Why chit fund frauds could soon send Indian real estate to kingdom come!

Chit Funds - A Promise too big? 

When I was learning the ropes of the real estate business almost a decade ago, a few of my colleagues made the career shift to a very interesting sounding industry. The money market.
"The what?", I remember exclaiming, being the dumb guy that I am.
"Money market buddy. It is the new 'in thing' and is really the place to be if you want to make it big in the near future", said my friend sitting on the other side of the table, as we downed our  Old Monks. I stayed away from the so called money market as I never really had making it big as a priority. To me, learning and experimenting have always been the priority and only I and my near ones know how costly that learning has been. I feel quite blessed to always have the forgiving kind of people around me.

It is only a few years ago that I learnt that the whole money market terminology was a more sophisticated name given to chit funds! My rattled pea brain was still confused. So I turned to wiki.

Wiki told me, and will tell you to this day that a Chit fund is a kind of savings scheme practiced in India. A Chit fund company means a company managing, conducting or supervising, as foremen, agent or in any other capacity, chits as defined in Section 2 of the Chit Funds Act, 1982.

According to Section 2(b) of the Chit Fund Act, 1982, "Chit means a transaction whether called chit, chit fund, chitty,committee, kuri or by any other name by or under which a person enters into an agreement with a specified of persons that every one of them shall subscribe a certain sum of money (or a certain quantity of grain instead) by way of periodical installments over a definite period and that each such subscriber shall, in his turn, as determined by lot or by auction or by tender or in such other manner as may be specified in the chit agreement, be entitled to the prize amount". 

Technically, as a layman, I see that while a bank savings account will give you 7 to 8 percent returns for your money per year, a chit fund, being a sort of prize money and thus having no regulations on the returns it offers, can give you can claim that it will give you even 30 percent returns per year! Dear friends, if that kind of returns would be true and sustainable, half the world and a quarter of the economics faculty of Harvard would be camped forever in the tier 2 and tier 3 cities of India, documenting a phenomenon that the whole developed world had missed. Global businesses struggling to stay afloat would have committed suicide, realizing that money making was such an easy task. You get the point? 

I snooped around a little more and found some noise being created about a certain Saradha Group that hails from East India. So, I promptly Googled them. Here is what I saw. And I guess you need to see it to believe it.

The Saradha Group chit fund Google search results! 

When you see the results of that search, you will get some thoughts. The ones I got are clearly mentioned above to simplify what I felt. As the so called real estate leader of India, what this massive chit fund fraud is telling the masses is loud and clear. DO NOT TRUST REAL ESTATE DEVELOPERS! 

Just think of an investment firm or a credible international fund trying to make a foray into India, lured by her steady and robust real estate market. If the dude at the research desk of that firm does a Google search for 'Real Estate Leader India', this is what the man is going to see!

Google search results for 'Real estate leader India'  

The truth is almost 2200 miles from that search result. As chit funds like these continue to dupe thousands of investors across the country, they constantly send the people of India and the world a strong message.

DO NOT TRUST REAL ESTATE DEVELOPERS! Yes. It is that direct and blunt because almost every fraudulent chit fund in India has a business vertical of real estate development.

With the general economy in a mess and the political situation pretty crappy, the last thing brand India needs is this. Real estate developers have been struggling for a while now to make ends meet and this massive blow to their image for no fault of their own is going to make things far worse for them in the future.

As Saradha Group and their likes face public wrath for messing with people's hard earned money, they have also planted a deep hatred for real estate builders and greenfield projects into the hearts of their investors. As sales dudes, when we land up in chit fund fraud affected cities and towns with expensive brochures of credible upcoming properties, we will also be seen in the same shady light. This is what my common sense tells me. 

I reckon it will be a long time before the victims of such 'real estate leaders of India' recover and forget the deep scars of such chit fund frauds. Dear builder, don't even think of advertising that new project in such fraud affected areas for a few years unless you want your employees and brokers lynched.

DO NOT TRUST REAL ESTATE DEVELOPERS is what every chit fund fraud is teaching our prospective property buyer. Without those buyers, your real estate development is like a Kodak film roll sitting on the shop window. It will sit there till oblivion without being bought. And what a sorry state of affairs, that will be.

- Rahul Mishra