Going, going, gone…. No, it’s not the hammer coming down on a painting or an antique chair. It’s an apartment that’s being sold—and it’s not a distress sale or a disputed property either. In a new trend, several builders are selling properties through public auctions. “Today, a lot of housing projects have 15-20% unsold units that were held back by builders, who hoped to sell them later for more than the pre-launch price. Now that these units are not finding any buyers, they are getting desperate,” says Pramod Kiron, CEO, Exclusive Ventures, a real estate advisory firm that conducts such auctions.
Why go for a property auction?
|The price of an auctioned property is usually lower than the regular market rate.|
|There is no risk of project delays as it’s a ready-to-move-in property.|
|It is an undisputed title verified by the auction agency or bank. You do not need to pay if you lose the bid.|
|Developers, banks, municipal corporations (properties attached for non-payment of property taxes, etc).|
Where to look?
|Auction/tender section of a bank’s Website and newspaper advertisements.|
|Independent Websites such as www.bankdrt.com.|
Keep in mind
|With prices still falling, you could over-pay.|
|The deposit is forfeited if you back off after winning a bid.|
|Check rates for similar properties before bidding.|
|Take into account overdue payments on the property.|
|Payment timeline for lender-auctioned property is short.|
Nabajit Das is one of the beneficiaries of the new trend; he bought a three-bedroom apartment in Bengaluru at an auction and paid Rs 1,875 per square foot, while his friends, who had bought neighbouring apartments earlier, spent Rs 2,200 a sq ft. And this was without any haggling. All Das had to do was sign up for the ‘Buyer Bid’ programme. The auction was conducted by IDEB Projects alongside LJ Hooker India, the local arm of the Australian real estate marketing firm, to sell 39 units in the project. “The process was simple. The reserve price for the apartment was Rs 1,875 per sq ft and we were asked to start bidding at this rate. I took a chance, bid at the same price and got it,” says Das.
The auction process is indeed easy. The builder ties up with a professional agency to carry out the initial campaign while guarding his identity. “A Buyer Bid programme generally has an aggressive marketing campaign, with the closing date set at four-five weeks from the start date,” says Alexander Moore, managing director, LJ Hooker India. Once a reasonable number of potential buyers come forward to participate, they are asked to pay a token commitment fee, usually a postdated cheque that is encashed only if one wins the bid. The amount depends on the cost of the project put up for auction and is usually Rs 1-5 lakh, though this can go up if the cost of the property is high.
The bidder gets an inspection window of a couple of days to check the property, after which the auction is conducted. At the close of the campaign, the winning bidders are notified and they get seven more days to go through with the sale agreement. “Bids can also be made online in some cases. A number of people availed of this facility in the two campaigns that we conducted. The good faith deposit can either be collected by a sales executive, mailed or sent via EFT to our bank,” says Moore. After wrapping up its first auction in the country, LJ Hooker is taking its Buyer Bid programme to Gurgaon, Pune and Hyderabad. The firm is now auctioning 25 villas developed by IDEB in Electronic City, Bengaluru.
The biggest advantage of an auction is that the price can be lower than the regular market rate. “The auction rate has to be lower than the negotiated rate that the buyers expect. So, for a property with an asking rate of Rs 2,500 a sq ft, the base auction rate could be Rs 1,800. The idea is to sell, not just negotiate,” says Kiron.
Also, only those constructed units that have received building permits and have bank loans in place are considered for auction. “Before signing on a project, we make sure that it is at least 75% complete so that the buyers are confident about it being finished on time,” says Moore. Adding to the buyers’ confidence is the fact that the title is clear.
“The agency coordinating the auction will not take it up unless it is convinced about legal and regulatory clearances. Until the structure has been approved by the concerned town planning authority and banks, the auction will not take place. This ensures that only legally safe properties are put up for auction,” says Kiron. Also, as the deposit is adjusted against the cost of property or returned, depending on whether you win the bid, there is no liability for buyers.
While this seems like a promising option, what about the money? Assuming that you are bidding for a new property, you have to apply for a home loan in the usual way. Once you get the approval, you can participate in the bidding process. If you win, get the loan processed; if not, you’ve lost nothing. However, if you are planning to buy property that is under the hammer because of legal or other problems, financing could be an issue. “In case of developers, the payment process is the same as for the purchase of any other property, with the payment plan linked to the approval of a home loan. In case of an auction for default/acquired properties, the payment timelines are much shorter and banks may not give loans,” says lawyer Rahul Bhatia, who handles debt recovery cases for two nationalised banks.
However, in a normal auction, it’s a win-win situation, as buyers get homes for less and sellers get their money. Kiron explains that the asking rates are never the actual prices. Buyers negotiate and get the rate knocked down—and then might fail to turn up with a cheque. Usually, half the stock gets sold in an auction and the remaining is sold over the next few weeks to buyers who need time to decide. “Sales are slow and prices have been down. We think the concept has really worked for us and we are trying it out for our other projects as well,” says H.S. Bedi, managing director, IDEB Projects.
A. Manoj, lawyer, Kochi
|Bought a three-bedroom flat on the outskirts of the city at a private auction conducted by a local developer. While the market price of similar properties in the region is Rs 35-38 lakh, he paid only Rs 31.5 lakh.|
|"Auctions offer the best deals and you get a house without spending any time on negotiating with the builder."|
Even in cases where an auction fails to generate enough final bids, developers and buyers stand to gain. “We recently worked with a Kochi-based builder to hold an auction and the base price was Rs 500 per sq ft less than the asking rate. Even with this reduction, the buyers felt that the prices might go down further. Hence, the auction had to be called off. The interesting fact is that the process generated 50 positive leads with whom the builder could discuss directly,” says Kiron.
You can even buy a house abroad through auctions conducted by sites such as property abroad.com. However, as with any property in India, you need to do all the background checks.
Before bidding for any property, make sure you do your homework. “I made it a point to check the back channels for the lowest rates. It may not have been for the property on offer, only the one adjacent to it, but it gave me a fair idea about what I should pay,” says Das. Also, even if you don’t win the bid, you can always approach the builder with the same, or lower, rates.
In most auctions, the reserve price does not include ‘other charges’ such as those for parking and preferential location. Make sure you take these charges into account while bidding. In case of an auction by a lender, while valuing the property, consider expenses such as overdue payments to the municipality, tax department, electricity bills, etc. Also, visit the property at least once before the auction. Take these precautions and you can be sure of getting a good deal when the hammer comes down.
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