It's always interesting to compare the "real" cost of a new-build against existing stock.
How is this looking in the current Cape Town market?
If we exclude the price of land (and with it the location premium/discount) what is the average cost to build a 3-bed, 2-bath suburban detached home in this market?
I'm sure that would tell us something. I'm not 100% sure what, but it would be useful. Is it even possible to estimate given that most new building is by large developers?
Can't properly answer your question, but vacant land is still a little over-priced in CT. So you are already on the back foot after buying the land. Add in the high labour costs and materials and you face a very high cost to build.
If land prices come down then it could become feasible to build at a price similar to buying an existing home.
I see the Argus food basket is MINUS 5% year on year this week - looks like it will be minus 10% in a month or twos time and could even get as low as minus 13%. That's deflation folks, big time. That's falling prices. I'm seeing CPI as below zero this time next year.
My office landlord sees it - only a 1% rent increase per year for the next 2 years.
Wilbur Ross Sees ‘Huge’ Commercial Real Estate Crash (Update3)
Oct. 30 (Bloomberg) -- Billionaire investor Wilbur L. Ross Jr., said today the U.S. is in the beginning of a “huge crash in commercial real estate.”
“All of the components of real estate value are going in the wrong direction simultaneously,” said Ross, one of nine money managers participating in a government program to remove toxic assets from bank balance sheets. “Occupancy rates are going down. Rent rates are going down and the capitalization rate -- the return that investors are demanding to buy a property -- are going up.”
U.S. commercial property sales are forecast to fall to the lowest in almost two decades as the industry endures its worst slump since the savings and loan crisis of the early 1990s, according to property research firm Real Capital Analytics Inc. The Moody’s/REAL Commercial Property Price Indices already have fallen almost 41 percent since October 2007, Moody’s Investors Service said Oct. 19.
Billionaire George Soros, speaking today at a lecture organized by the Central European University in Budapest, said a “bloodletting” may be coming for leveraged buyouts and commercial real estate.
“The American consumer will no longer be able to serve as the motor for the world economy,” said Soros, 79.
His comments came in the same week that Capmark Financial Group Inc. filed for Chapter 11 bankruptcy protection after originating $60 billion in commercial property loans in 2006 and 2007.
‘Extreme Caution’
Ross, the 71-year-old chairman and chief executive officer of WL Ross & Co. LLC, said in an interview on Bloomberg Radio that he would use “extreme caution” before putting money into commercial real estate, especially office space, because properties are losing tenants.
U.S. office vacancies hit a five-year high of almost 17 percent in the third quarter, while shopping center vacancies climbed to their highest since 1992, according to the property research firm Reis Inc.
“I think it’s going to take quite a while to work itself out,” Ross said.
As of Oct. 15, Ross said he had spent less than $100 million of at least $1.5 billion available to him under the Public-Private Investment Program, an investment pool of private and government money for purchasing distressed assets from financial institutions.
Ross used the funds he spent so far to purchase residential mortgage-backed securities, he said in a Bloomberg Television interview.
Corus Investment
WL Ross was among a group of firms that agreed Oct. 6 to buy $4.5 billion of Corus Bankshares Inc.’s real estate. Starwood Capital Group LLC and TPG led the group to buy the assets of the Chicago-based lender, which was seized by federal regulators Sept. 11 after its investments in construction loans for condominiums went bad.
In 2007, Ross ventured into the declining residential property market, winning an auction for the home-loan servicing unit of Melville, New York-based American Home Mortgage Investment Corp. He agreed to pay between $435 million and $500 million for the right to collect payments and maintain escrow on about $45.3 billion of home mortgages.
Making Lists
Dubbed the King of Bankruptcy by clients during his quarter century at the Rothschild investment bank, Ross entered the U.S. home mortgage business as an increasing number of borrowers quit making payments and profits sank in loan servicing.
“Our methodology is to make a great big list: What’s every thing we can think of that’s either wrong with the industry or that we just plain don’t like about it,” Ross said today.
“Then we start work on another list. If we had control of this industry, what would we do to fix each one of those problems?” he said. “Once we feel that there is a reasonable likelihood that the second chart kind of equals the first chart, that’s when we get ready to do something.”
It is always the little people who lose the most. I wonder if this is happening right here in SA.
How Goldman secretly bet on the U.S. housing crash.
November 1, 2009 McClatchy DC WASHINGTON — In 2006 and 2007, Goldman Sachs Group peddled more than $40 billion in securities backed by at least 200,000 risky home mortgages, but never told the buyers it was secretly betting that a sharp drop in U.S. housing prices would send the value of those securities plummeting. Goldman’s sales and its clandestine wagers, completed at the brink of the housing market meltdown, enabled the nation’s premier investment bank to pass most of its potential losses to others before a flood of mortgage defaults staggered the U.S. and global economies. Only later did investors discover that what Goldman had promoted as triple-A rated investments were closer to junk. Now, pension funds, insurance companies, labour unions and foreign financial institutions that bought those dicey mortgage securities are facing large losses, and a five-month McClatchy investigation has found that Goldman’s failure to disclose that it made secret, exotic bets on an imminent housing crash may have violated securities laws. “The Securities and Exchange Commission should be very interested in any financial company that secretly decides a financial product is a loser and then goes out and actively markets that product or very similar products to unsuspecting customers without disclosing its true opinion,” said Laurence Kotlikoff, a Boston University economics professor who’s proposed a massive overhaul of the nation’s banks. “This is fraud and should be prosecuted.”
Often undeveloped land in CT is worth more than an existing building. That is odd - it implies that the costs to renovate (or demolish) the existing building are so great that a "blank canvas" is more valuable. Which is just crazy given the housing shortage in the Cape.
It also implies those who are in the market are not buying housing but rather some investment "dream" and is further evidence the market needs renationalisation.
I consider the cost of a new-build a necessary measure to judge any market - yet it is extremely difficult to determine in CT. Much of the development is BC-type units, which is not much of a guide.
But surely there are some independent builders?
It's not that complex an equation. There is a certain amount of material used in building a home, and a certain amount of labour. We know costs of both have gone up over time, but by how much? What's the "real" price of a home in CT? (minus the land/location)
Basic good quality double solid claybrick cavity wall, 180 sqm 3 bed 2.5 bath double storey with Isca mixers and baths/showers from OnTap, chromadek corrugated roof with R45000 cuboards, granite tops, R100/sqm porcelein tiles, 3 coats 100% acryl paint inside and out and gas stove worked out R5200 per sqm. total cost to me last month and included all labour, contract management, material.
R5200 is just about as low as you can get good building done for --- unless you start getting involved yourself. R5500 is probably more correct for entry level homes/townhouses
The land makes up about 40% of your total cost and the builder takes 25% and the rest is labour and material. (25% isnt al lot of 'salary' for the contractor on a 6 month project. if he uses subcontractors)
Based on those figures, existing housing in CT is not that overpriced. You're looking at R800K+ for the building costs of a 150 M/sq house - and that's before you add the cost of land and location.
I know many readers of this blog predict a further devaluation in the CT housing market, but it's hard to see how that can happen short of a major spell of deflation - which would not be pretty.
No doubt there will be ripples as over-extended owners and banks ditch assets (or are stripped of them) but it's a bit difficult to separate cause and effect in this market.
Rode suggests that you subtract 1% per year to determine the value of an house (land excluded). E.g. A well-built 200 sq.m. house in City Bowl with good finishings and fittings of 45 years old is worth (200 x R7500) - 45% = R660,000. Add the value of the land (say R1.5m) and you get to R2,160,000.
Looks like land is more expensive than I thought or properties in that area are still overvalued.
Girl before I met you, I was FINE but your love made me a prisoner yeah my heart's been doin time. So baby what's the story? Did you find another man? Was it easy to sleep in the bed that we made, when you don't look back I guess the feelings start to fade away.
Dont worry so much about your precious property values, friends. Educate yourselves and realize that the fall of capitalism is just around the corner.
Capatalism could fall, yes. Unlikely, but it could. If (when) it does it will have no impact on the building, buying and selling of homes. It might increase the value therof, like gold. It will just give way to a new means of trading (gold or 'gov credits' maybe, even fishing rights!), so sorry. You still need to get off your back in any event if you don't want to sit out on the street. End of capatalism wont mean freebies for the sloth.
BTW, some people are actually quite happy to be homeless - drifters and so on - pick your own life.
The value of property is relative to any acceptable 'currency'. But whatever the flavour of the day is, property will remain expensive in that currency and always one of the most desireable posessions for 90% of humanity.
That's the great thing about the web: it allows members of the white South African middle class - perhaps one of the most insular societies in the world - to make sweeping pronouncements about "90 percent of humanity". Good bless free speech.
17 comments:
It's always interesting to compare the "real" cost of a new-build against existing stock.
How is this looking in the current Cape Town market?
If we exclude the price of land (and with it the location premium/discount) what is the average cost to build a 3-bed, 2-bath suburban detached home in this market?
I'm sure that would tell us something. I'm not 100% sure what, but it would be useful. Is it even possible to estimate given that most new building is by large developers?
And how
Can't properly answer your question, but vacant land is still a little over-priced in CT. So you are already on the back foot after buying the land. Add in the high labour costs and materials and you face a very high cost to build.
If land prices come down then it could become feasible to build at a price similar to buying an existing home.
I see the Argus food basket is MINUS 5% year on year this week - looks like it will be minus 10% in a month or twos time and could even get as low as minus 13%. That's deflation folks, big time. That's falling prices. I'm seeing CPI as below zero this time next year.
My office landlord sees it - only a 1% rent increase per year for the next 2 years.
Hi guys, can any of you advise a good site / source where I can find regularly updated CPI figures? I need to win an argument with my landlord...
Wilbur Ross Sees ‘Huge’ Commercial Real Estate Crash (Update3)
Oct. 30 (Bloomberg) -- Billionaire investor Wilbur L. Ross Jr., said today the U.S. is in the beginning of a “huge crash in commercial real estate.”
“All of the components of real estate value are going in the wrong direction simultaneously,” said Ross, one of nine money managers participating in a government program to remove toxic assets from bank balance sheets. “Occupancy rates are going down. Rent rates are going down and the capitalization rate -- the return that investors are demanding to buy a property -- are going up.”
U.S. commercial property sales are forecast to fall to the lowest in almost two decades as the industry endures its worst slump since the savings and loan crisis of the early 1990s, according to property research firm Real Capital Analytics Inc. The Moody’s/REAL Commercial Property Price Indices already have fallen almost 41 percent since October 2007, Moody’s Investors Service said Oct. 19.
Billionaire George Soros, speaking today at a lecture organized by the Central European University in Budapest, said a “bloodletting” may be coming for leveraged buyouts and commercial real estate.
“The American consumer will no longer be able to serve as the motor for the world economy,” said Soros, 79.
His comments came in the same week that Capmark Financial Group Inc. filed for Chapter 11 bankruptcy protection after originating $60 billion in commercial property loans in 2006 and 2007.
‘Extreme Caution’
Ross, the 71-year-old chairman and chief executive officer of WL Ross & Co. LLC, said in an interview on Bloomberg Radio that he would use “extreme caution” before putting money into commercial real estate, especially office space, because properties are losing tenants.
U.S. office vacancies hit a five-year high of almost 17 percent in the third quarter, while shopping center vacancies climbed to their highest since 1992, according to the property research firm Reis Inc.
“I think it’s going to take quite a while to work itself out,” Ross said.
As of Oct. 15, Ross said he had spent less than $100 million of at least $1.5 billion available to him under the Public-Private Investment Program, an investment pool of private and government money for purchasing distressed assets from financial institutions.
Ross used the funds he spent so far to purchase residential mortgage-backed securities, he said in a Bloomberg Television interview.
Corus Investment
WL Ross was among a group of firms that agreed Oct. 6 to buy $4.5 billion of Corus Bankshares Inc.’s real estate. Starwood Capital Group LLC and TPG led the group to buy the assets of the Chicago-based lender, which was seized by federal regulators Sept. 11 after its investments in construction loans for condominiums went bad.
In 2007, Ross ventured into the declining residential property market, winning an auction for the home-loan servicing unit of Melville, New York-based American Home Mortgage Investment Corp. He agreed to pay between $435 million and $500 million for the right to collect payments and maintain escrow on about $45.3 billion of home mortgages.
Making Lists
Dubbed the King of Bankruptcy by clients during his quarter century at the Rothschild investment bank, Ross entered the U.S. home mortgage business as an increasing number of borrowers quit making payments and profits sank in loan servicing.
“Our methodology is to make a great big list: What’s every thing we can think of that’s either wrong with the industry or that we just plain don’t like about it,” Ross said today.
“Then we start work on another list. If we had control of this industry, what would we do to fix each one of those problems?” he said. “Once we feel that there is a reasonable likelihood that the second chart kind of equals the first chart, that’s when we get ready to do something.”
It is always the little people who lose the most. I wonder if this is happening right here in SA.
How Goldman secretly bet on the U.S. housing crash.
November 1, 2009 McClatchy DC
WASHINGTON — In 2006 and 2007, Goldman Sachs Group peddled more than $40 billion in securities backed by at least 200,000 risky home mortgages, but never told the buyers it was secretly betting that a sharp drop in U.S. housing prices would send the value of those securities plummeting.
Goldman’s sales and its clandestine wagers, completed at the brink of the housing market meltdown, enabled the nation’s premier investment bank to pass most of its potential losses to others before a flood of mortgage defaults staggered the U.S. and global economies.
Only later did investors discover that what Goldman had promoted as triple-A rated investments were closer to junk.
Now, pension funds, insurance companies, labour unions and foreign financial institutions that bought those dicey mortgage securities are facing large losses, and a five-month McClatchy investigation has found that Goldman’s failure to disclose that it made secret, exotic bets on an imminent housing crash may have violated securities laws.
“The Securities and Exchange Commission should be very interested in any financial company that secretly decides a financial product is a loser and then goes out and actively markets that product or very similar products to unsuspecting customers without disclosing its true opinion,” said Laurence Kotlikoff, a Boston University economics professor who’s proposed a massive overhaul of the nation’s banks. “This is fraud and should be prosecuted.”
Often undeveloped land in CT is worth more than an existing building. That is odd - it implies that the costs to renovate (or demolish) the existing building are so great that a "blank canvas" is more valuable. Which is just crazy given the housing shortage in the Cape.
It also implies those who are in the market are not buying housing but rather some investment "dream" and is further evidence the market needs renationalisation.
I consider the cost of a new-build a necessary measure to judge any market - yet it is extremely difficult to determine in CT. Much of the development is BC-type units, which is not much of a guide.
But surely there are some independent builders?
It's not that complex an equation. There is a certain amount of material used in building a home, and a certain amount of labour. We know costs of both have gone up over time, but by how much? What's the "real" price of a home in CT? (minus the land/location)
SteveP
Basic good quality double solid claybrick cavity wall, 180 sqm 3 bed 2.5 bath double storey with Isca mixers and baths/showers from OnTap, chromadek corrugated roof with R45000 cuboards, granite tops, R100/sqm porcelein tiles, 3 coats 100% acryl paint inside and out and gas stove worked out R5200 per sqm. total cost to me last month and included all labour, contract management, material.
R5200 is just about as low as you can get good building done for --- unless you start getting involved yourself. R5500 is probably more correct for entry level homes/townhouses
The land makes up about 40% of your total cost and the builder takes 25% and the rest is labour and material. (25% isnt al lot of 'salary' for the contractor on a 6 month project. if he uses subcontractors)
Based on those figures, existing housing in CT is not that overpriced. You're looking at R800K+ for the building costs of a 150 M/sq house - and that's before you add the cost of land and location.
I know many readers of this blog predict a further devaluation in the CT housing market, but it's hard to see how that can happen short of a major spell of deflation - which would not be pretty.
No doubt there will be ripples as over-extended owners and banks ditch assets (or are stripped of them) but it's a bit difficult to separate cause and effect in this market.
Rode suggests that you subtract 1% per year to determine the value of an house (land excluded). E.g. A well-built 200 sq.m. house in City Bowl with good finishings and fittings of 45 years old is worth (200 x R7500) - 45% = R660,000. Add the value of the land (say R1.5m) and you get to R2,160,000.
Looks like land is more expensive than I thought or properties in that area are still overvalued.
Girl before I met you, I was FINE but your love made me a prisoner yeah my heart's been doin time. So baby what's the story? Did you find another man? Was it easy to sleep in the bed that we made, when you don't look back I guess the feelings start to fade away.
Dont worry so much about your precious property values, friends. Educate yourselves and realize that the fall of capitalism is just around the corner.
Anon & Capitalism,
Capatalism could fall, yes. Unlikely, but it could. If (when) it does it will have no impact on the building, buying and selling of homes. It might increase the value therof, like gold. It will just give way to a new means of trading (gold or 'gov credits' maybe, even fishing rights!), so sorry. You still need to get off your back in any event if you don't want to sit out on the street. End of capatalism wont mean freebies for the sloth.
BTW, some people are actually quite happy to be homeless - drifters and so on - pick your own life.
The value of property is relative to any acceptable 'currency'. But whatever the flavour of the day is, property will remain expensive in that currency and always one of the most desireable posessions for 90% of humanity.
That's the great thing about the web: it allows members of the white South African middle class - perhaps one of the most insular societies in the world - to make sweeping pronouncements about "90 percent of humanity". Good bless free speech.
Oh Dear!
Here we go again ...
Try understanding the argument and put those overcooked patriotic beans in the fridge for a bit.
It is clear that you have no idea what demand, from ALL classes, there is for property ownership - whether its affordable or not.
Anyway, you probably believe that shacks are adequate accommodation anyway.
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