Competition Commission's Penalty on DLF and Likely Effects on Indian Real Estate Industry

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Real Estate Market in India Over the years, real estate had emerged as an important sector in the Indian economy with favorable income levels and strong economic growth. The Indian real estate market's total development activity was US$ 101 billion by June 2010 or 8.2% of nominal GDP of 2009-2010.5 The industry grew at a rate of 20% per annum in the five-year period prior to 2010 to become the second highest employment provider after agriculture. Increased income6 fuelled demand for residential, commercial, and retail real estate in India.7 Also, traditionally gold and property were preferred investment options for Indians,8 which multiplied the demand for real estate.

The government also encouraged the real estate sector by introducing various preferential programs. According to Aniruddha Joshi (Joshi), executive director of Hirco Group⁹, as major banks in India were state owned, they typically had lending targets imposed by the government to provide the required financial assistance to both developers and customers. The preferential lending increased the demand and supply manifold for residential and commercial property across India. Factors like 100% FDI relaxation and infrastructure support and fiscal support to developers augmented supply in the Indian real estate market. Joshi opined, "the government is making credit available easily. The government has also come up with schemes for allowing mortgage interest to be written off of taxes. It has also come up with schemes which allow developers certain benefits when they build affordable housing."¹⁰ The real estate sector was one of the highest FDI attracting sectors. During 2010-11, the real estate and housing sectors received US$ 1.12 billion in FDI¹¹. Many international players entered the real estate market, like Emaar, Ascendas, Keppel Land, etc. as also foreign investors like JP Morgan and Deutsche Bank, among others.¹² The market for residential units occupied a major share with 90-95% of the real estate construction activity in India. The commercial segment occupied 4-5% of the market and organised retail 1%.¹³

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5] Mohit Malukani, "India's Construction Sector on Path to Growth, Diversification," www.ibtimes.com, September 28, 2010.
6] India's economic growth after independence till the 1960s was moderate; in the 1970s and 1980s, the growth was about 5.5% per annum. After the 1991 reforms, however, growth has been much faster with an annual average of 6.8% from 1992 to 1997 and 5.6% from 1997 to 2002. From 2002 to 2008, the growth was over 8%, which dipped during the global economic crisis of 2008-2009 and recorded above 8% growth in 2009-2010. Also, per capita income, which was US$ 383 in 1990 and US$ 705 in 2005, crossed US$1,200 in 2009.
7] "Real Estate Sector In India," www.cci.in.
8] "Hirco Group's Aniruddha Joshi: 'The Recession Has Helped Real Estate In India'," http://knowledge.wharton.upenn.edu, February 11, 2010.
9] Hirco Group, an Isle of Man based real estate company was listed at London Stock Exchange. It is engaged in residential/commercial development and building in India. It develops township for affluent middle class families in certain pockets of India.
10] "Hirco Group's Aniruddha Joshi: 'The Recession Has Helped Real Estate in India'," http://knowledge.wharton.upenn.edu, February 11, 2010.
11] "Real Estate," www.ibef.org, November, 2010.
12] "Real Estate", www.ibef.org, November, 2010.
13] "Indian Real Estate Report," www.menafn.com, January, 2008.

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