According to leading global commercial real estate services firm, Colliers International Group Inc. (NASDAQ: CIGI; TSX: CIG), the Singapore property auction market saw a total of 367 auction listings1 in the first half of 2016. This is 12.2 per cent lower than the 418 listings in H2 2015.
While overall auction listings fell, the number of mortgagee listings remained on the uptrend and increased by 4.4 per cent and 35.2 per cent, from 136 in H2 2015 and 105 in H1 2015, respectively, to reach 142 in H1 2016. There has been heightened interest in and turnout at auctions. This is a trend that will continue as more buyers attend auctions to seek opportunistic buys.
An increasing number of property owners are defaulting on their monthly mortgages amidst the prolonged economic uncertainties, lacklustre property market, the slowdown in China, the stock market turbulence, and the turmoil in the oil and gas industry. Ms Grace Ng (黄黎明), Head of Auction and Sales of Colliers International, commented, “Property owners are finding it increasingly difficult to secure a tenant and/or achieve their desired rents to service their monthly mortgages. Owners who are holding multiple properties, are at greater risk of loan default.”
She adds, “We continue to see an increase in the number of larger residential properties as well as more commercial properties being put up for auction sale by the lenders. Some uncompleted landed properties have surfaced as mortgagee’s sale as cash-strapped developers fail to complete the construction.”
Mortgagee Listings by Sector in H1 2016
- Non-landed homes: larger residential properties dominate mortgagee listings
Larger residential properties dominated the mortgagee listings in H1 2016. Almost half, i.e. 46% of the non-landed residential properties (32 out of 69) comprised larger apartments/condominiums, including penthouses, with floor areas of above 1,500 sq ft.
Ms Ng says “Owners of such large apartments/condominiums – which come with a bigger price tag – are facing challenges selling their properties in an environment of abundant supply and subdued foreign and local buying interest amidst stringent loan curbs. Some investors who have bought penthouses off plan also found it difficult to rent or sell their properties upon completion. This is due to the undesirable layout or space wastage arising from the large terraces or voids,” she adds.
Specifically, about 41% of the 32 listings (i.e. 13 listings) of large-sized apartments/condominiums in H1 2016 were located in the traditional prime residential districts of 9, 10 and 11 where foreigners traditionally form a significant demand base. Examples of such large-sized apartments/condominiums placed under the hammer by lenders in H1 2016 included units at The Sail at Marina Bay (Marina Boulevard), Lucky Plaza (Orchard Road), Turquoise (Sentosa), Tan Tong Meng Tower (Thomson Road), The Arcadia (off Adam Road), OUE Twin Peaks (Leonie Hill) and Paterson Suites (Paterson Road).
34 landed homes were placed under the hammer by banks in H1 2016. This accounted for 33 per cent of the 103 residential mortgagee listings during the said period.
Similar to non-landed homes, most of the landed properties being put up for auction by lenders are those with bigger land areas and heftier price tags such as corner terrace, semi-detached houses and detached houses which have around or above 3,000 sq ft in land or built up area and are worth more than SGD 3 million.
Additionally, it was observed that some of the mortgagee listings in H1 2016 came from cash-strapped boutique developers who were unable to complete the construction of their property projects, causing their lenders to place the uncompleted projects up for auction sale. Examples include a pair of semi-detached houses at Berwick Drive and an uncompleted bungalow at Mimosa Crescent.
“This is a reflection of the state of the property market. These type of properties were also listed as mortgagee sales during the Asian financial crisis when owners or developers were unable to complete the construction due to cashflow issues,” says Ms Ng.
- Commercial mortgagee listings continue to climb
The number of commercial mortgagee listings (consisting of office units, retail shops and shophouses) tripled from six listings in H2 2015 to 18 listings in H1 2016. Lenders placed five office listings and 13 retail listings under the hammer in H1 2016. In contrast, there were no office mortgagee listings and only six retail mortgagee listings in H2 2015.
This came on the back of the challenging business climate, weak consumer sentiments, high business operating costs and manpower shortages. Additionally, commercial property investors are also experiencing difficulties renting out their units and at the desired rents, particularly for poorly located units, amidst the slowdown in the office and retail leasing segments.
Total Sales at Auctions
Sixteen properties were successfully hammered down in the auction rooms in H1 2016, raking in SGD25.229 million. These comprised 11 mortgagee sales and five owners’ sales.
Ms Anthea To, Head of Research and Advisory of Colliers International, commented, “While H1 2016’s sales volume is comparable to that seen in H2 2015 and H1 2015, the total value of properties sold during auction in H1 2016 has contracted significantly by 55.3 per cent and 44.1 per cent, from the sales values in H2 2015 and H1 2015 respectively.”
Notable sales in H1 2016 include mortgagee’s sales of larger apartments such as Silversea (Marine Parade Road), Turquoise (Sentosa) and One Amber (East Coast) which were sold for SGD3.90 million, SGD2.92 million and SGD3.70 million respectively. Interest seems to be returning to large unit condominiums in prime areas as prospective buyers take advantage of the decrease in price over the last few years.
Apart from the absence of high-value transactions of above SGD5 million, investors/buyers have become more cautious amidst anxieties over job security, pay cuts, potential interest rate hikes, tough rental market and the impending pipeline supply of properties. Prospective buyers were observed to adopt a wait-and-see approach, committing only when they perceived the purchase as a bargain.
The current observation of an increasing number of mortgagee listings – in particular, large apartments/condominiums of more than 1,500 sq ft and landed homes – is expected to continue for the rest of 2016 due to the current restrictive loan curbs. There may be more uncompleted landed properties being put up by lenders this year.
The number of non-residential mortgagee listings – such as commercial listings - is also predicted to increase amidst the tough retail and office leasing climates and the difficulties experienced by investors in securing tenants or their desired rents.
Ms To concludes, “Taking all the factors above into account, overall mortgagee listings in 2016 could potentially exceed the 270 listings recorded during the Global Financial Crisis in 2008. However, in view of the dearth of high-value deals in H1 2016, the total auction sales value is predicted to hit approximately SGD60-70 million in 2016. This is lower than the SGD101.62 million amassed in 2015, which was boosted by the sale of high-value properties.”