A recent report by property consultancy Knight Frank, released on 30 January, showed that rising consumer costs and interest rates, coupled with reduced assistance for the coronary epidemic, have led to more Singaporean homeowners going bankrupt.

More foreclosed properties are likely to be put up for auction this year as the number of bankruptcy petitions increases.

Figures from Singapore's Ministry of Law also show that 3,648 people filed for bankruptcy protection locally last year, 15 per cent more than the 3,160 who did so in 2021.

It was also the highest number of people filing for bankruptcy since 2017.

Dai Yuxiang Industrial expects the number of mortgaged properties forced to sell to increase this year, but only in the second half of the year. This is because it will take several months for banks to repossess properties from their owners.

Last year 420 properties were put up for auction, and analysts estimate that the number of properties put up for auction this year could increase by 40 to 50 per cent to 600 (including those up for sale again).

The report notes that in addition to more homes being put up for auction this year, the number of commercial and industrial properties being put up for auction is also likely to increase.

This is due to an increasing number of small and medium-sized enterprises winding up their businesses due to the poor economic outlook, and some downsizing as operators look to retain more liquid cash.

Not enough rent to pay off instalments, prompting investors to sell off investment units

The seventh floor unit of the Executive Condominium (EC) Arc at Tampines, a 1,055-square-foot condominium, was put up for auction in April 2022 for $945,000, an average of $895 per square foot, well below market price.

As interest rates continue to rise, those who have opted for a variable rate home loan package pegged to the three-month S$1 overnight rate (SORA) will feel the pinch, said Tan Chee Peng, Director of Auction and Sales at Tai Ngoc Son Estate.

SORA, the reference rate for home loans, has risen from less than 0.2 per cent in January 2022 to more than 3 per cent this year.

Those who bought a property at a two-year fixed rate in 2021, when the property market was booming, will need to refinance this year and will also feel the pressure of the new rate," Tan said.

Forecasting this year's auctions, Lee Siew Ping, head of property auctions and sales at Knight Frank, said: "While most property owners are not in serious financial trouble, the increased cost of loans may prompt some owners to sell their properties."

The report said some private homeowners may also sell their homes at reduced prices because the loan instalments are higher than their rental income.

The good news is that the current strong rental market for properties is helping to alleviate some of the pressure on landlords, some of whom may not be in a hurry to dispose of their investment residential properties.

As yet, the auction market has not seen the full impact of rising interest rates.

Banks in Singapore, on the other hand, told the media that foreclosures have not increased, although more customers are approaching them to refinance their home loans to get better rates.

Foreclosure refers to a court order that a bank applies to the court to issue because a borrower has defaulted on payments. The decree in question removes the borrower's right to foreclose on the mortgaged asset, making the collateral absolutely owned by the bank.

Knight Frank reports that of the 420 properties sold at auction last year, 133 were mortgage foreclosures, where the bank was foreclosed on because the owner was unable to pay the loan.

A higher proportion of properties sold at auction last year were in fact owner-occupied properties, 250 of which were for sale.

Mok Sze Sze, managing partner of the auction and sales division of real estate company Singapore Realtors Inc (SRI), explained that many people misunderstand that only properties repossessed by banks can be auctioned, but in fact many owners are now selling their properties through auctions.

Mok Sze Sze says that one of the advantages of selling by auction is that it is transparent and designed to achieve "the best price within a specified time frame", which is quick and hassle-free.

Instead of waiting for a two-week 'cooling-off period' (usually two weeks after the buyer has paid a deposit), owners of properties at auction receive a 10% deposit (5% for some residential properties) to seal the deal as soon as the auction price meets or exceeds the owner's reserve price.