More defaults expected in the second half

THE number of properties entering the auction market as a result of default payments is expected to increase in the second half of this year, a valuer said in early May.

A source from a bank confirmed in late May this may be the case.

Banks begin foreclosure proceedings if borrowers default for three consecutive months instead of six as was previously, the bank source says.

According to auctioneers Ng Chan Mau & Co Sdn Bhd, the volume of auctioned properties in 2017 was 29,282 units valued at RM12.91bil for the entire country.

This rose by 20% to 35,243 in 2018. Value rose to RM16.24bil, a rise of 25.79%, its business director Tom Low Chee Hian says.

Year to date, Low says the number of properties being auctioned totalled 18,253 units, valued at RM9.35bil.

“We are not even half way through the year,” he says.

He says 90% of the properties are residential units.

Low says the company is doing RM150mil worth of auctions in a month.

In 2018, it was about RM120mil versus less than RM100mil in 2017.

“Volume has increased but the ringgit value of the properties have risen even more,” he says.

Ng Chan Mau’s annual volume/value figures differ from AuctionGuru.com. Its executive director Gary Chia says its figures exclude properties which have been withdrawn from the market.

Chia says: “Our core business is research, not auctioning of properties.”

For the first four months of 2019 until April 30, he says AuctionGuru.com recorded up to 11,203 units (RM5.85bil) being auctioned.

To be noted is the difference between Low and Chia’s figures. Volume-wise, AuctionGuru’s figures is 7,050 units fewer than Ng Chan Mau’s 18,253 units from January to June 12, more than 60% difference over six weeks. In ringgit terms, there is also a difference of about 60% (RM5.85bil versus RM9.35bil)

Despite the wide difference, Chia concurs that auctioned units have risen compared with previous years.“The number of units entering auctions is rising every quarter. This means housing loan defaults are rising,” Chia says.

Johor properties

Low says banks are increasingly seeking its services to auction properties in other states.

Usually, if the property is located in Johor, the banks will use a Johor auctioneer, he says.

The number of properties from Johor given to them for auction has increased by 50%, says Low. East Coast properties also rose by 50%.Singapore and Chinese buyers e-bid for the Johor properties, Low says.

Low says more owners are seeking its services to sell their properties via the auction route.

“For example, in Australia properties are sold via auctions. This avenue has nothing to do with them defaulting on their loans. Because they are unable to sell their properties in the secondary market, Malaysian owners are coming to us,” he says.

A landowner, Low says, wanted to sell his land in Gombak for RM17mil over the past three years. He was ready to go down by RM1mil to RM16mil.

“We sold the land for RM20mil in the first round,” he says.

So far, he has sold landed, non-landed units, and a shop-office this way. They were sold in the first or second round .

“We are able to sell by owner-appointed auction because we have a strong investor base,” he says. They sold about 40% of the properties under the owner-appointed auctions. Ng Chan Mau is among the largest auction house in Malaysia.

This selling model started eight months ago.

Other auction houses are also trying to sell properties via owner-appointed auctions.

Rising auctions

A smaller competitor Leong Auctioneer Sdn Bhd says the auction market grew strongly after the 1997/98 Asian Financial Crisis. Licensed auctioneer Leong Wye Hoong says the company used to have about 20 cases a month; this grew to 200 and above cases after the crisis for most auction houses around 2000.

“When a borrower defaults on his mortgage, it sometimes took two to three years for the property to come under the hammer. It is a lot faster today,” he says.

The global financial crisis of 2007/2008 was nothing compared to 1997/98 crisis, which prompted many to go into the auction business, he says.

The other difference Leong has noticed between then and now is the rise in high-end units in today’s auctions. In previous years, most of the properties were below RM500,000. Many are RM500,000-RM1mil and above today.

It takes a longer time to sell. Before, a property can be sold after the second or third round. It takes three to four rounds to sell today, with a 10% drop in price for each round, Leong says.