Competition commission flooded with complaints against realtors

Competition commission flooded with complaints against realtors

Last Updated: Sat, Mar 24, 2012 18:50 hrs

Encouraged by the penalty slapped on the biggest real estate company DLF in a Gurgaon case last August, there has been a rush of complaints at the Competition Commission of India (CCI) against several property majors since then. “At least 200 complaint letters came to us against real estate players, of them around 15 were official cases,” said an official at CCI.

With big names such as Hiranandani Infrastructure & Real Estate Company (Hirco), Raheja Developers and Omaxe Group being dragged to the competition watchdog by home owners/buyers, CCI dismissed at least six such cases in the past two months on the plea that these companies did not enjoy the position of dominance in the market.

Most complaints that reached CCI cited delay in delivery and biased buyer-builder agreements for filing the cases.

Most cases on homes’ delivery delay, dismissal due to lack of companies’ market dominance
Real estate company Case dismissed on
Omaxe  Feb 21,’12
Hirco Developments Feb 9,’12
Kolkata West 
International City 
Jan 24,’12
Exact Developers Jan 12,’12
Today Homes Jan 12,’12
Raheja Developers Decr 21,’11
Source: CCI

CCI, in its order in such case, said, “It is quite possible that injustice has been done to the informant at the hands of the opposite party. However, for any injustice done by a builder to the consumer, the remedy does not lie under Section 3 or Section 4 of the Competition Act, neither section 4 should be attracted for each and every building project, however big or small, started by an enterprise.” It added the intent of Section 4 was to curb anti-competitive practices arising in the market because a dominant player was adopting such practices and tactics, which killed competition. The objective was also to prevent abuse of dominance.

Nayan Raheja, director, Raheja Developers, told Business Standard, the case against the company was baseless and the complainant wanted the return of security deposit after he was asked to sign the agreement papers. “Despite the case being dismissed by CCI, we have returned the 20 per cent security deposit and we are also modifying the buyer-builder agreement, considering the recommendations of CCI in the DLF case,” said Raheja.

The CCI order said, “There are a large numbers of players in the real-estate sector and many of these are bigger operators than Raheja Developers. The question of Section 4 does not arise.”

V Suresh, principal executive officer, Hirco, among the companies dragged to CCI recently, said, “We follow absolute corporate governance and there should not be any case against us.”

While the competition watchdog has dismissed many of the cases, a CCI member, R Prasad, has given a dissenting order on most of them. He argued that the practices adopted by the real estate players are anti-competitive and there is abuse of dominance by them.

“Once the customers become captive, the builders start fleecing them. I have already held in the case of DLF that this conduct is called ‘after market abuse’. This is a fit case of abuse of dominance by the opposite parties,” said Prasad in the dissenting order.

DLF was accused of ‘abuse of dominance’ and tilted buyer-builder agreements for three projects — Park Place, Belaire, and recently Magnolia in Gurgaon. The case is in the Competition Appellate Tribunal (COMPAT) at the moment.

In view of so many real estate cases coming up at the CCI, National Real Estate Development Council (Naredco) is planning to come out with a draft national agreement, which will be a model buyer-builder agreement for the industry to follow. It is in dialogue with customers, consumer forums, besides following the CCI recommendations in the DLF case, to draft the agreement. One of the discrepancies that the draft agreement may look at correcting is the clause where a buyer is expected to pay up to 18 per cent interest on defaulting on the installment. However, in case of a delay in delivery by the developer, it pays only one to two per cent as penalty charge.

Although most realty players have blamed the 2008 global economic crisis for the delay in delivery of projects, a CCI official rejected the theory. “Most delays happened as these real estate players, after opening the bookings for the projects, bought land somewhere else.”

He said, “Developers should open an escrow account, to ensure that the buyers’ money is going in that project only.”

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