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Monday Nov 21, 2011

Value of distressed home loans rises 20%

The tough economic environment and high consumer indebtedness levels have led to the value of non-performing home loans at local banks increasing to an estimated R25 billion to R30bn.

This excluded distressed commercial properties and property developments, Auction Alliance chief executive Rael Levitt said on Friday.

He said the estimated value of non-performing loans was 20 percent higher than in 2009, when distressed property sales were peaking.

Levitt attributed this to the value of transactions being higher because many banks assisted debtors with delayed and extended repayment terms. "The market is in greater stress now than it was in 2009."

Average residential property market prices were 30 percent to 35 percent lower than the market peak in mid-2007.

The market was probably near the bottom but there would be further property price deflation next year, he said.

Absa Home Loans senior property analyst Jacques du Toit said average house prices in real terms were 13 percent lower than they were in 2007 while the month-on-month growth in nominal house prices had been slowing since the beginning of the year.

Levitt said the number of houses being sold through legal channels, including sales in execution, insolvency sales and banks' voluntary distressed sales channels, had decreased slightly to about 1 000 a month.

The voluntary sales programmes established by banks for defaulting debtors were growing throughout the country because distressed homeowners and financial institutions were continuing to seek alternatives to legal foreclosure, he added.

In these distressed sales programmes, homeowners who cannot afford their bond repayments agree with the bank to sell the house voluntarily.

Levitt said sales in execution, the traditional legal foreclosure channel, had dropped because of banks aggressively promoting their voluntary distressed sales programmes.

FNB reported a decline in the variety of houses on sheriff auction from the past two years because of products that avoided this costly process.

FNB Home Loans chief executive Jan Kleynhans said there were bargains with houses sold for 20 percent to 50 percent below their initial value. It sold up to 150 houses a month and had sold R4 billion worth of distressed houses since the introduction of its various voluntary distressed programmes, with its non-performing home loan book valued at R6bn.

Gauteng recorded more distressed sales than any other area with 4 145 in the third quarter at an average discount of 32 percent and an average price of R410 237, Levitt said.

Business Report


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