Property experts say developers cannot come up with valuations based on proposed developments during a slowdown
The Rs 19,000-crore valuation for Sahara group’s 106-acre land at Versova in Mumbai hinges on many things for it to become real. In the contempt case filed by the Securities and Exchange Board of India (Sebi) against the Sahara India Real Estate and Sahara HousingInvest, the Sebi counsel said on Wednesday that the land was “disproportionately overvalued” and Sahara’s valuer had arrived at the Rs 19,000-crore valuation based on future developments.
According to an affidavit filed by Sahara entities in January 2012, the same Versova property was valued more conservatively, the Sebi counsel pointed out. “The two firms said they owned one-third of this property and it was worth Rs 1,800 crore.”
In valuing the Versova property, Sahara’s valuer has reportedly used the discounted cash flows method, in which the valuation of a township proposed to be completed in 2021 was discounted to the present value. According to experts, developers cannot come up with valuations based on proposed developments during a slowdown.
“In today’s distressed market, you cannot come up with valuations based on proposed developments. It is more acceptable during boom times,” said Raja Kaushal, managing director at GATERE Real Estate, an alliance member of BNP Paribas Real Estate.
Added Pranay Vakil, former chairman of Knight Frank: “Unless we know all facts pertaining to the land, we cannot say anything. But nobody pays for the land. People are willing to buy depending on the potential of land and how one can develop it.”
Although a valuation of Rs 19,000 crore is theoretically possible, leading consultants say the proposed developments depend on various approvals from government and civic bodies. According to back-of-the-envelop calculations, if Sahara secures a floor space index (FSI) of two on a 100-acre plot, it could build 8.71 million sq ft (200 by 43, 560 sq ft) and if it sells at the ongoing rate of Rs 20,000 a sq ft, it can make around Rs 17,000 crore from the sale of properties. FSI means permissible construction on a given plot of land and one acre is equivalent to 43,560 sq ft.
“If the land contains mangroves, they may find it difficult to get approvals but if approvals come, they will be sitting on a goldmine,” Kaushal said.
Another prominent consultant said valuation also dependent on under what zone the land falls, whether it is in forest zone, mangroves or no development zone and so on.
“Even if you have 1000 acres of land which is in no development zone, it is of no use,” the consultant said.
Sachin Sandhir, managing director, South Asia, Royal Institution of Chartered Surveyors (RICS) said that in the absence of proper valuation norms in the country, people are still giving higher valuations and valuing properties which are not in conformity with standard practices.
Supreme Court grounds Subrata Roy, bars Sahara Group from selling property
In a blow to the Sahara Group, the Supreme Court on Thursday restrained Subrata Roy and other directors from leaving the country and also prohibited all its companies from selling any property until further orders.
The court passed the order in view of Sahara’s failure to hand over “acceptable” title deeds of properties worth Rs 20,000 crore to the Securities and Exchange Board of India (Sebi) for refunding its around 3 crore investors.
“We are satisfied that our order dated October 28 has not been complied with. Hence, we direct Sahara not to part with movable and immovable properties till our further orders. All contemnors shall not leave the country…,” a bench of Justices K S Radhakrishnan and J S Khehar said.
The bench made it clear that the restraining order was applicable to all companies of the Sahara Group, and that they would get a hearing only after they have complied with the court order in letter and spirit.
“It is important for Sahara to understand. We can see our order has not been complied with. First you deposit title deeds and then we will hear you. Till you don’t comply with our orders, there is no question of granting you a hearing,” the bench told Sahara’s counsel C A Sundaram.
Sundaram sought to convince the bench that they had already submitted to Sebi the best available title documents they possessed, but the court said that these deeds were “not acceptable”.
The group had submitted to Sebi documents of two plots of land: an 106-acre chunk in Versova in Mumbai that it claimed to be worth around Rs 19,000 crore, and 200 acres in Vasai, estimated to be worth Rs 1,000 crore.
The quantum of money indicated the outstanding that Sahara requires to shell out towards the refund to investors. Sundaram also adduced valuations by two professional companies to corroborate their estimates.
Counsel for Sebi Arvind Datar, however, pointed out that the 106 acres were in a ‘no development zone’, whereas the assessment had been done on the basis of developing residential and commercial properties on it.
He said the land cannot
be developed in view of environment ministry norms, and Sahara had, therefore, violated the court order by not handing over clean and unencumbered title deeds. Datar also said that the concerned sub-registrar had valued this plot at only Rs 118.4 crore.
The bench agreed with the counsel, saying that valuation could not be done on the basis of proposed investment prospects, and such a plan was “unacceptable”. It held that Sahara had clearly not complied with its order to hand over valid title deeds within three weeks from October 28. On that date, the court had said that Sahara was playing “hide and seek”, and could not be trusted.
“You have driven everybody around… There cannot be any escape now and the money has to be repaid,” it had said, asking Sebi to examine the deeds given by the group.
The court is hearing three contempt petitions filed by Sebi against Roy, Sahara India Real Estate Corporation, Sahara India Housing Investment Corporation, and their directors.
Sahara and Sebi are locked in a legal battle over the refund of Rs 24,000 crore to the company’s investors, raised through “illegally” floated debentures. On August 31 last year, the court had directed the Sahara group to refund Rs 24,000 crore. The group handed over a draft of Rs 5,120 crore to Sebi in December.