NEW DELHI/HYDERABAD: Delhi-based businessman Ramneet Singh was looking for a residential property at a good location in the national capital when he came across an advertisement about the auction of few flats by a leading finance company.
Despite warnings from his friends, Singh went ahead and made a deal for a flat at Rs 55 lakh — much below the market rate as the property met his requirements.“Most brokers were demanding cash component in the deals. The market price of the flat I bought was Rs 65 lakh but through bank auction, I got it for Rs 55 lakh. By choosing an auction, I was spared of many troubles,” Ramneet said. It is the availability of high valuation assets at lower than market price that makes buying the distressed property a tempting deal for the homebuyers. But is it as simple and rewarding?
“Many go for bank auctions as they feel that properties being auctioned by banks are not just cheaper but also have clear title. While they might be low priced, there is no guarantee that they have clear title and are free from any litigations and disputes.
There have been several instances in which owners of auctioned properties have run into problems. Therefore one needs to be extra cautious and do thorough verification and checks before participating in the auction,” warns financial adviser Subba Rao Anupindi.
According to real estate insiders, some of the problems which auction property buyers frequently face are: original owner might sue, claiming that the price fixed by bank for the property is lesser, the property might have also been mortgaged with other banks and lenders through unscrupulous means, it might have other outstanding dues attached with it like, electricity bills, maintenance charges and other dues if its located in an apartment complex or housing society, evacuating the tenants might turn into a head ache sometimes if they do not cooperate, if the property is rented etc.
“Buying a property through auctions requires lot more diligence than actually buying a new property directly from a builder or seller. Only people who are able and ready to take all the required efforts should go for auctions. It is must to visit the property and inquire about all the details about owner, locality, whether it is sublet or not, any other siblings or partners who might claim possession of the same property and other details. Also, a person defaults on paying for a bank only after facing considerable financial stress. So there is all possibility that the property might also have other outstanding dues on it. One should inquire about it. Another important point is, when one is buying an auctioned property, without just depending on the bank, the buyer should meet even the property owner and ensure that he cooperates, to avoid any unnecessary troubles in the future,” advises C Shekar Reddy, former national president, CREDAI.
Things to remember
According to banking and real estate observers, generally, the ‘reserve price’ of the properties to be auctioned is fixed 10 to 20 per cent lesser than the existing market price.