Mortgagee sales of luxury condos, strata industrial units to spike in 2016

/ The Edge Property |

January 28, 2016 10:00 AM SGT

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Despite the usual year-end lull, two luxury condominiums were sold under the hammer at property auctions this month. One was a 2,174 sq ft, three-bedroom duplex at Orchard Scotts that fetched $3.06 million ($1,408 psf) at Knight Frank’s auction on Dec 8. The other was a 2,013 sq ft, four-bedroom unit at St Thomas Suites that was sold for $3.6 million ($1,788 psf) at DTZ’s auction two days later. Both were mortgagee sales.

Of the top 10 auction deals in 2015, two were estate sales, three were owners’ sales and the remaining five, mortgagee sales. Of the handful of mortgagee sales, four were freehold condos in prime districts 9 and 10 with sizes of more than 1,500 sq ft and priced between $3 million to $6.45 million. Incidentally, Colliers brokered six of the 10 most expensive properties sold at auctions this year (see table).

Source: Colliers

Incidentally, 77 out of 142 apartments and condominiums put up for mortgagee sale in 2015 were of apartments that were larger than 1,500 sq ft, according to Colliers. The trend of sizeable high-end condos and landed homes put up for auction is expected to continue into 2016, says Grace Ng, deputy managing director of auctions and sales at Colliers International. Mortgagee sales of such properties is also expected to see an increase next year.

“Luxury condos were popular during the market boom in 2007/2008, but have fallen out of favour owing to the drop in both foreign and local buying interest,” says Ng. “The main stumbling block is the restrictive loan curbs, which makes it difficult to find buyers for properties priced above $2 million.”

These premium apartments are therefore only within reach of the well-heeled, be they investors or owner occupiers. Buying opportunities have emerged in the Core Central Region — Marina Bay and CBD in district 1, Sentosa Cove in district 4, and the traditional prime Orchard Road districts of 9, 10 and 11 — as prices have declined 8.6% from their peak in 1Q2013, according to URA data as at end-3Q2015.

Owners of high-end condos are also finding it challenging to secure tenants amid a weak leasing market “plagued by supply woes and shrinking expatriates’ housing budgets”, says Ng.

A three-bedroom duplex was sold for $3.06 million on Dec 8

Rise in mortgagee sales The number of mortgagee sales jumped 52% to 241 from 159 in 2014. The figure is therefore the highest since 2008, when the global financial crisis struck, putting 270 properties into foreclosure.

Another worrying trend is the impact of a rise in mortgage rates as it could tip some “marginal owners” into default, adds Ng. Investors who own multiple properties and rely on rental income to service their mortgages are the most vulnerable. “Weakening rental markets and rising mortgage rates would impose additional financial stress on these households,” says Tricia Song, analyst at Barclays Bank, in a report on Dec 15.

The Monetary Authority of Singapore estimates that 5% to 10% of households have debt-servicing ratios above 60% and will be at risk when mortgage rates rise, according to its financial stability review report in November. According to MAS data, 65% of housing loan packages are pegged to the Singapore Interbank Offered Rate and Swap Offer Rate as at 3Q2015. With the three-month Sibor and three-month SOR having more than doubled year-to-date to 1.13% and 1.5% respectively, Barclays’ Song estimates effective mortgage rates to be in the 2% to 3% range.

Trouble in strata industrial The strata industrial segment has, likewise, seen a spike in mortgagee sales, doubling from just 17 in 2014 to 36 this year. Many of these small strata-titled industrial units are relatively new, and sit on 60-year leasehold sites in locations such as Kaki Bukit, Ubi, Geylang and Boon Lay.

The owners who have defaulted tend to be “small-scale investors” who entered the industrial market prior to the government’s imposition of the Seller’s Stamp Duty for industrial properties, and TDSR in 2013. “They are having trouble securing tenants in the current tough industrial leasing market and are finding it a challenge to service their bank loans,” says Colliers’ Ng.

Demand from investors for such industrial space has therefore been crimped post-TDSR. The only buyers today are likely to be end-users and industrialists, adds Ng. However, owing to the current uncertainty in the macroeconomic climate, end-users have also become more cost-sensitive and cautious about expansion.

Meanwhile, competition for tenants in the industrial space has intensified with the surge in supply over the last two years: 5.7 million sq ft of new multi-user factory space was completed in 2014, with another 3.7 million sq ft added in the first nine months of this year, according to Colliers.

There has been no significant rise in the number of strata shops put up for auction sale, says Ng.

She attributes this to the profile of owners who, she adds, are astute investors with holding power who are able to continue servicing their loan despite the lower rental rates and longer vacancy periods.

Even though mortgagee sales have increased significantly, it accounted for 30.3% of all properties listed for auction in 2015. Owners’ sales still dominated, making up 69.7% of all properties listed for auction.

“In today’s subdued market, owners prefer to sell their property via auctions as they receive a higher response compared with putting it up for sale by private treaty,” she adds.

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This article appeared in the City & Country of Issue 709 (Dec 28, 2015) of The Edge Singapore.

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