Consultants expect spike in mortgagee sales as downturn takes its toll
The property auction market was less active this year but things are expected to hot up in 2009 as more owners struggle to hang on to their properties.
Knight Frank figures show that the total number of properties put up for auction this year has dropped almost 35 per cent to 852 from 1,302 in 2007.
The number of properties sold at auctions so far this year has also declined to 66, compared with 204 last year. In terms of value, about $69.1 million of real estate has changed hands, some 84 per cent below last year’s $422.3 million.
However, this tally excludes the results of the final two auctions for the year, being held this week.
Knight Frank executive director Mary Sai says that auction sale activity has been low in 2008 as ‘distressed sales have yet to develop’.
‘This is still considered the beginning of a major economic crisis and the number of owners hit by the economic crisis is not yet significant. Hence, owners who are not yet being forced by severe circumstances to dispose of properties continued to hold them.’
Another veteran auctioneer, Colliers International deputy managing director Grace Ng, says that there have been fewer mortgagee sales this year as borrowers have been able to service their property loans since employment figures have been healthy for the most part of 2008.
The rental market was also firm until fairly recently, which means that these properties may still be generating good yields for their owners, who are able to service their mortgages.
Looking ahead, DTZ senior director Shaun Poh said: ‘We will see more owner and mortgagee sale properties at auctions next year. But in the first-half, we’re still likely to see mostly sales by owners who feel pressure from banks; for instance, if they’re having difficulty servicing their mortgage.
‘These guys will be put on notice by their banks. That’s the first step. After mid-2009, some of these cases may convert to mortgagee sales as banks take possession.’
Mr Poh says that a price gap of ‘easily 25 per cent’ has emerged of late between buyers and sellers at auctions. ‘I think the buyers may get their way next year for some of the properties. There are some investors trying to cut their loss on the second or third investment property that they bought on deferred payment scheme from the developer and who’ve not secured a bank loan yet.’
Knight Frank’s Ms Sai, too, agrees that ’success rates at auctions may improve if a continued worsening in economic conditions forces some sellers to further lower reserve prices and satisfy the price expectations of some buyers who are bottom fishing’.
Against the backdrop of rising business failures and unemployment, mortgage defaults could increase and give rise to more mortgagee sales at auctions in the near future, Ms Sai predicts. Out of the $69.1 million auction sales this year, about 36 per cent were mortgagee sales, slightly higher than the 32 per cent mortgagee sale share of the total $422.3 million auction sales in 2007.
Knight Frank’s analysis of auctions activity in 2008 showed that things slowed down considerably in the second half. For instance, 477 properties went under the hammer in January-June but the number slipped to 375 in the second half of the year.
The number of properties that made their way to the auction block fell across most sectors but increased slightly for office units.
Residential properties continue to make up the lion’s share of properties put up for auction, at 50.2 per cent. However, the 428 homes that went on the auction block was a 27 per cent drop from last year.
Knight Frank observed that the slide in value of properties sold during auctions took place on the back of subdued buying sentiments as well as the general fall in property prices.
For instance, an eighth floor unit in Merawoods condo in the Hillview area was sold in November for $720,000 or $535 per square foot, but lower floor units had been transacted at about $630-650 psf in the open market in H1 2008.
Similarly, a 14th floor apartment at King’s Mansion in Katong changed hands for $842 psf during an auction in August, 15 per cent lower than a similar unit during an April auction.
Source : Business Times - 17 Dec 2008
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