Buyers snap up distressed homes

Gauteng, the country’s most desired province has the most active distressed residential property market, according to RE/MAX of Southern Africa.

The agency says of the 600 distressed properties listed to date this year, 70 percent are in Gauteng, 20 percent in KwaZulu-Natal and 10 percent in the Western Cape.

Distressed properties are expected to continue flooding the South African residential market for the next five years at least, says Peter Gilmour.

He explains that a lot of this is caused by interest rate hike on the horizon as well as the consumer’s debt-to-disposable-income ratios and the homeowner’s ability to meet their monthly bond repayments.

“Of the distressed properties listed in Gauteng, close on 40 percent have been successfully sold.”

He explains that these distressed properties spent an average of 48 days on the market and are priced between R250 000 and R2 million.

In Pretoria, two distressed properties sold this year spent a month on the market.

Grobler says distressed properties in this area range between R500 000 and R1.5 million and not all of them are in the bank’s distressed program.

“There are many homeowners who are desperate to sell their properties due to financial constraints, but are not yet on the official bank’s distressed program.”

These properties offer buyers a good investment as property remains a valuable asset class to invest into.

“They are qamna prices and we do not see distressed properties as offering anything other for a buyer in comparison with a non-distressed property,” she says.

In some parts of Gauteng, distressed properties that have been sold were sold for less than market value.

Jannie Storm,  operating in the Vaal Triangle including Vanderbijlpark, Sasolburg and Vereeniging says they have sold 11 distressed properties for less than the market value.

For the most part, says RE/MAX, distressed properties sell very close to their actual market value.

Currently, Storm has 28 distressed properties in Sasolburg and Vanderbijlpark priced between R300 000 and R600 000. They take between 30 and 70 days to sell on average.

In some parts of Gauteng, distressed property sales have created an immense demand for property in areas such as Clayville and Tembisa on the Midrand periphery.

This is largely thanks to the banks’ more lenient approach towards buyers of these distressed homes, says Julie Davison-White, principal of the Aida Midrand office.

“Banks have been granting bonds of up to 100 percent to buyers with good credit records when they buy property in these areas as well as some parts of Midrand,” says Davison-White.

However, she says this is not the norm as many buyers still have to put down deposits of at least 5 or 10 percent. Many buyers in Clayville and Tembisa have been purchasing property through the assisted sales programs offered by the banks to financially distressed homeowners.

Davison-White says through these programs, buyers are often able to access 100 percent bonds and 50 percent reduction in transfer costs enabling them to get a foothold in the market much more easily.

For distressed homeowners, she says the program assists them to sell their properties at reasonable prices instead of having them repossessed and then have their credit records tarnished as a result of repossession.

Distressed properties in this area sell quite quickly at prices ranging from R350 000 to R550 000 for free standing homes in Tembisa and from R550 000 to R700 000 for freehold homes in Clayville.

Demand has increased for lower-priced properties in popular areas such as Vorna Valley with price averages of R550 000, in Halfway Gardens, townhouses are priced at between R650 000 and R900 000 and Noordwyk, houses are priced below R1million and these are said to be selling like hotcakes.

As for freehold homes in higher price brackets, Halfway Gardens is currently one of the most popular areas for buyers targeting suburban homes priced between R1.1million  and R2.2 million  and clusters costing between R1.4 million and R2.5 million she says. – Denise Mhlanga

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The National Credit Act is still the chief factor limiting residential property sales, but matters are improving, say the experts.

The recent half-percent drop in the interest rates, though welcome, is not as significant a boost to the residential market as might be expected, says Lanice Steward, MD of Anne Porter Knight Frank.

“We have to take into account the rises in rates, electricity costs and fuel prices all of which together will nullify the 0.5 percent reduction.

“At the same time, we can be grateful for it, because in a sense it keeps home buyers on roughly the same budget as they had previously, despite these other increased costs.”

The chief limiting factor to growth in the residential property sector, says Steward, is still the National Credit Act and the stringent criteria it has caused the banks to impose.

Nevertheless, says Steward, even here there is some good news.

“The latest stats shows that the size of bonds in February 2010 was 13.9 percent up on those of February 2009.

“This has come about partly because property has slightly increased in value (the average South African home sold at R807 042 in February 2009 but the latest figure is R895 031), but also because the banks are now more willing than previously to accept smaller deposits.”

She says there has been a marked increase (29 percent) in the number of 100 percent bonds issued. In August 2009 only 18 percent of applications for 100 percent bonds were approved but the figure is now 32 percent. Also, 100 percent bonds now form 47 percent of the total money loaned, which is a very high proportion.

“The gradual easing up on the National Credit Act criteria, especially for those needing 100 percent bonds, is having an effect on the whole property market.

“But we are still in a tough borrowing phase – before introduction of the NCA only 8 percent of bond applicants failed to fulfil the bank’s credit criteria.

“Now the figure is 14 percent,” says Steward.