It's the Saturday Open Thread, sponsored by the Inauguration of Jacob Zuma.
21 comments:
Anonymous
said...
I attended a property auction in London on Thursday and was very surprised as to the prices achieved.
There was about 40 lots on auction and most of the commercial ones were sold with a nett return of between 8-10%. The tenants varied from fast food joints to chains with 500 plus stores. Most leases were 10 years with some being 20 years.
Thats excellent taking into account that interest rates in the UK sit at between 3-6% depending on the size of the deposit.
One property went for £190K with a annual nett return of £22000. It sonsisted of a shop with a 2 bedroom flat above.
Loking at these returns, I really dont see prices dropping further in the UK as the return is not hitting double what you would pay on a mortgage bond at the bank.
However, in SA, we have a totally different scenario whereby if you were to buy property at the going rate, your rental return would be in the region of 6-8% whereas the interest rates (at prime) is 12%. This is the reverse of what is happening in the UK. Therefore either rates must drop considerably or prices. I personally dont see rates dropping below 10% so prices must therefore be the one to drop.
Joe, re. income vs. property prices. I honestly do no know how the average salaried employee can afford a decent house in a decent suburb, cash. However, I am sure that, as long as the monthly payments can be made, it doesn't matter what property costs. What I am saying is that, unlike our discussions on property value, most people look at whether they can afford a monthly payment over 30 years, and are not concerned about the actual price of a house.
When banks ease their lending criteria again and interest rates drop, then people will again overpay for property. They do not care about the 'real' value of it. They will pay whatever is costs.
This is perhaps another way of pricing property altogether.
If buying becomes cheaper (monthly payments) then only a very few people will rent, everybody will buy. People will outbid each other, prices will rapidly escalate until it quickly becomes, again, cheaper to rent than to buy.
Financial sense and logic aside - most people just want to own a house and the only thing stopping them is the fact that renting is much cheaper.
The whole property debate is so misunderstood because of the simple fact that there are so many different pay grades that posters fall into, and in S Africa the differences in pay are EXTREME.
I would like to know the salary/rent/property values of my fellow posters, in the hopes that it will shed some light on this subject.
ME: Freelance Journalist/10,000 Rand a month. One bedroom flat in Obz/3500 R monthly.
anon journo? I don't think too many bloggers will post what they earn. I reckon a safe estimate is to average around 10k per month for most. Though, when you look at the demographics, you are quite right in that there are huge disparities in incomes as the upper middle income bracket ranges 20k to 50k per month while the private banking space is above 55k per month.
And ad? Make no mistake, the DOW and S&P are starting to trace out a disturbingly correlated overlay pattern with 1929 to 1930. If history repeats itself then this is the mother of all sucker rallies. If we get past Sep/Oct/Nov without going over the cliff then we'll be ok. But, down at a fundamental level I'm still trying to figure out where the roots for the green shoots are because if the mark-to-make-believe fudging in the current reporting season is anything to go by then there is no cause for celebration and the rally is way overdone. For inventories to pick up, sales must pick up, and even though new claims may be dropping, the questions is whether continueing claims will drop (which it is not) and whether companies will start re-employing (which they are not). Time will tell
Peter, this is not a mathematical impossibility at all. you are basing your argument on property ownership being generally more desirable than renting. if for some reason renting becomes more sexy than ownership it is quiet possible. If mortgages were outlawed, more people would have to rent....and it would be dificult to find buyers with cash so purchase prices would need to come down. An unlikely scenario I admit.
It is indeed mathematical. It is not based on desireability. Let me explain.
If property prices vs. rent would be so low, and if the sentiment surrounding home ownership is ignored (it plays a much bigger role than you would admit), then investors will simplyt buy up such property en masse - and the market will determine that rents cannot come close to monthly mortgage payment.
This does not mean that I agree with buying at any cost - I rent at the moment. But rent in SA has always been between 5 - 10% of the property value. Without a substantial deposit (which is bad for ROI considerations), low (near rent) monthly payments will only be possible in an extremely low interest rate environment - and we know what that does to property prices.
So I agree that, with large percentage of the house price paid in cash, monthly payments will be the same as rent amount. But this is, for most, as unlikely as the banning of mortgages.
Anyone have any thoughts on the potential gentrification of Langa?It's an established township with solid transport links a mere twenty minutes drive from the CBD, under ten to observatory. Pinelands did very well in the boom and Thornton, right next door, almost as well. If Helen Zille could remove all the poor people and someone could build a mall it could be a up and coming little burb. Excellent for arty bohemian types now that Obs has become a yuppie ghetto. Been searching online but I can't seem to find a single property for sale there. Thoughts? (yes, obviously this is long term speculation)
Anon, I believe Maitland is the suburb of choice by Zille - watch that space in terms of gentrification.
Other Anon (re: Commercial property tanking here in SA), You are right, it's gonna come down like a brick from the top floor of a semi completed office block - like the one sitting on the N2 which a local 'big' developer is wishing a corporate tenant would expand into - the seedy part of Woodstock. Not going happen. I posted a nasty looking graph on commercial returns provided by IPD a few weeks back and suggested this blog start monitoring the commercial sector. It says it all. Commercial investors are wanting 12% + cap rates, double the lower end of the boom range. You can buy an absolute trophey property in the US for 9%! Why buy rats and mice tenants in Woodstock for 12%?
TRACED YOUR 'ANON' ISP ASSIGNED IP ADDRESSES PREVIOUS 2 ANON'S. I AM SURE ISP'S WILL COOPERATE WITH US. THANKS FOR THE HONESTY. WILL BE CALLING YOU SOON! HAVE A NICE DAY NOW, HEAR?
Could you trace mine? In fact, I'll give you my details - Then maybe you'll get off your fat arse and finalize my 2008 return - you've had since December 1st, 2008, WELL over 90-days have past.
Useless bastards - if I have to call one more time for a reference number and wait for 10-days, I'm going to loose the plot.
21 comments:
I attended a property auction in London on Thursday and was very surprised as to the prices achieved.
There was about 40 lots on auction and most of the commercial ones were sold with a nett return of between 8-10%. The tenants varied from fast food joints to chains with 500 plus stores. Most leases were 10 years with some being 20 years.
Thats excellent taking into account that interest rates in the UK sit at between 3-6% depending on the size of the deposit.
One property went for £190K with a annual nett return of £22000. It sonsisted of a shop with a 2 bedroom flat above.
Loking at these returns, I really dont see prices dropping further in the UK as the return is not hitting double what you would pay on a mortgage bond at the bank.
However, in SA, we have a totally different scenario whereby if you were to buy property at the going rate, your rental return would be in the region of 6-8% whereas the interest rates (at prime) is 12%. This is the reverse of what is happening in the UK. Therefore either rates must drop considerably or prices. I personally dont see rates dropping below 10% so prices must therefore be the one to drop.
oops, meant to say ...return is NOW hitting double what you would pay on a mortgage bond at the bank.
Anyone ever notice how the Property Bullz just cannot spell (or use proper grammar) for the life of them?
Joe, re. income vs. property prices. I honestly do no know how the average salaried employee can afford a decent house in a decent suburb, cash. However, I am sure that, as long as the monthly payments can be made, it doesn't matter what property costs. What I am saying is that, unlike our discussions on property value, most people look at whether they can afford a monthly payment over 30 years, and are not concerned about the actual price of a house.
When banks ease their lending criteria again and interest rates drop, then people will again overpay for property. They do not care about the 'real' value of it. They will pay whatever is costs.
This is perhaps another way of pricing property altogether.
Anon,
you are talking about investment property, i.e. not a house for yourself. There are rental property available in SA with a 10% cap rate.
It is crazy to say that prices must drop just so that a mortgage costs as much as rent - mathematically impossible.
why is is "mathematically impossible"?
sorry, i meant "is it"
huh,
If buying becomes cheaper (monthly payments) then only a very few people will rent, everybody will buy. People will outbid each other, prices will rapidly escalate until it quickly becomes, again, cheaper to rent than to buy.
Financial sense and logic aside - most people just want to own a house and the only thing stopping them is the fact that renting is much cheaper.
The whole property debate is so misunderstood because of the simple fact that there are so many different pay grades that posters fall into, and in S Africa the differences in pay are EXTREME.
I would like to know the salary/rent/property values of my fellow posters, in the hopes that it will shed some light on this subject.
ME: Freelance Journalist/10,000 Rand a month. One bedroom flat in Obz/3500 R monthly.
Now its your turns!
http://pragcap.com/more-on-insider-selling
Interesting article about insiders selling off their own stocks like hotcakes...Jeff Bezos alone dumped a million Amazon shares in 3 days.
...seems those in the know have worked out the present capitalist game is up and are heading for the exits...dont be caught flat footed
anon journo? I don't think too many bloggers will post what they earn. I reckon a safe estimate is to average around 10k per month for most. Though, when you look at the demographics, you are quite right in that there are huge disparities in incomes as the upper middle income bracket ranges 20k to 50k per month while the private banking space is above 55k per month.
And ad? Make no mistake, the DOW and S&P are starting to trace out a disturbingly correlated overlay pattern with 1929 to 1930. If history repeats itself then this is the mother of all sucker rallies. If we get past Sep/Oct/Nov without going over the cliff then we'll be ok. But, down at a fundamental level I'm still trying to figure out where the roots for the green shoots are because if the mark-to-make-believe fudging in the current reporting season is anything to go by then there is no cause for celebration and the rally is way overdone. For inventories to pick up, sales must pick up, and even though new claims may be dropping, the questions is whether continueing claims will drop (which it is not) and whether companies will start re-employing (which they are not). Time will tell
Peter, this is not a mathematical impossibility at all. you are basing your argument on property ownership being generally more desirable than renting. if for some reason renting becomes more sexy than ownership it is quiet possible. If mortgages were outlawed, more people would have to rent....and it would be dificult to find buyers with cash so purchase prices would need to come down. An unlikely scenario I admit.
huh,
It is indeed mathematical. It is not based on desireability. Let me explain.
If property prices vs. rent would be so low, and if the sentiment surrounding home ownership is ignored (it plays a much bigger role than you would admit), then investors will simplyt buy up such property en masse - and the market will determine that rents cannot come close to monthly mortgage payment.
This does not mean that I agree with buying at any cost - I rent at the moment. But rent in SA has always been between 5 - 10% of the property value. Without a substantial deposit (which is bad for ROI considerations), low (near rent) monthly payments will only be possible in an extremely low interest rate environment - and we know what that does to property prices.
So I agree that, with large percentage of the house price paid in cash, monthly payments will be the same as rent amount. But this is, for most, as unlikely as the banning of mortgages.
Anyone have any thoughts on the potential gentrification of Langa?It's an established township with solid transport links a mere twenty minutes drive from the CBD, under ten to observatory.
Pinelands did very well in the boom and Thornton, right next door, almost as well. If Helen Zille could remove all the poor people and someone could build a mall it could be a up and coming little burb. Excellent for arty bohemian types now that Obs has become a yuppie ghetto. Been searching online but I can't seem to find a single property for sale there.
Thoughts? (yes, obviously this is long term speculation)
Anon,
I believe Maitland is the suburb of choice by Zille - watch that space in terms of gentrification.
Other Anon (re: Commercial property tanking here in SA),
You are right, it's gonna come down like a brick from the top floor of a semi completed office block - like the one sitting on the N2 which a local 'big' developer is wishing a corporate tenant would expand into - the seedy part of Woodstock. Not going happen. I posted a nasty looking graph on commercial returns provided by IPD a few weeks back and suggested this blog start monitoring the commercial sector. It says it all. Commercial investors are wanting 12% + cap rates, double the lower end of the boom range. You can buy an absolute trophey property in the US for 9%! Why buy rats and mice tenants in Woodstock for 12%?
ME: Business Strategist
R65,000 per month before tax
Rent: R7,500 per month
Me: Douchebag
Salary: 144,600 (Rand Per Month, post tax)
Rent: 4,000pm
ME: SARS
TRACED YOUR 'ANON' ISP ASSIGNED IP ADDRESSES PREVIOUS 2 ANON'S. I AM SURE ISP'S WILL COOPERATE WITH US. THANKS FOR THE HONESTY. WILL BE CALLING YOU SOON! HAVE A NICE DAY NOW, HEAR?
Hey SARS
Could you trace mine? In fact, I'll give you my details - Then maybe you'll get off your fat arse and finalize my 2008 return - you've had since December 1st, 2008, WELL over 90-days have past.
Useless bastards - if I have to call one more time for a reference number and wait for 10-days, I'm going to loose the plot.
SARS employees = human sh*t
Hey SARS....Go and suck your sister period off your fathers cock....and when you are done come and find me for the outstanding tax1
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