Exciting times for auction market

Property 2006
Published March 30, 2006


Exciting times for auction market

By GRACE NG


THE property market turned around in 2004 and gained momentum last year with sentiment improving across all sectors. This was most evident in the residential sector.


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Changing trend: Many homeowners are turning to auctions to sell their family properties

As such, property auctioneers expect a decline in the number of mortgagee sales this year. Property auctions are often seen as the route banks take to recover the debt of defaulted borrowers. So will the better economy impact the auction market?

The number of repossessed properties at auction surged during the economic crises of 1986 and 1998. Auction houses saw a two- to threefold increase in the number of mortgagee properties at auctions and it was common for auction houses to hold fortnightly auctions compared to once a month in more normal times.

But even if mortgagee sales slow, the market is likely to continue to see a good number of properties offered at auctions. The difference is likely to be made up by more owners' sale instead.

This is because over the years, owners have come to recognise that the auction method can be a quick way to sell property.

The stigma associated with auctions is slowly fading and many homeowners are even turning to auctions to sell their family properties.

Also, the twin effects of the lack of mass market launches by developers in the past years and the abundance of mortgagee-type properties have also resulted in buyers and investors turning to the auction market to source for properties.

In fact, during the last property market upturn in 1995 and 1996, 90 per cent of the properties seen at auction were owner sales. Owners back then were using auctions to sell their prime properties at Emerald Hill, Saunders Road, Mohamed Sultan Road, Chinatown and River Valley. Even good class bungalows in areas like Dalvey estate and Leedon Park have made their appearance at auctions.

The changing trend can be attributed to the advantages offered by an auction sale. The predetermined auction date gives a timeframe for marketing and a potentially speedy sale for the owner.

In addition, the publicity generated through marketing efforts can capture a wider target market compared to the traditional mode of sale and this helps to increase the success rate of the sale.

Last year, the auction market transacted $68.39 million worth of owner properties compared to $24.45 million in 2004.

It was also the first time since the 1998 Asian crisis that the auction market in Singapore registered a 6 per cent drop in the number of mortgagee sales put up for auction. The number of residential forced sales put up at auction saw the greatest decline from 1,480 properties in 2004 to 1,228 last year.

Opportunistic buys

The improved market will encourage buyers to start investing again and they are likely to seek out opportunistic buys at auction.

This group of buyers will keep a close eye on the auction market for development sites, detached houses, good class bungalows, apartments in prime locations and commercial properties with good yield as there is a scarcity of such properties.

Landed properties are in demand and the success rate for such properties at auction is usually high. Buyers tend to seek out detached houses and good class bungalows. For instance, a 7,695 sq ft detached house at Trevose Crescent in Dunearn Road was transacted at $3.7 million last year.

Good class bungalows will continue to be highly sought after at auctions as there are only about 2,000 such properties in Singapore. Demand usually far outstrips supply which explains the intense bidding often generated at auction. For example, a 19,714 sq ft good class bungalow with a swimming pool at Bin Tong Park, put up for auction by its owner last year, was successfully sold for $7.63 million after the auction.

The other category of property that will continue to see demand is development and en bloc sites. Investors and developers will seek out land parcels and old properties with redevelopment potential.

Owners seeking to dispose of their land are likely to obtain a good price through competition at an auction. For instance, five parcels of bungalow land at Sentosa Cove were successfully auctioned off last year with each parcel fetching between $3.78 million and $3.9 million.

Competitive bidding

Owners seeking to sell their properties en bloc should also consider the auction mode. During the last upturn in 1995, two owners successfully sold their parcels of land at Moonstone Lane to City Developments at a public auction for $24.5 million.

Apartments in districts 9, 10 and 11 will be sought after by investors as well as home buyers and these properties tend to generate a good response at auctions. Last year, an apartment at Lloyd Mansion, off Orchard Road, received very competitive bids at an auction. The bid started at $540,000 and the property was eventually sold at $610,000.

Well-located commercial properties with tenancy or potential tenancy giving good yields will also stimulate competitive bidding. In 1996, owners sold their shop units in prime locations such as Buffalo Road and conservation shop houses at Mohamed Sultan through auction. Even high value properties found buyers. Last year, the owner of a 20,161 sq ft office unit at The Riverwalk sold his property at an auction for $6.25 million.

The transparent and open competition at a public auction satisfies a vendor's objective of selling his property at the best price. Since more vendors are opting to sell their property at auctions, buyers have a wider choice. Investors and buyers are also seen to be more inclined to consider auctions as another avenue to sniff out an opportunistic buy.

Given all this, the auction market is likely to remain active this year.

The writer is executive director and auctioneer, Colliers International