The Rise of the Mortgagee Sale
There is a new player on the Singapore housing landscape, one that has always been there but in recent months has started to become more and more evident. The mortgagee and auction sale. So exactly what are these, how many properties are actually being sold this way, and why are they on the rise?
What Are Mortgagee and Auction Sales?
A mortgagee sale occurs when the owner of the property either defaults on servicing the home loan, or voluntarily agrees the bank to foreclose on the property. This can occur when the owner mortgaged the property a second time to support his or her business, a business that subsequently fails meaning they are unable to meet the payments.
The bank then places the property up for auction, where anyone can subsequently bid on the property. Some auction sales are not as a result of foreclosures however, but are the chosen method for the owner to sell their property.
How Many Properties are sold this way?
Last year there were around 230 mortgagee sales in Singapore. That was an increase of more than 40% on 2014, and predictions for 2016 are that the number will rise again to the 250 mark or beyond. One interesting factor is the amount of landed property – especially larger, detached properties that are going under the hammer. These are often slow to be bought in this manner – mainly due to the actual price of the properties, and more often than not are put up for sale at more than one auction. There are a couple of other changes in the type of properties that are going to auction which are indicative of the state of the current housing market.
According to a report in the Straits Times, 13 properties have been put up for mortgagee sale so far this year that were are either still being built, or had only completed within the last three years. A three-bedroom unit in OUE’s Twin Peaks development was put up for auction (a mortgagee sale) earlier this year, one of only a very small handful of properties from District 9 that have undergone this fate. That unit – located on the 18th floor – was put up for sale at S$4 million, yet despite that being more than 10% off the original sales price, it still didn’t find a buyer.
Why are these types of sales increasing?
The reason more people are choosing to go down this route is that it is a quick and relatively hassle free method of selling your property. They can give the seller a chance to get a good price within a specific time frame. The reason for the sharp increase in mortgagee sales however is not as encouraging.
The last big peak for this kind of sale was in 2008 and was purely down to the global financial crisis. This time around the reasons are less clear, and are more down to a combination of factors. The two biggest however, are interest rates (particularly the Singapore Interbank Offered Rate, SIBOR) and the Total Debt Servicing Ratio (TDSR).
Interest rates after the financial crisis were kept at record low levels, which in turn prompted its very own property boom, as more and more people were able to afford repayments. In the last years SIBOR has risen significantly, and is likely to continue to rise. This means that suddenly, more and more people are struggling to keep up with repayments.
This issue is compounded by the TDSR regulations which restrict borrowers’ debt to 60% of their monthly income. Where previously they could have found cheaper refinancing solutions, this door has now been closed to them.
Though it is never a good thing when banks have to foreclose on somebody’s property – and home, the whole auction and mortgagee sale phenomena does create opportunities for others searching for a bargain. Though this isn’t always as easy as it would at first appear, it is like all things in life: there will be winners and losers.
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