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India’s CCI to come to the aid of Real Estate Buyers from Oligopolistic Realtor Companies

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Indian Real Estate

India has for long lacked an agency to control the monopolistic and predatory practices of Indian companies. The old MTRP Act had become quite toothless after the 1991 reforms and the Indian industry had turned into the wild west. Monopolies and oligopolies could operate quite freely and there was nobody to investigate price fixing and cartelization. Industries like telecom, cement and others saw many such abuses. However the situation is changing with the advent of a new authority Competition Commission of India.

CCI goes extreme against Cement Cartel

However the situation is changing with the advent of a new authority Competition Commission of India. India’s anti monopoly watchdog Competition Commission of India (CCI) had started out a year ago tentatively by finding film producers a pittance of Rs 1 lakh. However with a year behind it, the watchdog has apparently gone to the other extreme by fining top cement companies in India 50% of their profits for the last 2 years instead of the expected 8% of their last 3 year’s revenues (regulation allows for a maximum penalty of 10%). This comes to around Rs 6300 crores which is almost the whole profit made by the industry. Note there is a seemingly lack of balance about its orders going from one extreme to the other extreme. The order against DLF was a good one finding the right balance , however the cement companies one seems too high and will be overturned in all probability by the Appellate Council.

Real Estate under the scanner of CCI

The Competition Commission of India which recently came into being to check the wild west state of the Indian industry has started in a very promising manner. CCI had first ordered India’s biggest real estate company DLF to pay a hefty fine for using its heft and clout to shortchange individual buyers of its luxurious apartment project in Gurgaon. Then it had posted a huge fine on cement companies in India for cartelization. Now CCI is coming out with a ruling against 70 real estate companies in India for forcing real estate buyers to sign one sided contracts which heavily benefit the company at the expense of the buyer. The current round of investigations was kicked off when CCI got a complaint against NCR-based developer Tulip Infratech. The commission decided to expand the scope of the investigation to look at wider practices across the industry and has sent legal notices to developers in the NCR. It now plans to include developers in the western region in its scrutiny.

CCI is specifically examining:

a)      Announcing projects before getting all approvals from authorities

b)      Not revealing all applicable costs to buyers at the time of purchase

c)      One-sided clauses through which a developer can delay completion of projects, increase or decrease the size of apartments, and change building plans mid-way through projects.

Last year, it had imposed a penalty of Rs 630 crore on DLF, the country’s largest real estate company, for misusing its dominant position in Gurgaon and forcing buyers to enter into one-sided contracts in three projects.

Note India’s Real Estate sector is one of the worst in India in terms of illegal and unethical practices. In fact portfolio managers refuse to invest due to creative accounting used by the industry to totally make their financial statements useless from an investor perspective. India’s Real Estate Sector is one of the most unloved sectors in the Stock Market. Even Fund Managers shun this Sector because of the complete lack of trust in the financial statements published by the Real Estate Companies. With the whole industry most unorganized and companies playing with their books, its not a wonder that the sector continues to languish nearly 70-80% of its 2008 peak despite the broader market being only 10% below its all time peak. Real Estate Companies trying to raise funds in the Primary Market have been stymied by the lack of interest and distrust by the investor community. Even the most famous Real Estate Groups are frequently in the news for scams and frauds.

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Sneha Shah

I am Sneha, the Editor-in-chief for the Blog. We would be glad to receive suggestions, inputs & comments on GWI from you guys to keep it going! You can contact me for consultancy/trade inquires by writing an email to greensneha@yahoo.in or call me on +913340606492.

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