to buy or not to buy?
18 June 2008


Question:
I own a one bedroom, 55m² apartment (rental R4500) in a development that has commercial as well as residential rights. The rental for this apartment is R4500.  The apartment next door, same size is possibly available to purchase for R680 000. Rent through a lease is at R4800 per month and levies are about R1000 per month. I could increase my bond on the existing apartment (nil at present) to R200 000 and use my own money for the balance.

Should I buy? I believe that owning both could add value as they could be sold as one unit in the future.

Answer:
For starters the apartment seems to be very expensive for 55m². You are paying R12 300 per square metre. For that kind of money it should be in a prime area with top drawer finishes. At the moment you can get places that are 85m² for the same price.

Even if you paid in R200 000 as a deposit your repayment would be R6498 per month plus R2710 on the R200 000 you borrowed from your paid up property. If you have to pay R1000 in levies and get a rent of R4500 you would be subsidising the apartment to the tune of R5708 per month.

I don’t see why owning two apartments next door would make them any more valuable unless you perhaps made them into one large apartment. However, I very much doubt that the body corporate would allow this.

Rental yields are very low at the moment, so the buy-to-let market is not going to make you money in the short term. In addition, we are beginning to see property prices drop due to the increases in interest rates so there are possibly much better deals out there.

I would hold on, look around for better deals and offer more like R450 000 to R500 000 for 55m² depending on the area.

Iona Minton,  http://personalfinance.iafrica.com