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BW Businessworld

Builders, Wake Up & Smell The Coffee

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The decision of the Competition Appellate Tribunal (Compat) to uphold the order by the Competition Commission of India (CCI) that had imposed an Rs 630 crore penalty on country’s largest developer DLF, should prove to be a milestone for the sector where builders dominate the buyer-builder relationship with one-sided contracts and oppressive clauses.
 
In August 2011, CCI had imposed a penalty of Rs 630 crore on DLF on allegations by the flat owners’ association of The Belaire housing complex in Gurgaon, that the developer had delayed the project and had built more floors than originally committed.
 
The developer had failed to deliver the project even after one year of the promised date.
 
Moreover, CCI had found the that the company had prepared a one-sided contract with its buyers and exploited them having clauses that “that give DLF sole discretion in respect of change of zoning plans, usage patterns, carpet area, alteration of structure, etc.”
 
Interestingly, most of the contracts in the country’s real estate sector contain a clause in which the buyer is charged penalty at the rate of 18 per cent for delayed payments in the purchase of the property, whereas in the case of delivery of the property, the builder gets away with an interest of 1-2 per cent in short term, whereas, in the long term it goes up to 12 per cent.
 
The delay in the delivery of the project leads to multiple problems for the buyers. If the buyer has secured a home loan for the flat, its repayment schedule is treated as Pre-EMI till the buyer gets the possession of the flat. The tax rebate under the IT act is granted only after the possession of the flat. Which means, if the project is delayed by 7 years, a first time buyer ends up paying not only rent on his existing residence but he also misses the tax rebate. Discount the mental stress of the buyer.
 
India is perhaps the only big economy in the world where a developer can launch a project worth RS 5,000 crore with just a piece of land in its possession that it acquires by colluding with the state government. The money to develop the project comes from the buyers who take loan from banks on a high interest rate.
 
Talk to any real estate expert in the country and he will tell you that there is not a single project in India that is delivered on time. The period for which delays are suffered by customers depend on the developer’s capacity to get government approvals.
 
Moreover, developers like DLF because of their dominant position in areas like Gurgaon keep possession of the open areas in a residential project. They also keep the right to increase the number of floors in a building. The customer feels cheated when the end product is delivered to him. Innumerable charges are added to the final payment of the flat in the form of parking space, infrastructure development etc.
 
This is why In January 2013, CCI passed another order amending the buyers’ agreement of DLF’s Belaire project and extended the modifications to the company’s Park Place and Magnolia projects through two separate orders Moreover, In July 2013, CCI directed DLF to “cease and desist” from indulging in anti-competitive practices with regard to flats sold in its Belaire project.
 
Even though the company has decided to go to the Supreme Court against the verdict, it is high time that the country comes up with laws that are pro-buyers who invest their life time savings just to buy a home of their own.
 


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