I must admit that I was quite impressed at the style in which these auctions were being held in that the auctioneers and the bank made it known what was the outstanding bond owing on the property. The way I understood it, these were properties that the distressed owners were 'voluntarily' putting up for auction. Needless to say, not a single property on auction, out of 60, recieved bids even close to their outstanding bond value.
I bid on eight properties and was the succesful highest bidder on three. I left the auction thinking that there was no way in hell that such low bids would be accepted.
I was very pleasantly surprised when I recieved confirmation emails from the auctioneers that all my bids were accepted by the sellers. The one property I bid on was a three bedroom/ two bathroom free standing house in the Table View area. It was and still is for sale through agents for R895 000. My bid of R450 000 was accepted. The other was on a two bedroom 67 square meter flat in the CBD which had a outstanding bond of over R1 million. My bid of R475 000 was also successful. On the third property, a two bedroom flat in the South Peninsula, my succesful bid was R390 000 and the oustanding bond was R650 000 (granted just over a year ago).
Even with the auctioneers commission of 11.4% on top of these prices, they are still bargains of note.
I think that ABSA, along with the other big banks, are seeing ever increasing amount of homeowners defaulting on their repayments and panic is starting to move in. Homeowners are being forced to accept these low bids on their property or else the property will be repossessed leading to a drawn out process which the banks are trying to avoid at all costs.
What gets to me is that the majority of these distressed property owners were granted these bonds less than three years ago by the very same lending institution. Now they are being forced to sell at unheard of prices. The banks actions border on criminal to say the least.
Here's a summary of TA's purchases and the discount he got off asking prices:
| Owed on Bond | Successful Bid | Discount off Asking Price | ||
|---|---|---|---|---|
| Three bedroom/ two bathroom free standing house in the Table View area | R895 000 | R450 000 | 49.7% | |
| Two bedroom 67 square meter flat in the CBD | Over R1 million (let's say R1 000 000 even) | R475 000 | 52.4% | |
| Two bedroom flat in the South Peninsula | R650 000 | R390 000 | 40% |
11 comments:
I see that the latest housing analysis provided by Market Oracle forecasts the US bottoming out in 4 - 5 years. If this is true, how does this impact our SA house prices and would you consider these prices a 'bargain'?
Those are nice discounts. The only thing that I don't quite understand is why those sellers didn't simply lower their prices in the normal sales if they were prepared to accept 40% less. They could at least pocket the 11% auctioneer commission. My only guess is that the sales are urgent and/or the "normal" market is dead (no buyers) or saturated (too many properties on sale).
These are not voluntary sales. ABSA is basically forcing these people to sell their houses at auction before it goes into repossession, which is a long drawn out legal process that will cost ABSA money.
Apaprently, out of the 60 properties for auction, only 35 were sold. The other 25 had to low offers.
That is quite understandable as alot of the properties on auction were in outlaying areas like Gansbaai, St Helena, Laingsburg and Langebaan. The prices achieved there were horrendous to say the least indicating that the people with holiday properties are also in financial trouble.
I think the prices being achieved now at these auctions are still too high and will drop even further, maybe another 20%.
What gets to me is that the majority of these distressed property owners were granted these bonds less than three years ago by the very same lending institution. Now they are being forced to sell at unheard of prices. The banks actions border on criminal to say the least.
While I don't think the banks' hands are clean, I can't agree with your assigning the blame solely on the banks. Didn't these bondholders do their own napkin calculations of affordability and a basic risk analysis? 1998 and its 20-odd percent interest rates is not that long ago.
How about thumbuscking a rental and then doing one of the fancy finance graphs on one of these properties?
Banks are allowed to leverage each rand 9 times according to the SARB's fractional reserve rate of 10%. In other words it takes R89 500 of the banks money to finance a bond of R895 000 with the balance created from your promise to pay the loan i.e monetizing your signed promissory note. The interest on the bond is what they are after as the principal ceases to exist when paid back. The bank cannot lose money on these properties, to the contrary it would seem they profit.
Please forgive me I'm a noob. How do these auctions work - do you have to pay a deposit to be able to bid, and how long do you have to come up with the cash if your bid is successful? Interesting post, Thank You
These auctions require a R10 000 deposit. If you are the highest bidder, you must pay the auctioneers commission which is a crazy 11.4% on your bid price.
Once you get confirmation that your bid has been accepted, whcih can take up to 3 days after the sale, you have to either give the balance in cash or provide a bank guarantee so the transfer process can start.
They will give you time to get finance but in this enviroment, you have to have cash available.
So if you dont have cash, dont bid.
On a different subject, its quite interesting to what the person wrote re monetizing and the loan on property.
It makes a lot of sense in that a homeloan, with its interest accrued over the term of the loan, adds up to over 6 times the iitial loaned amount. Therefore, there is plenty of scope in this equation for the banks to make up their losses.
At the end of the day, its the defaulting homeowner that gets shafted. It is quite crazy to think that in the USA and UK, when a homeowner defauls and his house repo'd and sold, there is no money owing to the banks unlike in Sa, where the banks chase after you until the get all their money back.
For those interested in money creation and what your bank and Tito would rather keep you in the dark about can read the Reserve Bank of Chicago's workbook on fractional reserve banking called Modern Money Mechanics available at www.truthsetsusfree.com/ModernMoneyMechanics.pdf
A quote from this workbook explains how the banks create brand new money from your promise to pay back the loan (promissory note = a loan agreement or bond).
If business is active, the banks with excess reserves probably will have opportunities to
loan the $9,000. Of course, they do not really pay out loans from the money they
receive as deposits. If they did this, no additional money would be created. What they do when they make loans is to accept promissory notes in exchange for credits to the
borrowers' transaction accounts. Loans (assets) and deposits (liabilities) both rise by
$9,000. Reserves are unchanged by the loan transactions. But the deposit credits
constitute new additions to the total deposits of the banking system.
If we all thought that bank charges were iniquitous, how about charging you all that interest on money that you actually created in the first place.
I'm trying to understand this. If the house is bought at R500k, and there is a R1M bond, what happens to the bond? Does it fall away? Is the purchaser liable for the outstanding bond in any way whatsover?
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