June 10, 2008

Stalemate over prices leads to lowest auction sales in 10 years

By Joyce Teo, Property Correspondent

THE property auction market has hit a brick wall with buyers and sellers in a stand-off over prices that could jam up the works for the rest of the year.

Sales are likely to hit their lowest point in a decade, with only 31 properties worth $27.28 million bought between January and last month, said Colliers International.

Residential sales are particularly flat with just six private homes worth $8.38 million sold over the five months.

Compare that with the same period last year when 108 properties worth $204.64 million found buyers, it added.

Business is so slow that at least three auctioneers are now holding monthly sales instead of fortnightly sales.

Ms Grace Ng, Collier's deputy managing director and auctioneer, said: 'The sales so far (residential and commercial) are likely the lowest in 10 years, but it is not a reflection of poor market conditions.

'It's mainly due to the lack of mortgagee sales and the stalemate between buyers and sellers.'

Mortgagee sales occur when a cash-strapped home owner cannot service the debt and the bank force-sells the property.

The same stand-off is evident in the general private homes market, where buyers want lower prices but sellers are refusing to budge.

Ms Mary Sai, Knight Frank's executive director (auctions), said: 'Right now, there are offers on the table, but owners are not biting because the offers are about 10 per cent to 15 per cent below previous transacted levels.'.

The last time auction rates were so low was in the first half of 1998, when 52 properties worth $56.44 million were sold, said Colliers.

Auction clearances went on to hit a record high in 1999, thanks largely to mortgagee sales. Many owners were hit by the financial crisis and forced to sell their homes, while buyers were picking up bargains after property values plunged from the 1996 peak.

Ms Sai said the bargain hunters are back, but mortgagee sales have yet to surface in a major way - and consultants do not expect them to.

Ms Ng said: 'In 1998-1999, a lot of people could not service their loans or rent their properties out. Affordability wasn't there.'

'Now, our employment rate is still high, so people are still servicing their loans. Interest rates are also attractive even if they are rising.'

A senior director at DTZ Debenham Tie Leung, Mr Shaun Poh, added: 'The market attracted a fair bit of speculators last year. Some of them may have trouble offloading their properties, so we may see a small increase in mortgagee sales towards the end of the year.'

But unless buyers or sellers give ground, the market - both for auctions and general sales - is likely to stay at a stalemate.

The one area where auctioneers have been more active is the commercial arena, with shop units, shophouses and industrial property successfully going under the hammer.

Of the 31 properties sold in the first five months of the year, six were residential properties, 16 were shop units or shophouses worth $13.92 million, and seven were industrial properties worth $2.81 million, said Colliers.

Of the remaining two properties, one is an office unit and the other is a piece of land.

'This year, we are seeing more interest in strata-titled commercial and industrial units,' Mr Poh said.

'They are buying for their own use because office rents have risen so much.'