More landed properties go under the hammer

By Michael Lim / The Edge Property | November 5, 2015 10:00 AM SGT
A 2½-storey Balinese-style detached house, located on Jalan Kerayong within the Sembawang Straits Estate off Sembawang Road, will be put up for auction by Knight Frank on Oct 22. This will be the second time that the property will be put under the hammer. A mortgagee sale (or a bank foreclosed property), it was first put up for auction last month, also by Knight Frank, with an opening price of $3.7 million. As there were no bids received, the property was withdrawn.
According to caveats lodged with URA Realis, the previous owner purchased the property in June last year for $4.2 million ($1,445 psf). An earlier caveat showed a previous owner paid just $710,000 ($244 psf) for the property in 2005. At that time, it was a single-storey bungalow that the owner had redeveloped into the current 2½-storey detached house between 2008 and 2010, says Sharon Lee, head of auctions at Knight Frank.
Often, banks do not repossess the houses immediately, adds Lee. “They usually give the owners three to six months to sell the property on their own. If that fails, then the bank will step in, have the property valued and appoint an auction house to sell it.”
The Jalan Kerayong detached house is just one of a growing list of landed homes, particularly semi-detached and detached houses, that have surfaced as mortgagee sales at auctions this year. According to Colliers International Research, a total of 135 landed homes were put up for auction in the first nine months of this year, which is close to 2.4 times more than the 57 over the same period last year. The number of mortgagee sale listings of landed homes at auctions has also more than doubled to 32 from January to September 2015, compared with 15 over the corresponding period last year, says Grace Ng, deputy managing director of Colliers International.
This house on Jalan Kerayong was first put up for auction on Sept 22 at an opening price of $3.7 million
Bigger homes struggle to find takers The rate of increase in mortgagee sales of such landed homes has also accelerated. At the September auctions conducted by Colliers, DTZ, JLL and Knight Frank, about 20 landed homes were put up for auction — 10 were mortgagee sales and ranged from strata landed homes to terraced houses, semi-detached and detached houses, and even a Good Class Bungalow (GCB) located in Binjai Park.
The bigger landed homes, especially semi-detached and detached houses, take a longer time to sell because of their absolute price tags, says Colliers’ Ng. These are the ones most likely to be put up for auction more than once. “More of these larger homes are increasingly being put up for mortgagee sale, given the tighter lending that is due to TDSR [total debt servicing ratio], which has also shrunk the pool of buyers of such properties,” she adds.
Meanwhile, on top of the property cooling measures, the government has restricted the purchase of landed homes to Singaporeans. As long as one of the buyers is a permanent resident (PR), buyers will need to seek approval from the Land Dealings Approval Unit (LDU) of the Singapore Land Authority. They will also be subject to the higher additional buyer’s stamp duty (ABSD) applicable to PRs. “Therefore, the pool of buyers with financial means has become even smaller, and they are spoilt for choice today,” says Ng.
Despite the increase, the number of mortgagee sales of landed homes remains relatively low, as the owner profile of such homes tends to be owner-occupiers. Landed homes are still coveted because of their scarcity, adds Ng.
This explains why intermediate terraced houses in suburban housing estates that have been foreclosed and repossessed by banks appear less frequently at auctions. “They are highly sought after by home upgraders and quickly snapped up if the quantum is around $2 million,” says Ng.
Many big-ticket properties tend to be put up for auction several times before finding a buyer. One such property was a three-storey intermediate terraced house on Philips Avenue, located off Yio Chu Kang Road. The 999-year leasehold property, which was a mortgagee sale, found a buyer in April for $2.4 million, or 12.7% lower than the initial opening price of $2.75 million. It was put up for auction three times before being sold by private treaty, says JLL’s head of auctions Mok Sze Sze, who brokered the sale.
Meanwhile, a 2½-storey, 999-year leasehold semi-detached house on Chartwell Drive in Serangoon Gardens Estate was put up for auction nine times since November 2013 before it was sold for $4 million in February this year, adds Mok. The final sale price was 30% lower than the initial opening price of $5.75 million when it was first put up for auction. It was also sold by private treaty after the auction in a deal brokered by JLL.
“Landed properties tend to take a longer time to sell and are more likely to be sold via private treaty after an auction because the buyers today are predominantly end-users and not investors,” says Knight Frank’s Lee. “They have the luxury of taking their time to shop around and look at the properties sometimes several times before they make an offer.”
Overall number of mortgagee sales rising Colliers’ projection is that the number of mortgagee sales will hit 220 to 230 by year-end. This is a 38% to 45% increase from last year’s figure of 159. It could hit 250 next year, says Ng.
Meanwhile, JLL’s Mok projects that the number of mortgagee sales in 2016 will be 15% to 20% higher than this year’s. This means the number of mortgagee sales in 2016 could revisit the levels reached during the global financial crisis in 2008, which saw 270 mortgagee sales at auctions. Colliers’ Ng points out, however, that the number of mortgagee sales this year is still only half the 452 units listed in 1998 during the Asian financial crisis, and only 8.9% of the 2,462 units in 2004, which saw the highest number of mortgagee sales during the recession and post-SARS period.
“However, with the impending rise in interest rates and the recent softening of rents, owners who have overcommitted on a high mortgage quantum or are holding multiple units may experience a further cash crunch,” cautions Colliers’ Ng. “So, over a prolonged period, if these property owners are unable to rent out their properties and service their mortgage loans, there could be even more mortgagee sales next year.”
This article appeared in the City & Country of Issue 698 (Oct 12, 2015) of The Edge Singapore.