CCI to investigate70 real estate companies for alleged collusion

[kanvit]

Article in today's Economic Times...

NEW DELHI: The Competition Commission of India, or CCI, is investigating around 70 real estate developers around the country, including Unitech, Parsvnath Developers and Omaxe as well as several big builders in Mumbai, for entering into one-sided agreements with buyers and for allegedly colluding with each other to arm-twist them.

In probably the biggest scrutiny of the industry, the competition watchdog has over the past few months sent out notices to many of these builders, asking them to furnish details about their operations and their agreements with buyers, said a CCI official.

The commission has asked its director-general to investigate a number of practices that real estate developers follow, such as announcing projects before getting all approvals from authorities and not revealing all applicable costs to buyers at the time of purchase, said the official. It will also look into 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.

If the Competition Commission finds the developers guilty of having framed unfair agreements, it can impose heavy fines on them. 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. DLF is contesting this fine at the Competition Appellate Tribunal.

Realty experts say this is a country-wide problem.

"Buyers do not have an option as most developers have one-sided, heavy handed agreements which are to their advantage. Some clauses allow for frivolous termination of agreements, increase in sale price and change in building plans, which are arbitrary," says Anckur Srivasttava, chairman of GenReal Property Advisors.

Time over-runs in real estate projects have been another sore point with buyers. According to a recent research report by property research firm PropEquity, nearly half of the 930,000 under-construction residential units in the country, scheduled for delivery between 2011 and 2013, are likely to be delayed by up to 18 months.

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.

Several developers, including Omaxe, Supertech, Eldeco, Gaursons, Tulip Infratech and Earth Infrastructure, confirmed they have received notices and replied to them.

"The issues raised are about different clauses in the allotment letter. The company has reasonably explained all clauses as per the allotment letter," said a Supertech spokesman in an emailed response.

A spokesman for Gaursons said the notice the company received contained general queries about timely completion of project, increase in cost of booked flats, and marketshare details of the real estate industry. "We had already submitted our reply to CCI," he said.

The CCI official said the commission has got close to 200 complaints against real estate developers in the last one year, with many of them pertaining to agreements and delays in delivery of properties.