Home auctions by banks, distressed owners expected to rise in 2023: Property experts

Jan 11, 2023

More private residences are expected to be put up for auction by banks and distressed owners this year should the economy slow further and higher mortgage rates start to hurt more home owners, said property experts.

ERA Realty Network head of research and consultancy Nicholas Mak told The Straits Times that there is a higher probability of more mortgagee sales this year should Singapore see a combination of rising unemployment, economic recession, high interest rates and falling rental demand.

Mortgagee sales refer to properties that are repossessed by banks or financial institutions when those who mortgage these properties default on their loans.

Once taken over by the banks, these properties are typically auctioned off at a discount to the market price.

“Some owners may risk losing both their job and rental tenant, and may be forced to put their property under the hammer if they cannot service their home loan,” Mr Mak said.

Real estate consulting firm Edmund Tie’s head of auction and sales Joy Tan added that a jump in the number of distressed property sales is likely to kick in during the second half of the year, as more borrowers may start feeling the pinch of their increased monthly mortgages from higher interest rates then.

There were 459 properties put up for auction in 2022, compared with 701 in 2021, according to Edmund Tie.

Mr Mak said the number of properties put up for auction by banks and distressed owners can be difficult to track as there is no main organisation in Singapore responsible for doing so.

For example, a property put up for sale may count as several listings if a bank or an owner lists it with multiple property agencies.

Mr Mak said: “Often, when buyers know that a property is a distressed sale, they may bargain and offer very low prices. This means that the owner could end up selling the property at lower than its full potential value.”

As a result, owners may also avoid labelling a property as a distressed sale, he said.

On the flip side, experts said the potential rise in distressed sales also provides home buyers with an opportunity to purchase a property at a significant discount from the market price.

In April last year, for example, a 2½-storey semi-detached house at 43 Nim Green was sold in a mortgagee sale with a guide price of $5.95 million, Edmund Tie said.

That worked out to around $1,303 per sq ft (psf), based on the guide price and approximately 4,563 sq ft in land area.

In comparison, other landed homes in that district were selling at approximately $1,500 to $1,700 psf in the second quarter of 2022, according to Edmund Tie.

The 999-year lease property, with four bedrooms and a swimming pool, was eventually sold for $6.33 million after receiving 18 bids.

Another property auctioned last July in a mortgagee sale was a 3½-storey inter-terrace house in Kerong Lane with a guide price of $2.25 million.

This worked out to around $1,247 psf, based on the guide price and approximately 1,804 sq ft in land area. The 99-year lease property with six bedrooms was sold for $2.4 million in an auction after receiving 22 bids.