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Enter the era of e-auction

As India’s real estate industry shows signs of a turnaround, we see both buyers and sellers coming back to the market with heightened interest.

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Sudhir Pai

As India’s real estate industry shows signs of a turnaround, we see both buyers and sellers coming back to the market with heightened interest. Banks, as sellers, have always been looking to liquidate their repossessed assets through credible platforms and with more and more home buyers coming online, e-auction is increasingly being used as the preferred mode for liquidating inventory.

Going by industry estimates, the banking sector is sitting on a pile of stressed assets worth more than Rs 10 trillion. Out of this, Rs 8.96 trillion are in the books of the public sector banks. This has opened a window of opportunity for banks and non-banking financial companies (NBFCs) to sell properties confiscated from defaulters to recover some of their investments by leveraging the reach and scale of e-auctions.

A paradigm shift

In the past few years, e-auctions have improved four things in the overall process:

  • Enhanced retail reach
  • Improved listings quality
  • Educating the buyers &
  • Offer a level playing field through a transparent price discovery system

A new sales channel for banks and developers

Earlier, auctions were limited to only a small section of clientele that would act as cartels. But with e-auctions, banks are now able to reach out to a wide range of retail clients across multiple markets by offering a level playing field through a transparent and fair price discovery system. Moreover, what makes these properties an exciting proposition is the fact that they are available at an average 20 per cent lower than the market value.

As online property search is also catching the fancy of more and more people, property portals have taken a lead in offering e-auction platforms. Keeping in mind that there is a wide set of retail customers in tier 1, 2 and 3 cities, magicbricks.com launched its e-auction platform in 2017 and the response has been positive. Banks like PNB HFL, Axis Bank, HDFC, and Union Bank have tied up with property websites. It is a lucrative collaboration for banks as they don’t have to invest much in physical infrastructure or manpower. This also allows the market to determine the price of the properties.  

Developers, too, are exploiting the potential of online platforms as  an innovative sales channel. Many developers are finding it difficult to service their debt obligations because of low sales and high inventory, so e-auction open a new avenue for them to get rid of their unsold inventory. Many have, thus, started offering their unsold inventory to home buyers through such platforms. This has truly put the price decision right in the hand of the consumer.

Improved reach

This has also led to the overall improvement of the listings of repossessed assets. Gone are the days, when auction notices used to appear as classified ads in a nondescript part of a newspaper. Today, banks are investing in online marketing campaigns to enhance the visibility of the available re-possessed assets for a significant period of time ahead of the e-auction day. This has improved the overall reach and a significant rise in participation.

Increasing online transactions and a steady supply of properties have augmented the trend of e-auctions. 

Check-list for buyers

The key concern of buyers is whether it is safe to buy properties through e-auctions.  One must remember that all these properties have been put up by banks, who have their own robust due diligence process. However, property seekers would be best advised that the properties put up for e-auction are on "as in, where in" basis. This means that buyers should also avail the services of a lawyer to get the due diligence done. However, there are a few things that buyers must keep in mind while participating in e-auctions. These are:

  • Always check whether the property is mortgaged to any other financial institution.
  • Check whether there are pending dues like maintenance charges, electricity or property taxes. Added together, they may end up being a burden for you later.
  • Check the property title of the house. Generally, it is assumed that since the property is mortgaged, the property title would be clear. It is always better to do a double check to safeguard your interest.
  • Try to use the services of a civil engineer to assess the physical condition of the house. 

The writer is CEO, magickbricks.com

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