Property auction 'flop'

A follow on to my previous post about the slump in property prices because the first ever property auction in Dubai was held yesterday evening.

Arabian Business uses words like 'failure' and 'flop' in its stories, but that's too simplistic.

They also headline one story: "Property market fails its big test" which is pushing the boundaries a bit. Big test? It was just an auction of four properties. The big test is actually the ongoing, day-to-day market.

Media and the rumour mill will undoubtedly use this as another example of a still-collapsing market but I don't think it actually tells us anything other than the concept of the property auction isn't understood here.

The failure in my opinion is less the auction results than the fact that the market - agents, vendors and potential buyers alike - was not made aware of the concept and doesn't understand what the auction was all about.

That's the most important job for the company behind it, Madania Real Estate, to tackle before the next auction, which is planned for June.

Auctions are the usual way of selling a property in Sydney. I've bought and sold at auctions, I've been outbid at others, I've dropped out when the bids went too high, I've attended very many others just for market information. In Oz we're used to them, we understand them...but they're new to this market and most people come from countries where they're unusual so they have no understanding of them.

The Aussie format has simply been brought to this market as a complete package, but not enough work was done on explaining the concept to a market which has no knowledge of it.

The general view here is that auctions are where you get a bargain, that this is where the properties offered will be distressed sales by desperate owners.

That couldn't be further from the truth.

This is an alternative to a private treaty sale of a property, which is where the property is simply advertised at a price - on which the buyer always asks for a discount.

In an auction the vendor puts a reserve price on the property, if bidding reaches the reserve the property is sold to the highest bidder. If it fails to reach reserve, which is not unusual, the highest bidder and the vendor are brought together by the agent who tries to get them to compromise and agree a price. Not much different from a private treaty sale where the two parties haggle over the price.

In fact in Oz it's often seen as a way of getting a price better than market value, particularly if you're selling a desirable property and there are two or more interested buyers who will push the price up. I've seen that happen more than a few times.

The complete lack of understanding of this by the market here is shown in a couple of the Arabian Business reports.

Anil Bhoyrul says, for example:

The concept of property auctions is that a number of dirt cheap properties are up for grabs.

You turn up with a small amount of cash, and walk away with the deal of your life. The greater the personal financial misery of the seller, the better.

Which is where last night went wrong to begin with. According to Kuceli himself, the sellers who put their properties up for sale were merely looking for another sales channel, having tried newspaper and web advertising.

They were not actually that desperate. That’s why no sales were made.

Way, way off the mark, that isn't the concept at all.

Anil continues:

Tuesday’s auction was the first test of the public’s appetite to get back into the market. Would they come in their hundreds, cheque books and passports ready, eager to prey on the ashes of the property boom?

I disagree, it wasn't the first test of the public's appetite to get back into the market, we have ongoing daily information on that, it was simply a test of an unknown method of selling properties.

And then:

...of the 100 people who showed up, only 9 had registered beforehand to even be allowed to make a bid. Who were the other 91 people? Around 35 journalists and 56 estate agents.

Again this demonstrates a lack of understanding because it's perfectly normal. I've been to many auctions where there were scores of people but only one or two bidders (and some where there were none). The vast majority are neighbours and friends of the vendor, plus people there to gauge the market.

Another story includes this from a real estate broker:

“There are a lot of distressed properties for sale from people who are either leaving town or just want to increase their cashflow immediately. It’s those properties that should be auctioned.”

Again it shows a lack of understanding of the concept.

Another problem with this auction was the few properties for sale, only four. There were more planned but the Land Department has to approve each one apparently, and approvals weren't obtained on all in time for the auction.


Also, the auction was held in a hotel. In Sydney the usual method is for the auction to be held on site at the property for sale and I suspect this may be a better way here too.

This auction method may or may not be the way to go here, but we won't know that for sure unless in the first place everyone involved in the market understands the concept. That's the critical project for Madania Real Estate.

But the auction results don't tell us anything we don't already know about the property market.

By the way, in Sydney the clearance rates (properties sold at auction or by negotiation up to midnight on auction day between highest bidder and vendor) have been at 66% the last two weekends. A third failed to sell at the auction.


You'll find the stories here, here and here.