Benefits of buying auction flats in Mumbai

Introduction

A home is the ultimate dream any human has. An abode they can call their own, a place that is their comfort zone, where they raise a family. Obviously, one weighs the pros and cons several times before choosing the right home. However, one doesn’t always have to choose the traditional channels of buying a house, like checking the launch of new residential buildings and societies in newspapers or in faraway localities. A little known secret is the numerous benefits of buying a property that comes to the market through bank auction. In simple terms, it is a fast moving, effective method of a public sale of a property through open bidding.

Auction Flats - Banks Offers

The Reserve Bank of India (RBI) permits our banks to sell stressed assets to individual buyers like the citizens of India by way of public auctions. So if you are looking for an investment opportunity or a house to live in, a bank auction property can save you as much as 30% or more on the market value.

The benefits of finding a property you like through bank auction are many. Most importantly, intelligent and smart investments are made as these properties are usually purchased at fair market value through competitive bidding. In the case of multi-property auctions, the buyer can see and choose from many offerings at one place. Auctions cut down on the long negotiation periods and time taken to purchase property as purchasing and closing dates are known. What is perhaps a real headache remover is that buyers get complete and detailed information on the said property as due diligence is done on such assets.

However, as bank auction flats in Mumbai involving foreclosed property are largely attended by investors and speculators, it is crucial for an individual buyer to tread carefully.

Properties auctioned by banks, thus, can be rewarding opportunities for buyers who can dedicate the time, ability and resources to evaluate them. “An eye on the potential for future appreciation and long-term value creation would yield much better returns than trying to chase the maximum discount, based on benchmarking the reserve price to quoted market prices. In order to make the most of this opportunity, therefore, buyers should assess the value from a holistic risk-reward perspective.

Earnest Money Deposit

As you are asked to pay about 10 per cent of the reserve price as Earnest Money Deposit (EMD) prior to the auction, you need to arrange your funds in advance. If you lose the bid, this amount is refunded; if you win, you are asked to pay at least 25 % of the bid amount on the auction day itself. As these deals close quickly, you will have to sort your funds in advance.

If you plan to get a home loan sanctioned, ask the auctioneering bank before the auction for an in-principle loan. Based strictly on your credit history and repayment capacity, the bank will go ahead and approve your loan.

CERSAI (Central Registry Of Securitization Asset Reconstruction & Security Interest)

You must go through the original sale deed and use Central Registry of Securitization Asset Reconstruction and Security Interest (CERSAI) records thoroughly. This is to ensure the property is free from other bank liabilities or loans. You should get the title ownership duly checked and confirmed by a lawyer. This is an extra step but provides with great clarity in your deal.

You should go through the bid document line by line to understand and be aware of any pending dues or smaller but significant things like status of previous utility bills, any pending litigation or statutory dues. You should be physically present to assess the house you intend to buy. It takes out any surprises you may be hit with in the later stages, from maintenance issues to repair needs.

Auction Bids

One might ask where do these properties come from and why are they not available and advertised like most new properties are? These are properties that have been seized by the banks after multiple missed payments by the borrowers. Remember, banks auction foreclosed properties essentially to recover the outstanding principal and interest amount, and to reduce its own liability. So the offer it gives buyers is mostly in the clear and is some of the most competitive pricing one can see.

Also, those who are interested in buying bank auctioned properties for investment are set to gain more in the long run. The potential for future appreciation and long-term value creation generally yields great returns. So even if the discount they get is less than the maximum promised, there are long term gains in the anvil.

Buying Auction Flats Made Easy

Fortunately for us, we live in an era of excellent technology and upgrades. Even a few years back, buying a bank auction property could have been a headache for an individual buyer or someone who is not an expert on bidding and auction guidelines. Today, trusted premier recovery agencies like JVD Recovery Agency Ltd have done a great job of listing several, excellent condition, and bank auctioned properties on their official website for potential buyers to go through and buy in a non-messy, secure and efficient way. Like most things in the internet era, the introduction of online auction platforms has made the buying process more transparent and easy.

What Property Consultants Say About Auction Properties

An article put by a leading property consultant company’s chairman speaks about the concept of buying a bank auctioned property in great perspective. “A successful acquisition will depend on both the bank and the property’s original owner being satisfied with the outcome so that there is no possibility of legal setbacks later on. Also, the buyer must have a complete understanding of the ownership history of such a property and needs to ask for all the pertinent paperwork so that the property title is airtight and not open to future challenges.

Industry Experts Opinions

Industry experts say that property auctions have been a very effective way for banks to reduce the stress in their books; and for prospective buyers to own a home at discounted rates. However, buyers have had mixed experiences — from euphoria over steep discounts to their remorse over unanticipated problems and liabilities.

That is because these types of property are usually those which are pledged as collateral for housing and business loans, but are taken over by the concerned banks under the Security and Reconstruction of Financial Assets and Enforcement of Security Interest (Sarfaesi) Act due to non-payment of dues by the borrowers. So, some problems are likely to remain.

Advantages of Buying Auctioned Property

“The advantages to buying a piece of property being auctioned by a bank include a potentially lower price than the prevailing market rates for such a property in a particular location, the possibility of securing a prime location asset, and reduced burden of due diligence since the auctioning bank will already have confirmed the legal veracity of the property.

Challanges Faced

Potential challenges: There are also some potential challenges to investing in property being auctioned by banks. For instance, it is impossible to anticipate what the highest bid for any given property will be. So, there is no assurance of acquiring a property one is interested in at the desired price.

“The main driver of auctioned properties is the discount to market prices. While the discount creates an excellent entry point, any surprises after submitting the winning bid are at the expense of the buyer, eroding his returns. While most banks are transparent with any external liabilities associated with the property, buyers should not overlook the ‘as-is-where-is’ clause, and other disclaimers provided in the bid documents. A physical inspection of the property and due diligence on title as well as outstanding society and municipal outgoings will go a long way to minimize the information deficit and risk of unforeseen costs – be it physical defects or statutory liabilities.

Process Involved In Buying An Auction Property

In an auction process, buyers lose out on the choice of apartment, the opportunity to negotiate and payment flexibility offered by an across-the-table transaction. Therefore, buyers should ensure that the ‘discount’ compensates for these compromises. Buyers should also carefully assess their ability to meet the financial commitments of the bid as well as ascertain the overall transaction cost, including taxation, registration and stamp duty.

Conclusion

“In any case, buyers need to be very familiar with the pros and cons of buying a distressed property. A successful acquisition will depend on both the bank and the property’s original owner being satisfied with the outcome so that there is no possibility of legal setbacks later on. Also, the buyer must have a complete understanding of the ownership history of such a property and needs to ask for all the pertinent paperwork so that the property title is airtight and not open to future challenges.

And soon, one can be looking at their future dream home!