Mortgagee sales to rise to 2008-09 levels

January 26, 2015 11:29 AM SGT

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SINGAPORE: Colliers International’s last auction for the year on Dec 12 was very well attended.

The function room on the third level of Amara Hotel, where the event was held, was full.

Latecomers had to stand at the back of the room, as all available seats were occupied.

The auctioneer’s interminable voice describing the merits of each property, with invitations for bids or counter bids, was met mostly with silence.

No hands were raised, no offers were made.

It was a typical scene played out at most property auctions this year.

Grace Ng, deputy managing director of Colliers International, expects more of the same in 2015.

“Crowds will continue to flock to the auction rooms.

However, spectators will continue to outnumber bidders unless there is a significant drop in valuation or asking price.” This year, of 529 properties put up for auction, only 32 found buyers with total sales of $72.5 million, which translates into one out of every 16 to 17 properties.

Buyers expect “distressed prices” at auctions and will commit only if they perceive that the price is a “bargain”, in view of falling property prices, says Ng.

A veteran in the property auction market, Ng saw the same behaviour exhibited during the last two financial crises in 1998 and 2008, where crowds packed the auction rooms.

Sales only took off in 1999 and 2009 respectively, when there was a significant drop in prices.

“Pent-up demand and attractive prices helped to seal deals in those subsequent years,” she notes.

More pain ahead A total of 159 (or 30%) of the 529 properties put up for auction this year were mortgagee sales, ie, properties foreclosed by banks.

This is five times more than the 32 properties put up for mortgagee sale in 2013, and is also the highest number in five years, estimates Colliers in a report on Dec 12.

A troubling trend is that the number of mortgagee sales is expected to rise next year, and at a faster rate than owner’s sales.

Ng predicts the number of mortgagee sales to hit 200, which is higher than 2009’s figure of 195.

However, she does not expect the figure to rise to the level in 2008 where there were 270 mortgagee sales at auctions.

Likewise, Mok Sze Sze, JLL’s head of auction, expects mortgagee sales next year to hover between 2008 and 2009 levels.

With the government’s property cooling measures still in place, she expects further downslide in property values and weakening rents in the leasing market contributing to owners’ distress.

Those who are heavily leveraged may find difficulty in servicing their mortgage payments, hence, leading to more mortgagee sales next year, she adds.

Benchmark low There was no significant drop in prices this year, except for high-value properties in certain prime areas, notably in Sentosa Cove where two units at Turquoise set a benchmark low in the upscale waterfront residential enclave when they were sold by the bank in a private tender for $3.88 million ($1,397 psf) and $4.03 million ($1,450 psf) in July, after failing to find buyers in auctions.

The prices were some 43% below the owners’ original purchase price of $7.1 million apiece in 2007.

Fifty-one condominiums and apartments in prime districts debuted as mortgagee sales at auctions this year.

They include units at Marina Bay Residences, The Sail @ Marina Bay, Reflections at Keppel Bay and in the traditional prime districts of 9 and 10 (examples are units at Residences at Killiney, The Laurels at Cairnhill, Orchard Scotts and Botanic Gardens Mansions).

The majority of the properties sold at auctions (24 out of 32) were new listings, put up for auction for the first time and sold immediately, says Mok.

Buyers are drawn to quality assets that are reasonably priced.

For such properties, sellers are less likely to compromise too much on prices, she adds.

Some older properties have been put up for auction repeatedly.

It has become a “reverse auction”, says Donald Han, managing director of Chesterton Singapore, basically starting at a higher price and seeing prices reduced at each subsequent auction.

An example this year was a 2,863 sq ft unit at Stevens Court.

The five-bedroom unit on the third floor is just one of six units in the 25-year-old freehold apartment block.

It is located on Stevens Road next to the upcoming Stevens MRT station.

A mortgagee sale, the unit made it debut at Colliers’ auction in June with an opening price of $5 million.

It saw a bid of $4 million and another at $4.5 million before it was withdrawn.

It next appeared at Knight Frank’s auction in September, with an opening price of $4.5 million, but saw no takers.

In October, the property resurfaced at JLL’s auction with an opening price of $4.4 million.

Last month, it was auctioned by DTZ with the opening price lowered to $4.3 million.

And after going full circle, it was back at Colliers’ auction on Dec 12, with an opening price of $4.2 million.

And still, there were no takers.

Generally, discounts will be given for properties that have been put up for auction more than once, notes Ng.

Owners of big-ticket items above $5 million are also more prepared to offer a higher discount, owing to fewer buyers being able to afford these price tags, especially with constraints on borrowing limits with the total debt servicing ratio (TDSR) in place.

Residential dominates About 77.4% of the mortgagee sales at auctions this year were residential property, with the majority being condos and apartments, says Colliers.

The trend is expected to continue next year.

Although mortgagee sales of luxury condos in the Core Central Region stole the limelight this year, such sales have started to cascade to the outer regions.

Newly completed condos, including shoebox apartments in the suburbs and on the city fringe, have also popped up at auctions as mortgagee sales in recent months.

Ng attributes it to some investors holding on to multiple units who may have difficulty servicing their mortgage or unable to secure tenants in their newly completed units.

For example, the sole transaction at auctions in December was a brand-new 1,862 sq ft apartment at The Rochester in one-north.

The three bedroom-plus-study unit was a mortgagee sale and fetched $2.36 million ($1,268 psf) at Knight Frank’s auction on Dec 9.

The previous owner paid close to $2.29 million ($1,228 psf) for the property at its launch in 2007, according to a caveat lodged with URA Realis.

Sharon Lee, head of auction at Knight Frank, expects to see more mortgagee sales of compact strata retail and strata industrial units in the auction market next year, with investors struggling to find tenants.

These were properties that saw active buying over the last three to four years, and are now being completed.

Colliers’ Ng believes, however, that mortgagee sales of upscale apartments in the prime districts will continue to dominate the auction scene.

This article appeared in the City & Country of Issue 658 (Dec 29) of The Edge Singapore.

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