Bangalore: When Rahul Arora, a software consultant, set out searching for his dream penthouse in 2006, he had to go back disheartened. Property prices had shot up in the heat of a construction boom and potential homebuyers hardly had affordable options.
Aiming high: The project site at Bangalore where the first buyer bid programme took place. The auction was held last week by IDEB and LJ Hooker India, the local arm of an Australian real estate marketing firm.
Among the projects Arora had surveyed was a penthouse in east Bangalore, just the kind he dreamt of. Three years later, this April, Arora, 34, visited the same Tivoli project in Whitefield and was pleasantly surprised. The project was close to completion and he was allowed to bid for his dream penthouse.
As realty firms struggle to sell residential properties and inventories pile up, developers have come up with various schemes to attract buyers, including allowing them to auction for the homes.
Arora instantly signed up for the ‘buyer bid’ programme—the auction conducted by IDEB Projects Pvt. Ltd, the developer, alongside LJ Hooker India, the local arm of the Australian real estate marketing firm, to sell the 39 units in the project.
“The process was simple. The reserve price (for the 3,010 sq. ft penthouse) was Rs1,875 per sq. ft. The buyer had to bid at the same (price) or above that rate. I took a chance and bid at the same price and was lucky that no one else bid at a higher rate than that for the penthouses,” said Arora.
Three years earlier, the Tivoli penthouse was priced at Rs1,950 per sq. ft. IDEB set the reserve prices at about 10% below the current market price of Rs2,000-2,300 per sq. ft in Whitefield. The auction closed on Saturday and the winning bidders were announced on Monday. The other bidders will be refunded their deposit of Rs1 lakh.
“Sales are slow and prices have been down. We think the concept has really worked for us and we are trying it out in our other projects as well,” H.S. Bedi, managing director of IDEB Projects, said on Thursday over phone from New Delhi.
“The concept is good and would work very well for developers in such conditions. Not only will it generate curiosity about a particular project, it will also see customers coming in to see it. One has to, however, keep track of the actual conversions that take place,” said Raminder Grover, chief executive of Homebay Residential Pvt. Ltd, a subsidiary of Jones Lang La Salle Meghraj, a property advisory.
Typically, half the stock gets sold in an auction and the remaining is sold over the next couple of weeks to buyers who need more time to decide, Alexander Moore, managing director of LJ Hooker India, said on Wednesday.
“There have been few transactions in the past few months and many large and mid-scale developers have been struggling to get sales and have been looking at different means for cash flow. This programme gets the buyers to the site and facilitates business promptly,” he said.
After wrapping up its first auction in the country, LJ Hooker is taking its “buyer bid” programme to Gurgaon near New Delhi, Pune in Maharashtra and Hyderabad in Andhra Pradesh. The firm is now auctioning 25 villas developed by IDEB in Electronic City, Bangalore. “We are aiming to auction about 2,000 apartments by the end of the year in tie-ups with different developers,” said Moore.
Auctions are typically used in more mature property markets, where the discerning buyer decides on the price, Moore said. In India, it has worked because of the current downturn situation.
“Our parameters before signing on a project are specific. The projects have to be at least 75% complete so that buyers gain confidence of its completion on time and we will auction a cross-section of projects of various price points,” he said. While the minimum reserve price for the villa project in Bangalore starts at Rs79 lakh, apartments in one of the Gurgaon projects are priced at Rs25 lakh each.
Any interesting marketing concept would work in a depressed market, said Niranjan Hirnandani, chairman, Hiranandani Developers Pvt. Ltd, India’s largest residential builder.
“I am sure many developers would go for something like this if it positively affects their sales. But the concept needs to adapt to project and buyer profiles,” he said, without specifying if his company would consider similar auctions.