Verdict may open Pandora's box for real estate sector

The Rs 630-crore penalty imposed by the Competition Commission of India (CCI) on DLF Ltd may open a Pandora’s Box for the real estate industry, according to analysts.

“There are so many projects where real estate developers have not delivered (as promised),” an industry representative reasoned.

While most developers reported delivery slippages in their recently announced first-quarter results, many of them are learnt to have made changes in building structures or materials used without keeping their customers in the loop.

“The DLF case might become a precedent for other such litigations to follow, which would be a problematic situation for the industry,” said R R Singh, deputy general of the National Real Estate Development Council.

G P Srivastava, senior advisor at the Associated Chambers of Commerce and Industry of India, said there could be more such litigations in the near future. “It could be an eye-opener for other builders,” he said.

Another industry representative said it would be speculative to comment on whether penalty should be imposed on other developers for similar violations. “The sentiment has been shaky in general and this would only add to the woes of the sector,” he said.

However, an industry source argued these practices (violations in realty projects) were rampant in India. “This (the CCI penalty on DLF) should be an example that customers should not be taken for a ride,” he said. “At least, someone has finally acted on these practices.”

Kaustuv Roy, executive director of Cushman & Wakefield India, said the CCI directive due to delay in construction could be viewed as a strict warning for developers who had not been factoring contingencies in mind while launching projects. It’s also a move to establish that the rights of the purchaser would be protected in case of an indefinite delay. However, he said since construction was a long-term process and dependent on external factors like economic environment, legal and governance issues and legislative amendments, “many of these factors cannot be entirely pre-empted at the start of a project”.

An analyst emphasised the need for transparency to set things right in the real estate sector, which is already reeling under the pressure of high interest rates, soaring input prices and falling net profits.

CCI imposed the penalty on DLF, India’s largest real estate company, for unfair trade practices, abuse of market dominance and disregard to consumer rights. According to the complainant, the Belaire project in Gurgaon was to be completed by 2009. But it has not been handed over yet. Besides, there were structural changes in the building without informing the buyers, according to the complaint.