Moneylenders funding Realty Boom in Hard times

June 25, 2008	(1 votes, average: 5 out of 5)  Loading ...
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They could be dismissed as a nondescript group of people chatting on the lawns of an exclusive club or strolling down Marine Drive in Mumbai. Their clothes are quiet, their gait without swagger. Indeed, it’s hard to believe that these are the very men who have a vice-like grip over some of the biggest builders in the country. They are India’s wealthiest moneylenders who, even as the banks tighten their belts, loosen their own purse-strings.

With financial institutions and banks increasingly restricting loans to developers, these moneylenders — primarily belonging to the Sindhi, Marwari and Kutchi communities — have stepped in to play their part.

“Builders have been approaching them in droves for loans at phenomenal interest rates ranging anywhere from 20% to 36% annually,” said an insider, who is aware of this powerful financial world that operates in secret. “These moneylenders are mainly active in three cities — Mumbai, Bangalore and Chennai. When money has to be raised, telephone conversations are avoided,” one of them said.

The source refused to guesstimate the total quantum of loans these unofficial moneylenders may have disbursed, but confidently said the figure would run into thousands of crores. The loans are given to builders for short periods, from three to six months. The amounts could range from a couple of crores to as much as Rs 100 crore. If the amount is substantial, about 10 to 15 of those in the group are believed to come together to fund the project.

Builders are in a spot over banks being cagey to lend them money. The builder has to mortgage his property to the investor in case he fails to pay up. The loan is given both by cheque and cash — the latter comprising as much as 40% of the total sum.

“They are literally sitting on tonnes of cash and some of their families have been in the business of moneylending for the last 500 years,” a leading investor told TOI recently, requesting anonymity. He elaborated: “Over a century ago, these families had such a strong reputation that their cheques and promissory notes were honoured by the emperor of Japan, the czar of Russia and the shah of Iran.”

Private money lending has had a big role to play not just in real estate but in entertainment in the days when official funding was hard to come by. “In the 1940s, the Hindi film industry survived on their money,” said the investor.

“It was from the 1950s onwards that they entered the real estate field. Today, some of the biggest developers in the country turn to them for loans.” Among other big investors in construction are diamond merchants who, it is believed, have a stake in some of the biggest residential and commercial projects in the city.

News Published Under:   Real Estate India |

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