Check the property’s title deeds and make sure it doesn’t have any additional loans
Before taking part in an auction, visit the property and evaluate the condition and reach a bidding price point
While there is no dearth of properties in the primary (where you buy directly from the developer) and secondary (where property is resold) markets in India, in these times of slowdown, buying repossessed properties being auctioned by banks can cut a deal that suits your budget. “On an average, these properties are available at a value that is 20-25% lower than the market value," said Sudhir Pai, CEO, Magicbricks, a realty portal.
The good news is that banks and lending institutions put up properties for auction time and again. For instance, Indian Overseas Bank recently signed up with Magicbricks for the e-auction of 500-plus repossessed properties worth more than ₹800 crore. The first phase of the e-auction was conducted on 21 October and the second and last phase is scheduled for 30 October. The properties available in this auction are spread across seven zones—Chennai, Coimbatore, Mumbai, Kolkata, Delhi, Bengaluru and Hyderabad. Out of the 5,000-plus properties, a majority are from Chennai and Coimbatore, while the rest are spread across 12 major cities, including Mumbai, Pune, Nagpur, Kolkata, Ranchi, Meerut, Lucknow, Ludhiana, Hyderabad and Bhopal.
The process of buying a property through an auction is a little different from buying any other property. Before getting swayed by the attractive price, make sure you do your due diligence and consider the risks and other factors.
What are these?
When a homebuyer purchases a house on a home loan or takes a loan against property, the loan repayment along with interest is supposed to be within a fixed tenure through equated monthly instalments (EMIs). Though the homebuyer gets the possession of the house, banks keep the original title documents and other ownership papers of the property in their custody, till such time that the loan is repaid in full.
However, if the buyer were to default on the EMIs, the banks take action. Initially, banks send recovery notices, but after a period of time, usually six to nine months, if the borrower is still unable to pay the dues, banks take the possession of the property. Such properties are called repossessed properties.
Properties on auction are, typically, available at lower-than-market rates. Given the market condition, you can even get a better deal. “Real estate prices are already depressed and any discount over the reduced price can indeed be a bargain of a lifetime. A judicious call at an auction may indeed help you buy a three-bedroom flat at the cost of a two-bedroom flat," said Raj Khosla, founder and managing director, MyMoneyMantra.com, a financial services firm.
Where to find them
So how do you know which bank is auctioning properties and where.
Thankfully, most auctions are now conducted online and banks tie up with e-auction portals such as Bankeauctions.com, Foreclosureindia.com, Auctiontiger.in and so on for e-auction of properties. Even realty portals occasionally conduct these auctions.
Besides, you will also find advertisements for such auctions in newspapers. It is mandatory for the auctioneer (banks or financial institutions) to publish auction notices in two newspapers, one of which has to be a national daily and the other has to be a regional language newspaper. If you find something that suits your needs in terms of location and price, make a note of details such as the reserve price, date and time of auction, and the date of inspection or visit.
Checks you must run
If you do find a property that suits your needs, don’t rush into booking it without running some checks.
Do the due diligence: Just because the properties are being auctioned by banks or financial institutions, you should not ignore doing your due diligence. Don’t rely only on the information provided by the institutions auctioning the property.
“Generally, it is assumed that since the property is mortgaged, the property title would be clear. But it is always better to double check to safeguard your interest. You should especially check if the property is mortgaged to any other financial institution as well," said Pai. You can also check the central registry to confirm that there is no other loan outstanding against the property. “Two documents that will cover you are an indemnity certificate from the bank and a protective penalty clause against the owner," said Khosla. An indemnity certificate protects you from risk of future claims by the owner, while a penalty clause protects you against the seller backing out of the transaction.
You must also research and investigate about the property’s location and the infrastructure surrounding it. “It is recommended that you hire a lawyer and get the title of ownership investigated and legally validated," said Khosla.
Assess the price: Properties put up for e-auction are usually sold in their current condition. So before you take part in the auction, visit the property, evaluate the condition and reach a price point up to which you should bid. “There could be substantial cost of repairs and renovations before you can actually move in," said Khosla.
Apart from the cost of repair and renovation, find out whether all the utility bills, taxes or society charges are paid till date. “Check whether there are pending dues like maintenance charges, electricity or property taxes. Together, they may end up being a burden for you later," said Pai. When you visit the property or interact with the auction officer, insist on no-dues certificates or receipts of last payments made towards utility connections like electricity and water.
Tips for bid day
It’s important to prepare well before participating in an auction, especially financially.
Typically, to participate in a bid, you need to pay an earnest money deposit (EMD), which is usually 5-10% of the reserve price (minimum or base price of the property fixed by the bank).
If you do win the bid, you will need to pay 25% of the bid amount (the EMD will get adjusted in this amount) to the bank, typically, on the same day; the remaining amount needs to be paid up in 15-30 days. If you are planning to fund your purchase through a home loan, get a pre-sanctioned loan letter to save time. “Manage your finances beforehand. Collate and marshal your savings and secure an in-principle approval for your property loan," said Khosla.
Remember that delaying the payment once you have won the bid can prove costly. “You would get a small window to deposit the amount, else your earnest money would be forfeited," said Pai.
You can also get help. Before conducting the auction, online platforms often conduct training sessions free of cost. “During the bidding process, always have an upper limit in your mind. You should never let your emotions make a call for you. Your emotional intelligence would be tested with each quote," said Khosla.
If you are going to an auction, make sure you take your wallet but leave your emotions behind.
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