The stock market regulator Sebi’s crackdown on India’s biggest real estate company, DLF, is a clear indicator that the sector is in urgent need of a cleansing of the Augean stables, market experts said on Tuesday.
Sebi on Monday barred six top DLF executives, including promoter KP Singh, from accessing the securities market for three years — a move that will choke the company’s options to raise fresh funds and one that sent its stock crashing by 28% on the bourses on Tuesday.
The ban followed what Sebi said was DLF’s failure to provide key information on subsidiaries and pending legal cases at the time of its record-breaking 2007 initial public offering.
Clearly, the markets watchdog is serious about increasing transparency in a sector notorious for its opaque deals.
In the mid- to long-term, the DLF case could be the trigger for the evolution of the Indian real estate market as a whole, real estate experts said.
“The order was a surprise,” said JN Gupta, a former executive director at the regulator who now runs a shareholder advisory firm. “I think it is a bit harsh ... but the regulator is on a spree to set an example in the market.”
Experts point to recent cases such as the twin towers case in Noida, wherein the builder was ordered by the high court to refund money to people who had decided to opt out of the two 40-storey towers. In Mumbai, there was the Campa Cola society case, where demolition of 100 flats was ordered as they were allegedly constructed in violation of the sanctioned building plan.
Another case pertains to DLF itself: the Competition Appellate Tribunal upheld an order by the Competition Commission of India that imposed a Rs. 630 crore penalty on the realtor for abusing its dominant position.
All these cases have only raised the pitch for setting up of the real estate regulator, according to real estate experts.
However, the Confederation of Real Estate Developers’ Associations of India (CREDAI), the apex body for private real estate developers in the country, said the DLF case has nothing to do with the capability of the developer to deliver a real estate product, but is about disclosures.
“Only 6% developers in the country are listed and the rest 94% are not,” said Getamber Anand, president-elect, Credai.
(With PTI inputs)