BHUBANESWAR: While the sensitive real estate market has been plagued by rising property prices, investors and buyers still keen on the sector are looking at alternate avenues to find a home in a tight market.
One such option is buying and selling properties at auctions. More and more buyers are crowding into auction platforms, where previously only developers and property professionals dared to go. More so, the introduction of online auction platforms has made the process more transparent now. For seasoned investors, these repossessed properties sold by banks may appear to be a steal. However, experts say, it is not completely risk-free either.
“It should be clear that a well-meditated play in distressed properties can reap rich benefits, while an inadequately researched acquisition can result in a severe financial setback and legal complications,” says Shobhit Agarwal, MD & CEO, ANAROCK Capital.
The biggest advantage of buying a foreclosed home is that these are generally available at rates that are often 15-20 per cent cheaper than the prevailing market rates.
This is because the bank’s claim on such properties is restricted to the outstanding loans against it and hence, the base price is set at the minimum amount that the bank intends to recover. In other words, the longer the current owner has been servicing the home loan, the lower will be the base price of the property, said Agarwal. “Another plus could be the potential for securing a property in a prime location,” he added.
Experts say that distressed properties that come up for auction are also legally sound in all aspects and can be considered safe investment options. But, just because a property is distressed, it doesn’t mean it is a good deal. Banks sell their foreclosures on an “as is, where is” basis, which means banks will not take any responsibility should any issue arise with the property in future. This is in contrast with the traditional house purchase deed, where a buyer can put a clause asking the seller to indemnify the buyer from any encumbrance on the property prior to the date of registration.
It is also safe to assume that these properties might not be in the best of state and the new owner will have to contribute to its renovation. While this is not a big issue, it’s better to assess the location before you commit to buy the property, warn experts. For instance, it makes no sense to buy a home for `40 lakh, spend `25 lakh on repairs and finally own a property worth `65 lakh. Instead, it is better to look for a property worth `50 lakh with little repair necessary. That apart, the winner will have to bear all related liabilities on the property — such as pending electricity bills, property tax, etc. Sometimes these dues can be substantial, warns Agarwal.
It is, ergo, imperative for prospective buyers to have a complete understanding of the ownership history of the property and have all the pertinent paperwork. “This is important in case the new owner seeks to sell the property in future,” he noted. Since the auctions involve bidding, there is no guarantee about the final price of the property. In any case, buyers should ideally seek the help of a competent lawyer to avoid a spanner in the works.
What to watch out for
■ Banks do not take respon-sibility if any issue arises on the foreclosed property later
■ The winner will have to bear all related liabilities on the property, including pending bills, property tax, etc
■ At times, auctioned properties might require tremendous renovation