Benefits and Risks of Buying a Bank Auction Property
For a good financial system, a sound banking system is a prerequisite. But, the existence of non-performing assets creates hurdles affecting the country's economic growth. An elevated NPA status level of NPAs indicates an elevated credit default possibility, thereby lowering the comprehensive efficiency and efficacy of the lending system. Banks tend to conduct different property auctions to recover their lost finances. These properties include agricultural, commercial, and residential properties. They sell off ‘bad properties’ those who have defaulted on loan payments. Citizens from all over the country are invited to participate in auctions and make bids based on their financial aspects and preferences.
“NPAs pose a challenge to banks because they reduce the profitability as well as the liquidity of banks.”
“As per Statista, Indian public sector banks collectively owed approximately 6.17 trillion Indian rupees in non-performing assets in fiscal year 2021. This value was much higher, at around 7.5 trillion rupees in the 2019 fiscal year, indicating a slow but slight relief for India's economy in terms of non-paying assets at public banks.”
While there are many advantages to buying properties at bank auctions, one cannot ignore the risks that come along with the process. The buyer requires due diligence before they bid for the property in an auction.
So, on that note, let us discuss the essential benefits and risks of buying properties during a property auction by a bank.
Benefits of Buying a Bank Auction Property
Below are some of the benefits of buying a property auctioned by the banks.
• Reduced Rates - With bank auction properties, one of the most notable benefits is that they come at lower and affordable rates. After the property evaluation by the bank, the prices are lowered by about 15 to 20% from the market price. Hence, buyers can always get the best deals while buying auctioned properties.
For e.g., The Debt Recovery Tribunal, Bengaluru, has sold the property owned by absconding businessman Vijay Mallya’s aviation company at almost one-third of its reserve price of Rs 135 crore set in the first auction conducted in 2016. Read more at:
• Superb Locations - Certain or most properties auctioned by the banks are all located in posh and sophisticated areas. Hence, these properties are some of the most lucrative options for people.
• Instant Move-In Ready - In the case of these properties, one needn’t go through the whole process of remodelling and renovation unless one wants to. The bank-auctioned properties are entirely ready to move in and are secure for sure. After the deal is closed, the buyer can move in instantly, and the convenience is unparalleled. A brilliant investment tool not limited to just residential properties - there are industrial, commercial, agricultural - all types of properties.
Risks in Buying a Bank Auction Property
Let us look at some of the risks associated with property auctions by the bank.
• Due diligence required - Bidders are always advised to perform their due diligence before making bids to make the most out of the purchasing experience. Participating in the auction is not enough since one must gather all the property details in the first place.
• Additional Costs - While bank-auctioned properties tend to be safe and secure, there is no telling about the additional costs it may have. Sometimes, it can be difficult for the buyers to assess the property’s condition properly, so making a decision becomes difficult for them.
• Outstanding Payments - The buyer's sole responsibility is to make payments of any outstanding dues related to the property. These dues can include statutory charges, society charges, municipal taxes, electricity bills and many others. These expenses might also include lease and litigation charges for the property.
The Way Forward
Buying a bank auction property can be both beneficial and risky. Purchasing a bank auction property needs focus, diligence and expertise with the involvement of multiple stakeholders apart from the lender and borrower. But with expert advice, the buyer can mitigate risks, and the buying process can be made smoother with a proactive approach to take corrective measures on time.
Contact our financial experts to help you identify early warning signals with the bank auction. To find and bid for the property of your choice, visit https://www.auctionbazaar.com/