Property auctions  

By Pauline Larsen        
  
Gone are the days when auctions were a last resort for foreclosures and liquidations. 

Auctions are coming into their own as inner-city property sellers are seduced by the promise of hefty deposits and secured cash offers. 

Auction Alliance sold 35 properties last year in the inner cities of Cape Town, Johannesburg, Durban, Bloemfontein, Pretoria and Port Elizabeth. 

Aucor sold 37 inner-city buildings in various regions, all at prices that outstripped expectations, says CEO Eddie Winterstein. 

Winterstein points to the example of a building in Port Elizabeth that had been on the market for four years.

The seller wanted a minimum price of R4,5m but the highest offer he had received was R3,8m.  "When he decided to auction the property, he achieved R6,8m with a 20% upfront deposit," says Winterstein.

Sellers are increasingly opting for auctions instead of mandating brokers, say auctioneers. Properties are auctioned subject to confirmation, so the seller can decide whether to accept a bid.

The buyer is obliged to fork out a hefty 10%-20% cash deposit, too. 

And, as Winterstein emphasises, an auction deal is not subject to the buyer obtaining finance.  "These are secured, cash-on-the-table offers," he points out. 

Auction fees are negotiable but usually range from 7%-10% of the sales price.

The fee can be paid by either the buyer or the seller.  Auctioneers say sellers achieve a fair market price because of competing bids.

That's assuming enough bidders turn up, which they didn't until recently.  "In Johannesburg, auction bidders initially tended to be a small group of brave investors who were snapping up bargain after bargain," says Auction Alliance CEO Rael Levitt. 

Winterstein agrees, saying that Aucor first noticed an uptick in corporate and institutional seller interest in 2003. 

In Cape Town, Irish investors are attending every single CBD auction, says Levitt.  Winterstein says there have been cases of buyers of auctioned buildings re-auctioning them for windfall capital gains. He says one investor bought an inner-city building at auction in 2003 for R1m and re-auctioned it for R2,5m just 18 months later. 

Auctioneers claim individual brokers can't single-handedly change investor mind-sets about inner cities.  But Colliers International property broker Debbie Echstein says auctions are effective where buildings have been difficult to sell. 

"Sellers won't hawk premier corporate properties, though; these can be handled more discreetly through brokers," she says. And brokers' commissions are payable only on transfer, which is an advantage for the seller. 

Inner-city property auctions confirm the growing trend of strengthening yields - a sign that confidence in downtown property markets is on the rise. 

"We have even sold buildings at 7%-8% yields. But in Johannesburg and Cape Town, yields are often ignored by conversion and re development opportunists," adds Levitt.