I bought a 2 bedroom 50 square meter flat in Plumstead on a auction for R335 000 inclusive of commission and transfer costs. The current rental income is R3800 per month and the levies and rates add up to R600. Now thats a 11% nett return.
Any property bear want to tell me now that that is a shit buy?
Or maybe the blog editor do ones of those squiggly graphs on this property and tell how much deposit I must put down in order to break even?
This comment above really shows how we have a dual market at the moment - the traditional market with prices advertised in the weekend papers and naive buyers led by the nose by estate agents, and the auction market which is offering realistic value but is the traditional real estate market's dirty little secret. One wonders how much longer this goes on without convergence between these two markets.
@ Plumsteader, Plumstead seems to have got shy so I guess we'll never know. If the place was renovated and in a decent part of Scumstead then R335k probably sounds like a pretty good deal. Not awesome, mind you, given that R335k is probably what the place will be worth in 2011 or 2012, but definitely a score by 2009 standards.
Anon #2, I agree that we're now seeing two parallel markets. The sheeple who buy and sell through EAs are still in complete denial, but probably won't be forced to capitulate - most probably have good equity, safe jobs, family capital etc. So those stupid prices - millions for a facebrick shoebox - will remain as the auctions chip away under them.
I think the convergence will be somewhere between EA "wishing" prices and auction prices. 30% down from current EA asking prices?
While I agree that prices are over inflated and need to come down, I don't see prices falling another 30%. As you mentioned, a lot of the regular home buyers are employed and have some equity after the down payment. Most are not under major pressure to sell like we are seeing in the USA.
I think SA will see several years of "stagflation" where general inflation (and depreciation of Rand buying power) combines with flat housing prices. In real terms, homes will become more affordable (or worth less if you are sitting on a house and waiting).
Desparate sellers will go the auction route and those buyers will smile. The rest of the market (using EAs) will catch up over several years in most areas of the Cape.
The moral of the story is that if you have the cash then you can get good bargains at some (real!) auctions; if you are short on cash then there's no rush. Save that downpayment and you will get a good buy in a fww years' time.
Jules, just to be clear, I mean 30% off current estate agent asking prices, i.e., exactly the same prices they've been asking since late 2007/early 2008. I've been tracking hundreds of properties online for years, and if 5% of them have dropped their asking price by 5%, that's a lot. The vast majority are still sitting there unsold after a year or two, at the original asking price.
So I don't think my 30% down is excessive. Some uber-bears have been calling a 60% drop: my 30% drop is a compromise, I think, between estate agent prices and auction prices. Fair?
I did a calculation over at realestateweb recently, based on an absa real price chart over the last 9 years.
I worked out that if houses remain flat and if inflation is 8% a year, then we will need 11 years of this before the bottom will be reached.
Is this likely Jules ? In a word no. If inflation is higher, then that period could shorten of course. But then again, if we have deflation (like in food prices over the last 6 months) then the period will be even longer.
However, markets don't stay static that long. The way things stand at present, prices really have no choice but to fall further - and those auction prices are probably just reflecting the correct value that the sellers are still in total denial about.
I will be happy if you are right. I plan on moving back to Cape Town in about 4 years time and will be buying a home there at that time. If prices fall 30% then I will be smiling.
It's just a gut feeling I have, that prices aren't going to fall in real terms. I see flat prices against a general inflation rate of 6% to 9% over the next 5 years. Housing will be more affordable in a few years. I'm happy with how things are playing out, busy saving dollars so hopefully we will buying something decent and not need a mortgage bond.
The economy contracted an annualized 6.4 percent in the first quarter the biggest decline in almost 25 years, as a global recession cut manufacturing and mining output. The unemployment rate rose to 23.6 percent in the second quarter, the highest of 62 countries tracked by Bloomberg.
Are you sure that people are not just buying cheaper houses (as opposed to the price of property falling)? Would it not be realistic to say that, due to the economic situation, people are eating less tuna steak and more pizza, making the price of food declining because of the TYPE of food they buy, not the price of tuna?
@ Peter, funny you should mention that! I just found two Pick n Pay receipts in my drawer a minute ago. How's this?
19/06/09 - can of tuna in oil - R9.99 03/08/09 - can of tuna in oil - R8.99
I think you have a point about people buying cheaper, and I know stats can be manipulated, but I don't think we can ignore deflation - after all a 10% drop in two months is dramatic!
C'mon, reason with me if you want to. I am very keen to understand this whole 'value' or 'real price' thing, but don't go quoting those type of examples to make a point. You know the next person will also 'discover a receipt' and just go on to 'prove' the opposite.
What deflation are you talking about? House prices or canned fish?!!!
I honestly think that property in general has become more affordable and are actually getting to a place where its realistically priced. But I also think that the stats on house prices (mean sales prices) are a reflection of peoples spending habits, rather than the money value of the buildings.
Oh, any ideas on what building costs are.
I suggest that designing a 'gold standard' for a house. So that you have something to compare house prices and building costs to. Then you have something substantial as reference, as opposed to 'the market' and 'in that segment' and 'in the middle to upper classes' and 'high spec' etc. Then only will you be able to show and compare actual value from the past and in the future.
@ Peter. The problem with a "gold standard" for house prices is that no 2 houses are the same. so you land up with "in the middle to upper" etc etc. If you can design a gold standard that works you should.
I think that Bean Counters example was a lighthearted illustration of deflation that is undeniably happening in the canned tunafish market. it does not even apply to all foodstuffs. suffice to say, as BC did, stagflation should not be discounted in the stats as there is a good chance it is happening. The problem i have with your idea that "people are just buying cheaper houses" is it would lead to an oversupply of those expensive houses. now the logical scenario in an oversupply scenario is a price drop. perhaps the extent of stagflation is being undermined in the stats by a small percentage of buyers who are not bright enough to negotiate a decent price and so have lowered their expectations instead.
@ Peter - sorry if the levity irked you. I didn't realise we weren't allowed to bring humour into these discussions. I just though it was funny that I found two slips that showed deflation in the price of tuna just as you were discussing tuna and deflation.
This is the problem with this entire debate. It makes you lose sight of WHY you're arguing, and you end up snapping at people for absolutely no reason other than that they're not LISTENING to you.
I'm actually starting to lose interest, now that the bubble is unwinding and I've started preaching to the converted. All these Johnny-Come-Lately bubble spotters are so dull and earnest. Sigh. Looks like the glory days of 2007 and 2008, when we were lone crazies howling at the moon, are over.
@ Bean counter...it seems you have nothing good to say about property.
I bought this property in Plumstead on auction. The going rate in the block for a similar sized flat is about R500K. So I got it at a 33% discount.
There is no way in hell that prices of the regular priced ones will drop to R335K because out of the 12 units in the block, maybe one of these homeowners were desperate (or in my case, insolvent). The other eleven dont need to sell at such a low price.
So dont get your hopes too high as maybe 5% of the market is desperate and thats were us, the cash buyers, are scoring. As for you and other credit seeking buyers, well, you will have to wait a long time to either aford a big deposit or you'll have to carry on living in lala land hoping for prices to drop 30 plus percent in order to afford.
In the mean time, I'll carry on snaping up property at bargain prices and let the rent pay the bond whilest waiting for the next boom to hit and then make a tidy profit.
Talking of moons, there is a very interesting link between solar eclipses and major stock market falls. Right on schedule the Dow is falling - if tomorrow is another down day there could be a dramatic move down Thursday or Friday - I am watching with interest.
What do you do for a living? Are you a undertaker, a ambulance driver, a graqve digger or maybe you're that guy who cleans up murder scenes?
Whatever you do, you must be one morbid dick living you life in the hope that people either die or lose their money in property or equities.
People like you come and go and life still goes on for those who knuckle down, work hard and make good investments.
So grow up, get a good paying job, work hard and start saving money so one day you can affors that apartment you are have been currently renting for the last 10 years.
Finally our Plumstead buyer has highlighted the fact that spinning yield graphs on property only listed by agents is not the true picture as to whether it is time to buy or not. The problem with all the stats quoted here is that they are not the market, the only market that exists now is the auction market. It's high time you lot start tracking those deals. I have been for for some years now, I can assure you, there are hundreds more like this one out there, and even better.
Yes, no two houses are the same, and thats exactly why I propose, for the purpose of actual value/price, such a standard. Then theres a reference, ie. see what this reference house would cost to build 10 years ago, 5 years, present and then in 2010, 2011 etc. Then variation in houses dont matter - you have a comparison. No more wondering which stats to use, no more large or small houses, middle class, social differences or ABSA vs. FNB indices.
Thanks for pointing out Bean Counter's sense of humour - but he's tired and I'm not sure why he still posts here if he feels like that. So I'll take it from whence it comes and let him/her remain oblivious of what I explained.
I am more concerned that CJ is howling at the moon. I do like his correlation of cosmic induction with trading decisions though ... I will sell before Thursday, index up 32% from March when I bought. I just hope tomorrow's interest rate decision is made before high tide.
Oh, and for once I actually agree with obnoxious himself, propxchanja is talking about investment properties and has hit the nail on the head. The yield graphs here are usually extreme examples and not representative.
@ Peter, all is forgiven. I see from your blogger profile that you're an auditor, so you started life at a severe disadvantage where senses of humour were concerned. Don't worry, though: next time any of us crack wise we'll explain the joke in a PowerPoint presentation.
And as for why I still post here: every so often some babe in the woods stumbles in, wide-eyed and excited, clutching some pet theory about why the market is going to do X or Y. Then slowly they become disillusioned and then they leave. It's fun to watch. You're the entertainment, Pete.
Do you realise the statements that you are making?
With one breath you're saying that you got 33% off the price of an apartment. I.e you paid a lot less than the market rate.
With the next breath you're challenging the property bears to tell you that you overpaid.
Clearly you didn't overpy but that's because you paid a lot less than the prevailing asking prices.
If a property bear says the market asking prices are too high and you're managing to pay far less than the general asking prices then you're actually agreeing with the property bears as to what the property is worth.
This is of course allows you to obtain a decent yield. You might not realise it but you actually seem to value property in the same was as the property bears. I.e. about 30% overvalued... :-)
26 comments:
I bought a 2 bedroom 50 square meter flat in Plumstead on a auction for R335 000 inclusive of commission and transfer costs. The current rental income is R3800 per month and the levies and rates add up to R600. Now thats a 11% nett return.
Any property bear want to tell me now that that is a shit buy?
Or maybe the blog editor do ones of those squiggly graphs on this property and tell how much deposit I must put down in order to break even?
This comment above really shows how we have a dual market at the moment - the traditional market with prices advertised in the weekend papers and naive buyers led by the nose by estate agents, and the auction market which is offering realistic value but is the traditional real estate market's dirty little secret. One wonders how much longer this goes on without convergence between these two markets.
Hi Anon. Very interesting buy. Can you tell me where in Plumstead, and is it renovated or unrenovated?
@ Plumsteader, Plumstead seems to have got shy so I guess we'll never know. If the place was renovated and in a decent part of Scumstead then R335k probably sounds like a pretty good deal. Not awesome, mind you, given that R335k is probably what the place will be worth in 2011 or 2012, but definitely a score by 2009 standards.
Anon #2, I agree that we're now seeing two parallel markets. The sheeple who buy and sell through EAs are still in complete denial, but probably won't be forced to capitulate - most probably have good equity, safe jobs, family capital etc. So those stupid prices - millions for a facebrick shoebox - will remain as the auctions chip away under them.
I think the convergence will be somewhere between EA "wishing" prices and auction prices. 30% down from current EA asking prices?
Beancounter:
While I agree that prices are over inflated and need to come down, I don't see prices falling another 30%.
As you mentioned, a lot of the regular home buyers are employed and have some equity after the down payment. Most are not under major pressure to sell like we are seeing in the USA.
I think SA will see several years of "stagflation" where general inflation (and depreciation of Rand buying power) combines with flat housing prices. In real terms, homes will become more affordable (or worth less if you are sitting on a house and waiting).
Desparate sellers will go the auction route and those buyers will smile. The rest of the market (using EAs) will catch up over several years in most areas of the Cape.
The moral of the story is that if you have the cash then you can get good bargains at some (real!) auctions; if you are short on cash then there's no rush. Save that downpayment and you will get a good buy in a fww years' time.
Jules, just to be clear, I mean 30% off current estate agent asking prices, i.e., exactly the same prices they've been asking since late 2007/early 2008. I've been tracking hundreds of properties online for years, and if 5% of them have dropped their asking price by 5%, that's a lot. The vast majority are still sitting there unsold after a year or two, at the original asking price.
So I don't think my 30% down is excessive. Some uber-bears have been calling a 60% drop: my 30% drop is a compromise, I think, between estate agent prices and auction prices. Fair?
I did a calculation over at realestateweb recently, based on an absa real price chart over the last 9 years.
I worked out that if houses remain flat and if inflation is 8% a year, then we will need 11 years of this before the bottom will be reached.
Is this likely Jules ? In a word no. If inflation is higher, then that period could shorten of course. But then again, if we have deflation (like in food prices over the last 6 months) then the period will be even longer.
However, markets don't stay static that long. The way things stand at present, prices really have no choice but to fall further - and those auction prices are probably just reflecting the correct value that the sellers are still in total denial about.
I will be happy if you are right. I plan on moving back to Cape Town in about 4 years time and will be buying a home there at that time. If prices fall 30% then I will be smiling.
It's just a gut feeling I have, that prices aren't going to fall in real terms. I see flat prices against a general inflation rate of 6% to 9% over the next 5 years. Housing will be more affordable in a few years. I'm happy with how things are playing out, busy saving dollars so hopefully we will buying something decent and not need a mortgage bond.
http://www.bloomberg.com/apps/news?pid=20601116&sid=abND28A.65yE
The economy contracted an annualized 6.4 percent in the first quarter the biggest decline in almost 25 years, as a global recession cut manufacturing and mining output. The unemployment rate rose to 23.6 percent in the second quarter, the highest of 62 countries tracked by Bloomberg.
CJ,
Are you sure that people are not just buying cheaper houses (as opposed to the price of property falling)? Would it not be realistic to say that, due to the economic situation, people are eating less tuna steak and more pizza, making the price of food declining because of the TYPE of food they buy, not the price of tuna?
@ Peter, funny you should mention that! I just found two Pick n Pay receipts in my drawer a minute ago. How's this?
19/06/09 - can of tuna in oil - R9.99
03/08/09 - can of tuna in oil - R8.99
I think you have a point about people buying cheaper, and I know stats can be manipulated, but I don't think we can ignore deflation - after all a 10% drop in two months is dramatic!
Bean Counter,
C'mon, reason with me if you want to. I am very keen to understand this whole 'value' or 'real price' thing, but don't go quoting those type of examples to make a point. You know the next person will also 'discover a receipt' and just go on to 'prove' the opposite.
What deflation are you talking about? House prices or canned fish?!!!
Bean Counter,
I honestly think that property in general has become more affordable and are actually getting to a place where its realistically priced. But I also think that the stats on house prices (mean sales prices) are a reflection of peoples spending habits, rather than the money value of the buildings.
Oh, any ideas on what building costs are.
I suggest that designing a 'gold standard' for a house. So that you have something to compare house prices and building costs to. Then you have something substantial as reference, as opposed to 'the market' and 'in that segment' and 'in the middle to upper classes' and 'high spec' etc. Then only will you be able to show and compare actual value from the past and in the future.
@ Peter. The problem with a "gold standard" for house prices is that no 2 houses are the same. so you land up with "in the middle to upper" etc etc. If you can design a gold standard that works you should.
I think that Bean Counters example was a lighthearted illustration of deflation that is undeniably happening in the canned tunafish market. it does not even apply to all foodstuffs. suffice to say, as BC did, stagflation should not be discounted in the stats as there is a good chance it is happening.
The problem i have with your idea that "people are just buying cheaper houses" is it would lead to an oversupply of those expensive houses. now the logical scenario in an oversupply scenario is a price drop.
perhaps the extent of stagflation is being undermined in the stats by a small percentage of buyers who are not bright enough to negotiate a decent price and so have lowered their expectations instead.
@ Peter - sorry if the levity irked you. I didn't realise we weren't allowed to bring humour into these discussions. I just though it was funny that I found two slips that showed deflation in the price of tuna just as you were discussing tuna and deflation.
This is the problem with this entire debate. It makes you lose sight of WHY you're arguing, and you end up snapping at people for absolutely no reason other than that they're not LISTENING to you.
I'm actually starting to lose interest, now that the bubble is unwinding and I've started preaching to the converted. All these Johnny-Come-Lately bubble spotters are so dull and earnest. Sigh. Looks like the glory days of 2007 and 2008, when we were lone crazies howling at the moon, are over.
@ Bean counter...it seems you have nothing good to say about property.
I bought this property in Plumstead on auction. The going rate in the block for a similar sized flat is about R500K. So I got it at a 33% discount.
There is no way in hell that prices of the regular priced ones will drop to R335K because out of the 12 units in the block, maybe one of these homeowners were desperate (or in my case, insolvent). The other eleven dont need to sell at such a low price.
So dont get your hopes too high as maybe 5% of the market is desperate and thats were us, the cash buyers, are scoring. As for you and other credit seeking buyers, well, you will have to wait a long time to either aford a big deposit or you'll have to carry on living in lala land hoping for prices to drop 30 plus percent in order to afford.
In the mean time, I'll carry on snaping up property at bargain prices and let the rent pay the bond whilest waiting for the next boom to hit and then make a tidy profit.
LOL Beancounter
Those were the days ... awoooooohhhhhhhhh !!!!
Talking of moons, there is a very interesting link between solar eclipses and major stock market falls. Right on schedule the Dow is falling - if tomorrow is another down day there could be a dramatic move down Thursday or Friday - I am watching with interest.
I think the equity rebound could be over.
Yo CJ
What do you do for a living? Are you a undertaker, a ambulance driver, a graqve digger or maybe you're that guy who cleans up murder scenes?
Whatever you do, you must be one morbid dick living you life in the hope that people either die or lose their money in property or equities.
People like you come and go and life still goes on for those who knuckle down, work hard and make good investments.
So grow up, get a good paying job, work hard and start saving money so one day you can affors that apartment you are have been currently renting for the last 10 years.
Hey CJ
Thanks for the heads up! ha ha. Sell Sell Sell! This dead cat has bounced!
Finally our Plumstead buyer has highlighted the fact that spinning yield graphs on property only listed by agents is not the true picture as to whether it is time to buy or not. The problem with all the stats quoted here is that they are not the market, the only market that exists now is the auction market. It's high time you lot start tracking those deals. I have been for for some years now, I can assure you, there are hundreds more like this one out there, and even better.
bb flames,
Yes, no two houses are the same, and thats exactly why I propose, for the purpose of actual value/price, such a standard. Then theres a reference, ie. see what this reference house would cost to build 10 years ago, 5 years, present and then in 2010, 2011 etc. Then variation in houses dont matter - you have a comparison. No more wondering which stats to use, no more large or small houses, middle class, social differences or ABSA vs. FNB indices.
Thanks for pointing out Bean Counter's sense of humour - but he's tired and I'm not sure why he still posts here if he feels like that. So I'll take it from whence it comes and let him/her remain oblivious of what I explained.
I am more concerned that CJ is howling at the moon. I do like his correlation of cosmic induction with trading decisions though ... I will sell before Thursday, index up 32% from March when I bought. I just hope tomorrow's interest rate decision is made before high tide.
Oh, and for once I actually agree with obnoxious himself, propxchanja is talking about investment properties and has hit the nail on the head. The yield graphs here are usually extreme examples and not representative.
@ Peter, all is forgiven. I see from your blogger profile that you're an auditor, so you started life at a severe disadvantage where senses of humour were concerned. Don't worry, though: next time any of us crack wise we'll explain the joke in a PowerPoint presentation.
And as for why I still post here: every so often some babe in the woods stumbles in, wide-eyed and excited, clutching some pet theory about why the market is going to do X or Y. Then slowly they become disillusioned and then they leave. It's fun to watch. You're the entertainment, Pete.
Hi Anonymous
Do you realise the statements that you are making?
With one breath you're saying that you got 33% off the price of an apartment. I.e you paid a lot less than the market rate.
With the next breath you're challenging the property bears to tell you that you overpaid.
Clearly you didn't overpy but that's because you paid a lot less than the prevailing asking prices.
If a property bear says the market asking prices are too high and you're managing to pay far less than the general asking prices then you're actually agreeing with the property bears as to what the property is worth.
This is of course allows you to obtain a decent yield. You might not realise it but you actually seem to value property in the same was as the property bears. I.e. about 30% overvalued... :-)
LS
Market slump looks like is here to stay
http://blogs.fin24.com/hayley_24/The-idiots-guide-to-getting-a-home-loan-in-this-economic-climate
http://www.fin24.com/articles/default/display_article.aspx?Channel=News_Home&ArticleId=1518-2386-2401_2547164&IsColumnistStory=False
Aaayaaayaaai! Another interest rate cut!
What about my savings for the house? Maybe its a plan to buy now while money's still worth something.
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