The local property auction market is coming off the back of a particularly successful 2022, which saw the market achieve its highest rate of success in 12 years. (Picture: The Singapore skyline from CapitaSpring, by Samuel Isaac Chua/The Edge Singapore)
SINGAPORE (EDGEPROP) - Singapore’s three most established property auction teams — hailing from Edmund Tie, Knight Frank Singapore, and Singapore Realtors Inc (SRI) — have wrapped up a busy first quarter of the year. The first three months of 2023 saw them marketing a full suite of residential, commercial, and industrial properties that included owner and mortgagee sales.
Going forward, the prospect of a more drawn-out period of interest rate hikes in 2023 will start to put a strain on some mortgage repayments this year, says Mok Sze Sze, managing partner, and head of auction, at SRI. This could result in higher default rates and subsequently an increase in mortgagee sales.
According to data provided by SRI, the agency had 13 listings for auction in 1Q2023 — eight were for owner sales properties and five for mortgagee sales. In comparison, it had 10 owner sale listings and seven mortgagee sale listings in 1Q2022.
SRI sold three properties in 1Q2023 that were worth a total transaction value of $15.35 million. One was an estate sale — involving a two-storey semi-detached house on Vaughan Road that was sold at SRI’s auction on Feb 28. It was the first time that the property had gone under the hammer, and it fetched $6.3 million.
The other two properties were both sold before their auction dates. One was an owner’s sale of a four-bedroom unit at Ridgewood Condominium for $3.35 million, while the other was an estate sale of a two-storey corner terraced house at Ming Teck Park for $5.7 million.
One of the three properties sold by SRI last quarter was a four-bedroom unit at Ridgewood Condominium that was transacted for $3.35 million. (Picture: Samuel Isaac Chua/The Edge Singapore)
At the time of writing, Knight Frank was in the midst of collating its auction results for 1Q2023 and closing some transactions. However, Sharon Lee, executive director, auction and sales, at Knight Frank, confirmed that the team closed several deals over the past three months.
The properties sold by Knight Frank’s auction team include an HDB shophouse in District 19, a semi-detached house in District 10, as well as several apartment and condo units in Districts 2, 7, 9, and 15. Knight Frank also transacted office units at International Plaza, and factory units at North View Bizhub in Yishun. (Find HDB flats for rent or sale with our Singapore HDB directory)
Despite the strong first-quarter performance, Lee is bracing herself for more moderate activity in the auction market in the next few months. “The current volume of listings appears to be moderating and not increasing,” she says. “However, with interest rates having risen the way they have (in recent months), certain asset owners might come under some financial stress, especially if they are at the edge of their borrowing envelope.”
This sentiment is shared by Joy Tan, head of auction and sales at Edmund Tie. She says: “Most buyers are currently adopting a wait-and-see stance due to the high interest rates and the expected public and private residential supply coming on stream this year.”
Banks in Singapore take their cue from the US Federal Reserve, which increased interest rates seven times in 2022 and has continued to increase interest rates into 2023. Last month, the US central bank raised its benchmark federal funds rate to a target range of 4.75%–5%. This rate will eventually trickle down to US and international consumer debt such as mortgages.
In Singapore, the three-month compounded Singapore Overnight Rate Average (Sora) was 3.45% last month. Sora is the volume-weighted average borrowing rate in Singapore and is pegged to most floating home loan packages here.
Office units at International Plaza were among the successful transactions by Knight Frank last quarter. (Picture: Samuel Isaac Chua/The Edge Singapore)
However, while some owner-sellers may face challenges in servicing loans due to the higher interest rates, most could still leverage the healthy rental market to provide some buffer in their monthly instalments, says Tan.
Therefore, she expects auction activity to pick up pace in 2H2023. “This will come when buyers and sellers adjust their expectations accordingly, following a clearer sense of the market,” says Tan.
SRI’s Mok adds: “Typically, activity should increase during the second and third quarters of the year, before tapering off towards the end of the year due to the year-end holiday season.” She reckons that there is a “good chance” of seeing more prime residential properties, in the form of mortgagee and owner sales, appearing on auction lists this year.
Knight Frank’s Lee says that even property owners who are not under financial stress this year might be tempted to test the market and list their properties for sale on the auction market, especially the owners of commercial and industrial properties who have seen their rental income eroded by rising mortgage instalments.
For example, this month, Knight Frank is marketing the receiver’s sale of a portfolio of 13 retail units on the sixth floor of Sim Lim Square. This is on top of the owners’ sale of two other retail units on the third floor that it is marketing separately. Knight Frank also recently listed the owners’ sale of a four-storey detached building along Sims Avenue that is housing a nursing home.
For the first time in over a decade, a portfolio of 13 retail units at Sim Lim Square has been offered on the market as a receiver’s sale. (Picture: Samuel Isaac Chua/The Edge Singapore)
On the residential front, the three auction leaders expect suburban and city-fringe properties to see more success this year. “More residential properties are expected to be sold compared to non-residential properties in 2023. With the recent change in the calculation of the buyer’s stamp duty [BSD], the ‘sweet spot’ will be residential properties that are priced below $5 million,” says SRI’s Mok.
According to data from Edmund Tie, in terms of listings, prime residential properties accounted for 38%, followed by those in the city fringe (24) and the suburban areas (38%). However, in terms of units sold at auctions, the proportion is: 21% for prime residential; 31% for city fringe areas and 48% for suburban estates.
The higher proportion of sales in the city fringe and suburbs is due to affordability of such units, according to Tan. The interest rate hikes are also expected to have a greater impact on owners in these two market segments, she says.
“In the prime districts, the owners tend to be the well-heeled local and foreign buyers, who are less affected by interest rate hikes,” adds Tan.
On top of the recent changes to the BSD regime, successive property cooling measures such as an increase in the additional buyer’s stamp duty (ABSD) have made buyers and investors more mindful when acquiring residential investment properties in Singapore.
Mok adds that more investors are switching to commercial properties to avoid paying hefty ABSD on residential properties.
“For example, we saw healthy bidding when we auctioned off an HDB shophouse in September 2022. It had an opening bid of $2.5 million but closed 37% higher at a final sale price of $3.43 million,” says Mok.
Similarly, an HDB shophouse in Ang Mo Kio Central was auctioned off by Knight Frank last December for $8.75 million — 51% higher than the opening price of $5.8 million.
“It is too soon to tell if we can expect more robust sales activity for commercial properties in the auction market, especially with the prevailing levels of uncertainty that have brought a mood of caution among buyers and sellers,” Lee says. (Find Singapore commercial properties with our commercial directory)
She adds that if business sentiment declines further, some companies could face cash flow problems and increased pressure from creditors. This could result in a surge in distressed sales in the auction market later this year.
The recent rise in interest could push certain asset owners under some financial stress, especially if they are at the edge of their borrowing envelope, says Knight Frank’s Lee. (Picture: Samuel Isaac Chua/The Edge Singapore)
Owners of retail and food & beverage spaces within strata-titled malls that have low foot traffic and shopper activity may face increased tenant turnover. As a result, they might eventually decide to sell their properties, adds Lee.
According to Tan of Edmund Tie, “Ultimately, auction is an additional mode of sale for owners who prefer to have a quick and transparent sale process". Properties that are listed for auction — whether an owner’s, mortgagee, estate or receiver’s sale — will have a reserve price.
The local property auction market is coming off the back of a particularly successful 2022, which saw the market achieve its highest rate of success in 12 years. The top three auction houses, combined with other smaller auction teams, saw a success rate of 9.5% for the whole of 2022, translating to 40 properties sold and a total gross sales value of $90.3 million.
This year, buyers and sellers will continue to closely monitor interest rate movements, says Mok.
With prices of new suburban residential projects starting from $2,000 psf, some buyers may turn to the resale market for more affordable options, says Tan. Resale condo units at auctions could be priced 30% to 40% below a new project launch in the same neighbourhood, she adds.
“Investors who are not as dependent on debt financing, and are waiting on the sidelines for opportunities, might also contribute to more activity in the auction market later this year,” adds Lee.
Check out the latest listings near Ridgewood Condominium, Ming Teck Park, International Plaza, North View Bizhub