Business Times - 11 Jun 2009
Property auctions rise as hammer falls
May deals outstrip all of Q1; some banks allowing owners to hock their own properties
By KALPANA RASHIWALA
(SINGAPORE) Property auctions are in vogue again, with deals touching $18.5 million in May alone. This is higher than the $17.9 million for the whole of Q1 this year, show Colliers International figures.
Banks are playing their part by occasionally stepping aside and letting owners hock their own properties. This is because prices tend to slide when financial institutions repossess a property and offer it as mortgagee sale.
After a slow start to the year, a total of $47.7 million worth of properties have been sold at auction in the first five months. Colliers deputy managing director and auctioneer Grace Ng is now predicting that the year would see about $150 million of auction deals - compared to $83.7 million for 2008, which was an 11-year low.
The May figure is the highest since August last year, when auction sales touched about $22.7 million. But last August's number was bumped up by state auctions that raised $13.81 million, while no such special factor was at play in May.
Owner sales accounted for 44 of the 59 properties that went under the hammer last month. Fifteen properties actually got sold, of which just over half - eight - were mortgagee sales. They fetched a combined $8.7 million.
Said Ms Ng: 'We're not seeing a surge in the number of repossessed properties in the market yet as financial institutions are making an effort to manage the situation by helping owners to ride through this difficult period and giving them the opportunity to sell the properties in the open market instead of repossessing the property immediately.'
Knight Frank executive director and auctioneer Mary Sai added: 'Banks know that once they take over a property and it is offered as a mortgagee sale at an auction, some buyers will offer lower prices thinking it's a fire sale or cheap sale. So it's to the bank's advantage to talk things over with the borrower, restructure the mortgage if necessary or at least give him a chance to try selling the property himself first.'
The stockmarket rally and strong homes sales by developers improved the overall sentiment and contributed to the strong auction sales in May.
Attendance at property auctions perked up last month, said Ms Sai. 'Success rates also rose. For instance, in Q1, one or two properties, or even none in some cases, were sold at auctions. However, in May, most of the big auction houses achieved sales of at least two properties per auction.'
Jones Lang LaSalle head of auctions Mok Sze Sze noted that the price gap between buyers and sellers narrowed in May, resulting in more deals being sealed at auctions. Even though 96 properties were offered for auction in April and only 59 in May, last month saw more sealed deals.
Looking ahead, Ms Mok expects total auction sales for this year to surpass last year's tally.
Colliers' Ms Ng expects buoyant sales to continue in the next few months but whether the trend can be sustained depends on the economic recovery, the stockmarket performance and the selling price.
Agreeing, Knight Frank's Ms Sai said: 'There are buyers at auctions if prices are right. But if the reserve price is too high, they will not participate.'
Several landed homes were auctioned off in May, which accounted for its strong showing. They included a semi-detached house at 69 Namly Garden which was sold for $3.7 million or $716 per square foot of land area; the $4.1 million ($442 psf) sale of a bungalow at 20 Bright Hill Crescent off Upper Thomson Road; and 2 Pasir Ris Way (a semi-D) that fetched $2.3 million ($459 psf). The Pasir Ris and Namly Garden properties were mortgagee sales.
Colliers' Ms Ng does not foresee an immediate rise in the number of mortgagee sale properties hitting the auction block.
'A pick-up is likely to happen only in Q3 or Q4 this year. Currently, there's an average of 18 distressed properties being put up for auction per month and the number could go up to about 22 properties per month in Q3 or Q4 this year.'
Knight Frank's Ms Sai expects owner sales to continue buoying auctions in coming months, given the advantage this mode has over private treaty. 'Once the sale is done, the seller collects 10 per cent payment immediately at the auction - instead of having a two-week option period. Prices and terms are pre-determined, avoiding protracted negotiation.
'The advantage to the buyer is that the seller has to sell once the reserve price is reached at the auction, unlike private treaty where the seller can change his mind even if you meet his price before he grants an option.'