When it comes to buying property in India, auctions are becoming a popular choice – and not just with investors and property developers. And, with house prices rising at the fastest rate it is a trend that looks set to gain momentum.
These properties are priced almost 15-20% cheaper than their original market price and most properties sold in auctions are usually ready-to-move-in properties such as 2/3 BHK apartments.
This shift of property buyer behaviour also means that bidding is likely to be more competitive, with homes currently being snapped up the quickest, according to developers.
What is an auctioned property?
Banks usually auction the properties under the provisions of and the procedure prescribed under the SARFAESI Act and the rules made thereunder. Under these provisions, a property is auctioned when the borrower, who has mortgaged its properties to the bank, fails to pay back to the bank.
Why is it auctioned and becoming popular?
When you buy a property with a home loan, the bank reserves the right to sell the property to recover their dues in case you do not repay the loan on time. In such a situation, after reminders and due process, the lender puts the property in question up for auction, following which it fixes a base price and then people participating in the auction are allowed to place bids that are higher than the base price. The person bidding the highest gets the property.
The popularity of home loans for purchasing properties at auctions in India is increasing due to several factors, including:
- Technology: Advances in technology have made auctions more accessible and less intimidating.
- Economic changes: Rising house prices and interest rates have made auction properties more appealing.
- Buyer behaviour: Buyers are increasingly looking for speed and efficiency.
- Sellers: Many sellers are turning to auctions as a faster way to sell properties.
What are the advantages of buying a house at auction?
Buying at auction is relatively straightforward. Other advantages include:
- Speed: You can move quickly with the entire home-buying process being completed within a set number of days after the auction.
- Transparency: You’ll be able see the other bids for yourself and there’s no risk of gazumping.
- Fairness: There’s no pressure to get your offer in first, as with other property buying methods.
- The deal’s done: The process is not affected by lengthy delays from other parties or breakdowns in communication.
- More choice: There’s also usually a wider range of properties and it’s possible to find some real gems, such as an undervalued home with planning permission or that renovation project you were looking for.
- Reliability: Contracts are signed as soon as the auction is over.
What are the disadvantages of buying a house at auction?
Everything has to be done really quickly – from arranging a survey to asking your mortgage advisor to check the legal pack. Other things to watch out for include:
- Do you have all the funding in place?
- Will you go over budget?
- Will the price change?
- Buyer beware of defective properties
How to find such properties
So, if you decide that buying a home at auction is the way forward for you, once you’ve selected an auction – they’re easy to find on sites such as Indian Banks Auctions Mortgaged Properties Information (IBAPI) portal, an initiative of Indian Banks Association (IBA) under the Department of Financial Services (DFS), Ministry of Finance to provide a common platform to display details of mortgaged properties to be auctioned online by Banks, starting with Public Sector Banks.
e-Bikray, is designed to be more user-friendly and technologically advanced than previous systems and aims to make the auction process completely transparent and accessible. Developed by PSB Alliance Private Limited, it is a collaboration of 12 government banks.
However, it’s vital to be prepared.
Here are some things to consider when buying a property at auction:
- Preparation: It’s important to be prepared and do all the appropriate research. Arrange to view the properties
Book viewings through the auctioneer or agent. Take a builder or surveyor with you to get advice on the cost of necessary repairs to help you decide how much to bid. Your mortgage adviser can help with this. If your bid is successful, you’ll only have a set number of days in which to exchange and complete so you’ll need to have the right mortgage in place. - Speed: The key to successfully buying a property at auction is speed and good organization.
- Mortgage: Lenders will usually only agree to a mortgage in principle if the property is in a liveable condition.
- Repayment: Investors may choose to repay a bridging loan using long-term financing options, selling the property, or refinancing.
- Finance professional: Talking to a finance professional can help you determine if your plans are realistic.
- Check the legal pack: This includes documents such as the conditions of the sale and the results of local authority searches. Study this carefully and send it to your solicitor to look over.
- Get an independent valuation: This is to check that you won’t be paying over the odds.
- Decide on your price limit: Find out what similar properties in the same area have recently sold for.
How does the auction process work?
On auction day, make sure you:
- Have the right paperwork: This includes photo ID and proof of residency (such as an Aadhaar card, passport or driving licence and utility bill), details of your solicitor and means of paying the deposit (cheque, debit card or banker’s draft).
- Listen out for last-minute changes: Before bidding begins, the auctioneer will check that everybody has a copy of the addendum sheet and will read out any alterations to the catalogue details.
- Make sure your bids are clear: Once bidding begins, potential buyers will be asked to make their bids, either by raising their hand or paddle, so that the auctioneer can easily identify them.
- Don’t get caught up in the moment: Always stick to your budget and never bid more than you can afford.
Property auction method
- Online auction: A property can be purchased through an online auction conducted by a bank. Bidders can participate in the auction online and submit their bids digitally.
- Live auction: Bidders can participate in a live auction by attending in person or through the phone or internet.
Here are some other things to know about property auctions
- Purpose: Banks auction properties to recover losses from borrowers who default on their loan payments.
- Costs: Buyers must pay a 1% TDS on the total property value if the property is worth at least Rs 50 lakh. Other costs include GST, stamp duty, registration, property tax, and unpaid fees.
- Inspection: Buyers can inspect the property to understand its condition and make an informed decision.
- Terms and conditions: Buyers should read the terms and conditions before participating in the bid
- Get mortgage advice: Find a mortgage professional perfectly matched to your needs. Getting started is easy, fast and free.
Can a mortgage adviser such as OneNDF help me buy at auction?
The key to successfully buying a property at auction is speed and good organisation. An experienced mortgage adviser like OneNDF will be able to work to very tight time frames to arrange an appropriate mortgage in principle, as well as taking you through the whole process. This could make all the difference to your chances of getting that property gem at a great price.
To finance an auction property, you may need to make a pre-bidding deposit of 10–15% of the total property value. You may also need to pay another 15% within a specified time frame, and the remaining balance within a month or so. To be eligible for home loans for property purchased at an auction, the cooling-off period is typically one year.
OneNDF experts can help you get a home loan on another property owned by you to finance the auction property.
At OneNDF, you can check your loan eligibility in minutes by furnishing details on our tech platform.
