Auction Properties: The Good, The Bad and The Ugly
Identifying the pros and cons of auction property in a pandemic
As the global pandemic rages on, more and more Malaysians are delving into auction property as a means to seek out more affordable properties when compared to the primary and secondary property markets. Auction properties are rather attractive to home buyers owing to their ridiculously-low prices yet accompanied by certain risks that come with the territory. Abundantly-cheap properties that do not pass inspection and come with speculative infrastructure conditions, they largely appeal to the masses who yearn to find that gem of a dream home in a congested cluster of unsaleable properties. This is the story of auction property and its benefits and drawbacks.
Discerning property auctions
It is rather commonplace for auction properties to be sold at far below market value, making it a real incentive for homeowners seeking affordable alternatives. With the prevalent economic crisis created by the pandemic, more properties are expected to populate auction houses in the immediate future. As supply increases, better margins are anticipated. Owing to the raging pandemic, online auctions are gradually becoming a trend, and are expected to dominate property markets everywhere. With respect to property auctions in Malaysia, there are essentially two types of auctions, namely judicial as well as non-judicial. Judicial auctions, also known as court auctions, are regulated by the National Land Code. Non-judicial auctions are called loan agreement-cum-assignment (LACA), and are not regulated by any legislation. Despite having no land title issued to the so-called LACA properties, they still remain under the developer’s name. Most auction deals will require the purchaser to pay the fees of the bank’s solicitor for vetting as well as for preparing the assignment. As with purchasing any piece of property, it is quintessential to know what you are buying the property for whether it is for your own stay, rental yield or market speculation.
Do your research and homework
Always do your homework beforehand. Extensive research into one’s financial status as well as the major caveats surrounding properties under auction can prepare potential bidders for any eventualities in the future. Bidders are also advised to inspect the property in question to ascertain its current condition as well as underlying cost for repairs and renovation if necessary. One should also conduct a price comparison of properties within one’s neighbourhood to determine their market value.
Prepare relevant documentation
It is important for budding bidders to prepare a specific document called the Proclamation of Sale (POS) which is intended to outline the various limitations of a property for auction. These may include existing caveats and outstanding payments owed to the property. Other factors to look out for are the unit/lot status, property usage and also tenure expiry. In addition to bearing the many arrears, service charges, utility bills and rental payments incurred, bidders must also prepare a down-payment fee amounting to 10% of the reserved price..
After the auction is completed, successful bidders will have to fork out the amount difference between the initial 10% deposit and the 10% of the final selling price. Once the sales and purchase agreement has been signed, it cannot be undone. Final payment must be made within 90 to 120 days. As for LACA auctions, prior consent must be obtained from the developer itself. Since no direct transfer is allowed by developers, bidders must perform a double transfer which is time-consuming and causes a delay to the entire process of transaction in auction.
Be wary of the danger signs
The auction property market is generally dominated by seasoned players and experienced investors. So if you are a newbie in the auction market, there are some danger signs to watch out for as well as common pitfalls in auction property to avoid. They typically include stubborn tenants, slapstick deals, invisible encumbrances as well as dilapidated properties.
When the price of an auction property seems too good to be true, it is usually saddled or burdened with encumbrances. Hidden costs and accumulated charges are truly a pain in the neck for prospective bidders. To discover the real value of a property under auction, visit your land management office for the latest POS to check any outstanding fees and unpaid bills.
Since auction properties can only be viewed from the exterior, any defects would only be apparent until the sale has been finalised which makes any appraisal a real challenge unlike properties in the primary and secondary market. Furthermore, most auction properties which have been left vacant for some time would require substantial expenditure in refurbishment. Having a bad past history can also significantly affect the economic value of the property itself. Hidden tragedies and alleged hauntings are undesirable traits of a dream property!