Big Price Drops In Strand

Reader Bean Counter writes:

This house was R6.9 million in Feb and is now priced R4.9 million. That's 29 percent in one fell swoop, but perhaps still not enough - interesting to see if this place moves even at this "cheap" price. I doubt it, as this looks like one of those classic Old SA hellholes, a sort of central hotel thing on a busy road in the sandblasted misery of the Strand.

The Big Cuts Start Rolling In

Last month this apartment in Strand was on the market for R2 080 000. This month it's asking price has dropped to R1 500 000. That's a 28% drop in asking price.

Remember folks: Don't panic. But if you do, be the first.

Thanks to Reader Bean Counter for the link.

Investors Dumping In Strand

Strand is a suburb with some of the worst rental yields in Cape Town, probably not helped by the 45 minutes it takes to drive there, and that's when there's no traffic. So it's not suprising with the stagnating market to see investors beginning to exit ASAP.

11 Investment Properties in security complex for sale in Cape Town, Strand, South Africa.
1. 2 bedroom units
2. Signed leases with tenants in occupation
3. One years capital growth
4. All are managed by rental agents

Dumping 11 units in the same complex? The other residents must be absolutely thrilled.

Rent Vs Buy: Strand - Invest R430 000 And Make Nothing

I thought small bachelor flats were the place to go for high yields? This bachelor flat in the strand is on the market for R599 000, while it currently commands a monthly rental of R2 200 a month. That means that with a 100% bond the difference between the monthly bond payment of R8 109/month and the rent is a whopping R5 909, nearly 2.7 times the size of the rent itself! Here's the (dismal) payment and yield graph:

Right so buying the place in cash gives you a fantastic 4.41% ROI, only about 7% below the official inflation figures. You break even on cash flow with a massive 72.87% downpayment of over R430 000.

Developers In Trouble And How To Lose R94 000 Without Trying

Here's an ad from a developer who seems to be in some trouble, selling some houses in the Strand for R435 000:

Brand new three bedroom homes with a single garage and garden, situated two blocks from the beach, in strand !!!
REDUCED FROM R529 000.
The builder has 3 houses that he needs to sell fast!

This is in a complex of seven houses so there are three houses still available. Which means that if the four existing owners bought at R529 000 they just took a R94 000 haircut and as interest rates increase they will be paying more and more for an asset declining in value. Should any of those owners decide they wish to sell they'll be competing against the developer who can afford to cut prices further.

Selling owners versus developers is going to become a more common occurrence. Developments like The Rockwell (a personal favourite of ours) still has as of 30 April 2008 twenty units for sale direct from the developer, that is when they aren't trying to rent them out. Who do you think has more room to negotiate prices? The developer or people trying to resale their "investment" apartment?

Rent Vs. Buy: Strand

One of the worst rent/buy ratios in Cape Town is in the Strand/Gordon's Bay region as reader Bean Counter often reminds us. Here's another example, a 2 bedroomed flat in Strand on sale for R421 000 (and that's negotiable) with a net rental of R1 350 (R1 800 - R450 in levies). Here's the return on investment and payments you can expect:

Down Payment	Monthly Payment	Cash flow	Annual Income	ROI
R0	R5388.79	R-4038.79	R-48465.49
R42100	R4849.91	R-3499.91	R-41998.94	-99.76%
R84200	R4311.03	R-2961.03	R-35532.39	-42.20%
R126300	R3772.15	R-2422.15	R-29065.84	-23.01%
R168400	R3233.27	R-1883.27	R-22599.29	-13.42%
R210500	R2694.40	R-1344.40	R-16132.74	-7.66%
R252600	R2155.52	R-805.52	R-9666.19	-3.83%
R294700	R1616.64	R-266.64	R-3199.65	-1.09%
R336800	R1077.76	R272.24	R3266.90	0.97%
R378900	R538.88	R811.12	R9733.45	2.57%
R421000	R0.00	R1350.00	R16200.00	3.85%

3.85% return if you pay in cash, which is about 6% what you could expect from a fixed deposit. You break even on cash flow with a just under 80% deposit. No wonder the price is negotiable...