Auction sale of properties are on the rise in a lackluster market plagued by slow rental and high vacancy. With a worsening economy, both auction properties and mortgagee sales are expected to flourish in 2017.
A mortgagee sale happens when the owner of the property defaults on mortgage payment. The mortgage bank then steps in to repossess the property and put it up at auctions for sale.
Knight Frank Singapore saw mortgagee listings of 243 units in 2016 at a 5-year record high. Out of the total, 68 percent are residential properties.
Knight Frank revealed that most mortgagee listings were properties in the core central region, followed by the city fringe. It is not surprising given the predominance of investment properties, oversupply of new units, declining rental prices and higher mortgage payment in the prime residential market.
Under this cyclical property downturn, the total number of properties put up for auction under mortgagee sale is expected to cross the 250-unit mark in 2017. JLL Singapore also predicts that mortgagee sales will increase by 10 to 20 percent this year.
Properties to look out for in auctions
Auction houses in Singapore market all different types of properties, including residential properties (landed houses and apartments) and commercial properties (factories, shophouses, strata offices and shops, and development sites).
Sharon Lee, Director & Head of Knight Frank Auction, listed several types of properties that are suitable to sell at auctions:
1. Properties with development, expansion and en-bloc potential;
2. Prime landed or private residential properties in good locations;
3. Unique and rare properties (e.g. conserved bungalows); and
4. Properties from absentee owners or multiple owners (e.g. en-bloc/trustee/liquidator/estate sale).
There is also an upward trend of landed properties being put up for auction. Their relatively higher value has made it difficult for landed homeowners to service their mortgage payments, especially after the introduction of the TDSR framework.
How to buy auction properties like a pro
Buying auction and mortgagee sale properties is no longer the playground reserved for savvy investors. If you are interested in buying at auctions, you can contact the auction houses and request them to include your name in their distribution list. They will keep you posted on their monthly auctions.
I have shared with readers how to find gems in property auctions in my book No B.S. Guide to Property Investment.
In this game of buying at auctions, there are some strict rules to follow.
1. Rules before the auction
There is only a short window to view the auctioned properties and conduct relevant searches. Buyers have limited time to do their research and analysis before the auction date.
Have your financing and legal assistance ready at your disposal before the auction date. Get the approval-in-principle of the housing loan from your banker before you bid at the auction.
2. Rules during the auction
In an auction, properties are put under the limelight.
Within a short time, you have to decide whether to bid or not, bid at what price, chase the price or give up. Every time the auctioneer shouts the current bid the first, second and third time, potential buyers are under the pressure to react.
One buyer’s interest can attract the attention from other eager buyers while another buyer’s offer can draw higher bids from other bidders. You may end up paying much higher than the reserved price.
If you get carried away by the crowd and forget about your bottom line, you may have the ‘winner’s curse’ and pay higher than what the auctioned property is worth. Rather than getting a good deal, you are actually winning the highest bid to buy an overpriced property.
3. Rules after the auction
If you are the successful bidder, you have to proceed with the purchase under all circumstances. In an auction, an immediate 10 percent of the transacted price has to be settled on the spot.
For mortgagee sale, the bank set its terms on the Option to Purchase. As a mortgagee sale buyer, you cannot change anything in the contract, not even a word. Your conveyancing lawyer will remind you the same thing.
You don’t necessarily have to buy during the auction. You can submit an offer before or after the auction.
If the seller accepts your offer, the property will be canceled at the auction. Likewise, you can wait till the end of the auction and approach the person-in-charge to negotiate
for a deal. Remember to leave your contact details there.
If you want to learn more about how to look for good bargains at auctions, feel free to join us at the 2017 Singapore Property Strategies and Opportunities in Auctions education seminar this Sunday.
See you there!