Auction Properties On The Rise
KUALA LUMPUR: Year 2014 is proving to be antagonising for avid property market watchers who are still uncertain about the stability of the industry after the announcement of certain new rulings in Budget 2014. Plenty has been discussed in the last couple of months on the fate of primary and subsale properties this coming few years. However, there is a lack of discourse on the future of auction properties.
Auction properties are the consequences of non-performing loans by purchasers when the principal and interest are six months or more in arrears. The financial institutions are holding the purchased properties as collaterals, and would take over the units for auctioning after the buyers' failure of making consecutive monthly payments.
There has been significant increase of auction properties in the last couple of years as seen on several property advertising websites. On Propwall, there were 156 listings made in January 2012. The number was increased to 725 in June 2012 and peaked at 1,945 listings came end of the year.
The situation did not improve in 2013, as there were 4,325 auction properties listed in January 2013. It peaked at 7,255 listings in October 2013. It is possible that several agents or agencies were creating duplicated advertisements for the same properties as some financial institutions such as Maybank and AmBank have disposed of their non-performing loans to third parties since Bank Negara Malaysia's issuance of new guidelines regarding the matter in December 2005.
Regardless, the high figures are still abnormal as compared to the previous years. The situation becomes more alarming when the auction properties are repetitive, and have been in the property market for a while because the prospective buyers' biddings do not reach the properties’ reserve price. The common practice in property auctions is decreasing 10% of the reserve price after each unsuccessful bidding. The failure of the numerous transactions has evoked questions on the reasons why they are unsuccessful.
Under normal circumstances, people have placed the blame of the increasing number of auction properties on overspeculating, especially in new property development project areas. The speculators would buy the properties during its launch in hopes of great returns, but would then have a hard time reselling due to poor location, neighbourhood crimes or simply poor workmanship.
As it is, economic downturn is also one of the reasons for the non-performing loans. People have been regarding property purchases as worthy investments, thus, the supply would match the demands. However, the demands of property speculators distort the actual demand of genuine home buyers. The lacklustre of subsale market, perhaps, results in properties having to be auctioned off.
The staggering increase of auction properties may be good for genuine home buyers who cannot afford the primary and subsale market. However, the phenomenon of unoccupied homes may create property redundancy in long run, especially if there are a large number of units located in the same area. Imperative measures and discussions need to be made to stop the areas from turning into ghost towns.