MORE property auctions with above average bids are expected in the third quarter of 2021 as the full impact of the coronavirus epidemic sinks in, said industry players.

They expect many borrowers to continue cutting expenses, with some being unable to service their loans.

This will lead to the banks’ repossession of properties for auction, the number of which should peak by next September, they told The Malaysian Insight.

The auction industry is an important indicator of market performance and current and future trends in the employment rate, average income, and ability to repay loans.

Ernte Auction House Sdn Bhd executive director Gary Chia said the auction industry has seen little growth this year.

He attributed this to the six-month loan moratorium, which ended in September. Many borrowers had also restructured their debts with their banks.

Chia said market trends indicate a boom in property auctions in the third quarter of 2021.

“We’ll only know the true impact (of the Covid-19 outbreak) in the third quarter of next year, and we are cautiously optimistic about the sector’s growth next year,” he said.

Chia said more million-ringgit properties could be up for auction in the third quarter of next year.

“More properties valued at RM1 million, RM2 million will be auctioned off. Our observations also indicate that more properties owned by companies will also be auctioned off. At the same time, some companies will take the opportunity to invest in new office space and other commercial properties,” he said.

Chia said it is possible more commercial properties will go under the hammer as the pandemic drags on and people continue to work from home.

“There will be an increase in auctions, especially for office towers, if the economy remains sluggish.”

In his experience, Chia said, low- to medium-priced units usually account for 70% of the auctions and medium- to high-priced units, 25%. This is expected to change to 60% and 35%, respectively.

More commercial spaces auctioned off

Data from Auction Guru Abacus Research Sdn Bhd shows that auctions for the landed residential segment this year increased 3.4% to 3,698 cases from 3,577 in the same period last year, while auctions have shrunk 2.8% this year for the non-landed or strata segment, at 3,113 cases.

The data divides the landed residential segment into four categories, which are industrial buildings, shops, commercial offices, and others. Shop offices were the most auctioned properties at 265, followed by factory/industrial buildings (63), showrooms/warehouses/hotels (29) and commercial/office buildings (3).

In the non-landed or strata segment, retail stores ranked highest at 250 cases, followed by offices (177), Soho/Sovo/Sofo (108), hostels (3) and factories (1).

Auction Guru Abacus Research said the figures do not reflect the actual situation due to the reduced number of working days this year and that it is worth noting the foreclosure figures following the end of the loan moratorium.

Malaysia Council of Auctioneers president Mustafa Osman said the council is anticipating a 30% increase in property auctions due to the sluggish economy.

He said there were some property auctions following the MCO in March.

“But looking at the loan moratorium situation, we estimate that we will only see properties being auctioned off by banks when borrowers are unable to repay their loans.”

Lenient lenders

MNP Auctioneers Sdn Bhd managing director Stephen Soon told The Malaysian Insight many borrowers have negotiated for more time to repay their loans after the loan moratorium ended in September.

This has staved off foreclosure on many high-priced properties, he said.

But this will likely change in three to six months.

“By the middle of next year, we will see the real numbers,” Soon said.

On whether more medium- to high-priced properties will be auctioned off, he said the property market had done well in 2015 to 2017, which led to developers building many units priced above RM1 million.

Soon also said the market for low- to medium-priced properties is normally stable, but it is not immune to the far-reaching effects of Covid-19.

He said banks have so far been lenient with borrowers, as the law allows banks to foreclose on properties with three months in arrears, with the owner’s only recourse to stop the sale was to cough up the three-month arrears immediately.

However, Soon said, banks are now being lenient to borrowers as repossessed properties are sold at a loss.

“The banks would prefer if you take the initiative, at least pay one month’s worth of the arrears and discuss how to restructure your debt. Foreclosure and auctioning off the property is the last resort,” he said.

National House Buyers’ Association head of Chinese division Tan Chong Leng agreed, saying banks are letting up when it comes to chasing debts as they are concerned if the properties can be sold after they are repossessed.

Tan said he believes the number of property auctions will increase, especially those purchased by middle- to high-income workers such as pilots, flight attendants, tourism players, tour guides, and restaurateurs.

“We have received enquiries by industry players, but there is no way of telling the real extent of the impact right now. Currently, we can only recommend that they contact the banks to ask for debt restructuring,” he said.

Buyers’ market

Also worthy of mention are the people who wish to take advantage and buy property on the cheap, but Soon said auctioneers sell at market prices and will only slash prices if the property remains unsold for a period of time.

Even so, he said, it is now a buyer’s market with plenty of choices other than auctions, such as new developments, completed but unsold units, and second-hand units.

“Strictly speaking, banks evaluate property prices every year and only properties that remain unsold after putting it on auction three times will have their prices reduced.

“However, if the property remains unsold three years after that, then the issue is with the market instead of the industry, and the bank will then temporarily suspend the auction,” he said.

Soon said buyers are now paying attention to the auction market as many people have lost their jobs, but there are also some who have not had their income affected in the pandemic and are considering to buy property.

Chia similarly said that banks generally auction properties at market price and will only reduce prices by about 10% each time it remains unsold, with a downward adjustment of three times, saying that buyers may be looking to purchase about 30% below market price.

“Banks sell at market price, but how many sales have been completed, we cannot say for sure, because whether the buyer’s loan was approved after a successful auction is another matter,” he said. – November 15, 2020.