City offers good deals on renting.

Posted On Monday, 12 May 2003 02:00 Published by eProp Commercial Property News
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Deciding whether to buy or lease a property used to be a relatively easy exercise, but the extremes in prices in greater Cape Town have made shopping for property in all sectors a lot more complex.

Alyce Collins of Collins PropertiesAlyce Collins of Collins Properties says that over the past few years there has been such a re-juxtaposition of values and prices that it is now no longer a simple decision when it comes to purchasing or leasing a property, whether it be in the commercial or residential sectors.

"In the past, for instance, the general norm was that if you could afford to buy, one did, the principle being that one rented and saved until one could afford to buy."

This decision was no longer so straightforward, Collins suggested, because today residential prices in the more popular areas had escalated to the extent that renting had become a "really compelling financial option", particularly at the extreme ends of the price scale.

At the top end of the scale where apartments in Clifton and Camps Bay were now fetching up to R35 000 a square metre and deals were being done in the millions, Collins said that leasing was "always the better alternative because no one is going to pay a landlord R100 000 a month to provide an owner with a genuine return on his R10 million purchase so one could rent a really lovely apartment for R15 000 a month safe in the knowledge that as a tenant one would always be scoring heavily, financially speaking".

However, at the lower and medium end of the scale a similar experience was becoming evident. In a survey by Collins she demonstrated that a bachelor flat in the Gardens which could be purchased for R190 000 to R220 000 could also be rented for R1 700 to R1 900 a month. If the buyer put down a deposit, paid his transfer costs out of his own pocket and took a bond of say R170 000 he would be in for monthly bond repayments at 16% of R2 600 plus levies of around R700 with maintenance costs and water charges on top of that.

So the owner would be considerably out of pocket. Collins said current escalation in property values would never overtake the difference or repay the interest. "So, to be the tenant at this level is to score handsomely, financially, even with escalations."

A second exercise on an apartment costing R345 000 had resulted in a similar differential and a major advantage to the tenant. When prices reached the R500 000 level the difference between the two figures was much closer and more importantly for the landlord, values of apartments in this price range were still increasing "handsomely" and the landlord would eventual benefit by capital gains which would mean that the tenant would eventually become the loser as the rental income would cover outgoings.

"In other words, with purchase price of under R500 000 and over R3 million, property shoppers are probably better off negotiating a long- term lease deal with a landlord, rather than purchasing with a minimum deposit.

A serious mitigating factor in the residential apartment market, Collins pointed out, was the extraordinary rate of increase in monthly levies which were spiralling at an annual rate well in excess of the inflation pattern, which made owning a lot more expensive.

This was particularly relevant to timeshare apartments where levies per week had reached R1 000 in many units, which meant that the body corporate management were now demanding over R50 000 a year levy for each apartment. When one ran a similar rule over commercial property the need to apply intelligent strategy before purchasing or leasing was even more relevant because the emotional factor should be less of an influence, Collins said.

She added, however, that in her experience an attractive view or sexy address often played a role in decision making, particularly when the decision was made by the boss who was "often less realistic than his practically minded secretary or subordinates".

A shopper for commercial space in Cape Town's CBD could strike some excellent deals at the moment, whether leasing or purchasing, by just applying business logic, Collins stressed. "There is an older office building in Longmarket Street, near Loop, where you can rent at R40 a square metre. It is not an A-grade building, but it is fully carpeted, has air conditioning, is neatly maintained and has a decent elevator and foyer.

There is no parking on the premises but space is readily available right next door. "Just one block away there is a smart, newish multistoreyed A-grade with parking on the premises, at R65 a metre.

Yet we find it easier to place tenants in the newer building than we do in the older block, although it is no less comfortable and no less accessible."



Last modified on Thursday, 22 May 2014 13:13

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