More properties could be up for auction if interest rates bite, say analysts

Properties resold with big losses this year
Properties resold with big losses this year

The spectre of higher interest rates, weak growth and concerns over the job market could lead to more properties going up for auction next year, say analysts.

Consultancy JLL noted that there have been 214 mortgagee listings so far this year - including 156 residential properties.

"We foresee a 10 to 20 per cent increase in mortgagee sales for 2017 compared to this year," said Ms Mok Sze Sze, head of auction and sales for Singapore at JLL.

She expects overall mortgagee listings this year to reach or surpass the 237 recorded in all of 2015, which exceeded the 236 racked up in 2008 during the global financial crisis.

Knight Frank Singapore told The Straits Times that most mortgagee listings this year have been properties in the core central region and the city fringe, with some in the suburbs.

A mortgagee's sale occurs when an owner defaults on the mortgage and the bank puts the property up for auction.

Mr Lee Nai Jia, head of South-east Asia research at Edmund Tie & Company, said: "I expect the hike in interest rates to be moderate, and its impact will likely be measured. However, the slowing economy and higher job cuts will contribute to an increase in mortgagee sales."

The Monetary Authority of Singapore (MAS) cautioned households last week to stay financially prudent, and be aware that rising vacancy rates, falling rents and impending interest rate hikes may affect their ability to service investment property loans. MAS added that households here on the whole have ample financial buffer to weather the current soft economic and labour market conditions.

Private residential rents weakened by 3 per cent in the first nine months of the year, and ERA Realty Network foresees a further 3 per cent to 4 per cent drop next year owing to the increased supply of new homes and weaker leasing demand.

Property agents said landlords have been dropping rents and throwing in sweeteners such as new furniture and fittings to attract or retain tenants.

"Many landlords who have bought their properties three to four years ago are settling for rents that don't cover their mortgage payment because they went in at a high price and the market has weakened since," PropNex Realty senior associate director Anthea Yeo told The Straits Times.

Consultancy Colliers International expects rental demand to continue to lag behind supply in view of the 22,937 new units slated to be completed this year.

Its head of research, Ms Tricia Song, said: "Most of the supply will come from OCR (outside central region). Rents in the OCR have already reflected this situation somewhat, showing the highest decline among the three market segments."

Analysts said some properties were sold at significant losses this year, including a unit at Sentosa Cove condo Turquoise that went for $3.8 million. The seller had bought it at $7.16 million in 2007.

Another apartment on the eighth floor at Seascape - also in Sentosa Cove - was resold at $6.35 million in October, down from its $11 million purchase price in 2011.

Ms Sharon Lee, head of auction at Knight Frank, said there could be more fire sales if interest rates appreciate at a much faster pace.

A version of this article appeared in the print edition of The Straits Times on December 08, 2016, with the headline 'More properties could be up for auction if interest rates bite'. Print Edition | Subscribe