Sunday, March 29, 2009

Property auction sales up in Q1

More mortgagee properties going on the block, with trend seen deepening.

SOME $18 million worth of properties was transacted at auctions in the first quarter of this year, more than three times the $5.4 million notched up in the preceding quarter and also surpassing the $9.5 million in Q1 last year.

The market revved up in March after a muted start in January and February.

Colliers International figures also showed that while the number of repossessed properties put up for auction sales by banks and financial institutions (or mortgagee properties) rose 17.8 per cent quarter on quarter to 53 in Q1 2009, the number of properties put on the auction block by owners themselves slipped 15 per cent over the same period to 136.

The property consultancy group's deputy managing director and auctioneer Grace Ng is predicting only a slight increase in the number of mortgagee sale properties being put up for auction in the next quarter. However, with an expected increase in retrenchments, which would result in more defaults by borrowers on loan repayments, Ms Ng reckons the pace of mortgagee sale properties going under the hammer could pick up later this year or next year.

'There's generally a lag time of about six months or more between when a buyer defaults on his loan repayments and when the bank repossesses the property and puts it up for auction sale,' Ms Ng observed.

She recalled that during the Asian financial crisis, the number of mortgagee sale properties put up for auction rose markedly only in first-half 1999, although retrenchment numbers had begun to rise as early as Q4 1997.

However, she pointed out that some mitigating factors are also at play this round which may reduce banks' propensity to race to auction houses when borrowers default on mortgage payments.
'Financial institutions tend to be more sympathetic and flexible now compared with the Asian crisis days. For example, to help owners ride through this trying period, some financial institutions have provided options, like allowing borrowers in financial difficulty to service only interest payments.
Such a move helps reduce or delay the number of properties being repossessed,' Ms Ng said.

DTZ's senior director for investment advisory services and auctioneer Shaun Poh said: 'This time, both banks and borrowers are better prepared than during the Asian crisis, when some people panicked and just handed the keys to their banks. Now, banks are more prepared to talk to the borrowers; that's partly why we don't see a lot of mortgagee properties put up for auction. Banks are trying to space out the properties a bit, restructure, renegotiate. And they're asking owners to try and sell their properties themselves first, whether it's by auction or private treaty.'

'It's also a value preservation strategy. Banks have learnt from the last round that if they pull the plug and take over a property, its value falls. Potential buyers' perception is that they can strike a bargain for mortgagee sale properties as they're like fires sales,' Mr Poh added.

Colliers' Ms Ng suggests another reason for banks not being in a hurry to foreclose on properties this round may be due to a rule change in 2002 that gave banks first claim to a mortgaged property - ahead of the Central Provident Fund Board - in the event of borrower default. 'The pressure to foreclose the property by banks/financial institutions is now lower, as their exposure to losses - due to unrecoverable outstanding loan amount - is reduced,' she added.

Colliers' analysis showed that 77 per cent or 41 of the 53 mortgagee properties that went on the auction block in Q1 were residential properties; 27 were apartments/condos while the remaining 14 were landed homes. These landed properties were mostly in District 19, which includes Serangoon Gardens, Hougang and Punggol.

'We can expect to see more apartments/condos surfacing at auctions as there are about 14,600 non-landed properties due for completion in the next two years,' Ms Ng said.

Just four properties were sold at auction for nearly $5 million in January and February this year but things started to hot up a bit in March, with eight properties transacted for $13 million. 'The price gap between sellers' asking price and buyers' offer price appears to have narrowed in March. The rallies in the stockmarket, together with the positive take-up rate at developers' launches in the past two months, seem to have spilled into the secondary market - resulting in buyers' commitment to purchase the units.

'Interestingly, owner occupiers constitute the bulk of buyers making commitments to purchase now,' Ms Ng said.

Source: Business Times, 28 Mar 2009

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