2009 has been a historic year for the South African auction industry in many ways, says leading auctioneer Rael Levitt. “With record levels of distressed selling, the FIFA world cup around the corner, low interest rates and investors now hungry for buying opportunities, the year has seen bidders cramming themselves back into the country’s auction rooms which have sparked a mini-boom in the industry”.
While many service companies and agencies were paralysed by a lack of debt finance, the global downturn, poor buying sentiment and South Africa’s first recession in 17 years — combined with a perception that the bottom of the market had been reached — the South African auction industry in 2009 saw record transactions throughout the country. Alliance’s Auction Results Analysis shows that more auctions were conducted during 2009 than in the three preceding years. “From an Alliance perspective, by the end of 2009 we will have brought almost 10,000 individual properties to the auction floor. We literally sold more houses in 2009 than we did in our first decade of existence”.
From the beginning of the year, auctions gathered momentum with several newcomers to the auction industry fuelling the number of sales. According to Levitt “every time there is an economic downturn we see the traditional residential estate agencies hone in on the auction industry and launch new divisions and companies. This downturn it’s been no different”. Levitt adds that in 1992, 1995 and 2001 we saw a proliferation of auction entrants who evolved from estate agents and came into the market with a bang only to quietly leave the auction industry a few years down the line. Only time will tell whether this time, the pattern will be repeated”.
Auction advertising reveals the massive growth in the industry. In 2005 R16,8m was spent on auction advertising and this year it will be in excess of R220million. The top 10 auction companies accounted for 75% of all auctioneering ad spend. A glance in the auction rooms across the country shows that prices slowed in the first quarter where they reached an all time low but by the third quarter of 2009 investors became hungry for good investments but at softer prices than in 2008.
Last week, Alliance experienced what Levitt says was “the best demand we have seen in years” at its sales throughout the country. Our various auctions achieved sales confirmation rates of 82% and raised R134m.” Alliance’s October bumper R300m sale in Sandton— its largest in 20 months — scored a 92% sale rate and Levitt described the sale as “first-hand evidence of returning liquidity from cash-backed buyers who are positive about next year’s world cup and South Africa’s ability to slowly claw itself out of recession”.
Third-quarter Alliance figures reveal that the weight of money coming through the auction room has doubled since this time last year. “The third and fourth quarters experienced a big bounce back and, based on November’s sales, I am not convinced that the foot is going to come off the pedal anytime soon,” observes Levitt. “By the third quarter of 2010 we should see a stabilising of the number of assets being submitted to auction sales, with a significant decrease in the volumes of distressed residential sales by the beginning of 2010”.
According to Levitt ‘a few months ago we began seeing a new breed of speculative buyer coming back to the auction floor — but now the big buyers are mostly those from the last cycle with surplus cash and looking to for cheaper opportunistic deals”. “We have some nervousness about property still as well as the general macro-economic landscape” explained Levitt “but these concerns are tempered by 2010’s infrastructural roll out which is already having a positive effect on buyer sentiment. We are picking up the good news factor on our auction floors”.
While the private investor buyer profile will be consistent in 2010, the selling profile has changed in 2009. This year we saw banks, liquidators and legal entities selling record numbers of assets through auction floors. “In all my years in property I have never seen anything like the volumes of 2009,” says Levitt “In fact November has been crazy. We are ending off the year on an enormous bang in terms of volume as well as the highest value sales ever recorded.”
As a result of growing competition and new entrants who, according to Levitt “are throwing cash at marketing themselves and thus the industry”, auctioneering will see further growth in 2010 as the industry gains more and more acceptance as a first choice method of sale.
Coupled with this increased volume, seen particularly over the last four months, “private investor appetite has definitely grown”. When our banks further loosen credit lines we will see further growth in auctions as a means of buying. “This year auctions have been the refuge of cash investors. So, if the auction room is one of the last sanctuaries for the cash buyer, is there a danger that private investors are overpaying?”
“No”, argues Levitt. “for a private investor who would otherwise be earning low returns in the bank, the values we are selling all assets at are attractive and rational”. argues Levitt. “ I have been saying it repeatedly during 2009 “ the sale of the decade was on and it will continue into the first year of the next one”.
2010 will see record numbers of the larger listed property funds selling their smaller properties as smaller investors get back on the acquisition trail. The smaller investors who were battered by the tight credit market, were some of the biggest sellers in the market only six months ago — but are now also looking to buy again.
Illustrative of how quickly sentiment has changed is the view of Levitt who was a self-confessed bear regarding commercial and residential property market at the end of 2008. “I have changed my mind,” he now says. “I have moved from deeply bearish to optimistic. “At the very least there will be a short-term squeeze on capital values but South Africa will see a big bounce in 2010”.
“For us the most exciting part of 2009, is that the auction industry has come of age in the new millennium. We started the millennium as the last resort mechanism dead and insolvent people and we have ended off the first decade as a growing, exciting, boom industry. We thus look forward to the start of next decade with the greatest of optimism”, says the veteran auctioneer who took a one man band into South Africa’s largest auction group over the last 18 years.