The oversupply situation in the property market in Malaysia is reflected in the foreclosure market. There has been a significant increase in the number of properties being put up for auction in the first three quarters of the year — a sign that the property owners are losing their holding power.

According to AuctionGuru.com.my’s 9M2019 Auction Report, a total of 26,563 properties worth RM14.3 billion went under the hammer within Jan-Sept 2019, an increase of 12% from 23,658 properties valued at RM10.9 billion (32% rise in terms of value) in 9M2018.

Notably, in the third quarter of this year alone, there were a total of 9,294 foreclosure properties, compared with 8,760 cases in 3Q2018.

The online auction listing platform’s executive director Gary Chia has observed that the number of auction properties has been increasing since 2016 with more high-value properties and land put up for auction.

“We are seeing a rising number of agricultural land and commercial properties in the auction market. This could be due to the current economic slowdown which has impacted business owners,” he tells EdgeProp.my.

He anticipates more properties coming onto the auction market in the foreseeable future amidst the near term headwinds expected in the domestic and external macro economy coupled with the overhang in the primary market.

Nevertheless, the proactive measure taken by the government — of reducing the floor price for foreign property purchase to RM600,000 — may potentially reduce the excess stock in the primary market.

This could, to a certain extent, limit the cascading effect onto the secondary market.

“We shall continue to monitor the foreclosure market closely as it serves as a crucial bellwether of the overall property market trend and well-being,” adds Chia.

Holding power being challenged

In 9M2019, there were 3,316 commercial properties (12% of 26,563 auction properties in 9M2019) and 1,051 land plots (4%) on auction.

The 3,316 foreclosure commercial properties has a total reserve value of RM4.26 billion, an increase of 27% in volume and 62% in value compared with 9M2018.

“This aggravated hike can be associated to the supply overhang situation which is engulfing the commercial sector, particularly the office space segment,” he notes.

In terms of value, office buildings registered the highest foreclosure value among the commercial properties totalling RM1.375 billion (34 cases), followed by shopoffices with a total estimated value of RM945 million (1,030 cases).

Although residential property takes the major share in terms of volume with 22,196 foreclosure cases, foreclosed commercial property contributed a significant amount in terms of value at RM4.3 billion, making up 30% of total reserve value.

Auction residential property in 9M2019 was valued at RM8.5 billion or 59%, while auction land assets value totalled RM1.6 billion or 11% of the total reserve value.

Chia says the auction market has also been slow as people are waiting for the reserve prices to come down.

A property that is not sold on first auction will see its reserve price drop by around 30% at the next auction.

Chia is concerned over the rise in land and commercial properties on auction as these are the least popular properties on the auction market especially in current market conditions where people prefer to keep cash for making big-ticket purchases.

“Land and commercial properties are refinance-able assets for business owners, to solve short-term cash flow problems. As the business environment gets tougher, business owners who refinanced their assets might have problems servicing their monthly loan repayments,” he says.

In the current anaemic economic environment, Chia expects more foreclosure commercial properties coming on stream in the remaining months of 2019.

Short-stay as a solution for owners

In the high-rise residential segment, the strong demand for short-stay accommodation has helped property owners generate extra income to cover their monthly loan instalments.

“It’s worth noting that the number of auctioned serviced apartments were the lowest among high-rise residential properties. This could be attributed to the proliferation of short-term rentals as owners turn their vacant properties into short-term rental accommodations,” Chia offers.

The report showed that there were 11,814 landed homes worth RM5.363 billion and 10,382 non-landed homes that went under the hammer in 9M2019. Under the non-landed segment, close to 50% of the total foreclosure cases were apartments (5,166 units) while there were 1,872 condominium and 1,629 serviced apartment units.

Meanwhile, a total of 9,235 terraced houses came up for auction in 9M2019, making up the bulk of the landed homes up for auction followed by semidees with 1,435 cases, bungalows with 752 units and 392 townhouses.

Chia notes that the high number of terraced houses could be a sign that middle-income earners are struggling to make ends meet as a majority of terraced house owners are from this group.

The depressed rental market is also affecting owners who purchased the units for rental investment, he adds.