Property auctions: How low do prices really go?

By EdgeProp Singapore

/ EdgeProp |

October 11, 2018 7:40 PM SGT

Most people purchase property from the open market or from the developer. But there’s a lesser known avenue at which you can also buy property from, and possibly at lower prices – property auctions.

Major auction houses such as Colliers International, Edmund Tie & Company, JLL and Knight Frank hold regular monthly auctions, which are typically attended by a hundred people or so.

However, not everyone at an auction is there to snap up properties at bargain prices. Such events are also regularly attended by property agents and bankers who are looking to introduce the auctioned properties to their clients.

Why are properties put up for auction?

Most properties being sold at auctions are there because the owner of the property is unable to fulfil his or her obligation in financing the property.

Often, properties are put up for auction to fetch the best price possible for the property at the shortest possible timeframe. Apart from an auction, banks may also go into private treaty to offload the property.

In February, a four-bedroom unit at Seascape at Sentosa Cove was sold at a $6.6 million loss – the biggest loss ever to be recorded at the upmarket seafront housing district.

For instance, the highest loss-making property last year - a four-bedroom unit at Seascape at Sentosa Cove - was put up for mortgagee sale at an auction in January 2017 at an opening price of $6.8 million but did not find a buyer. It was subsequently sold at $6.2 million ($1,524 psf), by private treaty on February 7.

However, not all properties that are put up on auction are distressed sales or mortgagee sales. Some owners may be putting up their properties at an auction as an added avenue to market their property – these are known as owner’s sales.

The number of properties put up for auction is going up

Properties put up for auction surged by 21.7% year-on-year (y-o-y-) to 454 listings (including re-listings) in 1H2018 – the highest level recorded since 2H2009, Colliers revealed.

According to its Flash report – which tracked transactions and listings in the property auction market in Singapore – listings from all sectors rose on a y-o-y basis during the period, with the exception of the industrial segment where listings fell by 1.1% to 87.

Compared to a year ago, residential listings increased by 15.8% to 234, office listings rose 30% to 13, while retail listings climbed 60.3% to 117 in the 1H2018. Three other listings were for a vacant land and two medical suites.

Owners’ listings on the rise

According to Colliers International’s director of capital markets & investment services Steven Tan, the increase in listings was partly driven by more owners opting to sell their properties via auctions and more mainstream brokerage firms entering the auction market.

In fact, owners’ listings surged by 37.3% y-o-y and 3.7% from 2H2017 to 254 listings in 1H2018, reflecting an increased interest from owners as they believed that auctions would give their properties maximum exposure and the ability to garner the best price.

In the meantime, mortgagee listings grew at a slower pace during the period amid the improved Singapore economy.

“Looking ahead, we believe mortgagee listings may plateau or rise more slowly with less distress in residential and office markets, which have picked up strongly in the last two quarters. Industrial and retail property markets may also start to stabilise by end-2018,” says Colliers’ Tan.

Are auction properties really much cheaper?

A common perception is that prices of properties put up for auction tend to be significantly lower than market price, but this isn’t always the case.

For a start, not all properties that are placed in an auction are up for a “fire sale”, says Sharon Lee, the Director and Head of Auction at Knight Frank Singapore. They also come with a reserve price, to ensure that the banks can cover as much monetary loss as possible, Lee explains.

As such, prices of auction properties typically do not go significantly lower than market prices. “There are cases where property prices can come up to about 5% to 10% lower than market price at an auction. However, many of these properties are actually priced quite closely to market value,” says Lee.

Based on Knight Frank’s September auction listings, we did manage to find properties with guide prices that were considerably below average transacted prices.

They include a 3,993 sq ft four-bedroom unit on the 19th floor of Helios Residences. The unit on the freehold development on 15 Cairnhill Circle in prime District 9 was put up for mortgagee sale with a guide price of $8.1 million or $2,029 psf. This translates to a discount of over 12% from the average transacted price of $2,310 psf for units at the development in the first 10 months of 2018.

Helios Residences comprises two 20-storey blocks with a total of 140 units including three penthouses.

Elsewhere, a 2,131 sq ft five-bedroom unit on the 13th floor of the leasehold Ripple Bay in Pasir Ris was put up for mortgagee sale at a guide price of $2.15 million or $1,009 psf – about 5% lower than the average transacted price of $1,061 psf for units at the development.

Finding opportunities at property auctions

Potential buyers may have better luck scoring “better deals” with owner's sales compared to mortgagee sales, as some owners may be more motivated to sell their properties, says Knight Frank’s Lee.

She elaborates: For instance, some couples may be looking to sell off their property quickly in order to qualify for ABSD (Additional Buyer’s Stamp Duty) remission.

With the latest round of property cooling measures, Singaporeans buying their second property will now have to pay 12% Additional Buyer’s Stamp Duty (ABSD), from the previous 7%.

Also read: Rules for Singaporeans and PRs buying overseas property

According to IRAS, ABSD remission may be applicable to a married couple who purchases a second residential property jointly, provided that they meet remission conditions that include selling the first residential property (co-owned or separately owned) within six months after the date of purchase of the second property for completed property, or the issue date of the Temporary Occupation Permit (TOP) / Certificate of Statutory Completion (CSC), whichever is earlier, if the property was uncompleted at the time of purchase.

Meanwhile, some owners may be siblings who are no longer on good terms, or couples who are going through a divorce, and wish to sell off their property quickly, adds Knight Frank’s Lee.

In such cases, owner’s listings could present attractive opportunities for potential buyers, she says.

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