Prop­er­ties sold by banks through e-auc­tions need thor­ough due-dili­gence or buy­ers could get stuck with un­clear le­gal ti­tles

HT Estates - - FRONT PAGE - Van­dana Ram­nani

Ramesh Luhani had been house-hunt­ing for over a year. He had met over a dozen bro­kers and ne­go­ti­ated with sev­eral builders but was not able to strike a good deal un­til he chanced upon an ad­ver­tise­ment by a bank invit­ing bids for an e-auc­tion. He won the bid and even man­aged to get a 10% to 15% dis­count on the prop­erty, but there were cru­cial de­tails that he had over­looked. A month af­ter mov­ing in, he was hor­ri­fied to find that the pre­vi­ous owner owed the hous­ing so­ci­ety ₹ 5 lakh in dues and that the house had been sub-let, which meant he could not re­sell the prop­erty.

Luhani’s case cleary proves t hat prop­er­ties bought i n e- auc­tions are sold at an ‘ as is where is ba­sis’ and most of them are of­fered at a dis­counted price of 10% to 15%. Banks are most likely to of­fer a dis­count be­cause of the prob­lems associated with non- per­form­ing as­sets (NPA). Though they do their own due-dili­gence, of­ten the prop­erty might have some li­a­bil­i­ties which have gone un­no­ticed.

At a re­cent e- auc­tion, the State Bank of In­dia (SBI) was able to sell 124 (out of a to­tal of 350) prop­er­ties seized in 26 cities worth ₹ 90 to ₹ 100 crore, says Parveen Ku­mar Mal­ho­tra, deputy man­ag­ing direc­tor, Stressed As­set Man­age­ment Group, SBI. Most of th­ese prop­er­ties were res­i­den­tial and were bought for end use. The to­tal value of the 350 res­i­den­tial and com­mer- cial as­sets up for sale ranged be­tween ₹ 1,000 and ₹ 1,200 crore.

T h e s e p r o p e r t i e s we r e pledged as col­lat­eral for hous­ing and other busi­ness loans and were taken over by the bank un­der the Se­cu­rity and Re­con­struc­tion of Fi­nan­cial As­sets and En­force­ment of Se­cu­rity In­ter­est ( Sarfaesi) Act due to non- pay­ment of pend­ing dues by the bor­row­ers, he ex­plains. The de­fault­ers were given a no­tice pe­riod of 60 days un­der the Sarfaesi Act, af­ter which the prop­er­ties were seized and auc­tioned.

“If the bor­rower fails to hon­our the loan, we start the le­gal process and re­pos­sess the prop­erty and later sell it at an e-auc­tion. We have em­pan­elled val­uers who keep the con­struc­tion, lo­ca­tion and the area in mind be­fore valu­ing the prop­erty. The plau­si­ble value given by them helps us set the re­serve price which is dis­closed to the bid­der be­fore­hand. Those in­ter­ested in the bid have to de­posit an ini­tial amount of 10%to 15% of the value of the prop­erty. Af­ter ver­i­fi­ca­tion of their know your cus­tomer (KYC) doc­u­ments, a dig­i­tal sig­na­ture is given to them to al­low them to par­tic­i­pate in the e-auc­tion,” he says.

But do banks make a profit from e-auc­tions? The in­ten­tion of or­gan­is­ing an e-auc­tion is to

he idea of an In­dia dot­ted with smart cities has tremen­dous ap­peal. We all as­pire to live in fu­tur­is­tic me­trop­o­lises where smart plan­ning and cut­ting-edge tech­nol­ogy con­verge to elim­i­nate dis­tances, mul­ti­ply con­ve­nience, re­duce pol­lu­tion, and cre­ate a safe and sus­tain­able en­vi­ron­ment for all. Set against the back­drop of In­dia’s grad­ual ur­ban mi­gra­tion, and the po­ten­tial of such cities to gen­er­ate greater lev­els of eco­nomic ac­tiv­ity and bet­ter stan­dards of liv­ing, there has been a strong ad­vo­cacy for smart cities for quite some time.

And In­dia’s ex­per­i­ment with the con­cept has be­gun, al­beit on a ten­ta­tive note. The gov­ern­ment has an­nounced plans to build 100 smart cities across In­dia and var­i­ous projects are pur­ported to be in the pipe­line. The time is now ripe to ask some ‘big ques­tions’.

Some of th­ese ques­tions are – why do we need smart cities? How ex­actly are they dif­fer­ent from reg­u­lar cities? And most im­por­tantly, how should we go about plan­ning, fi­nanc­ing and build­ing them to achieve the de­sired goals?

It is es­ti­mated that half of In­dia’s pop­u­la­tion by 2050, or over 800 mil­lion peo­ple, will live in ur­ban ar­eas. Ex­perts es­ti­mate that we need 500 new cities by then to ac­com­mo­date this enor­mous pop­u­la­tion. Th­ese cities need to be ex­po­nen­tially bet­ter than our cur­rent big cities, which are poorly planned, burst­ing at the seams, and of­fer low stan­dards of liv­ing to the vast ma­jor­ity.

They also need to pro­mote com­merce, sus­tain­abil­ity, seam­less com­mu­ni­ca­tion and tech­nol­ogy-en­abled governance. Smart cities, by def­i­ni­tion, in­clude all th­ese fea­tures. Con­sid­er­ing that In­dia will ac­count for a large chunk of the global pop­u­la­tion by 2050, we need ad­vanced cities that will trans­late our de­mo­graphic ad­van­tage into eco­nomic and so­cial ad­van­tage as well.

With that vi­sion in mind, the Union gov­ern­ment has al­lo­cated ₹ 70.6 bil­lion for smart cities in Bud­get 201415. This is a frac­tion of the tril­lion-dol­lar in­vest­ment that ex­perts say would be re­quired over the next two decades to build flour­ish­ing ur­ban cen­tres. How­ever, it’s still a be­gin­ning, and the suc­cess of the con­cept in In­dia will hinge on how well the first few smart c i t i e s are re­ceived by stake­hold­ers.

Smart cities are a great con­cept, but in In­dia, they are an ex­tremely com­plex propo­si­tion, given the so­cioe­co­nomic re­al­i­ties to­day. Get­ting all stake­hold­ers on board will not be an easy task, and there ex­ist sev­eral road­blocks, not the least of which will be fi­nan­cial.

How­ever, by do­ing the re­quired home­work, reg­u­larly track­ing progress and mak­ing au­thor­i­ties ac­count­able, In­dia could for­ever trans­form its cityscapes into ul­tra- mod­ern liv­ing and work­ing spa­ces. re­cover the amount due from the bor­rower and in case the bid amount is more than the out­stand­ing amount, the mar­gin is re­turned to the bor­rower.

Buy­ers can even avail of a loan for such prop­er­ties. “While no loan can be availed for the ini­tial de­posit, the re­main­ing amount can be taken as a loan from a bank and is like any other hous­ing loan,” he adds.

“The re­cent e-auc­tion only goes to prove that there are enough buy­ers in the mar­ket who are wait­ing to buy readyto-move-in prop­er­ties avail­able at the right price. Most of th­ese

units have min­i­mal de­vel­op­ment and ap­proval risks associated with them. Banks gen­er­ally do the due-dili­gence for th­ese prop­er­ties them­selves through their as­set re­con­struc­tion de­part­ments or sell the ‘bad loans’ to as­set re­con­struc­tion com­pa­nies who de­rive mone­tary value out of th­ese ‘dead’ as­sets. How­ever, they do not give any warranty and the buyer has to bear any un­known risks associated with it,” says Anckur Sri­vast­tava of GenReal Ad­vis­ers.

What ex­plains the dis­counts that are of­fered in e-auc­tion? Dis­count is a func­tion of prob­lems associated with such as­sets. There could be some li­a­bil­i­ties associated with the prop­erty that is be­ing auc­tioned. Th­ese could in­clude so­ci­ety dues and other li­a­bil­i­ties un­known to the len­ders. There is al­ways a deficit in in­for­ma­tion and the dis­count on of­fer is due to that. On an av­er­age such prop­er­ties sell at a dis­count of 15%, says Siby An­thony (CEO- ARC) Edel­weiss Fi­nan­cial Ser­vices.

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.

Since those bid­ding for the prop­erty in an e- auc­tion are al­lowed to in­spect the prop­erty, they should check from the so­ci­ety if there are any dues pend­ing against the prop­erty in ques­tion. There could be cases of sub­let­ting that may not be known to the bank. If that is the case, the buyer who pur­chases such a prop­erty will not be in a po­si­tion to sell with­out the ten­ant’s ap­proval. Sub-ten­ancy can cre­ate its own share of prob­lems. No buyer will know that un­til he ac­tu­ally goes and re­sides in that prop­erty, he adds.



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