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DLF’s Market Dominance is Hardly the Real Issue

The Competition Commission’s massive fine for DLF is all very well, but it doesn’t tackle the real issue

Last week, the Supreme Court upheld a fine of Rs 600-odd crore that the Competition Commission of India had imposed on DLF Ltd, a Gurgaon-based company that is generally believed to be India's largest real estate outfit. The fine originated in a complaint by DLF customers, as a result of which CCI had ruled that DLF had exploited its market leadership to impose one-sided terms on its customers.

Seven years ago, when DLF had IPO'd, I'd written that here was a chance for it to clean up its act and become a real leader in India's real estate business. Of course, that turned out be wishful thinking. For investors as well as customers, companies like DLF and Unitech have turned out be value destroyers on an epic scale.

It's hard not to cheer for any kind of decision that goes against a real estate company and in favour of its customers. And there's no doubt that it will act as a deterrent for others. Still, in a somewhat perverse way, CCI's decision lets the real estate business off too lightly. Because of the nature of its jurisdiction, CCI has figured market domination as the root cause of DLF's exploitation of its customers. This may not be true. Those who have been in the frontline of this struggle between developers and their customers know very well that DLF's practices are not because of market domination, but are actually the market standard.

Even small and the non-dominant developers impose similar terms on customers because if customers do not like these terms then they basically can't buy anything. The issue is not market dominance, but that with few exceptions, a rogue, unregulated industry is running amok.

In any kind of an investment that an Indian saver makes, we find regulators gaining more and more powers and making ever more micro-level regulations, whatever be their effectiveness. And yet, when it comes to buying a house to live in--which is the biggest investment that most Indians make--we have a near wild-west situation. And of course, the solution is not the Competition Commission but the long-hoped for Real Estate Regulation Bill.

Back in January 2013, I had started this column with these words, "Last week, there were a number of news items in various media that celebrated the fact that regulatory reforms were at last coming to the real estate sector. Readers would have learnt from these stories that the government was planning to bring in the Real Estate Regulation Bill to parliament during the budget session. This is great news. It was also great news when the government had expressed its intention of bringing this bill to parliament during the winter session of 2011. And in the winter session of 2009. And that of 2008. And also of 2006."

In June last year, the Cabinet actually cleared this bill but of course nothing more happened and now we have a new parliament so we must begin anew. Meanwhile, in each of the appearances of the bill that I've listed above, there has been a significant watering-down of its provisions. What started out as a strong bill that attacked almost all malpractices of the industry has ended up as something that will probably be no more than an irritant for a strong-willed and well-connected developer.

Clearly, unlike almost any other type of business that should be regulated, the real estate business has a far more powerful and secret lobby. Part of the reason is the mish-mash of central, state and local authorities that it falls under. However, everyone know that a more powerful reason is that politicians and officials at every level are heavily involved in this business.

So far, we've heard a lot about the new government's regulatory and reform intentions. However, there's no word on fixing the real estate racket. I hope that's just because early days, and not because there's no intention of regulating real estate.