“Correct balance of supply, demand and prices needed in realty”

Vijay Wadhwa, promoter of the Wadhwa Group, talks to Moneylife’s Pallabika Ganguly on the trends in the realty sector that are leading to sluggish sales and how his company tided over the recession

Pallabika Ganguly (ML): How do you see the real-estate industry moving after the slowdown?
Vijay Wadhwa (VW):
After the slowdown, the correction in prices in good locations helped to kick off sales. As the situation improved, developers slowly increased the prices of the properties by 10%-15% to cover their losses. But among the many, a few of them spiked up the prices over 25% due to which they failed to report good sales figures.

For example, for our new project, ‘The Address’, we launched it at Rs8,901 per square feet plus Rs50 per square feet floor rise in January 2010 and till date have sold almost six lakh square feet because the price was acceptable to consumers, location is good and planning is right. At present we are offering it at Rs9,090 per square feet plus Rs50 per square feet for each floor rise.

ML: What did you learn during the slowdown? How did the Indian realty market face it?
We have realised that this is an industry and not a speculative market. In over 40 years in this business, I have seen the real-estate industry going through seven slowdown phases. There are three components, which are the main elements that lead to a downturn—supply, demand and prices. If any one of these elements goes awry, the spark goes off from the industry. As the slowdown entered India, we decreased our property prices, and properties in good locations reported sales due to reduced prices.

However, this time, it was the psychology which played a major role in the slowdown. As the money from international markets stopped flowing and with the slowdown especially in the US, Indian banks also tightened their funding as they thought that the bubble would burst. Everyone started to think alike with the banks and the American housing bubble burst.

I remember Deepak Chopra’s words—if all the butterflies flapped their wings at the same time, it can create a great massacre. That is what happened to the industry because it is like a butterfly and we all are connected to each other. In Mumbai, the projects at good locations have witnessed sales, in other cities where there is too much supply and purchasing power is less, it will take time to revive. 
ML: How did you survive in the recession?
We handled the situation very carefully as we had to keep the ball rolling. We met our suppliers and contractors to work out a solution to the slowdown. We came down to negotiating where we had to pay only the labour charges and the remaining payments (margins) for their work later. At some sites we slowed down our work a bit but did not stop it. We got regular flow from our rental properties also.

The next thing we did was to asses our existing asset portfolio carefully. For example, we owned a club at Borivali (a Mumbai suburb). We thought of developing a residential project there. This was a sensible decision given that during the slowdown, the club did not yield the desired returns. In January 2009, we demolished the club; we launched ‘Aquaria Grande’. We relocated our office from a prime residential area in Bandra (a Mumbai suburb) and redeveloped the site into a residential project, ‘Vasukamal’. We corrected our prices of the property twice and even passed on some benefits by way of easier instalment terms to our buyers. We also came up with an 20:80 payment scheme to induce sales by which a buyer had to pay just 20% initially and the rest on possession. The interest factor on the purchaser’s home loan was taken care of, till possession. A combination of all these helped us to maintain the essential cash flow. {break}

ML: Affordable housing was the trend during the slowdown and now the industry is again looking at constructing high-end flats. Why did the affordable home segment vanish?
In Mumbai, developers started affordable housing because they had to survive on cash flow during the recession. However, affordable housing in this city cannot be sustained because the land itself is very expensive. Many developers jumped into it, to show that they are with the times and started selling properties in peripheral areas of Mumbai from Rs1,800 to Rs2,000 per square feet. If one is building a 22-storey building and if we consider the cost of construction, municipal taxes and architect’s fees—excluding the land cost—the cost of development won’t be less than Rs1,800 per square feet. They (the developers) thought that they will average the losses with sale of other projects. But as the industry started reviving, they increased the prices of the same properties between 15%-20%. I think with that much increase in prices, they can survive, complete and deliver the projects on time. Otherwise, completion and delivery of the project is an issue of concern.

ML: What is your company’s business model? Like most real-estate players, are you also looking at raising funds through capital markets?
We follow the mantra of re-investing the profits gained from our existing business into new business. We also have support from institutions, banks and investor funding. Instead of going into joint ventures or an initial public offering, we like to share the profits with our investors truthfully.

Currently, we are not looking at raising any funds from the capital market. Our business is
well-geared and we are comfortable with the well-built commercial assets that remain on our balance sheet.

ML: Are developers stressing more on loading?
Increasing loading is an unhealthy practise in the real-estate industry. The greed to buy expensive lands is making developers to increase the loading in their projects. A reasonable loading of 30% and a little more in high-rises, which includes common passages, staircases and lifts, can be explainable. For example, in our various developments, we try to provide spacious lobbies not only at the ground floor but practically on every landing, adequate lift space, wider staircases for which we think that the loading is explainable. However, a practice like just adding a percentage in the name of loading is offensive. 

ML: What is the total area of your new development?
We are adding over 12 million square feet in new projects.

ML: You have four commercial projects under construction, how do you see this market moving?
Among our four projects in Mumbai, ‘Platina’ is at a prime location at the Bandra–Kurla Complex and is almost leased out while Narain Chambers at Vile Parle is complete. We are leasing it at Rs250-Rs300 per square feet and Rs180-Rs200 per square feet, respectively. Though supply in the commercial segment is in excess, enquiries for projects at good locations have picked up. In Mumbai, people are mainly setting up their front offices at Lower Parel and Bandra -Kurla Complex and prefer to set up their back offices at Kurla, Vikhroli or Goregaon (all Mumbai suburbs).

ML: What is the story behind your project called the ‘Address’?
The 18.18 acres of land where we are now constructing the ‘Address’, earlier belonged to Ravi Modi. We wanted to buy the land since the last seven years. In 2003, we initiated the negotiation for Rs120 crore but it (the deal) did not happen. A few years later, we heard that the owner has finalised the deal with a developer at Rs720 crore but due to the slowdown in 2008-09, the deal broke down. In September 2009, we again initiated the talks for the deal at Rs450 crore but the negotiations did not turn into a reality. We arrived at a final amount of Rs571 crore.




7 years ago

All builders survived because of Black Money they have and bank loan..

Right now with 60% appreciation in prices there are no buyers except Swiss Bank black money holder and PE fund but no genuine demand.

I think what I am writing is the only truth and thats why govt not imposing any regulation.

New Banks: Will RBI Relent?

The RBI has barely suppressed its dismay over the finance minister’s announcement that the apex...

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'Bringing the axe down on Axis Bank': Spark Capital's way

Is Axis Bank being made the target of a massive bear hammering?

Over the years, Axis Bank has earned wide admiration for performance, service quality and its governance standards. But for Spark Capital, a Chennai-based brokerage firm, this is just a lot of hot air. A recent newsletter released by the firm is an unusually vicious indictment of the bank's operations. Using the ruse of a chance encounter in a temple in southern India, Spark Capital deals one sledgehammer blow after another to the bank, ending with its own 'sell' recommendation. This is fairly extraordinary, because brokerage firms rarely rip apart even the most badly managed companies, far less one that has made waves for its performance and governance standards.

Spark's report is in the form of a chatty description or an encounter with an "accomplished internal auditor of banks" in a "crisp white dhoti", who is quoted "near verbatim".  The source is strangely described as a Marauder of Banks (MOB).

Here is a sample of MOB's alleged insights for Spark's team after declaring he has an "axe" against Axis. “A Bank is known by the assets it lays out—a clear signal to its risk-reward approach and operational prudence. (Are) you chaps aware of the Rs10 billion plus exposures that AXIS has?” Without waiting for us to respond, MOB went on, rubbing his hands with glee, “Lavasa, Aban, Suzlon, GMR, to name a few… see what I am saying? Nothing wrong with the names per se, but (I) am circumspect about the industry exposure-risk-reward-tenor equation.”

Of course, it does not hit Spark that one would have to be a bit loony if something that is "nothing wrong" but only inspires circumspection leads one to rub “hands with glee".

MOB goes on to tell them, "What do you make of AXIS lending to Megasoft, Omaxe with no clear strategy to take-outs?” At this stage, the Spark people claim to be at the feet of the 'guru' lapping up his 'gyaan'—or rather a hit job at the temple. So here is more. “AXIS must thank their Chairman’s directorship at Subhiksha—for conflict reasons, they cut their about Rs200 crore exposure to Subhiksha in time—else they would have been in a mess with that account alone! Banks are supposed to do banking, i.e., raising monies from depositors and lending to corporate and retail borrowers after properly assessing and pricing risk.”

The rant continues: “Be very wary of bankers like AXIS who rush into the aggressive end of high-risk banking, i.e. overseas, cash-guzzling businesses like insurance and AMCs, acquisition financing and through overseas vehicles.”

There’s more: “Did you realize AXIS has among the worst ALM (Asset Liability Match) mismatch possible—21% on the < 1 year tenor and 22% on the < 3 year tenor? Am sure you understand the implications of this aggressive yield-curve play in a rising-interest rate scenario? And here’s the other thing—26% of his advances are directed at corporate and SME names with ratings of BBB or below. AXIS will have more stressed-asset worries than the market will be happy handling, guys!” (Spark adds that when a foreign bank exited 15 accounts from the South on risk concerns, they were quickly substituted by Axis). "AXIS has an abnormal about 60% of his Net Worth coming out of share premium. I typically feel more comfortable with business conduct being reflected as retained earnings building out Net Worth!”

On provisioning, MOB allegedly says, “Transparency in provisioning should bother investors more than the provisioning itself! Will you not rather know client-wise exposures than speculate on the likelihood? Do you think AXIS is transparent? Do you know Aban has its loans restructured at Singapore? Any idea how AXIS has provided for the moratorium and tenor-extension? Give me a break!”

“While you and your investors get down to some serious analysis, also ask questions on their Forex-derivative sales and positions there, that could go sour for AXIS. How do the listed markets tolerate a QIP-raise where proceeds are pushed to buying corporate offices? Does anybody realize that between April and December 2009, the loan book at AXIS grew by a paltry 4.5%? That’s lower than most peers—banks are to push monies into creating loan-books, I say! AXIS has a Rs200 Cr equity position in Lavasa, right? God!”

The hit job doesn't stop at the Bank's lending and performance. Sample this aside: "AXIS, AXIS…was that not what the Imperial Japan-Mussolini-Hitler combine (was) called? Whoever gave UTI Bank this name thought tongue-in-cheek.{break}

“AXIS is where ICICI was a few years ago, with their asset woes being the most poorly kept secret and their aggression with high-risk assets showing up negatively. It has taken ICICI two years of Vratham (religious fasting, for the uninitiated) on asset-growth and now their books are back to order… I like the changes I see. Bought some ICICI stock for myself too!”

On the Axis QIP placement: “Call it the investor curse. When you lend to somebody, you pray for his good health till he returns the money, right? The investors have to pray that AXIS’ results are good for the next three quarters till they get off, the management has to play along with meeting expectations and both have to look away and believe everything’s OK with the business. Sadly, the truth could be so different and difficult to digest! Sure you guys price these risks in?”

The tirade ends with Spark Capital chiming in: "We opined we will be happy buying AXIS at Rs 800, a good 25% below CMP and a nice entry price for a long-term play, perhaps… But SELL AXIS today!” It then quotes its own analyst as saying, "If the QIP fund-raise was treated as cash, the stock trades at 3.3x ABV, on par with HDFC Bank and at the highest end of its P/ABV band! SELL AXIS is his recommendation too."

And if you still didn't get the real message of Spark Capital, here is the closing: "Before we sign off, here is the disclaimer—most of the contents in this mail are views and observations expressed by MOB. It is coincidental that we share his concerns about AXIS and are recommending a SELL at these prices!"

A nice touch, which blames the nastiest bit on some unknown, faceless, probably non-existent person whose credibility is sought to be established by Spark's alleged background check on this man with a claimed experience of 35 years. If the circulation of the letter to a bunch of foreign institutional heavyweights does trigger a 25% price correction, it may provide a big buying opportunity for a few clever people. But even if one or two FIIs are induced to panic, there could be a nice large block of shares available on the market for someone to snap up.

On asking Spark Capital about the letter, its executive director for investment banking K Ramakrishnan wrote: "The mail was sent to a specified closed user group—our institutional investor clients and prospects, for their reference. As a corporate policy we respond and clarify to that user group only. Hence, we regret to inform you that we have no further comments or clarifications to offer on this subject.”

When asked, Shikha Sharma, managing director and chief executive of Axis Bank said that a senior executive took up the issue with Spark Capital, which had apologised, but said that it would stand by its research report. She also said the bank cannot discuss individual cases because of confidentiality issues, but plans to write to the Securities and Exchange Board of India (SEBI) about the report.

Interestingly, the charges mainly pertain to the tenure of Dr PJ Nayak, who was recently awarded "Banker of the Year" by Business Standard. Axis Bank sources from those days said: "The letter mentions four exposures: Lavasa, Aban, Suzlon and GMR are mentioned. The Bank had a pretty strong focus on infrastructure, choosing projects where an execution track record had been demonstrated. Thus, the Lavasa risk appeared worth taking partly because Hindustan Construction's record over the years was good, or GMR because of the tight execution of Hyderabad airport. Detailed due diligence followed. Of course, if one believes that infrastructure is a risky asset class or if one has strong views about these companies, then the critique gains credibility."

On the other exposures our source says, "By hindsight, some exposures of banks can always be critiqued, but if credit processes are strong, overall portfolio quality does improve, as I think Axis demonstrated." On Subhiksha, we are told that Dr Nayak was never on the Subhiksha board (in fact Rama Bijapurkar, who is on the Axis Bank board was an independent director on Subhiksha Trading Servcies). “Axis managed to ‘successfully’ get out of the exposure after it saw an RBI report sent to bankers, which cast doubt on some of the company's banking transactions. And getting out was not easy, it required great perseverance on our part.”

Our sources are "puzzled about the bit on the asset-liability mismatch being poor" but do not want to refute it without access to numbers Spark was referring to. On the share premium constituting a large part of the net worth, our sources say, "It is surely an indication of the credibility of the Bank. Would it also not be true of HDFC Bank?"

Will Spark Capital's ploy of axing Axis through a possibly fictitious character become the template of negative reports in the future?



amar wadhwa

7 years ago

not worth comments

Rakesh Samar

7 years ago

One should see the Axis Bank's Home loan offer and the agreement that the clients have to sign to take the loan. It's ludicrous. After having some 25 conditions, one condition says and I quote verbatim " AXIS Bank is entitled to add to, change or modify all or any of the above aforesaid terms and conditions"

CAN YOU BELIEVE THIS? Is Shikha Sharma listening? I am asking for a refund of RS 5500 paid to them as loan processing fees as I declined to accept this condition and no one is now listening. Suggestions welcome.

Samir Pradhan

7 years ago

Whatever the underlining politics between Spark Capital and Axis bank the bank is no saint. It is regularly cheating the customers not following the RBI guidelines meant forvthe customer's protection and convenience. These inditions are enough to gauge the credibility of a instituation. THIS BANK IS FRAUD !!!


7 years ago

or , rather, what is SEBI doing? It is an attempt to manipulate the market

Easwaran .T.V.

7 years ago

what is RBI doing?


7 years ago

I think this is just a publicity gimmick for a small timer !!


7 years ago

Is it a local 'Indian' version of subprime? or another Satyam in
making? Those who are supposed to must be keeping an eye, of course open.


7 years ago

If Spark's assessment is true, then why get in at 800? the stock seems destined to fall much further. this surely looks like a malicious opening for a bear attack. SEBI should be notified by AXIS immediately.


7 years ago



7 years ago

Hard to digest

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