Traffic In The Southern Peninsula About To Get A Lot Worse

If you're thinking of buying in the next two to three years and you work in the Cape Town CBD you might want to give the South Peninsula a miss. The work on Hospital Bend on the M3/N2 has just started which affects the whole of the Southern Suburbs but now more roadworks are starting between Muizenberg and Clovelly.

Construction headache for residents

South Peninsula residents should brace themselves for huge traffic delays and gridlock from Monday onwards, as construction of a multimillion rand upgrade of the main road between Muizenberg and Clovelly gets under way.

The upgrade, which is expected to take about three years to complete, is also expected to have a negative effect on businesses situated along the narrow 4km stretch of road.

About 19 000 cars use the road on a daily basis.

Rent Vs Buy: Plumstead - The Low End Produces Low Yields

This 55m^2 2 bedroomed flat in Plumstead is on sale for R650 000 and is currently tenanted till the end of the year for R3600 a month. The difference between the rent and the bond payments if you took out a 100% bond is only 1.33 times the rent which is one of the better numbers we've seen and I would expect that for a property on the low end. Here are the payments and return on investments in graphical and tabular form:

Down Payment	Monthly Payment	Cash Flow	Annual Income	ROI	Cap. Appr. Required
R0	R8319.99	R-4719.99	R-56639.83		8.71%
R65000	R7487.99	R-3887.99	R-46655.84	-71.78%	7.18%
R130000	R6655.99	R-3055.99	R-36671.86	-28.21%	5.64%
R195000	R5823.99	R-2223.99	R-26687.88	-13.69%	4.11%
R260000	R4991.99	R-1391.99	R-16703.90	-6.42%	2.57%
R325000	R4159.99	R-559.99	R-6719.91	-2.07%	1.03%
R390000	R3327.99	R272.01	R3264.07	0.84%	-0.50%
R455000	R2496.00	R1104.00	R13248.05	2.91%	-2.04%
R520000	R1664.00	R1936.00	R23232.03	4.47%	-3.57%
R585000	R832.00	R2768.00	R33216.02	5.68%	-5.11%
R650000	R0.00	R3600.00	R43200.00	6.65%	-6.65%

So a sub 7% return on investment before maintenance, rates, levies and vacancy are taken into account. There's a 60% downpayment required to break even on cashflow and even with a 50% dowpayment a 1% increase in capital appreciation is required to not lose any money.

Rent Vs Buy: Strandfontein - Where? How Much?

I have no idea where Strandfontein is, what I do know is that this 6 bed(!) house has a terrible rent/price ratio. It's on sale for R1 499 000 and has a 'potential rental income' of R6 000 a month. If you took out a 100% bond the difference between the rent and the bond payments is more than double the rental itself.

Down Payment	Monthly Payment	Cash Flow	Annual Income	ROI	Cap. Appr. Required
R0	R19187.17	R-13187.17	R-158246.00		10.56%
R149900	R17268.45	R-11268.45	R-135221.40	-90.21%	9.02%
R299800	R15349.73	R-9349.73	R-112196.80	-37.42%	7.48%
R449700	R13431.02	R-7431.02	R-89172.20	-19.83%	5.95%
R599600	R11512.30	R-5512.30	R-66147.60	-11.03%	4.41%
R749500	R9593.58	R-3593.58	R-43123.00	-5.75%	2.88%
R899400	R7674.87	R-1674.87	R-20098.40	-2.23%	1.34%
R1049300	R5756.15	R243.85	R2926.20	0.28%	-0.20%
R1199200	R3837.43	R2162.57	R25950.80	2.16%	-1.73%
R1349100	R1918.72	R4081.28	R48975.40	3.63%	-3.27%
R1499000	R0.00	R6000.00	R72000.00	4.80%	-4.80%

A sub 5% yield if you pay in cash and that's excluding rates, levies, maintenance and vacancy. You'll break even on cashflow with 70% downpayment and with a 50% downpayment you still require nearly 3% in capital appreciation to not lose any money.

For Some It Makes No Sense To Buy

Reader TH sent us an email detailing his situation and why for him it makes absolutely no sense to buy despite having the means. TH has been pre-approved for a bond but his rent is so low - less than R3 500/month for a townhouse in the Southern Suburbs (which is crazy good value) with a nice landlord and great neighbours - that it really isn't worth it. Just the amount spent on transfer and buying costs is probably about two years rent.

In fact he lives virtually rent free because the interest earned solely from his money market investments is more than double his rent for the year. And that does not include his interests in the stock market (which is lot easier to sell if things turn south) or the fact that he's saving nearly half his salary every month.

For the amount he pays in rent it just isn't worth it.

Bond Rates: Which Way Are They Headed?

Here is a graph of the offered bond rates from First National Bank from 1986 to the end of 2007 (source)

So with the US heading into recession, inflation rates locally heading to record levels and the property market hitting a wall which way do you expect rates to go?

Edit: I changed the graph type to a step graph which is more suitable for interest rates.

Liquidations: Up 20%, 100% For Real Estate

Here's another indicator that the SA real estate market isn't doing so hot. Year on year company liquidations are up 20%, but in the real estate, finance and insurance sector it's up 100%.

Century City - Down And Up And Down And Up Again

Well this Century City flat that we've been tracking since September 2007 started off at R799 000, then dropped to R780 000, then went up to R800 000, then back down to R780 000 at the beginning of March and is now... back up to R790 00. It still has a rental of R3500 ( minus R1 156 in rates and levies) a month which means the ROI is still terrible:

Down Payment	Monthly Payment	Cash Flow	Annual Income	ROI	Cap. Appr. Required
R0	R10111.98	R-7768.98	R-93227.79		11.80%
R79000	R9100.78	R-6757.78	R-81093.41	-102.65%	10.26%
R158000	R8089.59	R-5746.59	R-68959.03	-43.64%	8.73%
R237000	R7078.39	R-4735.39	R-56824.65	-23.98%	7.19%
R316000	R6067.19	R-3724.19	R-44690.27	-14.14%	5.66%
R395000	R5055.99	R-2712.99	R-32555.89	-8.24%	4.12%
R474000	R4044.79	R-1701.79	R-20421.52	-4.31%	2.59%
R553000	R3033.59	R-690.59	R-8287.14	-1.50%	1.05%
R632000	R2022.40	R320.60	R3847.24	0.61%	-0.49%
R711000	R1011.20	R1331.80	R15981.62	2.25%	-2.02%
R790000	R0.00	R2343.00	R28116.00	3.56%	-3.56%

3.56% ROI if you buy it in cash, 4% capital appreciation required with a 50% downpayment to not lose any money and a 80% downpayment required to break even on the rental. I'll take two!

Inflation: It's Not Looking Good

Consumer price inflation just pierced the 9% barrier (to 9.4% up from 8.8% in January!). With the tarriff increases that Eskom wants we can expect double digits before the end of the year. The Reserve Bank is not going to have much choice, I expect a rate hike in April with possibly more on the way.

Rent Vs Buy - Paarl

Here's a 2 bed apartment in Paarl for sale for R850 000 (R70 000 below market value the ad claims). It currently rents for R4 000 and if you take out a full bond the difference between the bond payments and rent is just over 2.5 times the rent itself. Here's the payment and ROI you can expect.

Down Payment	Monthly Payment	Cash Flow	Annual Income	ROI	Cap. Appr. Required
R0	R10879.98	R-6879.98	R-82559.77		9.71%
R85000	R9791.98	R-5791.98	R-69503.79	-81.77%	8.18%
R170000	R8703.98	R-4703.98	R-56447.82	-33.20%	6.64%
R255000	R7615.99	R-3615.99	R-43391.84	-17.02%	5.10%
R340000	R6527.99	R-2527.99	R-30335.86	-8.92%	3.57%
R425000	R5439.99	R-1439.99	R-17279.89	-4.07%	2.03%
R510000	R4351.99	R-351.99	R-4223.91	-0.83%	0.50%
R595000	R3263.99	R736.01	R8832.07	1.48%	-1.04%
R680000	R2176.00	R1824.00	R21888.05	3.22%	-2.58%
R765000	R1088.00	R2912.00	R34944.02	4.57%	-4.11%
R850000	R0.00	R4000.00	R48000.00	5.65%	-5.65%

So a sub 6% ROI and that's before rates/levies, maintenance and vacancy costs. A 70% downpayment is required to break even on cash flow and even with a 50% downpayment you need 2% capital appreciation just to not lose any money at all.

There is also a R5000 a month rental subsidy offered, which is no doubt factored into the price and which you'll be paying back over 20 years. I bet that if nstead of a rental subsidy you ask for R60 000 off the asking price you'll get a quick 'no'. Everyone needs to protect their commissions.

Rent Vs Buy: Gordon's Bay

Gordon's Bay is a nice place but the rent/price ratio that can be achieved there is pretty grim. Here's a 2 bed flat on sale for R650 000 that rents for R2 800 a month. That means if you took out a 100% bond the difference between the rent and the bond payments is just under 2 times the rent itself. Here's the payments and ROI you can expect:

Down Payment	Monthly Payment	Cash Flow	Annual Income	ROI	Cap. Appr. Required
R0	R8319.99	R-5519.99	R-66239.83		10.19%
R65000	R7487.99	R-4687.99	R-56255.84	-86.55%	8.65%
R130000	R6655.99	R-3855.99	R-46271.86	-35.59%	7.12%
R195000	R5823.99	R-3023.99	R-36287.88	-18.61%	5.58%
R260000	R4991.99	R-2191.99	R-26303.90	-10.12%	4.05%
R325000	R4159.99	R-1359.99	R-16319.91	-5.02%	2.51%
R390000	R3327.99	R-527.99	R-6335.93	-1.62%	0.97%
R455000	R2496.00	R304.00	R3648.05	0.80%	-0.56%
R520000	R1664.00	R1136.00	R13632.03	2.62%	-2.10%
R585000	R832.00	R1968.00	R23616.02	4.04%	-3.63%
R650000	R0.00	R2800.00	R33600.00	5.17%	-5.17%

If you pay for the property in cash you can expect just over a 5% rental return and that does not take into account rates, levies, maintenance and vacancy costs. A 70% percent deposit is required to break even on cash flow and if you put down a 50% deposit you'll need 2.5% capital appreciation just to not lose any money at all.

Rent Vs Buy: Lower Gardens - Lower Yields As Well

Here's a 1 bedroomed apartment in Lower Gardens described as an 'investment for years to come'. Well that's partly true as you're going to have to hold onto this thing for a loooong time if you want to make any money out of it. It's on sale for R850 000 and has a net rental income of R3 250 (R4 000 - R750 in levies). If you buy it with a 100% bond the difference between the bond and the rent is about 2.3 times the actual rent. Here's the ROI and payments required.

Down Payment	Monthly Payment	Cash Flow	Annual Income	ROI	Cap. Appr. Required
R0	R10879.98	R-7629.98	R-91559.77		10.77%
R85000	R9791.98	R-6541.98	R-78503.79	-92.36%	9.24%
R170000	R8703.98	R-5453.98	R-65447.82	-38.50%	7.70%
R255000	R7615.99	R-4365.99	R-52391.84	-20.55%	6.16%
R340000	R6527.99	R-3277.99	R-39335.86	-11.57%	4.63%
R425000	R5439.99	R-2189.99	R-26279.89	-6.18%	3.09%
R510000	R4351.99	R-1101.99	R-13223.91	-2.59%	1.56%
R595000	R3263.99	R-13.99	R-167.93	-0.03%	0.02%
R680000	R2176.00	R1074.00	R12888.05	1.90%	-1.52%
R765000	R1088.00	R2162.00	R25944.02	3.39%	-3.05%
R850000	R0.00	R3250.00	R39000.00	4.59%	-4.59%

4.59% maximum yield if you buy the whole thing in cash, and that's before maintenance and vacancy. An 80% downpayment is required to break even on cashflow and if you take out a 50% bond you'll need 3.09% capital appreciation just to not lose any money at all.

Rent Vs Buy: Gardens - And A New Metric To Boot

Here's a 25m^2 bachelor on sale for R449 000 with a net rental of R1 932 a month. If you bought it with a 100% bond the difference between the bond and the rent is just under 2 times the rent itself. Here's the ROI and payments you can expect.

Down Payment	Monthly Payment	Cash Flow	Annual Income	ROI	Cap. Appr. Required
R0	R5747.19	R-3815.19	R-45782.28		10.20%
R44900	R5172.47	R-3240.47	R-38885.65	-86.61%	8.66%
R89800	R4597.75	R-2665.75	R-31989.02	-35.62%	7.12%
R134700	R4023.03	R-2091.03	R-25092.40	-18.63%	5.59%
R179600	R3448.31	R-1516.31	R-18195.77	-10.13%	4.05%
R224500	R2873.59	R-941.59	R-11299.14	-5.03%	2.52%
R269400	R2298.88	R-366.88	R-4402.51	-1.63%	0.98%
R314300	R1724.16	R207.84	R2494.12	0.79%	-0.56%
R359200	R1149.44	R782.56	R9390.74	2.61%	-2.09%
R404100	R574.72	R1357.28	R16287.37	4.03%	-3.63%
R449000	R0.00	R1932.00	R23184.00	5.16%	-5.16%

A not very impressive 5.16% ROI if you buy it all in cash. The eagle eyed of you out there will have noticed a new column on the right hand side "Cap. Appr. Required". This stands for 'Captial Appreciation Required For Break Even' and is the capital appreciation required to make up the difference between the bond and rent payments. For instance on the first row this value is 10.2%, which means that the property has to grow in value by 10.2% (just over R45 000) for the buyer to not have lost any money at all.

Rent Vs Buy: Parow - If This Is High Yield Then I'd Hate To See A Low Yield

We don't normally cover Parow but this ad for a 2 bed flat caught my eye. It's described as "high yield" and is on the market for R475 000. It has a net rental of R1 770 (R2 448 - R678 in rates/levies) which means if you bought it with a 100% bond the difference between the net rental and the bond is nearly 2.5 times the net rental itself. Here's the ROI and payments you can expect:

Down Payment	Monthly Payment	Cash flow	Annual Income	ROI
R0	R6079.99	R-4309.99	R-51719.87
R47500	R5471.99	R-3701.99	R-44423.89	-93.52%
R95000	R4863.99	R-3093.99	R-37127.90	-39.08%
R142500	R4255.99	R-2485.99	R-29831.91	-20.93%
R190000	R3647.99	R-1877.99	R-22535.92	-11.86%
R237500	R3039.99	R-1269.99	R-15239.94	-6.42%
R285000	R2432.00	R-662.00	R-7943.95	-2.79%
R332500	R1824.00	R-54.00	R-647.96	-0.19%
R380000	R1216.00	R554.00	R6648.03	1.75%
R427500	R608.00	R1162.00	R13944.01	3.26%
R475000	R0.00	R1770.00	R21240.00	4.47%

I wouldn't exactly describe a maximum ROI of 4% below inflation as 'high yield', but that's just me. An 80% downpayment is needed to break even on cashflow. Putting down a 50% downpayment still requires capital appreciation of 3.2% just to not lose any money in the first year.

Rent Vs Buy: Parklands - If The ROI Doesn't Kill You The Traffic Will

Aaah Parklands. If ever there was a better example of soul crushing suburbia I have yet to see it. Here's a 3 bed duplex for sale for R1 090 000, which currently rents out for R4 000 a month. If you took out a 100% bond the difference between the bond and the rental is nearly 2.25 times more than the rental itself.

Here's the payments and return on investments you can expect to make:

Down Payment	Monthly Payment	Cash flow	Annual Income	ROI
R0	R13951.98	R-9951.98	R-119423.71
R109000	R12556.78	R-8556.78	R-102681.34	-94.20%
R218000	R11161.58	R-7161.58	R-85938.97	-39.42%
R327000	R9766.38	R-5766.38	R-69196.60	-21.16%
R436000	R8371.19	R-4371.19	R-52454.22	-12.03%
R545000	R6975.99	R-2975.99	R-35711.85	-6.55%
R654000	R5580.79	R-1580.79	R-18969.48	-2.90%
R763000	R4185.59	R-185.59	R-2227.11	-0.29%
R872000	R2790.40	R1209.60	R14515.26	1.66%
R981000	R1395.20	R2604.80	R31257.63	3.19%
R1090000	R0.00	R4000.00	R48000.00	4.40%

An 80% downpayment required just to break even on the rent and if you put down the entire asking price in cash you can expect a 4.4% ROI, which is about 3.5% below
inflation and 5.3% below leaving your money in the bank.

Thanks to reader KR for emailing me this one.

Expect Another Interest Rate Hike In April

Brace for another rate hike

Nedbank chief economist Dennis Dykes on Tuesday said there is now a "significant" danger of another hike in interest rates in April.

The presentation was conducted in conjunction with the French South African Chamber of Commerce and Industry.

Dykes said two weeks ago he would have forecast a 45 percent risk of a rate hike but current conditions had now worsened to such an extent that the expectation is 55 percent.

Considering that Eskom wants to raise tariffs a minimum of 14% (they're appealing to have it raised 24%!!) and petrol price having gone up R1.40 in the last three months I see the chances of an interest rate hike as as a lot higher.

If the rate is hiked, it would mean that the bond rate would be at 15%. That means that for a R960 000 house (the average house price in South Africa according to ABSA) your monthly payment on a 100% bond would be R12 641 a month. If your bond payments should not exceed a third of your income it means that the average household income in South Africa should exceed R36 000 a month. Somehow I don't think that's true.

A Question: Better To Sell With Tenant Or Without?

I have a question for the readers out there. If you're trying to sell an 'investment property' is it better to do so with or without a tenant. I ask this because I see lots of examples (here, here and here and that's just this month) of sellers trying to sell property with long term tenants in place.

Here's another example a two bedroomed apartment in Woodstock looking for renters (asking rent R4 800) on the 13th of February and then a month later the same apartment is for sale (asking price R880 000), now with a renter in place.

I see two options here. Either the seller believes that an existing tenant will help it sell or the seller can not stomach the bond costs and needs a renter to make up the shortfall. If I were looking for an investment property buying an apartment with an existing tenant, especially a long term tenant would be a definite no-no for the following reasons:

1. I would not have been the one to have vetted the tenant
   
2. I would not have set the rent, nor any rent escalation clauses in the lease agreement
   
3. I would not have set the length of the lease agreement

For those reasons if I were selling an 'investment property' I would sell one with no tenant, and if I were buying I would buy one without a tenant.

So dear readers correct me if I am wrong: Is it better for a property to be sold with or without a tenant?

Rent Vs. Buy: Stellenbosch X 2

Out of nowhere there seems to be a rash of properties from Stellenbosch popping up (See examples one and two) with horrible price/rent ratios. And so to carry on the trend here's two more.

First up here's a 3 bed house in a security estate for sale for R1 215 000. It's currently renting for R5 000 a month (at least till November). If you bought it with a 100% bond the difference between the bond and the current rental is just over two times the rent. The ROI and payments are:

Down Payment	Monthly Payment	Cash flow	Annual Income	ROI
R0	R15551.97	R-10551.97	R-126623.67
R121500	R13996.78	R-8996.78	R-107961.31	-88.86%
R243000	R12441.58	R-7441.58	R-89298.94	-36.75%
R364500	R10886.38	R-5886.38	R-70636.57	-19.38%
R486000	R9331.18	R-4331.18	R-51974.20	-10.69%
R607500	R7775.99	R-2775.99	R-33311.84	-5.48%
R729000	R6220.79	R-1220.79	R-14649.47	-2.01%
R850500	R4665.59	R334.41	R4012.90	0.47%
R972000	R3110.39	R1889.61	R22675.27	2.33%
R1093500	R1555.20	R3444.80	R41337.63	3.78%
R1215000	R0.00	R5000.00	R60000.00	4.94%

A sub 5% ROI if you buy in cash (only 3.5% below inflation, that is if you believe governments figures in the first place) with a 70% downpayment required to break even. And this is the return before rates, maintenance and vacancy cost.

The second example is an interesting one. It's a 10 bedroomed student house for sale for R3 950 000, an 'opportunity for the investor' as the ad says. It currently rents out for R15 600 a month which means that if you bought it with a 100% bond the difference between the bond and the rent is 2.2 times the rent, nearly R35 000 a month. The rest of the payments and return of investment is as follows:

Down Payment	Monthly Payment	Cash flow	Annual Income	ROI
R0	R50559.91	R-34959.91	R-419518.94
R395000	R45503.92	R-29903.92	R-358847.05	-90.85%
R790000	R40447.93	R-24847.93	R-298175.15	-37.74%
R1185000	R35391.94	R-19791.94	R-237503.26	-20.04%
R1580000	R30335.95	R-14735.95	R-176831.36	-11.19%
R1975000	R25279.96	R-9679.96	R-116159.47	-5.88%
R2370000	R20223.96	R-4623.96	R-55487.58	-2.34%
R2765000	R15167.97	R432.03	R5184.32	0.19%
R3160000	R10111.98	R5488.02	R65856.21	2.08%
R3555000	R5055.99	R10544.01	R126528.11	3.56%
R3950000	R0.00	R15600.00	R187200.00	4.74%

A 4.74% return if you plonk down the entire asking price. Again a 70% downpayment is needed just to break even on the rental. The returns calculated here does not take into account rates, maintenance and vacancy and with this being a student house I bet the maintenance costs are a lot higher than what you could expect in a single tenant rental.

Rent Vs Buy: Plumstead

Here's a 1 bed 'starter' apartment in Plumstead ('the suburb car thieves drive through without stopping' as a stand up comedian once said) on sale for R429 000 with a net rental of R2 005 (R2 500 - R495 in levies/rates). If you took out a 100% bond the difference between the bond payments and rent is nearly double the rent. At least we're not in De Waterkant territory here. Here's the payments and ROI you can expect:

Down Payment	Monthly Payment	Cash flow	Annual Income	ROI
R0	R5491.19	R-3486.19	R-41834.29
R42900	R4942.07	R-2937.07	R-35244.86	-82.16%
R85800	R4392.95	R-2387.95	R-28655.43	-33.40%
R128700	R3843.83	R-1838.83	R-22066.00	-17.15%
R171600	R3294.71	R-1289.71	R-15476.57	-9.02%
R214500	R2745.60	R-740.60	R-8887.14	-4.14%
R257400	R2196.48	R-191.48	R-2297.71	-0.89%
R300300	R1647.36	R357.64	R4291.71	1.43%
R343200	R1098.24	R906.76	R10881.14	3.17%
R386100	R549.12	R1455.88	R17470.57	4.52%
R429000	R0.00	R2005.00	R24060.00	5.61%

70% downpayment to break even on cash flow and 5.6% maximum possible returns if you buy it for cash. Returns will be even less once selling costs (estimated by the seller to be an additional R15 000) is taken into account.

Wasn't the sub-500K market supposed to be where all the money is made these days?

Rent Vs Buy: Stellenbosch - I Was Mistaken It Is Pretty Bad

In the previous entry I stated that rent/bond ratios in Stellenbosch are bad but they're not as bad as some that you would find in Cape Town itself. Reader BG was quick to email and point me to this ad for a 4 bedroomed house in Stellenbosch selling for R2 685 000 and that rents for R6 000. Ouch. This is going to get ugly.

On a 100% bond the difference between the bond and the rent is 4.7 times the bond. Here's the payments and return on investment you can expect.

Down Payment	Monthly Payment	Cash flow	Annual Income	ROI
R0	R34367.94	R-28367.94	R-340415.28
R268500	R30931.15	R-24931.15	R-299173.75	-111.42%
R537000	R27494.35	R-21494.35	R-257932.22	-48.03%
R805500	R24057.56	R-18057.56	R-216690.70	-26.90%
R1074000	R20620.76	R-14620.76	R-175449.17	-16.34%
R1342500	R17183.97	R-11183.97	R-134207.64	-10.00%
R1611000	R13747.18	R-7747.18	R-92966.11	-5.77%
R1879500	R10310.38	R-4310.38	R-51724.58	-2.75%
R2148000	R6873.59	R-873.59	R-10483.06	-0.49%
R2416500	R3436.79	R2563.21	R30758.47	1.27%
R2685000	R0.00	R6000.00	R72000.00	2.68%

90% dowpayment required to break even on cashflow and if you pay full price you can expect a dismal 2.68% ROI, a whopping 6% below inflation. In fact in reality once rates, maintenance and vacancy costs are taken into account you can expect that 2.68% yield to fall below 2% if not further.

And then there's this little snippet from the ad: "This oldish house situated on a large lot is a renovators dream". So you're going to have to pour even more money into it over and above the asking price.

Rent Vs Buy: Stellenbosch

This is a bit out of Cape Town's city limits but it just goes to show that terrible rent/bond ratios are not limited only to the city. Here's a 3 bed/2 bath house in Stellenbosch for sale for R1 195 000 with a current rental of R5 000. On a 100% bond the difference between the bond and rent is only double the rental, not as bad as some of the previous examples we've seen in Cape Town proper.

Down Payment	Monthly Payment	Cash flow	Annual Income	ROI
R0	R15295.97	R-10295.97	R-123551.68
R119500	R13766.38	R-8766.38	R-105196.51	-88.03%
R239000	R12236.78	R-7236.78	R-86841.34	-36.34%
R358500	R10707.18	R-5707.18	R-68486.18	-19.10%
R478000	R9177.58	R-4177.58	R-50131.01	-10.49%
R597500	R7647.99	R-2647.99	R-31775.84	-5.32%
R717000	R6118.39	R-1118.39	R-13420.67	-1.87%
R836500	R4588.79	R411.21	R4934.50	0.59%
R956000	R3059.19	R1940.81	R23289.66	2.44%
R1075500	R1529.60	R3470.40	R41644.83	3.87%
R1195000	R0.00	R5000.00	R60000.00	5.02%

I wouldn't exactly call 5% return on investment (which is below inflation) a "Great investment opportunity". A 70% downpayment is required to break even on cashflow alone. We also haven't taken into account rates, maintenance and vacancy costs. This house is in a security estate and that usually bumps the levies up higher than normal.

Century City Asking Prices: Down And Up And Down Again

We first spotlighted this 1 bed Century City flat waaay back in September 2007. Back then it was going for R799 000 and had a net rental of R1843 a month (R3 000 - R1 156 in rates/levies), a horrendous 2.2% ROI if you bought it in cash. Then in November 2007 the price dropped to R780 000 and the rent climbed to R3 500 a month. Then in January 2008 the price jumped back up to R800 000. Now it's back down to R780 000 again. Here is the return on investment you could expect:

Down Payment	Monthly Payment	Cash flow	Annual Income	ROI
R0	R9983.98	R-7639.98	R-91679.79
R78000	R8985.58	R-6641.58	R-79699.01	-102.18%
R156000	R7987.19	R-5643.19	R-67718.23	-43.41%
R234000	R6988.79	R-4644.79	R-55737.45	-23.82%
R312000	R5990.39	R-3646.39	R-43756.67	-14.02%
R390000	R4991.99	R-2647.99	R-31775.90	-8.15%
R468000	R3993.59	R-1649.59	R-19795.12	-4.23%
R546000	R2995.19	R-651.19	R-7814.34	-1.43%
R624000	R1996.80	R347.20	R4166.44	0.67%
R702000	R998.40	R1345.60	R16147.22	2.30%
R780000	R0.00	R2344.00	R28128.00	3.61%

3.61% when you buy in cash with an 80% deposit required to break even on cash flow. I think some houses in De Waterkant have better yields.

Property Growth For Last Three Months: 0%

Business Day reports that for the third straight month property price growth has been a big fat 0%. South Africans now have a household debt to disposable income of 77.4%!

“We anticipate growth in residential property could be noticeably lower this year than the 8,3% annual growth recorded last year,” Standard Bank said.

Well if it carries on like it currently is going how about a growth of about 8.3% less than last year?

Rent Vs Buy: Mutal Heights - Cape Town CBD - They're Kidding Right?

This has to be one of the biggest indicators that the link between rents and property prices are completely out of whack. Here is a 2 bedroomed apartment in Mutual Heights in the Cape Town CBD on the market for R2 395 000. It manages to attain a net rental of R4 200 a month (R6 000 - R1 800 in levies). A 100% bond will cost you R30 655 a month, nearly R26 000 more than what you could rent it for. The difference between the attainable rent and bond payments is greater than five times than the rental itself! You already can see the ROI and payments are going to be dismal so here goes:

Down Payment	Monthly Payment	Cash flow	Annual Income	ROI
R0	R30655.95	R-26455.95	R-317471.36
R239500	R27590.35	R-23390.35	R-280684.22	-117.20%
R479000	R24524.76	R-20324.76	R-243897.09	-50.92%
R718500	R21459.16	R-17259.16	R-207109.95	-28.83%
R958000	R18393.57	R-14193.57	R-170322.81	-17.78%
R1197500	R15327.97	R-11127.97	R-133535.68	-11.15%
R1437000	R12262.38	R-8062.38	R-96748.54	-6.73%
R1676500	R9196.78	R-4996.78	R-59961.41	-3.58%
R1916000	R6131.19	R-1931.19	R-23174.27	-1.21%
R2155500	R3065.59	R1134.41	R13612.86	0.63%
R2395000	R0.00	R4200.00	R50400.00	2.10%

OUCH! 2.10% return on investment when you buy it for cash and that's before maintenance and vacancy costs. I think this is one of the worst ROIs I've seen before those costs are taken out. Once they are taken into account you'll be lucky to have a ROI above 1.5%. A 90% deposit, about R2 155 000, is needed just to break even on cashflow.

Who in their right mind would pay R30 000 a month when you could rent it for R6 000?

Rent Vs Buy: Tamboerskloof - Another Terrible Return On Investment

Here's a 3 bedroomed cottage in Tamboerskloof for sale for R2 425 000 which has a net rental income of R7 370 a month (R8 200 rental - R830 rates). The payment on a 100% bond is a whopping R31 309 a month, R23 000 more than what you can expect to pay to rent the place! You can already tell the return on investment is going to be terrible so here goes:

Down Payment	Monthly Payment	Cash flow	Annual Income	ROI
R0	R31039.95	R-23669.95	R-284039.35
R242500	R27935.95	R-20565.95	R-246791.42	-101.77%
R485000	R24831.96	R-17461.96	R-209543.48	-43.20%
R727500	R21727.96	R-14357.96	R-172295.55	-23.68%
R970000	R18623.97	R-11253.97	R-135047.61	-13.92%
R1212500	R15519.97	R-8149.97	R-97799.68	-8.07%
R1455000	R12415.98	R-5045.98	R-60551.74	-4.16%
R1697500	R9311.98	R-1941.98	R-23303.81	-1.37%
R1940000	R6207.99	R1162.01	R13944.13	0.72%
R2182500	R3103.99	R4266.01	R51192.06	2.35%
R2425000	R0.00	R7370.00	R88440.00	3.65%

You can expect to earn 3.65% return on investment if you buy the place for cash, nearly 6% less than what you'd earn if you just left your money in the bank. To just break even on cashflow from the rental you need to put down a massive 80% deposit, nearly R2 000 000! The actual yield is probably less once maintenance and vacancy costs are taken into account as well.

Rent Vs Buy: The Square - And The Race Is On!

Here's a bachelor flat for sale in the Square in Buitankant Street for R625 000 with a rental income of R2800. If you buy it with a full bond your payments will be R5 200 more than what the rental can achieve. Here's the return on investment and payments you can expect:

Down Payment	Monthly Payment	Cash flow	Annual Income	ROI
R0	R7999.99	R-5199.99	R-62399.83
R62500	R7199.99	R-4399.99	R-52799.85	-84.48%
R125000	R6399.99	R-3599.99	R-43199.87	-34.56%
R187500	R5599.99	R-2799.99	R-33599.88	-17.92%
R250000	R4799.99	R-1999.99	R-23999.90	-9.60%
R312500	R3999.99	R-1199.99	R-14399.92	-4.61%
R375000	R3199.99	R-399.99	R-4799.93	-1.28%
R437500	R2400.00	R400.00	R4800.05	1.10%
R500000	R1600.00	R1200.00	R14400.03	2.88%
R562500	R800.00	R2000.00	R24000.02	4.27%
R625000	R0.00	R2800.00	R33600.00	5.38%

Sub 6% ROI with a 70% downpayment needed just to break even on cashflow. Not exactly the most scintillating investment is it?

Now here's where it gets interesting. Back in December 2007 we spotlighted another bachelor flat in The Square for R635 000 with a rental of R3 300 a month, which had actually been on sale since May 2007 with an initial selling price of R570 000, which is still on sale today nearly a year later. Now add to it another bachelor flat for a similar price in the same block (although slightly bigger but with a worse rent) and I wonder how long it will take to sell either. The race (to the bottom) is on!

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...