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Reserve Bank Hikes Rates 0.5%

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

Urgent Sale Ads Increasing

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

Rent Vs. Buy: De Waterkant

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

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

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

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

I Think I'm Underpaid

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

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

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

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

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

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

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

Inflation breaks 7%

Inflation breaks 7%

Year-on-year consumer price inflation excluding mortgage rates (CPIX) rose to 7.3 percent in October from 6.7 percent in September, Statistics SA said.

A rate hike in December is a certainty now and with such a massive increase we might see continued hikes into 2008.

Chase The Market Down

If you're going to drop the price of your languishing property, at least drop the price. A R5000 drop from R1 700 000 to R1 695 000 is nothing more than an attempt to get Private Property to advertise your flat as "Price Reduced!".

Oooh a 0.3% price decrease, now I'm definitely interested.

Why I'm Not Planning On Buying In A New Development

I've talked before on this blog about the level of worksmanship taking a serious decline in new developments due to a number of reasons

• Limited number of skilled builders
• Developments go up as quickly as possible = rush jobs
• Developers love to cut corners

And heres's some proof from this Facebook group, Faircape Victims, started by none other than Cape Town Tourism's ex CEO Sheryl Ozinsky:

I purchased a new property from Faircape Property Developers. This was the first time that I had bought from a developer. There were loads of snags which for the most part were repaired. More recently, I had to get an engineer in to inspect the large cracks that had developed in my apartment and others. The engineer was brought back a few months later when my travertine tiles started to pop. Both snags were due to building omissions. Faircape have agreed that the snags are their responsibility but will only settle 50% of the costs. What has your experience been like with Faircape? I hope better than mine.

If It Won't Rent At R5000 I'm Sure It Will At R6000

Remember that bachelor flat in Four Seasons with an asking rent of R5000 a month (compared to a 2 bedroomed apartment in the same block with a rent of R5750 a month)? Well the ad now has an asking rental price of R6000 a month. I guess rising interest rates are starting to hurt, and I'll bet they'll hurt a lot more when that flat continues to stand empty.

Green Point Price Disparity

Why is there a R250 000 difference in price between this ad on Gumtree (R650 000) and the agent's own page (R900 000)?

Century City: Asking Prices Drop

Back in September we showcased a 1 bedroomed flat in Century City going for R799 000 with a horrendous 2.2% ROI if you bought it with cash. Now it's price has dropped R20 000 to R780 000 but what is now extremely interesting is that the rent earned has suddenly gone up R500 from R3000/month to R3500/month. That smells extremely fishy.

Rent Vs. Buy: Observatory

If there's one area in Cape Town where I thought rental yields might be decent it would be Observatory. But this messed up housing market surprises even me. Here's a 3 bedroomed semi-detached house going for R870 000 with a "potential rental" of R3100.

Down Payment	Monthly Payment	Cash flow	Annual Income	ROI
R0	R10818.63	R-7718.63	R-92623.57
R87000	R9736.77	R-6636.77	R-79641.22	-91.54%
R174000	R8654.90	R-5554.90	R-66658.86	-38.31%
R261000	R7573.04	R-4473.04	R-53676.50	-20.57%
R348000	R6491.18	R-3391.18	R-40694.14	-11.69%
R435000	R5409.32	R-2309.32	R-27711.79	-6.37%
R522000	R4327.45	R-1227.45	R-14729.43	-2.82%
R609000	R3245.59	R-145.59	R-1747.07	-0.29%
R696000	R2163.73	R936.27	R11235.29	1.61%
R783000	R1081.86	R2018.14	R24217.64	3.09%
R870000	R0.00	R3100.00	R37200.00	4.28%

4.3% ROI before rates, maintenance and vacancy if you buy for cash. A +70% down payment needed just to break even on rental.

Tourists Get The Shaft In Green Point

Check out these 6 videos of a trio of German tourists going round their holiday apartment pointing out everything that is broken (chairs, windows, doors) and dirty (wait for the shower mat in the 6th video). They are not impressed.

And this holiday apartment is right opposite the new World Cup stadium in Green Point. Gives one hope for the future.

http://youtube.com/watch?v=KTtasmLaO_4
http://youtube.com/watch?v=KZBnuH1VePY
http://youtube.com/watch?v=SvWi2QLrn80
http://youtube.com/watch?v=lwGtGMJKgdg
http://youtube.com/watch?v=bbnT6sgLP8k
http://youtube.com/watch?v=F4ihfrM7Ljw

Rate Hike In December

There will be a rate hike this December for sure.

Mboweni: 'I would definitely increase rates in December'

The Governor of the Reserve Bank, Tito Mboweni, gave a very strong signal that another interest hike is on the way when he told members of Parliament that in his opinion, rates should go up.

Speaking to the finance portfolio committee on Wednesday, Mboweni said: "If I was the only member of the Monetary Policy Committee (MPC), I would definitely increase rates in December."

Why Are Property Developers Turning Into Landlords?

Aquacor is a CT based property developer. They've just completed Metrolpolis which has been shoehorned onto a piece of land with two other developments (and the whole thing with these apartment blocks smooshed into one another like a wedding cake collision looks u g l y).

Now if you have a look at these rental ads (1, 2, 3, 4) you'll notice that in the email address it's Aquacor renting these apartments. So why is a property developer, who has to sell the units to realise the greatest profit, renting them out?

Rent Vs. Buy: Sea Point

Here's a one bedroomed apartment for sale for R815 000 and currently renting for R4200 (minus R450 for levies).

Down Payment	Monthly Payment	Cash flow	Annual Income	ROI
R0	R10134.69	R-6384.69	R-76616.34
R81500	R9121.23	R-5371.23	R-64454.70	-79.09%
R163000	R8107.76	R-4357.76	R-52293.07	-32.08%
R244500	R7094.29	R-3344.29	R-40131.43	-16.41%
R326000	R6080.82	R-2330.82	R-27969.80	-8.58%
R407500	R5067.35	R-1317.35	R-15808.17	-3.88%
R489000	R4053.88	R-303.88	R-3646.53	-0.75%
R570500	R3040.41	R709.59	R8515.10	1.49%
R652000	R2026.94	R1723.06	R20676.73	3.17%
R733500	R1013.47	R2736.53	R32838.37	4.48%
R815000	R0.00	R3750.00	R45000.00	5.52%

Cash flow neutral at R500 000 down? 5.5% ROI (less then inflation) if you pay in cash?

Spotlight On Durbanville

Reader TM sent us some more info on a house in Durbanville he has his eye on.

I have noticed that this house in Durbanville has had 4 price drops since August. Total drop R200,000.00 or 16%.

Price :R 1195,000
Date : 2007-08-29

Price : R 1150,000
Date : 2007-09-28

Price : R 1128,000
Date : 2007-10-31

Price : R 995,000
Date : 2007-11-05

And Speaking Of Four Seasons

Why rent a 43 square meter bachelor for R5000 a month when you can rent a 2 bedroom/2 bathroom apartment for R5750?

Four Seasons: Full Of Specuvestors?

Does anyone have any information on the Four Seasons development in Buitenkant Street? Looking through Gumtree I noticed that since the beginning of October there are 9 apartments for sale and 22 apartments for rent. Those are just off Gumtree so I expect more properties listed elsewhere. Sounds like a bit of a specuvestor hotspot to me but I'm all ears if anyone can tell me anything more about the place.

How Not To Write An Ad

Check out this ad for a flat in the Cape Town CBD:

Rough and ready city apartment with secure parking

Highly rentable bachelor apartment in the CBD legal district. Good rental return. This block is a little hectic so only for the non emotional investor. BIG BONUS is secure parking on title with excellent rental up to R1000pm. I can send you pics and details. Flat needs renovating but will rent as is.

"Rough and ready"?? "This block is a little hectic"?? "Non emotional investor"?? "Needs renovating but will rent as is"???

Definitely sounds like a trouble free investment. Have fun collecting rent there. But hey it's got secure parking, but from the sounds of it you need to worry about the people in the block...