Why auctions are failing to take off even as listings rise

The aggregate value of properties sold at auctions fell 26.1% to 11.57m in Q1.

Buyers pinning their hopes on the auction market to dispose of their properties against weakening sentiment stoked the segment to record-high even as listings failed to translate into sales. In Q1, the number of auction listings more than doubled to 362 compared to Q1 2018, data from Knight Frank show. A separate report from Colliers put the number of auction listings at 370, up 98.9% YoY from 186 listings in 2018.

Despite these skyrocketing numbers, the possibility of having these properties sold have fallen to dismal lows. According to Colliers International’s head of research for Singapore, Tricia Song, these auctions only reflected a success rate of 1.35% in Q1, which represents a year-on-year drop of 45.4%.

She also added that the aggregate value of properties sold at auctions in the period were at $11.57m, which may have more than doubled on a quarterly basis, but fell by 26.1% YoY over the same period.

Hector Tan, head of marketing & communications at Huttons, suggested that the low take-up rate is connected to how property-obsessed Singaporeans have become more particular about the properties in their portfolio.

“Buyers are becoming increasingly selective and savvy in the type of property they want to own,” he told Singapore Business Review. “The demand for choice, niche properties that offer a mix of lifestyle luxury and unique identity, will remain strong in the auction market”.

Buyers also tend to possess the wrong perception about auction dynamics, believing that these properties can still be sold at a discount or still be negotiated to obtain a better deal.

“That is not necessarily true. In fact, there were times whereby the properties were sold at higher price during private treaty as more parties came forward and offered higher price after the auction,” said Steven Tan, director for capital markets & investment services at Colliers International.

Another cited reason from Collier’s Tan is that properties under auction sales may not be seen as an attractive buy.

“Going forward, we do not see a recovery in the success rate over the coming months, because the residential market will continue to stay flat or dip further,” Collier’s Tan continued.

Strong momentum 
Auction listings will continue to surge even as the demand-supply imbalance continues to put sellers at a disadvantage as buying sentiment is expected to remain weak. Big ticket listings include a penthouse condominium unit in District 9 which had an opening price of $20m, one mixed-use property in District 10 and one landed industrial property in Woodlands which went for $30m, according to Song.

Auctions, are currently seen as a “mainstream” method as resale market owners face stiff competition from the supply of new launches, according to Huttons’ Tan. “Given this situation, auctions are a great way for owners from the resale segment to get exposure for their listings,” he said.

This means that auctions are used as another chance to sell the property after its sale failed before.

Colliers’ Tan also added that sellers think of auctions as “the most transparent mode of sale”, believing that prospects will be competitive with buyers calling for the highest bid.

Data from Knight Frank show that most of auction listings fall under mortgage sales which surged 112% YoY to 159 listings in Q1. A mortgage sale happens when a property owner would become unable to repay his loan, then the bank would have to sell his property for these debts to be repaid.

The increase of such sales, Collier’s Tan explained, are also expected to rise, pressured by cooling measures and taxes such as the additional buyer’s stamp duty (ABSD), seller’s stamp duty (SSD) and the total debt servicing ratio (TDSR).

“We expect the [rise in mortgage sales] will likely continue in the coming months. There are many new development units in the market that remained unsold, and should prices continue to fall, it could depress the residential market further,” he noted.

The rise of listings will not easily translate into sales for hopeful sellers, if the previous months are any indication, according to Tan of Colliers. “It’s a buyers market now.” 

By Nathanielle Punay