Auction market revs up for busy year with mortgagee listings set to spike
By Timothy Tay
/ EdgeProp Singapore |
The end of government moratoriums on some property loan repayments could result in a spike in the number of mortgagee sales hitting the market later this year. (Picture: Samuel Isaac Chua/The Edge Singapore)
SINGAPORE (EDGEPROP) - The auction market is bracing itself for a busy year as more buyers and sellers engage the auction process to transact properties. Furthermore, the end of government moratoriums on some property loan repayments could result in a spike in the number of mortgagee sales hitting the market later this year.
The auction market clocked in a total gross sales value of $85.9 million for the whole of 2021, a dramatic increase of 193% y-o-y compared to 2020. However, the last quarter of 2021 raked in a gross sales value of $15.7 million, which was a 22.6% decrease compared to 3Q2021.
According to a Knight Frank market report, the local auction market recorded 32 sales in 2021, which translates to an overall success rate of about 4.8%. The sales figure includes repeat listings and excludes properties sold outside of auctions, such as private treaty deals.
The relatively high sales value recorded by the auction market last year was largely due to big-ticket properties, says Sharon Lee, head of auction & sales at Knight Frank Singapore. “Many of these listings were known to have been sold outside of auctions after gaining publicity from the auction process,” she says.
More than just distressed sales
A widespread misconception of the auction market is the belief that properties offered at auctions are usually distressed sales. Lee says that this image of the auction market is outdated. “These days, we market different types of property sales at the auctions, such as owners’ sales, sheriff’s sales, developer sales and even MCST (Management Corporation Strata Title) sales,” she says.
An owner’s sale refers to a deliberate attempt by the owner to market and sell the property through auction. A sheriff’s sale involves the public auction of a property that has been seized by the courts.
Developer sales usually comprise new or unsold units in a project that are put up for sale by the developer. Lastly, an MCST sale occurs when the MCST of a development puts a unit up for sale after an owner defaults on the monthly maintenance fees and sinking fund.
Lee: The auction process is a very transparent mode of sale and properties listed often have a wider market exposure. It also shortens the overall time to transact a property. (Picture: EdgeProp Singapore)
There were 352 owner’s sale properties put up for auction last year, nearly double the 180 recorded in 2020. In most cases, owners choose to put up their properties for sale at auction for the marketing exposure they could receive, and in the hope that they could attract a good price, says Lee. (Check all latest Singapore property Market Trends)
For example, Knight Frank successfully sold a 1,044 sq ft corner shophouse at Seng Poh Road in Tiong Bahru last year. The property had an opening price of $2.5 million but was eventually sold for $3.2 million. “This is a price that is very difficult to achieve via private treaty sale,” she says.
Lee adds: “The auction process is a very transparent mode of sale and properties listed often have a wider market exposure. It also shortens the overall time to transact a property. For example, the usual two-week option-to-purchase period is skipped, and we go straight into the sales and purchase contract.”
She says that competitive bidding for a hotly contested property could also significantly drive up the sales price.
Although only two owner’s sale listings were transacted during an auction last year, the majority of sale closures by auction teams occurred before or after the auction date. Lee says that buyers are increasingly opting to negotiate the sales through private treaties in order to have more time flexibility to organise their financing.
“Purchasers also prefer to pay the 1% deposit on a property sold outside of auction, compared to the 5%-10% deposit required if the property was sold at auction. They also believe that there is more room to negotiate on the price after the auction,” she says.
Increase in mortgagee listings in 2H2022
The height of the Covid-19 pandemic in 2020 saw the government step in with various support measures, including property loan repayment moratoriums, to support lenders who could not make full loan repayments at the time.
As a result, mortgagee sale listings declined to 289 last year, which is about 5.6% lower than the year before. The inventory of bank sales, especially industrial listings, declined as the manufacturing and logistics sector rebounded last year.
But most of these loan repayment moratoriums expired at the end of 2021. The number of property owners who are unable or unwilling to resume full loan repayments this year could result in a spike in mortgagee sales via auctions this year.
Tan: We will definitely see a spike in the number of mortgagee sales appearing in the auction market in the second half of this year. (Picture: EdgeProp Singapore)
“We will definitely see a spike in the number of mortgagee sales appearing in the auction market in the second half of this year,” says Joy Tan, senior director, and head of auction & sales at Edmund Tie.
The Monetary Authority of Singapore (MAS) manages these loan moratoriums and so far, it has not announced further extensions of these support programmes.
Lee also expects that the number of mortgagee sales could spike in the last six months of this year. “This is because banks usually allow the owners to try and sell the property before the banks step in to foreclose the property,” she says.
According to Mok Sze Sze, head of auctions and managing partner at Singapore Realtors Inc (SRI), there has been a slight increase in the number of mortgagee sales coming into the market in the first two months of this year. This is uncommon because January and February are seasonal low periods coming off the back of Christmas, New Year and Chinese New Year, she says.
Opportunistic acquisitions at auctions
The property auction market is characterised by different types of properties that go under the hammer. On top of residential landed and non-landed properties, strata commercial, shophouses, strata industrial and strata JTC detached factories can also be found on auction lists. (Find Singapore commercial properties with our commercial directory)
Residential properties continue to make up the majority of auction listings. Last year saw 145 residential owner’s sale listings and 137 residential mortgagee listings. According to Knight Frank research, about a quarter of the non-landed residential mortgage listings were for properties in prime Districts 9 and 10 with an average opening price of $2,218 psf.
There was a spike in buying interest for industrial and logistics assets last year, particularly dormitory-approved industrial buildings and central food kitchens. Industrial owners needed safe living spaces for workers and space to relocate some manufacturing capacity, while the spike in food deliveries supported central kitchen spaces.
Mok: Buying interest in the auction market was strong last year, and this is expected to continue throughout 2022. (Picture: EdgeProp Singapore)
This year could see an increase in buying interest for some strata commercial properties, especially as loan repayment moratoriums expire, says Edmund Tie’s Tan. Prevailing low rentals in the strata commercial market might lead to more asset disposals such as receiver and liquidator sales, she says.
“A liquidator sale refers to a company-appointed disposal of its assets to settle its debts, while a receiver sale involves a court-appointed sale of a company’s assets, also to settle outstanding debts,” Tan explains.
Sustained auction interest
The auction market looks set for a busy year ahead. SRI’s Mok advises interested buyers to experience the auction process and welcomes them to see first-hand what it is like.
“For buyers, I would encourage them to come to the auction hall and check out the process. If you spot properties that pique your interest, you can always arrange for a viewing. For sellers who are attracted to the transparent mode of auction sales, this could be an ideal method to garner an attractive price for your property,” she says.
Mok adds that a few properties successfully auctioned last year were sold after being presented for the first time. “This shows that the auction market is very forthcoming in terms of bidding and buying interest,” she says. Mok expects this level of engagement to continue for the whole of this year.
Tune in to our next episode of Real As State on Feb 25 to listen to the full interviews.
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