Thursday, 13 October 2011

Top Agent Questions "Ridiculously Low" Insolvency Sales

How can some liquidators justify turning down good, market-related offers for insolvent estates which then end up being sold for “ridiculously” low prices on auction? That’s what top Cape Town real estate principal Carina Nieuwoudt, owner of Realty 1 International Property Group in Cape Town North, would like to know. A worrying trend in a generally healthy market right now, according to Nieuwoudt, is that the number of insolvent estates has risen significantly in recent months - many in upmarket areas where people least expect. “It’s very sad that people are losing their homes,” she says. “The banks must accept a good measure of responsibility for this because during the good times, their valuations were too high and they granted credit too easily and often beyond people’s affordability. The result was that many people bought at their limit. While they could afford the initial bond repayments, they had nothing extra to meet the higher payments that resulted from the interest rate rising. This, on top of the fact that people are losing their jobs at a frightening rate, makes me emphasise to prospective buyers the importance of erring on the side of caution and making sure that they have a financial cushion should the interest rate rise again. The NCA (National Credit Act) is good in that it looks at what people have left to spend on bond instalments once they’ve paid all their bills each month. ” Still on the subject of insolvent estates, Nieuwoudt says she is baffled as to why liquidators are turning down good offers from estate agents. “My offers on insolvent estates are not only in keeping with valuations but are also always higher than the price they sell for on auction. I can’t understand it. All I can say is that sellers should try and avoid the auction route because the low prices received on auction are not in the best interests of bond holder or creditors. Rather, they will achieve the best selling prices from professional estate agents.” What’s also become a characteristic of the present market is that buyers are bargain-hunting as never before. “There is no doubt that the reasons for selling absolutely determine selling price, unlike in the past where supply and demand controlled market activity. Yet, contrary to many buyers’ beliefs, this is not the silly season and silly offers are being turned down all the time. That’s why there are so many counter-offers going backwards and forwards between buyers and sellers.” Not everybody has to sell, she continues. Yes, there are those in trouble but many other sellers are doing so in order to upgrade, downsize, relocate – the usual reasons. “As much as it’s important for sellers to be market-related, so buyers must be, too.” Finally, she says that those who are selling properties which they bought only a year or two ago will be lucky to break even and may even take a loss. However, sellers whose properties have accumulated a few years’ worth of equity may not realise as much profit as they would like but they will still make good money, despite pricing being under pressure. Ends