Effects of an auction: The general perception is that auctions negatively affect the price of properties as the starting price for apartments up for auction are usually set way below what is being advertised as the selling price by owners.
However, it is best that banks take action to auction these properties off. Frankly, if the bank does not do anything and owners continue not paying 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, that’s RM240,000 per year of “missing” maintenance fees.
As soon as the bank auctioned off the units, the bank or the new owner will pay the outstanding fees, and there will now be a solid maintenance fund to make the development an outstanding one again.
Overstretched owners: As soon as any development is completed, there are bound to be some owners who want to sell. This is why property prices 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 earlier when they bought too many units at around the same time, they should quickly sell their units at way below the market price and let the new owners take over.
If the market price is around RM800,000 and these owners fix their selling price at RM720,000, the price would not be low enough to be very attractive and yet will keep the market price for the development lower than RM800,000. This only serves to keep the price of the development low.
Once these owners sell to a new owner, there’s no way the new owner will sell the unit at the same price. They would most probably be able to hold on to it or stay in the unit themselves.
This is why once all “must-sell” units are sold, the property price would start to reflect the market price; against their peers and surrounding property prices.
Waiting game: A good friend is currently putting up her unit for short-term rental via Airbnb. She will do just fine once all “must-sell” units are sold to new owners.
One must understand that due to the current market, even when one has money, one will think twice or thrice before agreeing to such a huge commitment.
This comes back to the fundamentals of property investment – it takes a long time. If you are looking for an investment that can generate fast returns, property is definitely not one of them.
The return on investment could still be high five to six years down the road because of the power of leverage but if you intend to earn fast money, stay out of the property market.
This article has appeared in kopiandproperty.com
Charles Tan blogs at property investment site kopiandproperty. He dislikes property speculators and disagrees that renting is better than buying. He thinks it’s either property or poverty. He is presently the CEO of an auction house auctioning assets beyond just properties.