This week, the American Federal Reserve announced the second of eight planned interest rate hikes. In the long run, this will raise the interest rates of property loans in Singapore. This could result in a rise of mortgagee sales and property auctions, which is good news for buyers. Here’s how you can get in on the act:
What are mortgagee sales / property auctions?
Mortgagee sales occur when a bank forecloses on a property. The bank will auction off these properties, in order to cover the loss of the property loan. In 2015, there were 87 units that went up for mortgagee sales.
Unlike the usual process of negotiating with buyers one-on-one, a licensed property firm will conduct an auction; think Ebay for houses, and also with some really sad stories behind them. This usually (but not always) means the starting price begins low, and the bidding drives it up.
Property auctions work the same way, but the difference is that many of these are voluntary (these houses are not foreclosed on). The owners have their own reasons for not wanting to negotiate with one seller at a time (they may want to sell off a liability as soon as possible).
Note that both residential and commercial properties can go up for auction. Shophouses and factories can be found during auctions as well. Here’s how to to find a good buy:
Contact a property agent / firm and be on the mailing list
Knight Frank is one of the biggest names in property auctions. On average, they auction 180 properties a year, so be sure to go on their mailing list if you’re interested. Other players in the auction market include JLL, Edmund Tie & Co and Colliers. If you indicate your interest to a property agent from one of these agencies, they can also put you in touch with the relevant persons.
The mailing list – or the firm’s website – will tell you the location of the auction, and the available auctions for the year.
Review the prices of nearby properties, before attending property auctions
You can review prices through the Urban Redevelopment Authority’s (URA) price transaction history. Alternatively, drop by 99.co and check out property prices on our map based system. This will give you a sense of property values in the area. Try to check at least 10 properties in the same general area – just looking at one or two units doesn’t help.
Pay attention to the price per square foot, not the overall prices of the properties! Also, work out the median price, not the average. Use this online calculator if you are not sure how to determine the median price.
The reason you shouldn’t use the average is that a single, unusually cheap or expensive property will give you misleading results.
Have a fixed amount that you are willing to spend, before attending
Remember that the point is to find good value, not to thump your chest and beat the other bidders. Even if your goal is to find a home and not an investment asset, you still need to fix limits on how much you’ll spend. Apart from stopping financial suicide, this ensures the bidding process is less stressful.
Read the property reviews, and view it before the auction
Read up any online or print reviews of the property. Even if you have to do so at the last minute, look it up on your phone. Don’t trust the description of the property at the auction. If your job were to auction a house, you’d also describe a 10 year old toilet-stop as a cosy villa with water features.
It’s best to visit the property in person. In most cases, you will be allowed to do so one to two weeks before the auction.
If it is not a mortgagee sale, question why the owners put it up for auction. If it was hard to rent and turned into a liability, that should worry you if you’re a landlord.
Secure the loan before the auction date
(Yes, we all know should go without saying, but some people…you need to tell them not to jump without attaching the parachute first).
Get the loan approval from the bank before the auction (tell the mortgage banker you are attending an auction, they will guide you on the process). Never, ever, start bidding for a property before you are certain you qualify for the bank loan (or have the actual money ready in your bank account).
You are expected to put down 10 percent of the bid price on the actual day of the auction. After that, you typically have 12 days to pay the remainder. You will forfeit the 10 percent deposit if you later find out you can’t get a loan for the property.
Put your name on the list if the property is withdrawn from auction
A property may be withdrawn from the auction, if it cannot meet the reserve price (the minimum price for which it will be sold). If this happens to a property you want, quickly ask to put your name on an interest list.
It’s quite common for the owner to negotiate with interested buyers separately, after the auction. This is another way to get a good deal.
If you found this article helpful, 99.co recommends Property Auction: What are they, and how you can gain from them and 7 things you must know about a property auction.
Find the home of your dreams today at Singapore’s largest property portal 99.co!