The Claremont: Asking Prices Crater

Reader BG writes:

The Claremont is a fairly new development on Claremont Main Rd. Last year bachelor apartments had an asking price of R650000 while 1 bed apartments were going for R850000. This year a 1 bed is going for R550000 negotiable! I'm unsure if that's for a bachelor apartment (15% asking price drop) or for a 1 bed apartment, which would be a 35% drop in asking price!

Rent Vs Buy: Claremont - Can Only Be A Terrible Investment

Here's a 2 bed apartment in Claremont described which "can only be a fantastic investment", on the market for R1 495 000 and which has a net rental of R6 050 (R6 500 gross rental - R450 levies). That means with a 100% bond the difference between the bond payment (R19 093) and the net rental is R13 043, twice the net rental itself! Here's the payment and yield graph:

Paying all in cash gets you a 5% return on investment, about 5.5% below inflation. To break even on cashflow requires a hefty 68.3% downpayment (nearly a million Rand!) and even with a 50% downpayment you need 2.9% capital appreciation (which is going to be rare when every bank is forecasting price delcines) to not lose any money at all. The returns will be even less one rates, maintenance and vacancy are taken into account.