Consider distressed assets for bargain

Shilpa Phadnis, May 21, 2011, 06.48am IST
 
BANGALORE: If you are planning to buy a house, you could consider buying one going under the hammer. Properties auctioned through the Debt Recovery Tribunal (DRT) provide buyers with an opportunity to buy properties at a bargain price.

Banks and financial institutions auction off distressed assets to recover debts. Properties auctioned through DRTs are advertised in newspapers . If researched and bid upon, these properties could be a good bet for prospective buyers as they are priced much below the market value . "Resale properties have clear titles. Properties are priced 10% to 20% cheaper than current market values. Since these properties are quite old, the valuation is lower . The construction value of the property depreciates depending on how old the property is," said Naresh Dandapat , regional director-South at real estate consultancy Knight Frank India.

Banks are empowered to initiate action against defaulters under the Securitisation Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI) to recover the dues without the intervention of the court. The lender/ bank, calls for a public auction where a buyer pays 10% of the reserve price as earnest money deposit (EMD) to participate in the auction. A consortium of lenders approach the DRT to recover their share of dues. DRT is an appellate established under the Recovery of Debts Due to Banks and Financial Institutions Act 1983 and SARFAESI is an Act under the DRT which came into force from June 2002.

Previously, people were wary of buying properties auctioned through DRT, as there were higher levels of negative sentiments towards foreclosure homes. "There is an element of risk when the owner of the asset makes a claim under section 17 of SARFAESI Act," said AV Bagur , director, Bank DRT Informatic Service. But the sentiment is slowly changing as property buyers carry out a thorough due diligence process . "It's zero risk as long as the lender takes adequate measures in putting up the property for auction in the prescribed manner. The buyer of such property can go through the legal documents and papers pertaining to the property in question before deciding to participate in the auction," said Ashok Rao, DGM, Manipal Housing Finance Syndicate.

It's not just the end users eyeing DRT properties. Many realtors and developers find value distressed assets. These could be large parcels of defunct industrial land/ distressed assets where the borrower could have defaulted . A 25-acre BPL property valued at over Rs 100 crore is up for grabs in ITBP, Whitefield , according to sources in the know. Kesarwala Industries' nine acre property in Whitefield valued at over Rs 108 crore is going under the hammer shortly, said an industry source.

There were 3,710 appeals filed at the DRT cell in Bangalore last year compared to 2,092 in 2009, according to sources in the tribunal.