May 11, 2020
HIGHLY indebted owners continue to hold out even as more homes go under the hammer amid worsening economic conditions due to the Covid-19 pandemic.
Only one property was sold at auction in Q1 2020 as sellers baulk at firesale prices. Auctioneers say prices may drop 5-8 per cent later when mortgage relief measures end by Dec 31, and hopefully more transactions can get done. 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 listings grew slightly by 2.6 per cent year on year to 160.
In Q1 2020, mortgagee sales as a percentage of total auction listings jumped to 68 per cent 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; the sellers pull out as the market is not favouring them, said Joy Tan, Edmund Tie's head of auction and sales. She added that the market is at a standstill, with banks holding back and giving borrowers more time. More than 17,000 people have applied to defer their mortgage repayments. Mortgage relief measures will last til end-2020.
For the remainder of the year, and even heading into early 2021, Ms Tan predicts that the mortgagee sale outlook will follow a tick-shaped recovery, also popularly known as the "Nike swoosh".
"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.
While auctions are quiet, more and more potential buyers are asking to be listed on the database, said auctioneers.
Indonesian enquiries have picked up, as well as those from Hong Kong and China, said Ms Tan.
Mainland Chinese are steering clear of Hong Kong where they used to be the biggest buyers, and prefer Singapore, she said.
China buyers are shying away from real estate in Hong Kong as the coronavirus pandemic clouds the economic outlook and keeps investors from travelling to the city, said a May 4 Bloomberg report.
No commercial property transactions in the first quarter involved a buyer from mainland China, the first time that's happened since 2009, according to CBRE Group Inc, which tracks deals over HK$77 million (S$14.18 million). It's in stark contrast to a few years ago when Chinese investors were snapping up offices and retail space for eye-popping prices.
Wealthy individuals from China used to dominate the high-end home market with about 60 per cent of international buyers hailing from the mainland over the past 10 years, according to Savills plc. Prices for luxury properties across Hong Kong dropped an average 4.5 per cent in the first quarter from a year earlier. The area around West Kowloon station, particularly favoured by mainland Chinese, slumped almost 7 per cent, Savills data show.
In Singapore, China buyers prefer spacious landed property and are keen on Sentosa, said Ms Tan.
They are looking for at least 4 bedrooms and willing to pay S$8-9 million, she said.
Indonesians continue to target their favourite prime districts of 9,10 and 11, she said.
"You cannot direct them to the outskirts.... we've tried," said Ms Tan.
Hong Kong buyers will look at homes outside the core central region, as long as they are near the MRT, she said.
"They are looking for convenience and affordability is an issue," she said, adding that most Hong Kong buyers are middle class.
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.
"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.
"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.
Banks' valuations need to fall to move transactions but that will take time as banks have to be accountable and show they tried to get the best price at auctions. Prices will slide when mortgagee sale properties are listed repeatedly.
Some investors believe they can offer a price equal to the outstanding loan, and clinch the property, said Ms Lee. For instance the property could be valued at S$1 million with an outstanding loan of S$500,000 and the bidders feel they can get it for the latter price.
"That won't happen," she said.
The problem is that valuations are usually based on historical transactions. "The next quarters will be most interesting," said Ms Lee.
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.