While the overall property market remained resilient in 2021, the number of retail properties forced onto the auction chopping block has seen a notable increase.
According to the Q4 2021 report from Knight Frank, a total of 670 properties were put up for auction in 2021, which was an increase of 35.4% year-on-year. Part of this increase came from owner sale listings, which almost doubled year-on-year to 352. Among the mortgagee listings, residential properties made up 137, or 47.4%, with 83.2% (114) of them being non-landed.
What is a mortgagee-sale? A mortgagee-sale happens when a property owner is unable to service the loan, forcing the bank to step in and foreclose on it. An auction is then held to fast track the liquidation of the property.
The majority of auction listings consist of shop units and other commercial properties. This is split between mortgagee-sales by property financiers and direct owner listings, with the latter having a massive jump from 17 units in 2020 to 101 units in 2021.
Spike in auction properties due to Covid-19
Many of the auction-listed properties in 2021 fell within the category of commercial units, primarily in the retail sector. In 2021, 84 retail properties were put up for sale – a 62% increase from 52 in 2020.
One of the causes was the recurring Covid-19 restrictions imposed by the government. The restrictions inevitably impacted retail businesses that relied heavily on foot traffic. Those affected could not recover in time and were ultimately forced to shutter.
These auction listings would also see properties being sold significantly below the listing price. A ground-floor shop unit located in The Midtown mall at Upper Serangoon Road sold for S$1.07 million. This comes up to approximately S$3,654 psf, 2.8% lower than its opening price.
This bump in owner-sale auction listings in 2021 may be due to direct owners not having as much holding power as banks and financial institutions.
In contrast, mortgagee-sale listings fell by 5.6% to 289, with residential listings making up almost half.
Slow start to the year
Buying sentiment may be lower during the first quarter of 2022, as some buyers opt to adopt a wait-and-see approach after new cooling measures kicked in on 16 December 2021. Those prowling the market for a second or subsequent property would be subjected to an increase in additional buyers stamp duty (ABSD).
With a quieter auction market, listed properties may take longer to sell as the residential sector reorients itself to the cooling measures.
As ABSD does not affect commercial properties, the demand in that segment remains unaffected.
Residential properties: Going once, going twice, SOLD
While most of the mortgagee sales involved commercial units, residential properties on the other end were not spared either. Out of the 137 residential mortgagee listings in 2021, a large part of it was made up of non-landed residential properties.
Among the list of residential properties being auctioned in 2021, here are some highlighted in the Knight Frank report:
- 1-bedroom condominium at D’Oasis – auctioned at S$700,000 in Q4 2021
- 4-bedroom duplex condominium at The Berth by the Cove (Sentosa) – auctioned for S$3.76m
- An intermediate townhouse at 8 Nassim Hill (prime Tanglin neighbourhood) – auctioned off for S$9.1m, or S$2,004 psf (lower than the project’s historical average unit price of S$2,793 psf). Townhouses in the development were rarely transacted with the last recorded sale in 2013
However, it should be noted that despite an increase in the total number of auction listings last year, the number of mortgagee-sale listings dropped by 5.6% to just 289 out of a total of 670 auction listings in the same year.
One possible reason for this dip in mortgagee-sale listings could be the recovery and improvement in the overall real estate market, especially in sectors such as industrial and residential properties.
This hints at a possible recovery of the property market as a whole as the Covid-19 situation stabilises in Singapore. Some significant contributors are the increased number of Vaccinated Travel Lanes (VTL) opening up as well as relaxed border measures. This allows foreign investors to visit and view commercial properties they might be eyeing for investment purposes.
2022 might see an uptick in properties going on auction as interest rates increase and relief measures for borrowers expire, impeding property owners from being able to service their loans.
Rising interest rates
The United States Federal Reserve is looking to raise interest rates as early as March 2022. Singapore’s interest rates are closely pegged to that of the US, so we can expect an increase in our interest rates as well.
Private property buyers who fail to be financially prudent with their home purchasing decisions may face issues when servicing their loans. This may reflect in a higher number of residential properties being put up for auction.
Expiring relief measures
As part of the plan to support local businesses and individuals affected by the pandemic, the Monetary Authority of Singapore (MAS) offered relief measures to ease the financial burden, including:
- Reducing instalment repayment plans for mortgages
- Converting outstanding balances to term loans at a reduced interest rate
- Extending loan tenures for debt consolidation plans, renovation and student loans for up to 3 years
The application window to apply for the relief measures closed on 30 September 2021, which was the final extension on the original deadline of 30 June 2021. Those who missed the deadline need to resume full loan repayments after 31 December 2021.
Businesses who face difficulties in resuming their loan repayments will face the possibility of banks repossessing their properties, resulting in more mortgagee-sale properties going on auction.
What to do if you’re a potential property investor
The increase in the number of auction listings could mean ample opportunities for individuals or organisations looking to snap up some real estate.
With the combination of mortgagee-sales and direct owner listings, a wide pool of properties can be snagged at prices below the opening price at auctions. Keep an eye out for mortgagee-sale listings, as those tend to present a better value opportunity.
In 2021, 114 mortgagee-sale non-landed homes located in the premium districts of 9 and 10 went on auction at an average opening price of S$2,218 psf. This is a 7.3% drop from the average transaction price of S$2,393 from the previous year.
Interested in buying an auction property? Let us know in the comments section below or on our Facebook post.
If you found this article helpful, check out 7 things you must know about a property auction and 6-step guide to buying a property on mortgagee sale.
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