Residential property auctions are becoming more and more popular in South Africa. According to industry leaders, the foreseeable growth in the total value of residential real estate auctions is set to outstrip any other type of South African auctions.
This growing preference for public auctions as a preferred method of trading in fixed property is a global trend. In Australia 85 percent of residential real estate is sold by auction. And the latest figures released by the National Auctioneers Association in the United States show that residential real estate auctions enjoy the highest rate of growth, even though vehicles still account for the lion's share of auction revenue.
Property auction skeptics point out that the United States real estate market is currently under considerable pressure due to the collapse of the "sub-prime loan market". And the association of US auctioneers agree. One auction house, for example, reports that they are auctioning 300 to 500 properties a month - in just one state!
The sub-prime loan market in America was created by the country's financial institutions. US lenders proceeded to grant mortgage loans to applicants with less than ideal credit records and repayment-to-income ratios, in return for the mortgagees accepting higher than average interest rates.
The mortgage lenders were holding thumbs that the prime interest rate would remain unchanged for some time, which would allow properties to increase in value, while incomes rise. And then the inevitable (and least desirable) happened. Prime interest rates rose. Suddenly those barely affordable mortgage repayments became totally unaffordable to many people, even with an interest rate hike of only half a percent.
This event has caused plenty of US homeowners to lose their properties to bank foreclosures, while other American property owners have taken preemptive steps to prevent damage to their credit status by putting their properties up for sale. Many of these properties have been sold by auction, because foreclosing banks regard auctions as the best method to obtain market value for the repossessed properties, while private sellers realise that a residential real estate auction ensures a prompt sale.
In South Africa, mortgage lenders are fortunately not involved in sub-prime lending, although the practice of granting 100+ percent mortgage loans had many home buyers in debt for more than the value of their properties for a while. The new Credit Act seems to have put a stop to this practice, which is a good thing for home buyers, even if they don't realise it themselves.
The South African property economy is relatively stable, but auctioneers still see a move towards autions as the first choice for residential property sales. More and more homeowners choose to go to auction with their fixed property assets, rather than trying the conventional treaty sale, using a real estate agent and keeping auction as a last resort.
The market awareness, urgency and competition created through proper auction marketing is hard to beat by other methods of sale. Residential real estate auctions are set to continue rising in popularity among South African house sellers for some time to come, it seems.
