Sunday, January 2, 2011

Strong economy sees mortgagee auctions halved

THE number of mortgagee sales of all types of property conducted by auction last year fell to almost half the figure for 2009, thanks to the robust economy, a Knight Frank report has found.

It said escalating real estate prices, supported by the improved economy, have reduced the likelihood of non-performing loans and foreclosure sales.

Only 89 properties involving foreclosure sales were put up for auction last year, down from 159 in 2009. This covers residential, commercial and industrial properties.

The proportion of mortgagee sales out of the entire auction market fell to 14 per cent from 23 per cent in the same period. The rest were owners conducting the sale, as opposed to financial institutions foreclosing on debts.

Knight Frank said the number of mortgagee sales has dropped drastically since 2004 and failed to rise even during the global financial crisis, when such sales traditionally increase as the number of non- performing loans spike. This trend could be explained by the quick recovery of the market and the changing approach of banks, Knight Frank said.

Asking prices for mortgagee properties are typically closer to the valuation price and the expectations of sellers are more realistic. However, expectations are often higher for owner sales.

Mr Png Poh Soon, head of research and consultancy at Knight Frank, said some banks seeking to recover loans have increasingly allowed owners to put their properties up for auction as an owner sale in order to achieve better prices.

Last year, the residential sector emerged as the star player in the auction market, making up 60 per cent of all properties put up for auction with a total sale value of $107.3 million. A large portion was driven by the sale of four good-class bungalows, totalling $57.4 million. Prime non-landed homes and landed homes comprised most of the rest, and auctions of mass market homes were the least common.

Mr Png said auctions have become an avenue by which sellers and buyers can purchase already completed properties or larger-sized older properties.

'Some players in the market are also beginning to view auctions as a place to acquire prime properties or a mode of sale that can achieve higher prices through competitive bidding,' he added.

The office sector, however, saw a dip in properties put up for auction compared with 2009 figures in the light of improved rental yields, even as office capital values see gains.

The industrial sector, in contrast, saw a doubling of the number of properties put up for auction. There was, however, a 50 per cent drop in the total value of industrial properties sold owing to smaller- sized units and lower total values of such properties sold last year, Knight Frank said.

Mr Png said the residential sector of the auctions market has been driven mainly by landed and prime residential properties, and that this will continue this year due to high liquidity, a buoyant economy and foreign interest.

'The large supply of land from the government land sales programme for the first half of (this year) is unlikely to impact the performance of auctions significantly as the mass market does not constitute a significant proportion of auctions,' he said. The commercial sector is also expected to pick up as office rents recover and buyers seek out good rental income.

Mortgagee sales may be declining but some high- profile properties continue to be sold this way. Last Saturday saw an advertisement in the classified section of The Straits Times for a mortgagee bank sale of a 3,164 sq ft seafront penthouse at The Azure at Sentosa Cove.

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