[SINGAPORE] The number of properties up for auction by mortgagees (or lenders) as well as their share of the number of properties going under the hammer has hit a quarterly high in Q2.
Auctioneers say this reflects the difficulty that financially stretched borrowers face in securing buyers for their properties since the implementation of the total debt servicing ratio (TDSR) framework a year ago. Because of this, financial institutions have had to repossess more properties and put them up for auction.
The trend is expected to gain momentum as the rising supply of non-landed private homes will make it harder for mortgagors (or borrowers) to find buyers and thus dispose of their properties themselves - resulting in more properties ending up as mortgagee sales.
Furthermore, the reduced inflow of expats into Singapore is shrinking the pool of potential tenants, hitting rental incomes and hurting owners' ability to service their loans.
Figures from Colliers International show that this quarter, 42 mortgagee sale properties have been put up for auction - almost double the 22 in Q1 this year. In Q2 2013, the figure was just six properties.
The latest figure is the highest since Q3 2009, when 63 mortgagee sale properties landed on the auction block. The first-half tally of 64 was double the 32 for the whole of last year - and also a big jump from 24 in 2012 and 39 in 2011.
In H1 this year, the number of properties put up for auction by owners was 192, down from 226 in the same year-ago period.
As a result, while the owner sales' share of properties put up for auction has dropped from 93.4 per cent in full-year 2013 to 75 per cent in H1 2014, the mortgagee sales' share has risen from 6.6 per cent to 25 per cent. On a quarterly basis, the mortagee sale share has doubled from 16.7 per cent in Q1 this year to 33.9 per cent in Q2 - the highest level since the 35.5 per cent share in Q1 2008 during the global crisis.
Colliers' analysis took into account information as at June 19 from auction lists for the major houses for the month of June. While DTZ conducted its auction last Thursday, Colliers, Knight Frank and JLL will conduct theirs this week.
JLL's analysis shows that for January-May this year, 13 properties (both owner and mortgagee sales) were sold for a total of nearly $26.2 million at auction. Of this, the mortgagee sales accounted for nine properties which fetched $12.8 million.
For the whole of last year, 21 properties amounting to $99.6 million were sold at auction, of which 10 properties totalling $12.6 million involved mortgagee sales.
Typically, financial institutions provide some leeway to borrowers who are experiencing difficulty servicing their mortgages by giving them the first crack at finding a buyer as owner sales tend to fetch a higher price compared with a mortgagee sale which is often seen as distressed. However, the implementation of TDSR has made it difficult for potential buyers to obtain credit.
"More buyers have also chosen to stay on the sidelines with a view that prices will start to ease," noted JLL's head of auction and sales, Mok Sze Sze.
As a result, said Colliers' deputy managing director Grace Ng, banks have little choice but to respossess such properties - resulting in the increase in mortgagee sale properties surfacing at auctions.
She added that due to exuberance at private housing launches in the past few years, many buyers bought uncompleted properties "off plan" with the non-savvy ending up with units that have undesirable orientation or layout. Such owners now face difficulty finding buyers and tenants.
While the majority of mortgagee properties ending up on the auction block are residential, there are also signs of an increase in strata industrial units, notes Ms Mok.
Going by Colliers' analysis, nearly 63 per cent of the mortgagee sale properties that have been put up for auction in the first six months are residential properties, followed by a 17.2 per cent share each for industrial and retail properties.
Colliers' auction tomorrow will feature a mortgagee sale property at Turquoise condo in Sentosa Cove. The 2,777-sq-ft four-plus-one bedroom unit previously surfaced at an auction on April 30. It was withdrawn without bids at the opening price of $5 million.
Another mortgagee property to be featured at the same auction is a third-floor unit at the freehold Stevens Court. The 2,863-sq-ft unit has five bedrooms. JLL's auction on Thursday will feature mortgagee sale units at VisionCrest Residence, Residences@Killiney, The Floravale in Westwood Avenue and a shop unit at 116 Yio Chu Kang Road. At Knight Frank's auction today, a mortagee sale of a two-bedder at Dover Parkview is expected to go under the hammer.
Sharon Lee, head of auctions at the firm, advises those having problems servicing loans to be realistic. Given the buyer's market today, one has to be aware that potential buyers would be anticipating price corrections - instead of sticking to the last transacted price in the project some time ago, she said.