Do your homework
IN 2007 Shafie Bustan bought his first property in the auction market. Being the only bidder, he got the condo in Desa Melawati, Kuala Lumpur, at the reserve price of RM66,000.
He didn’t research the property or view the unit before bidding for it.
“When I went to the condo, I found that the original owner was living there and he didn’t want to move. And I found out that there was no strata title for the unit and the developer had gone bankrupt!
“Without the strata title it was difficult to secure the loan. And I had to keep asking the bank (that auctioned the property) for extension after extension.”
It took six months before Shafie got things sorted out and his loan was disbursed, but he had to pay an 8% penalty for the six months’ delay.
Not too long after that, Shafie bought a condo in Port Dickson, Negri Sembilan, at an auction for RM40,000, which certainly sounded like a steal. But after the auction he learnt that the owner owed RM20,000 in maintenance fees.
“Luckily for me, the bank that auctioned the property was covering the outstanding maintenance fees. Even so, I had to fork out the money first and claim it back later from the bank,’’ he says.
These early experiences have taught Shafie a whole lot about auctions, and with the knowledge, he has bought over 30 auction properties over the years.
Today he runs workshops on auctions a well as a business for those who want to buy auction properties, and has a website, jomrumahlelong.com, that lists properties coming up for auction.
Shafie, who goes by the digital moniker Pie2020, also blogs about auctions and has written a book on the subject, too.
He says one of the first things someone who wants to bid for an auction property has to do is get the proclamation of sale (POS) for the property he wants. You can get this for free from the auctioneer or the lawyer by e-mail.
“The overdue assessment and quit rent is usually covered by the bank. For an apartment or a condo unit, through the POS, you’ll get to know if the bank is also covering any outstanding maintenance fees.
“Some banks do, some don’t. If it is not covered, it is essential to find out from the condo management office how much is owed and factor this into the price that you are willing to bid for the unit.
“If someone can’t pay the monthly instalments for his condo, chances are that he wouldn’t have been paying the maintenance fees either.’’
Shafie also says bidders should check with valuers or bankers or even the online Brickz.my database what the market value of the property is before the auction so that they will not overbid.
“If the market value is RM150,000 for a property but you bid RM200,000 and you win the bid, the bank will only give you a loan for RM150,000 and you will have to top up the remaining RM50,0000.”
Shafie says it is extremely important to visit the property before the auction.
“The bank only knows the client has not paid his loan so they are putting it up for auction. They don’t know, and don’t bother, about the condition of the house because it is sold on an ‘as is’ basis.
“If you go and view the property, even though you can’t go inside, you can look at the front and back and the roof, and roughly estimate from the exterior if it is going to cost a lot to repair.
“And if it is empty, you can ask the neighbours how long it has been empty.’’
He says sometimes a property is offered for auction at a really cheap price like “RM15,000 in Bukit Beruntung” Selangor, but when we go and look, “the place is abandoned and the whole block is empty, and you even see trees growing out of some of the apartments there!’’
Shafie, who averages 10 successful bids for clients every month, advises bidders – especially youngsters – to check their central credit reference information report (from Bank Negara Malaysia) and loan eligibility before the auction.
“I’ve seen many cases where youngsters win the auction but when they go and apply for a loan, they are rejected because they have not started repaying their PTPTN (National Higher Education Fund Corporation) loan or they have credit card debt. And they lose the deposit they’ve paid.
“So it’s better if they clear these areas first before they bid.’’