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South Africa: Auction Relief for Bond Defaulters
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Business Day (Johannesburg)
25 July 2008
Posted to the web 25 July 2008
Nick Wilson
Johannesburg
WITH the percentage of distressed home sales handled by The Alliance Group rising 50% a month since January, the auction house has launched a new "recovery" programme to assist defaulting homeowners.
The programme, based on one used in the US, helps defaulters to work with their banks to sell their properties on auction soon after going into arrears.
Rael Levitt, CEO of the Alliance Group, says this programme helps the homeowner avoid litigation, the interest "roll-up" and a negative credit rating. Previously when banks wanted to recover defaulting home loans they would go through a "lengthy and expensive" legal process.
Levitt says the group recently visited the US and looked at how banks there were working with distressed clients. "This programme is based on the philosophy that first knock is best knock for all parties concerned."
He says that a lot of banks are prepared to assist the debtor with arrears, and will look at "rescheduling the debt up front rather than at the end of the process".
The Alliance Group says distressed home sales have risen in "leaps and bounds", and that the 50% increase in distressed sales every month since January had prompted the launch of the programme.
Levitt says the programme will be instituted in all big centres in SA.
The launch of the programme was held in Waterkloof, Pretoria, last week, and there was an "unprecedented demand at the sale with motor cars queuing for 2km to get into the auction. There was a huge attendance, and we confirmed a large percentage of sales.
"Thirteen properties were placed on auction, and we sold eight properties. What was interesting was the sale presented excellent value to buyers, who now have the ability to get into the market at reasonable levels," says Levitt.
Property economist Erwin Rode of Rode & Associates says that while there has been a rise in distressed sales, these are "presumably from a very low base and of course it represents Alliance Group's own experience, which is not necessarily the experience of the industry".
"For instance, they might be gaining market share," says Rode.
Be that as it may, it did demonstrate the depth of the consumer crisis, considering that a house is the last thing the consumer would want to lose, says Rode.
John Loos, First National Bank property strategist, says the banks do try to find alternatives to repossessing houses.
"Repossessions are rising in SA, but I would be a little cautious when people talk about the rate of increases because they do come off a low base after some very good years. The market size is far bigger these days than what it was 10 years ago," says Loos.
"I would prefer to see numbers that express repossessions as a percentage of the banks' total debt book.
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"Then I believe we would still see a situation that is better than the scenario in the late 1990s, although it is deteriorating steadily."
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