Fraudsters are innovative thinkers!

To give the devil its due, I have come to accept a fraudster is an out of the box thinker! In most cases the fraud is a crude deceit but in some cases it is indeed quite sophisticated and one can see flashes of rare brilliance of convoluted variety ! Some of these worthies out think the system and its current operational dynamics! Unwittingly a fraudster exposes the chinks of the system, albeit for his personal benefit!!

I will briefly narrate a fraud that took place in a private bank about a decade back!

Let’s say the name of the protagonist in this case is Alex (name changed of course). He went to a private bank, which primarily operates in South India and requested credit facilities for a small business that he was running. He was already its customer for a few years at that point of time. The loan was sought against the receivables in his business and the secondary security was the land property in his native village deep inside Thiruvallur district bordering Chennai city.

When the bank officials visited the village along with their engineer to assess the property, he took them to the site and then led them to the sub-registrar’s office where he asked in their presence about the Government guideline value for the survey no. of the property sought to be offered as collateral security. The sub-registrar referred the concerned register and informed him and the officials that it is Rs.10,000/- per cent. It was far too high a rate for a remote village property but nevertheless the bankers noted the figure and the team left the office.

It is generally believed (but not always true) that the Government rates for land are invariably lower than market rates at any point of time. This is the one of the causes for black money generation in real estate deals, for the property is always registered exactly at the Government value and the rest of the consideration is transacted in cash. Any way let’s leave the black money part aside as it is not relevant to the issue on hand in this case.

Back at the office Alex explained to the bankers and their engineer that the property is worth at-least Rs.15,000/- per cent as the market rate is higher than the guideline value by 50% and more. This was accepted and the engineer certified the value at Rs.14,000/- per cent, with some conservatism thrown in. For an extent of 5 acres or thereabouts, i.e. 500 cents, the value was pegged at Rs.70 lacs. The bank took comfort from the fact that their lending will be only about 60% of the above value at Rs. 40 lacs.

Soon after the paper work was completed the amount was disbursed in two tranches.

After the holiday period of 12 months the repayment was to start. Nothing happened and the customer was nowhere in sight. Calls to him went unanswered. After a few months when the account was about to turn an NPA, the bank official went in search of the borrower and finally located him in his business place. The business was wound up by then. There was no activity of any sort and it was a rented premises. The borrower narrated his woes saying that he went into grave losses as the orders were drying up due to China factor, that collections were not materializing and he had to close down the operations and dispose off the plant & machinery. Oh! yes! He remembered his dues to the bank but was helpless, he pleaded. No doubt, the bank could take over his secondary security and dispose it off and collect its dues. He did not want die as a debtor, he proclaimed proudly for good measure. Whatever help the bank needed in this process, he would willingly extend, he added gracefully!

The bank’s higher ups were informed and the legal process for sale of security was set in motion. When the property was put on block the bank to its utter shock realized that its true worth was about one tenth of its assessed value i.e. Rs.7-8 lacs was the value range the market was willing to offer vis-à-vis Rs.70 lacs determined during pre-sanction due-diligence.

How did things go so horribly wrong?

It was to later emerge that Alex played the system so beautifully and the realization of the contours of the web of deceit he cast so elegantly would leave the bank officials completely flummoxed. His modus-operandi went like this:

About six months prior to his application for loan, he ‘sold off’ a small portion of 2 cents of his land in the same survey no. at an astronomical price that was 10 times the Government rate that prevailed earlier. If the then Government rate was, say, Rs.1,000/- per cent (i.e. Rs.1 lac per acre), the 2 cent land was sold for Rs.20,000/- as against the government value of Rs.2000/-; stamp duty was paid for the said Rs. 20000/-. He enacted two such transactions in a gap of two months. Both these transactions were within his family (the term ‘related party transaction’ was not in vogue then) and so his net investment was only the stamp duty and registration charges he paid as no consideration was actually paid or received.

Consequent to these transactions, as per the procedures/rules laid down, the Government guideline rate for this survey no. was revised based on the last transactional value; on the strength of Alex’s 2-cent micro transactions, this was officially pegged at Rs.10,000/- per cent, which was later confirmed to the bank officials as noted in the earlier part of this story.

Thus having engineered an artificially high Government rate for the land, he pulled off this fraud by taking a huge loan against this property convincing all concerned that the Government rate being what it was, the true market value ought to be higher. This was not challenged by anybody as it was kind of an accepted wisdom in these parts of the country. Having got a sum which was at least seven to eight times his land’s real worth there was no way he was going to repay the borrowed money!

That Government’s guideline rate can be so easily manipulated to unleash such a fraud was a revelation to the bank and its engineer!

When the author who was not aware of this story was asked to give an opinion about the property some two years after the loan went bad, he inspected the site and assessed it at about Rs.2000/- per cent; i.e. Rs.10 lacs overall. Finally after few more months the bank managed to sell it off for Rs.12 lacs or thereabouts and in this process the bank took a hit of Rs. 28 lacs plus interest.

A proper technical due-diligence of property would have helped the bank avoid this pitfall!

Alex is said to have reinvested the proceeds that he palmed off from the bank and he is now comfortably off, it is believed!

Do write to us in case you have some interesting information or feedback!

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Why living in Chennai’s suburbs is such a nightmare?

The title should not give you a mistaken impression that living in Chennai city proper is as though a wondrous experience! This is intended to convey the relatively more difficult civic life one endures in the suburbs than the city. The difference if at all is in only the degree of severity of the issues involved!

Let us take for example the traffic in suburbs. It might be quite obvious to anyone the interior roads in most of such suburbs are quite narrow (mostly 20ft wide and rarely 30ft wide). This is irrespective of the length of the streets. One of the basic parameters of town planning is that higher the length of the street, broader it should be. Here we have situations where even a kilometer long street is just about 20ft to 25ft wide. With unimaginatively built storm water drains jetting above the ground, encroachments and parked vehicles taking significant space, you end up with one or one and a half lane for traffic. Count on your lucky stars if you have to navigate deep inside such streets as this may be kind of a one way ticket. If you are fortunate enough you don’t encounter some other vehicle in the opposite direction or you have some margin space somewhere to squeeze your vehicle in and let the other one pass. Or else you end up reversing so long you end up back in the main street, that too only if there are no vehicles behind you!

Then let’s take the case of piped water supply and proper sewerage. Are these such luxuries that suburb-walahs should not expect it as a matter of right?; Why is that these poor souls must fend for themselves with brackish water from tube wells that seem to be reaching so deep into the bowels of mother earth that soon our unit of measurement will turn from the present hundreds of feet into thousands of feet, when it comes to talking about the depth of these wells. Are these people not entitled to piped treated water in their door steps?; Is a proper public sewer system that would give them deliverance from the septic tanks and cesspools of waste water which are breeding grounds of tortuous mosquitoes and many a disease, too advanced a civic amenity?

How about power supply through underground cables than the dangerous overhead variety?; Most of the readers in the suburbs will have seen overhead non-insulated power cables so close to balconies that a child can just lean and touch it and pay for it dearly with life. Or what about the dysfunctional street lights , 90 degree turns in narrow streets, street dogs, clogged storm water drains, rotting garbage, crowded and mis-sized apartment blocks in narrow streets, private buildings in the middle of roads, absence of government schools, hospitals, potholed roads that get marooned with the slightest of rains, complete absence of sidewalks and parking space and the battles one has to wage ...Continue Reading

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Collapse of the building preceded by the collapse of the system !!

The Chennai multistoried tower’s recent collapse killing 60 odd poor construction workers, in my view, is an incident that was waiting to happen. May be this is Chennai’s first, in terms of the magnitude, but unless effective steps are put in place in double quick time, this won’t be the last. Even before the debris in this site was removed it was followed by another collapse near Redhills where a huge compound wall fell killing eleven poor people including children . Read on and you will know why such incidents are going to be repeating themselves in the forthcoming days, though I hate to say this !

As for collapse of the multi storied building, several views are flying thick and fast and various theories are floating around. One says the developer got additional sanction for extra floors even as the work was in progress and he went on to add five more storeys without bothering so much about the need to strengthen or re-do the foundations and RCC columns which will be loaded almost twice the load earlier designed for.

Another theory says being proximate to lake bed and given the unsuitable type of foundation system (rather than deep piles to take it upto the rocky layer deep below), the soil gave way and resulted in this catastrophe.

Another view is that the quality of designs and construction was below par and did not meet the codal provisions.

Many are blaming the CMDA for sanctioning extra floors through some exemptions which would not have happened without the ability of the developer to play the system. While one doesn’t know if the CMDA’s system of approvals has been compromised, it need not necessarily mean it led to the collapse, for this body sanctions the construction based on its compliance with land usage norms and its conformity to the development control regulations and nothing more. Checking the engineering designs and soil conditions or suggesting changes in design are beyond its jurisdiction , expertise and mandate. In fact CMDA’s approval for such developments expressly state that the structural design and construction are in the realm of the developer and CMDA is in no way responsible for the same !

May be if the building construction was already on when the additional floors were sanctioned, the CMDA could have got an undertaking from the structural designer that structure already executed is capable of taking the load from 11 storeys rather than 6 storeys as per the original approval. I do not know if this was done or not. If insisted upon this would have ruled out one possibility for the failure. In any case it was not CMDA’s task to examine the structural stability of the building.

It is said the structural designer who gave the designs was not associated with the project right after approvals and someone else has been looking after the structural aspects. It is also said lot of changes have been effected at site in terms size and positioning of the structural elements like columns and beams.

Be these as they may be, I have some small but nevertheless relevant questions:

a)   How is that an ex-bank employee turned developer feels confident (over confident, rather) enough to construct such a tower all by himself without the help of senior architects and structural designers ?;  even after the original designer opted out of the system,it appears the developer went on with a make shift arrangement for this most important component of such huge buildings. Amazing confidence indeed , but at what cost ?

b)   How is that a person who is said to be a draughtsman acted as the structural engineer in-charge during the construction ?

c)   How is that the well heeled buyers go for such developers whose background is hardly impressive when it comes to developing such high-rises ?;

d)   How is that none of the buyers took an engineer from his/her side to understand how the construction was being carried out and if indeed such inspections took place, how come no one could fathom such deep flaws ?. After all if I am buying a property and am not technically qualified, I would take such a help from some known engineer and try to understand if my investment is safe.

e)   How is that none of the bank engineers who must have visited the site in connection with the property loans, suspect anything wrong at all ?

The collapse of the system :

Till a decade back there was always a lurking fear in the minds of designers, contractors , builders and soil analysts with regard to  structural and soil aspects. If the design assumptions and the site conditions do not tally, the issue used to be referred to the concerned expert who would visit the site and take a call suitably which might involve complete re-design as well.

Designers used to decide how a design ought to be in so far as important aspects like type of foundation, size and layout of columns, extent of reinforcement and such technical aspects are concerned. Over the years with rapid computerization and commodification of designs, no designer has a ‘feel’ of the structure or the site; .Hawk eyed architects and design engineers used to visit the site frequently and spot even minor transgressions and had the authority to correct them.  The resultant product would be a robust development where there will be no room for such nasty surprises.

These days there is  proliferation of designers and the latter bend over backwards to please the new crop of bossy and purely profit driven developers; designers try to display their ability to give ‘ competitive & economic’ designs rather than safe designs with adequate margin for  errors in execution, so that they remain in the reckoning of the private builders; given these and the falling returns from this profession and the rapid pace of construction which permits no periodical meetings or changes to suit site realities as they emerge, the architects & designers have largely lost their space and authority in the project sites. Site engineers used to exercise vigil to ensure there was no compromise in the quality of works –especially in the case of RCC elements !

During the past decade or so, many developers and project promoters, have developed a tendency to outguess the structural engineers in terms of how a beam/column/foundation should be sized , what type of reinforcement is to be used , what should be the depth of the foundation and the like. They may have a degree in finance or marketing or HR or may not even any educational qualification to speak of and would not be able to tell the column from a beam, but nevertheless they venture with their ‘suggestions’ and ‘judgments’ as to what constitutes a good structural design; if not challenged , they even go overboard with their ‘gnan’  on electrical engineering, HVAC, fire protection and the like.

Some meek structural designers try to satisfy the whims of these characters and design inadequately sized columns and foundations with minimal reinforcement with a prayer in their lips.

Where such poor designs is further compounded by poor soil conditions and defective work practices leading to weaker structural elements, then it becomes a disaster waiting to happen !

Simultaneously execution standards have gone haywire with the steep fall in the standards of engineering education!! We have site engineers who do not know how many millimeters constitute one meter or vice versa ! This is no exaggeration as I have come across several engineers with such astounding levels of ignorance. Obviously one does not expect them to ensure quality work at site.

Therefore the above failure is symptomatic of a deeper malady and setting it right  is going to be a long and tortuous process, if at all we start working on this !

The simple truth is that there are no simple and quick fix solutions !!

Do write to us in case you have some interesting information or feedback!

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Harass ! Hound ! Halt ! The saga of construction permits in India !

Aditya Builders (name changed), a small time construction company, routinely executes construction contracts for medium sized builders and small factories in and around a southern metro. The proprietor, Adityaram, a trained engineer with more than two decades of experience as a construction engineer, has set his sights high. He is credited to go about his work passionately and was widely appreciated by his clients who have been with him for several years now. However being a very competitive business that construction is, the capital formation in his books was modest.

At some point of time, a small piece of land in a suburban area was offered to him for sale by a known person. Here was an opportunity to go higher up in the value chain of construction business, he thought and finally decided to take the plunge. Being capital starved he had to borrow almost 70% of the property value from banks and private lenders.

Adityaram planned to develop the property as a small apartment building and was enthusiastic as it was a major step of forward integration for him.

He did not know what really lay ahead for him!

He applied for transfer of patta in his name as it was a technical necessity. The process of issue of patta has been computerized and what should happen as a routine measure, would take about two months, he was told. The Revenue Dept. staff are busy on flood relief duties, they reasoned. Of-course things can speed up but some ‘expenses’ will be there, he learnt . Aditya was adamant he wouldn’t pay.

Two months passed by and after repeated visits and endless waits in the dirty corridors of the Tashildar office, he got his patta that too without any speed money! ; A small victory, he told himself.

Next was the issue of getting approvals for construction. He submitted his plans online through a licensed surveyor; ideally the plans should get cleared within 72 hours, but there was a software glitch, he was told. After some fifteen days, the online clearance was received. Armed with this and other property documents he sent in his application with relevant attachments and prescribed fee.

After a long wait Aditya approached the concerned officer to know the status of the application. He realized even though his papers were in order and his drawings have been pre-approved, there were still ‘demands’ to be met. The Executive Engineer he met ‘briefed’ him about the ‘going rates’ for such approvals. What happens if someone doesn’t pay, Aditya ventured to ask. Well, things get delayed; officers don’t take much interest! After all they have lots of other work and your work gets de-prioritized, the EE said in a thoughtful and compassionate tone, as if he was taking pains to help Aditya. See, you have invested money and a delay of even one month can set you back by way of lost interest on locked up capital; besides material prices are going up rapidly and as a  builder you would be better off not minding the small payouts! After all take this  as just a small additional layer of cost which gets offset by the savings in time! The EE was now talking corporate finance!!.

It was the time to make up his mind! Aditya rose and said in a firm tone he wouldn’t pay up. Nor would he countenance unnecessary delays! He added he will take up the matter with higher ups if necessary. The EE was no longer interested in him and buried himself in other files, as if saying Aditya could go out.

In the next few days Aditya thought dispassionately and shot out couple of letters under RTI Act. The replies, mercifully, were received in fifteen days. Studying them he learnt that the officials are obliged to clear the files for new construction projects of the category which Aditya applied for, within a maximum of 14 days and if they were rejecting a proposal they need to communicate to the proposer the detailed reasons.Given the on-line pre-approval of plans which Aditya had already completed, the officials had to perforce come out with very good reasons to reject his proposal, Aditya reasoned.

Next he shot out a detailed letter to the approving authority asking for reasons for the delay in his case and why the laid down guidelines are not being adhered to. He would approach the court for compensation for the delays caused by the officers concerned and they would be asked to compensate him in their personal capacity besides claiming damages from the civic body, his letter added for good measure.

A week passed and then he got a call from the civic body and was told his approvals are ready.

He reckoned an additional three months time had passed beyond the ‘normal time’ period for such approvals.

At long last he commenced the work at site and the construction gathered steam. One fine morning Aditya was asked to meet the local councilor. Aditya, sensing trouble yet again, just ignored it. There were repeated calls and he went on stonewalling them. Several warnings, some subtle and some not so subtle, came his way, but he stood his ground. How councilors can manage their wards if people who run their business there do not contribute, he was asked to clarify!. The present councilor doesn’t take no for an answer, was another friendly advice from one of his sidekicks!; Later he would realize had he met the councilor the demand would have been approximately INR one lac per apartment.

When he had planned the first level roof casting work, he had to store lot of materials on part of the road as the site was quite small and the materials had to be necessarily kept on the road. Aditya was taking due care to avoid traffic blocks due to material stack. Just as the labour team arrived to start the work, there was a group of officials from the local body who said he was blocking traffic and the work could not proceed. They had brought some policemen to the site who too commanded Aditya to stop.

A livid Aditya decided to take the bull by its horns ! He asked the officials if they had stopped similar works elsewhere and there are atleast a dozen such construction works going on within a kilometer range, he pointed out. Why is this selectivism, he demanded to know. He asked them to give the order in writing and said he is prepared to pay the applicable fine for such temporary disruption to traffic. He warned them he would approach the court and ensure that he was being targeted and singled out. After some time the team from local body lost its steam and went away saying he would be penalized for the traffic disruption. The police team booked a case and went away. After an hour of stoppage, the work resumed.

There were similar issues at the time of giving power, water and sewer connections and he had to endure substantial pressure, strain and delays at every stage.

Finally when the work got finished, he estimated he had saved nearly INR 10 lacs by his spirited approach. This was nearly 10% of the cost of the construction and added to his bottom line. He also worked out the additional interest cost on account of loss of time was nearly 30% more than the notional savings! .

But he could not resist feeling a moral victory of sorts!.

If this is the pressure a developer has to face in a small project (which happens in almost all the projects) the readers can imagine the kind of demands a major project proponent will countenance!! And the costs of such blackmail and rank illegality are being borne by the developers and users of the project ultimately!

Multiply it million times, you get the effect it has on the overall economy by way of loss of productivity, escalation of costs, wastage of resources, undue and unjust enrichment and loss of revenue for the exchequer!

Let us start resisting illegal demands of this sort in our own small ways and soon it will form a crescendo!

Do write to us in case you have some interesting information or feedback!

BVe Consulting Engineers

Engineering Project Consultancy & Property Advisory Services,

Residential-Commercial-Industrial-Infrastructure Designs

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Apartments- Making a wise choice !

Ram, a middle level executive in a corporate, has decided to buy an apartment ; he has an investible fund of Rs.15 lacs; his banker is ready to lend him upto Rs.35 lacs based on his CIBIL score. Ram has zeroed in on a few properties in a southern suburb of Chennai city. He had personally inspected six properties and has short listed three out of the same. All the three are located in the same neighborhood with comparable civic amenities or lack of it. All the three are built over a piece of land varying between 2500-3000 sq.ft. in size; all the three buildings are developed by builders who are operating in this area for more than 3-4 years.

Ram’s family is forcing him to make a choice and commit.

Property A has a built up area of 1000 sq.ft. in second floor and the price is Rs.4800/- per sq.ft. all inclusive ; it comes with an undivided share of land of 250 sq.ft.; there are 10 apartments in the block; the building is spread over part stilt+ part Ground+ first + second floors

Property B has a built up area of 900 sq.ft. in first floor and the price is Rs.5500/- per sq.ft.all inclusive ; it comes with an undivided share of land of 550 sq.ft.; there are 6 apartments in the block; the building is spread over part stilt+part Ground+first + part second floors

Property C has a built up area of 1200 sq.ft.in ground floor and the price is Rs.4900/- per sq.ft. all inclusive ; it comes with an undivided share of land of 400 sq.ft.; there are 8 apartments in the block; the building is spread over part stilt+part Ground+first + second floors

Purely from the budget angle and the sufficiency of space Ram feels property A suits him well. The builder in this case is keen to close the deal asap. He is even ready to offer further discounts, if Ram can conclude the sale within 15 days.

What should Ram do ?

Should he choose a property which gives him maximum usable space with minimum cost as the common logic dictates i.e. property as per option A ?

Do things like UDS (undivided share) of land matter?;

How come there are 10-12 apartments in a small piece of land? ; how will the waste water from kitchen and toilets be disposed off, this being an unsewered area ? ; is there a sump for collection of municipal or bought out water ?; is it too close to the septic tank for comfort? ; is the open space around the building worth as much as the covered space within four walls ?; why does the approved plan pertaining to property A show part of the second floor space as an ‘open terrace’ while the entire second floor is covered with apartment as it has been developed ? what is its implication ?

Ultimately which purchase will give him lasting peace and hassle free life ? Is lowest price the only criterion?

How do we analyze it ?

Ram should choose the apartment which gives him maximum UDS of land per sq.ft. of built up space because it connotes several positive aspects as compared to the other two options :

The analysis is as follows:

Property A – the UDS of land per sq.ft. of built up space is 0.25 sq.ft.; i.e for every one sq.ft. of apartment space he gets 25% as the land share in undivided form;

Property B – the UDS of land per sq.ft. of built up space is 0.61 sq.ft.; i.e. for every one sq.ft. of apartment space he gets 61% as the land share in undivided form;

Property C: the UDS of land per sq.ft. of built up space is 0.33 sq.ft.; i.e for every one sq.ft. of apartment space he gets 33% as the land share in undivided form;

Thus the property B gives him the highest share of UDS of land; this would mean the deviations from approved plan would be minimal or nil, there will be more open space around the building as compared to the other two options, the building will be less crowded which means availability of more water per capita, more open space per capita and so on. The additional cost that he would now pay will be more than offset with the faster rate of property value appreciation as compared to the other two apartments from a much better quality of living here. It can be shown that the additional value of land embedded in option B will be about Rs.1000/- per sq.ft. higher than option A. This will mean the cost @ Rs.5500/- per sq.ft. is still a better bargain.

This of course assuming all other aspects of the property like location, quality of construction and the like are equal among the three.

Do write to us in case you have some interesting information or feedback!

BVe Consulting Engineers

Engineering Project Consultancy & Property Advisory Services,

Residential-Commercial-Industrial-Infrastructure Designs

Due-diligence studies -Asset valuation services

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www.bveconsultingengineers.in

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