How repossessions place all home values under threat

Home repossessions are everybody’s business, so even those who are not feeling the pinch of unemployment or a strained household budget should welcome and encourage any measures taken by the banks to help those homeowners who are in distress.

So says Colleen Gray, MD of CENTURY 21 in South Africa, who notes that the major banks have moved relatively fast in this recession to introduce some anti-repossession measures.

Apart from a readiness to negotiate with homeowners in trouble and reschedule their debt, these measures include bringing estate agents and auctioneers on board to help sell properties in danger of being repossessed, so that their owners are not left with no home and a huge debt to pay, and also offering home loans on favourable terms to the buyers of distressed properties.

“And they are not before time,” she notes, “because estimates are that at least 1000 homes a month are already being repossessed - a phenomenon that threatens to place a major drag on overall market recovery, with all those homes adding to the inventory that has to be mopped up before prices can start to rise again and banks can ease their home loan restrictions.”

As it is, Gray says, one of the biggest factors currently holding banks back from granting new home loans is the fear that the properties which secure those loans may not be able to hold their value – especially if the incidence of default and repossession rises.

“They know only too well that repossessions also affect the value of surrounding properties, and while there are no SA figures available to show this, one can gauge the scale of the possible effect on the overall market from recent figures released by the US Centre for Responsible Lending.

“These show that every repossessed or foreclosed property reduces the value of neighbouring properties by $7200 each (about R57 000), for two reasons.

“The first is that owners who cannot afford their bond repayments usually also cannot afford to maintain their homes, and that properties in disrepair lower the tone of the area and the home prices that prospective buyers are willing to pay. The second reason is that homes auctioned off by the banks at less than market value lower the average price for the area going forward.”

Consequently, she says, it is critical that banks do not let repossessions get out of hand as they did in the late Nineties, and all property owners and investors should welcome their proactive stance this time around. “This will, we believe, assist the property market to begin recovery in line with a general economic recovery next year.”

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