http://www.timeslive.co.za/business/article579032.ece/Big-squeeze-set-to-claim-450000-homes

Big squeeze set to claim 450000 homes

Credit crisis lingers, writes Simpiwe Piliso

Aug 1, 2010 12:00 AM | By Simpiwe Piliso 

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More than 450000 South Africans face losing their homes - and thousands more face having to sell their properties below the initial purchase price as they battle to keep up with their bond repayments.

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SUBURBAN BLITZ: While some homeowners are being forced to sell, falling prices could be an investment opportunity for those with cash Picture: BONGANI MNGUNI

  'The market is near the end of the down cycle and may have begun to turn' 

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The country's major banking groups each have about 100000 distressed residential properties on their books, Andrew Golding, the chief executive of Pam Golding Properties, told the Investment Property Databank (IPD)/SA Property Owners Association investment conference in Cape Town this week.

The total excluded properties that had already been repossessed, Golding added.

IPD South Africa managing director Stan Garrun told delegates: "It has been more than two years since the most tumultuous financial crisis in modern times hit developed countries, precipitating hardship across the world."

While those hardest hit by the crisis are middle-income homeowners, those with properties valued at between R2-million and R5-million are also feeling the pinch, with many scrambling to secure additional finance to keep the creditors at bay.

Many have had to cut back on their lifestyle and living expenses.

Owners of the more than 450000 distressed homes, according to Golding, "have little prospect of meeting those obligations (to settle the arrears on their mortgage backlog) in the short and medium term".

"It certainly seems like a lifetime ago that the residential property market was in full bloom ... characterised by house price appreciation well in excess of 30% year on year, easy 100% loans, developers developing every piece of land they could get their hands on, 70000 estate agents in the country and home buyers and investors using credit cards for minimal deposits," said Golding.

In June last year the Sunday Times reported that total household debt - which includes bond, overdraft and credit card payments - had rocketed from R952-billion to above R1.1-trillion. At the time, household income sat at R1.4-trillion.

Then, South Africans were experiencing the first recession in 17 years, and many were facing pay cuts or retrenchment and about 6000 cars and 2000 homes were being repossessed every month.

For two years, up to the end of last year, there was an 80% decline in mortgage lending, property developers went to ground, and many big development projects were liquidated.

Golding said house price deflation was in the order of 5% to 10% a year.

"It's at times like these that property investment opportunities have been at their greatest ... investors have capitalised on the situation and made significant real returns. Any downturn in the economy is an excellent time to buy," said Golding, whose views have been supported by a number of other leading estate agents.

Pam Golding Properties' books show there are a large number of coastal properties on the market.

"Sellers have to be realistic about their sale price if they genuinely wish to dispose of these properties," Golding said.

But, like other real estate agents, Golding believes the market is recovering.

"Interest rates are at the lower end of their cycle ... the market is near the end of the down cycle and in fact may have already begun to turn," he said.

Moreover, Golding warned that the country could soon face a severe shortage of homes.

"Commentators have warned that 10million new homes, from low-cost to middle-income, are needed to meet the country's requirements because of steady population growth," he said.

However, homes in South Africa's upmarket property sector - those worth more than R20-million - are still undervalued, said Golding, whose company achieved a record turnover of R21-billion in the financial year ending February 2008.

"The best homes in Johannesburg, Cape Town and Durban are now beginning to compete with those in St Tropez, London, New York and Paris ... in world terms they are still underpriced."

Golding urged the government and business to promote the country as an investment destination and a desirable place to live.

"If ever there was a time to present our credentials to the international community it is in the afterglow of the successful World Cup," he said.