Question:
Is now a good time to buy property?

My wife and I put an offer in for a bachelor's flat at SS Campus Studios next to the Potchefstroom University.

We offered R305 000 and are still waiting for an answer from the owner. We expect a monthly rent income of R1600 from this property. Do you think it will be a good investment?

Answer:
The property market has certainly slowed down in the last six months and you can pick up some bargains if you do your homework and study the markets.

If you buy the apartment for R305 000 and fully bond it your repayments will be R4000 per month. This means that you are subsidising the bond to the tune of R2400 per month. That could increase to R4470 by the end of August if Mr Mboweni has his way.

While the property will grow in value you have to ask yourself if you would get a better return elsewhere if you invested the R2400 per month. If you invested R2400 per month in a money market fund at 12 percent interest at the end of one year you would have R30 742. You would get a return of R15 250 if your property grew in value by five percent.

Of course conditions change, interest rates could drop, property values could go up and your yields would improve.

It used to be that you could charge as much as 1.5 percent of the value of a house as a rental. Now landlords are lucky to get 0.5 percent as will be the case with you.

Add this to risk of non-paying tenants and you could find yourself in hot water. You must also factor in the maintenance of the property.

If you have R305 000 in cash and you invested it in the money market at 12 percent your yield would be R38 681 per annum. This is much better than the potential growth on the property.

So the short answer is that at the moment, with house prices stagnant and high interest rates, an interest based investment seems more attractive. However, we have seen cycles like this before and the property market will eventually correct itself. If it was me I would wait until interest rates top out and revisit the property market.

Unfortunately there will be a lot of distressed sales on the market in the next six months. The banks estimate that as many as 120 000 homes may be repossessed by the end of the year.

One man’s loss is another’s gain.