Know All That You Need To Before Purchasing high-value Property Auctioned By Bank

Banks are in auction mode and high-end properties are now on the block more often.

Mortgage lender Indiabulls Housing Finance recently sold a property belonging to Yes Bank co-founder Rana Kapoor, on Delhi’s posh Kautilya Marg, to a realtor for around Rs 114 crore.

The property was purchased for Rs 150 crore, property consultants in the know said, noting that the Rs 114 crore sale was a distress deal. The market value of a similar property in the area is around Rs 135 crore, the consultants said.

Indiabulls Housing Finance refused to comment.

The deal was registered on March 11. The seller was Indiabulls Housing Finance Ltd through Karan Lamba. The buyer was Audentius real estate India Pvt Ltd through Shiv Kumar, and the address of the property is 18, Kautilya Marg, Diplomatic Enclave. The size of the property is 1,031.29 sq. mt. The transaction has been registered as a certificate of sale, according to documents made available by Zapkey.com
The property consultants cited earlier said IHF auctioned the property after Bliss Villa, the firm where Kapoor was the guarantor, defaulted on a loan worth Rs 240 crore.

“Unlike the Lutyens area, where Lutyens Bungalow Zone norms have to be adhered to, Kautilya Marg is located outside the LBZ area. Interestingly it sits adjoining Sardar Patel Marg, which is governed by the laws of the Lutyens Bungalow Zone. Owners here can exploit the FAR as per Delhi building bye-laws. However, given the large ticket values, one does not see too many redevelopment projects here and the location continues to be an end-user locale,” says Shveta Jain, Managing Director and National Head, Residential Services, at Savills India.

Lutyens’ Zone is in the heart of the capital and is an exclusive ‘zone’ spread across nearly 19.1 sq km.

“This is a heritage zone. There are strict height, floor-area-ratio and reconstruction norms. This is primarily to protect the low skyline. Also, what it means is that even though the plot size may be big, the developed or built-up area could be much less,” said Jain.

It should be noted that, in February 2020, another property spread over 3.4 acres was bought in the Lutyens zone’s Bhagwan Das Road for just about Rs 400 crore. Adani Properties Pvt Ltd (APPL) of the Gautam Adani-led Adani Group won it after ICICI Bank UK Plc had filed an application with the NCLT to initiate insolvency proceedings against Aditya Estates Pvt Ltd, the defaulter.

In 2020, Yes Bank was in the news for having put a bungalow located on Bhagwan Das Road on sale with a reserve price of Rs 430 crore following a default by the Essel Group-promoted RPW Projects Private Limited. The house had been acquired by the Subhash Chandra promoted-Essel Group for Rs 304 crore almost five years earlier. Possession of the property was taken on June 15, 2020 under the SARFAESI Act, 2002.

How these deals work

Housing finance companies and banks regularly auction properties when a loan becomes a non-performing asset.

“Of late, we have seen the numbers go up significantly. At the same time, a large number of such auctions are unsuccessful, with no bidders,” said Amit Goyal, CEO, India Sotheby’s International Realty.

Sometimes a bunch of properties are auctioned, and often if it is a high-value asset, it is put out in the market through intermediaries. The discount depends on the value of the property. High-value properties are discounted more, as the universe of buyers is limited, while the discount on lower-value properties can be much lower. It also depends on the NPA situation of the financial institution concerned and how eager it is to recover the dues, Goyal explained.

Things buyers should keep in mind

Buyers should not have the misconception that these properties always have legal issues attached to them. “Banks are in a position to auction properties only if they have a clear legal title. Also, prices of such properties are at least 5 percent to 10 percent less than the market value, so it is worth signing up for the auction,” says a bank official.

Banks seize properties when they are convinced that the borrower will not be able to repay a loan. After the borrower misses multiple payments, the lender auctions the property to recover the outstanding principal and interest amount. Given the troubled past of such properties, they are usually available at a discount to the market price.

Banks put out details of the properties they are auctioning. A portal launched by the Indian Banks’ Association (IBA) provides a common platform. Prospective buyers can log on to ibapi.in, register themselves, view details of properties, and even participate in the auction process.

In the case of residential properties that are auctioned, buyers should check if there are any “liabilities associated with the property that is being auctioned”.

Banks get the premises vacated before they are auctioned and have to get possession of the house through a collector or a district magistrate to avoid any law and order issues.

Also, if a buyer plans to take a loan to purchase the property, he should try and get an in-principle home loan approval from his/her lender. Banks give such loan approvals solely on the basis of the credit history and repayment capacity of the bidder. The loan is sanctioned by the bank on the condition that the bidder will cover the applicable property registration charges, stamp duty and other legal costs and submit the valid property registration document with the bank, before the disbursal of the actual loan.

Buyers planning to buy such properties should ensure that it has a clear title. “Check for other banks, housing finance company encumbrances. Sometimes the same property is a lien for more than one loan. Check the condition of the house. Get an architect’s opinion on the amount needed to refurbish and remodel. Unlived homes tend to become decrepit. Ensure you know the last five transactions in the vicinity for a similar property. What may seem a discount may not be one. So, make sure you get a good deal. The buyer calls the shots in such deals,” added Goyal.

Rohit Chopra of Southdelhiprime.com, however, says that his advice to clients is to only buy properties where the (previous) buyer/owner is willing to confirm the sale of the transaction. “Banks often provide ‘as is, where is possession’ and if the borrower were to get a stay order in the future, the buyer may find himself in a spot.”

(Source: Moneycontrol)