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Apartment foreclosure discount in Kuala Lumpur

Author/s: Woei Chyuan Wong, Pooi Leng Ng, Janice Y.M. Lee, Md Nasir Daud

Date Published: 4/05/2015

Published in: Volume 21 - 2015 Issue 2 (pages 127 - 138)

Abstract

With the exception of anecdotal information which suggests that auctioned or foreclosed properties in Malaysia tend to be sold at a deep discount, no study has thus far attempted to quantify this foreclosure discount. This notion is explored by comparing the listing price of auctioned apartments with comparable non-auctioned apartments located within the same building blocks in Kuala Lumpur during the period 2009�2014. The property auction market is predominately relied upon to dispose of foreclosed properties in Malaysia. It is found that foreclosed apartments are listed at a discount of 33.4% as compared to apartments advertised in the private negotiated market. This discount is attributed to �stigma effect� associated with auctioned properties and the imperfections of the Malaysian auction market such as auctioned properties may not carry a clean title, potential buyers cannot view the properties prior to auction and may not obtain vacant possession of the properties. The �proxy effect� was minimal since the matching strategy adopted would have netted out the differentials in locational and neighbourhood characteristics between auctioned and non-auctioned properties.

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Keywords

Auctioned Properties - Foreclosure Discount - Private Negotiated Sales - Stigma Effect - Auction Sales

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