Default auctions likely to surge in 2021

by FARA AISYAH/ pic by BLOOMBERG

THE number of homes expected to be put up for auction could surge next year if unemployment pushes more people to default on loans.

TEN Auctioneers Sdn Bhd CEO Charles Tan said the effect of rising unemployment has not manifested in home loan defaults yet, partly due to the Covid-19 moratorium granted by banks to ease financial burden during the Movement Control Order (MCO).

“If unemployment remains high, then we could see more defaults and then the number of properties going under the hammer will increase too.

“The earliest should be within the first quarter of 2021 (1Q21) since banks do not start auctioning the property on the very first month the owners defaulted their loans,” he told The Malaysian Reserve.

He said defaults would only start in October once the moratorium ends, and the process of auctioning homes would usually take several months before the bidding day.

Prime Minister (PM) Tan Sri Muhyiddin Yassin said the government has agreed to extend the bank loan moratorium for borrowers who are severely affected by the Covid-19 pandemic and still need the relief assistance.

The PM said the moratorium will be extended for a duration of three months for those who have lost jobs due to the pandemic, upon application by the borrower to the financial institution.

“After the additional three months, financial institutions could grant a further extension if the individual is still unsuccessful in securing a job.

“For individuals who are still working but their salaries have been cut or reduced, the targeted assistance is in the form of reduced instalment payments in line with the rate of the pay cut, subject to the type of borrowing,” he said in a special televised announcement last week.

This assistance will run for a period of six months and an extension could be granted by the financial institution subject to the individual’s current income situation.

Institute for Democracy and Economic Affairs senior fellow and Centre for Market Education CEO Dr Carmelo Ferlito said it is definitely possible for the number of properties being auctioned to grow if the unemployment rate remains high.

“If economic conditions deteriorate, in particular on the employment side, it is likely to find more people unable to honour their financial commitments.

“The targeted loan moratorium extension would be of some help. On the other side, we could imagine a form of temporary extension of the time frame between the insolvency and the placing of the property under auction, to see if the borrower can get back on track.”

Ferlito also emphasised on financial stability before home ownership, in order to be sure that households could face difficult moments including the Covid-19 pandemic. Meanwhile, Tan said the auction market has been picking up — in line with the sales in the primary and secondary markets — particularly for the commercial properties.

“Homebuyers may not be well versed with the residential auction properties, but for cash-rich companies, when they see a commercial property below market value, this is the best time to buy.

“We have cash-rich buyers buying residential too, but below market value commercial properties are much harder to find versus residential units.”