Foreclosures down, negative sales up

At the height of the global economic crisis, Sales in Execution (SIEs) or foreclosures were rampant and South Africans were not spared. In today’s local economy, while SIEs are declining, negative sales (where houses are sold for less than they were bought for) are rising.

What are SIEs and what is the implication when viewed against the background of negative sales?

When a property owner fails to repay a debt, the creditor can apply to have the property sold in execution. The court issues a warrant to the sheriff to advertise and auction the property, and the highest bidder becomes the new owner of the property. And, according to Real Estate Assist, any assets seized are sold to settle the debt while any leftover amount goes back to the debtor.

A reduction in SIEs is theoretically a good thing that, when viewed in isolation, might paint an optimistic picture of the property market and prevailing economic conditions. However, a closer inspection of Lightstone’s SIE trends versus negative sales in South Africa, over the past 24 years, paints a more concerning picture of sales in distress.

In effect, properties are selling for significantly less despite owners having anticipated a certain growth rate over the years of ownership, in some cases even less than bought for. And, this ultimately means that current circumstances are more severe than when only SIEs are considered.

Number of SIE notices: number of negative sales transactions

Today, banks no longer favour SIE because the process is slow and cumbersome. This explains the steady downward trend in numbers since 2009 (25 361) to a low of 3 060 in 2018. That said, Lightstone data does show a slight uptick since then to just over 5 500 notices in 2023, as seen in the graph below.

Number of SIE notices

When looking at SIEs, negative sales and negative value growth sales in tandem, we see a likely more realistic view of true distress as properties which were bought 10 years ago were unlikely to sell at more than the purchase price, therefore failing to realise the anticipated growth in value.

SIE combined with negative value growth sales

Lightstone data suggests that property segments such as lower value Freehold properties are faring far worse than higher value properties and Estates. Additionally, negative sales have been more pronounced in some segments, with Sectional Title among the hardest hit.

Negative sales from 2023 onwards per stock type and area

Finally, from a provincial standpoint, Gauteng has suffered most from negative sales in 2023 (9 out of 100 sales were negative), followed by Mpumalanga and KwaZulu-Natal where about 6.5 out of 100 sales were negative. In the Western Cape there were just five negative sales out of every 100 sales - almost half of what was the case in Gauteng.

Negative sales from 2023 onwards per province

All in all, while one might be tempted to rejoice at the decline of foreclosures in the market, the rise in distressed sales clearly points to a property market under pressure.