Auctioned properties are a good bargain - Indian Express

Auctioned properties are a good bargain - Indian Express

If you are thinking about buying a house or possibly even a second home, you would quite naturally think about how to get a good deal. There is one avenue for some good deals that most prospective buyers do not think about: properties auctioned by banks. And the good news is that you can get a house that is nearly 20 per cent of the current market value. How does one go about buying such a property? The aim of this article is to help you get started with building the plan for that deal.

How it works

The SARFAESI Act (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act), 2002, empowers banks and financial institutions with the right to recover mortgaged property in case of loan defaults, without the intervention of the court. This means the lenders can take quick action and bring into effect the takeover of the property in question. Though it seems to be at the expense of the home loan defaulter, nevertheless it appears to be a good opportunity for people to buy property for a very reasonable sum.

Why it could be a steal

Once the lender takes control of the property, an independent valuation is conducted with the help of an independent chartered surveyor who fixes two values for the property. One is the market value of what the property is actually worth, and the second is the distress value, which is around 15-20 per cent lower than the market value. Due to the circumstances under which the auction is conducted, the property is almost always quoted with the distress value for the minimum bidding price at the auction. At the auction of course the prices can go up according to the bids and the location of the property. This gives the prospective new buyer an opportunity to win an auction for a very good deal as opposed to buying a property at the existing market value.

The market for auctioned properties

It is still an unorganised market, which is opening up as a venue for a prospective home buyer. More often than not it is currently more a property investor’s market rather than an end user market. Also, the proportion of commercial properties auctioned could be much higher compared to the residential properties auctioned.

These are a few pointers to guide you on the process and background check:

Scrutinise property sections of newspapers and also search for niche websites who deal with such property listings. Many nationalised banks periodically advertise in the popular dailies regarding auction dates, venue and the location of the properties to be put up for sale. Websites like http://foreclosureindia.com also offer this information for various cities in India.

E-auctions: Some banks do announce it by way of e-auctions, as it is a faster and more transparent medium to choose the highest bidder. It reaches out to a wider target audience and it helps the banks sell off these properties at an effective price, which will help them recover the costs incurred through the loan more efficiently.

Legal aspects: As a prospective bidder you will be allowed to check the property you are planning to bid beforehand, once a caution fee has been collected from you for participating in the auction. Do make arrangements for a legal counsel to accompany you for this visit and help you with all the legal aspects of the transaction. Though you are making a business transaction with the banks, which by itself means you will receive a legally safe and registered property, you still need to do your share of the homework. With the help of your legal counsel, investigate the title and do your research with the registry for a track record of the past 30 years of the property to understand who were its past owners, how many hands it changed and whether there was any legal tangle in the past that needs to sorted out before your make your winning bid. Verify all municipal records, tax records, whether the current owner has sole ownership and if it can be transferred to you in accordance with the rules specified in the Transfer of Property Act.

Be prepared for additional costs: The properties auctioned are disposed in the state they were first taken over by the banks. Hence, there might be some costs like outstanding payments due in terms of house tax, electricity, repairs, renovation etc. that need to be incurred once you purchase the property. Factor in all these aspects when you make the bid.

The advantage with such auctions is that all sale transactions happen through the bank, so you need not worry over the technical aspects of the sale. But you need to get your routine checks in place to see that you derive the benefits that ideally accompany such a bargain deal. l

— Author is Head Content & Strategy, BankBazaar.com