Property auctions, mortgagee sales seen surging in 2023 on rising bankruptcies

Jan 31, 2023

MORE Singapore properties are likely to go under the hammer in the coming year, by up to 40 to 50 per cent, as an increasing number of property owners come under pressure.

Bankruptcy petitions are on the rise amid interest rate hikes, growing inflationary pressures and the expiry of pandemic support measures for borrowers, noted real estate consultancy Knight Frank in its latest report on the auctions market.

Data from the Ministry of Law showed that a total of 3,380 applicants filed for bankruptcy between January and November 2022, up 7 per cent from the 3,160 applications filed for the whole of 2021.

The escalating interest rates might also make some private homeowners “uncomfortable enough” to sell their properties at a reduced price, especially if margins on their rental income begin to “compress” against monthly instalments, said Sharon Lee, head of auction and sales at Knight Frank.

“Although most property owners are presently not in any great state of financial distress, increasing mortgage payments might compel some to sell, translating to more listings in 2023,” she said.

Edmund Tie pointed to a similar uptrend in the property auction market, seeing more “distressed sales” emerging in 2023, especially in its second half, when borrowers start feeling the strain of their increased monthly mortgages due to rising interest rates.

“This is even more so for private residential owners, as there will be challenges for them to downgrade to an HDB (Housing and Development Board) apartment, should there be any tension on their financial situation, on the back of the end-September property measures announcement,” said Joy Tan, head of auction and sales at Edmund Tie in an earlier report. The latest cooling measures saw the introduction of a 15-month wait-out period for those downgrading from private to HDB homes.

Lee added that more owners of small and medium-sized enterprises may wind up as well in the “challenging” business operating environment – with occupiers reviewing their space needs against landlords’ prioritisation of cash flows – and slowing economy.

This might, in turn, result in more listings from the commercial and industrial sectors in the coming year, she said.

Listings in the office sector rose to 11 in 2022, from a single listing in the previous year. Of the 11 listings, four units were auctioned multiple times.

“The repeated listings garnered enough attention from prospect buyers to respond, with three out of the four offices eventually sold outside auction,” noted the consultancy.

Knight Frank estimates that there could be a surge in total listings, including repeated listings, and anticipates up to 600 listings in 2023.

Edmund Tie’s Tan further noted that buyers in the industrial and commercial sectors might look to moderate their offer prices in view of current economic uncertainties and the hike in goods and services tax.

“As such, sales at auction are likely to only pick up from Q2 2023, when buyers and sellers adjust their price expectations accordingly, following a clearer sense of the market,” said Tan.

The predicted surge in 2023 follows a weaker 2022 for the property auction market.

A total of 420 listings went on the block in 2022, down 31.9 per cent from 2021’s tally. This includes repeat listings but excludes properties sold outside of auction.

On a quarterly basis, total listings tumbled by 19.5 per cent to 99 listings in Q4, while mortgagee sale listings plunged by more than half – by 61.5 per cent – to 10 listings. Owner sale listings sank 18.2 per cent to 72 listings.

Overall, mortgagee sale listings plummeted 52.3 per cent year on year to 133 listings, while owner sale listings dipped 19.6 per cent year on year to 250 listings. Auctions listings are made up mainly of mortgagee and owner sales.

A bulk of the total mortgagee listings in 2022 was residential properties at 56.4 per cent (75 listings), of which about 82.7 per cent (62 listings) were non-landed properties.

Most of these non-landed listings were in the fringe or suburban regions, indicating more “palatable entry prices and possible bargain opportunities for buyers to own a private home”, said Lee.

For instance, a three-bedroom apartment in District 15 was sold at a discount of 11.4 per cent in the fourth quarter of 2022, from the opening price of S$3.33 million.

In 2021, residential properties accounted for 47.4 per cent (137 listings) of the total mortgagee listings, of which about 83.2 per cent (114 listings) were non-landed properties.

Residential properties accounted for about 34.4 per cent (86 listings) of total owner listings in 2022, while retail shops made up 30.4 per cent and industrial units, 18.4 per cent (46 listings).

Of the residential listings put up by owners, non-landed listings comprised 68.6 per cent (59 listings) while landed listings accounted for 31.4 per cent (27 listings).

Knight Frank said that the drop in sale listings last year was because most people were not financially stressed, yet. “It will take a while for the effects (of higher interest rates) to be felt,” it said. “They might be uncomfortable with the higher mortgage rates, but not to the point of foreclosure. That is more likely to manifest this year.”

Even so, the consultancy emphasised that the predicted surge in total listings this year is still far from the levels recorded in 2018 and 2019 – totalling 1,119 and 1,387, respectively. Between 2013 and 2017, total listings averaged at around 650.

The 2018 to 2019 swell coincided with a supply boost in the private residential market, noted the consultancy. “It is possible that people bit off more than they can chew, even with the lower interest rates.”

During the pandemic years of 2020 to 2021, the economy, including the auction market, was on pause, and the various relief measures for borrowers resulted in fewer listings then, even with higher interest rates and a slowing economy, said Knight Frank. As such, the predicted surge in total listings this year might simply be a return to baseline levels, it said.

According to OCBC head of consumer credit risk management Joseph Wong, the number of property foreclosures over the last three years has been stable too. “We do not see sign of more customers having issues with their loan repayments,” he said.

Edmund Tie’s Tan added that most buyers have adopted a “wait-and-see stance, hoping for a price correction by the end of the year, while still looking for ‘good buy’ property in the meantime”.

Interest in the auctions market was firm in 2022, in a year when private home prices remained high with new supply at a low. Knight Frank said its auctions saw the highest success rate since it started tracking data from 2011, with 9.5 per cent or 40 properties knocked down and a total gross sales value of S$90.3 million in 2022.

During the fourth quarter, eight out of the nine properties sold exchanged hands at the first time of asking, before being listed again, with S$20.1 million worth of properties sold.

Tan said there were also sellers with “strong holding power” who are sticking to their asking price.

“The healthy rental market helps to alleviate some pressure off the owners, so there is no urgency for sellers to dispose of their investment residential properties.”

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