I was monitoring the mortgagee sales in Singapore since last year as I believed the number of such sales will see a sharp increase. True enough, it was reported by Straits Times yesterday “Mortgagee sales spike as property curbs bite”.
According to the article, there were 54 homes put up for auction in the first quarter as mortgagee sales.
You may think this is a small number, but this was a 22.7% increase over the last quarter of last year, a 200% increase compared with the same period last year when there were just 18 such listings.
Contrary to many people’s beliefs, mortgagee sale deals are not only for the rich. In this article, I will help you understand what is mortgagee sales and how you can participate.
What is Mortgagee Sale?
When the owner fails to make the mortgage payment on the property, the lender (the “mortgagee”, usually the bank) has the right to recoup the loan amount through exercising the powers contained in the mortgage contract.
Usually, this is done through the power to sell the property. The bank will typically put the property in auction sale and sell it to the highest bidder, on the condition that the offer is above the “reserve price”.
Why owners have to sell their properties at auctions
Many owners and investors face daunting challenges to service their mortgage loans at the current environments:
- Seven rounds of property cooling measures
- Introduction of Total Debt Servicing Ratio (TDSR) framework
- Softening leasing market
- Rising interest rates environment
Failing to repay the loan will lead to mortgage defaults. Such defaults actually contributed to as high as 70.3% of total residential auction listings during the first quarter of this year.
In the history of Singapore, property cooling measures did not always result inimmediate property price correction as shown in the chart below. That is why people got complacent, especially after the property price rebounded sharply after 2009.
But the chart also shows the correction can be drastic. It was demonstrated clearly in the 1997 Asian Financial Crisis and the 2008 Global Financial Crisis.
Because people were complacent, they tend to over leverage themselves. The rapidly growing Singapore’s mortgage Debt-to-GDP ratio is clearly a warning sign of where we are now.
Discounted property prices, Crisis or Opportunity?
In my article about property investment in Singapore, I talk about buying property at a deep discounted price in an auction is one of the unspoken secrets of many seasoned investors.
Since the bank has no interest in the default owner’s well being, the property is normally sold as long as the bid is enough to cover the outstanding loan. That means sometimes you can get a ridiculous bargain price.
Where can retail investors participate in auction sales?
Since this is an “insider trade”, many of the bargains were hunted behind the doors. I personally believe that more than often, the best deals will not be seen anywhere other than within a small “circle”.
However, that does not mean that retail investors like you and me have no chance. For example, Knight Frank hold a monthly “Property Private Treaty”.
Occasionally, I will attend the auctions to get a “feel” of the property markets. Last year, there were were only a couple of properties, but last month there were 14 Mortgagee sale properties. You can check the latest listing here.
At this point of time, you will mainly see high end properties as their price tags were high and more susceptible to mortgage defaults. But it is only a matter of time for the mid-tier market will start.
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Back to you…
Have you attended mortgagee sale before? What was your experiences?
If you have any question about mortgagee sale, simply leave your comment below and I will answer all of them.
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