Macroeconomic headwinds in 2019 trigger mortgagee sales rise
Accounting for 356 mortgagee-sale listings out of a total of 1,320 auction listings, residential properties under auction in 2019 appeared to have borne the brunt of macroeconomic headwinds generated by the protracted US-China trade war, Brexit and other geopolitical uncertainties.
This represented a 61.1% year-on-year (y-o-y) mortgagee sales rise, up from 221 residential mortgagee listings in preceding year, and in terms of absolute numbers, made the residential market one of the most volatile vis-à-vis other sectors.
Ms Alice Tan, EDMUND TIE’s senior director of research and consulting, said of the mortgagee sales rise: “By and large, highly leveraged homeowners are grappling with higher risks, with the result that shocks and disruptions to income may lead to inability to continue servicing mortgage loans.”
“The outbreak of COVID-19 since late December last year added pressure to an already difficult environment that was barely recovering, and, barring further government intervention, is anticipated to further trigger mortgagee sales” she added.
In Q1 2020, the proportion of mortgagee sales rise relative to the total number of auction listings saw a substantial y-o-y increase to 68 per cent, up from 46 per cent in the same quarter last year.
Mortgagee sales rise has not kept pace with success rate
While listings have increased, the auction success rate had not kept pace and in fact declined, alluding to a more cautious sentiment in the buyers’ market. From 3.8 per cent in 2018, the success rate fell to 1.6 per cent in 2019, with only 21 properties knocked down during auctions.
To extend a helping hand to beleaguered homeowners, the Monetary Authority of Singapore (MAS) on 31 March announced a deferment on principal payment or both principal and interest payments for cash-strapped homeowners with residential property loans up to 31 December 2020. Many financial institutions have also extended payment deferments to individuals with commercial or industrial property loans.
MAS further added that those borrowers were not subjected to the Total Debt Servicing Ratio (TDSR). Additionally, the COVID-19 (Temporary Measures) Act 2020, which came into force on 8 April 2020, was enacted to ensure that landlords pass on property tax rebates in full to their tenants. With such government measures in place, pressure on individuals and businesses may ease in the interim.
For the remainder of the year, and even heading into early 2021, EDMUND TIE’s head of auction and sales, Ms Joy Tan, projects that the mortgagee sale outlook will follow a tick-shaped recovery, also popularly known as the “Nike swoosh”.
Joy Tan said of the mortgagee sales rise: “The drop is expected to be rather gentle, given the three packages implemented by the Government. As a result, homeowners would not be anxious to liquidate their assets at a lower price as the packages will tide most of them over this crisis.”
“This ‘Nike Swoosh’ scenario also allows for limits set by the Government to be slowly eased more carefully. Furthermore, prospective clients will remain cautious with taking long-term loans and would choose to adopt a wait-and-see approach. Hence, the upturn in mortgage sales will follow a slightly gentler curve stretching into early 2021 before reaching pre-coronavirus levels,” she added.
In March, Colliers Research said that based on data tracked, total auction listings rose by 34% year-on-year (YOY) in 2019 to a new high of 1,458 listings – surpassing 2018’s record of 1,088 listings. The number of both owner listings and mortgagee listings saw strong increases last year, with mortgagee listings rising to a record level in 2019.
Auction listings scaled new heights
Due to a more challenging economic environment, total mortgagee listings surged by 59.1% YOY to 751 in 2019, driven mainly by residential sector. Meanwhile, total owner listings were up by 14.8% YOY to 707 as owners continued to sell their properties via auctions for maximum exposure and a higher chance to achieve optimal prices.
The number of listings rose across the board, with residential properties leading at 54.1% increase YOY to 798. Retail listings rose by 21.8% YOY to 302, industrial listings were up by 10.5% YOY to 306, and office listings rose by 17.1% YOY to 48.
Of the mortgagee sale listings, the residential sector accounted for 57.5% of the total at 432 listings – up by 67.4% YOY. Retail mortgagee listings saw a 72.7% YOY increase to 114 as many were small units in strata-titled malls or locations with low foot traffic and had difficulty finding tenants or sustainable rents, leaving owners unable to support mortgage payments. Industrial mortgagee listings, meanwhile, rose 29.5% YOY to 189 and office mortgagee listings increased by eight times to 16 in 2019 from just 2 in 2018.
Tricia Song, Head of Research for Singapore at Colliers International, said, “We believe the higher mortgage payments due to rising interest rates during 2015-2019, coupled with a subdued residential rental market, have contributed to the increase in residential mortgagee sale listings. Personal circumstances such as loss of job or bankruptcy could also have led to higher defaults. Post cooling measures in July 2018, we think possibly more distressed owners were unable to dispose of properties quickly enough and may have defaulted on their loans.”
Colliers Research expects total listings could grow by 10% in 2020 as more properties are put up for sale amid an uncertain environment, particularly in view of the potential economic impact should the COVID-19 outbreak becomes protracted.
Ms. Song added, “We remain watchful of the market and would expect some potential distress from the ongoing COVID-19 outbreak if it leads to a protracted downturn. In particular, mortgagee sales in the retail, industrial, and residential sectors could increase in the second half of 2020. Given the uncertain environment, we anticipate that the price gap between sellers and prospects could narrow and in turn, sales and success rate may improve.”