Rent Vs Buy: Stellenbosch

Here's a 3 bedroomed flat in Stellenbosch on the market for R1 500 000, with a monthly rent of R6000/month. According to the ad it's the 'best investment'. Considering it's in Stellenbosch I would assume it's a student flat which means one thing: high maintenance costs! Let's look at the yield/payment graph.



Paying for the place in cash gets you a 4.8% ROI with a downpayment over 67% required (over a R1 000 000) to just break even on cash flow. With a 50% downpayment you need a 2.66% capital appreciatin return to not lose any money at all. Take off rates, levies and maintenance and the returns drop even more.

Saturday Open Thread

It's the Saturday Open Thread

Waiting Won't Help; Hous Prices Won't Drop - Seeff

Reader MA sent in this scan from Die Burger circa June 2006:

The World Cup Will Do Sweet FA For The Property Market

If you're one of the suckers out there who bought an 'investment flat' in the past 2 or 3 years to cash in on the World Cup then I really feel sorry for you. The World Cup is doing absolutely nothing for the property market. Let's take a look at this example. Here we have a 2 bedroomed flat in Green Point literally across the road from the Green Point World Cup soccer stadium. It's on the market for R795 000 and attains a rental to the princely sum of R3000/month. Take off the monthly rates and levies of R312 and R598, which comes to a comes to R910/month, meaning that the net rental income is R2090/month. On a 100% bond your monthly bank payment is R9985/month and the difference between that and your rental income is R7795/month, a whopping 3.7 times the net rental itself! Let's take a look a the dismal yield graphs.



Ugh.. so paying in cash you can expect a maximum return on investment of 3.5%, about 7%-8% below just leaving your money in the bank. To break even on cashflow requires a 75% downpayment, over R590 000, and with a 50% downpayment you need 4.31% capital appreciation to not lose any money at all.

When 'investments' literally across the road from the World Cup stadium are doing as dismal as this then you have to laugh at the idiots advertising properties in Parklands and (I swear I'm not making this up) Gordons Bay as places to invest to cash in on 2010.

FNB Jump On The Auction Alliance Bandwagon

Following ABSA and it's Rapid Auction Programme(RAP), FNB is now partnering with Auction Alliance in the FNB Quick Sell Programme to get repossessed homes (or if they're following ABSAs lead, forcing sellers into auction before repossession) off their books.

Thanks to reader HG for the link.

Saturday Open Thread

Sorry for the lack of articles, the boss only unchains me from the desk on weekends now. Here's the weekly Saturday open thread

Saturday Open Thread

It's been a light posting week due to looming deadlines, but here's the Saturday open thread.

Vredehoek/Devils Peak On Fire - Residents Evacuating

Photo by Coda. More photos here.

Saturday Open Thread

Another hot Saturday, and another open thread.

Mouille Point: How You Know The Seller Has No Clue

Folks sometimes an advertisement comes along which just perfectly illustrates that there are sellers out there that have no clue what the hell they are doing. Let's take a look at this gem:

STUNNING SEA FRONT APARTMENT IN MOUILLE POINT. 3 BEDS, 2 BATHS. FITTED KITCHEN WITH ALL APPLIANCES. LOCK-UP GARAGE AND SECURE PARKING BAY. PRICE R5,000,000 OR RENTAL R15,000 PER MONTH.

So let's analyse this ad. If you were to take out a 100% bond on this apartment you would be paying R62 176/month, which means that the difference between the rental (R15 000/month) and the bond payments is R47 176/month, over three time the rental itself! The owner is either selling it for way too much, or the rent is way too low.

Let's take a look at the (awful) payment and yield graph:

I'm not going to even comment, it pretty much speaks for itself.

Rent Vs Buy: Somerset West - Endless Options To Lose Money

This double story house in Fernwood (in Somerset West, not Newlands) is on the market for a cool R2 400 000 and described as a 'wonderful investment opportunity'. It rents out for R9 000/month which means with a 100% bond monthly payments are R29844/month and the difference between rental and bond payment is a whopping R-20844. You'd lose close to R250 000 holding onto this while praying for +10% capital appreciation! Here's the payment and yield graph:

So paying in cash gets you a dismal 4.5% return on investment, less than half you'd get if you just left your money in the bank. You need R1.67 million (a hair under a 70% deposit) just to break even on cash flow and with a 50% downpayment you still need 2.96% capital appreciation to not lose any money. Take off rate, levies (sure to be huge for a house this size in an estate), maintenance and vacancy and that 4.5% ROI starts sliding down

Saturday Open Thread

It's hot.. it's Saturday.. it's the open thread.

The Logic Is Impeccable

Observe the following snippet from this listing selling a loft apartment in Port Elizabeth. PE is usually outside of my interest area but his just perfectly illustrates the completely idiotic ideas that were rampant, and probably still are, during the bubble.

This loft is already tenanted at +/- R2500 pcm, bond monthly installments +/- R4500 - you can therefore own the apartment and only have to pay in R2000 per month!!! Great Investment.

If you're paying in R2 000/month for an asset that is not increasing in value (and probably dropping in todays market), that dear readers, is not an investment; it is the very definition of liability.

Big Price Drops In Strand

Reader Bean Counter writes:

This house was R6.9 million in Feb and is now priced R4.9 million. That's 29 percent in one fell swoop, but perhaps still not enough - interesting to see if this place moves even at this "cheap" price. I doubt it, as this looks like one of those classic Old SA hellholes, a sort of central hotel thing on a busy road in the sandblasted misery of the Strand.

Saturday Open Thread

It's the Saturday Open Thread!

Hayibo Tears Parklands A New One

Online satire site Hayibo had this to say about Parklands, our choice for worst suburb in Cape Town:

'Apocalyptic' Parklands in Koeberg meltdown scare
Disaster management teams were rushed to Cape Town's Koeberg nuclear reactor this morning amid reports that a suburb near the power plant had been devastated by radiation. Rescuers confirmed that they had found a "desolate wasteland populated by dazed zombie-like people" but added that there was no need to panic as this was "an average day in Parklands".

...

"It strikes your soul. It's a deep, tearing sadness than human beings can want to live in face-brick McMansions built on shifting beach sand, between a highway splattered with squashed skunks on the one side and an unstable nuclear reactor on the other."

Thanks to reader Bean Counter for the link

Milnerton: Royal Carlisle Developers Slashing Prices

Royal Carlisle is an about to be completed (transfer in May 2009) development in Milnerton and is supposedly 80% sold out. That last 20% however is turning out to be tougher than expected.

2 bed/1 bath apartments were on the market for R790 000 and are now going for R590 000 while 1 bed apartments were going for R550 000, then according to the developers own site, reduced to R490 000 and now down to R420 000. And these reductions are taking place for a block that only requires a R10 000 deposit and offers R3 500/month rental assistance!

I would hate to be one of the early buyers who bought off plan at R790 000 (or even R490 000) only to watch over 25% of my 'investment' disappear.

Saturday Open Thread

It's Saturday and that means... open thread!

Rent Vs Buy: Sea Point - Quiet Road = Silent Profit

Here's a 2 bed apartment in Sea Point in a 'quiet road' (does such a thing exist in Sea Point?) on the market for R980 000. It achieves a gross rental of R3 900/month. With a purchase price of R980 000, monthly payment on a 100% bond will be R12543/month and the difference between rental and bond payment is R8643, well over twice the gross rental (and the net rental income would probably be closer to 2.5 times if note more). Here's the income/yield graph:

Buying in cash you max ROI is 4.78%, about 5%-6% then leaving your money in the bank. With a 50% downpayment you still need 2.8% capital appreciation to not lose any money and you'll only be cash flow positive with a 68% downpayment (over R675 000!). Add in expenses like rates, maintenance and vacancy and the results are even worse

Rent Vs Buy: Gordon's Bay Never Disappoints

Staying in the Helderberg-ish area let's have a look at this 2 bed flat in Gordon's Bay. It's on the market for R629 000 and has a current gross rental of R2 400/month. Taking into account the levy of R432/month leaves you with a net rental income of R1 968. So on a purchase price of R629000 with monthly payment on a 100% bond of R8051/month the difference between rental and bond payment is R-6083, over three times the net rental income! Let's take a look at the no doubt terrible yield graph:

Ouch. A 3.95% ROI if you pay in cash and a whopping 75% downpayment required to be cash flow positive. Even with a 50% deposit you still need 4% capital appreciation to not lose any money at all. Take away other costs like taxes, maintenance and vacancy and the results get even worse

Somerset West: Asking Price Down 40% But Will Double Soon

Sometimes I wonder if people read back their ads to themselves before clicking on the submit button. Observe this gem for a house on the market for R 1 720 000:

was in market 2 years ago @ R2.8m, urgent sale plse plse plse no agents, no agents comm's payable will be worth double this in few short years

So let me get this straight, in two years the asking price has declined 40%, from R2 800 000 to R1 720 000, but that's not really an indicator of anything and in another two years the price should have doubled again.

South Africa Had The Largest Property Bubble. Will Our Crash Be The Worst?

The following was written by regular reader Bean Counter:

A small piece of news that wouldn't have made it into any South African newspapers this weekend: according to a UDC economist, property prices in Ireland are going to fall 80% from peak to trough.

Let me say that again. 80 PERCENT from peak to trough.

In case that doesn't mean anything to anyone in good old sleep-walking South Africa, have a look at the graph of the Economist's figures, and see which bubble came second to our own.

We already know that the UK market is in freefall - 15% last year, another 25% estimated this year - and Spain is in deep doo-doo, as its economy based on the bubble crumbles. Lots of reports of large groups of young unemployed people spending their days sitting in town squares. For all fellow Europessimists, watch Spain carefully: it has the real potential to be become a very nasty place in the next few years. Young + unemployed + Spanish + hungry = shooting.

Finally, nobody needs an introduction to the bloodbath in the US, where liar loans were invented and where the 2009 Depression was born.

So let's look into the crystal ball, starting at the low end of the graph. If the US troughs at 30% it will have done well. God knows how far Spain will fall, but let's be generous and say it troughs at a 40% fall. Experts are predicting a total fall of 40% in the UK, but the British economy seems to be totally trashed, so I'm betting on closer to 50%. And so to Ireland.

80% sounds almost loony, but you never know. Let's be conservative, and say that Ireland will drop a total of 60% peak to trough, 20% better than the UCD people estimate.

Alarm bells going off yet? They should. It's basic maths. The bigger the bubble, the louder the pop. The higher prices rose, the further they have to fall.

Which brings me to SA, the undisputed global leader in overinflated house prices. In light of the other bubbles, is there any reason to believe we won't fall by over 60%? 70%/ 80?!

After all, our market rose by 244% between 1997 and 2005.

OK, so here's what the bulls and John Loos and Andrew Golding will say:
1) You can't compare SA to those other bubbles because our banks are healthy and our economy seems solid.
2) We're different because we had a huge segment of the population suddenly getting richer (Black Diamonds and new black elite), and that would have led to a "healthy" bubble.
3) World Cup 2010!

The World Cup is going to do exactly nothing for our economy: it did very little for Germany, and that was at the height of the boom years across the world. By 2010 the world will be picking its way out of Depression, and nobody is going to want to buy a freaking house in crime-riddle SA. So you can ignore point 3.

But how about 1 and 2? Do they hold water. I think they do, but only to a certain extent. I just don't believe that the black middle class could create that kind of supply and demand by itself.

In short I think maybe about 100% of the 244% could be ascribed to healthy, normal growth (led by the new black middle class, helping SA catch up to a normal international standard), but that still leaves 144% of speculative madness. In other words, a bubble the size of Spain's.

We will be incredibly lucky to bottom out at 40%. I think 50% is more realistic, but 60% is a possibility.

Enjoy the ride!

Saturday Open Thread

It's the Valentines Day Edition of the Open Thread

The Claremont: Asking Prices Crater

Reader BG writes:

The Claremont is a fairly new development on Claremont Main Rd. Last year bachelor apartments had an asking price of R650000 while 1 bed apartments were going for R850000. This year a 1 bed is going for R550000 negotiable! I'm unsure if that's for a bachelor apartment (15% asking price drop) or for a 1 bed apartment, which would be a 35% drop in asking price!

Sea Point: Don't Be Fooled By The Price - It's A Slum

Our regular Sea Point reporter PJ writes:

I saw this ad on Gumtree for a 90m2 flat in Sea Point going for R1.5 million. Don't let the price fool you, that block is a slum. I doubt the going rentals in that place will cover a quarter of the bond payment and maintenance costs (if there are any) must be huge.

What that photo doesn't show is immediately to your left is a Shoprite and directly across the road are a liquor store, both the biggest bergie magnets in Sea Point with various dodgy characters hanging around morning, noon and night.

Saturday Open Thread

It's time for the Saturday open thread. Here's a conversation starter: The SA Reserve Bank has cut the repo rate to 14% and people think the worst is over. The Bank of England cut their rate to 1%(!) and everyone there believes the worst is still coming.

Suprise! Worst Investment In Hout Bay Still On The Market

The worst investment in Hout Bay is still for sale! We last saw it back in October 2008 and the asking price of R6 000 000 still hasn't changed. And with the rent locked in at R28 500 for five years (seriously what idiot land lord negotiated that lease agreement), unless you put down over R3.8 million as a deposit, you'll only be losing a couple hundred thousand a year.

SA Propery Market Mauls Caprice

I remember when the local press were falling over themselves to hail former model, now lingerie saleswoman, Caprice Bourret and her "savvy" property purchases in Cape Town and Johannesburg. Oh well no more Top Billing appearances for Capirce.

Fall of the house(s) of Caprice: The former model reveals how her property assets have slumped by hundreds of thousands of pounds

If all this sounds bad, her investment in Johannesburg has fared even worse. In early 2006 Caprice decided to buy a house in South Africa because she was launching her lingerie range there.

Spurning Cape Town, she chose a wealthy suburb in Johannesburg, imagining that retail links would be easier to forge from a major business centre. She bought a four-bedroom house with one acre in the suburb of Bryanston for a bargain £300,000 and spent about £400,000 doubling its size.

The home now boasts a huge master bedroom with two fireplaces, its own private lounge and separate dressing area, a triple garage and a luxurious entertainment area featuring a bar, pool tables and dance floor. It is on the market for 5.3 million rand ( £373,000).

Caprice had expected her business to do well in South Africa - she is a fairly well known face there from her modelling days - so she bought the house purely for her own use as a base.
Caprice Bourret's home in Bryanston, Johannesburg

Since she wasn't planning on letting it she didn't take out a mortgage and paid cash instead, so it's entirely her own capital she is losing.

The rand stood at 9.5p at the start of 2006, but between April and September that year it lost 25 per cent to around 7p, where it still stands today, so even if her property had retained its original value

Caprice would have lost nearly £250,000 through the currency fluctuation alone. Factor in a 20- 25 per cent slump in house prices and the value of her investment has nearly halved.

'I know it's a bad idea to sell at the bottom of the market,' she says with a moan. ' But I am pulling my business out of South Africa and I have no more need of that house.

'I could hold on to it, but in my opinion it's going to take years before the market recovers and renting it in the meantime is a risk - and there's a much higher chance in South Africa that tenants may trash it. It seems best just to swallow my pride and cut my losses.'

Rent Vs Buy: Sea Point

Here's a bachelor flat in Sea Point on the market for R795 000, with a gross rental income of R3200. With a 100% bond your monthly payment is R10468/month, with the difference between that and the rental income being R7 268 - more than 2.27 times the rental itself! Here's the payment and yield graph:

Pay for the place in cash and you can expect a 4.83% return on investment. About 7% below what your money would earn sitting in the bank. Just to get cash flow positive you need to put down R551 984m a hair under 70%, as deposit. Put down 50% deposit and you still need over 3% capital appreciation to not lose any money at all. Take of rates, levies, maintenance and vacancy costs and the returns drop even more.

Saturday Open Thread

It's Open Thread time!

Rent Vs Buy: Cape Town CBD - You Say Urgent But I Don't Think You Mean It

Here's a 2 bedroomed apartment in the Cape Town CBD on sale for R1 400 000 (hat tip to reader AS for the link), with a current rental income of R6 000/month. This sale is listed as "urgent" but when you consider the terrible rental yields you can expect I don't think they quite mean it. Here's the payment and yield graph:

So with a 100% bond the difference between rental and bond payment is R-12435, over twice the rental itself. You only break even on cash flow if you put down over 2/3 depost (R944 346) and even with a 50% deposit you still need 2.76% capital appreciation to not lose any money. And this is with the gross rental, deduct maintenance, rates, levies and vacancy costs and the numbers get worse.

When It Doesn't Sell, It's Time To Beg

We last saw this Green Point apartment in May 2008. It was on the market for R1 895 000 with a tenant paying R8 500/rent.

Now the seller is asking for a buyer to just take over his bond and take it off his hands for R1 550 000.

More Bank Repos Struggling To Sell - Milnerton

Reader TA sent in a link to this bank repossessed house in Milnerton on sale for R1 300 000. It was listed in December 2008 as on sale for R1 650 000. According to TA it was initially listed at R1 900 000, which means it's dropped R600 000 in price, a 31.5% drop in asking price.

Looking at the pictures on the latest ad, it seems it's never been occupied.

A John Loos Retrospective: 2006 - 2009

Here's some quotes from chief FNB property shill John Loos as collected by Reader Bean Counter:

"I think later in the decade towards 2008, house price inflation will start to pick up." – June 2006

“So I don't see the end of house-price inflation for the country as a whole, and I think that by about next year you could start seeing a recovery in house-price inflation after some further decline this year...I think commercial property returns are going to be excellent for the rest of the decade.” – April 2007

“I expect to see a gradual uptick in demand for residential property towards the middle of the year...I don't think one should probably wait much longer. If one's holding out for price deflation I think you're probably going to be disappointed... I don't think it's a situation where we're going to see price deflation on a significant scale.” – February 2008

“You mustn’t count residential property out, from a point of view of getting into the market. The good time to get into residential property is probably just about here, as residential is probably near the bottom of the cycle.” – September 2008

“Yes, I’m afraid the whole global crisis has gone substantially further than most of us expected - it’s taken the property downturn that started back in 2004 to worse levels, and we’re into price deflation and there’s not a lot we can do about the situation as to where we are.” -- Business Day Summit business show transcript, January 13 2009

Remember folks our pal Loos works for the bank first. What they need to hear he tells them.

Saturday Open Thread

Saturday Open Thread time is here!

When Bank Repos Don't Sell - Milnerton

You know the market is tough when even bank repos don't sell. Here's two ads for the same 3 bedroomed flat in a block called Nautica in Milnerton, one from the end of October 2008 and one from today.

• Oct 2008 - BANK REPO - MILNERON, NAUTICA - R1 700 000


• Jan 2009 - MILNERTON / NAUTICA - BANK REPO - R1 700 000

You'll notice the price has not changed even though it's supposedly negotiable and supposedly below market value.

Buy My House And Let Me Rent From You - Mowbray

With price growth stagnating (or decreasing), bond payments at record highs and rents staying pretty level some people seem to be deciding it's in their financial best interest to sell their house and rent it back:

3 bedroom house for sale. wooden floors in most of the rooms and built in cupboard in 2 of the rooms. fitted kitched, large grounds with access through the garage(remote). Owner is prepared to rent the house for 6 months to 1 year.

Saturday Open Thread

Last Open Thread of the holidays before the regular schedule picks up again.

Saturday Open Thread

The first open thread and the kick off to 2009!

Saturday Open Thread

It's the final open thread of 2008!

An Old Friend Returns In Century City

It's always heartwarming when an old friend returns for the holidays. For instance this flat in Century City has been on sale since at least September 2007, and we last wrote about it in March 2008. It's price has gone from R799 000, down to R780 000, up to R800 000, back down to R780 000, up to R790 000 and back to R780 000 where it's been for the last 9 months, all while pulling in R3 500/month rent which doesn't cover half the bond costs on a 100% bond.

Saturday Open Thread

It's Saturday and our weekly open thread.

Blouberg Reader Report

Reader GP sent in the following report from Blouberg:

I have the keys to a friends "holiday" apartment in Blouberg. He bought it last year (off plan) in Sandy Bay, Athens Road, Blouberg (300m from the beach).
Stats are as follows:

- 35m2
- Bed in lounge (folds into cupboard)
- 1 open parking bay

He bought it for... wait for it... R650k! (I bought my apartment, 2 bed, 65m2 Royal Ascot, around the same time, and paid R630k).
The apartment is costing him R8,500 every month, and has been empty for the past 9 months! He has advertised it online for short term, long term and holiday homes, and no-one is interested in it (too small, and they prefer a seperate bedroom).

Up until September 2008, the agents were still selling the already-built apartments "off plan" AND were giving a FREE car with each purchase! Some of those apartments are still empty and the building has been standing for just over a year.

Another story:

A friend bought a place last year August in Blouberg. Its called The Sands, just around the corner from the Cheri car dealership at the beach. Stats are as follows:

- 55m2
- 2 bedroom (second room can barely fit a double bed)
- 1 open and 1 undercover parking
- 5m2 store room in basement

She bought it for... wait for it... R780k. After buying it, she had some structural issues. (Whenever it rains, the slabs from the balconies above, literally starts falling down in chunks (of concrete)). She took this up with the body corporate, etc only to find out that the building structure was never approved by the municipality. Her repayments are R9,000 per month. Spoke with her the other day and she and her husband are saving up a lumpsum, so that they can sell it at a lower prices, make a loss, and use the lumpsum to fill in the balance of what they would owe the bank!

And this folks is why Blouberg/Table View is the divorce capital of South Africa.

Saturday Open Thread

We never got much time this week to post stories. So if you've got something you want to discuss, this is the thread for you.

ABSA Rapid Auction Programme Report Back - 40% Off Asking Price Accepted

Reader TA went to an Auction Alliance/ABSA Rapid Auction Programme auction and sent in this report:

I must admit that I was quite impressed at the style in which these auctions were being held in that the auctioneers and the bank made it known what was the outstanding bond owing on the property. The way I understood it, these were properties that the distressed owners were 'voluntarily' putting up for auction. Needless to say, not a single property on auction, out of 60, recieved bids even close to their outstanding bond value.

I bid on eight properties and was the succesful highest bidder on three. I left the auction thinking that there was no way in hell that such low bids would be accepted.

I was very pleasantly surprised when I recieved confirmation emails from the auctioneers that all my bids were accepted by the sellers. The one property I bid on was a three bedroom/ two bathroom free standing house in the Table View area. It was and still is for sale through agents for R895 000. My bid of R450 000 was accepted. The other was on a two bedroom 67 square meter flat in the CBD which had a outstanding bond of over R1 million. My bid of R475 000 was also successful. On the third property, a two bedroom flat in the South Peninsula, my succesful bid was R390 000 and the oustanding bond was R650 000 (granted just over a year ago).

Even with the auctioneers commission of 11.4% on top of these prices, they are still bargains of note.

I think that ABSA, along with the other big banks, are seeing ever increasing amount of homeowners defaulting on their repayments and panic is starting to move in. Homeowners are being forced to accept these low bids on their property or else the property will be repossessed leading to a drawn out process which the banks are trying to avoid at all costs.

What gets to me is that the majority of these distressed property owners were granted these bonds less than three years ago by the very same lending institution. Now they are being forced to sell at unheard of prices. The banks actions border on criminal to say the least.

Here's a summary of TA's purchases and the discount he got off asking prices:

	Owed on Bond	Successful Bid	Discount off Asking Price
Three bedroom/ two bathroom free standing house in the Table View area	R895 000	R450 000	49.7%
Two bedroom 67 square meter flat in the CBD	Over R1 million (let's say R1 000 000 even)	R475 000	52.4%
Two bedroom flat in the South Peninsula	R650 000	R390 000	40%

Saturday Open Thread

It's time for the Saturday open thread. Got something to discuss we haven't covered? Some observations from your neck of the Peninsula? This thread is for you.

Is Gazundering Legal In SA?

Reader James in London mentioned the term "Gazundering" in a comment and wondered if it was allowed in SA:

Don't know if "gazundering" has started in CT yet? (or whether it's legally possible?)

Gazundering is defined as follows:

Gazundering is the practice of demanding a reduction in price to secure the sale of a property. This is usually done during contract negotiation. The timing of this demand is usually intended to prevent the seller from rejecting the lower price, as the sale could collapse if they did, although it may also reflect a genuine downturn in property prices in an area.

It's legal in England:

Under English law, the price you agree on is not definite until the `exchange of contracts'. Up until that time (usually 6 - 8 weeks after the seller accepts your offer for the property), the seller can choose to cancel the sale and accept a higher price from another buyer (if the market is moving upwards). Likewise, you have the right to cancel the agreement and buy a cheaper property (if you feel the price you originally offered was too high, or that prices may be falling.)

Any legal eagles out there know if it's allowed in SA? I have a feeling it isn't but confirmation would be nice.

ABSA: Nominal Property Prices Are Dropping

RealestateWeb reports:

Absa, which has been monitoring house prices since the 60s, says the average house is now worth less than it was a month ago.

Its latest figures, released on Friday, indicates that the average house in South Africa cost about R963 500 in November, about 0,1% less than in October.

Real house prices, which take into account the effect inflation has on purchasing power, have dropped by more than 10% year-on-year.

This year houses are expected to have increased in value by about 4% overall, but the forecast for next year is for houses to drop on average by at least 3%.

And there you have it folks. Nominal price drops. If you're a specuvestor and you bought in the past two years and you are not cash flow positive you're about to lose a truckload of money.

So if you bought a house for R1 000 000 today in a year it would be worth R970 000. You would have also paid over R160 000 to basically rent your house from the bank.

Sea Point Anecdote

Reader KS writes:

A duplex round the corner from me was on the market for four months. Last week a SOLD sign was on the wall. This week... it's back on sale.

The Big Cuts Start Rolling In

Last month this apartment in Strand was on the market for R2 080 000. This month it's asking price has dropped to R1 500 000. That's a 28% drop in asking price.

Remember folks: Don't panic. But if you do, be the first.

Thanks to Reader Bean Counter for the link.

Landlords: Think Again Before Putting The Rent Up

With the softening of the housing market landlords have been loudly proclaiming that they're going to be able to put up rentals as the demand for rental accommodation is set to increase. Well... not so fast. RealEstateWeb reports:

Landlords hammered as tenants struggle to pay
TPN also a registered credit bureau said 54% of tenants are able to meet their rental commitments compared to 70% in the previous quarter.

The rental market has seen a recent average rental price drop of two percent said the report.

Michelle Dickens, managing director of TPN said the 16% of rentals paid on time and in full clearly reflects the tight economic conditions which have negatively impacted on tenants' ability to meet their rental obligations.

Only 16% of renters pay on time and in full. I repeat 16%. That means if you have a tenant who pays you on the first of every month you're in a better position than 84% of landlords out there. Are you going to risk a good thing by raising rent and having a reliable tenant decide to leave and go to the vacant flat in the nicer block across the road?

Auctions Continue To Increase

Sources reveal to me that for the first time Auction Alliance did more than 300 property auctions last month. Many as part of the Rapid Auction Programme, the main customer of that scheme being ABSA.

Saturday Open Thread

Got something on your mind we haven't covered? Chat about it in our Saturday Open Thread...

Overheard At The Deli: "I mean you'd have to be absolutely f$%^&$%g mad to buy now."

The following report was sent in by reader Bean Counter:

Was just having my afternoon cuppa and catching up on some work at the deli near my house when I realised two estate agents were having a fat chat at the next table. Unfortunately I didn't catch the names of either of their companies, but I gathered that both are pushing property in the northern suburbs and on various wine/golf estates out Somerset West way.

At first neither of them wanted to talk about the deathly state of the market, a bit of professional rivalry I suppose. But soon they cracked and the tales of woe started. And did they start. I had to write down one part verbatim, it was too priceless not to pass on as it came from the horses' mouths (always knew that shorthand course would come in handy!):

Estate Agent A: "What people are asking, they're just clueless, still."
Estate Agent B: "They should show the selling price. Completely different."
EAA: "Completely different, the asking and the selling. I mean what they're selling for now was what they paid three years ago."
EAB: "Four years."
EAA: "Absolutely. They've lost all the money they made in the last three years."
EAB: "Totally."
EAA: "I mean you'd have to be absolutely f$%^&%#g mad to buy now."
EAB: "But people can't sell, hey, because they're not dropping their price, like, 40 percent!"
EAA: "You'd have to be mad. I know okes who are buying, they're fucked."
EAB: "Nice for us, hey?"
[A short embarassed laugh.]

Request For Information: The Majestic - Kalk Bay

Any readers out there have any information on what's going on at The Majestic development in Kalk Bay? I checked it out when it was initially built and the prices were horrendous. Looking at the site I linked to it seems there's still plenty stock left to be sold .

Saturday Open Thread

It's Saturday, which means it's time for our weekly open thread...

Rent Vs Buy: Rondebosch

Purchase price: R680 000. 100% bond: R9 206/month.
Rental: R3 200/month before rates, maintenance and vacancy.

62.24% (R443 642) deposit required to break even on cash flow. 5.65% ROI when paying in cash. 2.48% capital appreciation required with 50% deposit.

Rent Vs Buy: Milnerton - Royal Ascot

Purchase price: R1 180 000. 100% bond: R15 975/month
Rental: R5 500/month before rates, maintenance and vacancy.

65.57% (R773 760) deposit required to break even on cash flow. 5.59% ROI when paying in cash. 2.53% capital appreciation required with 50% deposit.

Our Favourite Simon's Town McMansion Drops The Price (Again)

Our favourite Simon's Town McMansion has had another asking price drop. Back in August it went from R3 600 000 to R3 500 000 (a massive 2.7% price drop!) and has now been dropped to R3 200 000. That's about a 8% asking price drop. I guess these folks have never heard of chasing the market down.

Considering this house looks like it has been sitting empty since February at least someone is taking a bath on this thing.

Thanks to reader GT for sending us the link!

Rent Vs Buy: Malmesbury

We usually don't go this far out of Cape Town but here's a house for sale in Malmesbury, or rather as it says in the ad 22km behind Malmesbury and 6km inland, with an asking price of R990 000. With a 100% bond you'd be paying just over R13 400/month. Or you could rent it for R3 300 a month, just over 3 times the monthly difference (R10 103) between the rental and bond price. Here's the yield and payment graph.

That's pretty bad. A 75% downpayment to break even on cash flow and a just over 4% ROI if you buy in cash. But ignore that because the price of property 100km from Cape Town and 6km from the coast are just set to skyrocket right?

Saturday Open Thread

It's that time of week again, the Saturday open thread.

Simon's Town: Buy The House, Get The Car

Desperation is starting to set in it seems. Here's a 3 bed house in Simon's Town for sale for R1 985 000 and if you buy it you get a free 2000 Land Rover Freelander. Now the car may be free but the insurance and maintenance (and petrol) aren't...




Thanks to reader HJ for the link!

Update: This house is in Glencairn Heights, not Simon's Town. Sorry if I offended any Simon's Towners.

SA Savings Rate Goes Negative

SA saving habits 'unsustainable'

South Africa's saving rate has dropped from 2.7 percent in 2001 to a negative rating of -0.5 percent in the second quarter of this year, the SA Saving Institute said on Tuesday.

Rent Vs Buy: Sea Point Quickie

1 bed flat, R750 000 asking price, R3500 monthly rent.

Saturday Open Thread

It's that time of the week again, the Saturday Open Thread.

ABSA: Forget About 2009

From RealEstateWeb;
Bleak property outlook for 2009 - Absa

Big bank Absa (JSE:ASA) has warned that the property pain is set to continue into next year and said the housing market has cooled off "to levels not seen in many years".

Its October House Price Index, released on Thursday, still shows nominal year-on-year house growth (1,2%), but at its lowest level since January 1993.

With inflation at just over 13%, a little lower than 13,7% year-on-year in September, in real terms house prices in South Africa are falling. The figure for September is -10,1%, said Absa.

Looking at the price trends, said senior property analyst Jacques du Toit, "nominal year-on-year house price growth is at risk of moving into negative territory in the near future".

So if house price growth is still nominally positive, and the trend is for it to move into nominal negative territory and you bought a house, you would in fact be doing nothing more than "renting from the bank" for three to four times the cost of actually renting an equivalent property.

It's Birthday Time In Parklands

Reader Bean Counter writes:

As you know I've been monitoring Remax's inventory for some time now, and the following Parklands McMansions are celebrating their first birthday on the site - for sale since 5 November 2007 (at least - some of them may have been on the market from before I started monitoring).

The lucky 1st birthday losers are as follows (ref number):

300129425 - reduced price from R2.2 million to R1.97 million in July, but it hasn't helped
300124769 - reduced from R1.99 million to R1.59 million in July.
300053213 - no reduction, no action.
300145659 - no reduction, no action.
300126745 - no reduction, no action.
300057755 - this beaut actually raised his price from R1.78 million to R1.85 million in February - yeah, that's really going to help it sell.
300132504 - no reduction, no action.
300147733 - no reduction, no action.
300134038 - no reduction, no action.
And finally, this one - 300114217 - who raised from R749,000 to R760,000 in May - roughly what you'd have to pay me to live in this deeply depressing little piece of sandblown hell.

Thanks for the info BC!

Atlantic Seaboard Hits The Wall

Atlantic Seaboard struggling

The swanky Atlantic Seaboard, which until recently appeared to be reasonably immune to the overall housing slump, is now also being hit by negative sentiment.

New data from Seeff Properties' Atlantic Seaboard office show that sales of sectional title apartments in Fresnaye, Sea Point and Bantry Bay have halved from January to October 2008 (y-o-y).

Seeff sales specialist Adrian Mauerberger says in 2007 around six apartments were sold every month in this area in the price range R2m plus. Atlantic Seaboard apartment sales are now down to an average three per month.

More worrying is the large number of units coming on to the market. According to Mauerberger's statistics, some 117 sectional title apartments are currently for sale on the Atlantic Seaboard. He says given that only three units are selling every month it would take 40 months (or more than three years) to sell all of this stock. "That's assuming that not one further listing comes on to the market.'

Thanks to reader TA for the link!

Saturday Open Thread

It's our weekly Saturday open thread.

Rent Vs Buy: Tyger Valley - Great Expectations

Here's an ad for a 2 bed apartment in Tyger Valley on the market for R1 300 000, or alternately you can rent it out for R10 000/month. But why rent it out for R10 000/month when you can rent an apartment in the same building for 68% less at R4 200/month?

So if you bought the place at R1 300 000 only to find your rental income isn't quite what the owner promised what can you expect? Well if you consider that with a 100% bond the difference between the bond payment and the rent is 3.2 times the monthly rental (R13 400/month) then you know it's going to be pretty bad.

Plonking down R1.3 million gets you a ROI of 3.88% which is about 8% below inflation. To be cash flow positive you have to put down just under R990 000 (a 76.14% downpayment).

More Plunging Prices From Repo Auctions

Reader TA has been at another bank repo auction and sends in the following:

Parklands

Parklands - 3 bedroom/2.5 bathroom townhouse(only 12 months old) - sheriff auction price R583000 - Sold in 2007 for R879 000 by developer
Parklands - 3 bedroom / 2.5 bathroom townhouse - sheriff auction price: R379 000 - exact same sized property in same complex selling through Remax for R749 000
Parklands - 3 bedroom/ 2 bathroom townhouse - sheriff auction price : R480 000 - Open market value: about R650 000 (currently being rented out for R4600)
Parklands - 3 bedrooms/2 bathroom townhouse Sheriff auction price: R515 000 - Open market value: about R699 000 (currently being rented out for R4800 hence its high price)
Parklands - 3 bedroom / 2 bathroom freestanding house (no garage): R490 000 - Open market value: about R650-699 000 (currently being rented out for R5000 per month)
Parklands - Plot - sheriff auction price: R350 000 - outstanding bond: R590 000 odd

Table View

Heron Cove complex - 2 bedroom / 1 bathroom - sheriff auction price: R252000 - Open market value: about R399 - 429 000
Heron Cove complex - 3 bedroom / 1 bathroom - sheriff auction price: R355000 - open market value: about R449 - R499 000 - Oustanding bond value -R550 000 (achieving a monthly rental of R3500 per month)

Bloubergstrand

2 bedroom/ 1 bathroom apartment - sheriff auction price: R424 000 - open market value: R650 000
2 bedoom/ 2 .5 bathroom 127 square meter luxury apartment on Blouberg beachfront - Outstanding bond: R1.9 million (registered in 2005)- sold by sheriff for R1.450 million

Parow / Loevenstein

2 bedroom/ 1 bathroom duplex apartment with great view - Highest bid: R381 000 - Nedbank wanted much more as bond was over R550 000 so no sale.
3 bedoom/ 2 bathroom/double garage/pool - recently renovated house in pristine condition with seperate 1 bedroom granny flat on 900 sq/m plot - Sheriif auction price R866 000 - Outstanding bond: R1.5 million - open market value- R1.3 million

Goodwood

2 bedroom / 1 bathroom apartment (1 years old) - sheriif auction price: R330 000 - open market value: R499-550 000

Sybrand Park

4 bedroom/3 bathroom 250 sq meter house on 850 square meter plot with pool, garage for 4 cars, offstreet parking for 6 cars / had a granny flat that was easily 80 square meters in size- sheriff auction price: R790 000 - outstanding bond value: R1.6 million (registered in 2004) - Open market price: R1.5 million odd

Cape town CBD

Batchelor apartment (40 square meters) - sheriff auction price: R371 000 - similar sized apartments in building selling for R599 - R620 000 - Bond with FNB registered in 2005 was R600 000.

Zonnebloem

3 bedroom/2 bathroom corner unit duplex in Cantebury Square with garage and big garden - sheriff auction top bid: R895000 - no sale as Standard Bank wanted more - Bond value: R1.9 million - exactly same sized property selling for R1.499 million.

South Peninsula

Coniston Park / Retreat- 3 bedroom/ 2 .5 bathroom freestanding brick face home with double garage - Sheriff auction price: R315 000 - Open market value: R550-599 000 - achieving a monthly rental of R4500

Costa Da Gama (opposite Marina Da Gama) - 3 bedroom/2 bathroom freestanding home with garage (about 2 years old) - Sheriff auction price: R270 000 Open market value: R499 000 - R529 000

St James - 2 bedroom/2 bathroom 80 odd square meter sea facing apartment in the St James Terraces - Sheriff auction price: R 1 million - unit directly underneath selling for R1.499 million but has a small garden

Maitland - the exception!

3 bedroom/2 bathroom freestanding trashed house with a garage that was occupied by 30 or so Congolese or Nigerians - somehow this property was sold for R450 000 when the oustanding bond was R280 000. There were two shady characters bidding hell for leather so they probably knew something everybody else didnt.

What I mean by open market value is the current value at this point in time and taking the current depressed market conditions into account.

Its quite apparent that the market has tanked judging by the prices being achieved at the sheriff's auction. It must be said that there are numerous bidders at these auctions and the bank's representative does get involved if the bids are too low.

Another interesting observation is that the banks, with the exception of Nedbank, are willing to accept the fact that the final bid is only 50-60% of the oustanding bond value. It seems the banks know that prices are going down and they are selling cheap to cut their losses. That and banks dont want to be landlords of distressed properties.

Bond Defaults Up 21.5% From 6 Months Ago

Unpaid home loans soar

In the third quarter of this year 70 000 homeowners were more than two months behind with their bond instalments - 21.5% more than in the first quarter.

At the same time, 25 000 homeowners were more than four months behind and in danger of losing their houses. This figure shot up from 18 000 in the first quarter.

These shocking figures have become evident from the Alliance Group's latest research for the third quarter.

CE Rael Levitt says that indications are that the numbers will climb. "The residential market is slipping backwards and, if the macroeconomic climate weakens further, more and more homeowners will experience serious mortgage stress."

He says that stressed sales being handled by the group are growing 20% month by month.

Rent Vs Buy: Blouberg - A Loser All The Way

Here's possibly the worst 'investment' I've ever seen advertised in Blouberg. A 2 bed/2 bath apartment on sale for R1 250 000,a 'winner all the way' and 'IDEAL FOR INVESTORS', but which rents for... wait for it... R3 500/month. To put that in perspective the payments on a 100% bond is R16 923/month which means it would be 4.8 times cheaper to rent the place than buy it. The difference between the bond and the rental is R13 423/month alone, and if you were diligent and saved that money you'd be sitting with over R160 000 in your bank account at the end of the year.

The yield graph is as to be expected, horrendous:


So just to break even on cash flow you need a 79% downpayment, over R990 000. Paying for the place in cash get you a 3.36% return on investment. I think there are transactional accounts that earn more interest than that.

Saturday Open Thread

It's really Friday when I'm posting this but I don't plan on switching my laptop on during Saturday. Got a burning issue you want to discuss? Post it here, I'll be up Lion's Head.

Bank Repos Kick Into High Gear

Since the 20th bank repossessed properties have been dumped en masse onto Gumtree. Not sure if it's ABSA, who are also trying to get rid of property via Auction Alliance, or one of the other big 4.

Well I guess the banks could always just hold a raffle...

Tamboerskloof: Apartment Up For Raffle - The Desperation Kicks In

Got a bond on an 'investment' flat but the rent isn't covering half of it? And when you put it on the market not even the next door neighbours came to show days? Then it's time to hold a raffle!

raffle of apartment R 1500

Fully Renovated Stylish Apartment for Sale.- R 1500 - Yes thats right - one thousand five rand only - and I pay for ALL the transfer/duty/lawyer costs in total into your name !

I think desperate housesellers tried this in the US a while back and it ended in tears and disappointment. I predict the same here.

Besides this scheme probably being illegal in SA (I do believe there are all sorts of hoops charities have to jump through to hold a raffle/competition) anyone who does buy into this shouldn't be too surprised to never hear from the person running the competition, only to find the apartment legally sold via standard channels. If you're desperate enough to hold a raffle for a flat you're desperate enough for that.

Thanks to Reader AN for the link.

Saturday Open Thread

It's a beautiful day in Cape Town. What better time to stay inside and argue with strangers on the internet.

This Is Why I Say...

...don't buy anything built in the last five years.

Thanks to reader RF for finding an actual picture of the collapse.

Hermanus: 1/2 The Town For Sale

Reader GH writes:

Just came back from a few days in Hermanus. I'm not lying when I tell you that virtually every 2nd house is for sale.

Anyone out that side got more information?

ABSA: Extra Money In Your Bond? Not Anymore.

About 10 people have emailed me this story from RealEstateWeb today: Absa home loan shocker. ABSA are now preventing people with certain savings accounts linked to their bonds from withdrawing any extra equity from those bonds without going through an application and jumping through some hoops.

So what's going on here? Well with close to 80% of the mortgage market ABSA have a lot to lose if property prices go south any further and defaults increase. They're already auctioning off repossessed houses as fast as possible but this action means it might not be fast enough. It would seem they expect to be the new owners of a chunk of SA realty soon and are trying to reduce losses at the inevitable discount rate bank repo auction by keeping the extra cash paid into the bond.

Worst Investment In Hout Bay Surprisingly Still On The Market

What a surprise! The worst investment in Hout Bay that we last saw in May is still on the market. To remind you all it's a 3 bed townhouse on the market for R6 million which is tenanted for 5 years (that's not a typo... it really is 5 as in f-i-v-e years) at R28 500 a month. Which means that with a 100% bond over the five year period of the lease you will end up losing R3 163 920. Even if interest rates had to magically drop to 10% for the next 5 years you'd still end up losing R1 764 060 and you'd only need a deposit of R3 000 000 to break even on cash flow.

What a deal. I'll take two.

Investors Dumping In Strand

Strand is a suburb with some of the worst rental yields in Cape Town, probably not helped by the 45 minutes it takes to drive there, and that's when there's no traffic. So it's not suprising with the stagnating market to see investors beginning to exit ASAP.

11 Investment Properties in security complex for sale in Cape Town, Strand, South Africa.
1. 2 bedroom units
2. Signed leases with tenants in occupation
3. One years capital growth
4. All are managed by rental agents

Dumping 11 units in the same complex? The other residents must be absolutely thrilled.

Bank Repo Auctions: Prices Plunge

Reader TA writes:

I've been attending quite a few repo residential auctions and thought i'd send you some figures:

San Marina (Marina Da Gama) - 3 Bedroom / 2 bathroom house
Agent selling price: R749 000
Sold at auction: R425 000

San Marina (Marina Da Gama) - 2 Bedroom / 1 bathroom house
Agent selling price: R599 000
Sold at auction: R415 000

Costa Da Gama - 2 bedroom/ 1 Bathroom house
Agent selling price : R529 000
Sold at auction: R340 000

Pinelands - 2 bedroom flat (92 m/sq)
Agent selling price: R799 000
Sold at auction: R514 000

Rondebosch East 2 Bedroom flat (18 months old)
Agent selling price: R585 000
Sold at auction: R300 000

Table View 3 bedroom/ 2 bathroom house
Agent selling price: R795 000
Sold at auction: R 438 000

Durbanville 4 Bedroom / 2 Bathroom
Agent selling price: R2.25 million
Sold at auction: R1.05 million

Pinelands - 8 bedrooms/ 4 bathrooms (400 m/sq house on 900 m/sq plot in pristine condition) sold for R1.4 million - conservative value by Sheriff was R2.7 million ( a little optimistic but never the less)

Agent selling price is the price the property was going for before the house got repo'd. The auction price is the price knocked down by the Sheriff.

Saturday Open Thread

Got a topic to discuss we haven't covered? This the thread for it?

Rent Vs Buy: Royal Ascot

Here's a 2 bed/2 bath apartment for sale in Royal Ascot(Milnerton) on sale for R1 195 000 with a current rental of R5 500/month fixed for the next year. With a 100% bond the monthly payments are R16 178/month leaving you with a shortfall of over R10 000/month. Here's the payment and yield graph.



Buying in cash gets a return on investment of 5.52%, less than half of inflation. A 66.01% (over R780 000) deposit is needed to be cash flow positive with 2.6% capital appreciation required to not lose any money even with a 50% dowpayment.

70 000 South Africans In Mortgage Arrears

Property24 reports:

Mortgage defaults surge

An increasing number of homeowners are defaulting on home loan repayments, with an estimated 70 000 South Africans currently in mortgage arrears, latest figures from the Alliance Group shows.

Alliance Group CEO Rael Levitt says their research shows that the number of homeowners who have defaulted on monthly mortgage repayments by up to two months have increased tenfold in the 12 months to end-September 2008.

How To Read The Rent Vs Buy Graph

I regularly get email from readers asking how to interpret the Rent Vs Buy graphs we post. To avoid further confusion here's an explanation. First here's a sample graph: a property on the market for R1 000 000, with a rental of R5 000/month, a current bond interest rate of 15.5% and a bond period of 240 months (20 years).



The first thing to remember is that this is two graphs superimposed on top of each other. The first graph is the Monthly Payment/Cash Flow graph which uses the left hand side Y-axes.

The blue Monthly Payment graph is the amount needed monthly to pay off the bond. For example with a 25% downpayment of R250 000 we see that the bond payment is R10 154/month. The purple Cash Flow graph is what is left over when the bond payment is deducted from the monthly rental. In this case with a 25% downpayment every month we will still be required to pay in R5 154/month to cover the shortfall. As indicated on the X-axis we will only be cashflow positive (CF+) with a downpayment of 63.07%, which is indicated by the Cash Flow graph crossing the lower X-axis.

The second graph is the Return On Investment/Capital Appreciation Required graph and it uses the right hand side Y-axis. The red Return On Investment graph shows what the annual percentage return is on the money invested in the property. In our scenario with a 25% downpayment we see that the ROI is about -25%, which means that covering all the shortfalls will have lost our buyer R62 500 of his downpayment. To make up that shortfall we look at the green Capital Appreciation Required graph, which shows that to cover the shortfall of R62 500 and not lose any money the property needs to appreciate by just over 6%.

Auction Alliance: New Record Number Of Auctions!

Auction Alliance has 252 auctions set for October, 40 more than the previous record from last month's 210, which was up from 120 the same time last year!. That's close to a 20% increase in a single month!

Saturday Open Thread

It's Saturday! Which means it's time for our weekly open thread.

Rent Vs Buy: Bellville - Calling All Idiots

Here's a house in Bellville which is "CALLING ON INVESTORS ONLY!!". It's on the market for R1 600 000 and has a current gross rental income of R6 000/month. I'm not going to even bother doing analysis here, just take a gander at this awful payment and yield graph.

Buy This House... Or I'll Raise The Price

Here's a house for sale in Muizenberg;

Join the mad rush to view this bargain property! The owner has decided this is too much of a steal.

Instead of increasing the price all at once, however, it will be going up steadily every week until a sale is achieved! Don't miss this opportunity to get in on the ground.

Because if there's one thing that will sell a house in a declining property market it's a threat that the price is going to go up...

Weekend Reading: Rental Housing Report

Class, here's your weekend reading: The Rental Housing Report from the Social Housing Foundation.