PROPERTY: Plan To Improve Value Proposition
Recent Western Cape Business News
Over the last few years, higher interest rates and inflated property prices combined with stagnant rental returns have reduced the value proposition of property as an investment opportunity. Now there may be a solution.
For many residential property owners, rental returns are often as little as 3- 5% per annum of the value of the property, which falls far short of the current prime interest rate of 14%. Add management fees, levies, rates and taxes to the equation and it soon becomes apparent that many buy to let properties no longer offer the best value around.
In response, a few property developers are coming up with innovative ways to improve the value proposition for property investors.
“One such solution is the guaranteed mortgage rate of prime minus 5% (to a minimum of 10.5%), as well as a guaranteed return of 8% pa for the first two years of ownership, offered to buyers of apartments in Pepper Club, a new residential apartment building situated along Long Street in Cape Town ,” says Louise Maranz, principle of Vered Estates, Cape Town.
With the prime rate currently at 14%, Pepper Club offers an interest rate of 10.5% per annum, which is vastly superior to what the majority of lending institutions are currently offering potential property buyers. At present, the best interest rate that potential buyers are likely to secure from most major financial institutions is around prime minus 1.5%, equating to 12.5%.
The developers of Pepper Club, One Vision Investments (Pty) Ltd, a Solomon Brothers development, are in addition offering investors an 8% guaranteed rental return on all apartments for the first two years of ownership. The apartments are leased out as a 5 star apartment hotel which just about allows for a positive projected cash flow revenue from day 1, the company claims.
Therefore, on a R1 million apartment investment, investors are guaranteed a monthly income which when combined with the reduced monthly mortgage repayments, leaves owners with a small starting monthly cash shortfall which is a far better value proposition than virtually any other buy to let opportunity out there at the moment.
An investment in Pepper Club has some beneficial special Income Tax allowances which can be utilised to reduce an investors tax liabilities on income from other sources, the company claims.
The Pepper Club also offers the opportunity for capital appreciation.
The Long Street development, a 20-storey tower with 233 apartments, boasts luxury amenities of a top hotel, including a fitness centre, laundry and cleaning services, swimming pool and sun-deck, private movie theatre, 24-hour security, undercover parking and a concierge to attend to your every indulgent need. “Recent development trends have seen the conversion of old office blocks into apartment complexes. The Pepper Club is unique in that it moves away from this trend to redefine the notion of elite apartment living with the construction of a brand new high-rise, with state of the art amenities and finishes, to lift the standard to a level not previously seen,” says Maranz.
Apartments range from studios of 34 square metres to luxurious penthouse suite duplexes of 400 square metres, with prices ranging from R899 000 to R17 million, with most of the more exclusive options having already been sold out, the company claims.
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