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Builders & Real Estate Bulls Theory Proved Wrong

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Builders & Real Estate Bulls Theory Proved Wrong

Last updated: November 1 2016
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  • Re : Builders & Real Estate Bulls Theory Proved Wrong

    1.Are there any risks associated with buying foreclosed properties in bank auction?
    YES.

    2.Is this risk higher than that of booking with builder in an under construction scheme, or buying a resale flat ?
    Hard to say which is a higher risk. Case to case.

    3. How does one ensure/verify that the property under auction does not have pending dues such as corporation taxes, society taxes, electricity bills?
    This is quite easy.
    Society Dues: Go to Society office and find out. They will be more than will to tell you as they see some hope of recovering dues.
    Corporation Tax: Again, just go to Tax collection office and ask for pending dues for the flat.
    Electricity bills: Just go to their office.


    I went after a couple of foreclosed properties. Ultimately dropped the idea. Sharing my experiences.
    Some background. Most of these props are attached by the banks based on "sarfaesi Act".
    Basic google on sarfaesi act.

    "The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI) empowers Banks / Financial Institutions to recover their non-performing assets without the intervention of the Court."

    One of the flat that I went after met all my requirements. Was quoted 10% below market price.
    Bank Auction notice was pasted on the door of the flat.
    To my horror, I discovered that this party had pending dues of 350 crores towards the bank.
    This flat was just one of the collateral that the party had pledged.

    I took the services of a lawyer who specializes in "sarfaesi" to decide what to do.
    He told me not to go ahead for the following reasons.

    1. The initial title holder of the property can move a higher court, if he/she wants.
    2. sarfaesi just gives the banks authority to attach and sell props. I don't think it takes away the right of the original owner to file a case in a higher court to dispute what bank has done or just to harass the new owner.

    I thought I will compromise with the previous owner and have a tri party agreement between bank, original owner and myself. However I could not trace the original owner and let it go.

    Just some real life experience.

    Comment


    • Re : Builders & Real Estate Bulls Theory Proved Wrong

      Since the foreclosed properties have to be bought without bank finance, I had once enquired about who has so much money ready at disposal to bid for such properties? I understand there is a nexus of brokers who deal only in such properties. They are obviously cash rich and then sell the properties at higher rates in the market. They have a nexus in the sense if they identify a stranger at the auctions, they artificially keep increasing the prices to prevent other buyers from bagging the properties.

      Comment


      • Re : Builders & Real Estate Bulls Theory Proved Wrong

        Originally posted by rembrants View Post
        Since the foreclosed properties have to be bought without bank finance, I had once enquired about who has so much money ready at disposal to bid for such properties? I understand there is a nexus of brokers who deal only in such properties. They are obviously cash rich and then sell the properties at higher rates in the market. They have a nexus in the sense if they identify a stranger at the auctions, they artificially keep increasing the prices to prevent other buyers from bagging the properties.
        These brokers bidding on foreclosures are backed by real estate investors lending them money against the flat at very high rate of interest.

        So they have a sort of loan shark type "bank" loan only.

        Re Sarfesi, the properties bought give clear title. If the person appeals to higher courts he only gets monetary compensation. The property he has mortgaged and so title is anyway with bank.
        Venky (Please read watch a or before posting)

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        • Re : Builders & Real Estate Bulls Theory Proved Wrong

          Originally posted by GlobeSon View Post
          1.Are there any risks associated with buying foreclosed properties in bank auction?
          2.Is this risk higher than that of booking with builder in an under construction scheme, or buying a resale flat ?
          3. How does one ensure/verify that the property under auction does not have pending dues such as corporation taxes, society taxes, electricity bills?
          I would use a reputed lawyer who has experience in real estate transactions to guide me through this minefield.

          I personally would prefer purchase a flat in a resale transaction - that way you are able to inspect the quality of the finished product, are not at the mercy of the builder's whims.

          As for due diligence, I'd suggest you make sure that the Society gives you a 'no dues certificate'. Ask for the latest original receipts/bills in respect of property tax, society outgoing, electricity and gas (if piped gas connection).

          Comment


          • Re : Builders & Real Estate Bulls Theory Proved Wrong

            Originally posted by rembrants View Post
            Banks are not allowed to lend for foreclosed properties because it would mean that the bank itself is encouraging the default.

            Here's an example:
            Mr. A buys a flat for 1 crore after taking mortgage finance from XYZ Bank. 2 years down the line the value of the property has come down to say, 85 lakhs. Mr. A has been paying his EMIs and the outstanding loan now is Rs 93 lakhs.

            Mr. A will stop paying his EMIs, trigger a default and will happily go for a foreclosure. If banks finance bidding a foreclosed property, the same Mr. A or his cronies will buy the property from the bank at 85 lakhs based on another loan from another bank.

            the XYZ bank will lose money (Rs 93 lakhs- Rs 85 lakhs) while Mr. A will gain the same (reduce his liability from Rs 93 lakhs to Rs 85 lakhs).

            Hence banks do not lend money to buy foreclosed properties.
            The same scenario will play out even if the foreclosure property is financed by loan for the new buyer, How will it differ

            Comment


            • Re : Builders & Real Estate Bulls Theory Proved Wrong

              [QUOTE=rembrants;1342909 They have a nexus in the sense if they identify a stranger at the auctions, they artificially keep increasing the prices to prevent other buyers from bagging the properties.[/QUOTE]

              What do you mean by artificially raising the price here ? The brokers are participating in the auction and bounded by the same rules as the individual. If they raise the bid, and the individual refuses to raise it higher, they will have to pay the high bid amount putting themselves at loss

              Until the bank itself is colluding, then its a different story

              Comment


              • Re : Builders & Real Estate Bulls Theory Proved Wrong

                Housing finance money is indirectly lending money to a builder through home loans

                Housing finance money is indirectly lending money to a builder through home loans - https://www.equitymaster.com/dailyreckoning/detail.asp?date=07%2F23%2F2015&story=4&title=Are-real-estate-builders-getting-desperate-for-money#.VbCJVsfDnhc.twitter

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                • Re : Builders & Real Estate Bulls Theory Proved Wrong

                  Originally posted by Kharkar View Post
                  I would use a reputed lawyer who has experience in real estate transactions to guide me through this minefield.

                  I personally would prefer purchase a flat in a resale transaction - that way you are able to inspect the quality of the finished product, are not at the mercy of the builder's whims.

                  As for due diligence, I'd suggest you make sure that the Society gives you a 'no dues certificate'. Ask for the latest original receipts/bills in respect of property tax, society outgoing, electricity and gas (if piped gas connection).
                  well, many times the auction advt states "Sale on As Is Where Is basis". Which obviously means that the buyer has to take over any unpaid dues.

                  The only reason one may consider buying foreclosed property in an auction is the prospect of getting a good property at less price. If that's proving too risky, no reason to even get into it.

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                  • Re : Builders & Real Estate Bulls Theory Proved Wrong

                    Definitely its a trap.
                    Yesterday's front page advertise in Sakal Paper Pune.
                    Attached Files

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                    • Re : Builders & Real Estate Bulls Theory Proved Wrong

                      Originally posted by Hairpin View Post
                      Definitely its a trap.
                      Yesterday's front page advertise in Sakal Paper Pune.
                      Since sales are down and builders are not getting loans from banking channels or getting at high interest rates say 30% , it is a steal for them to get a loan at 10% from a homebuyer to fund construction costs .
                      So builder saves 20% on interest .
                      For a HFC , it gets a customer who'll service their loan for 15-20 years .
                      What is in it for a customer - He saves on pre-emi interest with the corollary that he has to pay the loan no matter whether he gets possession or not/delayed possession . The builder in all probability will pay for 'x' number of months . If more customers fall to this then there is no need to reduce prices .
                      People will fall to all types of tricks - the only thing that is stopping them is prices which they cannot afford .

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