South African Banks' voluntary sales programmes for defaulting debtors are growing throughout the country as distressed homeowners and financial institutions continue to seek alternatives to legal foreclosure, and home buyers increasingly opt for the significant discounts that come with these sales.
"Each bank has a different programme with names such as Quick Sell or Easy Sell and many of these are run through electronic platforms", says Auction Alliance CEO Rael Levitt.
With the introduction of various bank distressed sales programmes, a homeowner that is struggling and cannot afford their bond repayments, agrees with the bank to sell the house on a voluntary basis before the legal process kicks in.
Levitt maintains that the reason why sales in execution, the traditional legal foreclosure channel, have dropped off is due to banks aggressively promoting their voluntary distressed sales programmes. "In the USA these programmes are called short sales and they are one of the largest sales sectors in the market".
FNB reported a decline in the variety of houses on sheriff auction compared to the past year or two because of products that avoid the costly auction process. However CEO of FNB Home Loans, Jan Kleynhans, believes that customers should look at these properties to find good deals. "There are bargains with houses now sold for 20% to 50% below their initial value", he said.
According to Kleynhans, FNB sold between 100 and 150 houses a month, and has sold R4 billion worth of distressed houses since the introduction of his bank's various voluntary distressed programmes. FNB's non-performing home loan book is valued at about R6 billion. The other three home loan banks have varying distressed sales volumes and non-performing home loans.
"My estimate is that non-performing home loans in South Africa is valued between R25 to R30 billion, and this excludes distressed commercial properties and property developments", says Levitt.
With 4,145 voluntary distressed sales advertised in the third quarter, the Gauteng area had more distressed sale transactions than any other metropolitan area according to Auction Alliance. These distressed sales came with an average discount of 32 % and at an average price of R410, 237.
The Western Cape ranked second in the number of distressed sales advertised for the second quarter with 2,434 sales, which came with an average discount of 29% and an average price of R433, 793.
According to the Auction Alliance survey, the areas with the highest numbers of distressed sales in the third quarter were:
1.Kwazulu Natal's South Coast
3.Gauteng's East Rand
4.Garden Route and Southern Cape
5.Northern Suburbs Cape Town
Distressed sales savings averaged more than 30% in the Southern Cape in areas such as Mossel Bay. Across the country, vacant stand savings averaged more than 50% with many banks offloading these at any price.
The East Rand experienced a 22% rise in distressed sales from the first quarter to the second quarter of the year, while Pretoria saw a 27% rise in these sales. The Eastern Cape and Limpopo Provinces also saw significant increases in distressed sales over the quarter with 15% and 17 % respectively.