Disa Park: Asking Prices Drop

Here's an add for four properties in Disa Park (I'm assuming specuvestor). All are reduced and willing to negotiate further:

BACHELOR/STUDIO/S R525.000 TO R590,00ALL OFFERS PRESENTED URGENT SALE
PRICED TO SELL NOW......... BEAT THE SEASONAL BUYERS RUSH.....HURRY
1 BEDROOM R900,000 REDUCED TO R795.000.NEG -AMAZING SEA/CITY VIEWS
2 BEDROM R1.25 MILL REDUCED TO R1.060. NEG -AMAZING SEA/CITY VIEWS.
3 BEDROOM R1.8 MILL REDUCED TO R1.600. NEG -AMAZING RENOVATION.

Just a note, he "seasonal buying rush" is almost over.

ABSA: Interest Rates Are Going Up

From the M&G: Absa says it expects another rate hike

The South African Reserve Bank (SARB) is expected to hike interest rates by a further 50 basis points at the end of January, Absa's economic research unit said on Wednesday.

This was in spite of retail trade sales data released earlier by Statistics South Africa showing that consumer spending continued to buckle.

According to the data released on Wednesday, retail trade sales at constant (2000) prices for November increased by 0,2% year-on-year compared with October's revised 1,9% (1,5%) increase.

This is the lowest level in 60 months, with the previous lowest being the 0% recorded in October 2002. The next worst was 0,7% in December 2002, but since then better numbers had been recorded until now.

However, in spite of this sharp drop in retail sales, Absa's economic research unit expected rates to rise.

First Sighting: Developers In Trouble

Here's a first sighting (at least for me) of a developer in trouble.

The Developer is incredibly anxious to sell due to credit problems and has put together the following awesome deal

- Double Storey 2 bedroom unit with bathroom.
- R20 000 deposit secures which is REFUNDED back to you on TRANSFER of unit.
- R12 000 REFUNDED back to you 7 days after transfer of unit and R5000 per month for 12 months
- Transfer Date: March 2008

Units will only be for sale until the end of November 2007 which is when the Developer will have to buy all outstanding units himself.

Well I'm looking at the calendar and it certainly is not November 2007 anymore. And all those cash back deals? Extremely shady to me.

Why not just take R72 000 (12 000 + R 5 000 * 12) off the price? Because then any commission related to the price of the property goes down. You'll be paying that R72 000 "discount" back via your bond at 14.5% which means in actual fact you'll be paying an extra R221 000 over 20 years (R 921 a month).

7.5 Million South Africans Will Lose Their Homes

Here's a bit of an alarming fact dropped nonchalantly in the article from Business Report - Repossessions escalate as debt skyrockets:

Car repossessions have risen by up to 20 percent year on year. But losing your 4x4 is nothing compared with the crunch when your home is repossessed. Remax has predicted that up to 17 percent of South Africans could lose their homes this year.

17 percent!!! Considering that their are an estimated 44 million South Africans, that means 7 480 000 South Africans will lose their homes in 2008.

If you consider that the current US mortgage crisis is estimated to cause 2 million households to go into foreclosure and that means about 7.2 million Americans (3.6 Americans per household). However the American population is around 200 million and so roughly 3.6% of the population is affected.

I really hope that 17% number is wrong. Very very wrong because if it's right there's a lot of pain coming.

Rent Vs. Buy: Muizenberg

Muizenberg is a suburb that went through a bit of a decline in the 90's but has been the target for a lot of redevelopment. Which I guess explains why rental returns are now so crap. Property prices have gone up a lot but rents have stayed down. Here's a one bedroomed loft going for R695 000 and renting for R3150.

Down Payment	Monthly Payment	Cash flow	Annual Income	ROI
R0	R8895.98	R-5745.98	R-68951.81
R69500	R8006.39	R-4856.39	R-58276.63	-83.85%
R139000	R7116.79	R-3966.79	R-47601.45	-34.25%
R208500	R6227.19	R-3077.19	R-36926.27	-17.71%
R278000	R5337.59	R-2187.59	R-26251.09	-9.44%
R347500	R4447.99	R-1297.99	R-15575.91	-4.48%
R417000	R3558.39	R-408.39	R-4900.73	-1.18%
R486500	R2668.80	R481.20	R5774.46	1.19%
R556000	R1779.20	R1370.80	R16449.64	2.96%
R625500	R889.60	R2260.40	R27124.82	4.34%
R695000	R0.00	R3150.00	R37800.00	5.44%

Break even with about R450 000 down and a max ROI of 5.44%, about 2% below inflation.

Rent Vs. Buy: City Bowl

Reader AL wrote to give us some anecdotal evidence abut the current whacky rent:price ratios. He rents a house in the city bowl for R7000 that was bought for R2 500 000, which admittedly is very good rental. Let's say the average interest rate has been 12% since the house was bought, then the ROI is:

Down Payment	Monthly Payment	Cash flow	Annual Income	ROI
R0	R27527.15	R-20527.15	R-246325.84
R250000	R24774.44	R-17774.44	R-213293.26	-85.32%
R500000	R22021.72	R-15021.72	R-180260.67	-36.05%
R750000	R19269.01	R-12269.01	R-147228.09	-19.63%
R1000000	R16516.29	R-9516.29	R-114195.50	-11.42%
R1250000	R13763.58	R-6763.58	R-81162.92	-6.49%
R1500000	R11010.86	R-4010.86	R-48130.34	-3.21%
R1750000	R8258.15	R-1258.15	R-15097.75	-0.86%
R2000000	R5505.43	R1494.57	R17934.83	0.90%
R2250000	R2752.72	R4247.28	R50967.42	2.27%
R2500000	R0.00	R7000.00	R84000.00	3.36%

Break even with R1 800 000 as a downpayment? 3.36% max ROI before maintenance and rates? That.... has got to be painful.

Sea Point: Asking Prices Drop

Asking prices are continuing to drop. In November we wrote about a flat that dropped it's price a whole R5 000 (a 0.3% price reduction). That obviously didn't work as the price is now reduced R245 000 (a 14% price reduction).

Century City: Asking Rents Drop

Here's more evidence that rentals are remaining flat or dropping. In February we wrote about a potential renter who looked at a 2 bed/2 bath apartment in Knightsbridge at Century City. The asking rent was R6 500 (down from R7 000) and the owner was getting "desperate".

Today the asking rent for a 2 bed/2 bath apartment in Knightsbridge is R5 500. That's a R1 000 drop in asking rent in under a year.

Rent Vs. Buy: Hout Bay

Usually one would expect a bachelor flat to have a decent rental returns.
Here's a ground floor bachelor in Hout Bay, selling for R695 000 with a rental of R3 000/month. Here's the ROI before rates, maintenance and vacancy costs are taken out:

Down Payment	Monthly Payment	Cash flow	Annual Income	ROI
R0	R8895.98	R-5895.98	R-70751.81
R69500	R8006.39	R-5006.39	R-60076.63	-86.44%
R139000	R7116.79	R-4116.79	R-49401.45	-35.54%
R208500	R6227.19	R-3227.19	R-38726.27	-18.57%
R278000	R5337.59	R-2337.59	R-28051.09	-10.09%
R347500	R4447.99	R-1447.99	R-17375.91	-5.00%
R417000	R3558.39	R-558.39	R-6700.73	-1.61%
R486500	R2668.80	R331.20	R3974.46	0.82%
R556000	R1779.20	R1220.80	R14649.64	2.63%
R625500	R889.60	R2110.40	R25324.82	4.05%
R695000	R0.00	R3000.00	R36000.00	5.18%

You need to put over 50% downpayment to break even and buying the place for cash gets you a 5.18% annual ROI. Which is less than inflation. Take out the various ownership costs and the return is even worse.

Green Point: Rental Market Is Not Moving

If you're a buy-to-let investor, having an empty unit is the kiss of death. It can wipe out years of returns and quickly turn that 7% ROI into negative numbers. But that's not the case in Cape Town because rental property is in high demand right? Well tell it to this specuvestor who has two rental flats (one, two) in Green Point sitting empty for the last 3 months. And while the are expensive - R5 800 for a 1 bed, R7 000 for a 2 bed - I have seen worse.

If It Won't Sell For R780 000 I'm Sure It Will For R800 000

This apartment in Century City used to be for sale for R799 000, then dropped to R780 000 and is now back up to R800 000. Hey it's a new year why not bump the price back up despite being on the market for over 5 months.

I'll bet that this is another case of a specuvestor continuing to lose money every month to cover bond payments (the place has a horrendous 2.2% ROI if you pay in cash) who has to raise the price every few months to cover these losses.

Asking Rents Drop

One of the theories put out there by some is that as the housing bubble collapses rents will go up as people will start to rent over the long term commitment of buying a house. That might hold true when rental stock was in low supply and demand outstripped it. The problem is that the housing bubble grew on the backs of wannabe buy-to-let specuvestors who didn't care that the rent fell short of covering the bond (because capital appreciation is what they were counting on), or who kept the flat empty as they tried to sell their off-plan purchase once constructed. When that doesn't work they either have to keep it empty or try and rent it out and cover some costs. The result: a whole bunch of rentals on the market (especially in new developments) and rents either remaining flat or dropping.

For instance here's a 2 bed apartment in the Mutual Heights development. The asking rent in November was R12 000. In December the asking rent for the same flat was R11 000 a month.

The Edge: Rent Vs. Buy

The Edge (probably the kakkest name for an apartment block ever) is an old friend here at Cape Town Property Bubble, we've talked about it many time before. And it's still a terrible "investment" if you're a wannabe buy-to-let specuvestor. For instance a 2 bedroomed, 62m^2 apartment rents for R6 5000 a month, while the selling price of an apartment of the same dimensions (also 62m^2 and 2 bedroomed) is R1 395 000.

Now usually we don't include the rates payable each month but in this case we do know it and it's R1357.00 a month which is pretty high for a 62m^2 apartment. So that means your net income is R4843. Just looking at that I can tell the ROI is going to be terrible so here goes:

Down Payment	Monthly Payment	Cash flow	Annual Income	ROI
R0	R17855.97	R-13012.97	R-156155.63
R139500	R16070.37	R-11227.37	R-134728.46	-96.58%
R279000	R14284.78	R-9441.78	R-113301.30	-40.61%
R418500	R12499.18	R-7656.18	R-91874.14	-21.95%
R558000	R10713.58	R-5870.58	R-70446.98	-12.62%
R697500	R8927.98	R-4084.98	R-49019.81	-7.03%
R837000	R7142.39	R-2299.39	R-27592.65	-3.30%
R976500	R5356.79	R-513.79	R-6165.49	-0.63%
R1116000	R3571.19	R1271.81	R15261.67	1.37%
R1255500	R1785.60	R3057.40	R36688.84	2.92%
R1395000	R0.00	R4843.00	R58116.00	4.17%

4.17% ROI if you pay for everything in cash and a whopping R1 000 000 deposit needed just to break even on the rental. OUCH.

But here's an interesting point. In May 2006, over a year and a half ago, the selling price of a 2 bed, 1 bath apartment in The Edge was R1 300 000. Today the asking price is R1 395 000. That's a capital appreciation of barely 7% over 18 months. If you bought that apartment for R1 300 000 back in May 2006 and rented it for R6 500 a month your ROI would be:

Down Payment	Monthly Payment	Cash flow	Annual Income	ROI
R0	R17791.97	R-12948.97	R-155387.63
R139000	R16012.77	R-11169.77	R-134037.26	-96.43%
R278000	R14233.58	R-9390.58	R-112686.90	-40.53%
R417000	R12454.38	R-7611.38	R-91336.54	-21.90%
R556000	R10675.18	R-5832.18	R-69986.18	-12.59%
R695000	R8895.98	R-4052.98	R-48635.81	-7.00%
R834000	R7116.79	R-2273.79	R-27285.45	-3.27%
R973000	R5337.59	R-494.59	R-5935.09	-0.61%
R1112000	R3558.39	R1284.61	R15415.27	1.39%
R1251000	R1779.20	R3063.80	R36765.64	2.94%
R1390000	R0.00	R4843.00	R58116.00	4.18%

Again that's a pretty dismal rental yield even with the lower purchase price. Now let's assume you geared up fully and got a 100% bond like a proper specuvestor. Sure you've lost R155 387 because you had to cover the bond but capital appreciation has got you covered right? Well considering the asking price has only increased R95 000 and even if you managed to achieve that full asking price, you've still lost R40 000 in 18 months! In fact unless you put down a greater than R400 000 downpayment even capital appreciation will not make you any money! Then subtract agency commission and other selling costs and the losses are even more.

One Property, Three Agencies, Three Prices

Here's a home in Kalk Bay listed with three different agents and going for three different prices (in reality only two but play along...)

RE\Max - R2 595 000
De Kock Estates - R2 400 000
Kalk Bay Property - R2 395 000

That's a full R200 000 difference between the lowest and highest asking price.

Saturday Open Thread

Got a topic you want to talk about? Use the comments below.

A Rare Spotting Of The Lesser Spotted Specuvestor

I don't know who Stuart P. is but he sure is desperate to sell a whole bunch of properties.

URGENT SALE!!!!!!!!!!!URGENT SALE!!!!!!!!!PUT AN OFFER IN TODAY...LOVELY 2 BED

INVESTORS!!!!!!!!INVESTORS......perfect location........heart of Claremont

URGENT SALE!!!!!!!!!!!!!!!PERFECT FOR INVESTORS!!!!!!OPPOSITE TYGERVALLEY SHOPPING CENTRE

MODERN AND STYLISH CBD APARTMENT, 511 THE SQUARE...........DESPERATE SELLER

PERFECT FOR LOVING COUPLE......................COSY 1 BED....OPPOSITE RACE TRACK

He could be an agent but judging by the desperate wording on these ads I doubt it.

The Square: If It Won't Sell For R570 000 I'm Sure It Will For R635 000

Back in May we spotlighted an apartment in a new complex called The Square which was a 29m^2 bachelor on sale for R570 000 and renting for R3 300. Today I noticed an ad also for a 29m^2 bachelor in The Square and also renting for R3 300 a month, except now the asking price is R635 000, R65 000 more than 7 months ago.
I'd bet this is the exact same flat.

So why would the price increase if the flat remains unsold? Well if you consider that our seller is probably paying in money every month to cover the bond that is not paid for by the rent; then every month that goes by he loses more money and thus has to sell for a higher price to make a profit. But by raising the price all our seller does is ensure that the flat remains unsold and he continues to pay every month. In 7 months time another price hike will probably be required to cover the newly accrued losses since the last hike.

The new asking price is also especially high when you consider a 61m^2 2 bedroom apartment in the same block is on sale for R839 000.

For any investor who would be looking to buy the place the ROI is now even worse when you consider the price has increased, interest rates have increased but rent has stayed the same.

The Retirement Village: Perfect For The Youngsters

Here's the text of an ad for a rental in the Oasis retirement complex in Century City:

Newly built 2 bedroom, 2 bathroom apartment in retirement village, with underfloor heating, 24hr Security, Club House, Indoor heated Swimming Pool, Restaurant, Sauna, Steam Room, Gym, Library, Billiards Room, Outdoor Braai Area 5 min walk to Canal Walk

Young and Old Welcome

Available: Immediately

Young welcome? I guess the population of pensioners willing to shell out R7 000 a month for rent is a lot less than expected and they need to spread the net a little wider.

Rent Vs Buy: City Bowl

A 25m^2 bachelor apartment in Kloof Street going for R460 000 and renting for R2200. Usually I would expect a high yield in a bachelor, especially one that small but with that asking price it's going to be mediocre.

Down Payment	Monthly Payment	Cash flow	Annual Income	ROI
R0	R5887.99	R-3687.99	R-44255.88
R46000	R5299.19	R-3099.19	R-37190.29	-80.85%
R92000	R4710.39	R-2510.39	R-30124.70	-32.74%
R138000	R4121.59	R-1921.59	R-23059.11	-16.71%
R184000	R3532.79	R-1332.79	R-15993.53	-8.69%
R230000	R2943.99	R-743.99	R-8927.94	-3.88%
R276000	R2355.20	R-155.20	R-1862.35	-0.67%
R322000	R1766.40	R433.60	R5203.24	1.62%
R368000	R1177.60	R1022.40	R12268.82	3.33%
R414000	R588.80	R1611.20	R19334.41	4.67%
R460000	R0.00	R2200.00	R26400.00	5.74%

You need to put well over 50% downpayment to break even and paying in cash gets you 5.74%. And again this is before rates, maintenance and vacancy.

Rent Vs. Buy: Temple House

Back in October 2005 you could have bought a 2 bedroom/2 bathroom apartment in Temple House for R1 850 000. Today you can rent one for R9500 a month. Here's the ROI table:

Down Payment	Monthly Payment	Cash flow	Annual Income	ROI
R0	R23679.96	R-14179.96	R-170159.50
R185000	R21311.96	R-11811.96	R-141743.55	-76.62%
R370000	R18943.97	R-9443.97	R-113327.60	-30.63%
R555000	R16575.97	R-7075.97	R-84911.65	-15.30%
R740000	R14207.98	R-4707.98	R-56495.70	-7.63%
R925000	R11839.98	R-2339.98	R-28079.75	-3.04%
R1110000	R9471.98	R28.02	R336.20	0.03%
R1295000	R7103.99	R2396.01	R28752.15	2.22%
R1480000	R4735.99	R4764.01	R57168.10	3.86%
R1665000	R2368.00	R7132.00	R85584.05	5.14%
R1850000	R0.00	R9500.00	R114000.00	6.16%

Just over 6% ROI if you pay for the whole thing in cash and over a million needed just to break even on cash flow.