This 2 bed/2 bath apartment in Blouberg is on the market for R2 650 000. That means with a 100% bond you will currently be paying R27352/month to cover the bond. Or you could rent it for R8 000/month, which means that the difference between rental and bond payment is R19352/month, nearly 2.5 times more than the rental income itself! Here is the dismal Payment and Yield graph.
Right, so paying for the place in full nets you a massive 3.62% return on investment, and to break even on cash flow you need to plonk down over R1 800 000 (a 70% downpayment). Putting down a 50% downpayment of R1 325 000 will still lose you over R60 000/year. Once you take into account rates, levies, maintenance and vacancy costs and the returns will be even lower.
8 comments:
Isnt this a bit of an extreme example to suggest its a buy as an investment to let out?
But whats it worth to an owner-occupier?
Say its a modern 160 sg.m apartment with amazing view (lets say a 'view' is really your thing), beautiful finishings and the best amenities, ambiance that makes the missus happy, two basement parkings and excellent security and loads of common space to relax in. Still so bad?
Hi Peter
You raise a good point. Some housing has unique qualities i.e location which is hard emulate due to supply constraints. e.g. coastal property with a heck of a view.
However this sort of housing does become more of a luxury item (with a price to match) than the provision of shelter and safety. Luxury items don't tend to do so well in the current market.
At then end of the day the selling price is determined by what someone is prepared to pay for it.
Reading the financial news doesn't paint a positive picture, watching the news on tv doesn't exactly install confidence in the property market either. If you don't like second hand news reports you can check out the local property listings for a few months running and watch the houses sit unsold for months with the prices slowly ticking down in nominal terms.
Oh ja the wind might not be so nice and of course the traffic still sucks ;-)
LSu
LSu,
I agree with your sentiments about the property market per se. And many on this blog pointed me to really good facts. And the indicators still point to some big hidings to be handed out to certain unfortunate (over leveraged, retrenched etc.) new owners.
But, what I wanted to question was whether an extreme example like this one could be used loosely and as a generalization of all property and the sanity of buying it. Especially when there are a multitude of motives and considerations for owning the said apartment which hasnt been described to determine value.
I agree with Peter.
Not all real estate is priced to be profitable as a rental, and lots of buyers know that.
I think that the higher the price, the less likely you are to do well if you wanted to rent it out at a profit. Pure investment rental properties are from the low-end to the middle class properties. That's just my (unprofessional) opinion.
:-)
A bit off the topic, but I can't understand why you would want to live there anyway. Of course, a personal preference. But it's wind swept, the water is freezing and the traffic sucks. I suppose it is quite close to Cape Town centre etc. It's like going up the West Coast on holiday. Why? The same goes for Parklands and Tableview, what exactly is the attraction?
I'm probably just a snob, fortunate to have been brought up in the Southern Suburbs, now living in Somerset West.
From Samuel Seef on Realestateweb...
Samuel Seeff, chairman of one of South Africa's biggest estate agency groups (Seeff Properties) reckons the worst is over for the residential sector: As a consequence, my views is that we will see prices stabilising, firming and increasing slightly in 2010 - Roll on 2011!!!
From Deutsche Bank at Reuters:
About half of U.S. mortgages seen underwater by 2011....
The percentage of U.S. homeowners who owe more than their house is worth will nearly double to 48 percent in 2011 from 26 percent at the end of March, portending another blow to the housing market, Deutsche Bank said on Wednesday.
Home price declines will have their biggest impact on prime "conforming" loans that meet underwriting and size guidelines of Fannie Mae and Freddie Mac, the bank said in a report. Prime conforming loans make up two-thirds of mortgages, and are typically less risky because of stringent requirements.
"We project the next phase of the housing decline will have a far greater impact on prime borrowers," Deutsche analysts Karen Weaver and Ying Shen said in the report.
Hi Peter
As Jules says it's not one homogeneous market.
There are definitely properties that are outliers in terms of price. On the really low end of the price scale the rental yield will tend to be better and on the upper end it will tend to be a lot worse.
Basically if you can't afford to buy then you're forced to rent but if you're in a position to buy a mansion you're not exactly stuck with renting.
All housing will tend to fall in between the two extremes. My overall view on property is still negative, especially if you're working with real (inflation adjusted) values instead of nominal values.
LS
This propertys' perceived value and its' true value are a world apart.
As long as fools keep on paying foolish prices this scenario will continue.
Luckily the fools are running out of credit.
Maybe the market will eventually readjust to true value.
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