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REVIEW 2015

Properties put up for auction at 6-year high

However, only 4% sold despite auction rooms getting more crowded; analysts blame bid-ask price gap

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Auction houses also noted that the number of bigger homes in posher venues that went under the hammer has risen. This includes not just landed homes but condominium units in Singapore's prime districts.

Singapore

MORE distressed properties were put up for auction this year, but barely a fraction were sold.

The number of auction properties rose to a six-year high of 796 in 2015, going by Colliers data which includes relistings, but the number that got sold was dismal at just 33.

This represents a success rate of just 4.1 per cent, down from an average of 6.2 per cent over the last five years.

The number of sold properties cited by Colliers excludes deals closed in private treaties. But it noted that many more deals were closed by private treaty before and after the actual auctions. There is no data on them, however.

Grace Ng, deputy managing director, auction & sales at Colliers, said that most buyers now prefer to negotiate privately with sellers as they can seal better deals to buffer themselves against falling property prices and an impending increase in interest rates.

A price gap stubbornly persists between what bargain hunters are willing to pay and what owners are willing to accept.

Ms Ng said: "There has been a stalemate between buyers and sellers. The price gap has not really narrowed. Vendors are more open to negotiations nowadays, but there is a tendency for buyers to lower the offer prices as they drive a hard bargain."

Sharon Lee, director and head of auction at Knight Frank Singapore, noted that even for better-located properties, sellers are only willing to settle for 5-10 per cent lower than the market price. For properties with poorer attributes, the bid-ask gap remains wide. DTZ added that the prices of auctioned properties in 2015 were mostly at a discount of just 3.5-6 per cent of the seller's asking price. There is underlying demand, going by the larger crowd at auctions, but the price is not yet right, auction houses say. Colliers, for instance, reported "jam-packed" auction rooms, with some sessions attended by over 200 people.

Knight Frank noted that individual buyers have been showing keener interest in auctions, and agents have also been bringing buyers to auctions.

Auction houses also noted that the number of bigger homes in posher venues that went under the hammer has risen. This includes not just landed homes but condominium units in Singapore's prime districts.

For the first three quarters of 2015, the number of non-landed homes in the prime areas of Districts 1, 2, 9, 10 and 11 up for auction rose 52 per cent year on year from the 60 units in the same period in 2014 to 91, Knight Frank data shows. (By press time, Knight Frank was not able to include the latest numbers from JLL's final auction held on Dec 17.)

This trend is not unexpected, given that heavily leveraged owners of higher-priced prime properties are usually harder hit by the inability to service their mortgage loans when the competition for tenants hots up.

Furthermore, properties with a higher price quantum are also more difficult to dispose of in a market with stringent loan curbs.

Large condos and apartments of more than 1,500 square feet, as well as penthouses with large open terraces or balconies or a private swimming pool, are suffering, said Colliers' Ms Ng.

So are landed homes above 3,000 sq ft, including strata houses (landed homes with communal facilities similar to those in condominiums) which have fallen out of favour in recent years. According to Knight Frank data, the number of landed homes put up for mortgagee (or lender) sales doubled to 31 in the first three quarters of 2015, from 14 a year ago.

DTZ noted that the average gross floor area (GFA) for landed properties put up for auction has increased year on year, to 4,297 sq ft from 4,077 sq ft previously.

Similarly for apartments put up for auction, their average GFA has risen to 1,880 sq ft from 1,430 sq ft in 2014, which shows that it tends to be the owners of bigger homes who find themselves in trouble.

On the commercial front, more industrial properties were also auctioned this year. With the manufacturing sector performing poorly, more strata-titled industrial properties bought by investors are joining the auction pool as worried owners seek to dispose of them.

Industrial properties used to be popular when the manufacturing industry was booming a few years ago, but owners now struggle to secure tenants as the Singapore economy takes a turn for the worse and more supply - some 40.4 million sq ft of completed industrial space by 2016 - comes onstream.

The picture is unlikely to change in 2016, especially now that the US Federal Reserve has taken the first step to kickstart what may be a long but sure process of normalising interest rates.

Analysts expect that amid the subdued economic growth forecast for Singapore, owners' continuing struggle to secure tenants and stiff competition from other sellers with comparable properties in the market, the number of properties listed for auction would probably trend upwards.

Property owners may then be forced to become more realistic in setting their price expectations, they added.

For more of BT's year-in-review stories, visit bt.sg/review_15