A 1,000 Cr Scam - How Hyderabad developer collapsed
Ground Reality - A Real Estate Series to share Reality behind the scenes
I've been part of Hyderabad's real estate industry for years. I know developers, landowners, and lenders — personally. Starting this series to share what actually happens behind the scenes, because the common public will never know the true story. This first one is about Sahiti — and how a self-made developer went from being touted as a role model to being called as a fraud and finally arrested.
The Beginning:
Sahiti was started by Mr Lakshmi Narayana in a rented 3-BHK apartment. He had no connections, no landbank or generational wealth. The guy was hardworking and driven. The brokers who worked with him then still have nice things to say about him. The company grew slowly, but like every other small real estate company, had unqualified staff. When I met them, he had one of the most conservative and useless finance team.
The shift:
In 2018, the Hyderabad Real Estate picked up. Many developers started Pre-launch sales. (For those who don't know - Real estate developers are only supposed to sell units after taking all the approvals and launching the projects. Any sale which happens before the launch of the project or before approvals are called pre-launch sales). Companies which have not even delivered a single square foot have also started pre-launch and were successful in raising 100s of crores.
For any developer, signing a project and doing prelaunch sale was a no-brainer. They were generating cash upfront, effectively replacing demanding land owners with gullible middle class buyers. And in many cases, they made a profit upfront ! (i.e., if the land was for INR 20 Cr, they would collect INR 30 Crs through pre-launch sales).
Mr Lakshmi Narayana also did the same. He started tying up lot of land parcels in the same model. They had land parcels in Jubilee hills, Financial District, Madhapur, Gachibowli, Kollur, Ameenpur etc.
Pride comes before the fall:
At their peak, Sahiti group was collecting over 10 crores everyday from customers. To give you a perspective during the same period, the top 2 developers of hyderabad - Aparna and My Home were collecting less than that !
His daughter's marriage was a very grand event. The who's who of Hyderabad were in attendance. One of the richest gentlemen of hyderabad was acting as the god father for his daughter during the entire wedding.
He was surrounded by the typical rich vultures (read Marw***s and pvt lenders). These buggers were one of the main reasons of his downfall. They pumped the guy so much that he forgot reality.
He was not listening to any sane advice and was hoping he would come out bigger than anyone and everyone else in few years.
The last time I met him, his directors and I tried our best explaining him how if he let go of a few projects we could still salvage the situation. But he was adamant ! Or maybe he already knew what was coming !
The Scam:
During initial phase of Pre-launch, Sahiti was collecting INR 20 Crs to buy the land at INR 20 Crs. They bought the entire land from the owners and registered it to the buyers on square yard basis and subsequently entered into a development agreement with the new buyers. This was a cumbersome process but at least the buyers had some land on their name.
Subsequently, Sahiti started collecting INR 30 Crs to buy the land of INR 20 Crs. They stopped registering land on customer's name but instead bought the land on their own name. They were only giving unregistered sale agreements to the customers. Now the customers only had one piece of paper, which technically is not worth anything.
Even this would have been fine if they bought the land. The fact is, they only bought some portion of the land, and took the balance on development from the original owners. This means that they collected INR 30 Crs and spent only INR 3-5 Crs on land. The Rest was diverted.
In some other cases, they also mortgaged the property to private lenders to raise more money. For example, in one property, they collected INR 50 Crs from customers, INR 25 Crs from Pvt lender. They paid the land owners INR 40 Crs. So even before they started construction, they had a surplus of INR 35 Crs!
As per rumors, they had a Cash surplus of INR 500 Crs in one year !
Where did all this money go? That brings us to the next point.
What led to the downfall:
Funds were diverted : With money comes the pride. Mr Lakshmi Narayana started picking up lands left right and center. He thought he was invincible and could clear even litigated lands. He has diverted money he collected to sign up land parcels which were litigated. He could not clear even a single property so all the money was gone.
Fraud in the company : Remember when I said they started giving sale agreements to customers ? The marketing head of the company realized as he was the signatory, no one in the company had any way to know if he keeps the money with himself. Only after the main scam came out and customers came to their office with signed agreements, the company realized lot more sales have happened and lot more was collected from customers than was disclosed to the management. As per the management, approx INR 500 Crs was swindled off by this director.
Ameenpur land : They entered into an agreement to buy 23 acres of land in Ameenpur from Phoenix group. However, the land was in industrial zoning. They needed the land to be converted into residential to construct apartments. Mr Lakshmi Narayana thought he could get the land converted. Apartments were sold through pre-launch even before the concrete documentation happened for the land. They also started selling units in the abutting land (belonging to Omics group) without any document. They sold over 2000 apartments in pre-launch only in Ameenpur. All without having any title to the land.
Politicians and power brokers : Everyone took advantage of them. To clear the litigated land parcels, Lakshminarayana funnelled over INR 100 Cr to politicians and power brokers who promised to get title issues resolved. Not one parcel got cleared. The money is gone, the land is still stuck, and not a single politician will be held accountable for it.
Aftermath:
The Marketing director was caught, he returned significant amount of money. But by that time the damage was already done.
The marw***is and pvt lenders took the land mortgaged to them and threw out all the customers from those projects.
Few politicians from Andhra took over smaller projects for pennies.
The landowners who only took advance and did not sign registered documents, have cancelled their agreements and got saved.
The landowners who have land on development and registered the agreements also got screwed.
The customers got screwed. Many who dreamt of their own sweet home are now hoping to find a way to get out of this nightmare. There is no way the government could recover the entire money unless they start asking the politicians who swallowed a lot of money to give it back.
Takeaways of the story:
To the customers: Don't buy anything in prelaunch or One time payment.
To the landowners : Don't tie up with anyone who does prelaunch. Don't tie up with anyone who doesnt have 3 times the networth of your land value.
To the aspiring developers : Stay away from pvt money lenders. Don't partner with anyone who can screw you for fun and get away with it.
A final twist :
Mr Lakshmi Narayana had a son and daughter. When he realised he was screwed and it is only a matter of time before the mess would come out sooner or later, he wanted to get his son married to the daughter of one politician. This they believed would get them some protection and help. However, the son was madly in love with a girl from his college and was adamant that he will only marry her. At the end love won and everyone else lost !
