KUALA LUMPUR : MALAYSIA'S property foreclosure market holds significant potential for investors, but there are many obstacles such as stringent payment deadlines and the dominance of auction syndicates.
See Kok Loong, executive director of Metro Homes, said the real estate auction market is both advantageous and challenging.
He said houses sold at an auction are solid investments but winning bidders have hard deadlines for payment, which may put off prospective buyers.
Furthermore, there are worries about the dominance of auction syndicates which can result in an "unfair playing field".
Metro Homes suggests that banks provide successful bidders with short-term financing options (six to 12 months) to create a more equitable and accessible market.
This will help bridge the gap between winning an auction and the loan drawdown.
"This initiative aims to provide immediate financial support for successful bidders, ensuring their ability to complete the purchase and contributing to a more equitable and dynamic real estate market."
He emphasised that short-term financing creates fair competition and level playing field.
Additionally, it lessens the possibility of forfeiture brought upon by late payments, allowing winning bidders to complete their acquisitions.
See said as per the proclamation of sales (PoS) in 90 days, banks are giving mortgages although it is quite probable that they will not be able to draw down.
He said this is because the majority of borrowers have unpaid maintenance fees, assessments and quit rent.
"Therefore, we advise bidders to always have 100 per cent of their funds ready before placing a bid, pay with cash up front, and return to the bank for refinancing.
"But because there isn't 100 per cent funding, a lot of investors and buyers aren't eager to engage in property auctions."
He said a competitive environment encourages fair bidding, which can lessen the gap between the price of the property and market value.
"By promoting broad participation, this approach challenges the dominance of auction syndicates, making the market more competitive and discouraging unfair practices."
PROPERTIES FOR AUCTION ON THE RISE
Auction cases are at record highs now because of loan defaults, according to See.
There has been a 20 per cent increase in the real estate auction market this year.
While the rise in the Overnight Policy Rate could be one of the reasons, the increase in the cost of living and post-pandemic environment have had a greater impact.
There were 1,920 residential units auctioned in the first nine months with a total value of RM529.03 million.
A total of 1,033 units were priced at RM300,000 and below, 418 units were priced at RM300,000 to RM500,000, 267 units were priced from RM500,000 to RM1 million and 202 units were priced at RM1 million and above.
Last year, based on the auctioned residential data report by the National Property Information Centre, there were 2,203 auctioned residential units valued at RM504.57 million.
These included 1,325 units priced at RM300,000 and below, 477 units priced at RM300,000 to RM500,000, 293 units priced from RM500,000 to RM1 million and 108 units priced at RM1 million and above.
See said due to Malaysia's economic climate, his company is holding auctions for prime properties.
He disagrees that the popularity of the auction market will have an impact on the main property market.
"This is because properties that are still under construction with low down payments and large incentives make up the majority of the primary market.
"The secondary market would benefit from a dynamic auction market since people can opt to purchase at an auction."
He said the existence of the auction market should not present a threat to real estate developers.
"But it could interfere with their launch if they start a project with a market value of RM500 per square foot (psf), when there are auction cases nearby with a reserve price of RM300 psf."
According to See, more people are considering buying property in an auction.
In the event that no bidders remain after the third round, the reserve price may be as much as 30 per cent below market value.
"Both the owner and investor would find this appealing. After a year or two on the market, properties in an auction are no different from other properties as buyers tend to forget whether they were purchased through an auction or otherwise. In addition, the bidder saves money on legal fees because the PoS is the sales and purchase agreement."