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Buying & selling property at auctions

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19 Jul 2013

South Africa is currently experiencing a surge of interest from both buyers and sellers of property at auctions, and in some cases, this translates to huge amounts of money being achieved at auctions.

“We caution buyers when purchasing property as an investment that it is imperative to buy the right property, at the right time, for the right price, to suit their particular needs," says James Dall, joint managing director of High Street Auctions.

According to Wikipedia, an auction is a process of buying and selling goods or services by offering them up for bid, taking bids, and then selling the item to the highest bidder. In economic theory, an auction may refer to any mechanism or set of trading rules for exchange.

Globally, auctions have a long history dating back to 500 BC and according to Herodotus, in Babylon auctions of women for marriage were held annually.

The auctions began with the woman the auctioneer considered to be the most beautiful and progressed to the least. It was considered illegal to allow a daughter to be sold outside of the auction method.

The Romans used auctions to liquidate the assets of debtors whose property had been confiscated.

For example, Marcus Aurelius sold household furniture to pay off debts, the sales lasting for months.

The oldest auction house in the world is Stockholm Auction House (Stockholms Auktionsverk) established in Sweden in 1674.

The development of the internet, however, has led to a significant rise in the use of auctions as auctioneers can solicit bids via the internet from a wide range of buyers in a much wider range of commodities than was previously practical.

In 2008, the National Auctioneers Association reported that the gross revenue of the auction industry for that year was approximately $268.4 billion, with the fastest growing sectors being agricultural, machinery and equipment auctions, and residential real estate auctions.

Property auctions in South Africa

According to High Street Auctions, SA’s premier marketplace for buying and selling property, the property market appears to have stabilised as interest rates remain steady and there is a sense of returning confidence and security in property.

11 Eloff Street in the Johannesburg CBD in Gauteng, a property which offers five retail outlets with basement and three upper levels ideal for storage or residential conversion, will be auctined on 25 July at Summer Place in Hyde Park Johannesburg.

Property is consistently perceived as a solid long-term investment and we are seeing an increase in attendance at auctions, explains James Dall, joint managing director of High Street Auctions.

“We caution buyers when purchasing property as an investment that it is imperative to buy the right property, at the right time, for the right price, to suit their particular needs,” he says.

He says with a wide range of properties they offer at any given auction, they urge buyers to make full use of skilled property experts who are able to give sound advice on both the property and investment industries as these are intricately connected.

What’s more, Dall points out that the auction platform reflects a more realistic picture of the property market.

In an exclusive interview with Property24.com, Dall reveals that the auction industry in South Africa has recovered from the Auction Alliance demise with some of the company’s former employees having started their own auction companies.

Although some of the dodgy dealings revealed by the scandals did not affect High Street Auctions as the company has always operated within the law, Dall says it probably was also a good thing as sellers in particular are savvy as are buyers as to exactly what they are getting themselves into.

Despite this, he says they are seeing more sellers coming into the market and although banks held back following the Auction Alliance demise, they are slowly making a comeback.

However, he notes that the implementation of the Consumer Protection Act needs to be strictly controlled in the auction industry to ensure that such incidences do not happen.

With property sales, he says in areas of the country, investors are buying retail and industrial properties as there is currently demand for these.

With depressed residential property values, buyers are finding value homes at auctions and some buyers seem to have cash and buyers are pre-approved before the actual auction takes place.

“We still see distressed sellers in the market in locations such as Cape Town, Gauteng and KwaZulu-Natal,” he says.

In the UK in July, the highest price achieved was £3.65 million for the Waterdale Shopping Centre in Doncaster, which exceeded its guide price by over 80 percent, according Acuitus.

Dall emphasises the fact that with auctions, if done properly, the true market value of the property is reflected and often, this is less than what the seller wants.

On commercial property, he says they do a thorough due diligence before taking any property for auction, that is, get the property evaluated and establish what the market is prepared to pay for that property.

As with residential property, unrealistically priced properties tend not to sell while those priced right sell fast.

He says a block of flats which comprise retail (with national tenants) and industrial property with blue chip tenants is seen as a good asset by many investors at auctions.

Buying and selling

For buyers, Dall says the advantage of auctions include the fact that the process is transparent, the buyer pays a fair market value for the purchase and you also deal with a serious seller who will price right in line with market expectations.

Dall says for the seller, it’s about timing, and having several people vying for the property means they are serious buyers.

On 25 July, High Street Auctions will hold a multiple auction at 12pm at Summer Place in Hyde Park Johannesburg.  

Some of the properties that will be sold at the fall of the hammer include a retail and residential conversion located at 11 Eloff Street in the Johannesburg CBD in Gauteng.

The property offers five retail outlets with basement and three upper levels ideal for storage or residential conversion.

Located in Kosmos in the North West on 180 Simon Bekker Way is a four bedroom property with three lounge areas and a dining room as well as a swimming pool and Jacuzzi.

Located in Kosmos in the North West on 180 Simon Bekker Way is a four bedroom property with three lounge areas and a dining room as well as a swimming pool and Jacuzzi; this property will be sold at the fall of the hammer on 25 July at Summer Place in Hyde Park Johannesburg.

“This is a good time to buy right, specifically properties with a desirable rent capability, as good rentals are in high demand,” says Dall.

Global auction trends

Dall says auctions are popular in Australia, the UK and USA noting that the USA auction market is heavily biased on residential property and some US auctioneers have been impressed with the level of sophistication within the South African auction property market.

In June, the Investment Property Databank (IPD)/Acuitus Commercial Property Auction Data (cPad) Auctions Report, revealed that during the round of commercial property auctions in May, activity continued to rise with total sales in the room reaching more than £80 million, a rise of 30 percent year-on-year.

Of the 148 properties that sold, a higher than usual proportion (74 percent) were retail assets.

According to IPD's head of research, Greg Mansell, in April 2013, national retail values fell by a further 0.1 percent according to the IPD UK Monthly Property Index.

These declines were not evenly spread by geography or type, points out Mansell saying London continued to outperform strongly while shopping centres posted their strongest total return performance in almost two years, despite continued capital value falls.

“This two-speed location-based performance is likely to continue through 2013, as confidence remains weak outside of London’s prime markets, and retailers stay cautious.”

Fast–forward to July, the Acuitus commercial property auction raised £33.37 million at a sale rate of 73 percent.

Auctioneer Richard Auterac says the sector continues to strengthen and there is now a solid platform of supply and demand to work from heading into the autumn auctions.

“Sellers and buyers are recognising that the time is right to realise their respective aims,” says Auterac.

The highest price achieved was £3.65 million for the Waterdale Shopping Centre in Doncaster, which exceeded its guide price by over 80 percent, according to the auctioneer. – Denise Mhlanga

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