Chapter 14D: Citibank ecosystem used basic principles derived from the Morgan Stanley mutual fund scam, Harshad Mehta stock market scam, the meltdown of 2008, the Sanjiv Puri scam and the Citicorp Finance fraud to create and benefit from the real estate bubble.
Beauty lies in the eyes of the beholder is not relevant to commodities. Gurgaon and Noida are areas with infinite land. Noida alone has more land than Mumbai. There is zero rationale for apartments to be sold for more than the cost of land plus construction. But they sell for ten times of that.
Willing banks fund this.
Gurgaon premium property is more expensive than the most expensive reality in land constrained Mumbai island.
Residential apartments sell at several times the cost of commercial properties on the same street, often contiguous plots. Industrial plots can’t raise money. No one wants to finance them. Industrial estates are dying out. Udyog Vihar has seen an industrial plot becoming a Trident. Nearby is an Oberoi.
Luxury housing and luxury car sales are fueled by just one thing – the availability of finance. And creating the illusion of value when there is none.
The middle class struggle to get a roof over their heads. The whole objective of developing Noida and Gurgaon was to provide land to cooperative societies so they could fund and construct their own apartments with legit land taken from the development authorities. These development authorities are now bankrupt.
So here is the playbook.
You create notional value by creating a shortage and seeding the market with some very high priced deals. You make the price legitimate by getting the likes of HDFC to approve the projects and the prices. Then the bank comes up with a valuation that is say ten times of real. Now you set up a market intervention fund to sustain prices.
It is the standard Citibank playbook.
The mutual fund game is explained in the earlier post. The stock game was perfected by Citicorp in the KS Oils ipo. A small time company from MP with nothing was taken to 5000 crores market cap. Citi exited at 10x. The shares were dumped on unsuspecting retail investors. Till the music plays, the parcel goes around. Then when the music stops – the one holding the parcel goes down. If it is diversified enough, the loss is distributed. KS Oils then took a loan from SBI of a thousand crores. And then the music stopped. The company filed for insolvency and everything is zero. Banks were giving loan against these shares to fuel demand.
Identical to the real estate bubble.
Noida extension blew up a few years ago. Rs 80,000 crores was lost in Jaypee and other projects. Builders declared bankruptcy. All these flats were funded by banks. The projects all had faulty titles or were illegal constructions. IIT Alumni alone lost close to Rs 5000 crores. The banks started chasing them for EMI. The house buyers got no flats.
Noida is not an exception. It will get repeated in every suburban development.
