High-end property auction on the uptrend

PROPERTY auctioneers have noticed recently that more high-end properties (above RM1 million) are coming up for auction in the country, observes Property Auction House Sdn Bhd executive director Danny Loh. He says he has also been seeing more large-size condominium units on the auction market since early this year.

Loh cites a unit at 6 CapSquare Residences with a built-up of 1,830 sq ft which was on auction at a reserve price of RM1.215 million and another unit at Residensi St Mary with a built-up of 1,453 sq ft which was on auction at a reserve price of RM1.85 million. Both units failed to draw bids during their first auction on June 23.

Earlier, a condominium unit with a built-up of 2,022 sq ft in Verticas Residensi was sold at its reserve price of RM1.62 million during its auction on April 20.

6 CapSquare Residences is located at Dang Wangi, Kuala Lumpur. It is a 27-storey residential tower that houses 176 units. The built-ups range from 1,229 sq ft to 4,200 sq ft. According to TheEdgeProperty.com data, the indicative price for the freehold project is RM825 psf, which means a 1,830 sq ft unit could be worth about RM1.509 million.

Residensi St Mary or St Mary Residences near Kuala Lumpur city centre has an indicative price of RM1,376 psf. The auctioned project could be tagged around RM1.99 million. It comprises three 28-storey towers with unit built-ups ranging from 1,131 sq ft to 6,769 sq ft.

Meanwhile, with a Bukit Ceylon address, Verticas Residensi is an exclusive serviced apartment project made up of four towers, where the largest unit is up to 2,839 sq ft. A search on TheEdgeProperty.com shows that the current indicative price stands at RM1,190 psf. Hence, the auctioned unit could be worth around RM 2.4 million.

In the current property market slowdown, we could be seeing more of such high-end properties, even from sought-after areas,
being put up for auction. “One reason could be that a number of high-end properties are completing and ready for occupation and there is fierce competition for tenants,” says Loh.

If the overall economy continues to be sluggish and the property market slowdown persists, non-performing loans are expected to rise. “Those who cannot generate revenue from their investment may be forced to default on their loan payments which may then lead to the property being put up for auction,” he adds.

As more of such properties come up for auction, the concern is whether there are enough qualified bidders to take up these homes.

Buyers for high-value homes in the auction market are often limited, Loh says. “And if there are too many un-auctioned high-end properties on the market, it may start a chain reaction and affect the overall property market and impact property prices,” warns Loh.

Volume down, values up

AuctionGuru.com executive director Gary Chia also tells TheEdgeProperty.com that the number of high-end residential properties put up for auction has increased slightly.

The perception that there are more high-end homes in the auction market recently could be due to the decrease in the number of auctioned properties in the range of RM50,000 to RM200,000, says Chia who estimates that there could be a 10% to 15% rise in the number of homes valued at RM1 million and above on the auction market in 1Q2016 compared with previous years.

He also notes that the number of residential foreclosures for the first quarter (1Q2016) is seeing a decline compared with the same period in previous years. However, the total value of these properties has risen. (See charts below)

Among the high-end condominium units which have been put up for auction include units in new high-end project Mirage by the Lake in Cyberjaya, Scott Garden in Old Klang Road and Regalia Serviced Apartment in Jalan Sultan Ismail in the Kuala Lumpur city centre.

In the first three months of 2016, 22 units of Mirage by the Lake went under the hammer while Scott Garden and Regalia Serviced Apartment had three and four foreclosure cases, respectively.

According to Chia, these units could have been owned by property speculators who faced difficulties disposing off the units or in getting tenants in the current soft property market.

“If market conditions do not improve, we believe the market will be floated with similar properties held by speculators,” he says.

Chia concurs that demand for affordable homes in the range of RM50,000 to RM200,000 has always been stronger than those in the higher range. The movement for high-end properties is slower due to their higher values, he adds.

Properties worth RM2 bil went under the hammer in 1Q2016

ALTHOUGH the number of foreclosure properties in the market had decreased further in the first quarter of this year (1Q2016) compared with the same period in 2014 and 2015, the total value of the properties has increased.

This shows that the property market has stayed resilient and buyers have strong holding power, says Auctionguru.com executive director Gary Chia.

The online auction platform’s data showed that there was a total of 6,062 properties worth over RM2 billion that went under the hammer in 1Q2016. This was a 10% dip in volume and a 27.8% rise in value year-on-year (y-o-y).

“More than 95% of the properties in the Malaysian auction market are foreclosures by financial institutions due to defaults in mortgages. As such, foreclosures are generally treated as an indicator of the country’s economic conditions,” he told TheEdgeProperty.com.

Reviewing the property auction market’s first quarter performance, Chia says the total value of the auctioned properties has increased significantly mainly due to the overall spike in property prices in recent years.

Land auction cases dipped 37%

Among the 6,062 auctioned properties in 1Q2016, 89% were residential properties while commercial properties and land made up 7.1% and 3.1%, respectively.

There were 5,442 residential properties worth RM1.37 billion put up for auction in 1Q2016, which was 8.9% lower in volume than the same quarter last year.

There were 431 auctioned commercial properties worth RM329 million compared with 498 properties in 1Q2015.

Chia says the number of land foreclosures eased sharply by 37% y-o-y to 189 cases worth RM304 million, compared with 301 cases worth RM196 million in 1Q2015.

“Most of the auctioned land parcels were from the northern and central regions. Bear in mind that land is always in high demand and quite a number of land plots were transacted before they could be put up for auction,” he explains.

In 1Q2016, the central region — Selangor, Kuala Lumpur and Putrajaya — recorded the highest number of auctioned properties at an average of 1,072 properties a month. March had the most auctioned properties in this region with 1,181 properties worth RM516 million.

This was followed by the northern region (Perlis, Kedah, Penang and Perak) with an average of 540 cases a month and the southern region (Negeri Sembilan, Melaka and Johor), with 251.

Sabah and Sarawak registered an average of 122 auctioned properties a month while the East Coast region (Kelantan, Terengganu and Pahang) saw the lowest average of 36 properties a month.

Market remains challenging

Although auction cases dropped in 1Q2016, signalling that holding power remains intact, Chia reminds that the dampened market sentiment has not faded away.

“This year is going to be a challenging year as consumer spending and private sector investment drop further. We advise buyers to be cautious especially concerning commercial properties,” he says.

Nevertheless, he still believes that even when times are bad, there are still buyers with cash or surplus income looking to invest in property.

“If there is a good property which provides buyers with a visible upside potential, there will be a demand for it,” he concludes.

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This story first appeared in TheEdgeProperty.com pullout on July 15, 2016, which comes with The Edge Financial Daily every Friday. Download TheEdgeProperty.com pullout here for free.