A look at the Cape Town property market.
How about we talk about some positive property deals that have taken place in the 12 months?Anyone had any success?
I'm renting in the Northern Suburbs and have been trying to bargain hunt a property for the last 6 months or so. I would keep an eye on any properties that have been in the market for a while, hoping to get a low ball offer accepted.To me it seems (albeit a limited observation) that houses here are selling pretty quickly. What the actual selling price is is another question though.My plan of action now is to wait till after the World Cup. I think the combination of higher interest rates (a hunch), Eskom raising their prices and the depressing combination of the Cape winter and the World Cup glee wearing off, will make it possible to maybe find a bargain.What does the other readers think will happen after the World Cup ?Also, does any of the readers here know how to find out what houses are being sold for in a suburb ?
Anon2you should be able to get property sale prices from any estate agent in the area worth their salt. In fact an agent in Woodstock distributes a flyer every no and then with prices achieved over the previous months.I agree that to wait until after the world cup is a good idea. Eventually the banks are going to have to start accepting what ever they can get too.
My friend, the World Cup ending is not the catalyst you seek to give you a bargain house.The catalyst you seek is Phase 2 of the worldwide stock market implosion, which has already commenced.You will notice lately more and more articles advising not to buy property that is "uner water" i.e. the rent does not covr the bond. This is the proper way to value property, for the simple reason that renting is the only option available to buying, so if it's not one then it's the other.Now, that house for R 2 million - do you think there is a market that will pay R20,000 of after-tax money to rent it? If not, then it is over-priced, and very soon it will fall to below "fair value" - trust me, this is as certain as the sun setting this evening.
PS:With rent covering your bond, you are in for a 12% yield, which is about the right risk premium for owning an illiquid asset.Currently, we are seeing yields of less than 6, which is preposterous
I have been watching this blog for some time now. I find it very interesting although it is becoming a bit flat these days. All good comments but no real market reaction. It seems like the SA market is quite resilient. I have been living in Europe for 5 years and will return to Cape Town this year, after the world cup. I shall wait until 2011 before i look to buy. I am concerned however as all that i have seen in the suburb that i will return to is a dramatic escalation in house prices and am concerned that if i wait too long it will only continue. It is difficult to see if there is a breaking point in Cape town. When did housing prices ever drop? Did they ever? I sold my home in 2004 for 3 Mio 360, it sold within 1 week in 2004. Today i am told it is worth 6 Mio. This is difficult to believe. However when i look at a list of sales sent to me by an agent in the area, houses which i recognize seem to be selling like hot cakes for prices that justify the price increase of my old home, in comparison. Confused and most likely will end up paying too much- but find it practically difficult to outsmart this. The only solace i have is that the rand has depreciated by circa 60% since i cashed in on my last home and took my cash with me to Europe. I have had an acceptable growth out of it and will be bringing it back to buy my next home. Maybe this is where the price escalation all sits, linked to the exchange rate? So if the rand takes another tumble, which i think is unlikely then up they go again. Otherwise the prices we have right now is where it will stay. Thank you for letting me air my open thoughts.
@ most recent Anon, I am very interested to know a) the month you sold in 2004 and b) who told you that your old house is worth about R6-million now. I think the answers could provide us with a pretty interesting insight into current trends.
If my spider senses are correct (they are tingling), then government will depreciate the rand during the time of the World Cup. Lets say around 10 to the dollar. Property should have depreciated a bit more by then and those two factors will cause a spike of sorts in the housing market, pumping some more hard cash into our economy. If this does happen then what are the effects of having foreigners own such a large portion of real estate? Should gov be trying to make property more affordable for its own citizens?
There lies the problem - 360000 to 6m in 5 years - yet the fella can't believe that prices can fall !!They have in the US, in Spain, in Ireland ... all good property bubble countries - why not in SA ?Our real prices need to drop 50% to get to the long term trend - but inflation is 6 % but the Argus food basket shows annual DEFLATION of -20%.Price falls at present are the only way that 50% real fall is going to happen
Bean counter, it was spring and the agent is an independent agent in the southern suburbs.
Had supper with a real-estate agent on friday night. He has been working on the atlantic seaboard for years.VERY informative discussion.There is a development in Bantry Bay that is being touted at the moment and it will be below kloof road and will be 7 stories high. Yup, 7 stories. That will be high enough to block the view of 7 probably 8 houses back for the entire width of the building.It will never happen and will be fought tooth and nail by the residents around it, yet it is enjoying a lot of successful sales off-plan at present.To whom? To estate agents, friends of the developer etc. No wonder there is still a bubble in Cape Town...
I also can confirm that estate agents are buying. Just some agents bought a house at the Majestics Kalk bay and are trying to market now the other houses here. Asking prices are still completely ridiculous. 3.8 for a 2 bedroom cottage, and 2.2 for a 64m2 flat. How insane is that?By the way. I always pass this area at Stonehurst (next to the Golf course). We call it Guantanamo Bay, since it looks like a prison. Seriously how can people by in there, can it get more ugly? And I guess it is not cheap.
Hi it is me again, the fellow in Europe coming back sometime after the world cup. I like any other buyer wish for the prices to tumble and wish i could predict it. However i am sure that every seller is holding tight an keeping hush so that no fall off trend is brought about. An example that i experienced this week was a home in the old area i lived in. That's Newlands by the way, was on the market for 9 Mio. This is a nice property but needs a lot of work to get it up to a new owners scratch. I was told by the agent that it sold for 8.1 this week. Believe me this was no mansion, just a nice home on 1600 m2 of land. So if the buyer / seller agreement was a 10% reduction from asking price then the property is still selling very high and 10% reduction from asking price was similar to what i experienced last time i lived in CT. I was also sent a list of sales in the area by the agent. It seems like there is a lot of action going on. Take a look at Newlands specialist agencies. They seem very busy with lists of sold properties on their websites. Hopefully the facts will become apparent. Thanks again for the blog.
Anon, the way I see it there are two possible reasons for prices starting to increase again and buyers getting excited:1. It Really Is Different Here. Somehow SA has defied the laws of economics, and, after enjoying the largest property bubble in the world, will get away with the smallest and shortest correction in prices. First time buyers are completely priced out of the market, but it is eternally sustained by wealthy Baby Boomers endlessly buying and selling each others' property. 2. This is a textbook bear trap. I know which one my money is on. In fact so far our Big Bang seems to be running exactly to schedule. Yes, prices are climbing again but they always do in a bear trap. That's the point: the last suckers getting drawn in before it all goes to hell. And the SA market has a very, very long way to fall. With no BOE or Fed to bail them out, the sheeple who have bought the myth about properties are going to be left swinging in the breeze.I confess it's taken far longer to get here than I anticipated. I didn't understand that the economies of most Western democracies are built entirely on property speculation and I didn't think that the leaders of the "free world" would so cynically and openly stack the deck in favour of specuvestors at the expense of frugal savers. But it's a game that can't go on for ever, especially not here. It's going to get bloody yet.
There will always be buyers. People who do not buy have to rent so someone has to buy a house to let it out! As usual there are people with plenty of money who are going to buy the houses, flats etc.... and those people are estate agents, their friends, rich people in fact, foreign investors. Most of them buy cash even a R5M or more house! even if the price of houses/flats goes down, they will get their rents every month and that will go up annually. A good retirement income i must say!
The Last Anonomous. It does not make sense to by a house for R5bar cash that you can only get R25k a month for. Put the R5bar into a bank at 8% and you come out R100k a year better off without the hassle of tennants and maintenance. and before you talk about increasing rental over years to come, consider compound interest on your R5bar in the bank. So to make up for tenant hassles, maintenance and exit costs etc, rent needs to be at least 10% per anum. you find a propertie with that kind of rental return please let me know. Also leaving cash in the bank is not the best investment one can make.
Two thoughts:1. The reason why there could be increasing sales is World Cup. If you were thinking of buying an investment house or even if you plan to live in it yourself, now would be a good time (if you don't believe there will be a correction) since you can rent it out for a month or so during the cup and presumably get a quick return. There is logic in that, you can't deny it.2. I think it would be more accurate to compare SA housing bubble to other "resource" countries such as Canada and Australia (where, btw, there is no sight of it bursting) rather to the "entertainment" countries such as US and UK.I personally believe houses in SA are quite expensive, especially for the kind of crap, building-quality-wise, you get. Whether the prices will go down, that's another questions. A similar strange thing happens in the car market. Both BMW and Mercedes just increased their prices across the board. Would they do that if nobody is buying their cars? No. Do you see less new German cars on the roads? No.Anonymous Coward
@ Anon Coward, give this one a read: 'Australian Housing Bubble About to Burst'www.marketoracle.co.uk/Article16958.html
I agree with anonymous coward.If the pesimists are going to say there is going to be a big bust because of the economy and economic factors then you should also judge the Atlantic Seaboard with the same kind of economic theories that make up your justification for a property burst in the region.Supply and demand. There is only x m2 in the whole of the Atlantic Seaboard (say Mouille Point to Camps Bay). That means the number of space one is able to acquire will never increase, as it is just physically unable to do so - The beach only stretches for so long, and you cant start building house on mountains. Thus the area is limited.On the contrary, The atlantic Seaboard is an incredibly desirable place to live. Recognised around the world as one of the top destinations to visit. Thus the demand for the limited number of space there is will always be there, and as this space cannot increase, the demand to occupy an area of this limited space will naturally increase. And when there is demand for a limited resource, the price has to go up.Happy House Hunting People!
And there's only x m^2 in Tokyo, once the hottest real estate market in the world.Hasn't stopped prices there dropping for literally the last 20 years.
@ Atlantic Seaboard Anon, you are absolutely right. Those burbs are Africa's Monaco. Limited space, massive demand, monster prices. Nobody is arguing that with you. But in terms of the real economy, i.e. that which affects the 99.99 percent of South Africans who can't afford to buy in Clifton, the Atlantic Seaboard is completely irrelevant. In fact the AS is about irrelevant to SA as Monaco is to Europe. Sure, their prices wobble up and down, but who cares whether it's R15 million or R20 million? It's a self-contained little universe, completely cut off from most economic realities, and hence meaningless in the larger debate.
CT Bubble: If massive sky scrapers, High rise residential buildings, and densely populated areas are your thing then Tokyo is the place to buy. How can you compare the The beauty of the Atlantic Seaboard to the fast paced technology driven Tokyo? Some comparisons require slighty more insight then just an economic theory. I do not live in CT, nor SA for that matter. But as long as you keep renting, I will be happy.Bean Counter: are you a QS by any chance?
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