Encouraged by an order of the Competition Commission of India against DLF, home buyers hit by project delays are now contemplating legal action against various developers.
The real estate sector, which is most vulnerable to fraudulent practices, is facing the wrath of aggrieved consumers who are forced to pay interest on payment delays, even as developers get away with project delays without paying any interest to the consumers. Encouraged by an order by Competition Commission of India (CCI) against the country’s largest developer DLF, home buyers hit by project delays are now contemplating legal action against similar defaulting developers.
DLF has been fined around Rs 630 crore on August 12 by the CCI for abusing its dominant position. The commission passed the order in a case arising from complaints by some people who had booked flats in DLF projects in Gurgaon in May 2010. They had complained that the company had imposed heavy interest rates for delays in payments when it had even failed to give possession of homes.
The case has come as a shot in the arm of the people who have booked apartments in Hill County project, which was first promoted by the family of Satyam founder B Ramalinga Raju. The project has been in limbo ever since the scam at Satyam came to light. The Rs 1,100 crore Hill County project proposed to build 840 apartments, each priced upwards of Rs 50 lakh, and 326 independent bungalows, each priced up to Rs 2.5 crore. The properties were to be delivered between June and September 2008. The company had then said they would pay ‘interest’ if there was any delay in the execution of the project. Individual members have made several representations asking the company to pay the ‘penalty’ to lessen the EMI burden. However, Maytas Properties then said it was in a ‘helpless situation’ as its funding resources had dried up. Now the onus is on IL&FS to complete the project. The company has now assured that the apartments will be completed by December 2012 and the independent houses by December this year.
“The Hill County Flat Owners' Welfare Association is now discussing the possibility of approaching the CCI. A decision on this front will be taken shortly at its meeting. However, we should admit there is some work happening at the project. The progress of work will define our decision to go to the CCI,” said Anil K, a customer who booked an apartment at Hill County.
Consumers also have complaints about South India based Purvankara Projects’ delay in execution of projects and are planning to take legal action against the company. A senior company official from Purvankara Projects said that the projects got delayed due to government approvals which they did not get on time and scarcity of sand due to ban on sand mining in Karnataka and Tamil Nadu.
According to Builders Forum president C Shekar Reddy, most of the projects were delivered nearly on time. The delay has been caused mainly in the last two years, due to the impact of global slowdown. Most builders have compensated buyers in the form of ‘interest’, where there has been a delay in completion of the project, he said.
With the CCI order, the sector is likely to get more disciplined and developers are expected to gear up for delivering projects on time.
Surojit Pal, an analyst with Elara Capital said, “Due to the fines imposed on DLF there will be more accountability on the part of real estate companies.” He expects realtors to gear up to delivering projects on time. At the same time, he expected DLF to challenge the commission’s order in court and that could take up to two years to settle, he added. “We will have to wait and watch to see what the company does.”
His views were echoed by independent analyst SP Tulsian who called the commission order “very positive” and added that other companies, too, might be penalised for the same reasons.
Housing developers, on their part, say that project delays were not intentional as there was a huge shortage of cash and the sector was also impacted by demand slowdown during the economic downturn of 2008-09. Most developers had delayed projects due to the economic downturn in 2008-09.
Niranjan Hiranandani, managing director, Hiranandani Construction said, “Our project in Panvel was delayed by two years due to the downturn. Now the work is in full swing and we hope to complete it as early as possible.”
A senior Housing Development and Infrastructure official explained the situation in Maharashtra. “In Maharashtra laws are more regulated by The Maharashtra Ownership of Flats (regulation of the promotion of construction sale, management and transfer). Most of the developers comply with it, with minor modifications, he said. Project delays happen when there are situations like economic downturn or some approval issues. Otherwise, in Maharashtra, developers try and finish projects on time. DLF has been fined for a one-sided agreement, which is not the case here,” he said.
Jai Mawani, executive director, infrastructure and real estate at PwC said, “I am unable to comment on DLF in particular as I have not examined the case. In general the problem is not with the laws, the problem is with enforcement of laws. Developers are violating general norms and the flat owners are at their mercy.”
In the eastern region of the country as well, consumers are actively contemplating legal action against defautling developers. Nearly 800 individual home buyers at Kolkata West International City (KWIC) are now up in arms against the promoter group Universal Success of Singapore-based NRI investor Prasun Mukherjee. CCI’s penalty on DLF has come in handy for them to take their movement to the next level.
“We have been agitating, organising sit-ins, submitting memoranda to West Bengal and Gujarat state governments (since the promoter group is eyeing several projects in these two states). Very soon, we will be moving the CCI and will take legal recourse,” Dipanjan Das, a senior level executive working with a Bangalore base large company, who is also an executive committee member of KWIC Buyers Welfare Association, told FC Build.
KWIC buyers had invested in the project in January 2007 with an agreement with the promoter group that the latter would complete their row houses with other amenities, including roads, electricity, security, and daily needs such as groceries by October-November 2008. There has been a time over-run of almost three years already and the buyers are yet to get possession.
“The promoter group has duped over 800 individual buyers like us who were asked to pay up 80 per cent-100 per cent of the unit cost each in the KWIC project, for which houses were to be delivered by October-November 2008, But, in reality, only about 20 per cent houses have been made and the company is not showing any intention to complete the work. Instead, it is engaging in lies, deception and falsehood, one after another. The promoters collected more than Rs 200 crore from the buyers,” said Das. The association has also formed a Facebook community to support their cause, he said.
The promoter group of the Rs 800 crore housing complex, which is to come up on a 400-acre plot of land, officially attributed the delay to economic recession, delay in paperwork related to land lease and delay in getting environmental clearance from the previous state government. They claim to have already handed over 101 keys and will hand over another 508 keys by April next year. This is strongly refuted by Das and other association members.
“Only a handful (may be five-or six) retired persons have started living there, that too without any of the promised amenities. They are having a nightmarish experience living within the premises.
