Using reverse auctions to push sales in an oversupplied housing market

/ EdgeProp Singapore |

September 30, 2022 10:00 AM SGT

Bangkok has over 176,000 unsold housing units worth over THB8.6 billion as at end 2Q2022 (Photo: Bloomberg)

SINGAPORE (EDGEPROP) - Dave Loo, the founder of WhyBorder, a real estate platform for overseas property, was in Bangkok in May, visiting property developers there. Loo has been marketing Bangkok projects since 2007, first under OrangeTee Global Properties and, since 2010, under the rebranded SQFT Global Properties.

He co-founded real estate agency OrangeTee in 2000 and OrangeTee International in 2003, venturing into the Kuala Lumpur market that year, followed by Bangkok four years later.

In his recent visit to Bangkok, some property developers there asked if they could sell their properties on his WhyBorder platform. “They are even willing to offer units at discounted prices,” he relates.

This is because Bangkok is suffering from a housing glut. According to the Real Estate Information Centre (REIC), based on a field survey of residential projects across the wider Bangkok, the number of unsold housing stock was 176,473 units and worth THB8.6 billion ($327 million) in sales value in 2Q2022.

REIC also predicted that new supply from project launches will hit 83,608 units this year, a 62.2% y-o-y increase from 2021. Unsold stock (both completed and uncompleted) is expected to balloon to 203,201 units. The survey showed a slowdown in sales, with the absorption rate for condominium projects falling to 5.6% in 2Q2022, from 7.8% in 1Q2022.

When Loo was in Bangkok, he saw some Singaporeans already shopping for an investment property there. Among them were Chinese nationals who are Singapore residents, seeking property in Bangkok on behalf of their relatives and friends in China, he notes.

With a better grasp of the situation in Bangkok, Loo chanced on a solution he believes is viable: a reverse auction conducted online in a closed bidding process, which he calls “WhyBid”. Bidders will be shown the current market price, and then submit a lower bid. Each developer will have a reserve price that they are willing to sell the unit at.

As it is a closed bidding process, no one will be able to see what the successful bid price is, nor what the other bids are. However, the winning bidder will be notified via email that their bid is successful. “It’s a bit like bidding on eBay, just that it’s the reverse — you bid lower than the opening price,” he says.

In the first reverse auction conducted on the WhyBorder platform at the end of May, about 30 units were offered for sale across six completed condominium projects by Thai Stock Exchange-listed property developer Major Development.

Loo: People are used to bidding up prices, not down. But the developers like the idea, and we are getting ready for our second round [of reverse auction] (Photo: Albert Chua/EdgeProp Singapore)

Three units were successfully sold, and all three buyers were Singaporeans. The three units are in projects located in the Bangkok city centre, says Loo. The units averaged $250,000 (THB6.6 million) each. The average transacted unit price was THB160,000 psm, 36% below the average price of THB250,000 that the projects were selling at pre-Covid in 2019, according to Loo. Back then, he had brought some of the projects to Hong Kong on weekend exhibitions.

At the first reverse auction, there had been many enquiries, but few bids, as the concept was still new. “People are used to bidding up prices, not down,” says Loo. “But the developers like the idea. We are getting ready for the second round.”

He hopes to conduct the second reverse auction sometime before the end of the year, with another 25 to 30 properties across five to six completed condominium projects in Bangkok. He believes that the completed condominiums present the best buying opportunity for investors. “Buying at discounted prices also means they will enjoy a higher rental yield,” he points out.

Besides Bangkok, Loo sees Kuala Lumpur as another market where developers are willing to explore selling unsold stock via a reverse auction. According to the National Property Information Centre’s property market snapshot, in 1Q2022, the residential supply overhang across Malaysia was 35,592 units, valued at RM22.45 billion ($7 billion). This was a decline from an all-time high of 36,863 units valued at RM22.79 billion a year ago. The oversupply situation was exacerbated by the disruption to economic activity from several lockdowns implemented in Malaysia last year.

Loo believes it is the “mid-tier” of the housing market that has the most unsold stock, both in Bangkok and Kuala Lumpur. Besides new launches by property developers, Loo believes that the reverse auction mode can also be applied to the resale market.

“One of the objectives of WhyBorder is to help investors liquidate their property faster,” he says. “I see a lot of buyers who have purchased property overseas and are now stuck holding it for a long time.”

When the market recovers, the reverse auction method can easily be switched back to the normal auction mode, where participants bid up prices for the property, instead of down, he adds.

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