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26 comments:
Anonymous
said...
But what if you like where you live, and don't want to move. Is it worth selling now on the premise that there is a decent chance your house is going to lose some serious value?
What if you live in in a perceived "good area", will these house prices drop much? How can they if people in these areas don't need to sell for lower prices?
Look at the salaries and rents in the area. Are houses valued at about 11 times the annual rents ? Are houses valued at about 3.5 times the annual salaries of the people living in the area ?
If they are, then prices are where they should be. If they are significantly higher then they are overvalued.
You cannot use annual rent to determine house prices, because there are such extreme differences in various areas. 3% in areas of CT city bowl is the going rate, while 10% on UCT campus is the going rate.
You are forgetting replacement value. A R50 000 RDP house is not undervalued just because it costs 2 times the annual earnings of the people living in the area, just as a R5m house is not overvalued because its five times annual earnings of the locals. Depends what it costs to build, views, schools, green strips, safety etc.
Also, the same house with good fittings and luxury equipment can easily cost 50% more.
So I would conclude that the city bowl houses are over priced and UCT campus look correctly priced.
In places like the UK and US one can use median figures for salary and house prices and get a good idea of the ratios - in SA it is not so easy to do because the range of salaries and houses is so great.
The city bowl house is on the market for R2.4m, its a four bed, 220 sq.m. house, renovated bathrooms and kitchen, double garage with pool and garden. The UCT campus house is an ancient three bed 125 sq.m. on 190 sq.m. stand going for R2m. No comparison!
It is the rental demand that determines the 3% or 10% rate, not whether the value of the house or whether it is over or under priced.
So you cannot use your simple 11 times rule to evaluate asking price, let alone the fact that similar houses differ hugely in finishings, fittings, position etc.
Sorry, but property is not as simple as that. Even though I agree with your prediction that average prices in some areas might still come down some more.
These are houses for sale; actual figures. Wouldnt know how much rent would be, but certainly not R18000 for city bowl house, as you suggest! Those old campus houses rent for around R7000 per month. But I am afraid that you will never get them for under R1.7 - that's what they go for, and they move.
Property value (I should rather say 'price') does not adhere to a simple formula. Even where we rent now, people get 3% and the houses do sell. Obviously the sellers are still trying their luck, but when they drop their price and it sells, you find that it still is 30 times annual rent.
Peter R7000pm for the R2m UCT house is 4.2% please clear your mind of all distractions before you type. Sometimes my head hurts reading you rather nonsensical arguments cheers
If I was buying to let, which is what we seem to be talking about here re values. the only value i would put on the property would be how much rent i could get. I really could not give a shit whether the house had a pool, marble counters etc. And dont mention capital appreciation cause those days are gone for a while now.
In fact, we are NOT talking about property to let, so perhaps clear YOUR mind.
This is exactly why I said that CJs method of valuation will not work and is an inappropriate way to evaluate property value across the board.
We are not talking investment, the consideration was how much to pay for a residence. My point was that there are too many factors to stick to a simple rule of thumb. And finishings do play a major part in what you will pay for a place, just like view, the area, age etc. So don't be ridiculous.
There are houses with 3% in town and there are flats with 10% on campus. But the examples that I used was to illustrate that pegging the price of a house by a simple 11 times annual rent couldnt be further from the truth.
Read through this thread, take a deep breath, recompose your thoughts and make your point clearly about the city bowl house rent ratio and the uct house rent ratio.
The avarage salary rule runs even wider around average prices. Rentals are only one of several ways to determine house prices, and is probable only used in the US and only for investment properties (landlords). Replacement cost is another, but land prices are too subjective. Market value remains, so you need to include 'going' rate in your calculation.
By the way, by 'invetment' I meant rental property. The house you own and live in can also be a good investment - run the numbers.
Couldnt help to notice some shocking phrases from your post (63) on last Saturday's thread.
You serious! Reckon it will get fixed by 'a generation'? Reckon no more bubbles? No more property speculation? No more high leverage, CFDs, shorting stocks? Reckon if left to one generation then the next will be sorted?
Tell you what really shocked me: 'Sound economic principles' you say ...
Ok, let me ask you this one question. Bear in mind that I am no property bull, I own a flat to pass on to the young one and we live in a rented house, so I do not have an interest in wanting prices high or low - whatever they will be, they will be: How do you determine land value if you want to build and how do you determine whether building cost is good and better than buying existing (mostly old) houses FOR A PRIMARY RESIDENCE.
We are not talking about what prices 'should' be, because we are not living in that ideal economic world which operates according to true underlying value or where greed is absent. We are talking about realistic levels for the forseeable future in current SA. We all know cars are double what they should be priced at, and we've been ripped off for decades, but that will not change.
Peter the answer is simple add all the costs up and then ask your self 1. Can I afford it - Yes 2. Can I get something which suits my needs/ wants better for the money? No 3. Will I want to live here for at least the next 10 years? Yes
there you go. the answer is simple. If you agonise over this any more you will land up doing nothing and have a life of regrets
Thank you for the advice. But it was exactly this advice that caused so many people go into negative equity, way way negative.
To make matters worse, it is exactly this advice that caused so many people to, not only have to work the rest of their lives to make up this drop in asset value, but caused the prudent ones, who put down 30% deposit, to lose all their savings! They sit with a house worth less than they owe and all their cash is GONE!
Think before you dish out advice - even if your motives are noble.
Peter thats why i said 1. can you afford it? 3. will you want to live there for the next 10 years.
stop looking at your residence as an investment. It is a place to live in. you drive a car, i assume, and have no hope of recovering the purchase price. Be grateful that you can get something for your house when it comes time to move on.
My intentions are not particularly noble at all. And I could care less that some people have lost all their savings and now owe more than the house is worth. If they wait long enough things will swing the other way and the may get some of their money back. At the end of the day their house was worth what they were prepared to pay for it and is now worth what others are prepared to pay for it. That is the risk of buying and selling things. Next year there may be a squatercamp next to my house and all my savings will be gone too.
Whats truly amazing for me is how everyone has to struggle to keep savings and manage so much risk purely because of all the greed in the financial sector. Whats even more amazing is how everyone accepts it as the way things are, nothing one can do...or tries to get in on the act themselves.
26 comments:
But what if you like where you live, and don't want to move. Is it worth selling now on the premise that there is a decent chance your house is going to lose some serious value?
What if you live in in a perceived "good area", will these house prices drop much? How can they if people in these areas don't need to sell for lower prices?
Bearing in mind that no one can predict the future and that selling and buying implies additional costs:
Consider the area where you live to be the entire property market.
Are there houses available for rent?
Are properties put on the market being sold?
How long do they take to sell?
Are sellers realising their asking prices?
The answers to these questions will help you figure out what is happening on your neighbourhood's property market.
Look at the salaries and rents in the area. Are houses valued at about 11 times the annual rents ? Are houses valued at about 3.5 times the annual salaries of the people living in the area ?
If they are, then prices are where they should be. If they are significantly higher then they are overvalued.
You cannot use annual rent to determine house prices, because there are such extreme differences in various areas. 3% in areas of CT city bowl is the going rate, while 10% on UCT campus is the going rate.
You are forgetting replacement value. A R50 000 RDP house is not undervalued just because it costs 2 times the annual earnings of the people living in the area, just as a R5m house is not overvalued because its five times annual earnings of the locals. Depends what it costs to build, views, schools, green strips, safety etc.
Also, the same house with good fittings and luxury equipment can easily cost 50% more.
So I would conclude that the city bowl houses are over priced and UCT campus look correctly priced.
In places like the UK and US one can use median figures for salary and house prices and get a good idea of the ratios - in SA it is not so easy to do because the range of salaries and houses is so great.
No CJ,
The city bowl house is on the market for R2.4m, its a four bed, 220 sq.m. house, renovated bathrooms and kitchen, double garage with pool and garden. The UCT campus house is an ancient three bed 125 sq.m. on 190 sq.m. stand going for R2m. No comparison!
It is the rental demand that determines the 3% or 10% rate, not whether the value of the house or whether it is over or under priced.
So you cannot use your simple 11 times rule to evaluate asking price, let alone the fact that similar houses differ hugely in finishings, fittings, position etc.
Sorry, but property is not as simple as that. Even though I agree with your prediction that average prices in some areas might still come down some more.
And the smart City Bowl 4 bed house with pool is renting for R6000 a month (3%) and the ancient 3 bed UCT one is renting for R16600 a month (10%) ???
Are you sure you have your figures right ?
These are houses for sale; actual figures. Wouldnt know how much rent would be, but certainly not R18000 for city bowl house, as you suggest! Those old campus houses rent for around R7000 per month. But I am afraid that you will never get them for under R1.7 - that's what they go for, and they move.
Property value (I should rather say 'price') does not adhere to a simple formula. Even where we rent now, people get 3% and the houses do sell. Obviously the sellers are still trying their luck, but when they drop their price and it sells, you find that it still is 30 times annual rent.
Peter
R7000pm for the R2m UCT house is 4.2%
please clear your mind of all distractions before you type. Sometimes my head hurts reading you rather nonsensical arguments
cheers
If I was buying to let, which is what we seem to be talking about here re values. the only value i would put on the property would be how much rent i could get. I really could not give a shit whether the house had a pool, marble counters etc. And dont mention capital appreciation cause those days are gone for a while now.
Dear bb flames,
In fact, we are NOT talking about property to let, so perhaps clear YOUR mind.
This is exactly why I said that CJs method of valuation will not work and is an inappropriate way to evaluate property value across the board.
We are not talking investment, the consideration was how much to pay for a residence. My point was that there are too many factors to stick to a simple rule of thumb. And finishings do play a major part in what you will pay for a place, just like view, the area, age etc. So don't be ridiculous.
There are houses with 3% in town and there are flats with 10% on campus. But the examples that I used was to illustrate that pegging the price of a house by a simple 11 times annual rent couldnt be further from the truth.
I agree with your view on appreciation.
You can get aspirin over the counter ...
Build a house and you will see that neither rent, nor average salary plays any role whatsoever in the price.
Er peter
Read through this thread, take a deep breath, recompose your thoughts and make your point clearly about the city bowl house rent ratio and the uct house rent ratio.
You are getting in a terrible muddle.
No Muddle, CJ,
Just a couple of statements to show that property value is not as simple as you make it out te be.
Statements:
11 Times Rule:
City bowl house - R2.4m/132 = R18182/month! I dont think so! More like R9000...
Campus house - R7000 x 132 = R924k! I dont think so! More like R1.8m...
*********************************
The avarage salary rule runs even wider around average prices. Rentals are only one of several ways to determine house prices, and is probable only used in the US and only for investment properties (landlords). Replacement cost is another, but land prices are too subjective. Market value remains, so you need to include 'going' rate in your calculation.
By the way, by 'invetment' I meant rental property. The house you own and live in can also be a good investment - run the numbers.
chrisbecks
Couldnt help to notice some shocking phrases from your post (63) on last Saturday's thread.
You serious! Reckon it will get fixed by 'a generation'? Reckon no more bubbles? No more property speculation? No more high leverage, CFDs, shorting stocks? Reckon if left to one generation then the next will be sorted?
Tell you what really shocked me: 'Sound economic principles' you say ...
What are you suggesting? Communism?
Exactly Peter
The ratios presently make no sense because the houses are overpriced.
CJ,
Ok, let me ask you this one question. Bear in mind that I am no property bull, I own a flat to pass on to the young one and we live in a rented house, so I do not have an interest in wanting prices high or low - whatever they will be, they will be: How do you determine land value if you want to build and how do you determine whether building cost is good and better than buying existing (mostly old) houses FOR A PRIMARY RESIDENCE.
By the way,
We are not talking about what prices 'should' be, because we are not living in that ideal economic world which operates according to true underlying value or where greed is absent. We are talking about realistic levels for the forseeable future in current SA. We all know cars are double what they should be priced at, and we've been ripped off for decades, but that will not change.
Peter the answer is simple
add all the costs up and then ask your self
1. Can I afford it - Yes
2. Can I get something which suits my needs/ wants better for the money? No
3. Will I want to live here for at least the next 10 years? Yes
there you go. the answer is simple. If you agonise over this any more you will land up doing nothing and have a life of regrets
bb flames,
Thank you for the advice. But it was exactly this advice that caused so many people go into negative equity, way way negative.
To make matters worse, it is exactly this advice that caused so many people to, not only have to work the rest of their lives to make up this drop in asset value, but caused the prudent ones, who put down 30% deposit, to lose all their savings! They sit with a house worth less than they owe and all their cash is GONE!
Think before you dish out advice - even if your motives are noble.
Peter
thats why i said
1. can you afford it?
3. will you want to live there for the next 10 years.
stop looking at your residence as an investment. It is a place to live in. you drive a car, i assume, and have no hope of recovering the purchase price. Be grateful that you can get something for your house when it comes time to move on.
My intentions are not particularly noble at all. And I could care less that some people have lost all their savings and now owe more than the house is worth. If they wait long enough things will swing the other way and the may get some of their money back. At the end of the day their house was worth what they were prepared to pay for it and is now worth what others are prepared to pay for it. That is the risk of buying and selling things. Next year there may be a squatercamp next to my house and all my savings will be gone too.
bb flames,
Why 10 years?
Whats truly amazing for me is how everyone has to struggle to keep savings and manage so much risk purely because of all the greed in the financial sector. Whats even more amazing is how everyone accepts it as the way things are, nothing one can do...or tries to get in on the act themselves.
And Peter...money is a claim on future work.
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