Cape Town’s leafy suburb of Newlands is not exactly renowned for its entry-level investment opportunities, typically catering to well-heeled families and seasoned investors instead. However, a unique combination of circumstances has created a once-in-a-lifetime opportunity to secure a luxury unit in the brand-new Newlands Peak development for as little as R996 per month.
Our very own, Brad Morgan, explains how.
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,” says Morgan. “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.”
Thanks to current circumstances, Morgan says those barriers to entry have all but completely disappeared.
Purchase prices
“We’ve been in a buyers’ property market for some time now, which has slowed the ordinarily sky-high price growth in 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 pricing.”
Rawson Developers, for example, have launched incredible deals to stimulate sales on several of their developments. They have sold over 30 units at The Westwood in the last month, making this one of their best months in the last six years.
Finance costs
The cost of property financing is also hitting record lows, with interest rates undergoing their forth cut of the year in 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 47 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.
Rental yields
While purchase prices and finance costs may be dropping, Morgan says 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, and has enabled Rawson Developers to guarantee rental income as part of their Newlands Peak special.
Newlands Peak launch special (June 2020)
- R100 000 off the asking price if you have signed up at sales.newlandspeak.com
- An additional R50 000 off the asking price if you fill in the 5-minute survey
- A further R50 000 off the asking price should you get your deposit, finance, and bond approval in place within 21 days from your sales agreement being accepted.
- Guaranteed rental for 1 year on over 100 units
This special offer, together with the unique set of circumstances currently in play, means investors can now secure a unit in one of Cape Town’s most sought-after areas for just R 996 per month.
“With a purchase price of R1.55 million, less the R200 000 discount ( R 1,35mil ) , an investor with a 90% bond at prime will be paying R9 603 per month,” says Morgan. “Add rates and levies of R1 393 per month and you have a total monthly cost of R 10 996. With a guaranteed rental income of R 10 000 per month, that means an investor would only have to pay R996 per month out of pocket.”
Newlands Peak cost breakdown:
- Original purchase price (R1 550 000) less R200 000 = R1 350 000
- Monthly repayments on a 90% bond at prime (7.25%) = R9 603 per month
- Rates and levies = R1 393 per month
- Total monthly costs = R10 996per month
- Guaranteed rental income = R10 000 per month
Total out-of-pocket expense = R996 per month
Needless to say, this is unheard-of value for Newlands – certainly a first for Morgan in his 8 years in the property industry.
“Investors taking advantage of the special offer could break even as early as their second year and start turning a profit the year after that, those investors who take out a 25-year bond could break even from day one,” he says. “It’s not just 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 18 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 that by the time it is built, purchasers will have already seen some decent capital growth.