Singapore property auction market first quarter sales value down 38.4%

But sales activities at auction seen to accelerate in 2Q 2011 as fuelled by diverted investors’ interest from residential properties to commercial and industrial properties.

The Singapore property auction market registered a significant drop in total sales value and number of transactions for 1Q 2011 – chalking up a total of 17 transactions worth only S$27.87 million. This is the lowest sales value garnered since the auction market rebounded in 1Q 2009 after the global financial crisis, according to a Colliers International report.

Ms Grace Ng, Deputy Managing Director of Colliers International, says, “The drastic decline in sales value seen for the quarter could be a result of the dampened sentiment experienced by the residential market as a result of the cooling measures introduced by the Government. The introduction of the cooling measures in January this year – deemed the stiffest the market has ever seen – has led to a 38.4 per cent year-on-year dip in auction sales value, while the lack of high-value transactions contributed to the steep 65.5 per cent quarter-on-quarter fall in sales value.”

Of the 17 properties sold, five were residential properties worth a total of S$11.08 million, five retail properties worth S$7.63 million, six industrial properties worth S$4.17 million and one development site worth S$5 million.

Highlights for 1Q 2011
A stalemate private home sales market
Sale of private residential properties at auctions was visibly thin in 1Q 2011 with only five successful transactions totaling S$11.08 million. The figures pale in comparison to the 13 residential properties worth S$23.1 million seen in 1Q 2010 as well as the eight transactions worth S$41.56 million in 4Q 2010.

The five transactions comprise three landed properties located at Moonbeam Walk off Holland Road (S$4.56 million), Jalan Pari Burong at Bedok (S$2.75 million) and Jalan Jendela at Woodlands (S$1.88 million), and two non-landed properties – a condominium unit in The Nexus (S$1.27 million) at Upper Bukit Timah locality and an apartment at Lorong 17 Geylang (S$615,000).

“While the strength of demand remains healthy as evidenced by the robust sales volume seen for the primary market in January and February, the latest set of government measures has however tempered buyers’ exuberance and moderated their offer prices,” says Ms Ng.

“In fact, there is no lack of offers for private residential properties but the offers are often below sellers’ asking prices. And sellers backed by strong holding power chose to remain firm in their stance even though the offered prices are only five to eight per cent below the asking. A stalemate between buyers and sellers was observed and this was particularly so in the secondary market.”

Absence of high-value property transactions
The most expensive transaction concluded at auction during the quarter was a piece of residential land at 254 Onan Road (Joo Chiat), which was knocked down at S$5 million. The next most expensive property was a semi-detached house located at Moonbeam Walk that went for S$4.56 million. The remaining 15 properties sold were below S$3 million each.

This is a stark contrast to the sales figures seen for 4Q 2010, where three properties worth more than S$5 million each were sold at auctions. The properties were a petrol station at Jalan Ahmad Ibrahim (S$30.20 million) and two bungalows – at Coronation Road West (S$26.60 million) and Chestnut Close (S$5.24 million). These three high-value properties worth a combined sum of S$62.04 million accounted for a substantial 76.8 per cent of the total sales value registered for 4Q 2010.

Owners’ sale continued to dominate the market
Underpinned by a healthy property market on the back of buoyant economy, low interest rates and high liquidity, the number of mortgagee properties surfacing at auctions during the quarter stayed low at 19, which is marginally higher than the 16 put up for sale in 4Q 2010.

On the other hand, a total of 137 properties were put up for auction sale by property owners during the quarter. This is 87.8 per cent of the total 156 properties seen at auction in 1Q 2011.

This scenario exhibits a continued vote of confidence by property owners on the effectiveness and efficiency of auction as a mode of sale.

Outlook: Commercial and industrial properties are expected to make up for the slack in residential market
Sales activities at auction are expected to pick up pace in 2Q 2011. It is likely to be fuelled by diverted investors’ interest from residential properties to commercial and industrial properties, as a result of the stiff stamp duties and lending policies imposed on private residential purchases. In addition, investors would be drawn by the attractive yields - averaging five per cent for shophouses/retail units and 7-8 per cent for leasehold industrial properties.

Ms Ng says, “We are already seeing an emerging trend in 1Q 2011. The S$11.8 million accumulated by the sale of five shophouses/retail units and six industrial properties in 1Q 2011 accounted for some 42.3 per cent of the quarter’s total sales value. This is significantly higher than the nine per cent market share garnered by this asset class in the previous quarter.”

“During the quarter, we observed that HDB shop/shophouses priced below S$1.7 million were very popular with investors. This group of buyers is also attracted to well-located units with prominent frontage. For instance, a HDB shop unit with only 30-year lease at Clementi Avenue 3 was sold for S$2.71 million, which translates to S$5,019 per sq ft. Investors were seen buying units at various localities such as Jurong West Street 41 and 93 as well as Tanjong Pagar. These units were successfully sold between S$1.43 million and S$1.69 million,” adds Ms Ng.

Sale of private residential properties at auction is likely to pick up in 2Q 2011, as buyers and sellers are expected to adjust their price expectations following a clearer direction of the market in the aftermath of January 2011’s set of cooling measures.

Mortgagee sales on the other hand is foreseen to stay low given that Singapore’s economy is expected to continue on its expansion path albeit slower than the previous year, and the property market is forecast to remain healthy amid low interest rates and high liquidity.

“We expect to see an improvement in the performance of the auction market in 2Q 2011. Total sales value for the quarter is likely to trend closer to S$40 million, with close to 50 per cent of the value coming from the sale of private residential properties. Mortgagee sale will continue to stay low at about 20 properties,” concludes Ms Ng.