From debt comes distress
According to the National Credit Regulator (NCR), the credit standing of consumers has continued to deteriorate, with data indicating that the number of credit-active consumers increased to about 18 million in the third quarter of 2009, up from 17,8 million in the second quarter. In addition, the NCR says that the number of consumers with impaired credit records increased to 8,1 million during the same period, which represents a whopping 44,9% of consumers.
South African Reserve Banks Financial Stability Review for March 2010 noted that at the end of the fourth quarter of 2009, the banks largest concentration of credit exposure was still to the private household sector. It said that the ratio of mortgage debt to the market value of housing remained high.
In light of the fact that some homeowners are unable to afford their mortgage payments; the number of bank repossessed properties has increased. Adrian Goslett, CEO of RE/MAX of Southern Africa, explains that bank repossessed properties are the result of homeowners continually failing to pay their home loan installments to the point where the home loan is cancelled by the financial institution which granted the loan.
The repossession process is started when a homeowner defaults on the home loan to such an extent that the only option for recovering the debt is through repossessing the property. A relatively new method of recovering the debt from distressed properties is selling them through reputable estate agents in a distressed sale. Should the banks reserve price not be met, the bank has the option to buy back the property.
RE/MAX of Southern Africa has been selling distressed properties through the First National Bank Quick Sell programme since September last year, and Standard Banks distressed properties since January 2010.
Goslett reports that to date, the company has sold over 150 distressed properties, which have varied in price from as little as R100 000 up to the R5-million mark. He says that the selling prices of distressed properties are usually within 10% to 15% of the market value, providing value to both buyers and sellers. The buyers, he says, often get a good bargain when purchasing a property through a distressed sale, while the seller is able to sell their home, nullify their debt and avoid a bad credit record by being blacklisted.
The banks win too as they are able to reduce their risk by helping owners
lighten their debt load. However, while the sale of distressed properties
through estate agents has been successful, Goslett notes that homeowners
should avoid getting themselves into an over-indebted situation in the
first place. Buyers should do the sums to ensure they can afford
to own the property they want to purchase and should attempt to use cash
instead of credit wherever possible.
Article by: www.remax.co.za