Singapore auction activity registers uptick as price expectations gap narrows

January 20, 2015 / By  

Like other mature real estate markets, property auctions in Singapore have evolved into an efficient platform through which owners are able to divest their properties quickly.

The process is straightforward. State land (appointed for sale by the government) and private properties can be auctioned with just the lawyers’ provision of contractual agreements and relevant documents. Typically, land and properties will be marketed one month prior to the actual auction, giving buyers ample time for inspection and consideration.

In the last two years, as the introduction of several rounds of property cooling measures moderately softened the investment sentiment and transaction volume in the Singapore real estate market, the auction segment was hurt with potentially lower sales activities.

The drop in auction sales, however, started to reverse in the second half of 2014 with a significant increase in the total value of successfully auctioned properties. This is partly attributed to the increase in mortgagee sales. Following the implementation of the latest financing framework (Total Debt Service Ratio) in June 2013, the number of mortgagee listings rose from only 28 in 2013 to 150 in 2014.

Also, based on my observation at auctions, compromises on both sellers’ and buyers’ ends have narrowed the price expectation gap, resulting in quicker sales.

From the buyers’ perspective, 1) the anticipation of a potential relaxation of cooling measures alongside 2) the expected rise in interest rates in the immediate horizon could have encouraged these purchases. There are, however, downsides for potential investors. The softer leasing market has resulted in more properties being sold on a vacant possession basis. For instance, 26 of the 32 properties sold at auction in 2014 were on a vacant possession basis.

At the same time, sellers are now more willing to lower price expectations in light of the weaker market conditions. Observations at recent auctions revealed that sellers have become more flexible in terms of pricing, dangling sweeteners, including discounts on opening prices, to entice potential bidders and, in some instances, accepting offers below the reserve price.

If the narrowing of price gap expectations between buyers and sellers at auctions is a bellwether of the sentiment in the larger market, then we should expect increased activity in the real estate market in 2015.

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