Avia Collinder and Sabrina Gordon, Business Reporters

What appears locally to be mounting listings of properties up for auction are actually repeated advertisements done by some players to move inventory of foreclosed properties that creditors are finding increasingly difficult to offload.

Auctioneers state that on average, no more than five per cent of consigned properties are attracting buyers, and some banks are turning to other methods to dispose of confiscated assets to rebalance loan portfolios that are seeing a new slew of underperforming loans as pay cuts and job losses limit borrowers' capacity to service their debt.

"Not much is coming to auction, and what comes in is not selling. It applies throughout the range," said David McNulty, auctioneer and director of CD Alexander Realty Limited in Kingston.

"We have leftovers from last year and the year before. What we sold in the first quarter (of 2009) was what was awaiting the reduction in transfer tax. But, after the reduction, there were few sales. The numbers have been reduced significantly."

At FirstCaribbean International Bank Jamaica Limited, however, Managing Director Clovis Metcalfe says at his bank, the mortgage default rate is below the industry average of 5.4 per cent, linking it to the strategy used to dispose of foreclosed properties.

"All our sales which are in single-digit total - less than five properties - have been by way of private treaty only," Metcalfe told Sunday Business.

"Units in the mid-seven figures category are selling best at private treaty," he added.

Dead assets

Gladstone Dacosta, financial controller at CD Alexander, says, "Less than five per cent of properties brought to auction were sold. It is totally different to 2008," he added, referring to the experiences at his company.

Williams Tavares-Finson, managing director of Tavares DC and Finson Realty in Kingston, a top auction house, says building societies may well have assets on their hands which are dead because of the lack of investor interest in a sector where people tend to converge for bargains.

"These are dead assets and might be increasing the pool of liabilities that the building societies have," he said.

"The market is flat. From my standpoint, it is especially so in the residential sector. Commercial properties are seeing some movement."

He also told Sunday Business that just about five per cent of forced-sale properties are successfully auctioned off.

The building societies, or private mortgage-loan sector, at September 2009, had bad-debt portfolios amounting to $4 billion, a near doubling of non-performing loans of $2.6 billion at the comparative 2008 period, but a $400 million improvement relative to the June 2009 quarter, according to industry data from Bank of Jamaica.

Still, the central bank numbers also show that the rate of growth in non-performing loans - that is, debts not serviced for three or more months - is still increasing. Delinquencies in 2007 grew at 9.9 per cent, but a year later, it reached 45.3 per cent and the current data set shows the rate of growth climbing to 54.6 per cent.

The National Housing Trust (NHT), with a 16 per cent default rate on the number of mortgages, not the value, said at the top of December that the value of the arrears was $879 million.

Thirty-six houses were sold by public auction and 34 by private treaty between January and October 2009, the agency said.

The trust, in written response to Sunday Business queries,said it was not its policy to repossess property but that "when an NHT beneficiary defaults on his/her mortgage payments, the trust's first response is to work with the beneficiary to find solutions for repayment".

Mortgage payments are due on the first of the month. If a payment is not made after 15 days, then late fees are added. If the arrears are not cleared after 90 days and there has been no arrangement for payment, the NHT may begin legal action, usually via sale by public auction.

Still, bargain hunters who might expect to get sweet deals from auctions are bound to be disappointed.

The reserve price is often close if not identical to the market price of properties - residential or commercial.

"People come to auction expecting a fire sale, but this is not realistic," said Arnold Breakenridge, company director of auctioneers and surveyors Breakenridge and Associates in Kingston.

"Prices are closer to market."

The volume of properties going to auction, said Breakenridge, has increased over the last several months - covering real estate across the full market spectrum and impacting all price categories.

Uncertainty

Breakenridge also noted that some potential purchasers who qualify to bid are reluctant to go forward and complete the sales because of uncertainty about how the asset would perform in the current economic downturn.

"The tightening of the economy is showing in this smaller participation," he said.

NHT, a publicly owned entity and the dominant player in the wider mortgage market, had not, up to press time, commented on the value of properties it had put on auction.

Jamaica National Building Society (JNBS), the largest of the private-mortgage retailers, was more forthcoming.

The building society said it put up 149 properties for public auction during the period January to November, but only one property was successfully disposed of using this means.

"Public auction is the first step after it has been determined that a property can be sold under the terms of the mortgage agreement," said JNBS mortgage executive Wanica Purkiss.

"Very few properties are sold at public auction, however, and the next step is for the property to be offered for sale by private treaty."

JNBS sold 26 of the 149 properties by this means. The intake from the 27 properties were:

15 properties - less than $6 million each

Nine properties - $6 million to $12 million each

Three properties - over $12 million.

"When a property is being sold by private treaty sale, the particulars of the property are listed on the JNBS website - to real-estate dealers, as well as the general public - and written bids are invited," said Purkiss.

"The mortgagor can participate in both the public auction or private-treaty stage of the asset sale, and sometimes does."

Increased job losses

Purkiss also tells Sunday Business that at the end of October 2009, JN's delinquency ratio was under five per cent, which was within industry norms.

At October 2009, she said, the value of arrears on JN's books amounted to $288.7 million.

But given the expectation for increased job losses and reduced income for mortgagors, especially for self-employed persons, along with the prevailing recessionary conditions in the United States and the United Kingdom, where a significant number of mortgagors reside, the projection is for the deterioration to continue, Purkiss said.

The NHT says options being offered to its delinquents include a payment plan to liquidate arrears; restructuring of mortgage loans for a specified period; extension of the loan term; temporary reduction in mortgage payments, which may allow interest-only payments for an agreed period; and a moratorium or suspension of mortgage payment for three to 24 months. Insurance fees must still be paid during the moratorium period.

avia.collinder@gleanerjm.com, sabrinagordon@gleanerjm.com