Mumbai properties go under hammer as defaults rise
TRACKING THE DOWNTURN
If you are looking for a house on the outskirts of Mumbai in areas like Nallasopara, Ulhasnagar, Kalyan and Badlapur, there is a strong likelihood that you will find some suitable properties being auctioned by banks and housing finance companies.
A quick glance through newspaper advertisements provides many such instances. Housing majors HDFC, LIC Housing Finance, Punjab National Bank, Indian Bank and many others have all placed single or multiple ads for either loan recovery or auction of properties of defaulters under the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities (SARFAESI) Act, 2002.
For instance, HDFC issued a sale notice for 16 properties in an English daily on August 4 and Indian Bank a possession notice for 17 properties on August 6. Earlier on August 3, LIC Housing Finance issued a loan recovery notice for 46 properties.
This was preceded by an auction-cum-sale notice for another nine properties on August 2. And, all these sales are in Mumbai and Thane regions only. At the national level, the numbers could be substantial.
“On an average, banks dispose of around four to six properties every month. By those parameters, these numbers look quite high,” said a property consultant.
Banks claimed that this was nothing unusual. “The sale and auction process is an ongoing thing,” said a manager with a leading housing finance company. Also, they claimed that the percentage of non-performing assets (NPAs) due to retail loans have mostly been constant, or falling.
Said Akshaya Kumar, chairman, Parklane Advisors, “The number may look small in percentage terms, but this trend of foreclosures is definitely on the higher side.”
Anuj Puri, chairman and managing director, Trammel Crow Meghraj, a property consultant, said he expected the number of defaults to rise in the first quarter of 2009-10, leading to auctions by banks. According to him, the large number of defaults at this point of time is quite unexpected.
Following the stock market crash since January and consecutive rise in interest rates, always there were fears that loan defaults would go up. But given that the process of identifying a defaulter and auctioning his property takes around five to six months, it wasn’t expected that the numbers would rise so soon.
Rating agency Crisil had recently mentioned in a report that NPAs arising out of retail loans, which were at 2.7 per cent on March 31, 2007, could rise to around 4 per cent by March 2009. A banker admitted that there was additional stress on home buyers due to interest rate hikes.
“The real problem would start once property prices fall below the loan value,” he said. In that situation, there are fears that buyers would resort to distress sale or default.
Prime area problems
Defaults are occurring not only on the outskirts of Mumbai, but also in prime areas like Parel and Mahalakhsmi, where new properties are coming up.
Typically, these properties are valued between Rs 2 crore and Rs 4 crore, or even more.
The buyers in these areas make two kinds of payments – one, dated, that is on a monthly or quarterly basis, and two, event-based, for instance, construction of a new floor. “While the delay has not happened in case of dated payments, a large number of defaults have come from individuals in the latter case,” said a property consultant.
The reason: most of the buyers have invested their surplus in the stock markets and are unable to exit now. “Many are waiting for some turnaround in the stock market to make these payments,” added the consultant.