Magicbricks pulls off first e-auction of properties
19 Oct 2017
On October 7, Magicbricks.com, a leading real estate site in India, started to run auctions of properties on its platform and sold properties with a combined value of $31.3 million U.S. within six hours (Rs.200 crore) for housing developer M3M.
The auctions were held in the section Auctions.Magicbricks.com of the platform. Three M3M residential development projects were auctioned – Golf Estate, Merlin, and Woodshire in Gurugram. The main attraction for investors was the waiver of the newly-imposed Goods and Services Tax (GST) of 12 percent on the value of a property transaction.
Radhika Sachdev interviewed Prasun Kumar, marketing head of Magicbricks, on the auction business model.
Q: Online bidding is popular in other categories (e.g. vehicles), where it’s possible to have instant product verification and online money transfer – but will this service work for a property classified, as property transactions are long-term, high-ticket affairs?
Kumar: The trend towards online auctions of properties has picked up speed in India in the last two to three years. State-owned banks have been conducting e-auctions of commercial and residential properties on websites, including on Magicbricks. So, it wasn’t altogether new ground for us.
However, “My bid, my home” was the first online auction to be conducted with a Standardization, Testing and Quality Certificate (STQC) issued by the Ministry of Communications and Information Technology. The response (of buyers) has been phenomenal. In a matter of six hours, we generated combined sales of $31.3 million (Rs.200 crore) for M3M. We received 105 bids from 37 unique bidders in the first six hours.
Q: How did the bidding process work on Magicbricks? Was there any minimum-maximum bid bracket? Were bids below the market prices?
Kumar: Buyers/investors registered between September 15 and October 6 by paying a (refundable) registration fee of Rs.10,000 for two units and Rs.25,000 for five units, and a pre-booking amount. The latter amounted to Rs.5 lakh ($10,000 U.S.) for Merlin/Woodshire, and Rs.10 lakh ($20,000 U.S.) for Golf Estate. Some 58 bidders registered to bid for the 78 units on auction in the three developments.
Each unit had a reserve price fixed by the developer, which was lower than the market price. The incremental bids were pre-fixed at Rs.25 per sq. foot for Woodshire and Rs.50 for Merlin and Golf Estate.
For Golf Estate, the highest bid placed was Rs.9,800 per sq. foot – 2.6 percent above the reserve price and for Merlin it was Rs.7,800 per sq. foot – 1 percent over the reserve price. For Woodshire, the highest bid was Rs.4,424 per sq. foot – 0.6 percent over the reserve price. In fact, the average bids placed for units in Golf Estate were 1.4 percent above the reserve price, for Merlin it was 2.3 percent and for Woodshire it was 0.1 percent.
The bidding process continued from 11 am to 4 pm on Oct. 7. Because the response was overwhelming, we extended the deadline to 5 pm. Within a span of six hours, we received 100 bids from 37 unique visitors on our site.
As soon as a bid was placed, bidders received SMSs, alerting them of the latest bid price. They were then free to outbid that price. Deloitte validated all the bids, and the entire process, before the successful bidders were announced.
Q: How did investors benefit?
Kumar: All the units were ready-to-move-in properties. Buyers didn’t have to pay GST of 12 percent.
Q: How does Magicbricks benefit from the new service?
Kumar: “My bid, my home” is our innovation. Our partnership with M3M was the first. But, we plan more such events in future.
Q: How does the developer benefit?
Kumar: The e-auction is an extra channel for marketing developments for developers. And they don’t have to invest much in any kind of infrastructure or manpower for selling their projects. It lowers their average cost of selling a property – a saving which the developer can pass on to home buyers.
Developers can also expect higher selling prices on auctions since no ceilings are set for bidding. Another advantage for the developer is that all rules and regulations are adhered to during the process.
Q: Did M3M bring your visitors/investors any advantages or benefits?
Kumar: M3M offered potential buyers several exciting deals, including the GST wavier, free car parking, club membership with free maintenance at some projects for one year, built-in kitchens and wardrobes.
Q: Do you charge advertisers/developers (M3M in this case) for using your platform for auctions?
Kumar: Yes, we do.
Q: What is the Standardization, Testing and Quality Certificate (STQC) for? Is it mandatory to have such a license?
Kumar: STQC turns us into India’s first real estate site allowed to auction commercial and residential NPAs of PSU Banks. It took us almost 12 months to get licensed.
Q: Going forward, how big do you foresee this market to become?
Kumar: This is still an untapped market with a tremendous future. With growing mobile penetration, India’s real estate industry can reap many benefits. E-auctions promise transparency and efficiency, and can be a win-win opportunity for both developers and buyers.