Mention auctions and it brings to mind frenetic bidding and the almost palpable tension in the room. Or that is how auctions are depicted in the movies, with an added dose of drama. The reality is, property auctions here are much less exciting.
The Sunday Times went to four property auctions last to find out what goes on at these sessions.
WHY ARE PROPERTIES PUT UP FOR AUCTION?
Typically, properties are put up for auction because the owner chooses to sell it that way, or it is a mortgagee's sale.
A mortgagee's sale involves the unit being put up for auction by a bank after the owner defaults on servicing the home loan - or he mortgaged the property to support a business that eventually failed, leaving him unable to make the payments.
The number of properties sold at auction in mortgagee's sales has risen steadily from 153 in 2014 to 229 last year - accounting for about 30 per cent of all auction listings last year. More owners are also disposing of their property by opting for auctions - with 516 such listings last year, up from 356 in 2014.
It is a quick and definite method of sale. also offer owners the opportunity to secure an optimum price within a specific time frame. Other reasons for putting a property on the block include court orders in divorce cases.
WHO ATTENDS THESE AUCTIONS?
Each of The Sunday Times attended attracted a crowd of between 80 and 100 people. By 2.30pm, when the auctions were scheduled to start, all the 60 to 70 seats in room were filled, leaving many standing at the sides and back.
At each auction, a handful of staff from the auction house mingled with the crowd, offering assistance on any property that they might be keen on. But not everyone was there to snag a deal. The events were well attended by property agents and bankers who are looking to introduce the auctioned properties to their clients.
We also encountered owners of similar units who were there to observe and obtain more information on the value of their property. One participant, who wished to be known only as Mr Tay, said he attends auctions regularly to get a feel for the market. "It's like checking the temperature of the market, find out the prices, and help my friends and clients source for properties," added Mr Tay, who is in the insurance industry.
BIDDING FOR PROPERTIES
On the rare occasion when there were bids and counter-offers, the energy in the room picked up significantly. At auctions here, the auctioneer often starts proceedings with an "opening price" - not the same as the reserve price, which is kept secret. Those present are then invited to submit bids, which may be higher or lower than the opening price.
There was a brief tussle over a 23rd-storey apartment at One Amber, where the opening price for the 3,164 sq ft penthouse with a roof terrace was $3.8 million. The first offer came in at $3.3 million, but that bidder later dropped out, after two other interested parties started driving up the price.
This went on for several minutes and the apartment at One Amber was eventually sold to a foreigner - one of the two bidders - for $3.7 million (or $1,169 psf). At another auction, two bidders vied for a 2,088 sq ft third-floor unit at Turquoise in Cove Drive in Sentosa. The opening price was $2.86 million and it was eventually sold for $2.92 million ($1,398.5 psf). This was substantially lower than the $5.4 million the seller had paid for the unit.
Mr P. Ng, 41, who works in the aviation industry, was pleased to land the unit. "It's for me to live in. I am happy with the price, at over $1,300 psf, that is like the price in Jurong." The two units - at Turquoise and One Amber - were both mortgagee's sales.
Two separate buyers also found good deals for privatised HUDC apartments.
One of them got a second-floor unit at Rio Casa in Hougang Avenue 7, for $730,000, below the starting price of $800,000, which translates to $435 psf for the 1,679 sq ft maisonette. The other property - a 1,668 sq ft maisonette on the second floor at Pine Grove - was sold for $938,000, or $562 psf. Its opening price was $1.09 million. Both units were owners' sale listings.
Mrs Chan, 53, the successful bidder for the Pine Grove unit, had put in an offer of $900,000 initially, which she raised to $938,000 - a figure that got the nod from the seller. "I expected people to challenge me, that's why I picked the back-row seat, so I can see who are the bidders. Even though no one fought with me for it, the experience was very tense and stressful," she told The Sunday Times.
While there are good deals to be had at auctions, it is a misconception to think that properties will be sold at rock-bottom prices. Generally, vendors are guided by the current open market value of the property. Vendors are generally more open to giving a higher discount for higher-value properties exceeding $3 million. The expected discount may be about 5 per cent to 10 per cent for units priced over $3 million, and a little higher for properties costing over $5 million.
FEW SUCCESSFUL DEALS AT AUCTION
On average, only one or two properties are sold at each auction house's monthly auction, with the majority of the deals done after the session via private negotiations. In fact, the success rate at auctions fell from 6.5 per cent in 2014 to 4.95 per cent last year.
Buyers who attend auctions have a keen interest but usually hesitate to bid if their loans are not in place or the required deposit of the purchase at auctions is not ready. Another deterrent is the substantial deposit to be paid immediately once the hammer comes down on an accepted bid. The successful bidder will have to pay a 5 per cent or 10 per cent deposit of the winning bid price - usually in the form of a cheque. The date of completion of the sale is usually between 10 and 12 weeks.