Generally properties are purchased from two sources: Off-plan homes or newly-built units are bought from a real estate developer, while an existing property is acquired via the open market or from another home owner.
But there is a third lesser known option – property auctions.
Through this method, there’s a good chance to snag private residential properties at a significant discount, as many homes placed on the auction block comes from former owners who encountered financial difficulties. Also, some sellers who want to dispose their properties quickly may settle for a lower price.
To get a piece of this action, we created a guide for the do’s and don’ts as well as the things you need to undertake before attending a property auction.
What Are Property Auctions?
This is a method selling various types of properties – private housing, office space, retail premises, shophouses and industrial space – by offering them up for bids.
One form of property auction is to let would-be buyers openly submit bids, with the highest bidder securing the right to purchase the property. Interested buyers call out their bids by themselves or through their representative. Bids can also be submitted via the internet. Meanwhile, a licensed real estate company will act as the auctioneer that announces prices and repeats the current highest bid or have it publicly displayed.
Another version is a Dutch auction, wherein the auctioneer starts with a high asking price and lowers it by a set interval until it reaches the seller’s minimum price (also known as the reserve price). If there are no takers, the auctioneer moves on to another unit.
Why Are properties Put On Auction?
In a property auction, units are sold either via owner’s sale or mortgage sale.
A Mortgage Sale comprises properties that have been repossessed by financial institutions after the owner defaulted on his loan, so the lender is auctioning off the property to recover the amount it lent plus interest. Usually, homes are placed under the hammer after a family encountered some financial hardship and can no longer afford to repay their monthly mortgage installments.
An Owner’s Sale, on the other hand, means the property owner is intentionally and voluntarily selling the property via auction, so the unit was not repossessed or foreclosed by a bank. There are various reasons why owners do this. For instance, they need to dispose the home as quickly as possible, divorcees want to split their assets, or sellers wish to diversify their sales channels to increase the chance of finding a buyer.
There are also cases when a property needs to be auctioned off due to a court order.
Property Auction Trends in Singapore
According to Real Estate Consulting Firm Edmund Tie, there has been a rising number of properties going under the hammer since 2019.
In 2019, auction listings (including re-listings) rose by 32.4% from 2018, with mortgagee sale listings growing the most by 58.8% year-on-year. The proportion of mortgagee sale listings also increased from 40% in 2018 to 47% in 2019.
In Q1 2020, the total auction listings in Singapore fell 31.1% year-on-year. However, the proportion of mortgagee sales relative to the total number of auction listings saw a significant year-on-year increase to 68% (compared to 46% last year).
Additionally, while the number of properties put up for auction increased, the success rate in recent years actually fell from 3.8% in 2018 to 1.6% in 2019. The same report states that this alludes to “a more cautious sentiment in the buyers’ market”.
Although the increase in mortgagee sale listings is unfortunate news for the previous owners, if you’re looking to buy, it means that there are more auction properties for grabs.
Are Auction Properties More Affordable?
There’s a good chance to purchase a property at a hefty discount during the auction, as a large number of units offered for sale via this method consist of mortgagee sales. However, this is not always the case.
For example, a financial institution selling a property will usually set a minimum price that takes into account the principal amount still owed by the unit’s former owner along with interest, penalties and other charges imposed on the borrower.
Nonetheless, there are many cases where bidders managed to purchase properties at a price substantially lower than the advertised rate.
While it is highly unlikely for auction participants to get a house with its price tag reduced by 50 percent, savings within the region of S$100,000 is attainable. Real estate experts revealed that there’s a high chance that properties put on auction block can have their prices reduced by between five percent and 10 percent for those costing over S$3 million, whereas units priced above S$5 million could provide slightly higher discounts.
According to Knight Frank, one of the top property auctioneers here, although most properties they sell via auctions are picked up at near valuation price, some “exceptional deals” provide buyers with savings of five to seven percent.
Other Reasons To Attend A Property Auction In Singapore
Aside from the opportunity to purchase a property at a significant discount, there are other compelling reasons why you should attend a property auction, whether you are a house hunter or a real estate agent.
For instance, attending an auction is a good way of learning the prevailing sentiment in Singapore’s real estate market, as well as get indications if property prices are on an uptrend or downtrend. People you meet there may also share useful tips or important market information.
Such events are attended by about a hundred people or more, but not all have the intention to bid for a property. Some are just there to spectate or get a feel of the market. Meanwhile, property agents and bankers leverage on the auction to inform their customers about available properties. They also use it to network and reach out to potential clients.
In fact, many sellers whose properties are being auctioned off are usually in attendance to gauge the interest in their property, and agents may approach them to offer their services to market the property in case the unit doesn’t get sold during the auction.
Even if you don’t succeed in getting any of the 10-15 properties that are usually offered for sale during an auction, there’s still a chance to purchase a unit after it has been withdrawn from the bidding if no bidder committed an acceptable price. This is because typically only a few properties are successfully sold during the auction, with the rest transacted via private treaties after the event.
5 Tips When Attending Property Auctions in Singapore
Given the perks of participating in a property auction, we compiled five tips on what you should do if you plan to participate in a property auction:
1. Reach Out to Real Estate Consultancies
The first thing you need to do is to know about upcoming property auctions, their schedule and the properties that will be offered for sale. Unlike in the US, you don’t need to preregister to be able to attend one in Singapore.
You can easily get the auction details by contacting property consultancies that offer auction services. Also, subscribe to their mailing list and visit their website. To further help you, we included the links that leads to their property auction info.
Among Singapore’s leading auctioneers is Knight Frank, which offers nearly auction 200 auction properties per annum, so don’t forget to get its details. Other top market players that also provide auction services here include JLL, Colliers International (emailing list and properties) and Edmund Tie & Co.
Aside from subscribing to their mailing list, you can also contact any staff or property agent from these companies who can help you contact the people in charge of their property auctions. Alternatively, you can browse our bank auction listings.
2. Do your Homework Prior to the Property Auction
Before attending a property auction, check the available properties and compare their prices with similarly transacted units in the development or vicinity within a recent period. You can do this by looking at URA’s data. Another way is to search the name of a particular development on PropertyGuru and check the latest transaction there, or check our map and take note of selling prices.
By doing your research, you can get an idea on the current market prices within a project or area. Please list down the prices of least ten similar properties within the same area or development.
Then get the median price of the properties on a psf basis, not the absolute quantum or overall price. If you’re not sure on how to compute the median price, please use this statistics calculator. Instead of the average price, you should use the median price as statistical outliers such as a few expensive or cheap units can distort the results.
3. Get Financing Long Before The Auction
This is really important, as there had been cases of people who won in an auction, but lose their deposits as they were unable to complete the transaction after failing to get the funding on time. Therefore, don’t ever bid for a property before you have secured financing.
Unless you have enough spare cash or savings, you will probably borrow from a bank, so obtain a loan approval from a financial institution first and tell their staff that you plan to participate in an upcoming property auction and they will guide you on the steps that need to be done.
Please keep in mind that the winning bidder is required to pay 5 percent to 10 percent of the bid price (deposit) during the auction, usually by cheque. Thereafter, the buyer needs to pay the remaining 90 percent within 10 to 12 weeks. But you should always check prior as the timeframe may be shorter or longer. Failure to pay the rest of the balance during the allotted time will lead to a forfeiture of your deposit.
Furthermore, it’s recommended that you set a maximum amount that you can spend during the auction.
This is because unless you want to show off to other people how wealthy you are, your primary goal for bidding is to purchase a property below or within the prevailing market price.
Even if your objective is to purchase a home for your own occupation and not for investment, limiting your selling price could make the bidding process less worrying and prevents you from overspending or borrowing too much.
4. Visit Unit before Auction and Read Property Reviews
Check reviews about the development where the home being auctioned off is located. Spend some time to check the images and do some research on your own.
Don’t rely on the auctioneer’s description or word of mouth. This is because it’s not an impartial view or judgment, given that they are tasked with selling the property and they had been hired to look out for the interest of the seller, not the buyer.
Typically, participants of a property auction are permitted to visit the property one to two weeks before the auction. It’s recommended that you personally check the property in person, or hire an agent (under the rules, agents are required to safeguard your interest) to verify for the property’s pros and cons, including defects hidden from the shown images.
If the subject property is not being sold via mortgagee sale, ask the owner the reason for selling. If the owner is auctioning it off as he’s struggling to lease the place that should trigger alarm bells in your mind, as who would want to invest in a property that’s hard to rent out.
If the owner gives you a vague reply on why he’s selling, ask neighbors or people living within the area about problems there, as that could help you decide whether you should compete for the property or not.
5. You Can Still Buy That Property After The Auction
If during the auction, a unit has caught your attention but you failed to purchase it as the reserve price was slightly higher that your set budget. Don’t worry. You still have a chance to purchase it if the property was withdrawn from bidding if no bidder committed an acceptable price.
As mentioned above, only a few of the 10-15 units that are typically offered during a property auction are successfully sold during the event, with most taken-up via private treaty thereafter.
If the property that piqued your interest was withdrawn from the auction, tell the auctioneer or their staff to include your name on a list of interested buyers that will be submitted to the seller or his agent.
This is because it’s a typical practice in Singapore for the property owner to reach out to keen buyers after the auction, and negotiate with those who offer the most value for the property.
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