New Delhi: Banks use them to sell distressed assets, but can auctions become a popular and preferred way to sell real estate? To be sure, there is the rare (and usually much sought after or expensive) piece of real estate that is auctioned, but most sellers and buyers avoid this route. Indeed, the Indian auction market is defined by foreclosures, loan defaults and stressed assets.
Auction House India (AHI), a joint venture between the UK’s largest property auctioneer Auction House and New Delhi-based NU Dimension Advisory LLP, is hoping to establish what it claims is a first-of-its-kind auction model in India where non-distressed general properties can be auctioned. In most auctions, buyers face problems with low transparency in pricing and they are often not provided relevant information. And sellers avoid auctions because legal aspects such as transfer of titles are just that bit more complex and time-consuming.
AHI says it will deal with all legal issues and put up a property for sale through auction within six weeks. Many banks advertise the auction of distressed assets through newspapers, and there are websites such as ForeclosureIndia.com, BankDRT.com and NPAsource.com that also offer information about the auctions being organized by banks.
However, open auctions of general and non-distressed properties are more the exception than the norm. Auctions are the proven and popular way of buying and selling properties in many countries such as Australia, New Zealand, UK and the US owing to their speed, certainty and simplicity.
It has been tried in India. A real estate portal that is part of the Times Group, has tried it. It runs online auctions in which bidders who have paid Rs.5,000 (to show their interest) can participate. However, the portal was not available for comment.
One reason for the low response could be the link most buyers automatically make between an auction and distressed assets. “When you say auction, people in their mind think it is going to be a distressed asset,” said Ankur Dhawan, chief business officer at an online property seller, adding that the interest for auction comes from the fact that there is a chance to buy property at a low price.
That limits the utility of auctions in the real estate space, according to Dhawan. “It won’t be a primary mode of selling or buying property, but again you can identify few niche areas like distressed assets or very luxurious properties,” he added. In August, AHI plans to host its first auction in New Delhi of properties worth Rs.130-150 crore, ranging in value betweenRs.15 lakh and Rs.15 crore. There are apartments and shops for sale, even a playschool, and a couple of bungalows.
AHI’s model is offline. “Our plan is to have a national network of auctioneers selling local properties through regional auctions. We believe, if you sell a Delhi property in a Delhi auction, you will get a better price,” said Saif Nawaz, founder and director, AHI.
The company has also partnered with another online portal for advertising. Potential buyers have access to complete details such as the condition and market rate of the property. They can also visit the property before the auction on a designated viewing day. AHI has also partnered with banks and financial institutions in order to facilitate easier loans.
“They gave me a free valuation and arranged everything. They also gave me a reserve price of Rs.1.5 crore, which was above my expectations and higher than what I bought the property for,” said Nida Suneja, a seller who agreed to auction her plot through AHI. Nawaz admits that auctions will take time to become popular, but adds that it is one way for buyers and sellers to unlock the true value of properties.
Dhawan adds that if someone builds a platform and talks to several banks (to get them on board), the auction model may take off in two-three years. The auction property market in India is currently dominated by independent property consultants such as Jones Lang LaSalle Inc. (JLL) and CBRE Group Inc.
Some sellers, including companies, prefer discreet channels such as auctions, says Santosh Kumar, CEO of JLL India. JLL was an adviser in the June 2014 auction of Mehrangir, the bungalow of the late Homi Bhabha, the father of India’s atomic energy programme, which was auctioned for an unprecedented Rs.372 crore.
There are no laws governing property auctions, but if the space heats up, it is likely the government will feel the need for some—to protect consumers and ensure transparency. “It’s a new concept. You don’t have to do anything. They do the valuation and marketing for you and they have a reserve price also. So why not,” said Suneja, who had also tried another website, but wasn’t satisfied with the result.
Credits Live Mint