Banks in a quandary over property repossessions

Statistics released today by the South African Reserve Bank showing a drop in mortgage advances growth by monetary institutions to its lowest level in 3 ½ years was fully expected by Richard Gahagan, MD of property portal Property24.

Commenting on the data in a media release today, Gahagan said the SARB’s data was also borne out by data by Property24’s Property Sold Price Index showing that the number of sales had dropped substantially since this time last year.

The growth rate of 20,6% year on year recorded in May 2008, it is the lowest since October 2004 when it was 21,4%.

Gahagan said total property transfers for Gauteng, Western Cape and KwaZulu Natal were down from 61 573 in Q1 2007 to 49 156 in Q1 2008. “The slowdown seems to be spread equally across freehold and sectional title ownership with both ownership types down around 6 000 transfers year on year.”

But it’s not only new mortgage growth the problem, says Gahagan. “Financial institutions are experiencing a huge number of defaulters at present, to the extent that they are starting to take drastic measures,” he says. “But the lenders are in a quandary – by the time a homeowner defaults on his bond repayments he has usually already defaulted on other, smaller debts, so it means he is really in trouble. The only legal avenue open to the lender is to repossess the property, but most do not want to take this route.”

Gahagan believes the financial institutions are reluctant to repossess large numbers of properties, as they are aware they won’t recoup their losses in the current market. “They are also not in the business of letting property,” he says, “so it means repossessed properties may either stand empty and risk being vandalised or be auctioned off for less than their value. Neither of these are ideal situations.”

But in a time when motorists are resorting to thuggery to steal petrol at the filling stations, Gahagan says struggling homeowners often feel there are not too many options open to them. However, he says the banks are urging debtors to approach them early to discuss their difficulties in order to try and find a solution that will help the borrower.

“The institutions have indicated their willingness to consider a wide variety of ‘debt repair’ options in an effort to avoid repossessing homes and other items.” He urges homeowners to make every effort to hold onto their homes and ride out the bad stretch, rather than losing the money already paid into the property.
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