India’s elite homeowners are now slumdog millionaires

By Andy Mukherjee

Nearly a quarter century after investors formed a private corporation to build and manage a hillside resort four hours from Mumbai, just 5,000 people linger in the derelict shadow of what was meant to be the first of several picturesque enclaves, housing 3,00,000 in total.

For the hapless residents — and the homebuyers waiting to move in — more bad news came last week. The bankruptcy court sent packing the only rescuer of Lavasa Corp. to have kindled some hope in six years of insolvency. Creditors will start their hunt for a white knight all over again.

Situated in the Sahyadri mountain range along the country’s western coast, Lavasa was supposed to be India’s answer to Portofino, the popular tourist destination on the Italian Riviera. Other such capitalist oases were to follow suit, for the well-heeled to circumvent the poor state planning and administrative apathy that plague urban living in India.

Yet for all its promise, the project bombed after completing a fifth of its first phase. It is mired in about $1 billion in liabilities, most of which is to financial institutions. The homeowners who never got the keys lost $63 million in lease advances. Those who did make Lavasa their home live in a crumbling ghost town: In landslides during this year’s rains, three villas vanished. Two electricians were trapped inside one of them.

Lavasa is a cautionary tale. The Indian state has little money and even less executive capacity and political will to give the people of its polluted, overpopulated megalopolises the breathing spaces and retirement communities they yearn for. Mumbai has 22 million inhabitants; Delhi is home to 34 million. The tech hub of Bengaluru has a population of 14 million and is growing a lot faster than Silicon Valley.

But the private sector has no magic wand, either. An entire city built and managed by investment capital was ambitious when it was conceived. It remains an impossible dream even now. India’s bankruptcy law, brought in with much fanfare in 2016 to salvage the precious capital trapped in grandiose, debt-fueled undertakings like Lavasa, is failing to make headway even with state-run creditors accepting 80 per cent haircuts.

Mumbai builder Ajit Gulabchand’s HCC Real Estate Ltd., or HREL, was the original 69 per cent owner. HREL, as well as other large shareholders, had raised debt for the venture by offering guarantees and share pledges. By May 2018, however, Lavasa had defaulted. A Bloomberg News article from the time paints a picture of decay and defeat: crumbling sidewalks; garbage rotting in the lake; a shell of a hotel in construction for seven years; and a resigned Gulabchand estimating the cost of revival at $1.5 billion.

That he wasn’t going to be a part of the solution became clear soon. In August 2018, the project slipped into bankruptcy. Gulabchand lost control of the township to an administrator. The banks played along, preferring to recover 60 billion rupees ($700 million) of claims via the sale of Lavasa. They didn’t enforce the guarantees. In July 2023, the insolvency tribunal cleared the sale to a new owner while releasing all securities and pledges, allowing more than $900 million of HREL’s assurances to just disappear. In March this year, Guabchand’s Hindustan Construction Co. divested its shareholding in HREL for $12,000. The guarantee had already gone, and now the guarantor, too, had left the building.

Hindustan Construction shares have jumped nearly 12-fold since March 2020. Other stakeholders weren’t as lucky. Few had ever heard of Darwin Platform Infrastructure Ltd., the savior chosen by the lenders. The new-owner-in-waiting lost no time in getting into trouble with India’s anti-money-laundering sleuths. It never completed the insolvency resolution from which the creditors were hoping for $137 million over nine years — a fraction of what they were owed.

Eventually, the lenders soured on Darwin, which, in turn, accused them of illegally pocketing the surety it had put up against concluding the purchase. Last week, the tribunal came down on the creditors’ side. The sale process will begin afresh. More years will be added to the decade-long wait for the hundreds of fully constructed new houses the suitor had promised.

The owners of mansions and apartments, some of whom are former ministers, movie stars, judges, businessmen and top bureaucrats, no longer dream of living alongside golf courses, amusement parks, a NASA research center, and a campus of Oxford University’s Said Business School. It’s only because of a desolate old-age home, and a college — Christ University of Bengaluru, not Oxford — that the town has a population. In a cruel twist on Danny Boyle’s Oscar-winning Slumdog Millionaire, Lavasa has taken rich people’s retirement savings and given them a shantytown to slum it out. A resident told me his wife had to carry an umbrella to the bathroom during this year’s monsoon.

The arc of the bankruptcy law in India bends toward power, not justice. And here, there is a power vacuum. The deadline for putting farmland to commercial use has come and gone. The environmental clearance has expired. Politicians have lost interest. Capturing power in crucial state polls later this year is their priority, not a project that has no more contracts to award.

So creditors could consider liquidating Lavasa Corp., and handing over management to the municipal authority of Pune, the nearest large city. Or, with a little imagination, they could turn their dying investment in 10,000 acres of land acquired from farmers — plus the manmade lake leased from a government agency— into a community of rain-swept idylls. Let individuals construct their cottages, with the infrastructure supplied by a people’s collective, rather than by a company or the government.

Lavasa won’t be among the 100 “smart cities” promised by Prime Minister Narendra Modi. Does it even need to be? A smart village is a better destiny, and a superior alternative to a bankrupt, half-finished city where only a forlorn street is named after Portofino.