Auctions Take Steam out of Over-heated Markets

April 23rd, 2007

The emergence of property auctions in over-developed markets in Spain, Cyprus and parts of Eastern Europe indicate the next stage in the evolution of the second homes market.

Industry commentators observe that a crash in the UK property market over the last few years has been prevented by around one million buy to let investors and the growing number of auction houses. In spite of the number of repossessions, there is always an investor or developer waiting to acquire the property at auction. Landlord investors have long relied on distressed vendors to make their profit on the initial purchase, and rising repossession rates suggests this will become a lot easier.

David Sandeman, managing director of Essential Information Group, claims that there has been a major rise in the number of people buying at auction in the UK, with 50% of purchases from large-scale investors and developers and the rest from those hoping to get on the ladder or novice buy to let investors, he claims.

As the popularity of auctions begins to rise among property investors, tales of distress sales are becoming more commonplace in a range of destinations – particularly in parts of Spain, Cyprus and the coastal resorts of Bulgaria. Over-developed resorts in these markets are expected to see rising numbers of distressed vendors in the next few years as thousands of jet to let investors compete with each other for sales and tenants.

Several auction companies have sprung up in Spain in recent years, including Tenerife Property Auctions SL, Direct Auctions, Costa Blanca Property Auctions and Auctions in Spain.

Les Calvert, director of Worldwide Property Auctions, which includes Tenerife Property Auctions, says that auctions have become much more popular in Spain because of the sluggishness of the market. “Auctions are being used by people who are in a hurry to sell and in a flat market that is difficult,” he says. “Often properties go for 20% to 25% lower than the valuation. Sellers save money by getting a quick sale and buyers get a bargain”. The company also runs auctions in Italy, France and recently set one up in Cyprus.

With vendors unwilling to drop prices, and many citing agent commission as a major factor, auctions provide an option favoured by buyers and sellers. “By offering vendors a real alternative we are aiming at an untapped niche in the market,” said Inez Rix of Direct Auctions. “There is a huge oversupply of units in Spain which we then correctly value (bank valuations), we advise owners on a realistic percentage of that valuation and as we only charge 2.5% commission (plus the regulatory IVA) owners are more willing to drop their prices to nearer true market level.”

“With prices at a realistic level we are finding there are many buyers out there and, luckily, although things have been hard with the illegal builds issue (knocked off a few sales as banks were then refusing to lend on properties without an LFO), we are doing OK”.

While many agents may perceive auctions as a threat (developers are already using this as a way to shift inventory), they are helping to persuade vendors to price their homes more realistically.

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