Cooling measures impose on the residential sector takes its toll, with investors turning to the retail and industrial sectors which offer higher yields.

The Singapore property auction market ended the year on a lacklustre note, with only 46 properties sold out of the 542 properties that were put up. The total sale value chalked up for the year is S$95.62 million.

Not only is this 57.3 per cent below the S$223.9 million achieved from the sale of 71 properties in 2010, it is also the lowest sale value garnered in three years since the recovery from the global financial crisis in 2008 when the total sale value hit rock bottom at S$83.67 million.  

Ms Grace Ng (黄黎明), Deputy Managing Director of Colliers International, says, “The fall in both volume and value of sales at property auctions was in part the result of the Eurozone crisis and the ensuing volatile stock market, which rocked investors’ sentiments – leaving buyers with less bullish bids for properties put up for sale since August 2011. 

At the same time, due to the run-up in prices since 2009, the asking price by sellers remained sky high.  Additionally, given their strong holding power in the prevailing low interest rate environment, sellers have been less willing to reduce their price. 

Consequently, in the midst of stand-off between buyers and sellers, some sellers chose to lease out their properties.”

The fall in total sale value this year was also due to the reduced number of residential properties put up for sale, which was a result of the government’s cooling measures introduced in January.  The secondary sales market was also quieter and there were fewer high-value transactions involving Good Class Bungalows and high-end/luxury apartments.

Only five high-value properties (defined as properties sold at S$5 million and above) were sold this year for a total of S$32.06 million, which constituted to 33.5 per cent of the total sale.  This is compared to 11 such properties which were transacted at a total of S$130.14 million in 2010, of which S$57.44 million were from the sale of four bungalows.  The largest transaction this year was a petrol station located along Jalan Ahmad Ibrahim which was sold for S$9.61 million.

Retail sector overtakes residential to be the top performer this year
Unlike in 2009 and 2010 when residential properties dominated auction sales, 2011 saw the retail sector overtaking residential to be the top performer, with a 39.7 per cent contribution to the total sale value.  Meanwhile, the residential sector contributed only 28.4 per cent of the total auction sales this year, compared to 52.5 per cent and 51.3 per cent in 2009 and 2010, respectively. 

Ms Ng comments, “The stringent cooling measures introduced for the residential sector have resulted in investors diverting their attention to non-residential properties.  Retail properties are popular because on average, shops and shophouses provide a higher yield of about four to six per cent, compared to two to three per cent for residential properties.”

15 retail properties were sold at auctions this year for a total of S$37.97 million. This is 40.3 per cent higher than the S$27.06 recorded for the sector in 2010.  There were three high-value retail properties transactions: a shophouse at 46 Hongkong Street was sold for S$5 million and another at 81 South Bridge Road was sold for S$5.85 million, as well as a retail shop unit at Fook Hai Building, which was sold for S$6.6 million.  

Meanwhile, the residential sector generated a total sale value of S$27.17 million, a 76.3 per cent plummet from the S$114.82 million achieved in 2010. Nonetheless, this is still higher than 2008’s low of S$25.23 million. 

Five landed residential properties were transacted during the year at a total value of S$13.65 million. The  largest transaction in terms of sale value was a semi-detached house at Moonbeam Walk in the Holland Road area, which was knocked down at S$4.56 million.  In comparison, the highest value transaction in 2010 was a Good Class Bungalow at Coronation Road West which was sold at S$26.6 million. 

The remaining S$13.52 million was contributed by the sale of 10 non-landed residential properties.  Apart from the sale of a unit each at Aspen Heights (River Valley Road) and Botanic Garden Mansion (Taman Serasi), the remaining eight properties are located in the sub-urban areas, such as Seleteris (Sembawang Road), The Parc (West Coast Walk) as well as city-fringe areas, such as Harbour View Tower (Telok Blangah Drive) and Fort Gardens (Fort Road). 

Industrial sector picks up pace
13 industrial properties were hammered down in 2011, raking in a sale amount of S$14.18 million.  This is 37.3 per cent more than the S$10.33 million garnered from the sale of 12 industrial properties in 2010.

The higher sale value achieved this year was on the back of demand from owner-occupiers, particularly, demand for smaller strata-titled units.  The fact that sale of industrial properties is not subject to the stringent curbs of the residential market has also supported the number of industrial property transactions during the year.  Additionally, similar to retail properties, industrial properties also appealed to buyers due to the generally-higher yields of about eight per cent, given their shorter tenures of 30 or 60 years.

Mortgagee sale slumps to the lowest in 13 years
Of the 542 properties that were put up for auction this year, a whopping 503 properties (92.8 per cent) were by property owners. 

An interesting observation this year was a shift to an increase in the number of retail and industrial property owners who also leveraged auction as an avenue to obtain the best price for their properties; when in the past, the mode of auction sale was mainly adopted by residential property owners. 

There were only 39 mortgagee sale during the year.  Not only is this fewer than the 103 properties put up for sale by mortgagee in 2010, it also marks a new low in the number of such type of properties since 1998.  The steady decline in mortgagee sales from a peak of 2,462 properties put up in 2004 to just 39 properties in 2011 is evidence of the strong underlying fundamentals of the local economy. 

Outlook: The property auction market may decline further in 2012, in light of gloomy economic outlook and further residential curbs

Ms Ng concludes, “Should the turbulent global economic climate fuelled by the Europe debt crisis worsen and unemployment rates increase in the near future, investors’ and buyers’ sentiments and confidence will be shaken. 

The auction market may hence see a marginal rise in mortgagee sales.  In particular, more industrial properties are at risk of being put up for mortgagee sales as Small and Medium Enterprises could face a tougher business environment in the midst of a worsened global economic situation.

Nevertheless, the market may not see a significant rise in residential mortgagee sales, as the residential market is still generally supported by the low interest rate and high liquidity environment, as well as a strong leasing market.”

“There is also likely to be continued demand for landed residential properties and old apartments in the secondary market that offer good value for money.  However, with the new cooling measure on the government’s imposition of additional buyer’s stamp duty, foreign buyers are likely to be kept at bay and the overall residential property sales may be affected.

On the other hand, demand for retail spaces, such as shops and shophouses, is expected to support auction market activity, as investors continue to seek good yields in the absence of government curbs in this sector,” adds Ms Ng.

Taking cognizance of the above, the total sale value for the Singapore auction market in 2012 may potentially come in at close to S$83.67 million which was managed during the global financial crisis in 2008.

Seah Li Ching

Senior Manager | Marketing & Communications