22 July 2008

Rent Vs Buy: Green Point - So Much For The "World Cup Effect"

The World Cup stadium is being built in Green Point (right across the road judging from the pictures in this ad) so that means high demand and massive yields right? Well... now. Here's a bachelor flat in Green Point on sale for R705 000 and tenanted for 12 months at R3 500 a month. With a 100% bond you'll be paying R9 544 a month on the bond and the difference between that and the rent is R6 044, 1.7 times the rent itself. Here's the income and yield graph:

Buying the apartment for cash at the asking parice gets you a 5.96% return on investment, probably about 5% below inflation. A 63.33% downpayment (R446 483) is required just to break even on cash flow and with a 50% deposit you still need 2.17% capital appreciation to not lose any money at all.

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