Auctions bring in a ray of hope
Real estate
By Vasu

THE recent auctions by the Haryana Urban Development Authority (HUDA) have raised hopes for the property dealers in the region. The expectation that property can still make money is back, even though the broad smiles are not yet in place. The reason is not hard to find. In a market where all but the bottom has been wiped out, the first two phases of the three phase auction fetched the urban authority a total of Rs 17.3 crore from the sale of commercial sites. Though only about 40 per cent of the total property put up on sale in the various sectors markets — both established and fresh — found serious bidders, the reserve price was raised in most cases. Though the balance amount of payment has not been made as yet, and several people may default on payments as is the usual practice, the auctions have raised hope.

The most surprising factor was that the relatively underdeveloped Sector 21 attracted a fresh spate of investment at the auction. The sale of a double-storeyed shop with basement measuring 78.7 sq metres attracted a bid of Rs 23.6 lakh against the reserve price of a mere Rs 9.08 lakh. Also eight other similar shops which had a reserve price of Rs 7.92 lakh went for prices ranging between Rs 21 lakh and Rs 22.5 lakh. At an earlier auction in March, a similar shop had fetched an average price of Rs 9 lakh against a reserve price of Rs 7.69 lakh. What has triggered this increase in a market that is facing recession and why is it limited to a sector which is barely in the occupation stage? A similar site in Sector 12-A fetched Rs 18.20 lakh against a reserve price of Rs 12.32 lakh. In pocket B of the same sector, the price increased to around Rs 20 lakh.

A broker in Panchkula, K.K. Arora, attributes the high prices the two sectors have commanded to the fact that people have begun to perceive them as a good bargain, for in the future they would serve as a focal point for the residents of sectors 4, 12, 23, 24, 25, 26, 27, 28, and 30. However this is not reason enough, feel some investors in the region. Like in the other metros, commercial property has always been treated as a good short term investment and that is precisely what has raised the prices at this auction. After paying an earnest amount of a mere 15 per cent, most people try to off-load the property after taking in a marginal profit. This method is used in the initial stages of the development of a region, when each auction pushes up prices artificially, but the tail-end buyers are finally left holding the baby. As is illustrated by the fact that the main city centre of Sector 5 hardly saw any bidders.

A commercial property inflated beyond its actual worth by this method has to wait for inflation to catch up and this may take several years in certain cases. An example of this overpricing are the prime commercial centres in the Capital, where the high price of property makes it unviable for businesses to be set up in the established areas of the city. Similarly properties in sectors 17, 9, and 8 of Chandigarh are often overpriced. This is especially true for a place like Panchkula where there is practically no business to speak. It becomes risky to set up shop or begin a venture with high expenses.

Even otherwise in the first auction out of the 71 sites, including SCO, SCF, service booths, only 44 were bidded for. On the second day out of 69 sites put up for sale, only 15 attracted attention. The third day of the auction — after a gap of 10 days — had 21 sites including areas for educational institutions, nursing home and clinics, for sale. However, only 10 plots had buyers. The lagging interest in all the sites is an indication of the situation in the property market, says Arora.

Investors in the region also over that buying property at auctions does not make good business sense. The reason is that one shuts out any bargain opportunities; has very few site options; is restricted in the sector where one can make the purchase; and the most important factor from the view of anyone with unaccounted money — auction payments are made entirely by cheques.

Leaving the auction aside, commercial property in the region has failed to revive. Fully completed and constructed booths with occupants in running markets like Sector 6, are not finding buyers even for Rs 8 lakh while the auction prices for similar plots has touched Rs 14 lakh. These are facts which seem incongruous but then the property market rarely follows rules.