Here’s a 2 bed apartment in Green Point on the market for R1 900 000 which attains a monthly gross rental of R7 200. The flat is 62m^2 so R1 900 000 means the cost per m^2 is over R30 000/m^2 so this is in no way a value for money buy.
With a 100% bond the monthly payments are currently R18969/month which means the difference between that and the rental is R-11769 which is over 160% of the gross rental itself!
The bond costs alone are R139 000 which is over 18 months (one and a half years) of rent. Subtract rates/levies, maintenance and vacancy costs and the net rental income is probably closer to R6000 if not lower. Here’s the yield graph:
To break even on cashflow with the gross rental requires a deposit of just over 62% of R1.17 million. Even with a 50% deposit you need capital appreciation of 1.44% to not lose any money. Paying for the entire property in cash nets you a return on investment of 4.55%. I think there are transaction accounts out there paying equivalent interest than that.
This block looked familiar and so I went diving off into the archives and found that in January 2008 the rental for a 2 bed apartment in this block was R7 000. In Jan 2010 it’s R7 200. That’s an annual rental increase of 2.8%, well below inflation. However the asking price in 2008 was only R1 250 000. Me thinks someone needs to sell at R1.9m to avoid losing any money (and hopefully make a profit) from paying in to cover the bond for the past few years. Specuvesting at it’s finest.
Original Post on Cape Town Property Bubble: Rent Vs Buy: Green Point – R1.17m = 0% return
