• Property experts predict that many distressed properties will go on auction in the coming months, as economic hardship bites, widely.
  • These auctions present the opportunity to buy a property for a bargain, with some recently selling at discounts of up to 70% in recent months.
  • Business Insider South Africa recently attended eight property auctions in Gauteng, covering 33 distressed properties, and saw an average discount of 42%.
  • For more stories visit Business Insider South Africa.

Tough economic times, including jobs losses, have taken their toll on South Africans paying off home loans. As relief measures provided by banks during the country’s lockdown to fight the coronavirus dry up, property experts predict that many distressed properties will go on auction.

These auctions present the opportunity to buy a property for a bargain, with some recently selling at discounts of up to 70% in recent months.

There are three different stages during which buyers can purchase a "distressed" property. 

  • Where the homeowner tries to sell their property to avoid having their home repossessed, which is called a "distress sale". 
  • A so-called “sale in execution” property. This is when a borrower continues to default on their home loan and lawyers for the bank will apply to the court for a judgment. Once the bank has received the judgment, the Sheriff of the Court will auction the borrower’s movable assets. If the sale of the movable assets does not cover the mortgage arrears, the property moves into the “sale in execution” phase and the sheriff auctions the property.
  • A bank-possessed property. If the sheriff's auction does not meet the reserve price, the bank has the option to buy the property, and the property is then in the bank’s possession. In effect, the bank buys the property from the owner in default and the money from this acquisition clears part or all of the arrears owed by the former owner. The bank then puts the property in possession back on the market to try and get a better price.

Business Insider South Africa attended eight property auctions in Gauteng, covering 33 distressed properties.

Here are the discounts we saw.

A R3.9 million discount on a four-bedroom Bryanston home

The most extraordinary bargain that Business Insider came across was in Porchester Road in Bryanston, Johannesburg.

The stand is 2,307 square metres in extent, and the house has four bedrooms, four bathrooms, and an outbuilding.

The Sandton North Sheriff auctioned the property with no reserve and sold it for almost R1.7 million on 1 December. Selling with no reserve means that the property will be sold regardless

The City of Johannesburg (CoJ) valuation was R5.6 million, but the property owed R488,000 in rates.

So, the property sold at a 70% or R3.9 million discount before any commission and value added tax (VAT).

A nearly 50% discount on a four-bedroom home in Carlswald Estate, Midrand

Another property that sold for a steal was in Karee Drive in Carlswald Estate in Midrand, Gauteng.

The property is 2,597 square metres in extent, and the house has four bedrooms, six bathrooms, and an outdoor room.

The Halfway House–Alexandra Sheriff sold the property on auction on 8 December.

The CoJ valuation was R5.895 million, but the asset had outstanding municipal rates of R416,629.

The price of R3.05 million achieved at the auction was a 48% or a R2.845 million discount.

A better than 40% discount on a R434,000 sectional title unit in Sundowner

A third property that sold for a bargain was a sectional title property in Sunbird Estate on Meteor Road in Sundowner, Gauteng.

The property is 111 square metres in extent, bar exclusive use areas, and has two bedrooms, two bathrooms, and two carports.

The Randburg South West Sheriff auctioned the property on 10 December.

The CoJ valuation was R769,000 and had outstanding levies amounted to R199,807 and municipal rates due of R27,184.

The property sold for R435,000. This price equated to a 43% or a R334,000 discount.

If the buyer of this property were to resell it for the CoJ valuation or higher, then he or she could use it to finance a university degree for one of their children.

The average discount: 42%

Six properties, four auctioned by the sheriffs and the two others by the major auction house, achieved their reserve prices, thus allowing each sale to proceed.

Of those six properties, the average discount of each sale price was 42%.

The extent of discount to the municipal valuation of each property ranged from 16% to 70%.

Here’s why a distressed property sells for such deep discounts:

  • The properties have significant amounts in arrear rates, levies or other amounts outstanding.
  • Repossessed properties usually have occupants, and evicting people is an unpleasant, time-consuming and costly task.
  • Only a few people attend sheriff auctions.

One reason for the low attendance at auctions is that the financial institutions or the court often cancel the sale of properties at the last minute. Of the 31 distressed properties up for sheriff auction, the parties to the sale of 14 cancelled.

Few properties achieve their minimum price

Thirteen properties auctioned by the sheriffs received no interest at all or failed to achieve the reserve price set by the court.

A reserve price is the amount stipulated as the lowest acceptable by the seller for a property on auction.

A defining court judgment in 2018 by the South Gauteng High Court in Johannesburg required that when a distressed property is at the point of sale in execution, and it is the owner’s primary residence, there must be a court-sanctioned reserve price in place, save in exceptional circumstances.

The ruling put an end to the practice of selling distressed properties for next to nothing and thus leaving the former owners of these properties to face great hardship.

Since that judgment, all sale in execution properties that the Sheriff of the Court auctions for the first time have to have a reserve price, but if the property cannot achieve this price, then the court will decide whether to accept the highest bid or reject it.

When the sheriff auctions the property for the second time, the repossessed property has no reserve price. At that point, you probably have your best opportunity of scoring an epic bargain. But out of 17 properties that sheriff auctioned, only two had no reserve price.

Receive a daily news update on your cellphone. Or get the best of our site emailed to you

Go to the Business Insider front page for more stories.