Brisk auctioning since downturn

Licensed auctioneer and auction firm Ng Chan Mau & Co Sdn Bhd general manager Foong Chon Wai’s schedule has been pretty tight since the beginning of the year and he is expecting to be even busier in the coming months.

“The number of properties up for auction has increased by 5% to 10% since September last year mainly due to foreclosures and we expect more to come as banks’ non-performing loans increase,” he says.

This could be the scenario going forward for the property auction business as the current economic downturn takes a toll on the ability of property owners to service their mortgages, resulting in more properties going under the hammer.

A sale by public auction is a way by which properties are put up for sale by their beneficial owners, usually a financial institution.

Prospective buyers for the properties will gather at the auction venue and put in their bids or offers for the properties that they are interested in.

The bidding will stop when the highest price is called out three times by the auctioneer when no further bids are made. The person who submits the highest bid will be declared the buyer for the property.

Foong, who has some 20 years’ experience in the auction business, expects to see an increase in lower-end properties (RM50,000 and below) coming up for auction in the coming months as the lower income group is the most affected by the economic downturn.

Leong Auctioneer Agency has also experienced an increase of 10% to 20% in the number of properties going for auction since October last year.

Owner and licensed auctioneer Leong Wye Hoong says more high-end condominiums, in the range of RM250,000, in the Kuala Lumpur city centre (KLCC) have been going under the hammer since the beginning of the year.

Many of the owners of the properties are expatriates who are looking to get rid of their properties while the prices are still high, he adds.

Condominiums in the KLCC vicinity are currently selling for RM1,200 to RM1,500 per sq ft versus RM700 to RM800 some three years ago.

“Prices for such properties have gone down by 10% to 20%. We have a handful of condominiums in the KLCC area up for auction next month and more may be coming up as borrowers default,” Leong cautions.

He foresees prices going down by as much as 30% for the condominiums, going forward, as supply currently exceeds demand and prices need to be low enough to attract bidders.

Nevertheless, Foong does not expect the price of certain properties such as landed residential properties, commercial properties such as shoplots and industrial properties, including factories and agricultural land, to come down as demand for such properties is still strong.

Properties which are not in demand in places such as Bukit Beruntung, Nilai, Rawang, Mantin and Bangi could see prices pushed down further, he notes.

“In the past two months, people have become more cautious when buying property. They do not simply buy properties anymore and will normally wait for the properties to hit below market price first.

“This year we expect properties which are not in demand, especially due to their locations, to go through two or three auctions before they start attracting bidders,” he says.

Properties going for first auction will have a reserve price that is the market value of the property but the price will decrease by about 10% in every subsequent auction if there are no takers.

“There are opportunities for buyers looking to pick up properties in an auction, especially in such bad times, as they may find a rare property which will not be auctioned in better times.

“Such properties will attract lots of bidders but if a buyer does not mind paying a bit more than the market price, he should be able to snap it up,” Foong says.

Leong concurs that not all auctioned properties would be priced below market value. “It all depends on the type of property and location. For example, a shoplot in SS2 Damansara could be snapped up at a higher price.”

Some auctions that Leong had handled recently even made quite a bit of profit for their owners – a shoplot in Bangsar generated a surplus of over RM300,000 from an auction while a piece of industrial land in Gombak made a surplus of over RM700,000.

Auctions have also become popular as people are more aware of the benefits of buying auctioned properties.

Foong believes that property buyers can get pretty good deals in terms of pricing via property auctions.

“Auctions also enable the transaction to be done in the open and in a very transparent manner,” he points out.

Leong says auctioneers are now more innovative in their marketing efforts to attract bidders to their auctions.

“We do not just put up notices in the surrounding areas of the properties but also distribute flyers, put up the property details on our website and even have roadshows to inform potential buyers of when and where a certain auction will take place,” he says.

A PUBLIC auction could be a way for property buyers to snap up properties at a bargain but the auctioneers’ advice is for buyers to do their homework first before buying an auctioned property.

Some of the factors to take note are:

Legal advice

Obtain a copy of the condition of sale and seek independent legal advice on it.

Property inspection

Prospective buyers should inspect the property they are interested in by looking at the external facade and location first. The property interior may not be available for viewing.

Vacant possession

It is not a requirement for auctioned properties to come with vacant possession.

Bank loans

Prospective buyers should consult banks on the loans available for the auctioned property to ensure that financing will not be a problem.

Title search

An official individual title search at the relevant Land Office or other relevant authorities should be conducted on the property to ensure that an individual/strata title has been issued and that there are no caveats attached.

Enquiries with developer

Make the necessary enquiries with the developer, proprietors and other relevant parties to confirm the terms and conditions of the sale such as whether the sale is open to all races or to Malaysian citizens who are bumiputras only.

By The Star