Rael Levitt, the Chief Executive of asset services and auction company Alliance Group, recently announced the launch of several products to assist cash strapped consumers, struggling businesses and their financiers deal with distressed properties and assets.

The Alliance Group has launched a US-initiated recovery product aimed at thousands of struggling South African home owners who are falling into arrears. According to Levitt the combination of decreasing property values, increasing interest rates and a global credit meltdown has put the local residential property market in a precarious position this year.

"We are now in the mid-cycle phase of a residential property slowdown and mortgage stress is spreading across the country. Over geared middle-income families are the most vulnerable, but we are now seeing some up market homes hitting the distressed sales markets."

55 000 South Africans suffer mortgage stress

Research from Alliance reveals that 55 000 South Africans will suffer mortgage stress by September this year, 15 000 of those will be in severe stress and 8000 could lose their homes because they can't meet the loan repayments. Mortgage stress is defined as being unable to meet repayments without refinancing, with many having to reschedule bond repayments.

"They are sobering figures," says Levitt. "Yet probably the scariest finding from our research is that once someone is in severe stress there is a 20 percent chance of being forced to sell the property and there is only a 50 percent chance of getting out of mortgage stress altogether."

Levitt explains the lesson struggling homeowners should adhere to when in trouble: "You just can't ignore it and hope things will improve. The quicker you take action, the better your chances of beating the financial survival odds."

Alliance has thus launched its bespoke Recovery Auction Programme (RAP) after researching a similar product in the struggling US housing market where over 270 000 homes were repossessed in June alone.

"The product assists defaulting homeowners in selling their properties in a voluntary and non-legal sales channel whilst working closely with the banks and bondholders to minimize debt write-offs." This will ensure that distressed South African homeowners voluntarily and quickly sell their properties prior to or early in the debt arrears cycle to avoid the time consuming costs of interest roll up, arrear rates and taxes, lengthy legal processes and other associated costs. "The Recovery Programme will aim to preserve the dignity of the distressed client and make him a willing and active participant in resolving his financial predicament while facilitating the bank's aim of reducing bad debt exposure," says Levitt.

Several banks have already signed up to the Recovery Auction Programme

Several banks have already signed up to the Recovery Auction Programme and the banks themselves are counselling their defaulting and distressed clients with whom sales mandates will be signed directly. Banks are being trained to advise clients to rather sell their homes if there is no other manner to resolve their distressed financial situation. "We have never seen such appetite from both the banks to come up with innovative debt recovery solutions, whilst defaulting homeowners are also looking for any way to avoid legal process and the Sheriff's sales in execution."

The first RAP sale will be held in Waterkloof, Pretoria with 15 properties coming under the hammer this week with a total value of R50-million. Thereafter sales will be rolled out in Johannesburg, Vanderbijlpark, Durban and Cape Town. "Within the next two weeks we will have sold over 60 properties through this recovery programme."

One of the most interesting issues, according to Levitt, is that there is strong investor and end-user appetite for these types of residential properties. "A lot of people have made a lot of money through property trading over the last five years and there is currently unprecedented interest in picking up good deals at auction. We have never seen our auction floors as busy as they are but buyers are looking for value and these are the forums where they can achieve this." According to Levitt now is the perfect time for the residential investor, trader and smart first time home owner to purchase property. "With decelerating prices and accelerating rentals the next 12 months will land up presenting the bargain basement deals that everyone regrets that they didn’t capitalise on when the markets rise again.

"It’s the old adage — buy when everyone is selling and sell when everyone is buying," advises Levitt.