Wise a(u)ction can help you strike a dream deal
When AJ (name changed) chanced upon an advertisement by a public sector bank inviting bids for a residential property in Airoli, Navi Mumbai, he promptly submitted his bid. While the going rate for such properties in the locality was nearly Rs 18 lakh, he managed to clinch the deal for just Rs 12.75 lakh.
The auction was conducted to sell the property, which was repossessed by the bank to recover its dues when the original borrower defaulted on the home loan. Similarly, a few years ago, when a corporate house’s property in suburban Mumbai was put on the block, a bidder secured the deal for merely 70% of the market price.
Keep a close watch on related advertisements
Depending on various factors such as location, neighbourhood, quality of construction, etc, in an auction, you could buy properties for a rate that is around 15-20% cheaper than the prevailing market rate. However, some properties could actually quote a premium, depending on various factors.
While the market for buying properties in an auction — particularly those conducted by lending institutions to recover the dues in an event of a default by the borrower — is very small in India, those scouting for cheaper rates could keep a close watch on related advertisements appearing in newspapers to secure the dream deals.
Typically, banks and housing finance institutions issue a public notice giving information on sale of such properties in one regional language and one English newspaper. “However, there isn’t any rule by which they are expected to advertise for all properties,” says Shveta Jain, director, residential services – India, Cushman & Wakefield. Buyers keen on trying this route could also enlist the help of lending institutions’ call centres to enquire about properties that may have failed to generate interest amongst bidders due to high reserve prices, unattractive location, etc.
Banks could follow their own set procedures, but usually, once an advertisement or a public notice is put out, the prospective buyer has to submit a form akin to expression of interest on the date mentioned in the advertisement, which could also specify the date on which bidders could visit the property. The bid submission procedure could also entail a deposit — an earnest fee — that bidders have to shell out.
Besides lower rates, another key benefit could be a clear title deed, as the bank or lending institution involved takes care of the title documentation.
“However, this may not necessarily be the case with properties where corporates have defaulted on the repayment, as they could come with multiple liens, making the process tedious,” cautions Gulam Zia, national director, research and advisory services, Knight Frank.
Moreover, the procedure is more transparent — buyers who deal in cash are kept out, as the transaction involves court proceedings.
Aspects warranting thorough scrutiny
You shouldn’t assume that your winning bid constitutes the total cost of acquisition of the property. “It is important to understand the net payout. In addition to the payment to be made to financial institution or bank, there could be some dues to be paid to the builder or the co-operative housing society.
Ask for a letter from the secretary stating that there are no dues outstanding. You should arrive at a final decision only after adding up the bid price as well as dues to find out your total outgo,” says an official with a housing finance major.
This apart, the scope for negotiation is quite low. Also, as mentioned earlier, properties where corporates have defaulted may not come with a clear title.