SA’s auction property sector, which continues to present investment opportunities, is gearing itself for a bumper season for the remainder of 2023 as more properties are expected to be auctioned with consumers coming under increased financial pressure.
According to Candice Cohen, business development manager and auctioneer at AuctionInc, financial pressure due to rising interest rates and political uncertainty with upcoming elections in 2024 will result in more properties sold on auction.
“Inflation can prompt investors to seek tangible assets like real estate, making the auction market an attractive avenue for securing valuable properties,” Cohen told Business Day.
Cohen said rising interest rates, and increase in expected return on investments, often lead to increased competition among buyers, which can drive up property prices and create a favourable environment for sellers at auctions.
The Reserve Bank has hiked interest rate by a cumulative 475 basis points (bps) since November 2021 in a bid to tame rampant inflation in the wake of the Covid-19 pandemic.
On May 25, the bank raised its benchmark repo rate by 50 bps to 8.25%, meaning the prime rate — which commercial banks charge for retail customers — will rise to 11.75%.
Property owners are having a difficult time dealing with rising interest rates and having to pass on reasonable rental increases to tenants who are not immune to rate hikes.
In addition, increased load-shedding, has pushed up operating costs as many owners are investing in diesel powered generators to provide backup power, said Broll Auctions and Sales CEO, Norman Raad.
Still, auctions provide investors great opportunities to snap up great buys as some owners sell their assets. For example, certain office blocks continue to find buyers even though the sector is battling high vacancies and generally, not seen as a good investment in the current market.
Broll Auctions and Sales recently sold an office block in Sandton for R44m, with negotiations under way for another office block in Parktown.
According to Warren Aronson, a business development executive at Aucor Property, they continued to see large volumes of stock coming to auction, but not a substantial amount of distressed stock.
“Investors view property as a safe haven — they believe the property fundamentals of assets they buy are strong and they believe when the interest rate cycle settles in 2-3 years’ time, they will be in a better position,” said Aronson.
Some sellers are holding onto their assets and choosing not to sell in the current rising interest rate environment.
“Quality and well-priced stock always sell — and we are strict on realistic pricing, and we do not take stock that we do not believe we can sell,” said Aronson.
According to Sean Parsons, a business development executive at Aucor Property, despite macroeconomic challenges, there are numerous cash buyers on the market, new entrants who form consortiums to boost their buying power, and those looking to build their portfolios.
Cohen said though there are buyers that turn to financial institutions for funding, cash buyers remain prominent in the market — they appreciate the convenience and swiftness of closing deals without the need for financing arrangements.
Parsons said there is huge demand for industrial space, especially vacant buildings measuring about 5,000m2 from owner occupiers wanting to buy the properties — and this bodes well for the sector.
“There are always opportunities even in this environment, and we expect a strong auction market for the remainder of the year,” said Parsons.
For residential property owners, high interest rates have resulted in increased mortgage payments — and for many — these increases have become unsustainable with many choosing to sell their properties.
With the recent 50 bps rate hike, monthly bond repayments over a 20-year period will increase by R259 from R7,869 to R8,128 for a R750,000 property, and nearly R900 for a R2.5m property increasing from R26,231 to R27,093, said Samuel Seeff, chair of the Seeff Property Group.
Greg Dart, director at High Street Auctions said rising interest rates are putting pressure on consumers and businesses leading to the real estate market slowing down for the remainder of the year.
“Savvy investors are still making money in bricks and mortar because they buy properties that generate immediate income with growth in long-term capital investment,” said Dart.
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