.
Peter, fair point about the bottom of the cycle, but to get from R250,000 to R750,000 between 2003 and 2009 (which I think is a fair reflection of what's happened in Cape Town) would have required inflation to be 20% per year, every year, which it wasn't.
Another one chases down the market - a posh pad in Camps Bay (ref number F6631 on www.privateproperty.co.za) just dropped its asking a full one million bucks. Only a 12.5% drop though, so still nowhere enough. But perhaps some sort of reality is starting to seep through the dense skulls of the gentry...
Hey BC? Yep, I think you gonna see quite a couple of the posh pads in neverland drop their prices some, but not so's the rest of us can afford a view of Britney's pool deck nuh? I think that drop is more in line with the way the ZAR is behaving, it's appreciated substantially over the past month so the USD price of a ZAR priced property has gone up by some 20% (I reckon this seller is probably smarter than the rest and merely adjusting for a USD based ROI). The 20 bar price tag is a whole different ball game.
Peter? That there 2003 bottom should have been a hard V bottomed recession off the dotcom bubble and should have augured in a softer version of the bursting of the credit bubble (not to mention the property bubble that inevitably will follow a credit bubble, refer historical precendents) except only that brilliant economic guru Mr Greenspan and his merry minions saw the writing on the wall, panicked, and headed off the inevitable meltdown of 2008 through a successive policy of rate cuts when it was the last thing they should have done. Rate cuts in the early 200's just made the whole financial implosion that much worse since debt and paper wealth ballooned out of all proportions.
2008 was just the natural outcome of the stupid economic policies of the roaring 2000's and with US household debt at over 100% of annual income, it ain't over by a looooong shot. So the US economy, and by default the rest of us, will recover in 2009? Well, that would require US consumers to spend since they make up 70% of US GDP and the US buys from China and Europe and they in turn import resources and cars from us. Problem is that at 0.25% the Fed is out of options and the consumer has no access to further credit. Notwithstanding that I think most US consumers are now wised up to the fact that they've been hoodwinked big time and I don't think they're going to be spending on big ticket items for quite a while. Yanks ain't stupid, they're just gullible (like us) until they figure out you're bullshittin them, and then you better have big bollocks... I think Wall Street retailers are about to get the biggest middle finger ever in 2009.
When America sneezes, the rest of us get a cold. It's coming this way and it's only arriving now. TARP et al is only prolonging the inevitable fallout and it's domino effect. US consumers are not spending, the banks are not lending, and China is not borrowing any more (see TIC flows for Feb 09 at -96bn USD). The only option left to kickstart the US economy is more debt when there's none to be had... and we sure aren't going to dodge that bullet down here in lala land
So property was getting ahead of itself. In fact, getting ahead of most other items. But lately it stagnated, unlike other items that caught up. Time to move on again, I think.
The reserve bank is clearly not too interested in the damage caused by drastically lowering interest rates like the US just to see artificial growth. So, at least for the short term, they will force spending and inflation - whether we agree with the policy or not.
Peter, thanks for the figures but you've just made my point for me.
Milk: 16% p.a. - We now know that the milk industry is run by a cartel of price-fixing sharks. And yet not even this corrupt clique could match the 20% for property we're talking about.
Diesel: 14% p.a. - between 1998 and 2008 we had the biggest spike in oil price in history (from about $20 a barrel in 1998 to $100 in early 2008). Again, that insane spike couldn't get close to SA property.
Coke: 9% p.a. - probably one of the best indicators of where prices should be. Coke is like a Big Mac, an item made to be identical around the world.
Student digs: 13.5% p.a. - Wow. Seriously?! Did some poor landlord only manage 13.5 y/y despite a) owning a student flat near UCT and b) owning it during the biggest property bubble in human history? That would be sad if it wasn't so funny!
So yes, Peter, 20% p.a for property is too much. By a long way. And yes, I agree it got ahead of itself, but you and I will have to agree to disagree on how far ahead it got. You're thinking inches, I'm thinking light years.
Then please stop using CPI as measure for comparison.
And then there's the replacement cost issue. When it becomes cheaper to build than to buy (unlike now), only then is the market still over-egging the pudding.
Joe mentioned the cost of land - it is what it is. I cannot build for what I can buy.
Forgive me for not commenting on the economic, global and underlying principles discussion - I leave that to you, CJ, Joe and the CNBC money honeys.
I understand Wolf's comments. Still digesting. Still think CT (except the cabin on the rock at Clifton) property's showing good value now.
Omaha speech in a couple of hours will probably reveal quite a bit about the sanity of our strategies on global scale.
Please tell me that you are not one of those 'Rich Dad Poor Dad'-fans. Because those selfhelp guys that cannot afford their own homes also preach against owning property - before or after a bubble.
Peter, over the months and years I've been tracking this thing I've noticed an interesting trait that many deniers share: a peculiar belief that property bears can't afford property. This outlook is the same one that can't reconcile property bears' current suspicion with a possible long-term desire to own property. But failing to join dots and see the grey between the black and white is what got them into this mess in the first place. So just to clarify:
I can afford property. I bought my last property for cash, and sold to rent when I saw this avalanche coming in 2007. I will almost certainly buy property again in the future, just not any time in the next two or three years. I don't believe that private ownership of property is inherently good or bad but I do believe that middle-class South Africans, like the rest of the global middle class, have been brainwashed into an unquestioning devotion to property, and have therefore willingly sold themselves to the banks as slaves. I believe that in the next twenty years they will find it incredibly difficult to adjust to new global realities - realities I have grown up getting used to: being free of debt, owning only as much as I can use, not accumulating wealth for its own sake, etc.
Having said all that I don't dislike you are your barbs. These forums need people like yourself, who bravely fly a particular flag regardless of the evidence stacking up against them. It's the sort of eccentricity I enjoy. Keep up the good bullish work.
BC my comments are not a manifestation of a particular view i.e. bearish or bullish. Don't get me wrong - you make a lot of sense. In fact, I think that you render very good advice in your diplomatic (read 'without being abrasive') way of bringing across a point. It is the certainty that you have for the direction of property in the future that I don't buy.
And yes, financial slavery for the sake of property ownership is a sad phenomenon. But that's not the point. Current value of property (CT property market) is the issue. And I think that it is good.
Hoping to entertain you with factual scenarios in the future while I use the comments of all on CTPB to optimise my personal financial position - even if my views seem obnoxious.
FIAT now owns Chrysler - and Obama refuses to accept it.
And because the bubble has burst, I am hunting for some prop. Single stock futures, CFDs, minerals or funds - all require crystal balls and blind faith.
Wow, 52 comments - some sort of record I believe - and intelligent debate to boot.
I reckon Joe and Beancounter replied for me, Peter. 380% during this property boom decade. Inflation should be just over 100% as your can of coke reflects. This crash is taking us back to where we should be. Incidentally, I could show you a city bowl house that went up 1000% with only minor improvements over that decade.
You are a newcomer in these parts Peter, so here's a bit of history. There was a time a few years back when CT Bubble and myself and a few other lone voices were warning of the bad things to come. The property crash and global financial meltdown has unfolded pretty much as we warned.
There are probably over 500 posts by myself on this blog and over at realestateweb - there have been charts and links coming out of my eyeballs. We took a huge amount of abuse but there was little rational debate disproving the evidence we provided.
Now that the crash is obvious the only argument is "how long". We are no longer alone. People like Beancounter have joined in with excellent eloquent and rational posts.
I am a bit burned out so I am happy to keep a less active profile. I rent a great house even though I have a nice nest egg and could easily put down a 20% deposit if I wanted. The point is, it makes no financial sense. I have resigned myself that it could be like this for many more years.
The concept of "owning" your own home is an appealing one, but I am not going to commit financial suicide in my quest to achieve it.
If we were in a period where you could buy for 3.5 income and house prices were 11 times annual rents, then I would have bought. However we are no where near that. So I am not. And have come to accept and be happy with the arrangement and indeed, quite like the freedom to be able to move should I wish at short notice.
I reckon you should be glad that you can't afford to buy. I suspect you will look back in a few years time and breath a sigh of relief that you weren't able to climb aboard.
The world is a different place to 3 years ago - where the heck this is all going to end is probably not wise to dwell on too much because I start seeing collapsing super powers and nuclear bombs flying around the middle East. But one thing I am sure of, and that is property has had it's day in the sun and it isn't going to do anything impressive anytime soon.
Homes are going to return to being places where you live. You will buy because you want a nice place to live, not because you want to make money.
That's where it all went wrong. The greed of the lure of easy property riches has brought the world to potential collapse - no one in there right mind will want to go back there even if they could.
The boom is over. The bust will now be with us for quite some time. Live with it ... and don't be scared to rent.
You read very much like a 30-something who thinks he is Master of the Universe. Probably an accountant, who thinks the World runs on Right and Wrong, black or white.
The guys here know what they are talking about - you do not!
Why don't you rather tell me why it's a bad idea to buy a well-priced home.
I understand the reasons for renting now, and for a while only. I understand why, for some, it is a personal choice. I do not, however, accept sad excuses for renting, like liquidity, maintenance, property tax or 'being tied down' (goodness man! what about other choices like family, friends, a business or pets?).
The pathetic '20 reasons to rent' articles lists absolutely terrible reasons and are written as excuses to rent, not reasons to rent. As if for people to justify their inability to buy. And please, I think there are quite good, understandable and actuarially sound reasons posted on this site. And by people who could actually buy if they wanted to.
But like the generic reasons peddled by the masses to buy, so I attempt to avoid the same 'logical' reasons to rent.
I really appreciate the financial and long term calculations and reasons given on this site.
What about the fact that rent is the same as mortgage payments after 7 years?
I have a home office, have a dog, have relatives staying over this week ... and I rent ... so your point is ?
Also , for my rent to equal the present bond plus rates would take about 13 years if inflation averages 10%. That's a heck of a lot of cash saved.
In fact a rough calculation shows that if I save this money at 10% interest then the saving will pay off two thirds of the house price in 13 years time, assuming it goes up with inflation. If I also invested the money I would have spent on the buying costs then the house will have an 80% deposit on it.
The amount outstanding will be about two thirds of the present value - but of course, in 13 years time salaries will be 3.5 times more thanks to 10% inflation, so basically, the final cost is a third less than it is now and the money available to spend is 3.5 times more per month - sounds good to me.
in fact, if I assume I earned 3 times my present monthly bond in salary and then multiplied that by 3.5, and then paid of my house in 13 years time with a third of it, I calculate that it would be fully paid off 2 years later.
I won't be surprised if you are a bit confused by now as I am not sure I have explained this too clearly, but the point is, with my present rental set up, even if prices go up with inflation, which they are presently not, I won't lose out even if I wait 13 years, as long as I invest the savings made by renting.
Anon? You certainly have triggered a chain reaction of opinions on one side and... well, Peter on the the other side. I hope someone at least answered your question somewhat? I'll leave you with these thoughts (to conclude my contribution to this record thread):
1. Our repo rate might well come down another 100 to 200 bps. What is more significant is the shape this recession will take. Will it be a bath tub or a W? (look for a 2010 bounce and then the next leg down I reckon). Certainly it's not going to be a V. Either way, lower rates and by implication de-leveraging will be with us for a lot longer than puritan inflationists can possibly remain solvent. This one is indeed different because buyers are gone from the equation and that leaves the paper valuations of credit based assets rather high and dry (scuze the pun).
2. Keep things simple. For now, forget real and nominal income stats. Forget the rest of the world. The average SAfrican who has a job or a business, any kind of income, is grateful, and increases or bonuses over the next couple of years will be the exception, not the norm.
3. Credit is scarce, very scarce, even though it comes pretty cheap at the moment. Cheap, because so few credit-worthy individuals or companies have access to it, or qualify for it. Cash is King, and suddenly someone with access to 1.6 bars has a real negotiating edge over that McMansion price tag. The strategy here is quite simple... If the price drops into line with the 20 year band, good buy, if it doesn't, walk away.
3. Finally. How do you know if prices are cheap, fair or over the top? Here's a rule of thumb that all of us know but too few apply: Take that property price tag and look at how many hours, weeks, months, years of your labour it represents. Think hard about how long and hard you will have to work to own that and decide for yourself if that collection of bricks and mortar is worht the price tag?
I don't want to single someone like Peter out as he has provided quite a valid argument from his side and many of his views certainly have merit. All I'm saying is look at what you're buying, look at you cash, and decide which is more valuable to you. Lot's of punters still believe they're buying bargains at 8k/sqm for breeze-block cup-cakes.
58 comments:
The fact that there arent any posts shows what a rubbish site this is. Its usually just a few rubbish dudes like 'Bean Counter' and 'Sakkie Tshaberfuckla' who smother comments from folks who happen to wander onto this site looking for some information and a few answers. They just want to have a bit of power over unsuspecting folks because in their own lives they are cuckolds.
THIS BLOG SUCKS!
Good gracious, what a sad little post! By "some information and a few answers" do you mean "unthinking validation for a knee-jerk purchase of a grossly inflated property"? And "unsuspecting" was very apt I think. Your word, not mine. You really can't make this stuff up!
@ Anon
Do you have any facts or data that would refute the central premise of this blog, IE that CT property is trapped in a massive price bubble inflated by unpayable debt and massive, ill-advised speculation? If you have anything to share the forum you are dissing is the perfect place to do it.
I would agree that property news has been pretty thin in the business pages lately, but that might be because a huge chunk of what is called "news" is actually propaganda paid for in full by the real estate and mortgage industries. It's a pretty narrow, one dimentional topic but we would always welcome insight backed by some facts as opposed to childish insults spewed by bitter house-flippers staring into a negative equity black hole. Don't take it so personally, bro. You are not your bank account. You are not your obscenely over-priced Mcmansion and Iron Maiden of everlasting debt induced slavery.
Jimmy Crickets says:
Okee dokee, so this blog is about people dissing the blog and then people dissing the disser. Uh, is there any new insight on the property market? I think right now we are just in a holding pattern-will the market really sink and get the media coverage of a bursting bubble, or will it hold until the rand is worthless and a loaf of bread costs 1000R?
Why oh why oh why?
Does the SA property market not fall to fair value?
Why?
Is it because there is huge denial (and fear of the consequences) and nobody can bring themselves to trigger the crash?
Serious question here. I would like to know why property in Cape-Town costs so much more than other cities in South Africa. Not just a little more but insanely more?
Also added to that. I earn very good money. I rent an awesome flat and can live a good life but looking at buying property the only place I'd be able to buy is a tiny bach pad or a house so far in the sticks I might as well become a farmer then.
Anon, I think there are many reasons Cape Town is so ludicrously expensive but the most important one is geography. Cape Town invented apartheid town planning, but because most of the expensive bits are on a thin peninsula no amount of development is going to change its layout. A lot of wealthy people are happy to pay for a geographical guarantee that they'll never have to live next door to poor people. Basically there is no organic way rich and poor will ever meet in Cape Town, unlike most other SA cities. Yes, the government could legislate and force mixing (Hout Bay, and shortly Constantia), but that's a fairly extreme approach, and let's not forget that the new black elite are just as keen as the old white money is on making sure the masses stay out on the Cape Flats.
There's also a trickle-down effect from the Atlantic Seaboard. For some reason I'll never understand the in-bred super-rich are happy to pay tens of millions for glass-and-concrete shoeboxes in Clifton, where your view is of a crane and there's a 24-7 traffic jam outside your garage. That means the shoeboxes in neighbouring areas are that much more expensive. And round the mountain we go, slowly dropping prices the further away we get from the Germans in Kleine Deutschland, aka Clifton.
Capetonians are also pretty arrogant about the Visdorp, which helps drive up prices. I've always thought Cape Town is a very mediocre urban space, with loads of ugly buildings and very few public spaces, but it had the good fortune of being built on a really spectacular bit of coast. It bugs me when Capetonians say the city is beautiful. Sorry. Rome is beautiful. Paris is beautiful. As a native I can proudly state that Cape Town is a half-finished Victorian abortion with a gigantic sprawl of shyte all around it. But the mountain and the sea tend to blind the locals.
Follow up on the expensive Cape.
The Cape has the beach and thus many foreigners from cold European countries end up there. Also, Cape Town, like any other major hub, has industries and jobs that pay decently. Lots of financial sector jobs and it is the media center of the country, to name a few.
Nobody wants to live too far from work and even though the Northern SUburbs are not too far, the highway infrastructure is horrible if you want to get into die Kaap. You basically have to leave the Durbanville area no later than 515 in the morn in order to get into town at a reasonable clip. Leave at 525 and you will be sitting in traffic for 1.5 hours.
How on earth can you say that properties in Cape Town is more expensive than in other cities?
Cape Town expensive? Name me a disproportionally priced address in Cape Town vs. PE, East London, Durban and I will name you an exact match. Unless of course you mean why Clifton in the Cape is more expensive than Greenside in Johannesburg.
And to the statement on prices falling to fair value, well now, there's a subjective and abstract comparison if ever I've heard one.
But then again, the bit that suggests some people's (agents maybe?) denial can actually determine market prices explains the state of mind of the author.
And while I'm here, does anyone of you actually believe that we must all wake up, de-value property for the sole purpose so that those of us who do not have any yet, can get it cheaply?
Because if property in Cape Town really is overpriced, then go and build yourself a house. Go on. It will quickly become very clear that you cannot get a cow for the price of a pound of meat.
It's been a razor laff reading over the past couple of weeks how armchair property bulls and bears take swipes at each other. Could we be entering the period of disillusion? of sheer frustration at how incredibly short sighted buyers and sellers both are; depending on your POV?
Rather, I think a majority of these posts, which include some profanities, are from ignoramuses who 'invest' at the top of cycles and then liquidate at the bottom.
Anyway, bull or bear, it doesn't matter to me. As one of the many who make up the market, I can remain irrational a lot longer than a gamble on illiquid assets can remain solvent.
On the debate around rent v buying... do rents go up? Do prices come down? or vice versa?Again, what does nominal pricing really matter when both rents and bonds find themselves struggling sideways because they're inextricably linked to macro fundamentals they have absolutely no control over?
Far, far too many people buy or sell, or even rent, with a herd mentality. Let me prove my point: Is there even one single reader on this blog who has ever asked for (provided) a Bill of Quantities (BOQ) when buying/selling a property? If you've ever wondered why building standards here are so shockingly bad, well then, you have your answer. (Just be careful when you ask a 'developer' for a BOQ as you may get a knuckle sandwich for your efforts).
Back to my main topic, bulls or bears, who wins? Who cares? What really matters is liquidity. Anyone notice how the 'West Coast & Surrounds' insert in the Weekend Argus has quietly disappeared? Anyone notice how the main property insert has thinned out quite a bit lately? Would that be due to 'no sellers' or 'no buyers' or some of both I wonder? Is it just seasonal? I don't really have an opinion on this and don't rightly care as it's not a statistic I base my decisions on.
What does interest me is a debtor nation with tin-pot economics, a folding manufacturing base, stagnant to negative personal income growth, and real growth forecasts that are nothing more than a cosmic roll of the dice.
So the question begs: Property prices stabilise in 2009 and even start to recover; rents go up... but who pays for it? Tell me who? (well the banks have somewhat answered that one by turning down +70% of bond applications)
So you think that MacMansion is worth today more than it was in 2006? Fine, the clowns in the town council certainly agree with you when it comes to rates and taxes revaluations. But seriously, please keep it for now, I, and many like me, really don't want it, not at your price, not at my price, not at any price, not until there's a base under this economy, and that base is NOT infrastructure spending, which is just a loud fart in a crowded room.
Oh!, so you want to hike the rent because of perceived future supply shortages induced by foreclosures and people unable to get bonds? Whatever! If the numbers of property developers presently going arse-over-kettle is anything to go by then that prediction is some way off. Anyway, I just realised I'm paying too much rent for the place I now live in whatwith interest rates coming down for a looong time yet and I expect to see some of that benefit or else I'll just go rent from a grateful developer who is unable to move inventory at a locked-in 2006 pricing model. With unemployment stats, personal income growth expectations and real economic growth propsects over the next 5 years I'm not too seriously worried over rental increases... or price increases... there are other much better investment opportunities out there
actually Peter? That's exactly what I intend to do since it's much cheaper to build than buy, but that will be eventually, when economic realities prove it is safe to do so, maybe in 5 or 6 years time. For now, I'll sit back and watch buyers buy and sellers sell
Come on, that's exactly what I am saying. You are not in the market for a house, yet you want to discuss the MERITS and VALUE of property and dare say that it's cheaper to build. Please, when you are ready to move into a house of your own, then talk to me about BOQs and economic risk. Rich coming from someone accusing others of shortsightedness. And if you want to see lack of liquidity, look at the millions of pension funds after the economic downturn. Goodness!
The Reserve Bank will be sure to bring back your fears of rising prices, don't worry. Even if just for a decade or so
A few key points to indicate that housing is in the doldrums for some time -
Rents are much cheaper than the monthly costs to buy. That means rents are either too low or houses too high. Rents are governed by salaries and in these tough times renters can't afford to pay more. So the conclusion is, house prices need to come down.
Ditto the ratio between salaries and bonds. 3 to 3.5 X annual salary is about right. Globally the ratio went much higher. It is now heading back to the norm and will probably overshoot somewhat. Again, salaries can get higher or houses fall in price. We are entering recession and possibly depression so it will probably be house drops that get us there.
Housing goes in cycles. A 18 year cycle seems to happen in some overseas markets like the UK. We are not even 2 years off the peak so under a normal cycle we are no where close to boom times again.
And thanks to us entering a period where the baby boomers will be downsizing, this will be a particularly long period of bust.
There is a strong correlation between the US real price peaks and the SA peaks. On lows there is usually a 3 year delay - so watch for the US low which still looks a few years off, then add 3 years for SA's low.
For those talking about building costs, remember land is a major part of a houses costs and in a property crash, land plummets as well.
Finally, we had the biggest boom - why should we not have the biggest crash.
All in all the evidence points downwards.
Who says it was the biggest boom? For SA you only have economic data going back to '94 - so sorry, try your models on a place like Germany. Property lagged and just caught up - only now realisticly priced.
And sorry to tell you, but rents are not governed by salaries, but rather WHERE you rent is determined thereby. But even if it was, salary increases follow inflation and Tito cannot even stop it despite 3.5 points drop. And watch this space, he'll continue to drop it, because in his mind he has to stimulate growth. So I'll spell it out for you - the government of the day will make sure that we see huge inflation. The people voted for it.
And with less people buying in the short term, see how popular renting will become. Now think ...
Now, I have to just say this. These few key points you are putting out are YOUR OPINIONS. Please do not write it as if they are factual. If you think so or wish it could be like this, then fine. Just DO NOT make as if they are some factual arguments based on reality. 3 times salary !!! Yeah, that would be nice, but hey, in your dreams.
Do you think the salary-to-car or salary-to-flatscreen ratio in SA should be set? Or comparable be comparable to the States? C'mon! Where were you the last 20 years?
HI, this is JACOB ZUMA
I can tell by reading this blog that most of you are white yuppies. Either speculators or envious little greenhorns looking to get your little white feet in the property market. Well, I am here to tell you it doesn't matter what you do. SA is the next ZIM. That house you are in or the house you want will be taken from you and given to that black man who does your garden, or the one you ignore as he begs for bread money, or that one with no legs who stays in front of Gardens. Yes, bicker all you want, your time is going to come. I suggest you book a flight to the UK while tickets are cheap!
PS- Where are the white women at?
Peter, if you think property is realistically priced in SA, consider this: You can buy a "decent" (in quotes, SA standards) 2 bed flat in Century City for 2M. This is about $200K. For the same price you can buy a 4-5 bed MacMansion in the south of the US (say GA, TN, probably even cheaper now). Just think about it, 2 bed flat in a third world country with one of the highest crime rate in the world costs the same as a 5 bed house in the US. Realistic? I say insane.
Anonymous Coward
Plus, jackasses in the US can easily make 30-40 grand a year. In a few years that jackass can be making 50-70 just in a sales job. I can't even make 10,000 rand a month in SA...
In Sout Africa people spend all they can on their mortgage and use the rest to get by and eat and feed themselves. In America those fat bastards are saving for early retirement.
anonymous coward, what you say there brother? the southern states is not 3rd world?
hahaha
Have you seen what the $200k house looks like!? But if you insist, have a look at the 5 bedroom houses in Swellendam. You'll find that they are far better value for money than the McMansion you are refering to. Plus, this American dream home that you are talking about will be situated in a treeless, barren new development with empty houses.
Property in SA is very decently priced at the moment, unless you want to use the exceptions. Then, yes, it is insane. But it is as insane to pay R3m for a car without a boot! If you want to use those type of examples
I just dont understand why people who can afford a house will rent rather than buy. I just dont get them.
I am renting, becuause I cannot afford to live in my own house, but damn, if only I had the money to buy... with the prices the way they are at the moment.
Its silly to suggest we are still in a bubble in CT. And the bubble here was, unlike the US, more like a blip that has been well- (if not over-) corrected.
Peter,affordability..... therin lies the problem. either your job is not paying you what it should to allow you to buy the house you obviously feel you should live in, or those houses are too expensive for your salary scale.
If buying is so important to you, then buy what you can afford and get on the property ladder. you say property is relatively cheap now and as we all know it only goes up and up...........
Sorry Peter, but my comments are based on information which is out there.
Yes, rents ARE based on salaries for the simple reason that if you don't have the money you can't afford the rent.
And yes, the SA 380% boom was much higher than the UK 250% boom and the US 150% ? boom in the same period.
Agreed, SA has inflation which these other countries don't have at present. That means our real prices can fall 10% even if house prices are flat. This will prevent to some extent the nominal falls from falling so much. But remember, a real fall is still a fall - if salaries go up 10% and houses remain the same, then the house is cheaper in comparison to your salary.
You want to know why I rent my house rather than buy it. Well, if I had bought it a year ago, after buying costs, 20% fall in value, interest payments, maintenance, rates etc I would be R1.4m worse off if I had bought than if I had rented.
Seems to me that is an excellent reason to rent.
Peter ..., I am also renting, and I could afford to buy. But here is the question. Do you want a house because you want to have your own, and you are willing to pay the price? Or are you just considering what is the better financial option. That calculation is very simple. Renting is much cheaper.
Not long ago, I read two in depth articles in the New York times and in the Frankfurter about the financial behind renting and buying. To cut things short: In the long run, on average, people are better of buying a property.
And you know what the main reason for this is? When people are buying, they are forced to save. Pure and simple, they can not spend their money on junk.
If you have the discipline to save without a mortgage in your neck, you area always better of renting.
These articles looked at various scenarios and places across the US and Germany.
For my part, I will rent and save until I can pay my house cash.
I am not willing to pay the bank millions of rands in interest.
In regards to comparing house prices here and in the US, I would have on example at hand. A friend of mine just sold is Long Island home for 500,000 USD (he bought for 560,000 4 years ago). Thats about 4.5 Million Rand. The area he lives in is very nice, the house is a freestand 3 Bedroom with basement/air conditioning and central heating. Plot is small, I guess 1000 m2. So how do we compare this to Cape Town. That's always difficult. But what do you get for 4.5 lets say in Rhondebosch. I guess it would be something similar. Now compare the income of equivalent jobs. Lets say a IT Project Manager here and in New York. In New York you are looking at minimum 150,000 USD. Here you are looking at 300,000 Rand. Something is wrong here.
sorry, I think "something is wrong here" is not correct. It is what it is. I just can not quite follow it.
I only just recently stumbled upon this site while looking for property, and so you should not take my comments personally. But I was extremely surprised to see that there are still people who think that property is expensive.
Do you choose to rent? So can you afford a nice house, yet prefer to rent?
And to the other post, no, I am not looking to buy an expensive plush pad on the hills that I cannot affor. I just dont have the money for a deposit and R15/month for the bond yet. Just a 3 bedroomed 30 year old house in Claremont or Rondebosch or Pinelands. So not too extravagant, or am I delusional to think that for me, a 30-something accountant, and the mrs this is not too over the top.
Specially for Peter....
The Great Man said it, not I, and he said it just yesterday... "But even as we clear away the wreckage of this recession, I have also said that we cannot go back to an economy that is built on a pile of sand" (sic) and I sure heard him include high house prices in that statement. Did you hear him include high house prices? I'm sure I heard it! Anyone else hear it? Dunno, maybe he was referring to high rentals?
Peter? In your words: "You are not in the market for a house, yet you want to discuss the MERITS and VALUE of property and dare say that it's cheaper to build" ... Joe sits back and takes a peek at his per project, the last BOQ he got from Penny Pinchers for a 280 sqm custom pad with medium cost fittings, trimmings, double-glazing and sound-proofing panels (not costed by PP and seperately imported and a bit expensive), insulation, and under-floor heating, and he wonders what Peter is on about? Joe smiles and hums the opening bars to 'The Good, The Bad, and the Ugly' while fondly stroking the tail feathers of his pet Cape Vulture 'El Cuchillo' who is happily picking scraps off the carcass of the last estate agent who dared utter the words "market related price".
And if you want to see lack of liquidity, look at the millions (sic) of pension funds after the economic downturn ... I wonder what percentile of 2009's MacMansion buyers are also members of one of those pension funds?
"And while I'm here, does anyone of you actually believe that we must all wake up, de-value property for the sole purpose so that those of us who do not have any yet, can get it cheaply?" Peter dearie? I don't think you get the point. Most of us here really, really don't care whether prices go up or down. If you have bought and sold more than a couple of properties then you will know that prices fit between upper and lower bands relative to long term cycles. Above the band you sell and below it you buy, none of that 'market related price' crud involved in that decision. In 2004 your's truly saw an upper band and got out of the flipping business in 2005, and staying out for now since you can't really short local real estate (bit of a pity actually). Some nice shorts were had on the comm prop funds and are still in the making.
It will quickly become very clear that you cannot get a cow for the price of a pound of meat.
... but you sure can buy a pound of meat for the price of a cow!
Detroit, MI: Average House Price is now $18,500 (R160,000 at 8.5) and unemployment is 21%.
SA: Average house price somewhere above R500k (about $60,000) and unemployment north of 30%.
Go figure...
Wolf, your comments make sense to me. When I say that I cannot afford the house, I meant that I do not want to take our savings yet. There certainly is cash flow to service a bond, but it still seems expensive and therefore I rent. But I would definitely buy today if I could.
So no, it is not just for the sake of owning a house - it is purely a financial decision. I do not want to use 1/2 my cashflow on a house.
So what do you think of the prices these days? And if you had cash, would you buy? Would you buy with 50 or 80% deposit or completely cash fully paid?
Still not sure that I believe that property values in CT are so astronomical, although I can see that the US pays much better. But lets see - I am sure that there are many Americans who will gladly take a 50% pay cut just to keep their jobs, because they come off an extremely high base.
Also, it will cost me $50,000 per annum to put my son through varsity there as opposed to R15000 here.
Peter? Buddy? ... "There certainly is cash flow to service a bond, but it still seems expensive and therefore I rent. But I would definitely buy today if I could. So no, it is not just for the sake of owning a house - it is purely a financial decision. I do not want to use 1/2 my cashflow on a house.",... You're going in circles and confusing the rest of us. I think you just answered your own argument about house prices in SA?
And to Joe,
some good points. But you have to say what a '280 sqm custom pad with medium cost fittings, trimmings, double-glazing and sound-proofing panels (not costed by PP and seperately imported and a bit expensive), insulation, and under-floor heating' will cost before you attempt to make such statements. Come on, say it's R8000/sq.m. and I add, say, another R1m for a 750 sq.m. stand. Or what figure does Penny P. give you per sq.m on that size house?
Show me the figures and name an example of a place where you will build, and I will show you that similar existing houses are better priced. I'll take off 1% per annum for age.
Joe, it's not the price of property, it's my means at this stage. 1/2 my cash flow is nothing for the next guy. There are many people to whom it will be very affordable. Especially with prices the way they are.
CJ please explain this 380% boom that you are talking about - I suspect that you are not talking about a boom or about facts. I suspect that what you are talking about smells like grass digested by male cattle. Unless you took the 1950 price of the cottage on the Clifton boulders as your reference for SA property
Peter, the 280sqm is a pet project (as I absolutely will not buy in the present economic cycle) comes in at 1.86 bars, with 1100sqm erf included if I can get it knocked down to 900/sqm (unlikely), while the bricks 'n mortar come in at 6300/sqm (sans the double glazing, sound proofing and underfloor heating, just too expensive for now). The key here is to take control of your own project and not to let a developer cost it or control it. Hey, if you give me 8k/sqm I'll get you some rose marble for the kitchen and a gold plated john straight from some bankrupt Dubhai developer's stock? How do you think agents and developers got so rich over the past 10 years? And at 1.3k/sqm for a vacant erf? Bugger me, it better have a real good view at that price. I'm sure you're not referring to erven in Parklands or similar now?
Anyway, a BOQ is a very subjective thing and applies only to individual projects. There's quite a difference in price between breeze blocks and face brick nuh? Too many variables involved. The biggest problem with current house prices here is the profit premium that agents and developers engineered into prices over the past decade or so. Buyers walked into real estate developments with their eyes wide shut because credit was easy, while not cheap. The party is over and many, many home owners are now stuck with over priced mullets.
As to figures? Give your local Penny Pinchers a tinkle, they'll be happy to punch out a BOQ (sans labour components) for you if you just provide them with the basic details (though there are quite a lot actually for as an accountant you'll know accurate costings are all in the detail)
At least you're smart enough to do your own means test. You're a small minority. Most SAfricans just piled into the buy-buy-buy at any price mantra since the middle nineties and never stopped to figure out whether they're actually getting value for money.
Be patient and plug your savings into the right investments (just not illiquid pension funds :-). The rule of thumb is simple: Don't put your money into anything that you either do not control directly or else cannot liquidate imediately.
And yes, inflation (hyperinflation?) is coming, just not yet, and not for credit based assets while there's no bottom in this economy, or the global economy.
Peter? You really need to go do some homework before you tear into other people on this blog.
A 1997 property that sold for 400k is today priced at roughly 1.6 bars nominal value (I take it you know what nominal value is?). That's a linear 400% growth (remember we are not allowing for compound growth here as that's quite another calculation and a bit more involved). The inflation adjusted real price of that same property is around 680k today in 97 Rands if you allow for an average 8% to devalue the purchasing power of your ZAR.
So, CJ is quite right, a 400% linear price boom in one decade.
Hoog genoeg? Oppas vir die afkom slag!
Peter, a lot of us having been tracking this bubble for a long time (I got interested in it in about 2005), so please trust us when we tell you that SA's bubble is probably the biggest in the world.
Back in 2005 The Economist put our bubble ahead of those in the US and UK. It's figure was a 244% increase in prices from 1999 to 2005. Given that we peaked in 2007 - another two full years of insane bubble inflation after The Economist published its figures - CJ's figure of 380% might not be far off.
I know statistics can be deceptive, but before you start accusing people of talking bullshit just cast your mind back to about 2003, when a nice 100-meter two-bed flat cost about R250,000. And doesn't it seem strange to you that the same flats start at R750,000 today, given that 10% inflation should only have take the price up to R440,000 today?
Thanks for the good explanation Joe.
And I wasn't tearing into CJ, I was jokingly questioning his info. As I've said before, anybody can use extreme examples. I bought a small flat some years ago, and I certainly did not see 380% growth in value, so obviously CJ isn't making sense (or talking digested grass).
The same goes for Beancounter, I agree that there are examples of nice flats that appreciated by 150 or 200 % in 5 years, but I bet you could also show me one that didn't
And Joe, what component is labour and project management fees (price of your time)?
Beancounter,
wasn't 2003 another 'bottom of the cycle'? Prime was sitting at 17%. So prices should increase substantially quicker than CPI between then and the peak last year, just as they might now increase slower than CPI.
Peter, fair point about the bottom of the cycle, but to get from R250,000 to R750,000 between 2003 and 2009 (which I think is a fair reflection of what's happened in Cape Town) would have required inflation to be 20% per year, every year, which it wasn't.
Another one chases down the market - a posh pad in Camps Bay (ref number F6631 on www.privateproperty.co.za) just dropped its asking a full one million bucks. Only a 12.5% drop though, so still nowhere enough. But perhaps some sort of reality is starting to seep through the dense skulls of the gentry...
Hey BC? Yep, I think you gonna see quite a couple of the posh pads in neverland drop their prices some, but not so's the rest of us can afford a view of Britney's pool deck nuh? I think that drop is more in line with the way the ZAR is behaving, it's appreciated substantially over the past month so the USD price of a ZAR priced property has gone up by some 20% (I reckon this seller is probably smarter than the rest and merely adjusting for a USD based ROI). The 20 bar price tag is a whole different ball game.
Peter? That there 2003 bottom should have been a hard V bottomed recession off the dotcom bubble and should have augured in a softer version of the bursting of the credit bubble (not to mention the property bubble that inevitably will follow a credit bubble, refer historical precendents) except only that brilliant economic guru Mr Greenspan and his merry minions saw the writing on the wall, panicked, and headed off the inevitable meltdown of 2008 through a successive policy of rate cuts when it was the last thing they should have done. Rate cuts in the early 200's just made the whole financial implosion that much worse since debt and paper wealth ballooned out of all proportions.
2008 was just the natural outcome of the stupid economic policies of the roaring 2000's and with US household debt at over 100% of annual income, it ain't over by a looooong shot. So the US economy, and by default the rest of us, will recover in 2009? Well, that would require US consumers to spend since they make up 70% of US GDP and the US buys from China and Europe and they in turn import resources and cars from us. Problem is that at 0.25% the Fed is out of options and the consumer has no access to further credit. Notwithstanding that I think most US consumers are now wised up to the fact that they've been hoodwinked big time and I don't think they're going to be spending on big ticket items for quite a while. Yanks ain't stupid, they're just gullible (like us) until they figure out you're bullshittin them, and then you better have big bollocks... I think Wall Street retailers are about to get the biggest middle finger ever in 2009.
When America sneezes, the rest of us get a cold. It's coming this way and it's only arriving now. TARP et al is only prolonging the inevitable fallout and it's domino effect. US consumers are not spending, the banks are not lending, and China is not borrowing any more (see TIC flows for Feb 09 at -96bn USD). The only option left to kickstart the US economy is more debt when there's none to be had... and we sure aren't going to dodge that bullet down here in lala land
1998, Western Cape, South Africa: Cost of: 1L milk, R2.00; 1L diesel, R2.20; can of coke, R1.95; 2bed flat on UCT campus, R1300/month.
2008, Western Cape, South Africa: Cost of: 1L milk, R8.80; 1L diesel, R8.20; can of coke, R4.50; 2-bed flat on UCT campus, R4500/month.
20% per annum for property too much? I think not. Coming down? Yes, like bread and tyres ...
So property was getting ahead of itself. In fact, getting ahead of most other items. But lately it stagnated, unlike other items that caught up. Time to move on again, I think.
The reserve bank is clearly not too interested in the damage caused by drastically lowering interest rates like the US just to see artificial growth. So, at least for the short term, they will force spending and inflation - whether we agree with the policy or not.
Peter, thanks for the figures but you've just made my point for me.
Milk: 16% p.a. - We now know that the milk industry is run by a cartel of price-fixing sharks. And yet not even this corrupt clique could match the 20% for property we're talking about.
Diesel: 14% p.a. - between 1998 and 2008 we had the biggest spike in oil price in history (from about $20 a barrel in 1998 to $100 in early 2008). Again, that insane spike couldn't get close to SA property.
Coke: 9% p.a. - probably one of the best indicators of where prices should be. Coke is like a Big Mac, an item made to be identical around the world.
Student digs: 13.5% p.a. - Wow. Seriously?! Did some poor landlord only manage 13.5 y/y despite a) owning a student flat near UCT and b) owning it during the biggest property bubble in human history? That would be sad if it wasn't so funny!
So yes, Peter, 20% p.a for property is too much. By a long way. And yes, I agree it got ahead of itself, but you and I will have to agree to disagree on how far ahead it got. You're thinking inches, I'm thinking light years.
Let's.
Then please stop using CPI as measure for comparison.
And then there's the replacement cost issue. When it becomes cheaper to build than to buy (unlike now), only then is the market still over-egging the pudding.
Joe mentioned the cost of land - it is what it is. I cannot build for what I can buy.
Forgive me for not commenting on the economic, global and underlying principles discussion - I leave that to you, CJ, Joe and the CNBC money honeys.
I understand Wolf's comments. Still digesting. Still think CT (except the cabin on the rock at Clifton) property's showing good value now.
Omaha speech in a couple of hours will probably reveal quite a bit about the sanity of our strategies on global scale.
Please tell me that you are not one of those 'Rich Dad Poor Dad'-fans.
Because those selfhelp guys that cannot afford their own homes also preach against owning property - before or after a bubble.
Peter, over the months and years I've been tracking this thing I've noticed an interesting trait that many deniers share: a peculiar belief that property bears can't afford property. This outlook is the same one that can't reconcile property bears' current suspicion with a possible long-term desire to own property. But failing to join dots and see the grey between the black and white is what got them into this mess in the first place. So just to clarify:
I can afford property. I bought my last property for cash, and sold to rent when I saw this avalanche coming in 2007. I will almost certainly buy property again in the future, just not any time in the next two or three years. I don't believe that private ownership of property is inherently good or bad but I do believe that middle-class South Africans, like the rest of the global middle class, have been brainwashed into an unquestioning devotion to property, and have therefore willingly sold themselves to the banks as slaves. I believe that in the next twenty years they will find it incredibly difficult to adjust to new global realities - realities I have grown up getting used to: being free of debt, owning only as much as I can use, not accumulating wealth for its own sake, etc.
Having said all that I don't dislike you are your barbs. These forums need people like yourself, who bravely fly a particular flag regardless of the evidence stacking up against them. It's the sort of eccentricity I enjoy. Keep up the good bullish work.
BC
BC my comments are not a manifestation of a particular view i.e. bearish or bullish. Don't get me wrong - you make a lot of sense. In fact, I think that you render very good advice in your diplomatic (read 'without being abrasive') way of bringing across a point. It is the certainty that you have for the direction of property in the future that I don't buy.
And yes, financial slavery for the sake of property ownership is a sad phenomenon. But that's not the point. Current value of property (CT property market) is the issue. And I think that it is good.
Hoping to entertain you with factual scenarios in the future while I use the comments of all on CTPB to optimise my personal financial position - even if my views seem obnoxious.
FIAT now owns Chrysler - and Obama refuses to accept it.
And because the bubble has burst, I am hunting for some prop. Single stock futures, CFDs, minerals or funds - all require crystal balls and blind faith.
Wow, 52 comments - some sort of record I believe - and intelligent debate to boot.
I reckon Joe and Beancounter replied for me, Peter. 380% during this property boom decade. Inflation should be just over 100% as your can of coke reflects. This crash is taking us back to where we should be. Incidentally, I could show you a city bowl house that went up 1000% with only minor improvements over that decade.
You are a newcomer in these parts Peter, so here's a bit of history. There was a time a few years back when CT Bubble and myself and a few other lone voices were warning of the bad things to come. The property crash and global financial meltdown has unfolded pretty much as we warned.
There are probably over 500 posts by myself on this blog and over at realestateweb - there have been charts and links coming out of my eyeballs. We took a huge amount of abuse but there was little rational debate disproving the evidence we provided.
Now that the crash is obvious the only argument is "how long". We are no longer alone. People like Beancounter have joined in with excellent eloquent and rational posts.
I am a bit burned out so I am happy to keep a less active profile. I rent a great house even though I have a nice nest egg and could easily put down a 20% deposit if I wanted. The point is, it makes no financial sense. I have resigned myself that it could be like this for many more years.
The concept of "owning" your own home is an appealing one, but I am not going to commit financial suicide in my quest to achieve it.
If we were in a period where you could buy for 3.5 income and house prices were 11 times annual rents, then I would have bought. However we are no where near that. So I am not. And have come to accept and be happy with the arrangement and indeed, quite like the freedom to be able to move should I wish at short notice.
I reckon you should be glad that you can't afford to buy. I suspect you will look back in a few years time and breath a sigh of relief that you weren't able to climb aboard.
The world is a different place to 3 years ago - where the heck this is all going to end is probably not wise to dwell on too much because I start seeing collapsing super powers and nuclear bombs flying around the middle East. But one thing I am sure of, and that is property has had it's day in the sun and it isn't going to do anything impressive anytime soon.
Homes are going to return to being places where you live. You will buy because you want a nice place to live, not because you want to make money.
That's where it all went wrong. The greed of the lure of easy property riches has brought the world to potential collapse - no one in there right mind will want to go back there even if they could.
The boom is over. The bust will now be with us for quite some time. Live with it ... and don't be scared to rent.
Peter
You read very much like a 30-something who thinks he is Master of the Universe. Probably an accountant, who thinks the World runs on Right and Wrong, black or white.
The guys here know what they are talking about - you do not!
Listen, and learn.
Snot nose punk!
Regards
Old Man River
All true, all true. But I like cut-and-dried.
Why don't you rather tell me why it's a bad idea to buy a well-priced home.
I understand the reasons for renting now, and for a while only. I understand why, for some, it is a personal choice. I do not, however, accept sad excuses for renting, like liquidity, maintenance, property tax or 'being tied down' (goodness man! what about other choices like family, friends, a business or pets?).
The pathetic '20 reasons to rent' articles lists absolutely terrible reasons and are written as excuses to rent, not reasons to rent. As if for people to justify their inability to buy. And please, I think there are quite good, understandable and actuarially sound reasons posted on this site. And by people who could actually buy if they wanted to.
But like the generic reasons peddled by the masses to buy, so I attempt to avoid the same 'logical' reasons to rent.
I really appreciate the financial and long term calculations and reasons given on this site.
What about the fact that rent is the same as mortgage payments after 7 years?
I have a home office, have a dog, have relatives staying over this week ... and I rent ... so your point is ?
Also , for my rent to equal the present bond plus rates would take about 13 years if inflation averages 10%. That's a heck of a lot of cash saved.
In fact a rough calculation shows that if I save this money at 10% interest then the saving will pay off two thirds of the house price in 13 years time, assuming it goes up with inflation. If I also invested the money I would have spent on the buying costs then the house will have an 80% deposit on it.
The amount outstanding will be about two thirds of the present value - but of course, in 13 years time salaries will be 3.5 times more thanks to 10% inflation, so basically, the final cost is a third less than it is now and the money available to spend is 3.5 times more per month - sounds good to me.
in fact, if I assume I earned 3 times my present monthly bond in salary and then multiplied that by 3.5, and then paid of my house in 13 years time with a third of it, I calculate that it would be fully paid off 2 years later.
I won't be surprised if you are a bit confused by now as I am not sure I have explained this too clearly, but the point is, with my present rental set up, even if prices go up with inflation, which they are presently not, I won't lose out even if I wait 13 years, as long as I invest the savings made by renting.
I'm the original poster that asked why Cape-Town property was so costly. Thanks for the reply's albeit the excessive ping-pong banter thereafter.
Anon? You certainly have triggered a chain reaction of opinions on one side and... well, Peter on the the other side. I hope someone at least answered your question somewhat? I'll leave you with these thoughts (to conclude my contribution to this record thread):
1. Our repo rate might well come down another 100 to 200 bps. What is more significant is the shape this recession will take. Will it be a bath tub or a W? (look for a 2010 bounce and then the next leg down I reckon). Certainly it's not going to be a V. Either way, lower rates and by implication de-leveraging will be with us for a lot longer than puritan inflationists can possibly remain solvent. This one is indeed different because buyers are gone from the equation and that leaves the paper valuations of credit based assets rather high and dry (scuze the pun).
2. Keep things simple. For now, forget real and nominal income stats. Forget the rest of the world. The average SAfrican who has a job or a business, any kind of income, is grateful, and increases or bonuses over the next couple of years will be the exception, not the norm.
3. Credit is scarce, very scarce, even though it comes pretty cheap at the moment. Cheap, because so few credit-worthy individuals or companies have access to it, or qualify for it. Cash is King, and suddenly someone with access to 1.6 bars has a real negotiating edge over that McMansion price tag. The strategy here is quite simple... If the price drops into line with the 20 year band, good buy, if it doesn't, walk away.
3. Finally. How do you know if prices are cheap, fair or over the top? Here's a rule of thumb that all of us know but too few apply: Take that property price tag and look at how many hours, weeks, months, years of your labour it represents. Think hard about how long and hard you will have to work to own that and decide for yourself if that collection of bricks and mortar is worht the price tag?
I don't want to single someone like Peter out as he has provided quite a valid argument from his side and many of his views certainly have merit. All I'm saying is look at what you're buying, look at you cash, and decide which is more valuable to you. Lot's of punters still believe they're buying bargains at 8k/sqm for breeze-block cup-cakes.
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