It's crunch time for property owners

South African homeowners are anxiously weighing up their financial obligations as they strive to keep up with their home loan repayments.

Some are, however, choosing to sell their homes before they default, others are making payment arrangements with their banks to avoid defaulting.

During the adverse economic conditions over the past 12 months, Mbuyiselo Khumalo, Absa’s head of home loan collections and deceased and insolvent estates, says the bank has seen a “significant increase in the number of defaulting homeowners committing to arrangements to remediate their financial distress”.

“To this end, they enter into agreements with the bank with a view to primarily prevent the sale of their homes at the sheriff auctions. Absa regards the sale of primary residences through the sheriff auction a last resort after all necessary steps to salvage the situation have been fully exhausted.”

Khumalo says there has also been an increase in the number of defaulting homeowners selling their homes privately to try to remedy the situation before the legislative sheriff auction process goes ahead.

“We supports these emerging trends as they have mutually beneficial results for both the homeowner

and the bank,” he says.

The avoidance of the sheriff auction process is also being seen on the floor, where ClareMart Auction Group says there has not necessarily been a spike in such auctions.

Rather, there has been an increase in homeowners choosing to sell their properties by auction in a bid to become more liquid, says general executive director Andrew Koch.

This is particularly seen in cases where people own more than one property.

“Where people are concerned they may run into financial trouble with a particular residential property, they are also turning to the auction floor for a quick sale, very often having their expectations exceeded in terms of the mandate price.”

Koch says the group has auction properties worth “well under R100 000 to well over R10 million.

“This is an indication people are battling across the income spectrum.”

He says more people are likely to feel increased financial pressure until the economic climate becomes more favourable.

FNB has also reported an increase in financial-related selling which Stuart Manning, chief executive for the Seeff Property Group, says is “understandable in a climate of spiralling costs and poor economic growth”. However, he says there is no reason to panic.

“Following the introduction of the National Credit Regulator in 2007 and the 2008 global financial crisis, there was a significant problem with distressed sales in the market with many properties in negative equity. Since then, prudent lending practices have aimed at reducing this problem.

“Banks are still taking a balanced view of the market with fairly relaxed lending policies. If the banks were concerned about any spike in financial stress, we would see a marked tightening in lending policies and banks would signal their concerns.”

Market factors are also “nowhere near panic levels”, he adds.

Upper-end weather storm

Distressed selling has not yet been seen by agents in upper-end areas. Picture: Supplied

Distressed selling is not being seen on the Atlantic seaboard or in the city bowl, says Natalie Muller, Seeff sales and rentals manager in these areas. This is because most properties here are bought for cash and homeowners tend to be high net worth.

“If property owners begin selling, it might only be to consolidate their financial position, but not because they are unable to afford their housing bonds.” Although the Atlantic seaboard is “fairly insulated against economic fluctuation”, Muller says the challenge here is, rather, one of sentiment and investor confidence.

“If sentiment and investor confidence is low, high net worth individuals will simply stop buying. They will instead just stay put, and this is what we are seeing here now.”

Across other areas, including Cape Town’s northern and south-eastern suburbs, and the winelands and coastal areas, distressed selling is only being seen in some markets and not in the upper-end areas, Seeff agents say. The rentals markets are, however, being affected by defaulting tenants and decreased rental rates.

Remedies: Financial distress

Banks will consider whether factors causing a customers’ financial distress are short-term, long-term or indefinite, says Absa’s Mbuyiselo Khumalo

Short-term distress:

The bank could possibly offer reduced instalments – for a period of six to 12 months – based on the customer’s affordability.

In exceptional circumstances, an instalment can be reduced to as low as 25% of the contractual monthly payments.

Long-term distress with a potential for remediation:

The home loan could possibly be restructured. This includes restating the tenure up to 360 months to reduce the monthly instalments. The bank will assess each situation individually.

Long-term distress without potential for remediation:

If short and long-term plans are not feasible, a bank assisted sale or approved private sale of the property can be arranged.