The penalty by CCI on DLF will affect the realty sector

Stocks

oi-Shoaib MD

By Shoaib Md

Published: Wednesday, August 24, 2011, 13:51 [IST]

The competition regulator in the country, Competition Commission of India (CCI), recently imposed a penalty of Rs 630 crore on DLF, the biggest real estate company in the country. The penalty is 7% of the company average annual turnover for the last three years.

Brief over-view case

The case was by Belaire"s Owners Association against DLF, Haryana Urban Development Authority (HUDA) and Haryana town planning department. The company had allegedly placed the buyers of the Gurgaon project at a disadvantage.

The allegation was that the Belaire project which was first planned for five residential buildings with 19 floors having 368 apartments in Zone 8, Phase-V of DLF City, Gurgaon.

After booking of flats the company changed the plan. It increased the number of floors to 29 with 564 apartments, hence abnormally delaying the project.

The less talked about part

The CCI's decision of penalizing the company was well talked about. IndusLaw has pointed out some rather interesting point that the CCI commission had made.

According to the research note by Indus law, the CCI found certain other practices listed below apparently followed in the industry to be objectionable and detriment to consumer interests:

- They issue advertisements for launching projects without the land in question being actually purchased, registered in their name and possession taken and without taking prior approval of competent authorities

-They do not specify the total area of the plot/flat/house indicating clearly the carpet area and utility area

-They do not specify the date of delivery and consequential remedies available to the consumer in case of delay

-The amount collected from the allottees against a particular project is not deposited in a designated escrow account and utilized only for the construction of the concerned building

-The information relating to the progress of works and status of account of each allottee is not made available to buyers in a transparent manner

-They build in hidden costs other than the initial set price

-They do not post all the relevant information on internet and make them available in public domain. There is no transparent and participatory mechanism put in place to deal with escalation in price, if any

-There is often inordinate delay in execution of the project and if the project is delayed without previously agreed valid reasons, there is no provision that would entail pre-determined amount of penalties on total project to be paid to the consumers

-There is no fair, participatory and transparent mechanism to tackle any substantive and major changes in the project mid-way, before taking approval of the authorities for the revised scheme and commencing construction thereon. Changes in FAR or density per acre, exclusion of some common facilities or substantive changes in 232 design and layout are not included in the category of substantive or major changes. The description of substantive or major changes as well as the mechanism for decision making is not clearly given in the Buyers" Agreement.

The note also stated that the CCI has asked that the Centre along with State Governments should come out with regulatory framework for the realty sector to protect consumers from unfair trade practices.

VIEW: Though the research note concludes that this will affect the current boom in the sector.

Counter-view: As the industry has over-leveraged itself with bad practices, the slowdown is imminent. It is important at this stage the consumer right be protected, without consumer confidence the industry will find it self in trouble either way.

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