This article first appeared on Frugal in Singapore.
When most people hear the word “auction”, they think “distressed sale”. In many other parts of the world, this is mostly true. Although I own a few things from distressed sales and have bid in quite a few auctions, I’m definitely still a novice when it comes to auctions in Singapore, particularly property auctions. They’re an entirely different animal. And here’s why.
How Property Auctions In Singapore Are Unique
Please note that I’m referring to property auctions in the private housing market.
1. You don’t have to preregister to attend. Preregistration happens in the US because the sale terms usually are in cash. Thus, the auction house or government agency needs to verify your financial solvency. In Singapore, anyone can just walk in and participate in an auction. Who usually attends? There’s usually about a hundred people, but just a small percentage of them are actual buyers.
The audience mostly consists of property agents with fewer than half being non-agents. Many buyers/bidders will often bring their agent, or have their agent attend on their behalf. But that’s not the only reason why agents are there. Many sellers are there too (to check out the interest in their property) and these agents might solicit their services to them if/when no one bids for their property.
2. There’s no fast-talking auctioneer. The auction is conducted at a rather normal pace, with about 10 – 15 properties up for bid (excluding their private treaty listings) and it lasts all afternoon.
3. It’s not a cash sale. In Singapore, you have to pay between 5 to 10% in cash. The rest is usually from a bank loan. So you’ll need to get an in-principle approval from a bank.
4. There is a reserve price for each property. In property auctions overseas, some properties may not have a reserve price. In Singapore, the reserve price is set by the seller, developer, or the bank (in the case of a foreclosure). It’s usually a bit below the valuation price, but doesn’t have to be.
5. Very few of the properties will get sold. I’ve been to auctions where none of them get sold. Why? The bids must meet the reserve. If they don’t, the property isn’t sold. More reasons why? Keep reading.
6. Most of the properties are not distressed. In Singapore, most properties put up for auction are not defaulted or distressed properties. So as of this point, don’t expect there to be much in the way of “fire sales”. Currently, about 70% of the properties up for auction are owner sales. The remaining 30% are bank/mortgagee/estate sales.
Can You Still Get Good Deals Through Singapore Property Auctions?
In the Singapore context, buying properties at auction may not result in any real savings. In the past, there were bidding wars and property sold for a higher price than the valuation price. This is less common in today’s market.
When Knight Frank (an auction house in Singapore) identifies a “star buy” or tells you an example of an “exceptional deal” that they’ve transacted in the past, they are referring to a 5% to 7% savings from the valuation price. According to their Head of Auctions, most properties sell very near the valuation price. Could you have achieved the same percent savings by negotiating through the traditional home buying route? Perhaps.
Compared to other countries, a 5% or 7% savings can be seen as rather puny. Why are the savings not higher in Singapore? Because property auctions are not primarily comprised of distressed sales. Also, because the reserve prices are much higher in Singapore, and there usually is no “must sell by” date.
In the repossessed property auction in the US mentioned above, the reserve price was the amount needed to clear any tax/estate liens on the properties. Whereas the reserve price in Singapore auctions is set by the sellers, based loosely on the valuation.
Because payment does not have to be all cash, there is also more ability for participation, which means more competition (more buyers/demand).
So can people get good deals at auctions? Yes, if you consider saving 7% a good deal but that’s not the type of savings most bidders get. Perhaps in the coming years, as interest rates increase, and more people find it difficult to service their loans, we may see an increase in properties put up for auction. We may also see more actual distressed sales. Perhaps banks will lower their reserve price in the hopes of clearing their inventory. And cash deposits might need to be increased, as in-principle loan requests are harder to obtain.
It will be interesting to know what happens then.
Frugal In Singapore is a blog by Spring Sun, a former “couponer” and bargain hunter who moved to Singapore from the United States. She strives to maintain and outdo the frugal lifestyle from before, while living an even better life here. Her goal and passion is to encourage others to achieve security, happiness, peace of mind, and better living through frugality.