Auctioneer Timid About 2009

This article is courtesy of Realestateweb (2009: Auctioneer gazes into his crystal ball – 22 December 2008)

Rael Levitt, CEO of the Alliance Group warns that global events will continue to have a huge impact on the distressed South African economy in 2009.

Levitt says that The Alliance Group, South Africa’s largest asset services and auction group, has experienced a turbulent 2008 with the property market going into free fall from the middle of the year. This started with a sharp increase in car repossessions and then house repossessions. Personal insolvencies followed which left Levitt’s company with large volumes of these distressed markets.

“By the end of the year we saw liquidations following and this December there have been more liquidations of companies than since the turbulent mid-1990s".

Levitt explained that what we are seeing know in South Africa is six months behind the USA, UK and Europe where distress is moving from the retail environment in business. Also following in the global trend is the property market, with a flood of residential stock hitting the market with both forced and non-forced sellers’ values dropping across the board.

Levitt said that by the end of this year, mortgage stress (less than two months in arrears) has grown to over 100 000 and severe mortgage stress (being four months in arrears) has also spiked to over 30 000 home owners. He added that for this to slow down, the Reserve Bank have to slash the interest rates by more than 4% at the start of 2009.

Commercial property, according to him has not been hit that hard even though the banks have tightened up on new finance criterion, which has dampened the demand. Sellers of commercial property prefer a “hold position” rather than discounting their prices. Levitt believes without a doubt that cost inflation will cause an upward pressure on prices and rentals. With rentals increasing as a result of supply constraints, plus lower interest rates, many opportunistic buyers will emerge.

Liquidations have increase sharply with the weakening rand impacting local businesses and both domestic and foreign investor sentiment. This can be seen in the large numbers of liquidations and business closures in November and December. Levitt warns that importers, motor trade, building suppliers and contractors can expect a rough 2009.

However, Levitt still believes that the 2010 Soccer World Cup will improve sentiment in certain sectors. He concluded by saying that those investors who understand the market cycles and who has access to finance, will be the ones who have a once in a decade opportunity to accumulate assets and businesses at fantastic values.

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