Going, Going... Gone!: Fewer condos put up for auction

City & Country randomly monitored condominiums up for auction from January to February with a minimum reserve price of RM250,000. These were located mainly in the Klang Valley.

Auction houses have not seen a spike in the number of properties up for auction so far despite the gloomy economic climate. One reason could be that financial institutions have come up with loan-restructuring schemes to curb non-performing loans (NPLs).

Says Harvey Gerard Krishnan, the managing director of licensed auctioneer Harve Sdn Bhd: “Since beginning of the year, we have seen a few prominent banks coming out with initiatives to assist borrowers who are facing financial difficulties by way of loan restructuring.”

It is important for banks — which Harvey describes as “white knights” — to help lessen the burden at this point of the economic downturn as NPLs are expected to increase in the next few months.

“A few banks have also outsourced their call centres to specialise in calling customers who have defaulted on their loans to offer them more lenient term loans,” he adds.

Foong Chon Wai, a licensed auctioneer at Ng Chan Mau & Co Sdn Bhd, concurs with Harvey. He says major local banks have been promoting their loan-restructuring services since January.

However, contrary to popular belief, “the number of properties up for auction in January and February remains nearly the same, with only a minimal increase since the end of last year,” according to Harvey.

Foong agrees. The number of properties auctioned in the period under review was almost the same as in 4Q2008. “Though the market in general is slow due to the crisis, we must not forget that these two months were festive seasons and many people were still in a holiday mood,” Foong says, although he notes a 1% to 2% increase in the high-end condominium category during the period.

Another licensed auctioneer — S Suresh Kumar of First Auction House Sdn Bhd — says there was a contraction in the number of properties handled by the auction house in January and February compared with 4Q2008. “We experienced a reduction of roughly 10% to 20% in terms of the number of auctioned properties released by the banks and we believe one of the reasons for this was the banks strategising to cope with increasing NPLs,” he adds.

The continuing global recession seems to be keeping bidders on the sidelines. Harvey admits that there has been a reduction of 10% in sales since December last year.

Compared with the same period last year, when he was able to sell some 20% to 30% of the total properties assigned to him for auctioning by the banks, his company managed to sell only 10% to 20% this year.

For Suresh Kumar, sales for the January to February period plunged about 20% compared with 4Q2008, mainly due to the reduction in the number of properties up for auction. “Sales were good for us in 4Q2008 but for these two months, things were rather slow as the banks were trying to reduce NPLs in times of financial crisis,” he says.

Ng Chan Mau & Co’s Foong says their sales for January and February remained the same as in the previous quarter. Most of the properties up for auction were below RM60 000. “This is the group of income earners being hit the most and most buyers consisted of the low to low-medium income earners staying near the auctioned properties,” he says.

While he anticipates an increase of 2% to 3% in the number of high-end condominiums to be auctioned off after June this year, Harvey maintains his stance that the majority of condominiums on the auction market — with a reserve price of below RM200,000 — are generally in high supply and demand compared to those with reserve prices above RM250,000.

Harvey and Foong expect a greater impact on sales sometime in 2H2009, with a reduction of about 5% to 10% anticipated for 2Q2009.

One property that was successfully sold at its first auction recently was a freehold three-bedroom duplex condo with a built-up of 2,331 sq ft off Jalan Jelatek, Kuala Lumpur. The buyer paid the reserve price of RM600,000.

Another property that was sold — at its fifth auction — was a 2,384 sq ft unit at Armanee Terrace Condominium in Damansara Perdana, with a reserve price of RM406,800. The buyer paid RM460,000 or 13% more for the leasehold condo.

For the period under review, the majority of the condos sampled went under the hammer for the first time and failed to attract any bidders.

These include a 2,140 sq ft leasehold unit in Ampang, with a reserve price of RM324,000; a leasehold three-bedroom unit in Subang Jaya, with a reserve price of RM460,000; and a freehold 1,320 sq ft unit at Royal Domain Condominium off Jalan Kuching, with three bedrooms and a reserve price of RM250,000.

A 1,049 sq ft three-bedroom unit in Cyberjaya (freehold) was on the block for the third time but did not attract any bidders. It had a reserve price of RM279,450. In the same condominium, a unit of similar size and a reserve price of RM251,505 also did not find a buyer.

This article appeared in City & Country, the property pullout of The Edge Malaysia, Issue 750, April 13-19, 2009.

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