In December 2007 the asking price for a 2 bed/2 bath apartment in The Edge was R1 395 000. Two years later and the asking price for a similar apartment is R1 475 000. That works out to an appreciation of about R40 000/year, about 2.86%/year.
If we bought an apartment for R1 395 000 and then decided two years later to sell at R1 475 000 how much money did we make (or lose)?
If an owner had a 100% bond the bond payments over the last two years were about 17300/month (when interest rates were at 14%) to about R14000 today, so let’s make it R15000 as an average just to be conservative. Over two years the total bond payments would have been R360 000 with transfer duty another R75 000. Insurance and maintenance is about 1% of purcahse price per year so another R28 000. So we’re looking at total input costs of approximately R460 000.
Despite paying in R360 000 in bond payments, you would only have paid off R40 000 on the loan capital (the balance of R320 000 covering the interest so in actual fact you’ve been renting from the bank for R13 000/month). Take away the estate agency’s 6% commission on selling and you’ll walk away with R1 386 500. The balance of the bond is R1 355 000, leaving you with a profit of R30 000.
So that’s R30 000 in profit from the sale minus R460 00 in bond payments and purchasing costs leaving you with a net loss of R430 000. What an investment. Put my name down for two.
Original Post on Cape Town Property Bubble: The Edge: You Just Lost A Lot Of Money
