More Singapore properties go under the hammer but fail to sell as sellers cling on

HIGHLY indebted owners continue to hold out even as more homes go under the hammer amid worsening economic conditions due to Covid-19.

In Q1 2020, total auction listings in Singapore fell 31.1 per cent to 235 from the same period in 2019, said Edmund Tie in its Q1 auction review. Auction listings are made up mainly of mortgagee and owner sales. However mortgagee sales grew slightly by 2.6 per cent year on year to 160 listings.

In Q1 2020, the proportion of mortgagee sales relative to the total number of auction listings saw a substantial year-on-year increase to 68 per cent, up from 46 per cent in the same quarter last year. While listings have increased, the auction success rate had not kept pace and in fact declined, alluding to a more cautious sentiment in the buyers' market, it said. From 3.8 per cent in 2018, the success rate fell to 1.6 per cent in 2019, with only 21 properties knocked down during auctions.

As of now, there are no distress sales and the sellers say they want to pull out as the market is not favouring them, said Joy Tan, Edmund Tie's head of auction and sales.

Market is at a standstill, as banks are holding back, giving borrowers more time, said Ms Tan. More than 17,000 people have applied to defer their mortgage repayments.

A Knight Frank Q1 2020 auction report said the success rate (based on auction listings) in Q1 was an all time low since 2011 at 0.4 per cent amid the Covid-19 outbreak, as a result of the mismatch in price expectations between buyers and sellers.

A NEWSLETTER FOR YOU

Tuesday, 12 pm

Property Insights

Get an exclusive analysis of real estate and property news in Singapore and beyond.

Sign Up

"At the moment many sellers are trying to hold on to their original prices, or to only reduce these prices marginally," said Sharon Lee Knight Frank, head, auction and sales.

However, buyers expect that there might be greater price reductions in the near term due to the economic difficulties brought about by the Covid-19 outbreak, she said.

So during auctions, "most of the properties were withdrawn at the opening price", as there were no bids, said Ms Lee.

"In most instances, prospects would like to negotiate after auction and usually they only need to pay a smaller deposit of 1 per cent if the case is closed by private treaty," she said. The deposit for a bidder at auction ranges 5-10 per cent.

According to Knight Frank's records, only one landed residential property with a limited lease balance of 28 years at 29 Beng Wan Road was sold at an auction in Q1 2020. There were two bidders and the opening price was S$900,000; it was was sold for S$940,000 by Knight Frank, she said.

"Landed property demand is quite high," she said.

One non-landed property, an owner's sale, at 19 Keppel Bay Drive #05-38, is under negotiation, said Ms Lee. Although the valuation is S$2.6 million, the owner requested to set the opening price at S$2.18 million.

"This discount is not typical of owner sale; in most cases the auctioneer decides the opening price," said Ms Lee.   

For the remainder of the year, and even heading into early 2021, Edmund Tie's Ms Tan predicts that the mortgagee sale outlook will follow a tick-shaped recovery, also popularly known as the "Nike swoosh".

Said Ms Tan: "The drop is expected to be rather gentle, given the three packages implemented by the government. As a result, homeowners would not be anxious to liquidate their assets at a lower price as the packages will tide most of them over this crisis."

Ms Tan said buyers "will grab" if prices drop 5-8 per cent from banks' valuation.

Last year it was thought a bargain if prices fell 5 per cent, she said.

For the whole of 2019, residential properties made up the majority of mortgagee sales, said Edmund Tie's review. Accounting for 356 mortgagee-sale listings out of a total of 1,320 auction listings, residential properties under auction in 2019 appeared to have borne the brunt of macroeconomic headwinds generated by the protracted US China trade war, Brexit and other geopolitical uncertainties. This represented a 61.1 per cent year-on-year increase, up from 221 residential mortgagee listings in 2018, and in terms of absolute numbers, made the residential market one of the most volatile vis-à-vis other sectors.

Alice Tan, Edmund Tie's senior director, research and consulting, said: "By and large, highly leveraged homeowners are grappling with higher risks, with the result that shocks and disruptions to income may lead to inability to continue servicing mortgage loans."

"The outbreak of Covid-19 since late December last year added pressure to an already difficult environment that was barely recovering, and, barring further government intervention, is anticipated to further trigger mortgagee sales," she said.

Across the various property sectors, only the industrial sector registered a jump in mortgagee sale listings to 50 in Q1 2020 from 35 in Q1 2019.

"It was also observed that banks are now increasingly more reasonable with price expectations, particularly for industrial properties which generally have lower tenures compared to residential properties," the review said.