Your search results

The Advantages and Disadvantages of Purchasing an Auction Property in Singapore

Posted by Jayson Ang on January 13, 2023

| 0

TLDR

When considering purchasing a property through auction in Singapore, remember that you can potentially get a great deal below market value, with a quick and transparent process. However, be cautious as you may face risks such as limited time for research, the possibility of overpaying, and fewer options compared to the open market. It’s crucial to thoroughly inspect the property, set a budget limit, and secure financial approval before bidding to make a well-informed decision.

Are you looking to buy a property on auction in 2023 at a bargain price? Get ready, because with news of a rise in mortgagee listings, this could be your year. Before you take the plunge, however, make sure to weigh the advantages and disadvantages of buying an auctioned property.

Acquiring a property is not only limited to buying a newly-built home from a developer or buying from the secondary market – there is also a third, less known way: property auctions. However, not many people are aware of this option!

What Is An Auction Property?

When a property is put up for sale by auction, it’s called an auctioned house. This typically occurs when the original owner is unable to pay the mortgage, and the lender (such as a mortgage bank) repossesses the property in an effort to recoup some of their funds. At the auction, buyers can vie for the property, and the highest bidder will secure it as their own.

What Types Of Properties Can You Get From Auctions?

No matter what kind of asset it is, it can be auctioned – from residential properties like HDB flats and private houses to commercial and industrial properties.

Why Do Properties Go For Auction?

A property can be auctioned off for various reasons; let’s explore a few:

The owner of the property is either compelled to sell it by court order as part of a divorce settlement, or voluntarily puts it up for sale in pursuit of a speedy transaction.
The homeowner’s inability to pay back their home loan resulted in the bank having to foreclose on the property, thus leading to a distressed sale.
The property of a deceased is being put up for auction by a representative of the estate.
The government takes over and auctions off the property if the deceased has no known family members or representatives in a public trustee auction.
When an owner is unable to keep up with mortgage payments, the court will take possession of the property and conduct a Sheriff’s Sale auction to recoup the unpaid balances.

Acquiring an auctioned property can often result in lower-than-market value prices – yet it comes with an added layer of risk that could cost you more in the end. But what are some of the benefits and drawbacks of such a purchase you should be aware of?

Advantages And Disadvantages Of Purchasing An Auction Property

Advantages Of Buying An Auctioned Property In Singapore:

1. You Can Buy A Property At A Steal

The potential to score a major bargain is the greatest perk of buying a property at auction – particularly if the vendor has to unload it quickly or is eligible for Additional Buyer’s Stamp Duty remission.

Although houses sold at auctions tend to go for below the market rate, there’s no assurance of scoring a discount – auction houses typically have a guide price to ensure lenders recover their losses as much as possible.

Remember, when the property is fiercely competed for, it may be sold to the highest bidder in a bidding war, thereby driving up its price.

2. It’s A Lot Quicker

One key advantage of purchasing property through an auction is its swiftness; the process is often much faster than buying through the traditional real estate route.

Unlike a private sale, in which there may be no definitive timeline or terms, an auction sale typically avoids delays due to the binding nature of the agreement, as well as the inability to renegotiate on the price once the bid has been accepted.

Time is of the essence in an auction sale – no drawn out negotiations between buyers and sellers, and no need to wait for that two-week Option to Purchase (OTP) period to elapse; it’s a quick, simple and direct route to a Sale and Purchase agreement.

3. There’s Full Transparency

Before the bidding process begins, buyers are given the prices, so you’ll be fully aware of the cost. Moreover, all the offers and bids will be revealed, so there’s no possibility of another buyer making a more successful offer after yours has already been accepted.

Disadvantages Of Purchasing An Auctioned Property In Singapore:

1. It’s Riskier

When it comes to auction sales, buyers often have very little time to research and view the property up for grabs. Not only that, but they may not be aware of any pest infestations or dilapidated states the property might be in. Additionally, they may not have time to compare prices with similar properties in the same area or check out nearby amenities. All of this could leave them at a major disadvantage.

Be sure to thoroughly inspect the property for any defects before the auction – typically, interested parties have two weeks for this. If you’re looking to invest, make sure the nearby amenities are suitable for tenants. It’s also a wise move to hire an agent, who can ensure your interests are safeguarded.

When it comes to bidding for a property at an auction, you must have an Approval in Principal (AIP) from a bank to ensure that you can secure a home loan from the bank in time.

Typically, buyers are expected to make an initial 5-10% deposit at the auction and pay the rest (90-95%) within 12 weeks. If you fail to do this, you will forfeit your deposit. Therefore, it’s vital to secure the AIP before bidding to give yourself the best chance of meeting the tight deadline.

To secure an AIP, you can compare the mortgage broker so you know which banks offer the most competitive rates.

2. You Could End Up Paying More Than It’s Worth

When participating in an auction, you’ll need to plan quickly and remember that you’ll be competing not only with other buyers, but also investors and experienced property owners.

In the heat of the moment, you have to decide if you should bid, outbid or give up – and there’s always a chance you’ll go overboard and exceed your budget. To prevent this from happening, set a spending limit and remind yourself that the goal is to get a property below the market rate.

Doing your research is key if you want to know if you’re getting a discount when buying property. URA’s website provides public, weekly-updated data on the prices of similar properties in the same area, development, or size.

Compare the discounted price with the median price for comparable properties to see if you’re getting a deal.

3. There Are Fewer Options Available

In comparison to the open market, where there’s an abundance of choices, an auction usually only offers 10-15 properties. Sure, you may still find a great deal at an auction, but you have a better chance of finding an undervalued property in the open market.

Should You Buy An Auction Property In Singapore?

In Singapore, there are plenty of benefits to purchasing property through an auction; think discounted prices, quick process, and full price transparency.

Unfortunately, the downside is you have less time to research and you may be prone to bidding higher than the market value. Additionally, there are limited options compared to shopping around on the open market, where you can find something that’s better suited to you.

Evaluating the advantages and disadvantages of an auctioned house is essential before taking the plunge. This will give you an idea of what to keep an eye out for and how to best prepare.

Don’t forget, once you win the auction, you’ll have to pay the deposit at that time and the rest soon after. If you don’t have the money sitting around, you will have to secure a loan from a bank or financial institution.

You May Also Like …

All Buying Tips

Could You Still End Up Losing Money When Buying Property in Singapore During a Market Slump?

Jayson Ang – February 14, 2024 –

TLDR When it comes to property investments, timing is crucial. Buying at the right moment is only half the battle;...

All Blog Posts Buying Tips

What Will Happen When Your 99-Year Housing Lease Expires?

Jayson Ang – February 11, 2023 –

TLDR We delve into the challenges faced by Singaporeans with expiring 99-year housing leases. It explores the types of leases...

Mandarin Top 5

Why Property Investing is the Key to Early Retirement in Singapore

Jayson Ang – April 28, 2024 –

Investing in property is a popular way to build wealth and achieve financial freedom in Singapore. With the right strategies...

Mandarin Top 5

5 Factors : Why Singapore’s Prime District Properties Are Still In Demand

Jayson Ang – July 14, 2024 –

Singapore's prime district properties continue to be in high demand due to a combination of factors that make them attractive...

Mandarin Top 5

Top 5 : Key Reasons to Invest in Industrial Property in Singapore

Jayson Ang – February 15, 2025 –

Singapore, a small yet densely populated country, has emerged as a significant player in the global industrial property market. Its...

Mandarin Top 5

Top 5 Differences Between OCR, RCR And CCR In Terms Of Lifestyle And Culture

Jayson Ang – April 15, 2025 –

Singapore, a vibrant and diverse city-state, is known for its unique blend of cultures, modern architecture, and thriving economy. The...

Mandarin Top 5

5 Critical Mistakes to Avoid When Investing in Singapore Property: Insights and Advice from Experts

Jayson Ang – April 1, 2024 –

Investing in Singapore property can be a lucrative venture for investors, but it's important to avoid common mistakes that can...

Buying Tips Mandarin Top 5

Sentosa’s Sizzling Property Market: 5 Reasons Chinese Investors are Flocking to Singapore’s Premier Island

Jayson Ang – June 20, 2023 –

Sentosa's Sizzling Property Market: 5 Reasons Chinese Investors are Flocking to Singapore's Premier Island Here are the top 5 reasons...

Mandarin Top 5

5 Impacts Of The Singapore Government’s Cooling Measures On Property Investing

Jayson Ang – May 30, 2024 –

The Singapore government has implemented several cooling measures over the years to regulate the property market and prevent it from...

Mandarin Top 5

Top 5 Factors : Investing In Luxury Singapore Properties: Is It Worth It?

Jayson Ang – August 23, 2024 –

Investing in luxury properties has always been an attractive option for high-net-worth individuals seeking to diversify their investment portfolios. Singapore,...

Mandarin Top 5

Top 5 Tips : How Does One Choose Good Property In Singapore?

Jayson Ang – November 11, 2024 –

Singapore, a thriving city-state known for its impressive skyline and robust economy, has always been an attractive destination for property...

Mandarin Top 5

Top 5 Must-Do Experiences in Singapore for First Timers

Jayson Ang – January 18, 2025 –

Singapore, a vibrant city-state known for its diverse culture and rich history, offers an array of unique experiences for first-time...

Mandarin Top 5

Top 5 Best Hidden Boutique Hotels in Singapore

Jayson Ang – October 11, 2024 –

Singapore, a vibrant city-state known for its iconic landmarks and diverse culture, offers a plethora of accommodation options for travelers....

All Buying Tips

Your Key to a Happy Retirement in Your HDB? Let’s Unveil The Mystery Behind the Lease Buyback Scheme!

Jayson Ang – March 30, 2024 –

TLDR The Lease Buyback Scheme (LBS) is gaining traction among older Singaporeans looking to boost their retirement income by selling...

All Buying Tips

Is 2024 the Perfect Moment to Refinance Your Home Loan? Discover What Homeowners Should Consider!

Jayson Ang – July 20, 2024 –

TLDR The article covers the shift to SORA for home loan rates, urging consideration of refinancing options amidst rising rates....

All Buying Tips Opinion

4 Key Factors to Consider When Purchasing a Private Property for the First Time

Jayson Ang – August 27, 2023 –

TLDR When considering buying or selling property in Singapore, it's crucial to understand factors like Additional Buyer’s Stamp Duty, Loan-To-Value...