Auction - Status of Auctioneering in South Africa

Over the last decade, particularly the last few years, the South African auction industry has seen impressive growth in terms of market share, asset inventory and familiarity within the public domain. Auctions are already the preferred method of sale in certain sectors, such as Commercial Property, and Auction Alliance has sold in excess of R6 billion worth of assets in 2011.

Within the residential market, property auctions in South Africa are still some way behind international trends, such as in Australia where nearly 85% of second-hand residential properties are traded on the auction floor, or in the USA where an auction company can sell up to 5000 properties on a single day. However, the future of the local industry looks very positive as the benefits of the auction method for the buyer and seller are recognised on a wider scale, and the perception that auctions are exclusively used as a channel for foreclosed and liquidated properties is dispelled.

Given the volatile nature of global market conditions, it is unwise to put too much store in future predictions, but there are fundamentals to explore in business, society and the political arena that will impact the auction industry as it strengthens and consolidates its position in the real estate landscape.

Auction Alliance has always focused heavily on marketing and advertising, and the market share dominance the company enjoys is direct dividends from these efforts.

An independent survey conducted by AMPs revealed that auction advertising expenditure in print media has grown from R16 million in 2004 to well over R200 million in 2010. This appears to have dropped off in 2011, in line with global advertising trends.

A property which may only spend a few minutes on the auction floor would have already enjoyed weeks of strategic marketing on a national scale. “My prediction is that over the next decade, auction advertising will move towards digital channels, social media, magazines, radio and television,” says Levitt. The days of dedicated newspaper auction sections will slowly disappear because consumers are looking for specific assets, and therefore auctioneers will require targeted marketing in these particular asset categories.

Levitt expects auction companies to shift their focus to specialising in asset classes where they can leverage their experience and industry knowledge to their own competitive advantage. Auction advertising is also generalised into sections and these printed publications are not only costly, but they are not targeted at a specific consumer. Like the rest of the world, targeted advertising is set to become the mantra of the serious auctioneer”

International auction houses choose their discipline and generally don’t believe that one company can be good at everything. “While there will still be space for the small generalist, these auction companies will deal with lower-value assets,” explains Levitt.

“The digital revolution, which precipitated social media, is well underway and has drastically changed the rules, although it hasn’t necessarily changed the way the game is played yet.” comments Levitt.”

There is absolutely no doubt in my mind that the next big thing in South African auctioneering will be online auctions. They have already made an impact in car auctions (Auction Alliance acquired online auctioneer DealersOnline this year), machinery sales (through companies like DoveBid) and repossessed houses (through MyRoof).

Before the Consumer Protection Act was passed in April 2011, there was very little legislation pertaining specifically to auctions, outside what was prescribed by the Estate Agency Affairs act. Rael Levitt comments, “It’s almost as if auctions had been forgotten about, but since the industry has grown so aggressively in the last decade, government and legislators have made provisions for auctions. This is, in essence, brilliant for an industry which has now come of age.” 

The two most significant changes introduced with the CPA for the auction industry are: the mandatory cooling off period and the fact that bids may now be retracted right up till the fall of the hammer. The Act has ensured that South African auctioneers will have to follow international trends which are, in effect, putting the power back into the consumer’s hands. “The introduction of the Consumer Protection Act was a game changer this year.” comments Levitt.

The residential property market in South Africa has not been immune to the global downswing. Prospective buyers are still facing obstacles in securing credit and there is a saturation of distressed and foreclosed properties on the market. In these challenging conditions, the real value of the auction method can be clearly observed where, similar to the stock market, auctions provide a real-time point where supply meets demand.

Auctions provide an absolute deadline for decision and can create a sense of urgency for the buyer. The total transparency of the process reassures both buyers and sellers that they are achieving fair market value for the asset in question.

The commercial property market has been quite strong this year, but it has also suffered, owing to the global downturn. We expect markets to be difficult next year. What we saw this year were assets of substantial value, hitting the auction floor. In 2011, we saw over 25 auctions with asset values over R100 million. The highest value auction in South African history was concluded this year for over R700 million and this is a trend which we will see more of in the future.

Courtesy: The EAAB - Estate Agency Affairs Board

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