It's the Saturday Open Thread. WP JOU LEKKER DING!
20 comments:
Anonymous
said...
So day after day, week after week, normal intelligent people in this country fight the goverment for one thing or the other. First the media tribunal and protection of the information bill; then natialization of the mines and other industries; and now they bleating about preventing the sale of property to non SA citizens? Has anyone bothered to read up on what they on about now, and how it will effect the market? Cause I just don't have the energy anymore. Also in the Sunday Times today there's this whole speel about property listings and how it's returned higher returns than equities, bonds, blah blah. Anyone have anything to say about that?
On the reporting of the property market, I wouldn't trust any publication that prints an article with the title "Property market recovers" when reporting a nominal DECLINE of 2.5% month on month. (http://www.timeslive.co.za/business/article685307.ece/Property-market-recovers)
The latest ABSA house price index was published on Thursday. (http://www.absa.co.za/absacoza/content.jsp?/Home/News-&-Market-Information/Absa-Publications/Economic-Research/Property-Research)
Nominal month/month prices in the average bracket have declined 4% since April. The text of the report is much rosier than I would gather from the data - notably negative momentum in m/m and y/y prices.
I would say buy a house whenever you can afford it or maybe some people prefer to rent and that means to pay someone else bond. At the end they have nothing and the landlord has his property paid for. I have encouraged my children to buy their own place no matter how small it was.
What you have to give: So if you buy a house with loaned money you have to pay it back interest. If you buy it with money you already have then you can't invest that money e.g. in the stock market and earn a return.
What do you get in return: A house to live in where: 1.) You may see a return in the form of above average house price inflation.
2.) If it keeps up with inflation then you break even.
3.) If it decreases (or increases at below the rate of inflation) then you lose money.
In all three of the above cases you still have to bear one or both of the fist two costs.
Housing tends to involve leverage i.e. a loan from the bank. This increases the amount you lose or gain when prices rise at above inflation or below inflation.
E.g. 1. 10% down on a million rand property is R100 000. Lets say the price rises by 10% to R1.1 million you've effectively doubled your money (i.e. 100% gain before costs).
If you paid in cash (zero leverage) you've gained 10%.
E.g. 2. 10% down again a million rand property. Lets say the price stays flat you've breaking (before costs).
If you paid in cash (zero leverage) you're still even i.e. 0%.
E.g. 3. 10% deposit on a R1 million property and prices drop 10% to R900k, your R100K is gone.
If you paid in cash (zero leverage) you've lost 10%.
So property can be bad and it can be good depending on what happens to the prices. With the market stalled at near 30 year low interest rates after experiencing massive price inflation a few years back, I wouldn't count on it increasing too much for the foreseeable future. At least not without general inflation taking off in which case it would only be a nominal return.
You can also get a house to live in via renting. The idea is that it frees up money to invest and gain / lose somewhere other than property.
Note it you're really going to invest in property then you should be looking to buy something and rent it out and know what the yield is.
Times and circumstances change. It's not always a good time to be in cash, bonds, shares, property, commodities, etc.
Also - even if you buy cash, you never truly own your erf and house outright.
It's only yours for as long as you keep paying the rates and water. Stop paying those and within 2 years your payed off erf and house will be sold by the sheriff.
Unless you are truly indigent, you are never a citizen free of rates and water charges.
You make a few good points but in my experience, I think you miss 2 important factors:
1) Time:
The property market is like a large ship which takes time to turn around. In that time you are able to take counter measures such as getting new tenants if your current ones can't pay, inform the bank if you are to be late with mortgage payments to defer to decrease the penalties or renovate or extend a part of the property to increase total rent.
2) Security:
If you own 1 property you can use it as security for another thereby (hopefully) improving your cashflow & your net value. If your 1st property isn't a good investment this can be offset by the 2nd property.......otherwise you should re-evaluate your investment parameters.
I think in the end there is no right or wrong answer as it depends on your investment strategy.
this place was on sale about 2 months ago, and still has the sold sign outside:
Taken from the Sheriff's website
"Wednesday 13 October 2010 @ 10H00
@ 22 De Waal Drive, Vredehoek
Extent: 837 (Eight Hundred and Thirty Seven) square metres
The property has been improved by the erection of a dwelling consisting of lounge, kitchen, dining room, four bedrooms, one and a half bathrooms and a flatlet. (no guarantee)
Your first point is a bit nebulous and thus hard for me to understand. I.e. I'm not sure if what you're trying to say that property is illiquid. But to continue with your slow response property investment scenario how about this:
Your tenants decide to stop paying after they've moved in. They make lots of excuses and keep promising to pay. You can't just turf them out so have to go the legal route. More time and more money. You persist and eventually your tenants disappear in the middle of the night. They secretly trashed the place. it's filthy. The borehole pump is stolen, the pool pump is broken and the pool is green. I'm not even going to mention the state of the garden. After that there were drug addicts (and of course the narcotics police raiding the place). The place was eventually sold to young chap who is still busy fixing it up. I've seen it happen and it's not pretty.
Basically my point is that things taking a long time to turn around can cut both ways. By the way that sounds like a very understanding bank. ;-)
I think your second point about security is that it can be used to obtain leverage. The old "it takes money to make money" saying. Note that you can do the same thing with shares e.g. sell the shares you own and buy share instalments (includes interest for the loaned portion of the money used to buy the underlying share).
With regards to improving your cash flow that will only happen if the amount of rental (after costs) is greater than the interest you have to pay on the outstanding portion of the loan.
Now again I'm not saying that you can't make money from property. E.g. "capital appreciation" of house price inflation can and does happen. And if you're renting out property and can get a positive yield then great. On other hand if property prices seem unlikely to rise and your rental income can't cover your costs then it's a bad investment. As I've been very fond of saying "It depends".
Right! 2nd House just got jacked in my neighborhood ( nedbank repo's , both ) of about 400 units. The last one stood empty for +/_16 months before an enterprising family from the local slum claimed it.
Nedbank has been auctioning homes through intermediaries like crazy but since the cellphone bidder scam, prices have dropped 60% when compared to current Aida price lists.
So you can't afford a Citi Golf, times are tough, jobs are few, but to hell with anyone who tells you to sell your 4000m2 property in Durbanville you bought 10 years ago for under 1 bar.
Here's in idea - sell your pool for 1.5 million, just to see whether there is really someone out there that stupid:
Just been reading a Bloomberg article on how the SARB is looking at ways of weakening the currency.
"National Treasury Director-General Lesetja Kganyago said last month that South Africa can’t impose a tax on foreign portfolio inflows, as Brazil did, because it relies on these flows to finance the country’s current-account deficit."
The current account is funded either by long term foreign investment or "hot money" short term flows.
The above quote then means one of 2 things:
Either there is a severe shortage of long term investment(including property) into SA or The SARB is a lapdog of the IMF and bankers who would not like to lose their easy carry trade money.
Instead we buy useless dollars at a loss essentially helping fund the US's crazy monetary policies and lifestyle on the backs of South Africans (more than we usually do through the Dollar Reserve system). The Reserve Bank has lost a billion rand so far this year.
But hey they arent sterilizing the dollar purchases so we might just get a little property price inflation, just imagine how rich we will be!
All the way back to anonymous no. 2: The old "if you rent you are paying someone else's bond" dirge. You need to realize that when you buy and take on a bond, you can equate the interest paid on the bond as "rent" you pay to the bank. It is precisely the same thing. Think about it. This means that, when the rent:bond repayment ratio is low, the landlord is actually subsidizing the renter (not the other way around), and the renter can score by building up savings far more quickly than through growing equity if he/she had bought a house. Of course the banks don't want people to click about this, so they punt home ownership as the best investment you will ever make (as you have mistakenly told your kids). Rather use your noggin, structure a savings plan that will give you a good yield, and rent for the first ten years before entering the property market with a solid down payment. Robert Kiyosaki said it best - a possession that costs you cash flow is not an asset it is a liability.
I certainly do not agree with the comment that renting is better than buying. If you pay rent, you end up with nothing, just money gone in the drain. At least if you buy after 30 years you have something, a home over your head. banks can collapse any day, go bankrupt but at least if you buy you have a roof over your head and if in difficulty maybe can let one of the rooms in your property to help with the bills. It is bad to teach our children to rent something should be done to help young people to be able to buy their first home.
@ Last Anon - I think what people on this forum are trying to say is that you don't own your house until it's paid off, the bank does. So until you have the deed in your hands, it's not your house and the stability or security you preach might be a false hope. Further there's always political risk with owning such an illiquid asset. I believe they are saying that rather than becoming a mortgage slave for 20-30 years, there are better ways to use your cash flow to reach your goal. In other words, get a house fully paid off with the least amount of interest paid to the bank. Sometimes renting might be part of that plan, and by the very nature of blog, now we are at the peak of this huge bubble, so it might not be the best time for your kids to fork out 1.5 bar to get a shitty 2 bedroom in Parklands. Can they spell, negative equity? I do agree with your statement that owning a paid off home is one of the best leverages in terms of a base for future investments, and security in tough times, not to mention a place to raise your family. However I believe that the times of leaving the army, and working in a company for 30 years are over, which means such long term liabilities like home loans need to be played according to the times. People need to realize that what worked for them, might not work for their kids, and possibly utilizing the wide range of other investments available today (as well as sectional title schemes which never existed 30 years back) to grow your asset base, is the best way to go to get that leverage.
20 comments:
So day after day, week after week, normal intelligent people in this country fight the goverment for one thing or the other. First the media tribunal and protection of the information bill; then natialization of the mines and other industries; and now they bleating about preventing the sale of property to non SA citizens? Has anyone bothered to read up on what they on about now, and how it will effect the market? Cause I just don't have the energy anymore. Also in the Sunday Times today there's this whole speel about property listings and how it's returned higher returns than equities, bonds, blah blah. Anyone have anything to say about that?
SuckerJack
On the reporting of the property market, I wouldn't trust any publication that prints an article with the title "Property market recovers" when reporting a nominal DECLINE of 2.5% month on month.
(http://www.timeslive.co.za/business/article685307.ece/Property-market-recovers)
The latest ABSA house price index was published on Thursday.
(http://www.absa.co.za/absacoza/content.jsp?/Home/News-&-Market-Information/Absa-Publications/Economic-Research/Property-Research)
Nominal month/month prices in the average bracket have declined 4% since April. The text of the report is much rosier than I would gather from the data - notably negative momentum in m/m and y/y prices.
I would say buy a house whenever you can afford it or maybe some people prefer to rent and that means to pay someone else bond. At the end they have nothing and the landlord has his property paid for. I have encouraged my children to buy their own place no matter how small it was.
Anonymous #2
What you have to give:
So if you buy a house with loaned money you have to pay it back interest. If you buy it with money you already have then you can't invest that money e.g. in the stock market and earn a return.
What do you get in return:
A house to live in where:
1.) You may see a return in the form of above average house price inflation.
2.) If it keeps up with inflation then you break even.
3.) If it decreases (or increases at below the rate of inflation) then you lose money.
In all three of the above cases you still have to bear one or both of the fist two costs.
Housing tends to involve leverage i.e. a loan from the bank. This increases the amount you lose or gain when prices rise at above inflation or below inflation.
E.g. 1. 10% down on a million rand property is R100 000. Lets say the price rises by 10% to R1.1 million you've effectively doubled your money (i.e. 100% gain before costs).
If you paid in cash (zero leverage) you've gained 10%.
E.g. 2. 10% down again a million rand property. Lets say the price stays flat you've breaking (before costs).
If you paid in cash (zero leverage) you're still even i.e. 0%.
E.g. 3. 10% deposit on a R1 million property and prices drop 10% to R900k, your R100K is gone.
If you paid in cash (zero leverage) you've lost 10%.
So property can be bad and it can be good depending on what happens to the prices. With the market stalled at near 30 year low interest rates after experiencing massive price inflation a few years back, I wouldn't count on it increasing too much for the foreseeable future. At least not without general inflation taking off in which case it would only be a nominal return.
You can also get a house to live in via renting. The idea is that it frees up money to invest and gain / lose somewhere other than property.
Note it you're really going to invest in property then you should be looking to buy something and rent it out and know what the yield is.
Times and circumstances change. It's not always a good time to be in cash, bonds, shares, property, commodities, etc.
LS
Hi Benjamin
Ja the graphs in ABSA report in particular do not paint a particularly positive outlook for house prices.
LS
Also - even if you buy cash, you never truly own your erf and house outright.
It's only yours for as long as you keep paying the rates and water.
Stop paying those and within 2 years your payed off erf and house will be sold by the sheriff.
Unless you are truly indigent, you are never a citizen free of rates and water charges.
@ LS
You make a few good points but in my experience, I think you miss 2 important factors:
1) Time:
The property market is like a large ship which takes time to turn around. In that time you are able to take counter measures such as getting new tenants if your current ones can't pay, inform the bank if you are to be late with mortgage payments to defer to decrease the penalties or renovate or extend a part of the property to increase total rent.
2) Security:
If you own 1 property you can use it as security for another thereby (hopefully) improving your cashflow & your net value. If your 1st property isn't a good investment this can be offset by the 2nd property.......otherwise you should re-evaluate your investment parameters.
I think in the end there is no right or wrong answer as it depends on your investment strategy.
Some reading for those interested
The Athenian Real Estate Panic & Banking Crisis by Martin Armstrong
http://www.martinarmstrong.org/files/The%20Athenian%20Real%20Estate%20Panic%20&%20Banking%20Crisis%2010-1-2010.pdf
http://www.martinarmstrong.org/files/The%20Athenian%20Real%20Estate%20Panic%20&%20Banking%20Crisis%2010-1-2010.pdf
this place was on sale about 2 months ago, and still has the sold sign outside:
Taken from the Sheriff's website
"Wednesday 13 October 2010 @ 10H00
@ 22 De Waal Drive, Vredehoek
Extent: 837 (Eight Hundred and Thirty Seven) square metres
The property has been improved by the erection of a dwelling consisting of lounge, kitchen, dining room, four bedrooms, one and a half bathrooms and a flatlet. (no guarantee)
Auctioneer: Morne van der Vyver"
Hi Eric
Your first point is a bit nebulous and thus hard for me to understand. I.e. I'm not sure if what you're trying to say that property is illiquid. But to continue with your slow response property investment scenario how about this:
Your tenants decide to stop paying after they've moved in. They make lots of excuses and keep promising to pay. You can't just turf them out so have to go the legal route. More time and more money. You persist and eventually your tenants disappear in the middle of the night. They secretly trashed the place. it's filthy. The borehole pump is stolen, the pool pump is broken and the pool is green. I'm not even going to mention the state of the garden. After that there were drug addicts (and of course the narcotics police raiding the place). The place was eventually sold to young chap who is still busy fixing it up. I've seen it happen and it's not pretty.
Basically my point is that things taking a long time to turn around can cut both ways. By the way that sounds like a very understanding bank. ;-)
I think your second point about security is that it can be used to obtain leverage. The old "it takes money to make money" saying. Note that you can do the same thing with shares e.g. sell the shares you own and buy share instalments (includes interest for the loaned portion of the money used to buy the underlying share).
With regards to improving your cash flow that will only happen if the amount of rental (after costs) is greater than the interest you have to pay on the outstanding portion of the loan.
Now again I'm not saying that you can't make money from property. E.g. "capital appreciation" of house price inflation can and does happen. And if you're renting out property and can get a positive yield then great. On other hand if property prices seem unlikely to rise and your rental income can't cover your costs then it's a bad investment. As I've been very fond of saying "It depends".
Regards,
LS
@ LS
I actually did go through the scenario which you've illustrated above.....twice !(luckily no drug dealers just bad tenants :)
In both cases my rental agent and lawyer took care of the tenants without costing me too much.
And yeah, maybe I'll have a look at the share instalment idea but I admit I've been a bit shy of shares after the Dot Com Boom.....
Right! 2nd House just got jacked in my neighborhood ( nedbank repo's , both ) of about 400 units. The last one stood empty for +/_16 months before an enterprising family from the local slum claimed it.
Nedbank has been auctioning homes through intermediaries like crazy but since the cellphone bidder scam, prices have dropped 60% when compared to current Aida price lists.
This is just scary!
Low-Jack
So you can't afford a Citi Golf, times are tough, jobs are few, but to hell with anyone who tells you to sell your 4000m2 property in Durbanville you bought 10 years ago for under 1 bar.
Here's in idea - sell your pool for 1.5 million, just to see whether there is really someone out there that stupid:
http://www.remax.co.za/Property-in-Tara/Durbanville/Western-Cape/Web-Reference/300269142/
I wonder how you even valuate that? R10 000 a square LITER?
SuckerJack
Just been reading a Bloomberg article on how the SARB is looking at ways of weakening the currency.
"National Treasury Director-General Lesetja Kganyago said last month that South Africa can’t impose a tax on foreign portfolio inflows, as Brazil did, because it relies on these flows to finance the country’s current-account deficit."
The current account is funded either by long term foreign investment or "hot money" short term flows.
The above quote then means one of 2 things:
Either there is a severe shortage of long term investment(including property) into SA
or
The SARB is a lapdog of the IMF and bankers who would not like to lose their easy carry trade money.
Instead we buy useless dollars at a loss essentially helping fund the US's crazy monetary policies and lifestyle on the backs of South Africans (more than we usually do through the Dollar Reserve system). The Reserve Bank has lost a billion rand so far this year.
But hey they arent sterilizing the dollar purchases so we might just get a little property price inflation, just imagine how rich we will be!
All the way back to anonymous no. 2:
The old "if you rent you are paying someone else's bond" dirge. You need to realize that when you buy and take on a bond, you can equate the interest paid on the bond as "rent" you pay to the bank. It is precisely the same thing. Think about it. This means that, when the rent:bond repayment ratio is low, the landlord is actually subsidizing the renter (not the other way around), and the renter can score by building up savings far more quickly than through growing equity if he/she had bought a house. Of course the banks don't want people to click about this, so they punt home ownership as the best investment you will ever make (as you have mistakenly told your kids). Rather use your noggin, structure a savings plan that will give you a good yield, and rent for the first ten years before entering the property market with a solid down payment. Robert Kiyosaki said it best - a possession that costs you cash flow is not an asset it is a liability.
core deflation in the US, QE is essential.
http://krugman.blogs.nytimes.com/2010/02/26/core-logic/
And the EU are tightening their belts! Extraordinary times - now we will see if Keynesian stimulus (albeit tentative) works.
I certainly do not agree with the comment that renting is better than buying. If you pay rent, you end up with nothing, just money gone in the drain. At least if you buy after 30 years you have something, a home over your head. banks can collapse any day, go bankrupt but at least if you buy you have a roof over your head and if in difficulty maybe can let one of the rooms in your property to help with the bills. It is bad to teach our children to rent something should be done to help young people to be able to buy their first home.
@ Last Anon - I think what people on this forum are trying to say is that you don't own your house until it's paid off, the bank does. So until you have the deed in your hands, it's not your house and the stability or security you preach might be a false hope. Further there's always political risk with owning such an illiquid asset. I believe they are saying that rather than becoming a mortgage slave for 20-30 years, there are better ways to use your cash flow to reach your goal. In other words, get a house fully paid off with the least amount of interest paid to the bank. Sometimes renting might be part of that plan, and by the very nature of blog, now we are at the peak of this huge bubble, so it might not be the best time for your kids to fork out 1.5 bar to get a shitty 2 bedroom in Parklands. Can they spell, negative equity? I do agree with your statement that owning a paid off home is one of the best leverages in terms of a base for future investments, and security in tough times, not to mention a place to raise your family. However I believe that the times of leaving the army, and working in a company for 30 years are over, which means such long term liabilities like home loans need to be played according to the times. People need to realize that what worked for them, might not work for their kids, and possibly utilizing the wide range of other investments available today (as well as sectional title schemes which never existed 30 years back) to grow your asset base, is the best way to go to get that leverage.
@last anon
a video on what an asset and a liability is, and most houses are not assets.
http://www.youtube.com/watch?v=tbDr77zdsEU
Post a Comment