Tuesday, October 09, 2012

Robert Vadra mass-booked and traded DLF flats, but all above board, say DLF sources

Amazing round-trip trades made by Vadra to make record profits.  It is an absolute travesty of all laws where public companies give loans to individuals who then use the loans to buy flats from the same company and then after some time sell the flats to same company at records profits. Now we can see how the housing bubble has been inflated on profits which have been generated out of thin air

Balance Sheet of Vadra

Paidup capital = Rs 0

DLF unsecured interest free loan to Vadra, call this X
Vadra buys flats from DLF with the loan X
Vadra sells the flats back to DLF for amount Y
Profit = Y-X
% profit = Y-X/Input cost = Y-X/0 = Infinity.

A record profit which can only be generated in a banana republic

NDTV has an explosive article here

Bloomberg has an article which lists him having acquired 31 flats in DLF. Now the modus operandi of politicians and builders is very clear. Builders use connections to high profile politicians to avoid income tax scrutiny for their dubious deals. Politicians or their family members rake astronomical profits by capital appreciation from acquiring undervalued properties from the builder and disposing them back to the same builder at market rates. In the meantime the mango people have to borrow at record high interest rates thinking they will be priced out if they don't buy their dream home. As influential columnists are calling this a tip of the iceberg, I wonder how many skeletons are stacked in  the closets of all the 31 flats of Mr Vadra and thousands of others who are in the process of being exposed.

60 comments:

Anonymous said...

Not profits out of thin air, but from the DLF shareholders pockets. The question is what were the board/shareholders doing ?

In any case, nobody in the market trusts the RE companies corporate governance. No wonder their shares have tanked.

Anonymous said...

Link to FirstPost news article is not correct. Please fix.

Anonymous said...

Here is another link
http://tinyurl.com/8bcuw4k

Anonymous said...

All investors act same in India... create artificial demand. Buy everything RE even before anything tangible is constructed.. just on news all flats sold out... and construction hasn't even started !! Then start selling these imaginary flats to other investors or buyers making money for nothing!! I hope you guys must have seen this in every part of India so many times.

Based on news, looks like Vadra did not do anything new... he just followed what other investors already did.

Buyers please keep believing demand is high and keep buying.

True/Free Market comes to play when renting vs buying. Real earnings vs credit/borrowing.

Anonymous said...

As influential columnists are calling this a tip of the iceberg, I wonder how many skeletons are stacked in the closets of all the 31 flats of Mr Vadra and thousands of others who are in the process of being exposed.

Doh!

CBI should also investigate front running of stock market by politicians, businessmen and their family / well-wishers.

That is another big scam on the mango man. I bet the stock market explodes before the housing bubble.

Anonymous said...

Kejriwal and party are just like the people on this blog. Cant afford to buy a home so go after the developers and the politicians in their frustration.

Pawan said...

@Anon 9:47
Kejriwal and party are just like the people on this blog. Cant afford to buy a home so go after the developers and the politicians in their frustration.

And you my friend are like Mir Jafar who is happy to get his share of the loot from the masters. Does not matter if it is his own country that is being pillaged by the masters.

Anonymous said...

@Anon 9:47
Vadra and company have rendered mango people like us helpless and whatever income we derive worthless to buy anything useful. Buying mangoes too is far from the reach of mango people, so buying any flat is out of question. vadra can own 31 flats, however people who attend Sonia's rally in Rajkot can barely make to meals. If I were with you, I would take my money and run out of this country as the people can coming in mass numbers to throw people like you out of all your ill-gotten wealth

Anonymous said...

// Kejriwal and party are just like the people on this blog. Cant afford to buy a home so go after the developers and the politicians in their frustration.//

When more people are left with nothing revolutions will happen. Those people are today pampered with free salary(All India) ,free food( Tamil Nadu), free health care(TN,Andhra)


Wait and see when music stops.

When India no longer seen as growth engine,When Indian currency looses value like Iran currency, what ever free money (Iran also give 100units per person free as share of oil ) given will be worthless and people will need more and Music will stop.

Anonymous said...

^^^ Many Indians are rich and own multiple REs. They will not loose anything that will hurt them even their is any crash.

There are tons of people flush with money already buying REs worth crores and are taking pride in doing so. Been to builders office? Ever bid for REs? Meet business owners, meet couples in their twenties making atleast Rs. 1lac per month.

Free lunch and handouts are possible because people have money to do such handouts via GOI.

India has lot to offer cheap services to world with their exploitation model. Rich want to exploit and poor want to get exploited. This is model is not in western and middle eastern countries. So India is DIFFERENT.

when was last you remember people came on street to fight for their rights... Gandhi's dandi march?

Anonymous said...

^^^
World is different now. Look at Syria, a few fighter jets bombing some restive villages/towns will quickly shut everyone else up.

When push comes to shove, the rich are not about to surrender without a fight either.

Most rich Indians will try to flee but they will be betrayed by their genes. If you think a brown skinned person will have a good time in Western society undergoing austerity, you got another thing coming...

Anonymous said...

http://online.wsj.com/article/SB10000872396390443749204578047773689107306.html?mod=googlenews_wsj

Prepare for stock market crash as hot money flees to "better" markets in SE Asia...

Anonymous said...

^ Aww man. Govt thought FDI in retail and cutting subsidy all over the board would make them happy.

Anonymous said...

confused - Is India worried about less foreign incoming investments or worried about Indian investment moving out of country?

If builders and political connections are making hundreds of crores, where are they parking their money? It has to be somewhere, currency has to be somewhere with someone.

Anonymous said...

If builders and political connections are making hundreds of crores, where are they parking their money? It has to be somewhere, currency has to be somewhere with someone.

Various businesses and individuals are more than willing to oblige the politicians by "holding" their cash for them. For business it's like getting interest free loan and they can also get other "favors" by being in the good books.

Some businesses like property developers (builders) and jewellery/diamond merchants are more conducive to "hide" vast amounts of illegal cash.

Come election time some of this cash is taken out and spent to buy votes. Last season, the going rate in a nearby slum was 500 rupees per vote. Free liquor and food if your local goon wins!

Overseas networks of NRI co-conspirators help politicans stash in foreign accounts and foreign property.

Anonymous said...

has anybody done any analysis when this bubble will stop growing. I mean, professonal middle class avg annual household income=5 lacs, but cost of a two bed flat is around 1-1.5 crore in some places. that is almost 20-30 times. At 10% interest that is unaffordable. IMO as of now only 10% of the properties are being sold to real buyers, rest are sold to investors with token advance(1.5crore RE for 15 lacs advance). Another theory I have is there is huge amount of black money which is getting parked in RE?

Anonymous said...

// but cost of a two bed flat is around 1-1.5 crore in some places //

I hope by 'some places' you meant 1.5 Crores at lower end for 2 BHK

Anonymous said...

//
professonal middle class avg annual household income=5 lacs, but cost of a two bed
//

First of all, $850 a month is pretty damn good for someone in India, I would hardly call it "average middle class". That said, bubbles exist because of speculation and leverage debt, not affordability.

//
flat is around 1-1.5 crore in some places. that is almost 20-30 times. At 10% interest that is unaffordable.
//

Again, people are fully capable of buying such properties because the banks are ready to finance. Nobody in India has ever seen salary cuts or mass layoffs. Govt won't be bailing out individuals.

//
IMO as of now only 10% of the properties are being sold to real buyers, rest are
sold to investors with token advance(1.5crore RE for 15 lacs advance).
//

It's futile to speculate on this. Companies can profit even without selling their flats. That's the beauty of leverage debt.

//
Another theory I have is there is huge amount of black money which is getting parked in RE?
//

Has always existed.

Anonymous said...

Fresh graduate in 2010 was making 3-4 lacs per year.

Top graduates were offered close to 18-20 lacs per year by google and facebook.

There are 100's of such folks entering the workforce each year who can afford to take on a couple of crores loan.

Anonymous said...

Ho hum. We'll be long dead before a Vadra type ever faces anything remotely close to prosecution.

In other news, billionaire Mallya was issued arrest warrant for bounced Kingfisher checks.

Before anyone gets overly excited:

“The warrant doesn’t mean Mallya is going to be arrested immediately,” said D. B. Goswami, a lawyer in private practice, who works on cases before India’s Supreme Court. “Check bounce is a criminal offense, but it isn’t something that’s out of the ordinary.”

Mallya can seek a cancellation of the warrant or request bail, Goswami said.

Now if this was some fly-by-night scamster it would be one thing. The fact that Mallya is ranked India’s 45th richest person with a net worth of $1 billion by Forbes magazine in March. The 56-year-old tycoon owns a 95-meter (312-foot) yacht called the Indian Empress, a stake in the country’s only Formula One racing team and a cricket squad named Royal Challengers Bangalore.

The rules of the game are completely idiotic. If a venture is profitable, they make billions, if it drowns, they walk away completely untouched...

No wonder we're seeing maximum risk being taken (with other peoples money, I may add) as there is no penalty for failure. Atleast not for the wealthy. You can rest assured that when a mango man fails, the brainwashed in our society will be quick to categorize him as "lazy" or "stupid".

Anonymous said...

// No wonder we're seeing maximum risk being taken (with other peoples money, I may add) as there is no penalty for failure. Atleast not for the wealthy. You can rest assured that when a mango man fails, the brainwashed in our society will be quick to categorize him as "lazy" or "stupid". //

+1 to this. This goes well with the Indian worldview of "just world" [1]. Debtors are awarded for much of this decade.

1 - http://en.wikipedia.org/wiki/Just-world_hypothesis

Anonymous said...

Banks should not be lending to help individuals and firms build land banks. Owning land is speculation, hoping to find a greater fool. Banks should instead insist that the money be used to buy land AND have an income producing property on that land within a certain number (say 3-4) years.

The bubble in India is not a home price bubble. It is a land price bubble. Home price is simply price of land + labour + commodities.
Price of labour has mostly tracked inflation. Prices of commodities slightly higher (but now trending down). It is land that has risen 700%+ in the last ten years or so.

Anonymous said...

^^^ Seriously?

What part of "the entire system is corrupt" don't folks get? Expecting a rational and just outcome from a corrupt system is truly wishful thinking.

http://www.ndtv.com/article/india/maharashtra-s-bank-of-corruption-63139

+

http://www.tehelka.com/story_main49.asp?filename=Ne280511Coverstory.asp

Hope folks can still add, 1 + 1 = 2

Anonymous said...

Even Bollywood stars balk at Mumbai

"Overall, the Mumbai luxury residential market has been rather slack over the past few months," says Om Ahuja, the chief executive of residential services at Jones Lang LaSalle India. "The traditional luxury homes nexus of South Mumbai has seen a dip in demand. Over the past few months, prices have not seen any movement."

About half of the homes launched in South Mumbai remain unsold, according to research by eyestate in March, a property database in India.

Customers would only start buying property once prices come down, brokers argued.

"The demand from local people is at zero," says Yashwant Dalal, the president of the Estate Agents Association of India. "They don't have the money to buy at such an escalated price. It's too expensive. I think prices are unrealistic."

Many local property agents were struggling as a result, he explains.

"The estate agents are suffering because there's no deal. Sixty per cent of the people who have rented commercial offices have vacated the premises and started doing business from their house," he says.

polt said...

@Anon - "What part of "the entire system is corrupt" don't folks get? Expecting a rational and just outcome from a corrupt system is truly wishful thinking."

Corruption has role, but my guess would be that a larger factor was that lending money for land-banks was very profitable for banks. On one hand the banks got a decent return, and the value of the collateral (land) kept increasing and hence the banks saw it as low risk lending.
Same story in the West, but there it was for homes. Once prices started flattening or falling, banks had to write-off loans and take huge losses.

My guess would be that the same is happening here or about to happen. No wonder that banks are forcing indebted big firms to sell land and reduce their debts.

2013 will be interesting.

KSM said...

who are mango people? the people who expect RE to fall or the poeple who pray RE should not fall?




http://ksmfinanceindia.blogspot.in/2012/10/who-are-mango-people-and-what-is-banana.html

Anonymous said...

State of RE companies share prices (2007 -> now)
1. India bulls - Rs 847 -> 61 (Down 92%)
2. DLF - 1225 -> 218 (Down 82%)
3 Unitech - 546 -> 26 (Down 95%)
4. GMR - 134 - 24 (82%)

The only thing keeping these guys alive are loans from public sector banks which are continually rolled over. In another country these firms would have either been liquidated or entered bankruptcy where existing shareholders/owners lose management control to the creditors.

It seems that Indian RE is a house of cards waiting to crash. Just one card has to fall ...
And when (if) it does, the establishment will be unable to stop it.

Anonymous said...

^ And that's why Govt can't afford to prick the bubble.

Anonymous said...

And these were the boom years across the planet.

Now, by all accounts we're entering a bust decade.

Those who didn't do well in the boom years (i.e. the majority) are about to get the economic shock of their lives.

The trailer is playing in Europe and the masses apparently don't seem to be liking whats about to hit them...

Anonymous said...

Boycott India. Flag it as a corrupt country. Believe me, it's patriotic.

25% of the countries wealth is held by 100 families. In a country of over a billion this is a mind boggling skew in the wealth distribution. India is probably second only to the gulf kingdoms in this regards.

2 out of 3 people live on less than 20 rupees a day! And the purchasing power of that 20 rupees is declining rapidly without any corresponding growth in the income.

After Satyam, 2G scam and Coal-gate, the whole world knows this emperor is naked. Gone are the chest thumps of largest democracy in the world and "India Shining". Our corrupt government is in full on survival mode with PM Manmohan making absurd comments like "Focus on corruption can only damage our nation's image and hit at the morale of the government workers"

This when every Indian can plainly see corruption as a part of daily life for transactions ranging from getting a driving licence to property sales.

What is hitting the morale of the government workers is NOT the focus on corruption but the fact that they are slogging away their lives on meager earnings while their bosses at the top siphon of 100's of crores!

It's almost a certainty that those who benefit from the current structure will go to any extent to maintain their wealth and power, even start a war or ignite Hindu-Muslim-Christian enemities to keep us distracted while the looting continues.

We must dismantle their grip on our nation before it's too late.

Anonymous said...

// 2 out of 3 people live on less than 20 rupees a day! And the purchasing power of that 20 rupees is declining rapidly without any corresponding growth in the income. //

lolwut, that doesn't matter. Didn't you get the memo? Every Indian who is worthy enough to live a decent life and own a house is either an engineer or IT guy. All of those folks are getting 50k thousand - 2 lac monthly income.

Go back to sleep. All iz well.

Anonymous said...

I live in mumbai,but have been to UK and US recently.Now an ordinary house there comes with parking space,a small garden and most are independant apartments.The advertisment for such houses mentions the view and the interiors etc.In Mumbai,the advtertisment consists of atm nearby,station nearby or airport nearby.Anyway the fact of the matter is by comparison the RE price is highly inflated in mumbai.A person who buys a 3 BHK in south mumbai can instead buy a decent home in top cities of the world,and yes an indepenant apartment.Ofcourse ATM,Busstop,station or airport would not be nearby because in this part of world nobody likes sound pollution.The real estate boom in mumbai is due to public ignorance,and as long as that remains,we are never going to see a crash,maybe a correction,but not a crash,never.A crash or bubble burst scenario would be when a 3 bhk,20 crore flat is devalued to about 20 lakhs.For me thats the real price,for living in slum called mumbai.

Anonymous said...

I would blame kejriwal for not raking up much on the builders and political nexus.Almost every politician has finger in this pie and thats why RE remains un- regulated.Mumbai is such a city where the builder politician nexus is pretty deep.The NCP,MNS,Shiv Sena and congress everyone has a RE company or related to some RE companies.

SKG said...

anon above...
absolutely correct...
i see the same thing in US currently.The only problem is that the common man thinks that he or she can not hold US or UK properties which is absolutely wrong.
- SKG

Anonymous said...

Funny part in all these scams, like 2g , coal scam, CW games is that no 1 got jail times, because every1 is crook in India. god bless USA at least we here have justice in order. I can't wait to see raja, or vadra get assassin !! The day will come when some young Hindustani will get feed up with all this bullsh*t and start killing spree of politician and builders. Some 1 has to balance this scale. God is big faggot and he doesn't want to come down and solve this mess. Wake up my Indian HERO start killing !!!

aam aadmi said...

god bless USA at least we here have justice in order.

How's John Corzine doing ?? LOL. The only difference is that in India corruption is still illegal. In US they have legalized it in the name of "monetary policy". While everyday life might be free of corruption in US, at the very top it's hard to distinguish between the two countries.

Divya mehta said...

mbyungThanks for sharing the info at Property in India ! We are happy you have chosen to be a part of Indian Property community.

Anonymous said...

Interesting paper - House Prices and Fundamental Value - http://www.frbsf.org/publications/economics/letter/2004/el2004-27.html

The authors argue that the house price rises in the US had a greater correlation to expectations of higher prices and were less influenced by price-rent ratios.

I think it is virtually the same here. No one really cares about price-rent ratios. Everyone expects prices to rise so they buy.

But the reverse can hold true as well (as it did in the US eventually). When prices fall or are expected to fall, people sell or stop buying, even if price-rent ratio is reasonable. Home prices will then undershoot long term mean numbers before recovering.

Anonymous said...

"While everyday life might be free of corruption in US, at the very top it's hard to distinguish between the two countries."

I'm not totally saying there is no corruption in USA. However, there is a limit to everything , but in India there is no limit to corruption. Indian politician and builders have so much money that they and their family for next 100 generation can live happily. Then why are they always money hungry. If there was this much corruption in USA there would have been many dead crooks here. I was in India 4 months ago and mycar was in traffic, I asked my driver why there is a traffic here , he said looks like a "LAL batti" ( politician ) car is about to pass by. They block off roads for politician and their families riding on cars that paid by stupid Indians. We don't have that kind of luxury for senators or local politicians in USA. Every time some1 tries to bring revolution in India he gets hard time from local police and politician. We can't wait for revolution no more , killing this cancer is only cure. jai Hind!

Anonymous said...

I think it is very easy to fight corruption. Arvind Kejriwal, Anna Hazare etc... have created big buzz and brought this issue in center. I have simple solution for them.

Make public appeal for donation to fight corruption. Raise large sum of money such as 100 crore. Today with technology they can collect small money like Rs 5 via SMS. Once they have such a large fund, hire team of Lawyers in each city and establish Corruption Hot line. Anyone facing any undue demand at Government office can call hot-line. If the issue is found, evidence is available, that person gets reward of something like 1 lakh Rupees. Use all technically advanced tools like hidden cameras, sting operations etc... Incentive like money work as biggest motivator. Arvind Kejriwal, Anna Hazare etc... get news worthy items, which will explode their importance. One needs to think like Bania to beat Babu...

Anonymous said...

>Incentive like money work as biggest motivator

I find your post quite ironic.

Anonymous said...

For me thats the real price,for living in slum called mumbai.

To each his own. Tens of millions of people have made their choice clear.

Anonymous said...

Guyz let us make a start by voting... unless we the educated class go and vote these scumbags would keep looting. its not for us but for our children..

with no electricity, spiralling costs of education, rising inflation, increasing crime future does look scary.. we need somebody to be accountable and yes .. every vote makes a difference.. lets shed aside the skepticism.. does more harm than good.. lets vote for the ethical candidate..

Anonymous said...

I have been waiting for a real estate bubble,which is sure around the corner,in mumbai the cost of property to rental value ratio certainly is one indicator.Last month,i sold my flat for 42 lakhs,32 white and remaining black,the amount of 32 lakh goes into my nro account,which fetches me 8.25 %,which is around 22000 per month.The rent i got from my flat was around 8000 rs.Even after tax i still will earn almost the double of the rent income,and well this is only of the white component,the remaining 12 lakhs of black component will eventually make to the bank as white,and will earn me around rs 8000 permonth,do the maths folks.Time to sell your flats i guess,and ya this is how bubble begins,atleast i found a stupid investor..

Anonymous said...

IF voting was an online affair,kejriwal would win the elections hands down,unfortunately most of his supporters are unlikely to stand in a long queue to vote for the deserving candidate,the fact of the matter is it is the illiterate and ignorant indians which forms major electorate.However things are moving in the right direction courtesy the media and vadra.It is long shot but definately possible,a corrupt free india is possible,a mighty realestate bubble crash and hugh economic depression of gigantic porportion,the politicians loosing money,speculators loosing money,the wheel will come full cycle...we are in for hard times..

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