Business

Jamaican foreclosures rise; More homes going to auction, say local experts

BR JULIAN RICHARDSON Assistant business co-ordinator richardsonj@jamaicaobserver.com

Wednesday, March 09, 2011    

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MORE local homes are going to public auction and even foreclosures as mortgagors continue to be impacted negatively by the weak domestic economy, say real estate experts.

The most updated statistics released by the Bank of Jamaica show that non-performing loans (NPLs) — loans unserviced for over 90 days — among local building societies were 6.8 per cent at the end of September 2010, up almost two percentage points from year-earlier levels.

"Mortgagors continue to be impacted negatively by unemployment, the downturn in business and reduced disposable income," Jamaica National Building Society (JNBS) mortgage and operations executive, Wanica Purkiss, told the Business Observer yesterday.

Over the course of its last financial year ended March of 2010, JNBS saw a rise in its mortgages in arrears from 3.97 per cent to 5.58 per cent. That delinquency rate currently lingers under six per cent as the company approaches the end of its present financial year, said Purkiss.

Victoria Mutual Building Society (VMBS) boss, Richard Powell acknowledged that the market has experienced a "sharp increase in non-performing loans" since mid-2009, but he said VMBS' deliquency rate stabilised during the latter half of 2010.

"The job losses and reduction in business activity resulting from the economic recession, have affected the ability of many householders to meet their monthly mortgage commitments, causing their loans to go into arrears," said Powell, adding "... collections have improved over the last four months (at VMBS), resulting in an overall improvement in the quality of our loan portfolio."

However, against the background of the difficult market, the upshot is that more homes are being put on the auction block, a step taken by an institution after it has exhausted 90 days of unsuccessfully demanding payment from a mortgagor on a loan. But, indicative of the weak state of the market, the public auctions have not been very successul.

"More properties are being exposed to public auction but few sales are realised from this process; this is mainly due to the sluggish economy and more specifically a slowdown in the real estate market," said Purkiss.

Said Powell: "The number of loans falling into delinquency has increased, resulting in an increase in the number of properties being sent to public auction. The prevailing soft real estate market has resulted in many of those properties remaining on the market for much longer periods than would have been the case in a normal market."

Their assessment was supported by William Tavares-Finson, head of top auction house DC Tavares & Finson.

"What I notice is that (a lot of) places are going into auction but you're not getting the people coming out (to buy)," he said.

What's more is that it appears that more homes are going into foreclosure, Tavares-Finson revealed to the Business Observer. A foreclosure is when the lien holder -- usually the bank -- on the property takes back ownership.

"What I am seeing more of are the institutions moving towards foreclosure... There is a lot more certificates being issued for foreclosure which isn't the general norm," noted Tavares-Finson.

Tavares-Finson did not give specific numbers but the auctioneer's observation is corroborated by Scotia Jamaica Building Society in its 2010 annual report.

"The local housing market trended downwards in 2010, resulting in increased inventories of unsold properties at all price points, and escalating foreclosures as property owners felt the impact of the economic recession," reported the Scotiabank subsidiary.

Indeed, foreclosures are relatively seldom in Jamaica compared to in the US, mainly because the process takes much longer here than in the North-American country. A loan first has to be booked as an NPL after 90 days; after which it goes into auction; then a private treaty; before forclosure proceedings, which can take up to a year to complete, can be initiated. Additionally, Jamaican mortgage banks generally work hard with borrowers to avoid foreclosures on properties, including renegotiations and rearranging of loans.

Powell and Purkiss said that their processes for dealing with mortgages that are in arrears have not changed and both noted that their individual mortgage departments has been working very closely with members who are experiencing financial difficulties.

"We encourage them to come in and talk with us as soon as they recognise that they may experience financial challenges so that we can explore the possible types of assistance that may be made available to them," said Powell.

Going forward, there is cautious optimism among real estate industry insiders that the market will improve this year.

"There is a certain feeling of optimism this year... But there is a certain amount of caution now in the sense that people are in a waiting mode looking at the real estate industry.... people are talking about it but they haven't committed really as yet to the levels we are used to seeing," noted Tavares-Finson.

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