Friday, April 10, 2009

Apartments Through Banks? Foreclosures and Bank Sales? Is that a possibility in Hyderabad, India?

1.0 Where can I get information on foreclosure properties being put up by banks for sale?

We have received many enquiries asking where information can be obtained on foreclosure properties being put up by banks for sale. All of these enquiries originate from NRIs or their relatives here.

In the US, buyers have defaulted and continues to default on home loan repayments. Few consecutive defaults sets in foreclosure action and there are specific legal provisions in different states, how the matter is to be dealt with. Its not a very quick process but can spread over 9 months to year or more, after a default is confirmed.

In India the boom started in 2005 and ended in early 2007. In 2007 itself, prices had jumped and buying had fallen to miniscule levels. 2008 was an year when almost nothing got sold. In effect not many people have really bought high priced apartments or villas. The sales in 2007 (after prices jumped) and 2008 have been sporadic and mostly, purchases were by buyers who had the resources and bought to stay.

If we take Hyderabad, there has not been any investors around for buying flats for last 1.5 to 2 years. People who bought at cheap earlier prices, are never going to default. Even with correction, market rates are still much higher than their "bought rates."

People who bought in 2007-2008 are resourceful, had their numbers ready and that is why they bought. Except few cases, do not expect anyone to default. Such few cases will have NO market impact since these will never be known widely. For the market to react and participate there has to be a critical mass of defaults, which is not at all possible

2.0 Individual Loan Default

Buying of a property by an Indian is usually a "family affair". Even nuclear families fall back on parents / in laws / uncles for support, while booking a property. There is unwritten commitment from several people, behind each purchase.

If someone is stressed, family will standby. You will find pre-payments happening now, to reduce EMI. In fact banks have been reporting increased prepayments and rescheduling of loan by increasing repayment period and reducing EMI. No bank has reported foreclosures of individual accounts due to default, even though economy has been under severe stress for more than 7 months now. (There are only unsubstantiated loose talk fed by news from US)

In India, each housing loan is Guaranteed by someone known to the borrower. Once a borrower defaults and default is persistent, the bank will immediately sound out the Guarantor. The Guarantor is legally bound to pay EMI and settle any outstanding, if borrower defaults. Making Guarantor pay is considered a taboo, in India. Something that is to be absolutely avoided. And this fact also ensures that immediate family steps in to ease the burden. ( As far as we know such Guarantor provision does not exist in US Home Mortgage Agreements)


And even if someone is unfortunate not to have family support and lands up in big mess, usually banks will give interest free breaks, reschedule loan etc. If nothing works, (it may take couple of years to reach a stage of "nothing works"), the legal process starts which again is very laborious. Banks have to issue legal notices, get court orders etc before it can attach property. Even after attaching, selling-off is not easy. Again, court will be involved. With the way Indian legal system works, banks can not shake off the properties quickly at all.

So basically except sporadic incidents, never expect enough properties to come into market, at all, from individual home owners. Obviously, people in India chucking their homes and running away, is just a dream that many in US may have. Its not going to happen here at all.


3.0 Default by Builders

Now..this is a possibility which can not be ruled out. The reason is the fact that unlike individuals who get cocooned by family circle, companies have no love lost between them. If a business fails, its not practical for families to support since the default amounts are HUGE running into several crores. But does this help the eagerly awaiting so called "foreclosure buyer?"! Lets examine.

..............More at: http://www.exclventures.com/News-Real-Estate-foreclosures-India-Apr09.asp

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