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Thread: Trouble in paradise with more prime district homes in mortgagee sales

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    Default Trouble in paradise with more prime district homes in mortgagee sales

    Trouble in paradise with more prime district homes in mortgagee sales

    Number of listings - 630 - under mortgagee sale in 2019 is highest since Knight Frank started to record data in 2011

    Tue, Jan 28, 2020

    SIOW LI SEN


    SOME find it hard to believe but there may be trouble even in paradise as more posh homes in prime districts - landed and non-landed - are popping up in mortgagee sales amid a weak economy.

    The number of listings - 630 - under mortgagee sale in 2019 was also the highest since Knight Frank started recording auction data in 2011, said Lee Nai Jia, the firm's head of research. Total auction listings rose 24 per cent to 1,387 in 2019 because auctions are increasingly gaining acceptability as a mode of sale.

    Because of the sluggish economy, last year's 630 mortgagee sale listings - up 61 per cent from 391 in 2018 - include repeat listings as it can take over 12 months to sell a property. The surge was boosted by more listings of industrial, retail and residential properties, according to Knight Frank research.

    In 2019, 422 new properties were put on the auction market. Of the 422 new listings, 179 were mortgagee sales with residential homes comprising the majority at 112 - which is also the highest since 2011, said Mr Lee.

    The prognosis is for the situation to worsen this year as the economic outlook remains subdued. Growth last year was a sluggish 0.7 per cent, the slowest in 10 years; forecast for 2020 growth is 0.5-2.5 per cent.

    But banks are not worried as the amount from mortgagee sales represent an insignificant non-material amount out of total home and bridging loans of S$201 billion.

    Landed residential property listings under mortgagee sale increased steadily from 18 listings in 2014 to 99 listings in 2019.

    This trend continued into 2019 with the landed listings from prime districts 9 and 10 nearly doubling on year to 23 listings. There were also 13 landed residential listings in District 4, a sharp hike from three listings in 2018, said Mr Lee.

    The increase was primarily due to more listings by properties located in prime districts 4 (Telok Blangah, Harbourfront), 9 (Orchard Cairnhill, River Valley) and 10 (Ardmore, Bukit Timah, Holland Road, Tanglin). In 2014, owners of landed properties located in prime districts were less affected by macroeconomic events and slowing rental market, as seen by the absence of such listings. Yet from 2016 to 2018, the number of listings from prime districts consistently exceeded the number of listings from districts 19 (Serangoon Gardens, Hougang, Punggol) and 21 (Upper Bukit Timah, Clementi Park, Ulu Pandan).

    "The shift in listings to prime districts suggested that a larger spectrum of owner-occupiers were affected by the slowdown in growth in several sectors, such as construction and manufacturing, and the trade dispute between China and United States," said Mr Lee.

    Non-landed residential listings under mortgagee sale also increased significantly to 257 listings in 2019 from 139 listings in 2018. From 2014 to 2019, districts 4, 9, and 15 (Katong Joo Chiat, Amber Road) have consistently accounted for a significant proportion of non-landed residential listings under mortgagee sale as these districts have a larger stock of private homes.

    In 2019, however, listings from District 9 eclipsed other districts, a contrast to the trend from 2016 to 2018. With interest rates staying flat and private rents picking up in 2019, the hike in mortgagee sale listings seemed to be a result of slower economic growth.

    Impacted by the geopolitical trade frictions and economic slowdown in 2019, business owners faced greater challenges in profitability and cash flows, said Alice Tan, senior director, research and consulting at Edmund Tie.

    "More property owners were cash-strapped in servicing their property holding costs as they faced difficulties to retain existing tenants and secure rental income to finance mortgages," she added.

    Residential properties in prime districts that were under mortgagee sales in 2019 were mainly larger-sized properties beyond 1,000 sq ft with opening prices exceeding S$2 million apiece, said Ms Tan.

    "Residential properties that were successfully sold at auction are in traditional prime district 10 with desirable property attributes," she said.

    According to the Singapore Commercial Credit Bureau (SCCB), payment performance of Singapore firms deteriorated in Q4 2019, the third consecutive quarter of decline.

    The SCCB is expecting a softer outlook among small and medium-sized companies in 2020, particularly in the manufacturing and construction sectors, despite the slight turnaround in the first quarter this year.

    According to SCCB's recent Business Optimism Index study, the construction sector saw a deterioration in outlook with four indicators in the contractionary zone while the manufacturing sector is muted with three indicators in the negative zone.

    "This comes on the back of a significant growth slowdown amid softening trade and manufacturing momentum, trade tensions between China and US, softening China's economic growth and a maturing global electronic cycle," SCCB said.

    Last November The Business Times reported a mortgagee sale by Deutsche Bank of a bungalow in Belmont Road for S$34.5 million. The registered owners of the property were the husband-and-wife team of David Chew and Leong Sook Ching, who used to control mainboard-listed The Stratech Group which has gone into liquidation.

    The number of listings for penthouses - not limited to prime districts - that were under mortgagee sales also increased from 23 listings in 2016 to 68 listings in 2019, said Knight Frank. The penthouses also underwent more rounds of auctioning, averaging 2.6 rounds in 2019 compared to an average of 2.2 rounds in 2018.

    Unless economic conditions pick up, the outlook for 2020 is for more loan defaults among home owners.

    "Going into 2020, we could see a slight uptick in mortgagee sales of residential properties compared to 2019, as mortgage servicing costs could grip property owners in the face of tightness in income and cash flows amid competitive rental market in prime districts," said Edmund Tie's Ms Tan.

    But bankers are unfazed as borrowers have to comply with strict rules to ensure that they do not get in over their heads.

    "We have not seen any increase in mortgagee sales", said a DBS Bank spokeswoman. "We've been prudent in advising customers on the loan quantum they should take based on their affordability, so as to help them right-size their property purchases." DBS is Singapore's largest home loan provider.

    "We also advise our customers to set aside liquid assets. This ensures that they are able to make their home loan repayments in a sustainable manner," she added.

    Joseph Wong, OCBC Bank's head of consumer credit risk management, said the bank does not see any weaknesses in the ability of its home loan borrowers to service their loans as guidelines are strictly complied with to ensure that borrowers are not over-leveraged, irrespective of the size or type of properties.
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