Sebi and real estate investors trapped in Sahara mess

The latest action by market regulator Sebi to attach the assets of two Sahara group companies has frozen a large number of real estate projects.

Sahara’s real estate assets were disclosed in an affidavit to the Supreme Court in January 2012 to prove that the group was capable of repaying bondholders in the two companies. The assets have, however, remained on Sahara’s books even though the group claims it has paid off most of its investors as at the end of November 2012.

But Sebi is out to recover nearly Rs 24,000 crore and the frozen real estate assets are probably the best way of doing so. The only problem: many of the properties attached by Sebi have already been pledged as securities with banks and financial institutions, to raise more funds, according to this Times of India report.

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In other words, Sebi cannot just sell the group’s real estate assets to recover the money since several third party interests are involved.

[caption id=“attachment_626607” align=“alignleft” width=“380”] The market value of Sahara-owned Aamby Valley, a private hill station between Mumbai and Pune, is said to be valued at Rs 40,461 crore.[/caption]

Sahara is one of the top real estate owners in the country, almost at par with DLF, as it owns close to 27,000 acres of land in the country. The market value of Sahara-owned Aamby Valley, a private hill station between Mumbai and Pune, is said to be valued at Rs 40,461 crore. And let’s not forget the sweeping 186 acres in Gurgaon, the development rights for which are held by various Sahara group entities. While the market value is not disclosed, Sahara had paid Rs 1,436 crore to buy this land to be developed as commercial space and residential apartments, including group housing, branded villas, luxury apartments, club and hotels.

The Sebi order of Wednesday has attached between 90 to 95 percent of Sahara projects in 64 towns across India, mostly under the name Sahara City Homes. The development rights in these projects were purchased by various Sahara companies for Rs 1,105 crore, the order points out.

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Even though the there is no end to the number of real estate projects the Sahara group has a stake in, it is still not clear how many of these real estate assets are owned by the group and how many by the two companies that have been asked to refund OFCD money to investors.

Sebi is surely going to have a tough time going through the several shell companies through which the group has routed money to invest in the real estate sector. Pledged properties will only make the matter longer to resolve since it implies litigation which could go on for years.

Since real estate is unregulated, lacks transparency and is the safest haven for black money, Sebi’s job of recovering its dues has just got tougher, especially since the value of these properties is not known.

The real estate investor trap

Apart from doubts over the recovery of funds, it is the middle-class investor who stands to lose since they may have invested in some Sahara projects.

The investor who was earlier caught between delayed projects, blocked investment, legal hurdles and economic escalation, may now not ever see the competition of the projects since Sebi has attached properties. According to another TOI report, Sahara sold a number of projects in cities like Bangalore, Chennai and Mohali. Customers who invested in these projects are going to be adversely impacted.

What’s worse is that since Sebi has to sell real estate assets to repay bondholders, the investor money is bound to get stuck in this housing imbroglio. Refund of invested money will take time and the whole approval process can take years, making it more difficult for investors to get their money back.