AUCTIONS AND BIDDING : WITH CASES ON APPLICATION IN THE SINGAPORE PROPERTY MARKET

Abstract

This study consists of two major parts. Part I examines existing literature on auction theory and its applications in real life situations while Part II discusses cases of its use in the Singapore property market. Bidding and procurement were some of the earliest economic acts of individuals engaging in trade and the study of auctions is helping practitioners in this area achieve goals such as the maximisation of profits and efficiency. However, it was only in the early 1980s that literature on this subject began to gain intense attention. Since then, it has experienced tremendous growth covering a wide spectrum of auction-related issues. However, for the purpose of this study, the concentration is on the basic concepts and issues pertaining to real life situations. In Part I of this Academic Exercise, a basic model used as a benchmark for comparison among the various auction forms is introduced and analysis using this model is carried out on the four basic auction forms. The optimal auction design is also discussed and assumptions not satisfied in real life (e.g. risk-neutrality of bidders) are relaxed one at a time and their effects on the optimal auction design analysed. Applications of auctions can be found in many different areas including trade and commerce, public procurement and sale of financial products etc. Among these many areas, its applications in the property market are of particular importance because of the high turnover rate and huge transaction values associated with this market. In Singapore, it is also one area that had only begun to make more extensive use of auctions in recent years and thus provides many fresh and interesting experience for analysis. Part II of this study analyses four distinct cases on the use of various auction forms in the sale of properties in the local market. The cases are: URA sale of conservation sites in Chinatown Historic District; OCBC tender sale of "The Countryside"; the sealed-bidder's auction; and HDB's two-bid tender system. The analysis found the English auction to be suitable for the sale of investment properties in the local market, while the sealed-bid auction could be improved to provide greater returns to sellers of residential properties. The sealed-bidder's auction, on the other hand, is found to be suitable for the local re-sale market and is expected to gain popularity. HDB's two-bid tender system was also found to be decidedly superior to the first-price sealed-bid auction in most instances and is predicted to replace it as the most commonly used auction in the future.