City&Country: Auction houses continue to see good turnout

Auction houses continue to attract both seasoned investors and prospective property buyers in search of good deals. “Although property prices have more or less stabilised, they are still much higher than several years ago. This has prompted the bargain-hunting trend, particularly for landed terraced houses,” says Raj Yogan Pillai Raman Pillai Saapahim, the managing director of J Thilagamraj Auctioneers Sdn Bhd and president of the Auctioneers Association of Malaysia.

Raj was to have spoken on “Bid and Buy: Buying Auction Properties” at The Edge Investment Forum on Real Estate 2012, but could not make it due to unforeseen circumstances. However, he met City & Country to share some tips he had for those interested in auction properties.

Raj says investors looking for good buys on the auction market should always do sufficient homework before hand. They should familiarise themselves with auction rules and procedures as well as the terms and conditions of sale.

Doing a market survey of similar properties in the particular location is crucial. Bidders should also set their own maximum bidding threshold prior to attending an auction. And they must keep a clear head during the auction.

“People have it easier nowadays. With information so freely available online on various platforms, such as websites, blogs and forums, it is much simpler to do your research and identify great buys quickly,” he says.

Although there seems to be strong interest in auction properties recently, most people tend to stay clear of buying properties under the hammer. There are many benefits of purchasing an auction property, Raj says

“Buyers can be assured that the property is sold at true value and that everyone is competing on equal terms. Furthermore, in a multi-property auction, buyers have many choices to opt for in the same place and time. For all high court auctions, all outstanding charges are paid.”

Of course, like any other investment, there are also risks. The biggest problem faced by prospective buyers is that one can’t inspect the property. Another is the non-extension of 90 or 120 days allocated to come up with the balance of payment.

“Always read the proclamation of sales (POS) carefully as it will denote important details, such as to whom the earnest money is payable to, the terms and conditions, as well as who should pay the maintenance fees, sinking fund, assessment, quit rent and utility bills owed,” he says.

Raj advises the public to watch out for timing and caveats. “Always make sure your solicitor can complete the transfer and pay the balance auction price within the prescribed time, if not, your 10% earnest money will be forfeited without question. Do a title search before the auction date, find out if there is any caveat lodged against the property. Of course, potential buyers must try to bid with ready cash on hand.”

He adds that one should check if the property is still occupied or tenanted. If so, buyers have to take into consideration that they need to allocate some time for the existing occupant to move out from the premises.

Trends and figures
“Due to the fact that most auctioneers rely on foreclosures to procure most of our supply, it is a good way to gauge the financial strength and stability of the general public. The figures obtained in the past two years have pointed to a rather healthy financial situation,” he says.

The recent growth in interest in auction properties can be attributed to the hike in landed home transactions and prices and to bargain hunters looking for a good deal.

“Some people from other states who opt to move into the city to work may decide to hunt for deals in the auction market. The logic behind their decision is that they would rather spend the same amount (which would have been used to pay rent) to finance a home.”

The lack of land in the city and its surrounding suburbs is pushing demand upwards for landed homes, particularly terraced houses in mature townships in the Klang Valley. Mid-range apartments and low-cost flats have also fared well.

The reasons behind the purchases vary. Raj says auctioneers have established that there are generally three kinds of buyers in the auction market now. “About 70% of them are buying to keep, some with the intention to renovate, while 20% are acquiring units for rental yields. The last category of buyers have plans to refurbish and then sell the units at a profit when the time is right,” he says.

Based on data provided by the association, between August 2010 and December 2011, for Selangor, Johor, Negeri Sembilan and Kuala Lumpur, Selangor was the most active auction market. The bulk of supply came from the outer fringes of the state, comprising mainly medium-cost apartments. The state also charted the highest number of auction condominiums, flats, industrial lots and landed homes while Negeri Sembilan charted the highest number of commercial properties.

Medium-cost apartments and lost-cost flats made up the bulk of properties on the auction market as well as transactions in Selangor and Kuala Lumpur, followed by landed homes. The buying trend seemed to differ in other states though, with the highest number of transactions in Negeri Sembilan and Johor being landed homes. This was followed by apartments and flats.

Raj believes that looking forward, demand will spill over to the outer regions of the Klang Valley, especially with the improvements being made in accessibility and public transport.

The future of the auction market
There is a negative connotation to the word “lelong” and Malaysians are ashamed to sell their properties via auctions. “This can be attributed to that fact that most auctions we see on the market are judicial foreclosures where the bank has seized the property of those who defaulted on their loan payments. However, this differs from {the situation] in most Western countries, where non-judicial auctions are common. People should view auctions as another platform and avenue to sell their properties. Sometimes the auction can be held at the house itself.”

This article appeared in City & Country, the property pullout of The Edge Malaysia, Issue 909, May 7-13, 2012