Is Auction / Lelong really bad for the property?

Auction Effects – I was chatting with a good friend, Ms. L from JB today. She was telling me about the many auction of units at her development. It was just completed 1 year ago. She sounded negative because of these auctions which are happening on a monthly basis. The starting prices for these auction units were also way below what is being advertised as the selling price by owners today. I told her that it’s best that the banks are taking actions to auction these properties off. Frankly, if the bank does not do anything and these owners do not pay their maintenance fees, the whole development suffers. If there are just 50 of these financially distressed buyers and the maintenance fees per month is RM400, we are talking about RM240,000 per year of ‘MISSING’ maintenance fee… As soon as the bank has auctioned off those units, the bank or the new owner would pay the outstanding and we will now have lots of maintenance fund to make the development an outstanding one…
Overstretched owners – As soon as any development is completed, there are bound to be some owners who want to sell. This is why the property price for the first 12-24 months may be under pressure due to the sheer number of units up for sale in the market. For owners who overstretched themselves a few years ago when they bought too many units at the same time, I hope they would quickly sell their units at way below the market price and let the new owners take over the unit. Imagine the market price to be around RM800,000 and these owners put their selling price at RM720,000. The price is not low enough to be very attractive and yet will keep the market price for the development to be lower than RM800,000. This does not help the situation and will keep the price of the development low. Once these owners sell to a new owner, there’s no way that the new owner would sell the unit at the same price. They would most probably be able to hold or they may were buying for own stay. This is why once all these ‘must-sell’ units are sold, the property price would start to reflect the market price; against their peers and the surrounding property prices.
Waiting game – My good friend is currently putting up her unit for short-term rental via Airbnb. I think she will do just fine once all these ‘should go’ units are sold to new owners. Let us also understand that due to the current market, even when one has money, one will think twice or thrice before committing to such a huge commitment. This brings us back to the fundamental of property investment, it takes a long time. If we are looking for an investment which could give us fast returns, property is definitely not one of them. The return on investment could still be high when we calculate it 5-6 years down the road because of the power of leverage but if we intend to earn fast money, please stay out of the property market. Happy understanding and be happy if we know of another unit being sold to a new owner.
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written on 11 Aug 2018
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