Friday, December 18, 2009

Hyderabad Sinks - Riding the elephant.

I've never read a more scathing article on the vile nature of Indian politics and its overt and covert nexus between Andhra politicians and their business cronies. Instead of granting contracts to reputed firms, these guys have floated their own business entities to swindle the wealth of the India and AP. No wonder Sonia and others were finding that they were getting too powerful to handle and could rock the politican landscape in the years to come.
The Hyderabad housing bubble is now officially popped. Buyers can now breathe in peace.
John Elliot reports
India’s southern city of Hyderabad is becoming one of India’s most potent symbols of the greed and corruption that link politicians and businessmen. For the third time in a year, the state has been rocked by a crisis that exposes those linkages – this time over whether Andhra Pradesh should be split in two with the creation of a new state of Telangana based around Hyderabad (white area in map below).
This is a far cry from the glory and international fame of the past 15 or so years when this prosperous capital of the state of Andhra Pradesh became an international symbol of India’s dramatic growth in software, second only to Bangalore as a thriving location for information technology investment. Companies located there include Google and Microsoft, and Bill Clinton visited as US president.

The first of the state’s crises came a year ago with the collapse of Satyam, a leading Hyderabad-based software company that was owned by the family of its then chairman, Ramalinga Raju. The Rajus were closely linked with various politicians, including the state’s Congress chief minister, Y S Rajasekhar Reddy (YSR), who died in a helicopter crash in September, as well as his predecessor, Chandrababu Naidu. ..
Here is Bharat Bhusan's article in the Mail Today.

Money backs ‘ Son- rise’ in Andhra
by Bharat Bhushan
IT HAS been a month since the former Andhra Chief Minister Y S Rajasekhar Reddy ( YSR) died in a helicopter crash.
The Congress high command has allowed his son, Y S Jaganmohan Reddy and his supporters to run riot in this period.
They paid people whose next of kin died of old age, chronic illness or other causes to say that they had died of shock after learning of YSR’s untimely and tragic death. This number was totted up to nearly 600 with talk of nearly half a dozen “ suicides”. Surprisingly, if the Jaganmohan Reddy run Sakshi TV and newspaper of the same name are to be believed, many of those who died of shock gave a dying declaration that after YSR only his son could continue his propoor policies as chief minister. India has not witnessed such a farce since Independence.
Today, in Andhra Pradesh, it would seem that there is no other Congress leader than Jaganmohan Reddy, no administration, no governance and a chief minister whose writ does not run over his own council of ministers.
Ironically, by allowing Jaganmohan Reddy to continue his unseemly blackmail, the Congress high command is transforming the political novice into the political leader that he never was.
But more of that later. One must first ask how such a political greenhorn enjoys, according to his claims, the support of three- fourths of Andhra MLAs. The answer lies in the changing pattern of political patronage in Andhra Pradesh.
Time was when Congressmen like others in public life accumulated political capital not only by their propeople initiatives but also through fostering intricate patron- client relationships.
This entailed appointing supporters to non- elected positions in the party and the government, helping them build their own patronage networks by giving them clear advantages such as access to the state machinery, and funding their election to local bodies, workplace unions, etc. In short, the attempt was to demonstrate to them that there were political advantages to be had by aligning with the party in power.
Andhra Pradesh seems to be changing that structure of patronage.
Instead of giving partymen a share in one’s political capital — the more one shared it, the more it grew — the Congress supporters are given a stake in the state’s economic enterprises.
YSR ushered in this revolution.
He converted his key supporters into businessmen, industrialists, contractors and realtors. Their loyalty to the party or the leader was based on pure economic interest.
YSR rewarded them with contracts in state sponsored irrigation projects ( the much- publicised Rs. 130,000 crore “ Jalyagnam” projects), highway projects, real estate activities, development of Special Economic Zones ( SEZs), land grants and housing schemes in urban as well as rural areas. The loyalty of a majority of the 156 Congress MLAs who got tickets in the last assembly elections was secured through such largesse. Some others have benefitted with smooth and quick approvals of their business ventures.
Those Congressmen who got irrigation project contracts during the YSR regime include MPs T Subbirami Reddy, Kavuri Sambasiva Rao and Rayapati Sambasiva Rao; state ministers Komatireddy Venkat Reddy and P Ramachandra Reddy; and MLA Adala Prabhakar Reddy.
And these are only the big fish — many other party MLAs like Adinarayana Reddy, Srikanth Reddy, Gurunath Reddy, and A Indrakaran Reddy ( former MLA) are believed to have got smaller irrigation and associated road works contracts.
Andhra Congress MLAs whose real estate business thrived during YSR’s chief ministerial tenure include ministers Shilpa Mohan Reddy and Jupalli Krishna Rao, who defaulted on payment of crores of rupees to an urban co- operative bank and Lagadapati Rajagopal ( Congress MP from Vijayawada who is building Lanco Hills — the country’s biggest real estate project). Many other Congress leaders like D Sudheer Reddy ( MLA) and Malreddy Ranga Reddy
( former MLA) have benefitted from the Rs. 3,000 crore Outer Ring Road project of Hyderabad.
Nellore MP Mekapati Rajamohan Reddy and his brother Chandramohan Reddy, MLA, have won contracts for roads and building works. K Pratap Reddy, the Treasurer of the Congress, has stakes in the cement industry and is believed to have business links with the YSR family.
Vijayawada Congress MP Lagapati Rajagopal is believed by many to be the biggest beneficiary of the YSR regime and is involved in businesses ranging from power, iron castings, real estate and infrastructure.
In short, it is difficult to find a Congressman of any consequence in Andhra who has not benefitted from the largesse of the state government.
Several businessmen, industrialists, realtors and contractors who are not directly in politics — some cutting across political lines like the Karnataka BJP minister and mine lord G Janardhan Reddy of Bellary who was given 10,700 acres of land in Anantapur — are all worried about their projects in various stages of development. They have a right to be worried.
Businesses which are underwritten and steered by someone at the helm of the state are less likely to fail. They were failsafe investments. Now their future is suddenly uncertain.
It has taken decades for Indian entrepreneurs like the Tatas, Birlas, Ambanis and Bajajs to convert family businesses into billion dollar corporations.
The Congress party under YSR in Andhra showed us that this could be done in barely five years.
The YSR family’s market capitalisation is estimated to be nearly three- fourths of the annual budget of Andhra Pradesh which is around Rs 1,00,000 crore. The family enterprises and business interests spread across real estate ( Silicon Builders, Classic Realty, Bhagvath Sannidhi Estates), infrastructure ( Silicon Infrastructure, Shalom Infrastructure, Marvel Infrastructure, Janani Infrastructure, Athena Infra, Viz Projects), cement ( Bharathi Cement), chemicals ( Pulivendula Polymers), plantations ( Forest Plantations India Ltd), power generation ( Athena Energy, Athena Kakinada Power, Sainz Hydro), newspapers ( Jagati Publications) and television ( Indira Television) besides owning Carmel Asia Holdings Pvt. Ltd.
The formidable business empire that YSR and his son set up has stakeholders among those who are in politics and business in Andhra today. The future of their investments depends on having a constant gardener from the YSR family to tend their interests. They cannot afford to let Jaganmohan Reddy lose out in the chief ministerial sweepstakes.
It is difficult to understand on the other hand why the Congress high command is so indulgent towards Jaganmohan’s shenanigans. Does the party have good reason to allow the mess that Jaganmohan Reddy’s supporters are creating in Andhra Pradesh? YSR was very close to Rajiv Gandhi who appointed him the state Congress chief at the relatively young age of 35 years. Sonia Gandhi has always valued loyalty to her late husband.
More importantly, YSR also delivered politically — not once but in two consecutive assembly and Lok Sabha elections. There would have been no UPA I or II without the electoral outcome of Andhra adding muscle to the Congress.
Another speculation doing the rounds is that the Congress high command is reluctant to act quickly against Jaganmohan Reddy because YSR was also believed to be one of the largest funders of the party.
Those sources of funds are now controlled by his son. So instead of cutting him to size, the party is being indulgent. Why else would the party allow speculation about Jaganmohan Reddy being offered Deputy Chief Ministership or a place in the central council of ministers? Could it be on the other hand that Jaganmohan Reddy is being allowed to demonstrate the support he enjoys in order to nurse his image as a mass leader? There could well be a strategy to allow the demonstration of support and soon people will forget that YSR’s son is a political novice. The blatant hooliganism of his supporters seems to have scuttled his chances to fill YSR’s shoes immediately. However, this will not prevent his well- wishers from claiming that YSR Junior has come into his own as a political leader with a mass base. This would pave the way for his accommodation in the party or the government.

Monday, December 14, 2009

Over Rs 25,000-crore Mumbai realty in limbo

There is no land within Mumbai at 3000 rupees per sq/ft. Average prices for these high rises are more then 8,000 to 20000 per sq/ft. At these prices, devolopers can hire tankers. If this ban is enforced, projects will be delayed for more then 3 years. Investors who have borrowed are going to lose out big time on interest payments. This is going to make life miserable for everyone except the builders. They can invoke the 'act of god' provision in their agreements and pass the buck to the investors without incurring any losses. Investment in under construction apts in 2010 seem to the worst decision anyone can make.

The Maharashtra government's decision not to provide water connection to high-rise buildings (above seven floors) in Mumbai till 2012 has dealt a body blow to the city's real estate developers.

Developers and independent observers said investments of over Rs 25,000 crore (Rs 250 billion) in the construction of around 1,400 high-rise buildings in the city are now in jeopardy.

The decision was announced by Chief Minister Ashok Chavan in the state legislature yesterday in view of the prevailing water scarcity in Mumbai. Stung by the decision, real estate developers have requested the state government to reconsider its decision on the ground that this will worsen the shortage of houses in the metropolis.

A Mumbai-based analyst, who did not want to be quoted, said the decision can be challenged in a court of law because it has made the real estate developers the sacrificial goat for its own failure to provide basic amenities like water.

A senior government official said the damage of Rs 25,000 crore is based on a minimum sale price of Rs 3,000 per sq ft for 1,400 projects. The loss to the real estate developers could be still higher if the sale price of Rs 7,000 per sq ft is considered.

He, however, defended the government's decision in view of the 15 per cent water cut already in place in the city.

This would in fact go up to 30 per cent if Mumbai did not have adequate rainfall by July next year. Water availability will be possible only after three reservoirs are built by 2012. Hence the ban, he said.

The official said builders and developers should also take the responsibility and avoid rampant wastage of water by going in for water recycling and treatment of saline water.

Very few developers have adopted these measures and want the government to carry the can.

Niranjan Hiranandani, the managing director of Hiranandani Construction, wondered why the government ban was only for the private sector and not on the projects set up by the state-run Maharashtra Housing and Area Development Authority.

"While every effort is needed to curb leakages and theft of water, the government should not do injustice to those who won't get water despite paying the required development charges and fees," he said, adding that his company has recycled water at its projects for the last 20 years.

Dharmesh Jain and Rajan Bandelkar, vice-presidents of the Maharashtra Chamber of Housing Industry, said a representation would be made shortly to Chief Minister Chavan in this regard. Bandelkar said any such decision should have been only on a case by case basis, and a blanket ban didn't serve any logic.

Ranjit Naiknavare, executive committee member of the Confederation of Real Estate Developers Association of India [ Images ], termed the government's move irrational.

"The government cannot simply stop giving commencement and completion approvals. Instead, the government can ask builders and developers to organise water supply on their own if the proposed reservoir projects are not complete within the stipulated time," he added.

It would also be a long wait for consumers who have already paid a part of the booking amount in these projects.