The sales value of residential property auctions is set to grow faster than the value of any other type of auction if SA follows the international trend, says Rob Whiteley, national manager of RealMart First Resort Auctions.

Latest statistics from the National Auctioneer’s Association in the US show that vehicles still account for the most auctions and generate the highest amount of revenue; however, the value of residential property auctions is currently showing the highest growth.

The total value of auction sales in the US last year was $257.2-billion, with vehicles accounting for $87.3-billion. However, the value of residential property auctions grew the most — by 39.2 percent — between 2003 and 2006.

Collapse of the sub-prime market

Whiteley admits many of the residential property auctions in the US currently are a result of the collapse of the sub-prime loan market.

“This market was created by the financial institutions, which typically made housing loans to recipients who did not have good credit records but were charged higher-than-average interest rates. And when the prime rate went up even half a percent, these borrowers were in deep financial trouble.

"What had been only just affordable became totally unaffordable, their homes were repossessed and the banks gave them to auction houses to clear them in bulk.”

Sub-prime mortgage bonds accounted for 22 percent of all bond activity in the US in 2006, or about six million loans. And one auction house in the US currently conducts monthly auctions of anywhere between 300 — 500 properties, just in one state.

Local banks not so involved

Fortunately for South Africa, local banks have not been so involved with the sub-prime market and the property economy is more stable.

“However, as a property-based group we do see an ever-increasing move to the ‘friendly’ auction scenario where a seller will decide to go to auction with his asset first, rather than list with an estate agent and then, after weeks or even months on the market, decide to go to auction as a last resort,” says Whiteley.

But will South Africa ever reach the auction highs of Australia, where almost 85 percent of residential properties are sold by auction? “Never say never,” says Whiteley.