Tough market conditions are resulting in more properties being repossessed. Although PiPs (Properties in Possession) may seem like bargains, potential buyers should watch out for the pitfalls.

Tougher conditions in the property market are likely to escalate the availability of properties that have been repossessed by the banks as rising numbers of embattled homeowners lose the struggle to keep up with their home loan repayments

But while these properties in possession, also known as PiPs, may seem like a good buy to real estate bargain hunters, there are pitfalls, advises Martin Schultheiss, CEO of the giant Homenet real estate group.

"It is true that PiPs often come to the market at prices lower than the average for the area and that no duty is payable on transfer. On top of that, some banks may offer special home loan rates and other incentives to people buying a PiP.

"However, buyers should remember that houses only end up 'in possession' when the original owner or the bank has been unable to sell it on the open market – even for the amount of the outstanding bond. There is usually a reason for this and buyers are advised to engage experienced estate agents to help conclude such transactions," Schultheiss says.

The value of estate agents' input lies in that they are usually better placed than Joe Average to identify problems that led to the property being repossessed by a bank in the first place, he says.

"For instance, the owner may have abandoned the property because the area has gone into decline or is showing signs of decline, or because the property had been overcapitalised and could not attract a willing buyer in the open market.

"It is also very likely that a cash-strapped owner who could not keep up with bond repayments also neglected the maintenance of his property and once again, an experienced agent will be able to spot signs of neglect and direct prospective buyers to professionals who can give accurate quotes on the necessary repair work - before they buy the property.

"Those interested in PiPs should bear in mind that a property bought for a song may turn out to be no bargain at all if they have to spend a long time and lots of money just to make it habitable."

Property24 2008/04/02