Since the Indian economy goes on to struggle and people lose their jobs, banks have seen a great sharp jump in loan default by their customers. This is something that includes home loans that actually were believed to be justly safe assets with negligible defaults in the pre-COVID era. But you know times have absolutely changed and banks and housing finance companies are now simply saddled with a record number of non-performing types of assets (NPA) or properties where buyers are not really able to pay their emis.
Once any property turns out to be NPA for banks, they have to simply sell it in the open market to simply recover the dues. The sale takes place through bid auctions. The auctions take place both via a tender auction where prospective buyers deposit or submit a tender document with an offer price or simply through an online auction. Yes, such an auction for property is a good place for people who may want to buy property too without any hassle. But remember that banks however put a minimum reserve cost for all properties and the bidding price has to be really higher than the reserve price.
It is not always cheaper
There is a clear perception that bank auction properties are mostly cheaper than a similar property in the open market and it’s a somewhat good way to acquire a prime property at a great price. But acquiring a property in that of a bank auction can be really tricky and far more boring compared to an open market purchase wherein you can simply have unlimited time to make a decision and the seller is more than glad to ease the entire process. In a bank type of auction, you are most often on your own, boosting the chances or possibilities of a bad deal. However, if you are smart, informed and know the know-how you can make the best deal of your life too. Anyhow, the following are some ways to minimize risks or the possibility of any sort of bad deal while acquiring a property in any bank auction.
Great property in a bad location
When you are buying a property from the open market, your search most often starts with the probable locality or the suburb where you do wish to live in. Then you do set your budget and start looking for a property that is within your means. You must actually follow a similar process when acquiring a property under bank auction. In most of the large auctions, banks sell properties from across the nation including properties or that of even plots located in tinier towns and satellite towns far away from that of city centers. The point is you must zero down on the city as well as locality where you would look forward to acquire a property and then hunt for properties on offer in such types of cities or localities. However, in case you feel that you are somewhat flexible in your preference of locality then you can easily create an order of preference. But as a rule don’t actually make it open-ended It is simply for the reason that it could increase the possibilities of landing with a bad property in a bad type of locality.
Is the bank possessing the physical possession of the property?
Remember that most of the property auctions involve a period or tenure of inspection where potential buyers have a somewhat window of a few days to make a physical type of verification of the property. When inspecting the property, you must also check the locality and that of the housing society.
The most crucial point is to simply ensure that the bank or the lender has the overall actual physical possession of the property. There is absolutely no point bidding for a property that’s physical possession or keys are not really with the lender.
Does the auction price quite cheap?
The common or general perception is that properties under bank auction are somewhat cheaper than similar properties in the open market. But when you add up the full cost of ownership including the opportunity cost of your time, that of effort and the upfront cash payment involved in the process, the auction property might fail to or simply does not be substantially cheaper than similar properties in the open market.
It would be wise of you if you check the current market price of a similar property and then go for an auction property only if the general price is at least fifteen to twenty percent cheaper than the open market costing. Remember that there is an element of risk that is involved in acquiring a property that was taken away from its overall original owner because of financial problems. You deserve a premium or that compensation for taking that danger. While calculating the price, take into account all expenses including legal fees if you have hired any lawyer, the expense of property registration post-auction, likely cost of renovating the property and that of the opportunity cost of the earnest money deposit (EMD) that is going to be tied-up with the bank for at least time of a month.
Always Keep tight deadlines involved in the action process
As a general rule, banks finish the entire process of auction inside the time of thirty days from the date of its publication on their website or that of in newspapers. So you have nearly a month to make a decision on the property, that of arranging your documents, filling the tender or that of auction document and making the payment for the bid amount. It would be nice if you get into it only if you can simply spare the time for running around.
Remember that in case you are unable to deposit the balance amount within the stipulated time, you might lose the initial amount that you had deposited with bank. So it is finest to go for an all cash deal if possible. And in case you go for it, include the possible loss in interest income that you experienced while calculating the total cost of the overall auctioned property.
To sum up, you should check out proper auction for properties and ensure that you keep all these aspects in mind when making a move.