Cape Town’s Newlands is not renowned for entry-level investment opportunities but rather typically catering to well-heeled families and seasoned investors. A unique combination of circumstances has created the opportunity to secure a luxury unit in the brand-new Newlands Peak development for as little as R996.00 per month.
Brad Morgan from Rawson Developers explains below:
Breaking barriers to entry
“Buy-to-let property has always been a popular and profitable investment, particularly during turbulent economic times when it offers very desirable stability … That said, there have traditionally been a few barriers to entry for those just starting out. Namely, relatively high upfront costs; potentially expensive financing and, ongoing expenses that are difficult to completely offset with rental income in the beginning”.
“We’ve been in a buyers’ property market for some time now, which has slowed the ordinarily sky-high price growth in the suburbs like Newlands” he says. “This, combined with low activity levels and the financial fallout of the coronavirus pandemic, has incentivised sellers – and developers – to really put their best foot forward when it comes to buying”.
The cost of property financing has hit an all time low, with interest rates undergoing their fourth cut of the year during May.
“There’s a good chance we’ll see more cuts before 2020 is over” Morgan adds. “But the prime lending rate – now 7.25% – is already at its lowest level in forty-seven years. As a result, bond applicants are qualifying for up to 20% more finance than just a few months ago and have a far wider range of investment opportunities within their reach”.
Banks are also advertising up to 100% bonds for qualified applicants, enabling deposit-free purchases. Other institutions are financing costs as well, offering up to 105% loans under certain conditions.
While purchase prices and finance costs may be dropping, Morgan says that rental yields in high-demand areas like Newlands, have remained relatively stable. This has made it easier for investors to cover a larger proportion of their bond repayments with rental income.
Newlands Peak cost breakdown:
- Original purchase price (R1 550 000.00) less R200 000.00 = R1 350 000.00.
- Monthly repayments on a 90% bond at prime (7.25%) = R9 603.00 per month.
- Rates and levies = R1 393.00 per month.
- Total monthly costs = R10 996.00 per month.
- Guaranteed rental income = R10 000.00 per month.
- Total out-of-pocket expense = R996.00 per month.
Needless to say, this is unheard of value for Newlands – certainly a first for Morgan in his eight years in the property industry:
“Investors taking advantage of the special offer could bread even as early as their second year and start turning a profit the year after that, those investors who take out a twenty-five year bond could break even from day one” he says. “It’s not jus investors who stand to benefit either. Tenants could also use this chance to become owners, enjoying the incredible lifestyle and convenience of Newlands Peak for not much more than they would have been paying in rental”.
With Newlands apartments showing a history of excellent long-term growth, both buy-to-let investors and ordinary buyers stand to make a healthy profit if they hold onto their purchase for a reasonable amount of time.
“There is always the possibility of amazing short-term growth with new developments” says Morgan. “We’ve seen buyers put down a deposit and sell for 50% more when their development was completed eighteen months later. It’s better to invest with an eye on long-term appreciation though. This gives far more reliable returns and if the opportunity arises, you can always cash in early”.
The expected completion date for Newlands Peak is three years from now so it is very likely by the time it is built; purchasers will have already seen some decent capital growth.