Distressed Properties a Global Trend

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Globalisation is a reality – evident in how South Africa’s property market mirrors others around the world, even though we have been slightly buffered from the worst effects of the recession. In line with the UK and US, and despite increased sales activity and wonderfully low interest rates, distress in the local residential market will continue to be a reality for the foreseeable future. In fact, real estate professionals in the countries surveyed by the RICS Global Distressed Property Monitor said that they expect distressed properties to continue to come onto the market going forward, with Portugal, Ireland and the US reporting the biggest increase in expected distress. A good sign is that according to this monitor, the number of countries reporting distressed properties coming to the market fell from 17 in the first quarter, to 13 in the third quarter of 2010. Brazil, Russia, India and Hong Kong reported especially healthy declines in distressed property. Locally, the number of property in distress has been fuelled by various factors, including rising unemployment rates, a sharp increase in electricity costs and rates and taxes, the high level of consumer debt-to-income ratio, which is currently sitting above 78%, and of course the domino effect of the global recession and credit crunch that we have not been totally immune to. As more distressed properties have come on to the market, sales activity has rapidly accelerated as investors with cash in their pockets jump at the opportunity to buy the many bargains that are currently up for grabs. In some price brackets property values have been affected by the distressed properties that are coming on to the market. This is definitely a buyer’s market, and if you have the money available and you can afford to wait out the storm, the investments currently up for grabs could pay really good dividends in the future. Over the past year, the number of people who cannot service their mortgages has increased dramatically. In fact, the National Credit Regulator’s second quarter Consumer Credit Market Report reported that as at June 2010, the total outstanding consumer credit balance was R1,15 trillion representing a quarter-on-quarter growth of 0.90%. Mortgages accounted for almost 65% of this outstanding consumer credit. Given the fragility of South Africa’s recovering economy, combined with the high levels of debt, and low employment opportunities, I believe that distressed sales will remain a regular feature within the real estate industry for at least the next 2 years. This is a trend that is not unique to South Africa, but one that seems to be affecting global real estate markets the world over.