Hunting for deals: A bidder checking out a list of property up for auction.
MANY youngsters and new job seekers are now looking to buy property from the auction market because it is cheaper.
Auction specialist Leslie Low says thanks to property websites like Propertyguru, Propwall, Mudah.my and iProperty there is ample information available, and this has helped to elevate the auction “game” to another level.
“New property launches are too expensive for those just starting work.
“They cannot afford to buy from the secondary market either, so we are seeing a trend of the young generation starting to hunt for auction properties as their first house.’’
In the auction market, Low estimates that about half of the bidders are investors and speculators while the other half are end users, people who are buying the property to live in.
“Of the end users, half are in their 20s.
“If the youngsters have saved enough to be able to put down the 10% deposit (of the reserved property price) to make a bid, they will go for it.’’
He says “upgraders” make up the other half of end-users. Upgraders are those who already own a property but want to upgrade to something better or bigger – for instance, someone who owns a flat wants to upgrade to a condo or landed property, and so on.
Low says some 20 years ago, it was only investors who were buying property at auctions. They would repair and renovate the property, then sell it off for a tidy profit in the secondary market.
“Auctions have created a lot of millionaires and billionaires in the past.’’
But this has become more difficult to do these days because he says more and more end users are entering the auction market.
Crowded field
Two decades ago, he says, there would be only two or three people bidding for a property, but these days as more people come to know about property auctions, it is common to have 40, 50, 60, even 80 bidders vying for a particular property.
“Investors cannot really compete with end users because end users are willing to bid close to the market price for a property they plan to live in, whereas investors will stop bidding at a certain price because they need to keep a profit margin.’’
The reason people are keen on property auctions is, of course, because the auction reserve price – which is the bidding starting price – is always attractive.
“You can find properties for which the reserve price is 30% to 50% below the bank’s valuation.
“A bank can value a property at RM800,000 but its auction reserve price can be RM400,000,’’ explains Low.
The final price, however, can be closer to the bank’s valuation. As Low explains, “hot” properties in the Klang Valley can have a low reserve price that attracts many bidders – “and when there are so many bidders going for that property, it gets bid up to the market price or near it’’.
Low says in Klang Valley suburbs like Taman Tun Dr Ismail, where the supply of property is limited and no other houses are for sale, there have been cases when the price of the property being auctioned goes higher than even the market price.
But, he adds, “This is very rare. And it is because the bidder is an end user and really wants to live there.’’
With the economic slowdown, the number of people defaulting on their housing loans has been on the increase. Which means more properties are being auctioned off these days.
Low says for this year, 2,500 houses have been auctioned off on average every month.
“This is a 10% increase from last year. And if you compare it to 2013, it is a 50% increase because back then the monthly average was 1,000 to 1,500 auctioned off houses.’’
Check the property
One of the most obvious disadvantages with auction properties is that bidders don’t get the chance to view the property internally so they don’t really know what the condition of the house is when making their bid.
Low acknowledges there are a lot of risks in buying property at auctions.
“It is very dangerous to bid on a property without doing your homework and all the necessary checks first.’’
For him, it is crucial to get the proclamation of sale (POS) and to do a title search of the property. This will give the bidder useful information such as the address, the tenure (if it is leasehold) and if there are any restrictions or a caveat on the property.
And if the property’s title is still under the developer’s name, you need to check if the developer is still an existing company, he says.
“The terms and conditions in an auction contract always protects the bank. If the developer is a bankrupt and the company has been liquidated, then transferring the title to you is going be a problem.
“And that 10% deposit you paid when you won the auction is not refundable. We have seen winners disappointed because they didn’t check all these things.’’
Low says when it comes to leasehold property, you should always check with a bank beforehand to make sure you can get a loan.
‘‘If the number of years remaining on the lease is fewer than 50 years, some banks might not give you a loan or instead of a 30-year loan you might get a 25-year loan.’’
A caveat on a property is something else that bidders should look out for.
“No bank will give you a loan if there is a private caveat on the property. So if you win the bid, you have to pay cash for the full amount within the 90 or 120 days (depending on the type of auction) specified.
“Otherwise you will lose the property and your 10% deposit.’’
With a private caveat, he says, the winner of the bid, after paying the full amount, would then have to challenge the third party in court for the property, and this might drag on for a while until the court makes its decision.
For Low, viewing the property and the surroundings before the auction is also crucial.
‘‘The photos on property websites only show the front of the houses. It is very dangerous to base your bid on just that photo.
“What if it is at a T-junction or next to a sewerage plant or a graveyard?
“And don’t buy a property right next to a school because it will be very ‘jammed’ when parents drop off and pick up their children. You can’t get all this information from looking at a photo.”
By actually going to the house, you will also see if the property is vacant or someone is living there – banks don’t necessarily give vacant possession of the property at auctions. This means that if you win the bid and the previous owner is living there, the onus is on you to get him to vacate the property.
And if he doesn’t want to leave, you might need to give him money or get a court order to make him move out.
Low also feels that it is really useful to talk to the neighbours.
He remembers a case in Bukit OUG, KL, where a unit came up for auction nine years after the owner was murdered in it. It was only when the new owner went to the condo’s management office that he found out about the murder.
“He did not continue the deal because he did not dare to live there so his 10% deposit got ‘burnt’.
“And when the property came up for auction the second time around, the same thing happened. When the second owner found out about the murder, he didn’t want the unit anymore and forfeited the 10% deposit too.
“So it is always good to check and learn a thing or two about the history of the property before you bid.’’
