OF late, brand new never-lived in properties have been entering the auction market. Some of these units are foreign-owned while the majority of them are local buyers, a source from an auction house says.
Owners are not bothered to take possession of these units while some took possession for a short while only to forgo their investments.
Two banks confirmed there are such units entering the auction market.
Most of these units were purchased four to five years ago under developers interest bearing schemes with low downpayment. Under the scheme, mortgage payments only kick in when the property is completed.
This “trend” of never-lived in units coming under the hammer is something that is relatively new which started two to three years ago, the source says.
It started as something innocuous initially. Today, the source is seeing more such units entering the auction market.
“Maybe 5% to 10% of our listings comprise these new units,” the source says, adding that more are expected to enter the auction market.
A bank employee who heads the auction division says his department are seeing more brand new units entering the auction market.
“These unit come directly to us from the developers. These are recently built condominiums with high prices in which buyers had purchased for investment but have decided not to go ahead with the mortgaged payments,” the bank source says.
Most of these units are in Johor although there are also units in the Klang Valley, the bank source says.
He says those who buy properties for occupation are not “that affected”. Those who are “hit” are “mainly investors”, the source says.
The issue is not so much the interest rates as mortgage rates remain low at 4.25%-4.35%.
There was a time when double-digit interest rates forced many into arrears soon after the Asian Financial Crisis in 1997/98. Unable to keep up with mortgage payments, they lost their homes, the source says.
But this time, he says, it is different. The issue is not interest rates.
The source says his bank has over 100 foreclosures each month, of which about 58% come under the hammer. The rest are withdrawn from the auction market.
The bank source says the number of foreclosures today is “unlike” that during the period soon after the Asian Financial Crisis. That period saw a lot more foreclosures. In that sense, the number of foreclosures has not really risen.
“It has stabilised,” he says.
On whether he is seeing more small offices home offices (SoHos) and properties in this genre in their books facing foreclosures, he says the bank has not been lending aggressively to this segment of the property market.
SoHos are commercial properties with a residential element to it.
He says the bank he works for is rather “conservative” and does not have much exposure in this genre of the property sector.
On whether there is a significant rise in the number of auction on new units from other states other than Johor, he says “not yet”.
He says the bank is trying to cap its non-performing loans at 1% to 2%.
However, the bank’s mortgage base, or property loans, is rising.
The source says while mortgage loans is a growing market, it would like to limit exposure to certain segments of the real estate market.
A second bank source says his bank’s mortgage loans hit new records annually but the NPLs are capped at 1% to 2%.
So despite the NPLs at that low rate, the mortgage base has grown annually which means that more properties will be financed and some of these may become delinquent.
The rise in the number of units auctioned is “incremental” because any units which are unsold at the first round of auction will be put on the second round but with 10% drop in price.
“The number of cases, or units auctioned, is based on NPLs and the mortgage base. There may be a perception that there are more auctions today, but this may be due to units going through multiple rounds.
“There may be more auctions but not more units,” the source says, adding that since 2002, the recovery process has been more efficient.
On the broad range of properties auctioned today, he says that over the last 10 years, the majority of properties offered by developers belongs to the “high-end category of RM400,000 and above”.
Prior to this, launches were priced at between RM200,000 and RM250,000.
As the types of units broaden to include a wider range of housing types with higher prices, it is natural auctions today carry a wider range of units with differing price points as well as the lower priced flats and apartments, he says.