Rent Vs Buy: Muizenberg

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

Here's the ROI table:

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

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

Saturday Open Thread

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

Rent Vs. Buy: Rondebosch

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

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

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

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

Is The Sub-500K Market In Trouble?

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

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

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

Rent Vs. Rent: Century City Vs Bantry Bay

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

Rent Vs Buy: Gardens

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

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

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

Disa Park: Rent Vs Buy X 3

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


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

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

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

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

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

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

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

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

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

ABSA: 2008 Is Worst Property Market This Decade

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

Four Seasons: Rent Vs. Rent

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

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

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

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

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

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

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

Interest Rate Surges But Repo Rate Remains Constant

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

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

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

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

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

Forced Sales Surge 75%

From Business Day: Pinched homeowners scramble to sell

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

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

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

According to Levitt, the worst is yet to come.

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

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

Rent Vs. Buy: University Estate

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

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

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

The Rockwell: More Developers Become Landlords

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

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

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

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

Rent Vs. Buy: Tyger Valley

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

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

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

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

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

From Standard Banks Residential property gauge(PDF):

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

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

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


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



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

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

Saturday Open Thread

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

Green Point: Rental Market Is Dead, Time To Sell

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

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

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

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

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