At least 200 000 property owners in South Africa are stuck in a negative equity trap where the value of their property is less than the outstanding bond that is owed to the bank or financial institution.
Many thousands of property owners are locked into their homes because they owe more to the bank than the property is worth claims Auction Alliance.
This is the warning given by Rael Levitt, chief executive of Auction Alliance, who says that a further 300 000 homeowners are either behind in their bond repayments or are already in the foreclosure process.
He says the housing market has deteriorated sharply this year after a mild recovery last year.
Levitt says mortgage foreclosures by banks had dropped by about 40% between 2009 and last year, but price deflation had caused homeowners to be in a negative equity situation and prices continued to fall despite the lack of new homes coming onto the market.
He says that continued pressure on prices is not to change given the weak demand from buyers, the huge over-supply of properties on the market and the difficulty in obtaining credit from the major banking groups who have remained conservative when it comes to lending money.
Levitt warns that any increase in interest rates – predicted to start as early as September this year – will place even more pressure on homeowners and could create a new “tipping point” for the property industry.
It is unlikely, says Levitt, that there will be any sharp recovery in prices over the next 18 months particularly as there are huge uncertainties over the strength of the economy, employment growth and the availability of credit.
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