2013-12-17

Stronger Sale Performance This Year was Due to the Sale of High-value Properties

The Singapore property auction market concluded the year with a total of 19 properties sold, out of 488 properties that were put up by all auction houses.  The total sale value chalked up was S$91.63 million1, which exceeded the S$62.44 million garnered in 2012 by some 46.7 per cent.  

The increase in sale value this year was achieved despite a 20.8 per cent decline in auction sale volume – from 24 properties sold in 2012 to 19 sold in 2013. 

The higher total sale value this year was mainly driven by the successful sale of four high-value properties2 that were hammered down in 1Q 2013 at a total of S$70.1 million.  Collectively, they constituted to a whopping 76.5 per cent of the total sale value in 2013.

Nonetheless, the year saw property auction activity fizzling out after the first quarter – with sale value declining from S$76.08 million in 1Q 2013 to only S$3.9 million in 4Q 2013.  

On the macro front, buying sentiments were dampened by the stock market sell-down in the middle of the year, exacerbated by fears that the United States (US) Federal Reserve would commence tapering its monetary stimulus, amid on-going uncertainties in the global economy.  

The property auction market was also impacted by the implementation of a series of local government regulations throughout the year, such as the Additional Buyer’s Stamp Duty3 (ABSD) and the Total Debt Servicing Ratio4 (TDSR), which were calibrated to curb investment demand and rein in property prices.

Ms Grace Ng (黄黎明), Deputy Managing Director of Colliers International, says, “In particular, buying demand for residential homes in the secondary market slowed down this year, when homebuyers’ attention was diverted to new projects after developers reportedly lowered their price expectations to move sales.  Given that payment is generally pegged to the construction of the project, homebuyers were also attracted to the relatively lower upfront cash requirements for the purchase of new homes.” 

Ms Ng continues, “Sellers in the secondary market, on the other hand, were reluctant to adjust prices, considering the high valuation achieved and the additional acquisition cost they would have to incur for a replacement property.” 

Additionally, some homebuyers shy away from the market this year, in anticipation of a downward adjustment in property prices – given that some 110,000 public home units and 90,000 private homes including executive condominiums are slated for completion by 2016. 

Highlights: 

Both industrial and residential sectors contributed to the bulk of the total auction sales  

The industrial sector contributed 37.1 per cent to the total sale value of S$91.63 million, while the residential sector made up the next highest portion at 34.3 per cent. 

Ms Ng comments, “The slightly higher total sale value garnered by the industrial sector this year was mainly due to the sale of a JTC factory at Benoi Road, which was sold for S$25.6 million.  On the other hand, although the residential sector also saw a high-value sale of a Good Class Bungalow at Chee Hoon Avenue for S$22.9 million, there were only 4 other residential properties that were sold at under S$3 million each.  

Furthermore, the high-end residential segment this year witnessed only tepid activity.  There is a notable fall in demand from both foreigners and locals – following the imposition of ABSD and TDSR, amid a lull leasing market.”    

9 industrial properties were sold at auctions this year for a total of S$33.99 million.  This is more than tripled the S$10.12 million recorded for the sector in 2012.  

Although investors’ demand for industrial properties waned as a result of the Seller’s Stamp Duty5 (SSD), there was still healthy demand from end users for affordable strata-titled industrial units.  Apart from the JTC factory at Benoi Road, the remaining 8 properties were strata-titled industrial units that were sold for less than S$2 million each.

Meanwhile, 5 residential properties were sold this year, generating a total sale value of S$31.45 million.  

In addition to the sale of the Good Class Bungalow at Chee Hoon Avenue, the remaining four residential properties that were sold during the year included a terrace house at Woo Mon Chew Road in East Coast (S$2.85 million), a terrace house at Yio Chu Kang Gardens in Ang Mo Kio (S$2.4 million), an apartment unit in The Maplewoods in Bukit Timah (S$2.1 million) and an apartment unit in Jalan Novena Barat in Thomson (S$1.2 million).  

Retail sector: shophouses remain popular 

5 retail properties were sold at auctions this year, contributing a total of S$26.2 million, or 28.6 per cent of the total sale value.  

Investment-grade properties, such as conservation shophouses, remained popular due to their scarcity.  A row of shophouses at North Bridge Road and another shophouse at Tras Street were sold for S$15 million and S$6.6 million, respectively.  

Meanwhile, HDB shophouses, especially those offering yields of some five per cent, received healthy interest from investors amid a volatile stock market.  2 HDB shophouses at Bedok North and Toa Payoh were sold for S$1.6 million and S$2.568 million, respectively. 

The last retail property was a shop at High Street Centre along North Bridge Road that was sold for S$430,000. 

Mortgagee sale versus owners’ sale 

Of the 488 properties that were put up for sale in 2013, 32 were listed by mortgagees and the remaining bulk of 456 properties were put up by owners. 

Interestingly, of the 32 properties that were put up for mortagee sales, 14 of them were industrial properties – all of which were strata-titled units.  This is more than tripled the 4 industrial properties that were put up for mortgagee sale in 2012. 

Ms Ng comments, “This could be attributed to the challenging business environment faced by the small and medium enterprises which include a manpower crunch and rising costs. The seller’s stamp duty on industrial properties have also effectively curbed speculative demand and reduced the potential pool of buyers for industrial properties.”

Meanwhile, the trend of having more owners adopting auction as a mode of sale continues – given the lull in the secondary sales market and the chance for greater exposure for their properties through prominent auction advertisements, as well as ready access to a group of potential investors and home buyers. 

Outlook

Going forward, although interest rates are likely to increase in the future, mortgagee sales are expected to remain low – given that interest rate increments are expected to be gradual; and banks, in an effort to manage their non-performing loans, are most likely to encourage mortgagors who default on their monthly payments to sell their properties in the open market instead of repossessing them.  

Ms Ng comments, “However, we might still continue to see the trend of strata-titled industrial units being put up for mortgagee sale in 2014.  This is because the operating environment for SMEs remains plagued with the twin challenges of escalating business costs and a tight labour market.

Meanwhile, the residential sector is expected to still witness the repercussion of the government regulations – with a higher proportion of high-end residential apartments, such as condominium apartments in Sentosa, being put up for mortgagee sales.”

Property auction as a mode of sale will continue to remain popular with owners.  

“In the midst of weak buying sentiments in the secondary market, we expect to see muted response to private treaty advertisements.  There will be more owners, particularly those of high-end properties, leveraging auction as the mode of sale to reach out to a larger but targeted pool of buyers – given the ready access to a group of potential investors and home buyers garnered by each auction house,” adds Ms Ng. 

Nonetheless, a stalemate between the buyers and sellers may also persist, as buyers continue to remain opportunistic, adopting a wait-and-see attitude and choosing to hold out for value buys. 

Ms Ng concludes, “The total sale value for the Singapore auction market in 2014 is likely to come in at approximately S$70 million – on the back of a tumultuous global stock market amid possible QE tapering, the after-effects of the local government property measures, the continued stalemate between buyers and sellers, and the expected low number of high-value sales.” 

Notes: 

1. Figures exclude the sale of land put up by statutory boards through auction. 

2. High-value properties are defined as those worth more than S$5 million each.  The four high-value sales this year include: 

  • A Good Class Bungalow at 8 Chee Hoon Avenue sold for S$22.9 million
  • A JTC factory at 39 Benoi Road sold for S$25.6 million
  • Four adjoining shophouses at 762/764/766/768 North Bridge Road sold for S$15 million 
  • A three-storey shophouse at 38 Tras Street sold for S$6.6 million 

3. The Additional Buyer’s Stamp Duty (ABSD) rates for the purchase of residential properties were raised between five and seven percentage points. Loan-to-value limits on housing loans granted by financial institutions were also lowered for individuals with at least one outstanding housing loan, as well as for non-individual borrowers such as companies. In addition, the minimum cash down payment for individuals applying for a second or subsequent home mortgages was raised from 10 to 25%.

4. In addition to the 60% cap on a borrower’s total monthly debt payment, certain rules relating to the application of the existing Loan-to-Value (LTV) limits on housing loans granted by financial institutions were also refined. In particular, “guarantors” are now to be included as co-borrowers and one of the purchasers on the option to purchase. Additionally, the income-weighted average (based on gross monthly income) age of all co-borrowers is to be adopted when applying the rules on loan tenure.

5. With effect from 12 January 2013, a Seller’s Stamp Duty (SSD) of 15%,10% and 5% will be imposed on industrial properties sold in the first, second and third year of purchase respectively.