SINGAPORE (EDGEPROP) - On March 25, more than 100 people tuned in to watch Joy Tan, auctioneer at Edmund Tie, conduct a property auction that was broadcast live on Facebook. It was the first time that the auctioneer had conducted an auction this way, and it has received “positive feedback” from potential buyers, says Tan.
One of the properties featured at the auction found a buyer subsequently: It was a 1,324 sq ft, three-bedroom-plus-study apartment at Livia, a 99-year leasehold condo at Pasir Ris Grove. A mortgagee sale, it had an opening price of $1.06 million at the auction, and the deal was closed in a private treaty “at a very reasonable price, slightly below recent transactions at the condo”, notes Tan.
In fact, the deal for the three-bedroom apartment at Livia was closed on the evening of April 6, a mere six hours before midnight of April 7. That was when “Circuit-Breaker” measures kicked in, and where non-essential businesses had to cease operations until May 4.
Edmund Tie closed a deal for a mortgagee sale of a three-bedroom unit at the Livia, hours before the country entered partial lockdown on April 7. (Picture: Samuel Isaac Chua/The Edge Property)
Property auctions, unfortunately, fall in the category of “non-essential” services during this one-month period, according to Tan, and hence, Edmund Tie had to cancel its auction that was scheduled for April 29. Other auction houses have been similarly affected by the Circuit-Breaker measures, which have brought a large part of the economy to a standstill.
However, most are trying to continue with their business and to stay in contact with their clients. At Colliers International, the auction team will be showcasing their properties using video walk-throughs, says Steven Tan, director of sales & auction at the firm. However, all physical visits to the actual properties will only be conducted when the Circuit-Breaker measures are removed.
Knight Frank plans to appeal to the government to allow them to carry on with site viewings for distressed sales, says Sharon Lee, the head of auction and sales. “Pictures and videos often do not fairly convey the condition of the property to potential buyers.” In the meantime, Knight Frank is making use of the lull to collate their auction properties for their next auction, which is scheduled for May 5. “We are taking this time to prepare and conduct as much due diligence on the properties as we can, as well as thoroughly plan our marketing strategy for each property,” she adds.
Even before the Covid-19 outbreak, the number of mortgagee sales had already increased in 2019, as a result of the economic slowdown. According to Colliers International in a report on March 10, the number of mortgagee sales in 2019 had already jumped 59% to a record 751 in 2019 compared to a year ago.
“We expect increased distressed or mortgagee sales in the retail, industrial and residential sectors from the ongoing Covid-19 outbreak, especially if it precipitates a downturn into 2H2020,” says Tricia Song, Colliers International head of research for Singapore.
Most of the major auction houses – Colliers International, Edmund Tie, ERA, JLL and Knight Frank – expect the number of mortgagee and liquidation sales to surge in the coming months. “The effects of the Covid-19 crisis are likely to be deeper and more prolonged compared to past crises, such as the Great Financial Crisis in 2008 and the Severe Acute Respiratory Syndrome (SARS) outbreak in 2003,” says Knight Frank’s Lee.
During an economic downturn, there is usually a surge in the number of both owners’ and mortgagee sales, adds Lee. “Borrowers may not be able to meet their mortgage obligations,” she continues. “Owners may decide to sell their properties to reposition their portfolios, reallocate their funds to equities, or to use their proceeds to resolve the cash flow situation in their companies.”
Other sellers may want to capitalise on the speed of sale completion via an auction in order to quickly reinvest the proceeds into new property opportunities, she adds.
In 1Q2020, the number of mortgagee sale and liquidation sale listings totalled about 146 across all sectors, while the number of owner’s sale listings rang in at about 60. Last month, the lion’s share of mortgagee sale listings came from the residential non-landed (40%) and industrial (31%) properties, followed by landed property (14%). This was also the case for January and February which recorded high numbers of mortgagee sales from these two sectors.
However, most of the new mortgagee sales entering the market over the next few months would have already been in the pipeline rather than those recently repossessed this year, notes Colliers’ auctioneer, Tan.
The mortgagee sale of a penthouse at Helios Residences was on the block for $9.8 million ($2,117 psf) in January by Edmund Tie. (Picture: Samuel Isaac Chua/The Edge Property)
And some have been on the market for over a year. For instance, a 4,629 sq ft, duplex penthouse at Helios Residences was put up for auction in January by Edmund Tie. It is a mortgagee sale. The opening price was $9.8 million ($2,117 psf) at the auction. It is now available for sale by private treaty. The unit was purchased by the previous owner for $14.5 million ($3,133 psf), according to a caveat lodged in May 2014.
Knight Frank is also marketing high-end residential unit; this time, it is a 2,626 sq ft, four-bedroom apartment at The Coast in Sentosa Cove. A mortgagee sale, the property has a guide price of $4.45 million ($1,695 psf). It was scheduled for auction on March 27, but that had to be cancelled as the government had issued an advisory against large gatherings of more than 250 people the day before.
Some owners’ sales have also assumed a tone of urgency, with property listings that are tagged “Urgent Sale” or “Must Sell”.
It isn’t just residential properties that are seeing mounting distress. In January, two adjacent units changed hands at Bugis Cube: A 237 sq ft, strata-titled, 999-year leasehold retail unit on the third floor was sold for $582,000 ($2,458 psf); and another, a 280 sq ft unit, fetched $688,000 ($2,458 psf). These two units were purchased for $1.06 million ($4,488 psf) and $1.28 million ($4,588 psf), respectively, in July 2012.
Lee of Knight Frank expects the number of mortgagee sales of strata commercial units, especially strata retail units, to rise in the coming months. “These owners are finding it more difficult as the rental rates of their units do not cover their mortgage payments,” she says.
Besides strata commercial units, distressed sales of industrial units and factory buildings have also mounted over the first three months of 2020. In March alone, there were 13 listings of industrial properties that were either mortgagee or liquidation sales.
MAS announced that local homeowners facing financial pressure would be able to defer repayments for their residential property loans until Dec 31 this year, staving off an expected wave of mortgagee sales. (Picture: Samuel Isaac Chua/The Edge Singapore)
Edmund Tie is marketing a single-storey JTC factory on Tuas Avenue 4 that is going for $5 million. It is a mortgagee sale. Another mortgagee sale of an industrial property involves two units in a flatted factory at Buroh Crescent that is on the market for $678,000 ($195 psf).
Some owners are also looking to divest their industrial property. A two-storey inter-terrace JTC Factory on Changi South Street 1 was offered for sale by the owner for more than $5 million ($291 psf) last month. It is a school furniture factory with a monthly land rent of about $2,800, says Knight Frank’s Lee. Knight Frank is also marketing a seven-storey JTC factory on Loyang Crescent with a price tag of $9 million. The property comes with ancillary office space, production area, a warehouse, and has approval for a workers’ dormitory for up to 50 persons.
“Some industrial land rents can be quite high relative to the company’s expenses, especially given the challenging economic environment for SMEs [small and medium sized enterprises],” says Knight Frank’s Lee.
However, Colliers’ Tan says the extent of the surge in distressed sales or mortgagee sales could be moderated with government assistance packages rolled out since late March.
On March 31, the Monetary Authority of Singapore (MAS) announced that homeowners facing financial pressure would be able to defer repayments for their residential property loans until Dec 31 this year. This applies to either the principal payment or both the principal and interest payments, according to the central bank.
The following day, on April 1, a Covid-19 (Temporary Measures) Bill was also introduced which allowed tenants whose businesses have been affected by the outbreak to defer the repayment of their rent for six months. Banks have also stepped in to offer deferment of principal repayments for non-residential property owners. However, they have to continue servicing the monthly interest on their mortgage payments.
Last month, Knight Frank was marketing the mortgagee sale of a four-bedroom unit at The Coast at Sentosa Cove that was priced for $4.45 million ($1,695 psf) Picture: Samuel Isaac Chua/The Edge Singapore
On April 7, MAS further clarified that the Total Debt Servicing Ratio (TDSR) loan framework will not apply to deferment of mortgage repayments for residential, commercial or industrial properties. It will also not apply TDSR and loan-to-value (LTV) limits for owner-occupiers who are refinancing their residential mortgages. The TDSR will also not apply to mortgage equity withdrawal loans if the loan-to-value (LTV) ratio does not exceed 50%, as well as unsecured credit facilities such as credit cards and personal loans.
“This means that anyone can apply for deferment of repayments,” says Clive Chng, associate director of Redbrick Mortgage Advisory. “From time to time, individuals and business owners will run into some financial difficulty that may affect their credit rating. Because of this, it will be harder for them to refinance their loans.”
This latest announcement by MAS is to assure individuals and businesses that even though their credit standing may not be good, they can still apply for a deferment of their mortgage payments without being subject to TDSR and LTV requirements, explains Chng.
Colliers’ Tan agrees. He does not expect the number of mortgagee sale listings to rise significantly until 2021. “The spike will come next year if owners are required to pay their deferred repayments all at once or in significant tranches,” he cautions.
There has also been more buying interest in mortgagee sales of landed homes, such as this bungalow on Tamarind Drive by SRI. (Picture: SRI)
More property sellers are expected to capitalise on this leniency to hold on to their properties and their asking prices, for as long as possible, observes Edmund Tie’s Tan.
“On the other hand, some opportunistic buyers are already scouring auction lists and are hunting for distressed sales of attractive properties, expecting the market to have already shifted in their favour,” says Edmund Tie’s Tan. The result is a price mismatch between buyers and sellers of about 15% to 30%, she adds.
Colliers’ Tan agrees: “There are many cash-rich locals who are looking for good property deals, and many are eyeing mortgagee sales to find them.”
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