How to buy a foreclosure property

K Ramanathan

 

Foreclosure, the word we heard frequently in the media a few years back in the midst of economic crisis that struck the world. Many home loan borrowers in the US in particular had declared bankruptcy for they were unable to pay EMIs due to loss of employment or reduction in salaries.

Many lenders (banks, financial institutions), who had given home loans indiscriminately on high interest rates in the upswing real estate market, had to suffer due to sudden crash in real estate prices and loss of payment means for the borrowers, who had no option but to surrender their property to the banks for foreclosure.

There became the word a most talked-about in the US and other European countries. Foreclosure is an option given by a borrower to the banks, who could take back the property using court system if the borrower failed to honour the agreement of paying back the loan as per the agreement. The bank, once get the possession of the property can sell it at the market price and pay back the difference, if any, to the defaulter. 

The greatest disadvantage for the defaulter is that his credit rating will get a beating and he will not be given loans by any financial institutions for his future needs.  However, if the amount collected through ‘auction’ of the property by the bank is much lower than the balance loan amount, then the bank has the right to ask sureties, who stood by the borrowers at the time of signing the loan agreement, to settle the balance loan amount. In case, the bank was not able to realise the loan amount fully through auction or surities, it can take possession of other immovable properties of the defaulter like jewellery or valuable items equal to the standing loan amount.

Now, if one wants to purchase a foreclosed home there are certain advantages and disadvantages. One has to take several things into consideration before deciding to buy a home on auction by banks.

The greatest advantage is low price. The banks, which are selling a property, will have their own interest to realize the outstanding due amount with interest only. The lender thus, would be ready for negotiating on the basic prices of the home under auction.  So, those who wish to buy the bank property can bargain and even seal the deal for a lesser amount than the market price.

If one chooses to sell the home later, he or she will most likely to make a good profit as the buyer would have paid less amount at the time of auction. Many in India do buy such houses at a foreclosure auction, make necessary changes or repairs and then sell it and book profit.

Secondly, since the bank is selling the property, there will not be any encumbrances against the property and the sale deeds will be clear. So, the buyers need not have to unnecessarily spend money on legal charges.  Thirdly, the buyer gets the ready-to-move in house with, may be, with little bit of repair or alternation works.

On disadvantage part, the buyer has to pay money in cash and will not have time to go for bank loan as banks selling such properties would want to realize the money at the earliest. Secondly, the previous owners, sensing that their property will go under the hammer, may do damage to their building, which can cost dearly for the buyers at a later stage. Thirdly, the buyers seldom get a chance to inspect the property with experts to understand the structural stability and other quality details.  

So, it is a big risk he takes when he buys a property from banks, whose quality he is not aware of.  On physiological part, the buyer should be aware of the fact that he gains the house at someone’s expense. Those who believe in vaastu and other structural measures prescribed by Hindu scriptures may find most of the houses do not comply with those standards

Ashiana Housing launches super luxury homes in Bhiwadi

Though, Bhiwadi is known for low and middle income housing, the next real estate boom town after Gurgaon, however, with the launch of Tree House Residences - an all luxury apartments by Ashiana it has slowly entered the map of luxury housing destination. The sample flat of first such luxury project is ready and shown to selected audience recently during Ashiana Housing’s ‘know your neighbour’ initiative.

 “Tree House Residencies” in Bhiwadi are for those who desire to live a statement-making lifestyle but cannot afford one in Delhi and Gurgaon.  The apartments are for those who believe in living with the state-of-art facilities. It is an exclusive, niche, stylish project with top-notch amenities for the modern buyer who aspires for a quality life.

The project consists of 36 extravagant apartments. To have nine levels in four towers spread in the area of one-acre land, each apartment is designed to provide a grand life style, maximum comfort and convenience.

Tree House Residencies are high-end apartments with a choice of thirty-four 4BHK apartments in the area of 3255 sq. ft. and two 5BHK apartments in the area of 3755 sq. ft. It guarantees excellence in the living archetype with a wide range of facilities like, in-house gymnasium, children’s play area, community hall and much more. They have ensured that everyday living is a pleasure at Tree House Residences with the membership of well-equipped facilities at Treehouse hotel, spa and club.

Among others, Tree House Residency customers will have an access to the club with facilities such as swimming pool, spa, food courts, gym, sports bar, restaurants, tennis court and business centre. For safety, it will have high-level security with fire sprinklers and fire hydrants.

Commenting on the launch, Vishal Gupta, managing director of Ashiana Housing Ltd, says, ‘We share a very special bond with Bhiwadi. Our every project in Bhiwadi seeks to bring about a constructive transformation in the lives of millions and build a world into the land of serene coexistence for every resident. The Tree House Residences will fill in the gap prevailing in luxury segment between Gurgaon and Bhiwadi.

Jumabhoy group launches luxury villas in Bangalore

SINGAPORE: The Jumabhoy family, once the richest Indian family doing real estate business in Singapore, is developing 61 luxury villas in Bangalore, and according to company sources more than 20 per cent of the villas have been sold even before a formal launch.

Being the first property development under the Jumabhoy family, Raffles Park, will have 61 villas spread over 15 acres in Bangalore, according to a media report.

The first phase, comprising 10 villas, was marketed in India and has been fully sold out while phase two with 15 villas, are being open to non-resident Indians and India-incorporated companies in Singapore.

 The Jumabhoy family, which was migrated from western India to Singapore in 1916, made a name for themselves in real estate, developing Scotts Shopping Centre and the Ascott.

At its peak, their listed Scotts Holdings had assets worth almost S$750 million and a presence in Southeast Asia, the UK and Australia.

But a split among family members led to a sale of its main property assets in the late nineties.

Now, members of the family's third generation - Iqbal, Asad and Mimi Somjee - are engineering a comeback through a real estate vehicle, Raffles Residency.

Raffles Park will be made available on a plot area of 4,500 square feet, with each unit is being sold for around S$1.32 million, reports channelnewsasia.com.

Iqbal Jumabhoy is upbeat about the project he has undertaken with his siblings Asad and Mimi Somjee.

He said: "Interestingly, we have not even launched it. We have had a preview in Bangalore, and on the back of that preview, we actually sold 20 per cent of the houses pretty much without a launch. And in Singapore too, we are doing very targeted meetings with people. And we are showing it for the first time here."

Commenting on what gave him and his siblings the idea to enter the Indian property market, Mr Iqbal Jumabhoy said: "To start with, we had the land. The second part of it, was therefore, what to do with it.

“The easiest thing would be to sell it or team up with another developer. But the fact that we had an existing team of people within The WIRE Group - which is another company that I formed some years ago - gave us the courage to work on this together.

“The second is that Bangalore is the IT hub of India, and the consequence of that is that you have got a large number of senior professionals who have lived or worked abroad, and they come back with expectations and needs, which perhaps (are) not easily served by the existing products."

When asked what is next after Raffles Park, Iqbal Jumabhoy said: “We are currently in discussion on a couple of other projects. One of them is an extension to the existing Raffles Park, and we are in discussions with surrounding landowners.

 

“The second is a much larger project. That project, if it comes through, is with a landowner who owns between 150 to 200 acres of land. So that would be a slightly different kind of project," he further revealed.

How Does Inflation Impact Property Market

Contrary to the general belief, real estate prices do not necessarily react to inflationary conditions,   feels Arvind Jain, Managing Director of Pride Group.

It is interesting to note that how most people think of inflation. Apparently, the most prevalent concept of inflation is something like what happens to spectators at a cricket match. At some point during the match, the people in the front rows of the stadium rise to their feet to get a better glimpse of what is happening on the field. As a result, the spectators in the back rows cannot see the action clearly so they rise up too. Very soon, everyone is on their feet!

Another perception among most people is that inflation drives up the prices of everything uniformly. That is why it is commonly believed that real estate prices rise simply because the cost rise of everything. This is incorrect. The fact is that real estate prices will either fall or remain static in an inflationary environment.

Inflation is a dynamic that is largely dictated by the cost of credit. This is how it works - the cost of essentialities such as food grains and petrol rises, while the common man's income remains the same. In other words, his spending power reduces. Banks make a note of the fact that the baseline cost of living has increased and recalibrate their loan interest rates upward.

Because the cost of borrowing has increased while incomes have remained static, people become wary of taking loans for anything - including home purchase. The natural reaction from real estate developers would be to bring property prices down so that sales pick up again. This does happen in some cities and locations, but not everywhere. Here are the reasons.

Many developers are as dependent on the cost of borrowing as their buyers are. This is especially the case with smaller developers in Tier 2 or Tier 3 cities who have not launched many projects and have therefore not been able to create a self-sustaining churn of capital. Such developers are able to react to the reduced sales brought on by inflation by lowering their rates.

Such developers are able to do this because though the overall cost of development remains more or less constant, land acquisition costs are lower in smaller cities. Price reductions are the last recourse for ailing developers, but smaller developers with lower investments into their projects and greater dependence on the cost of lending can and will offer them if they perceive this to be the only option.

If even this last course of action fails, the developer goes bankrupt and is forced to surrender all business interests to the bank, or sell them to a more established player. This is, in fact, one of the integral factors of the process of consolidation, wherein more and more smaller operators give way to larger players. 

The scenario is different for larger developers who are active in the primary cities. Having been in the real estate business longer, they have been able to achieve a degree of capitalization that reduces their dependence of debt funding. However, their investments in the land required to build projects in the larger cities are naturally higher.

Such developers are not able to bring down the pricing of their properties despite a slowing down in sales. However, they are able to weather the inflationary storm longer because of their healthier capitalization. For this reason, established developers in larger cities will not use price reductions to boost inflation-impacted sales. At the same time, they cannot raise their prices in tandem with the natural laws of property appreciation, since this would impact their competitiveness on the market.

This means that in the case of well-located quality projects by established developers, inflation will have the effect of keeping prices static until reduced inflation brings down the cost of credit. Once this happens, prices will rise again without having gone down at any point.

It goes without saying that understanding how inflation impacts short and long-term property pricing in different cities, locations and projects can make a big financial difference to prospective home buyers.

Unique scheme triggers record sales in Purva Westend project

Bengaluru: Thanks to the first-of- its-kind method, Puravankara Projects Limited, a leading real estate developer in India, has been able to sell half-a-million sq ft of property within four days of its launch of Purva Westend in Bangalore.

The overwhelming response was due to an Innovative Book Building Method (IBBM) adopted by the developer, according to which, customers get an opportunity to book their dream home at a price that was released through a transparent price discovery mechanism, possibly the first time in Bangalore real estate market, the company claimed in a press statement.

Purva Westend

Inspired by the effervescent culture centres of New York's Broadway and London's West End, Purva Westend is situated at Hosur Road, the prime of south Bangalore.

Surrounded by lush greens, this project has sprawling leisure and cultural amenities such as culture club, a grand central boulevard with design symbolic to art, music & cinema, children's musical play area, piano paving with fantasy fountain and ambient music in entrance lobbies, etc that gives you priceless pleasure of participating in an assortment of cultural events in an unruffled abode.

Purva Westend offers numerous firsts - first of its kind and possibly India's largest private open air cinema with private viewing cabanas, the ownership is etched into concrete -motivated by Hollywood's walk-of-fame, swimming pool in the silhouette of a guitar headstock, lego building block room for kids,

Acoustically designed jamming room with music instruments, sing-along karaoke room, tiptoe ballet room, a roof top sky gazing telescope, etc.

Commenting on the pre-launch Jackbastian Nazareth, Group CEO, said, "Purva Westend sets an innovative yardstick in our capital. The project is designed aesthetically keeping in mind the new age and well travelled end user who seeks international sense and comfort at his disposal. We have seen a healthy response amongst our buyers. The introduction of book-building method has helped our customers to discover a fair price in a transparent manner. As a transparent organisation, we are concerned of what we sell should neither be overpriced nor be under-priced. The buyer is assured that he is paying a price which is market-determined."

Situated about 4 km away from Koramangala, Purva Westend connects residents to Silk Board Junction, Hosur Main Road and Kudlu Gate.

The project features 2 and 3 bedroom apartments (approximately sized between 1150 sq ft to 1850 sq ft) along with ultra-modern amenities inspired by art, music & cinema.

Puravankara Projects Limited

Puravankara Projects Limited is a leading real estate company in India, with significant presence in Bengaluru, Kochi, Chennai, Coimbatore, Hyderabad, Mysore and overseas in the United Arab Emirates, Kingdom of Saudi Arabia and Sri Lanka. The company has successfully completed 43 residential and two commercial projects encompassing 18.92 million square feet. Currently, it has 27.97 million square feet of projects under development with an additional 83.22 million square feet in projected development over the next 7-10 years.

Puravankara has the distinction of being the first developer to obtain FDI in the Indian real estate industry through a joint venture with Singapore-based Keppel Land Limited, the property arm of the conglomerate Keppel Corporation Limited. One project under the joint-venture initiative is underway in Kolkata.

Puravankara Projects is listed on the National Stock Exchange of India Limited (NSE) and the Bombay Stock Exchange (BSE).

Realty prices in Hyderabad set to go up 50 per cent: CREDAI

Hyderabad: With bifurcation of Andhra Pradesh is being finalized with the Presidential assent and new government, both at the central and state levels post elections, bringing high scope for development, the Confederation of Real Estate Developers' Associations of India (CREDAI), the apex body for private real estate developers in India, believes that the Hyderabad Real Estate is poised to grow further as the outlook is positive.

Presently, the city of Hyderabad, which has infrastructure comparable to other metros, has been offering residential properties at a much lower price.

With the political clarity after the Parliamentary and state elections coming in few months from now, CREDAI is confident that brand Hyderabad will emerge as the leading destination for the real estate investments going forward.

To offer various kinds of properties under one roof, CREDAI has recently organized Hyderabad Property Show 2014 at Jalavihar, Necklace road, Hyderabad.

The three-day property show, which ended on Monday was inaugurated by Ponnala Lakshmaiah, state minister for IT & Communications, along with the M. Maheedhar Reddy,  Minister for MA&UD, D. Nagender, Minister for Labour, E, T&F, ITI, in the presence of CREDAI senior leadership team comprising of C. Shekar Reddy- President, CREDAI National, N. Jaiveer Reddy-President, CREDAI Hyderabad, S. Ram Reddy, General Secratary CREDAI Hyderabad and a large number of developers, stakeholders and industry members.

CREDAI Hyderabad Property Show 2014 has witnessed the participation of over 100 developers and other stakeholders. The homebuyers were given an opportunity to find out the best projects in the city at one location.

Speaking about the show, N Jaiveer Reddy, President CREDAI Hyderabad, said, "Hyderabad offers the best infrastructure facilities and connectivity across the city. The city is a preferred destination for most of the IT & ITES organizations, Gaming and Animation industry besides the health care sector. The property prices are the lowest when compared to cities with comparable development and infrastructure. 

The CREDAI Hyderabad Property Show 2014 is being organized to bring all the best projects in the city under one roof so that the consumer can choose the best property taking the advantage of the present low prices. This is right time to purchase property after the declaration of Telangana as the prices are going to increase in the near future.”

S. Ram Reddy President CREDAI AP said, "Hyderabad has a current population of about 8 million and plans are in place for setting up a 50,000 acres ITIR region in the city, which is likely to employ almost 15 lakh people directly and about 53 lakh people indirectly in the next 2 decades. This will create a huge demand for housing in the city across segments. We are likely to experience a good growth in the property prices. It is a golden opportunity for the consumers to make the most of the present rock bottom price at Hyderabad."

C Shekar Reddy, President CREDAI National, said, "CREDAI Property show in Hyderabad has always generated a lot of interest with the people. With the political clarity coming, the real estate sector in the city is likely to see a spurt in the demand going forward. Presently the real estate prices in Hyderabad are the lowest hence it is the best time to purchase a property in Hyderabad as we expect up to 50 % increase in residential apartments prices within 12 months."

Govt is looking for partnership to create more affordable homes: Minister

To encourage state concessions and creations of affordable housing stock for construction of half a million houses for Economically Weaker Section (EWS)/ Lower Income Group (LIG) segments, the Centre has recently launched a revised affordable housing in partnership schemes, informed Union Minister for Housing & Urban Poverty Alleviation Dr. Girija Vyas.

Inaugurating the 6th Affordable Housing Summit & Excellence Awards,’ organised by The Associated Chambers of Commerce and Industry of India (ASSOCHAM) in New Delhi recently, the Minister said, to create more housing stock under affordable category, the government is looking for partnership between various agencies i.e Central &  State government/ housing boards and development authorities and Urban Local bodies (ULBs).

Informing the gathering that the scheme now gives increased subsidies to the tune of Rs. 75,000/- to economically weaker section (EWS) or low income group or LIG dwelling units of size 21-40 sq mt, in affordable housing projects being undertaken through various public private partnerships (PPP), the minister said, “Between Rajiv Awas Yojana (RAY), Rajiv Rinn Yojana (RRY) and Affordable Housing in partnership schemes (AHP), the government of India will support establishment of 2.5 million housing units.”

  

She said, the Rajiv Rinn Yojana (RRY) scheme focuses on demand side incentives wherein ministry of housing & urban poverty alleviation provides 5% interest subsidy on housing loans up to Rs. 5 Lakh. This scheme is also likely to be launched by August this year, mentioned Dr. Vyas.

She said, “The top 10 cities in India viz. Mumbai, Delhi-NCR, Bengaluru, Chennai, Kolkata, Ahemdabad, Kochi, Chandigarh, Pune and Hyderabad account for 15-20% of the overall supply in urban India.”

With the effort to reduce the demand-supply gap in this segment, it is noteworthy that from 2007-2012, housing shortfall has declined from 24.8 miilion to 18.7 million, a 25% reduction, she informed

Speaking on the occasion, Arun Kumar Misra, Secretary, Ministry of Housing & Urban Poverty Alleviation said, government in its last cabinet meeting would likely take a decision on Foreign Direct Investment (FDI) in Real estate sector.

On the popular demand on single-window clearance system, being demanded by developers across the country, he said, “At least a large part of central clearances out of 45 are digitized and should be online for clearance system. In the last one year, more than 43 towns in India have adopted the single window clearance system.

He also pointed out, “Without the amendment of rent control laws, we really add much to the system. Nearly 30% people live on rent and more than 10% of houses are lying vacant because of the rent control laws archives.  We can’t have the central law, it has to be state law because the guidelines are already there, and next group of engagement will have to be amendment of rent control laws with the state government.”

The state will have to come out with the urban housing policy (UHP). The transport and affordable housing has given us clearly what exactly requires to be done and I am very happy that states like Rajasthan, Karnataka and Haryana have taken a lead in affordable housing policy, said Secretary.

The real estate sector in India has been a high growth story.  The construction industry is the second largest industry of the country after agriculture accounting for 11% of India’s GDP. Indian construction industry employs 32 million people and its total market size is estimated at Rs. 2480 billion.

Dr. Vyas said, “Ministry focuses on housing for the urban poor, housing represents a key component of economic growth contributing 5% to the GDP and there still being a shortfall of 18.7% million units. I welcome and laud theses developers in supporting the government of India in progressing towards its goal of provision of housing for all”.

Ranan Kapoor, President ASSOCHAM said, “Nearly 28% of India’s population lives in cities and urban areas, a figure that is expected to rise to 40% by 2020. Majority of housing in urban areas caters to the premium segment; thereby a large section of society is unable to own homes. According to the National Housing Board (NHB), an investment of INR 8.5 trillion is required for construction of Affordable Housing in slum and non-slum areas.

Establishing policies that mandate developers to make provisions for the Economically Weaker Sections (EWS) and Low Income Groups (LIG) will encourage the private sector to take up Affordable Housing projects and ensure their timely delivery. Measures like ensuring availability of developed land, TDR, long tenor finance and cheaper loans, Priority Sector Lending, Viability Gap Funding and Single Window clearances will encourage private sector investment and provide much needed impetus to the Affordable Housing segment”, added Kapoor.

Other who also spoke during the conference were Navin M Raheja, Chairman, Real Estate Committee, ASSOCHAM & CMD, Raheja Developers Ltd., B C Jain, Co - Chairman, Real Estate Committee, ASSOCHAM & Chairman, Sunrise Housing Constructions Limited and D.S. Rawat, Secretary General, ASSOCHAM.