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Auction expert pessimistic about 2012

Last year was a tough year for South African real estate and, after three years of trudging through a severe downturn, the year did not present a path to recovery. As buyer-demand cooled, concerns about global sovereign debt heightened and weak prospects for the local economy worried investors.

"From an auction perspective, we saw a distinct cool off in demand from the third quarter. In an industry, well versed in cheery talk about prospects, no-one can claim that the property market has endured anything other than a bruising 2011," says Auction Alliance CEO, Rael Levitt.

"It is most likely that, during 2012, we will see further house price lethargy and contraction. The luxury and leisure residential markets remain the most beleaguered, with entry-level housing being the bright spot on a murky horizon," says Levitt.

In 2011, the greatest challenge for the auction industry was attracting buyers who have been over supplied with non-income producing and distressed properties. Throughout the year, economic headwinds were strong and low interest rates did little to boost sentiment after a five year debt binge. Levitt says that 2011 was also a 'game changer' for the auction sector with the implementation of the Consumer Protection Act, however, the full effect of these regulations is still to be implemented.

Companies Act had a material effect on auctions

The new Companies Act, which came into effect in May, had a material effect on auctions with the introduction of Business Rescue. In the last quarter the new statute caused a slowing in liquidations as higher-value distressed companies opted for business rescue. In many instances, this has caused a bottleneck of insolvent companies that have no chance of recovery. "We will see a spate of higher-value liquidations and auctions in 2012 when the logjam clears," predicts Levitt.

The country's largest liquidation sales were held in 2011. This includes the R720 million sale of the failed Bel Air and Lone Hill shopping malls in Gauteng. "In every single sector from farms to apartments, luxury homes to aircraft, office blocks to shopping centres we saw record breaking value transactions hitting the auction floor this year. Auctions have shown that there are no price barriers and that they are an asset disposal vehicle that cuts across all price classes and asset categories," explains Levitt.

"My outlook for 2012 is disquieting. Quite how bad will depend on a myriad of global and local issues, but there is no doubt that 2012 will be filled with challenges and tribulation," concludes Levitt.

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