Property auctions shed their stigma

Posted On Monday, 10 April 2006 02:00 Published by eProp Commercial Property News
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The flourishing industrial and commercial property market and the growing popularity of auctions has resulted in an increasing number of properties coming under the hammer, urging Aucor to consider holding two multiple auctions a month.

Property-Housing-ResidentialAucor CE Eddie Winterstein says there are many reasons for auctions becoming a preferred way for financial institutions and property investment companies to sell and buy properties.

An important incentive is the fact that prices being realised are, in the main, market related.

"Property auctions no longer have the negative connotations they used to have in the past, and the fact that banks and insurance companies now make use of this method is proof of the confidence in the auction industry.

"People may well say that what is good enough for the financial institutions is good enough for them.

"If you have a good property to sell today, going the auction route can be the most rewarding. At Aucor we have a 95% sales success rate with properties we offer for sale."

There are no suspensive clauses in auction sales.

The buyer must deliver guarantees of available finance and pay a 24% deposit up front. It is also required that the buyer conduct a due-diligence test ahead of the sale, and all the financing must be in place before the bidding starts.

"That's the beauty of it. At the drop of the hammer, it's a done deal, written in stone or concrete.

"The buyer must go through with the deal or lose the deposit.

"At the end of the day this route is very attractive to the institutions as it quickly brings finality to the deal. These are all factors contributing to making auctions acceptable."

There are many reasons for the stream of properties coming on the market.

Winterstein says financial institutions are selling off investments in real estate because they are not core business, and property investment companies going public often prefer to hold shares in property companies rather than owning buildings outright.

Another reason is that institutions are rationalising their portfolios to hold only properties valued above, say, R20m, selling those in the lower price range, and then buying into the higher price bracket again.

"With present moderate interest rates, more private buyers are coming onto the market. It is not unusual for private individuals to buy buildings for R10m as part of their retirement fund.

"There are many reasons for the flurry in the property market, but there is no single theme to these," Winterstein says.

"Interest is widespread and there is no saying which locality is most popular, whether Springs, Boksburg, Benoni or Johannesburg. Each area has attractions.

"But in the end everything depends on location."

Shopping centres are popular investments because the investor is able to control the management of the complex himself.

"He can collect rent, watch the occupancy rate, see to maintenance and he gets a good return on his money, one that offers good potential for future growth."

Winterstein believes there is an oversupply of residential properties on the market, especially in the higher price range.

"Too many developers are building too many expensive houses, and it can become difficult in future to sell houses priced at more than R1,5m, unless these are in sought-after areas.

"More modestly priced homes should not be affected to the same extent.

"But having said all this, auctions only work if you can get people to attend.

"First you must get their attention, and that you can only do by effective advertising. You ask yourself, what do you do to get people to pick up the phone and call you to find out details about the advertised sale."

For an advertisement to grab the reader's attention, Winterstein says, it must jolt a bit.

"So we take the best position in the paper and ensure the advertisement is exciting, with crisp wording and eye-catching layout. It must convince the reader that he will get a bargain, and if he is convinced, he will attend the auction, whether in Sandton or Nietverdient."

Although some of Aucor's advertising has been criticised, Winterstein says it has worked to the company's advantage.

"I once received hundreds of responses to an advertisement because of its layout and the way it was worded."

Last modified on Wednesday, 18 June 2014 09:56

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