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.
What is the cash downpayment required for Auction property and also are we able to be the latest listing before the auction date?
Typically, if you buy at property auctions and you are the successful bidder for an auction property, you have to put down a 10% deposit on the spot.
Mortgage sale is different. It is the same as bank sale. A property on bank sale (not marketed in an auction) follows the normal payment schedule of a resale property.
You can subscribe to the distribution list of auction houses like Knight Frank, JLL, C&H, etc. The list of auction properties can all be found online anyway. Knight Frank also has a mobile app for its auction properties.
What is the different between Owner’s sale and Mortgagee’s sale..? And I need to pay any commission.? Thank you…
Owner’s sale is just like any other resale. It is the owner who engages the agent to sell. Mortgagee sale is a forced sale. The bank has taken over the property from the owner. Buy does not need to pay commission. The seller will pay.
thanks for sharing. Is the risk during the auction of getting a lemon instead of a good deal? Do prospective buyers have time to see the property prior the auction commence? will there be a bidding war between buyers during the auction or is it like first come first serve?
There is no difference between getting a house from auction or from the open market. you get to see the property before you buy.
The difference is that you cannot withdraw your offer (no option to purchase) and it is based on bidding (the highest price wins).
Thank you for your reply. I see, perharps the caveat is not to over bid it..:D
Based on your experience, is the discount is significant compared to what one can get from the open market? Will the amount to tag to the current market price or based on the original purchase price (with a discount)? thank you
Yes, for mortgagee sale, you need to do your own homework properly.
The discount depends on how desperately the seller needs to offload the property and many other conditions, but the original purchase price is irrelevant in most cases.
thanks for your reply. I just wondering, is there a different in the pricing for the various group, mortgagee, estate, owner in the auction?
Why would owner will want to put up in the auction compared to sell in the Open market?
It is just another way of marketing. Auction selling is the same as open market selling
Where do the auctions happen? How do you find out about upcoming auctions?
Knight Frank’s auction is always at Amara Hotel, you can find the latest listing here.
Have to pay cash for the auction sales?
Normally you will need to issue a deposit at the spot, they can accept cheque too. 🙂
Normally, how long do we need to settle the full amount? Won’t be able to take bank loan? Tks.
For mortgage sales, you should get your bank to approve your loan in principle first before you commit, otherwise it is very dangerous if you cannot get loan for whatever reason.
I have not attend any, but can you get to see the real property before the auction?
Dear Kit Kat
Yes, you can. You just need to arrange an appointment with the appointed agent.