PROPERTY: Distressed Properties On The Move
Recent Western Cape Business News
It is widely believed in real estate circles that price growth and bank lending is still being heavily restrained by a large number of distressed / repossessed properties and that the residential market won’t actually “recover” until these are cleared out of the system.
And of course there’s no way to say with certainty when this might happen, but the picture does appear to be improving, says Rudi Botha, CEO of BetterBond, SA’s biggest mortgage originator.
In the company’s latest newsletter to agents, it notes a Financial Mail report that the most recent financial results from the banks put the total value of Standard Bank, Absa, Nedbank and FNB’s non-performing home loan books (loans that have been in default for three months or more) at R58bn.
“And Absa recently estimated the total value of the SA mortgage market at R900bn, so that would put the ratio of non-performance at about 6,5% - better than 9% figure for last July that was noted in a recent Citigroup report,” says BetterBond.
Meanwhile, independent statistics company Lightstone notes that there was a steady decline in the number of distressed sales from 5865 in 2009 to 4119 in 2010 and 2226 last year, and that distressed properties as a whole attained greater percentages of their market value in 2011 than in 2009 and 2010. This offers some hope, it says, that the overall house price pressure caused by high levels of distressed sales stock will continue to be alleviated.
“And homeowners who react with urgency to financial distress and opt to sell their homes quickly through one of the special bank programmes for distressed sellers stand to recover more of the market value than if they wait for the property to be repossessed and sold in execution, where it will probably only fetch 40 to 50% of value,” notes Botha.
“The banks and real estate companies that really work at selling distressed properties say they can usually sell them within about six weeks for between 80 and 90% of value, whereas the Lightstone figures show that mid-value freehold properties (R700 000 to R1,5m) generally sell for only 66 to 72% of their value depending on area, while mid-value sectional title properties generally sell for between 62 and 67% of value.
“Higher value properties do better, and lower value properties often fare worse, but for many homeowners, there is a far bigger incentive to become a distressed seller rather than wait for repossession, and that is to keep their credit records intact. What is more, the banks will now in certain cases even ‘forgive’ a certain portion of a distressed seller’s home loan debt.”
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