Mystery spike in mortgagee sales
Investors can expect even more bargains soon, writes Greg Ninness.
The number of mortgagee sales continues to rise as home owners and investors struggle to meet mortgage payments in spite of record low interest rates.
The rise is showing up in the number of mortgagee sales listed on the main real estate websites such as realestate.co.nz which had 435 mortgagee sales listed last week, up 37% compared with the end of October.
Mortgagee sales on rival website Trade Me Property were up 9.1% on the same period and there is also no shortage of mortgagee sales listed on individual real estate agency websites. Barfoot & Thompson, which probably handles more mortgagee sales than any other company, had 69 mortgagee sales listed on its website last week.
Auckland Property Investors Association president David Whitburn was unsure why the number of sales had spiked in the past six months when interest rates were so stable.
"I think it may be the banks changing their credit criteria. They have a truckload of people that are really struggling and they grade their [non-performing] loans according to whether they are going to have to sue them for any shortfall of debt [after a property has been sold] and how much money they are going to lose.
"I think they've taken a look back at the economy and decided this market isn't going to recover as quickly as they thought.
"And there's no point in keeping the instalment arrangements going and getting into eight months of debt arrears because they are charging savage penalty interest at credit card levels by that stage, which does no favours to anyone, and they decide enough is enough.
"So I think a bit of reality is coming in."
It would be ironic if banks were hardening their attitude to non-performing loans, many of which would have been taken out during the last property boom, because several banks have recently eased their credit criteria for new loans.
Whitburn said most banks had been using an interest rate of 8% to assess an applicant's ability to make future mortgage payments, to allow for future interest rate rises.
However, Westpac and BNZ had recently been using interest rates of 6.4% and 6.45% respectively as their benchmarks, making it easier to get loan applications across the line. And they had now been joined by ASB, which was also using 6.4%.
"They have been quite aggressive, so they have been the `go to' banks for property investors because they are seen as being slightly easier for credit," Whitburn said.
"When credit is easier it makes it easier for people to go out and buy and we saw that in the last two property booms, in 1995-1997 and in 2005-2007."
The easier credit was tempting investors back into the market and an accompanying rise in mortgagee sales meant there were good bargains to be had.
That was evident at a mortgagee auction of residential properties conducted by Barfoot & Thompson last week.
On offer was a mix of development sites, lifestyle properties and even a leaky home, and all but one sold under the hammer. Several sold at substantial discounts to their previous purchase prices and current rating valuations.
Among the highlights (see sidebar, above) were a 1.67ha lifestyle block at Helensville north of Auckland, which included a modern cottage and implement shed. This had a rating valuation of $420,000 but the sole bidder paid $250,000.
Although there were several bidders for a terrace house in Mt Wellington, a type of property popular with investors, it sold for $233,000, compared to its 2005 purchase price of $240,000 and rating valuation of $285,000.
The auction also highlighted the problems faced by owners of leaky homes.
On offer was a modern two-level terrace house in the popular suburb of Onehunga. This type of property would normally appeal to both owner-occupiers and investors and valuation records showed it had been purchased for $265,000 in 2007 and had a rating valuation of $245,000.
But the property had "weathertightness issues" and when the auctioneer called for an opening bid, one pundit offered $10,000 which the auctioneer refused to accept.
A $50,000 bid kicked things off and the property was eventually sold for $90,000, leaving a considerable shortfall for the current owner and most likely, for the bank that provided the mortgage.
Whitburn expects another wave of mortgagee auctions will hit the market shortly once ground rent payments kick in on leasehold apartments in the Quay Park precinct in downtown Auckland.
Whitburn said many investors bought apartments in the precinct at inflated prices through property spruiking outfits such as Blue Chip, and were already struggling to make mortgage payments.
Many were sold with a ground rent holiday which is due to end in the next few weeks and, when it does, some owners could be forced to the wall.
MORTGAGEE AUCTION RESULTS LAST WEEK
Development Property, Papatoetoe, Auckland. Consents have been granted to subdivide this 2509m2 property with a 140m2 character bungalow at the front, into five separate lots. Rating valuation $610,000. Sold for $500,000 plus GST. Mortgaged to ANZ.
Lifestyle property, Helensville.
A 1.67ha rural block with a modern cottage. Rating valuation $420,000. Sold for $250,000. Mortgaged to ASB.
Family home. Massey, West Auckland. 1970s' house with 4-5 bedrooms, two living areas, two batrhrooms, double carport and large deck, on a 524m2 site. Bought for $376,000 in 2008. Rating valuation $340,000. Sold for $291,000. Mortgaged to Westpac.
House, Mangere Bridge, Auckland. Two bedrooms plus study, 1960s' weatherboard house in need of renovation on 809m2 section. Purchased in 1996 for $150,000. Rating valuation $340,000. Passed in at $280,000. Mortgaged to Westpac.
Terrace house, Mt Wellington, Auckland. Two bedroom, two-storey terrace house, with carport and extra carpark and courtyard, in a gated development. Bought for $240,000 in 2005. Rating valuation $285,000. Sold for $233,000. Mortgaged to BNZ.
Terrace house, Onehunga, Auckland. Two-bedroom terrace house on two levels, with carport, upstairs deck and courtyard garden in a gated develoment. Has weathertightness issues. Purchased for $265,000 in 2007. Rating valuation $245,000. Sold for $90,000. Mortgaged to BNZ.
Sunday Star Times