Across SA, investors are moving distressed homes through the system far faster than lenders, according to Auction Alliance CEO Rael Levitt.
In areas such as Cape Town, Pretoria and Johannesburg's West Rand and East Rand, sale-in-execution speculators are offloading properties faster than ever.
Levitt says that this is partially due to lower home prices and in part due to “their ability to find quality end-user purchasers who don't have the time, inclination nor immediate cash flow to attend sale in execution auctions”.
For example, in Kempton Park, investor-bought houses sell in 47 days while comparable houses move in 108 days when taken over by banks. Levitt credits the time difference with the fact that, “speculator investors have become better at turning a distressed property into a marketable property that attracts buyer interest”.
Over the past three years, a whole industry of speculators who frequent sales in execution has emerged. Many of these investors only buy through the sheriffs of the court and have amassed sizeable property portfolios at a fraction of their current market values, explains Levitt.
“This industry is well-organised, well-capitalised and in many ways, plays a critical role in clearing distressed inventory off the bank's bad debt books,” he adds.
Levitt says that South African banks try and avoid judicial home foreclosures because of the large losses that arise as a result.
“Often banks have exhausted all non-judicial methods of collection and then have no alternative to deal with a bad debt. By the time the sheriff gets the property to sell, its crash and burn time for banks that let these properties sell for a song.”
Property speculators may pay a small price for properties snapped up at sale in execution auctions, but many of them do this as a full time job and know exactly what they are doing.
“Several groups of speculators own hundreds of distressed homes, which they purchased from those who are sadly losing their homes due to non-repayment of loans.”
They take full control of these distressed homes, sort out issues and resell faster than any bank can.
“One must not discount the role they play in resolving distressed inventory,” he says.
Levitt explains that “many banks see sale in execution speculators as the opposition because their debt write-offs are enormous by the time they arrive at a sale in execution. In many ways, these speculators are the very ones that the banks not only need to recycle bad debt into good, but they lead the way in turnaround property management.”
He contends that as house prices continue to decline slowly, this industry will grow and become more sophisticated.
“We are already seeing distressed housing funds emerge, who are buying up bulk properties from these sales in execution.” - I-Net Bridge