Rent Vs Buy: Mutal Heights - Cape Town CBD

Mutual heights is a development in the Cape Town CBD that is packed full of overpriced lofts with terrible rental yields. For instance here's a loft apartment for sale for R825 000 and which rents for R3 500pm. If you had to get a 100% bond your payments would be R10 559/month, R7 000 more than the rental you could expect to achieve. Here's the rest of the return on investment and payments you can expect:

Down Payment	Monthly Payment	Cash flow	Annual Income	ROI
R0	R10559.98	R-8059.98	R-96719.78
R82500	R9503.98	R-7003.98	R-84047.80	-101.88%
R165000	R8447.99	R-5947.99	R-71375.82	-43.26%
R247500	R7391.99	R-4891.99	R-58703.85	-23.72%
R330000	R6335.99	R-3835.99	R-46031.87	-13.95%
R412500	R5279.99	R-2779.99	R-33359.89	-8.09%
R495000	R4223.99	R-1723.99	R-20687.91	-4.18%
R577500	R3167.99	R-667.99	R-8015.93	-1.39%
R660000	R2112.00	R388.00	R4656.04	0.71%
R742500	R1056.00	R1444.00	R17328.02	2.33%
R825000	R0.00	R2500.00	R30000.00	3.64%

Yow! 3.64%!? That's even worse then De Waterkant! And this is before rates, maintenance and vacancy costs. The apartment is R59m^2 so I would guess rates/levies are at least R500 a month which would bring the max ROI down to a abysmal 2.91%.

Consumer Price Inflation Rises Again

The Consumer Price Inflation Index (CPIX) jumped again this quarter to 8.8% from January last year. The dreams of there being any rate cuts in 2008 are rapidly disappearing.

Rent Vs. Buy: De Waterkant - Possibly The Worst I've Seen

De Waterkant has to be the worst suburb in the country when it comes to price/rent ratios. Anyone who has bought there in the last two-three years has been banking on nothing but capital appreciation, because the rentals, when compared to the purchasing price, are abysmal.

And here is possibly one of the worst examples I think I've seen. It's a 2 bed/2 bath 87m^2 apartment on sale for R2 195 000 and renting out for R6 000 a month. Yes you read that right, R6 000. To put that in perspective the monthly bond repayments will be R28 095 a month. And yet the ad still calls this an "Excellent investment". I wish I was kidding here folks.

So here is the (shockingly bad) return on investment you can expect. And remember this is the return before levies, maintenance and vacancy costs.

Down Payment	Monthly Payment	Cash flow	Annual Income	ROI
R0	R28095.95	R-22095.95	R-265151.41
R219500	R25286.36	R-19286.36	R-231436.27	-105.44%
R439000	R22476.76	R-16476.76	R-197721.13	-45.04%
R658500	R19667.17	R-13667.17	R-164005.99	-24.91%
R878000	R16857.57	R-10857.57	R-130290.85	-14.84%
R1097500	R14047.98	R-8047.98	R-96575.71	-8.80%
R1317000	R11238.38	R-5238.38	R-62860.56	-4.77%
R1536500	R8428.79	R-2428.79	R-29145.42	-1.90%
R1756000	R5619.19	R380.81	R4569.72	0.26%
R1975500	R2809.60	R3190.40	R38284.86	1.94%
R2195000	R0.00	R6000.00	R72000.00	3.28%

If you plonk down R2 195 000 in cash for this you can expect at best (that is if your other costs come to zero which is impossible) a return of 3.28%. That is about 4% below inflation and a whopping 6.5% what your money could earn if you just left it in a fixed deposit in the bank. You only break even on with a whopping 80% down payment.

Rent Vs. Buy: Tyger Valley

Here's a 2 bed apartment in Tyger Valley for sale for R850 000 with a rental of R3 600. Here's the ROI and payments you can expect:

Down Payment	Monthly Payment	Cash flow	Annual Income	ROI
R0	R10879.98	R-7279.98	R-87359.77
R85000	R9791.98	R-6191.98	R-74303.79	-87.42%
R170000	R8703.98	R-5103.98	R-61247.82	-36.03%
R255000	R7615.99	R-4015.99	R-48191.84	-18.90%
R340000	R6527.99	R-2927.99	R-35135.86	-10.33%
R425000	R5439.99	R-1839.99	R-22079.89	-5.20%
R510000	R4351.99	R-751.99	R-9023.91	-1.77%
R595000	R3263.99	R336.01	R4032.07	0.68%
R680000	R2176.00	R1424.00	R17088.05	2.51%
R765000	R1088.00	R2512.00	R30144.02	3.94%
R850000	R0.00	R3600.00	R43200.00	5.08%

5% ROI when paying for it in cash with 70% down payment needed to break even on cash flow. And this is before rates/levies, maintenance and vacancy costs.

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...

Forced Sale: Simon's Town

Now here's something interesting. This triple story McMansion in Simon's Town is an urgent sale that is just about to be taken over by the bank. It's "market value" is R7.5 million, but they're willing to accept R4.5 million for it. But even that seems not be enough as the ad now lists the price as being R3.6 million. You're getting it for 50% off!

STOP THE PRESSES: SA Agents Say Property Prices Can Drop 20-30%

Here's some groundbreaking history. For the first time ever here is evidence of an SA agent saying property prices can drop in SA. This story from RealestateWeb is about property price drops in Johannesburg but Lew Geffen, who operates Sotheby's in SA, believes things can get a lot worse:

He predicts that prices could plummet as much as 20-30% in the next two to three years if interest rates do not come down and sentiment about the country remains negative.

I think someone is going to be getting a few angry phone calls about straying from the "party line".

If prices drop even 20% there is going to be a world of hurt. South African's have been extracting money from their mortgages at rapid pace, and if prices drop, hell even if they just don't grow and stagnate, those who did will be up shit creek without a paddle to put it mildly.

Rent Vs Buy: Durbanville

Here's a 4 bed house in Durbanville on sale for R2 400 000 but it pulls in a rent of R11 500. The rent might look impressive but compared to the payments on the bond and the return you can expect is actually not great.

Down Payment	Monthly Payment	Cash flow	Annual Income	ROI
R0	R30719.95	R-19219.95	R-230639.36
R240000	R27647.95	R-16147.95	R-193775.42	-80.74%
R480000	R24575.96	R-13075.96	R-156911.49	-32.69%
R720000	R21503.96	R-10003.96	R-120047.55	-16.67%
R960000	R18431.97	R-6931.97	R-83183.61	-8.66%
R1200000	R15359.97	R-3859.97	R-46319.68	-3.86%
R1440000	R12287.98	R-787.98	R-9455.74	-0.66%
R1680000	R9215.98	R2284.02	R27408.19	1.63%
R1920000	R6143.99	R5356.01	R64272.13	3.35%
R2160000	R3071.99	R8428.01	R101136.06	4.68%
R2400000	R0.00	R11500.00	R138000.00	5.75%

So a sub 6% ROI with R1 440 000 needed just to break even on cash flow and that's before rates and maintenance.

Another thing to contemplate here is that the tenant has signed a 12 month lease already. One of the golden rules for investing in property is tenant selection but here the new owner doesn't have that option.

Rent Vs Buy: Claremont

Here's a 'perfect investment' bachelor flat in Claremont for sale for R635 000 with a 'potential' rental income of R3 000 a month. Levies are R543 a month so your net income is about R2 457 a month. The ROI will be:

Down Payment	Monthly Payment	Cash flow	Annual Income	ROI
R0	R8127.99	R-5670.99	R-68051.83
R63500	R7315.19	R-4858.19	R-58298.25	-91.81%
R127000	R6502.39	R-4045.39	R-48544.66	-38.22%
R190500	R5689.59	R-3232.59	R-38791.08	-20.36%
R254000	R4876.79	R-2419.79	R-29037.50	-11.43%
R317500	R4063.99	R-1606.99	R-19283.91	-6.07%
R381000	R3251.19	R-794.19	R-9530.33	-2.50%
R444500	R2438.40	R18.60	R223.25	0.05%
R508000	R1625.60	R831.40	R9976.83	1.96%
R571500	R812.80	R1644.20	R19730.42	3.45%
R635000	R0.00	R2457.00	R29484.00	4.64%

A 70% deposit is required to break even and if you pay in cash you can look forward to 4.64% return on investment, or roughly 3.4% below inflation (and 5% below leaving your money in a fixed deposit). Truly a 'perfect investment' if ever there was one.

Rent Vs Buy: Kenilworth

Here's a 2 bed apartment in Kenilworth selling for R695 000 with a 'potential' rental of R3 500 (so it could be less but we'll give them the benefit of the doubt. Levies are +- R753 and rates are +- R191 a month which means your 'potential' net income will be closer to R2 556 a month. Here's the payments and return on investment table:

Down Payment	Monthly Payment	Cash flow	Annual Income	ROI
R0	R8895.98	R-6339.98	R-76079.81
R69500	R8006.39	R-5450.39	R-65404.63	-94.11%
R139000	R7116.79	R-4560.79	R-54729.45	-39.37%
R208500	R6227.19	R-3671.19	R-44054.27	-21.13%
R278000	R5337.59	R-2781.59	R-33379.09	-12.01%
R347500	R4447.99	R-1891.99	R-22703.91	-6.53%
R417000	R3558.39	R-1002.39	R-12028.73	-2.88%
R486500	R2668.80	R-112.80	R-1353.54	-0.28%
R556000	R1779.20	R776.80	R9321.64	1.68%
R625500	R889.60	R1666.40	R19996.82	3.20%
R695000	R0.00	R2556.00	R30672.00	4.41%

80% downpayment required to break even on rentals and 4.41% return on income if you buy the whole thing in cash. That's only 5% or so below the returns you'd get if you just left your money in the bank.

Rent Vs Buy: Durbanville

Here's an apartment for sale in Durbanville for R600 000 with a rental of R2 800.

Down Payment	Monthly Payment	Cash flow	Annual Income	ROI
R0	R7679.99	R-4879.99	R-58559.84
R60000	R6911.99	R-4111.99	R-49343.86	-82.24%
R120000	R6143.99	R-3343.99	R-40127.87	-33.44%
R180000	R5375.99	R-2575.99	R-30911.89	-17.17%
R240000	R4607.99	R-1807.99	R-21695.90	-9.04%
R300000	R3839.99	R-1039.99	R-12479.92	-4.16%
R360000	R3071.99	R-271.99	R-3263.94	-0.91%
R420000	R2304.00	R496.00	R5952.05	1.42%
R480000	R1536.00	R1264.00	R15168.03	3.16%
R540000	R768.00	R2032.00	R24384.02	4.52%
R600000	R0.00	R2800.00	R33600.00	5.60%

70% downpayment required to break even on cash flow and a 5.6% ROI if you pay in cash. Even less once rates and other expenses are taken into account.

A Reader's Request: Rent Vs. Buy

Reader IS asked me to do an ROI calculation of a property he is tracking. It's asking price is R740 000 and it rents for R4 700 with a monthly levy of R1 128 resulting in a net rental income of R3 572. With interest rates at 14.5% payments and returns will be as follows:

Down Payment	Monthly Payment	Cash flow	Annual Income	ROI
R0	R9471.98	R-5899.98	R-70799.80
R74000	R8524.79	R-4952.79	R-59433.42	-80.32%
R148000	R7577.59	R-4005.59	R-48067.04	-32.48%
R222000	R6630.39	R-3058.39	R-36700.66	-16.53%
R296000	R5683.19	R-2111.19	R-25334.28	-8.56%
R370000	R4735.99	R-1163.99	R-13967.90	-3.78%
R444000	R3788.79	R-216.79	R-2601.52	-0.59%
R518000	R2841.60	R730.40	R8764.86	1.69%
R592000	R1894.40	R1677.60	R20131.24	3.40%
R666000	R947.20	R2624.80	R31497.62	4.73%
R740000	R0.00	R3572.00	R42864.00	5.79%

A 70% downpayment required to break even on rental income and sub 6% ROI when you pay in cash. Not the best. The levies are also quite high eating up a whopping 24% of the rental income. Take maintenance costs off and vacancy costs and the returns could be even less.

Rental Bargain: Clifton

Here's an ad for a 2 bed/2 bath apartment above Clifton 2nd beach for R7 000 a month! That is, in a word, cheap.

Rent Vs Buy: Muizenberg

Here's a two bed/two bath apartment in Muizenberg for sale for R1 170 000 and that rents for R3 700. You don't even need me to run the number to see that the ROI if you bought this "investment" is going to be terrible. The levy is R563 a month so in actual fact the rental income is R3137 a month.

Here's the ROI table:

Down Payment	Monthly Payment	Cash flow	Annual Income	ROI
R0	R14975.97	R-11838.97	R-142067.69
R117000	R13478.38	R-10341.38	R-124096.52	-106.07%
R234000	R11980.78	R-8843.78	R-106125.35	-45.35%
R351000	R10483.18	R-7346.18	R-88154.18	-25.12%
R468000	R8985.58	R-5848.58	R-70183.01	-15.00%
R585000	R7487.99	R-4350.99	R-52211.84	-8.93%
R702000	R5990.39	R-2853.39	R-34240.67	-4.88%
R819000	R4492.79	R-1355.79	R-16269.51	-1.99%
R936000	R2995.19	R141.81	R1701.66	0.18%
R1053000	R1497.60	R1639.40	R19672.83	1.87%
R1170000	R0.00	R3137.00	R37644.00	3.22%

Thats.... pretty bad. You need a 80% downpayment to break even and if you buy in cash you can look forward to a 3.22% return on investment, which is about 5% below inflation. I'll take two!

Saturday Open Thread

Got anything you want to talk about that we haven't covered? This is your thread.

Rent Vs. Buy: Rondebosch

This house in Rondebosch is on sale for R4 250 000 and is currently used as a digs for students. According to the ad it brings in a rental of "up to R27 400". So let's work out the return on investment if we were to buy this "income-generator":

Down Payment	Monthly Payment	Cash flow	Annual Income	ROI
R0	R54399.91	R-26999.91	R-323998.86
R425000	R48959.91	R-21559.91	R-258718.97	-60.88%
R850000	R43519.92	R-16119.92	R-193439.09	-22.76%
R1275000	R38079.93	R-10679.93	R-128159.20	-10.05%
R1700000	R32639.94	R-5239.94	R-62879.32	-3.70%
R2125000	R27199.95	R200.05	R2400.57	0.11%
R2550000	R21759.96	R5640.04	R67680.46	2.65%
R2975000	R16319.97	R11080.03	R132960.34	4.47%
R3400000	R10879.98	R16520.02	R198240.23	5.83%
R3825000	R5439.99	R21960.01	R263520.11	6.89%
R4250000	R0.00	R27400.00	R328800.00	7.74%

7.74% ROI if you buy the whole thing in cash. As we always note this is before maintenance, rates and vacancy costs. We should emphasize the maintenance part because this house is crammed full of students who are not exactly the easiest of tenants or known for their concern when it comes to property upkeep.

Although I like how the ad proclaims: ' DON'T MISS OUT ON THIS MONEY SPINNER', when it has a ROI 1.5% below inflation. A fixed deposit will earn 9.75% interest a year and is also less hassle than when you have to call out the steam cleaners to get beer out the passage carpet for the umpteenth time..

Is The Sub-500K Market In Trouble?

Despite the troubles that are hitting the property industry, the banks have been adamant that because of high demand the low-end of the market (houses priced below R500 000) is still pretty buoyant. But have a look at this quote from Realestateweb:

John Loos, property strategist with FNB Home Loans, notes that the "lower end" of the market where properties cost about R500 000 is "still stronger" than higher up the property price scale, but this "could be changing".

'could be changing'? Now I don't work for a bank nor am I employed as a property strategist, but what new information or data does John Loos know about the sub-500k market that makes him say the strength in that market could be changing?

Rent Vs. Rent: Century City Vs Bantry Bay

Why pay R10 000 a month to rent a furnished two bed apartment in Century City when you can spend R9 500 a month to rent a furnished 2 bed apartment in Bantry Bay?

Rent Vs Buy: Gardens

Here's a 3 bed apartment on sale for R1 500 000 and with a going rental of R6 700.

Down Payment	Monthly Payment	Cash flow	Annual Income	ROI
R0	R19199.97	R-12499.97	R-149999.60
R150000	R17279.97	R-10579.97	R-126959.64	-84.64%
R300000	R15359.97	R-8659.97	R-103919.68	-34.64%
R450000	R13439.98	R-6739.98	R-80879.72	-17.97%
R600000	R11519.98	R-4819.98	R-57839.76	-9.64%
R750000	R9599.98	R-2899.98	R-34799.80	-4.64%
R900000	R7679.99	R-979.99	R-11759.84	-1.31%
R1050000	R5759.99	R940.01	R11280.12	1.07%
R1200000	R3839.99	R2860.01	R34320.08	2.86%
R1350000	R1920.00	R4780.00	R57360.04	4.25%
R1500000	R0.00	R6700.00	R80400.00	5.36%

Sub 6% return and that's before rates, maintenance and vacancy.

Disa Park: Rent Vs Buy X 3

Here's an ad for three 'investment' properties in Disa Park in Vredehoek. I suspect they are the same apartments we've reported on before but these have rentals specified so we can do some ROI calculations.


As always these ROI's are all calculated before rates, maintenance and vacancy are included, meaning that the actual rate of return is probably lower than specified here.

The first apartment is a 50m^2 1 bed selling for R795 000 and which rents out for R4 000:

Down Payment	Monthly Payment	Cash flow	Annual Income	ROI
R0	R10175.98	R-6175.98	R-74111.79
R79500	R9158.38	R-5158.38	R-61900.61	-77.86%
R159000	R8140.79	R-4140.79	R-49689.43	-31.25%
R238500	R7123.19	R-3123.19	R-37478.25	-15.71%
R318000	R6105.59	R-2105.59	R-25267.07	-7.95%
R397500	R5087.99	R-1087.99	R-13055.89	-3.28%
R477000	R4070.39	R-70.39	R-844.71	-0.18%
R556500	R3052.79	R947.21	R11366.46	2.04%
R636000	R2035.20	R1964.80	R23577.64	3.71%
R715500	R1017.60	R2982.40	R35788.82	5.00%
R795000	R0.00	R4000.00	R48000.00	6.04%

The second apartment is a 75m^2 selling for R1 050 000 and renting for R5 000:

Down Payment	Monthly Payment	Cash flow	Annual Income	ROI
R0	R13439.98	R-8439.98	R-101279.72
R105000	R12095.98	R-7095.98	R-85151.75	-81.10%
R210000	R10751.98	R-5751.98	R-69023.77	-32.87%
R315000	R9407.98	R-4407.98	R-52895.80	-16.79%
R420000	R8063.99	R-3063.99	R-36767.83	-8.75%
R525000	R6719.99	R-1719.99	R-20639.86	-3.93%
R630000	R5375.99	R-375.99	R-4511.89	-0.72%
R735000	R4031.99	R968.01	R11616.08	1.58%
R840000	R2688.00	R2312.00	R27744.06	3.30%
R945000	R1344.00	R3656.00	R43872.03	4.64%
R1050000	R0.00	R5000.00	R60000.00	5.71%

The final apartment is a 3 bed 105m^2 apartment selling for R1 600 000 and renting for R8 500:

Down Payment	Monthly Payment	Cash flow	Annual Income	ROI
R0	R20479.96	R-11979.96	R-143759.57
R160000	R18431.97	R-9931.97	R-119183.61	-74.49%
R320000	R16383.97	R-7883.97	R-94607.66	-29.56%
R480000	R14335.97	R-5835.97	R-70031.70	-14.59%
R640000	R12287.98	R-3787.98	R-45455.74	-7.10%
R800000	R10239.98	R-1739.98	R-20879.79	-2.61%
R960000	R8191.99	R308.01	R3696.17	0.39%
R1120000	R6143.99	R2356.01	R28272.13	2.52%
R1280000	R4095.99	R4404.01	R52848.09	4.13%
R1440000	R2048.00	R6452.00	R77424.04	5.38%
R1600000	R0.00	R8500.00	R102000.00	6.38%

All three have pretty bad ROI's with a maximum ROI spread from 5.71% to 6.38%. The suprising thing is the second apartment has the worst yield despite being the cheapest per m^2 at R14 000/m^2.

Considering that property prices are stagnant (0% price growth year on year according to Standard Bank) and that a decent fixed deposit or money market account gets you 9% interest you're better off just plonking your money in the bank. And it's a helluva lot easier than running after tenants all the time.

ABSA: 2008 Is Worst Property Market This Decade

Realestateweb reports that ABSA is calling 2008 the worst year for property in a decade. And the property downturn has not even started properly in SA. Prices are stagnating but they have not started the decline seen in the US and some Euro markets... yet.

Four Seasons: Rent Vs. Rent

Two flats for rent in the Four Seasons in the Cape Town CBD:

1 Bedroom: R6 400 a month
2 Bed/2 Bath: R6 000 a month

It Won't Sell So Let's Increase The Price R5 000

Way back in October 2007 we reported on this flat in Strand which was counting on the 2010 World Cup to help it sell, despite the fact the property is at leat 40km from the stadium. Well 4 months later it still hasn't sold so I guess the logical thing to do is raise the price R5 000. Back in October the flat was renting for R1 700 a month but that's now up to R1 800 a month (a 2% less than inflation increase).

So if you bought the flat now for it's asking price and received the going rental your ROI would be:

Down Payment	Monthly Payment	Cash flow	Annual Income	ROI
R0	R5107.19	R-3307.19	R-39686.29
R39900	R4596.47	R-2796.47	R-33557.66	-84.10%
R79800	R4085.75	R-2285.75	R-27429.03	-34.37%
R119700	R3575.03	R-1775.03	R-21300.41	-17.79%
R159600	R3064.31	R-1264.31	R-15171.78	-9.51%
R199500	R2553.60	R-753.60	R-9043.15	-4.53%
R239400	R2042.88	R-242.88	R-2914.52	-1.22%
R279300	R1532.16	R267.84	R3214.11	1.15%
R319200	R1021.44	R778.56	R9342.74	2.93%
R359100	R510.72	R1289.28	R15471.37	4.31%
R399000	R0.00	R1800.00	R21600.00	5.41%

Well at least that 5.41% ROI is an improvement over the 5.16% ROI achieved in October...

Interest Rate Surges But Repo Rate Remains Constant

The Consumer Price Index(CPIX) surged again this month but the Reserve Bank has elected to keep repo rates steady for the first time since June 2006, I suspect because of the current energy crisis. That being said if inflation continues to rise Monetary Policy Committee will be stuck between a rock and an extremely hard place.

If You Want To Sell Drop Your Price At Least 10%

Reader RS sent us this article from The Property Magazine. Right at the bottom they mention this little nugget:

Consumers who want to sell their property in a hurry are urged to list it at 10% below what they wanted to achieve in December last year.

They of course go on to say what a buying opportunity that is for potential buyers but really, who wants to catch a falling knife?

Forced Sales Surge 75%

From Business Day: Pinched homeowners scramble to sell

THE number of overstretched property owners losing their homes under the hammer has risen to record levels.

The Alliance Group of auctioneers said yesterday forced home sales surged 75%. It had experienced a 300% increase in inquiries from sellers trying to offload their properties “as quickly as they can”.

Alliance Group CEO Rael Levitt said the company had experienced a 300% increase in enquiries this month compared with January last year.

According to Levitt, the worst is yet to come.

Bo-Kaap: After A Year On Sale Another Price Drop

We last saw this house in February 2007. Back then we noticed how it was listed first for R1 800 000 and then R1 600 000. Well it's almost a year later and it's still on sale but the price has dropped another R100 000 to R1 500 000 (a 17% drop from R1 800 000) and I don't think that's going to help much considering the length of time it's been sitting.

Rent Vs. Buy: University Estate

Here's a house in University Estate that is for sale for R1 195 000 or the owner is willing to rent it out for R4 800 a month. If you were to buy at the asking price and could get the going rent what kind of ROI can you expect?

Down Payment	Monthly Payment	Cash flow	Annual Income	ROI
R0	R15295.97	R-10495.97	R-125951.68
R119500	R13766.38	R-8966.38	R-107596.51	-90.04%
R239000	R12236.78	R-7436.78	R-89241.34	-37.34%
R358500	R10707.18	R-5907.18	R-70886.18	-19.77%
R478000	R9177.58	R-4377.58	R-52531.01	-10.99%
R597500	R7647.99	R-2847.99	R-34175.84	-5.72%
R717000	R6118.39	R-1318.39	R-15820.67	-2.21%
R836500	R4588.79	R211.21	R2534.50	0.30%
R956000	R3059.19	R1740.81	R20889.66	2.19%
R1075500	R1529.60	R3270.40	R39244.83	3.65%
R1195000	R0.00	R4800.00	R57600.00	4.82%

4.82% return if you pay in cash and a 70% downpayment required just to break even. And that's before you deduct maintenance, rates and vacancy costs.

The Rockwell: More Developers Become Landlords

We've mentioned before how certain new developments in Cape Town have not sold out and this has led to the developer having to rent out those unsold apartments, which is not the optimal outcome for them. Well it seems to be happening again at our old friend The Rockwell. If you look at their available properties page you'll count 26 unsold apartments (out of a total of 150, a 17% vacancy).

And by some coincidence there are the same number of apartments to rent:

I have approx 25 apartments to rent in the The ROCKWELL
I represent the developer and our rental price are market related, and ready to be occupied.

If I was a buy-to-let investor at The Rockwell I would be extremely nervous. Competing with the developer for tenants when they have much more space to reduce asking rentals if required is not going to be pretty.

Rent Vs. Buy: Tyger Valley

Here's a listing for an urgent sale of an apartment in Tyger Valley. It's for sale for R820 000 (but supposedly is valued at R900 000) and has a new tenant in for 1 year paying R3 600 a month. Here's the ROI:

Down Payment	Monthly Payment	Cash flow	Annual Income	ROI
R0	R10495.98	R-6895.98	R-82751.78
R82000	R9446.38	R-5846.38	R-70156.60	-85.56%
R164000	R8396.79	R-4796.79	R-57561.42	-35.10%
R246000	R7347.19	R-3747.19	R-44966.25	-18.28%
R328000	R6297.59	R-2697.59	R-32371.07	-9.87%
R410000	R5247.99	R-1647.99	R-19775.89	-4.82%
R492000	R4198.39	R-598.39	R-7180.71	-1.46%
R574000	R3148.79	R451.21	R5414.47	0.94%
R656000	R2099.20	R1500.80	R18009.64	2.75%
R738000	R1049.60	R2550.40	R30604.82	4.15%
R820000	R0.00	R3600.00	R43200.00	5.27%

5.27% return when paying in cash is pretty abysmal. Break even is just below a 70% down payment. And that's before rates, maintenance and vacancy.

There is another problem with this listing besides the dismal ROI. Supposedly it's an urgent sell, so then why did the seller sign a new contract with a tenant for a year? That greatly limits the potential buyers to other 'property investors' and even then they will be more reluctant to buy a flat with an agreed upon rental they had no part in negotiating, a tenant they did not vet personally and 11 months still on the lease. Big mistake in my opinion.

Standard Bank: Year-on-Year House Price Growth for Dec 2007 Was 0%

From Standard Banks Residential property gauge(PDF):

House price growth as measured by Standard Bank’ median house price1 index was recorded at 0.0% y/y in December 2007. In level terms the median house price
was recorded at R550,000. The December outcome brought the five-month moving
average growth rate to 5.6% y/y.

Here are some graphs from the report (All copyrights remain with Standard Bank). First up house price growth:
If you bought a R1 000 000 house in December 2006 with no money down, you've just given the bank R140 000 to rent your house. You've made no capital gains and all the money you have paid has gone to pay off the interest.

To recover those losses house prices have to rise 14% at least, but forecasts for next year on in the low single figures, if not negative (which is looking more possible every month). Which means you'll lose even more money in 2008. Even putting a 20% down payment has cost you R123 000, and that's money you have a very slim chance of getting back unless you tough it out in your new purchase for at least 7 years.


Next up looks look at mortgage advances:
Mortgage advances are still sky high. The close to 25% of bondholders who took out mortgage advances in 2007 who assumed rising property prices would cover them taking on new debt are going to be in for a suprise. If they try and sell in the near future I would guess they have to bring money to the table to cover the shortfall on what they owe and what the house is now worth.



And finally here's a graph of debt rations and insolvencies:
Notice how the 'Debt repayment to income ratio' grah has usually been a leading indicator(1999-2003). In 2003 the housing bubble kicked in and debt started a uphill trundle while insolvencies remained low. This is probably related to the private sector borrowing graph above. Everyone was "Hey I don't mind getting in debt because rising house prices will cover me taking money out the bond". Oops.

The disconnect between rising debt and insolvencies has been marked in the last 4 years but with housing prices at a virtual standstill that trend will not continue.

Saturday Open Thread

Got anything you want to chat about or interesting stories/data to share? This thread is all yours.

Green Point: Rental Market Is Dead, Time To Sell

A few weeks ago we wrote about two apartments in Green Point which had been for rent since October. Well it seems like the rental market is still dead so the owner is now trying to sell them off. If you buy here's your ROI for the 1 bedroom apartment with asking price R1 205 000 and asking rent R5 800:

Down Payment	Monthly Payment	Cash flow	Annual Income	ROI
R0	R15423.97	R-9623.97	R-115487.68
R120500	R13881.58	R-8081.58	R-96978.91	-80.48%
R241000	R12339.18	R-6539.18	R-78470.14	-32.56%
R361500	R10796.78	R-4996.78	R-59961.37	-16.59%
R482000	R9254.38	R-3454.38	R-41452.61	-8.60%
R602500	R7711.99	R-1911.99	R-22943.84	-3.81%
R723000	R6169.59	R-369.59	R-4435.07	-0.61%
R843500	R4627.19	R1172.81	R14073.70	1.67%
R964000	R3084.79	R2715.21	R32582.46	3.38%
R1084500	R1542.40	R4257.60	R51091.23	4.71%
R1205000	R0.00	R5800.00	R69600.00	5.78%

And for the 2 bedroom apartment, asking price R1 250 000, asking rent R7 000:

Down Payment	Monthly Payment	Cash flow	Annual Income	ROI
R0	R15999.97	R-8999.97	R-107999.66
R125000	R14399.97	R-7399.97	R-88799.70	-71.04%
R250000	R12799.98	R-5799.98	R-69599.73	-27.84%
R375000	R11199.98	R-4199.98	R-50399.77	-13.44%
R500000	R9599.98	R-2599.98	R-31199.80	-6.24%
R625000	R7999.99	R-999.99	R-11999.83	-1.92%
R750000	R6399.99	R600.01	R7200.13	0.96%
R875000	R4799.99	R2200.01	R26400.10	3.02%
R1000000	R3199.99	R3800.01	R45600.07	4.56%
R1125000	R1600.00	R5400.00	R64800.03	5.76%
R1250000	R0.00	R7000.00	R84000.00	6.72%

Nothing really fantastic there. Both apartments require R700 000+ deposits just to break even. Those asking rents are also suspect because the flats were never rented out, so the actual rent attainable is probably less than what we have here.

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.

Open Thread

Got a topic you want to talk about? This thread is all yours.

Reserve Bank Hikes Rates 0.5%

We totally forgot to report that rates went up 50bps on Wednesday. The repo rate is now 10% with prime rate sitting at 14.5%.

Urgent Sale Ads Increasing

Is it just me or is the number of ads containing the words "urgent sale" growing at a bit of a pace. In August there was perhaps one ad every 3 days. There have been 20 alone since the beginning of this week. I'm sure there will be more tomorrow and on the weekend.

Rent Vs. Buy: De Waterkant

The De Waterkant has some of the worst price:rent ratios in Cape Town. Anyone who has bought an 'investment' property there in the last two years has speculated purely on capital appreciation not on rental yield to make money. For instance here's a two bedroomed duplex on sale for R1 950 000. An equivalent duplex in the same block, also two bedrooms but 18m^2 smaller though, rents for R6 500 a month. That's a big disconnect between price and the underlying rental fundamentals.

I don't even have to run the numbers to tell you the ROI will be horrendous if you bought that apartment to rent out at the asking rental. But here goes:

Down Payment	Monthly Payment	Cash flow	Annual Income	ROI
R0	R24248.66	R-17748.66	R-212983.87
R195000	R21823.79	R-15323.79	R-183885.48	-94.30%
R390000	R19398.92	R-12898.92	R-154787.10	-39.69%
R585000	R16974.06	R-10474.06	R-125688.71	-21.49%
R780000	R14549.19	R-8049.19	R-96590.32	-12.38%
R975000	R12124.33	R-5624.33	R-67491.93	-6.92%
R1170000	R9699.46	R-3199.46	R-38393.55	-3.28%
R1365000	R7274.60	R-774.60	R-9295.16	-0.68%
R1560000	R4849.73	R1650.27	R19803.23	1.27%
R1755000	R2424.87	R4075.13	R48901.61	2.79%
R1950000	R0.00	R6500.00	R78000.00	4.00%

4% ROI if you pay for the whole thing in cash. What's that 3% less than inflation? 6% than a good fixed deposit? And just to break even you need to put down a whopping R1.4 million. Eina!

I Think I'm Underpaid

Here's the text from an ad for a house in Tamboerskloof. Read it and pay special attention to the emphasised part.

Set in a treed garden with avocado and lemon trees, this 3 bedroom home has well preserved features such as marble fireplaces, Oregon floors and spacious reception rooms with high ceilings. In addition, there is secure off street parking and a large cellar. Indoor and outdoor living from country style kitchen to sunny patio and garden. In need of some renovation, this property is a wonderful investment for young families or couples.

For young couples and families so it should be affordable right?

Now go look at the asking price. R3 195 000. What young family or couple could possibly afford these monthly payments? Especially for a house that would require even more money to be spent on it for renovations?

% Deposit	Down Payment	Monthly Payment
0%	R0	R39730.49
10%	R319500	R35757.44
20%	R639000	R31784.39
30%	R958500	R27811.34

Even if our young couple paid a 20% down payment (a whopping R639 000) they would be paying close to R32 000 a month to the bond. That would mean that their househould income would have be about R100 000 a month, following the guideline that you shouldn't pay more than 1/3 of your salary for your bond.

The market of young couples earning that kind of cash has got to be extremely small. Either that or I am being seriously underpaid.