According to KGV International Property Consultants executive director Sr. Samuel Tan, landed properties are less prevalent and are typically located in less populated areas.
He said that the company saw a decline in the number of auctions following Covid-19.
"We are seeing a declining volume. Most of the auctions today are repeats. One can hardly see good grade properties coming under the hammer. For example, shops, factories and lands are rare occurrences. This is probably they were sold even before they are foreclosed.
"As things pick up and more people are able to find work, this is to be expected. But there are still extreme situations in which properties are unsuccessfully put up for auction for multiple rounds," he told Business Times.
Tan said properties are typically purchased at substantially lower costs at auctions.
According to him, the reserve price in Johor, like in other states, will automatically decrease by 10 per cent each time it is not sold.
"This is not a good practice because the 10 per cent decrease might not accurately represent the state of the market. Banks and borrowers both incur unnecessary financial losses as a result.
"In order to accurately reflect the market, a new value report must be completed. Some of them are being sold at a 50 per cent discount because they were the subject of five rounds of bids.
"These properties will typically be snapped up at the later auctions if they are kept up properly and in decent areas."
Tan said if the property is in a desirable location, price appreciation is anticipated in an improving market.
He advised against investing in projects where a lot of future auctions are expected, since this will drive down the price even further.
A desirable tenant/owner combination, a well-maintained property, and a suitable location are all useful indicators of future price growth.
"Any prospective purchaser needs to research the market trend thoroughly. Examine the microstudy to learn more about the project participants' demographics.
"Find out the occupancy rate and the reasons for the low number of stays. A thorough education will guarantee fewer opportunities for error," he said.
Primary vs secondary vs auction
The properties sold by developers constitute the primary market. Subsequent sales or resale sales of real estate make up secondary markets.
Properties sold on the auction market are those that were lost to borrower default.
Tan pointed out that owners who willingly decide to sell their properties at auction can also hold private auctions.
Auctions may take place by virtue of a Letter of Assignment (LACA) or a court order.
The latter is applicable to properties that have been charged to banks but for which the Land Office or Registry Office has not yet confirmed ownership.
Tan said the banks used their Power of Attorney to sell the properties. "This is very common for high rises."
He doubts that developers will be concerned about the existence of the auction market as they are "two separate markets."
"The overlapping is minimal. People who want to buy from developers look for brand new stock, and they enjoy all the freebies. There are also more certainties as they are able to view the showhouse.
"In the case of auctions, there are risks involved. For example, they may not be able to view the internals of the building. They buy the properties on an 'as-is, where-is' basis. Sometimes, they may encounter difficulties in evicting the existing tenants.
"The title may even be subject to caveats and other encumbrances. Loan margins can be lower compared with those of the primary market," he said.
