Tuesday, February 08, 2011

FIN24: Rent, don't buy [SOUND ADVICE]

SHOOT: In a recession, property prices tank.  And we've entered a permanent recession [or until a game changer comes along like alien technology or a twin Earth hiding behind the moon].  If you can afford to own a home, you should, but don't have any expectation of capital expansion.  And you should be able to pay for it in cash.  Otherwise you should rent. Even if you reject this psychology, there are 'business-as-usual' reasons [fairly sound in anyone's language] in favour of renting.  I don't buy de Klerk's idea that stocks are guaranteed to appreciate.  In fact I expect a cataclysmic collapse within the next 3 months, 2008-style, only with no bailout bonanza this time.  If you must invest, invest in commodities, and if you can, own those resources [like a farm, or a mine].

Feb 07 2011 12:48
Vic de Klerk on the merits of renting a luxury lifestyle.

"OWNING a nice house on the popular Pecanwood Golf Estate at Hartebeespoort dam will cost you at least R15 000/month more than renting the same house," was my advice last weekend to a friend who has the same passion as I have for golf but a much fatter chequebook. 

"Besides, you have a far greater likelihood of capital appreciation on an asset such as Satrix divi or, my favourite, British American Tobacco [JSE:BTI] (BAT). And fewer worries," I urged him as we enjoyed something cold at the 19th hole.

"Keep talking, my friend," he replied, "because this is where I'm coming to live permanently and play golf."

Just as background: Pecanwood is a lovely golf course developed by Jack Nicklaus. It's about 45km from both Johannesburg and Pretoria, and borders on the Hartbeespoort dam.

The course is green – beautifully so – after all the past month's rain.

There are around 900 completed houses, with about 350 of them occupied full-time. The rest are weekend homes and lifestyle pleasures and, of course, quite a few have been bought on the basis of the miracle of investing in property whose value will always keep increasing.

Pecanwood is almost 100% built up and the prices of the few remaining stands range between R700 000 and way more than R1m.

And after the major floods of the past few weeks, the water in the dam doesn't stink any more.

The waiter brought a pile of white serviettes to write on, as well as another bottle of something cold, and I began explaining to my friend.

The price of the 330sq m house on the golf course we'd looked at was R3m. It has a beautiful view over two fairways and a dam.

If there were a similar undeveloped stand, its price would be at least R1m.

Building costs in Gauteng are around R6 000/sq m. The 330sq m times the building costs of R6 000/sq m, plus the value of the stand, tells you R3m is already very attractive. We agreed on that.

We needed a new serviette to work out how much it would actually cost per month. My friend plans to pay cash for the house.
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