It’s not important to know about the slowing property market and do nothing. It’s more important that we learn about some potential ways to take advantage of this situation. Remember, UMNO. Uncertainty Means New Opportunities. After some following up, finally managed to get my good friend to share for our learning. My honour as his schedule is packed to the brim plus he must have time for his baby daughter. Today, let’s speak to MNP Auctioneers (Central) Sdn Bhd Managing Director Stephen Soon for his expert views about the slowing market and auction potential. MNP Auctioneers is also the official auctioneer for Bank Negara Malaysia’s banknote auctions.
1) In a slowing property market, does it mean a better ‘auction market?’ Why is this so?
Property market has been going up steeply in the previous years when loan approval rate was high and developers made it so easy to own a property. These have therefore pushed the property prices to unrealistically high side. Although foreclosure properties have always been chased after by many who have gained so much returns than usual but many other sceptical buyers still felt that new launches and subsale are more straightforward and more secure to invest.
However, the situation has changed drastically when property-unfriendly factors such as higher RPGT, stricter loan approval and currency exchange impact take place. More and more people started to look into buying auction properties. With more realistic (lower) price card on hand, foreclosure auction properties are getting more popular. Property buyers are more willing to learn the skill and knowledge to bid. I am seeing many new faces participating in auction fairs. Some business owners reckoned that they should slow down their operation amid the current slow economy and invest their money into auction properties instead.
In another scenario, slowing property market has a very direct impact with slowing economy, therefore increases the chances of more bank auction properties coming into the market due to the generally weaker loan repayment capability. Therefore good news for the auction market as we now have more varieties of properties for selectìon.
2) Based on your auction experience thus far, is the price gap between an auction property versus the market price increasing?
That depends very much on the characteristic of an auction property.
First scenario – The first-time reserve price of an auction property is determined by current market value as confirmed by a registered valuer. Many times the properties were sold even during the first auction itself as the prices on auction were below recent transacted price or asking prices of the similar properties (Please take note that most valuers practiced comparison method to value a property; that is, it uses previous similar transactions to determine market value. The cache is, that transactions may not be too recent).
Second scenario – Non-prime properties such as those with poor external or internal condition, unfavorable location and developer setback (such as wind-up) will lead potential buyers to wait until reserve price dropping further before entering into auction hall to bid
3) Besides just the price gap, are there other reasons why we should consider property auctions versus just the secondary or the primary market?
1. Direct bidding from bank auction without any uncertainty on its willingness to sell – save time and hassle to negotiate;
2. Open and Transparent – Well informed on the Property details and its conditions of sale before attending an auction fair to bid
3. Free and open bidding platform to enhance confidence to bid
a. bidder controls its budget to bid;
b. better information flow when relevant details are available to do due diligence and searches
4. completed property, if compared to primary market
5. lower holding cost;
6. higher investment returns;
7. Certain waiver of the state housing restrictions;
4) Based on your experience, how long do you think the current slowdown in the property market would last? What would cause the market to start recovering?
In my humble opinion, the slowdown will last for the whole year of 2016. The current economic downturn is due to both internal and external factors. Rising inflationary impact, less government spending, general confidence crisis and stringent business environment are the key to prolong the slow down. At least you will not see the good-time of early 2010 return at anytime throughout the year.
Thank you Stephen for such a comprehensive sharing. I think it’s very clear. Perhaps auction can be another serious consideration with the current market. Who knows you may find a ‘gem’ which you like but somehow has not been sold during the past 2 auctions and the price is now crazily low? Nothing is impossible. It’s all about handwork and luck. Happy joining as another new face in auction. 🙂
written on 8 Jan 2015
Next suggested article: ‘Syndicates in auction.’