A few days ago, I saw a friend’s post on social media about successfully bidding for an auction property. A few weeks ago, I had a conversation with another friend about being advised to buy auctioned property as a first-time home buyer. It seems that it is an increasingly acceptable alternative when purchasing property, especially for first-time home buyers.
Leslie Low, an auction specialist, said that with the economic slowdown, the number of people defaulting on their housing loans has been on an increase. This then means that more properties are being auctioned off in Malaysia these days. As of 2017, an average of 2,500 houses has been auctioned off every month.
“This is a 10% increase from last year. And if you compare it to 2013, it is a 50% increase because back then the monthly average was 1,000 to 1,500 auctioned off houses.’’ – Leslie Low
Prem Kumar, executive director at Jones Lang Wootton, said the mismatch between property supply and demand is obvious because property price growth continues to far exceed income growth of most Malaysians.
“The rate of increase in property prices is greater than the rate of increase in employment income. New property launches are too expensive for those just starting work. They cannot afford to buy from the secondary market either, so we are seeing a trend of the young generation starting to hunt for auction properties as their first house.’’ – Prem Kumar
Here’s how to take part in a house auction in 10 steps
Many young Malaysians are also looking to buy property from the auction market because it is cheaper. The procedure for a house auction is as below:
Do a search on the property – get the proclamation of sale (POS), and also to do a title search of the property. This will provide you with the location and description of the property for auction.
Inspect the property – Don’t rely on the description only. Go to the location so you can see the surrounding area.
Call the auctioneer or sales agent to obtain other information on the property not available in the description
Prepare bank draft equivalent to 10% of the reserve price
Register on the auction day and get a copy of the terms and conditions of sale from the auctioneer. A bidder’s card with a number will also be issued to you for identification during the auction process.
Read the conditions of sale, and seek clarification from the auctioneer on any queries before the auction starts.
Bidding on the property will start when the auctioneer announce commencement of the auction. Bidders raise their hands to bid for the property.
The Successful bidder will be the bidder with the highest offer during the bidding process. When the auctioneer’s hammer falls, property is considered sold.
Sign the sales contract, and the successful bidder will be advised to collect the stamped contract at a later time. Contact your bank to arrange for financing.
Your To-Do Checklist Before Bidding on an Auctioned Property
While there are various benefits of buying property at auction, with the most obvious being the cheaper prices, purchasing an auctioned property can come with some risks too.
If you are considering purchasing an auction property, here is a list things you need to be aware of. Buying a house in itself is most often a once-in-a-lifetime financial decision. Therefore here are 4 items you need to cross off your checklist when buying an auctioned property.
Check the property
When it comes to auctioned properties, one of the disadvantages is that as a bidder, you won’t get a chance to view the interior of the property. Therefore, bidders won’t really know what the condition of the house is when they are making their bid making this a pretty risky investment.
Did you know, a man bought an auctioned condominium at Mont Kiara only to find a body that had been chopped into 11 pieces stuffed inside the unit’s fridge?
It is always important to do as much research as possible on the property. Even if you don’t have access to the interior of the property there are other factors to look at. For example, the picture of the auctioned property may look acceptable, however, you can’t tell if it is located at a busy T-junction or next to a sewerage plant.
A caveat is a Latin word which means “let him or her beware”. A caveat is a temporary measure to protect the rights of the land. A private caveat serves as a purpose of protecting an individual’s rights under the sale and purchase agreement temporarily, in anticipation of legal proceedings that he lodges the private caveat. So a private caveat will cause a hindrance as it will prevent any dealings from registering to even change of ownership while the private caveat is in force.
Auction properties have a risk of having a private caveat. If an auctioned property does have a private caveat, even if you win the bid and pay the full amount, you will still have to challenge the third party (who submitted the caveat) for the property. This is because a private caveat may only be removed:
by the caveator (a person who files or enters a caveat)
by the Registrar
by an order of the court
Application for the removal by court order could be done by any person aggrieved by the existence of the private caveat. In this case, the person who won the bid on the auctioned house which had a private caveat.
An auctioned property with a private caveat will also mean you will not be able to get a home loan. This is because no bank will approve a loan if there is a private caveat on the property. Therefore, unless you can afford to pay in cash, it is advisable to not proceed to bid for a caveated auction property.
But do take note that, even if you win the bid and have the money to pay for it in cash, you will also have to go to court to challenge the third-party to remove the caveat, which can be a long procedure and incur additional costs as a result of the legal fees charged.
Before proceeding to bid for an auctioned property, it is advisable to get the proclamation of sale (POS), and also to do a title search of the property. You can request thins from the auction agent. Doing so will give a bidder useful information such as the address, and if there are any restrictions such as a caveat on the property. Having the address means you can check out the surrounding location of the house, even if you can’t see the interior at least you will know what the location is like.
It is important for those who plan to purchase an auctioned house to do a background check on the developer of the property. If the property’s title is still under the developer’s name, a bidder should first check if the developer is still an existing company. Remember, the terms and conditions in an auction contract always protect the bank. If the developer is bankrupt and the company has been liquidated, then transferring the title to you after you have won the bid will be a hassle.
Type of tenure: is it leasehold or freehold?
Finally, do some homework to find out the type of tenure for the auctioned property, whether it is leasehold or freehold. If it is leasehold, you will need to check with a bank to make sure you can get a loan. If the number of years remaining on the lease for the leasehold property is less than 50 years, some banks might not give you a loan. Or if a bank does approve a loan, instead of a 30-year loan, you might get a 25-year loan.
Did you know, that when a property is auctioned off, the bank only takes the amount owed to it, and the rest goes to the defaulter? For those who have been unfortunate and will have their home auctioned off, do know that any extra money will be given back.
For example, a bank auctions Ahmad’s house for RM1.4mil. However, his default loan amount to the bank was only RM300,000. As such, after his house has been auctioned, Ahmad will get RM1.1mil, as the bank will only take the outstanding amount owed, which was RM300,000.
Buying a property, whether it is brand new, sub-sale or even an auctioned property will involve risks Read our other articles on purchasing the property so you can make a better-informed decision before taking that big financial leap.