The number of South Africans forced to sell their homes because they can no longer afford monthly bond repayments and rising running costs has shown a worrying increase in recent months.
It appears homeowners who thought they could sit out the downturn are now realising that their financial position may not improve soon. In fact, many expect household balance sheets to take a further knock over the coming months on the back of sharp increases in food, fuel and utility prices, as well as looming interest rate hikes.
“Those who just managed to hold onto their homes until now no longer have a choice but to offload or downscale,” says Seeff Properties chairman Samuel Seeff.
He says the number of distressed sales concluded by the Seeff group — one of SA’s three biggest real estate players — has climbed from 17% to 22% of total sales in the 12 months to end-March 2011. And the trend has continued into the second quarter, says Seeff.
He notes 12-18 months ago the bulk of distressed selling was holiday homes and investment properties. “Now most people are losing their primary homes.”
Seeff says distressed sellers are typically those who bought at the height of the boom. Most are forced to sell their homes for at least 15%-20% less than they paid three or four years ago.
“That’s weighing down overall residential property values.”
Seeff warns that the large volumes of distressed sellers still coming to the market could potentially stall SA’s housing recovery for at least two years.
Another reason for the uptick in forced sales could be that banks have until recently been fairly lenient in their repossession approach. Auction Alliance CEO Rael Levitt says SA banks, unlike many of their US counterparts, have tried to avoid foreclosures because of the large losses that arise as a result.
However, when banks have exhausted all non judicial methods of collection, they eventually have no alternative but to go the legal route to deal with defaulting mortgage clients. Levitt says that has resulted in a rush of sales in execution hitting auction floors since early this year.
Latest figures from FNB also suggest a further deterioration in the household financial position in recent months. The bank’s data for the second quarter of 2011 shows that the number of people selling their homes to downscale because of financial pressure has risen from 20% to 25% over the past year.
FNB home loans CEO Jan Kleynhans says not even the fact that interest rates are now at a 37-year low is enough to keep people in their homes. Over the past two years, about 5000 FNB-financed homes worth around R3bn have been sold through the bank’s distressed sales platform known as “quicksell”. FNB has another 1000 distressed properties for sale on the site.
Kleynhans says the bulk of these properties are primary homes priced in the R700000-R2m bracket. Most were bought in the halcyon days of 2007/2008.
One upshot of banks still sitting with a sizeable number of distressed loans on their mortgage books is that they are unlikely to loosen their lending criteria anytime soon. Kleynhans says it might take at least four to five years before FNB opens its lending taps again.
“Consumers haven’t reduced their debt to the extent that we hoped, despite low interest rates. Living costs, meanwhile, continue to escalate, so consumers simply cannot afford to take on more debt.”
Kleynhans says today only one in every eight (12,5%) home loan applications processed by FNB is successful. “There is no shortage of willing buyers but few are able.”

By Joan Muller (This article appeared first in Financial Mail July 15, 2011)