The first quarter of the current year saw some $18m worth of properties being transacted at auctions, up by three times in the previous quarter which had $5.4m and also managed to exceed the $9.5m in the first quarter of 2008.
While there is a rise of 17.8 percent quarter on quarter to 53 in the first quarter of 2009, a fall of 15 percent to 136 happened over the same period in the volume of properties, which the owners put forward on auction block, as shown in Colliers International figures.
Grace Ng, auctioneer and deputy managing director at Colliers International, predicts that in the succeeding quarter, there will only be a tenuous rise in mortgagee sale properties’ numbers being offered for auction. Ms. Ng, however, reckons that with a probable improvement in retrenchments, the mortgagee sale properties being prepared to be auctioned are likely to be raised up by next year or later this 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 noted.
She also mentioned that the number of sale properties from mortgagees offered for auction increased only in the first two quarters of 1999 during the Asian financial crisis, though retrenchment numbers rose in the final quarter of 1997.
Then again, Ms. Ng remarked that mitigating factors also play a role as they may reduce the tendency of banks to bid in auction houses if mortgage payments are not paid by borrowers. “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,” said Ms Ng.
Shaun Poh, an auctioneer and senior director at DTZ (investment advisory services), stated, “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,” he added.
A regulation change seven years ago, which granted banks initial claim to mortgage properties, may be another reason for banks not to rush in foreclosing properties when borrower default occurs, Ms. Ng suggests. “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,” Ms. Ng added.
Based on the analysis made by Collier’s, it indicated that 77 percent of the 53 mortgagee properties were residential properties that became part of the first quarter’s auction block.
“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,” said Ms. Ng.
The auction in February and January 2009 saw only four properties being sold for around $5m, though things only became slightly better in March, having sold eight properties for $13m.
“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,” said Ms. Ng.