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Attending a Mortgagee Sale? Here's what you need to know.

Updated: Jun 2, 2020

It may sound counter-intuitive, but economic downturn and doom and gloom scenarios can get some people really excited.

For buyers on a lookout for great property deals during this current Covid crisis, mortgagee sales will definitely be highly anticipated events in the coming months. Just like vultures circling their prey, the next battle ground for undervalued and highly sought after properties could just be at the auctions!

Before jumping in, here are some things to take note of.

1. What are mortgagee sales / property auctions?

For most people that purchase a property, taking a property loan would be the natural next step as well. However, financial situations and circumstances can change for the worst which can lead to loan defaults. That is when the banks would step in to foreclose on the property and put it up for auction through a process called a Mortgagee sale.The bank will auction off these properties, in order to cover the loss of the property loan.

Unlike the usual process of negotiating with buyers one-on-one, a licensed property firm (Like Knight Frank) will conduct periodic auctions. In fact, they are one of the few real estate firms in Singapore to successfully organise and auction 170 properties in 2019. Apart from banks and financial institutions that participate in these auctions, there are sellers that list their property voluntarily ie. these houses are not foreclosed on. The owners have their own reasons for not wanting to negotiate with one seller at a time (eg. they may want to get the widest exposure possible for their property to ready buyers). Note that both residential and commercial properties can go up for auction.

2. Be on the mailing list of the property firm conducting the auction

Apart from Knight Frank, other property firms to include JLL, Edmund Tie & Co and Colliers. Alternatively, you can check out listing platform like PropertyGuru, STproperty, The Edge Property, for mortgagee sales. Do also contact a property agent from one of the auction firms or sign up to be on their mailing list and you would be updated on the latest auctions with details of properties available.

3. Do your homework

With the property description and details given pre-auction, you should spend some time doing research on the historical transaction prices in the area or development to get a better sense of the property value. Such publicly available information can be access from the Urban Redevelopment Authority (URA) website and various online property portals.

If you can, visit the property and the surrounding area in person. Google Maps Street View function can also be a useful tool to 'move' around the general area without being physically there to get a feel of the neighbourhood as well.

The usual thinking behind a property purchase during an auction is to get your hands on an undervalued property and have an immediate paper upside based on the current fair value. However, you should look beyond that to maximise your return on investments. As with all property purchases, one key consideration should be the potential for future price appreciation and one major factor for this is area transformation and development. Do have a look at the URA Masterplan 2019 to understand what the government's plans are for the next 5-10 years and you will have a sort of crystal ball to gaze into the future. I wont' go into details here but if you are aware that the empty plot of the land just across the property you intend to purchase has been zoned for a hotel or school, that will allow you to make a better decision and informed decision.

4. Make sure you obtain and read the auction documents and

Buyers at auctions should always review the auction documents (such as the auction agent’s Conditions of Sale) prior to the auction to ensure that they fully understands the legal implications arising from the purchase of a property. You do not want any surprises that can affect your ability to purchase the property or to fulfill onerous conditions that may not be in your best interest. A conveyancing lawyer may be useful and prudent if you need to review the auction documents.

5. Know your budget

Know what is the maximum that your are willing to pay for the property and do not give in to emotions just to secure the unit at all cost. If your intention is to take a property loan, it would also be good to speak to a banker first.

If you are successful in bidding for a property, you will have to pay 5 to 10% of the price on the actual day of the auction and will have another 8 to 12 weeks to pay the remainder. The 5-10% will be forfeited if the remainder amount is not paid by due date and so it is vital to get your financing and funds in order prior to the auction. Final words...

It is always tempting to think of auctions as the best place to secure a property at a 'Fire Sale' price and that could very well be the case. However, as with all property purchases, due diligence and a good understanding of the processes will greater enhance your chance of success not only at the auctions but also in terms of the returns that you will derive from your investments.

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