CCP recommends steps to protect real estate investors

A three-member bench of the Competition Commission of Pakistan (CCP) Thursday declared that numerous cases have been witnessed in Pakistan's burgeoning real estate sector where investors in housing schemes have been defrauded by unscrupulous elements.

According to an order issued by the CCP Bench here on Thursday, the goodwill and trust for investors is especially important in sectors such as real estate where large amounts of money and savings are invested by consumers/investors. The Commission in its opinion on the real estate sector has strongly recommended various measures for protection of investors from such fraudulent and deceptive schemes, the Bench added.

The CCP has declared that although certain regulatory authorities have been established at federal and divisional level of provinces, yet in the absence of a focused national policy and lack of regulatory framework, there is a mushroom growth of various projects which are being launched at massive level in almost every town and city of the country. However, the existing legal framework has failed to maintain a vigilant and a system of proper check and balance in this sector, which results in the general public as well as commercial investors losing their hard earned money at the hands of felons and other factors, causing instability in the sector and further disrupting the ease of doing business. Therefore, in order to enhance the productivity of this sector, realize its full potential and protect the rights of all stakeholders, it is imperative that immediate attention is given to this sector by the government and necessary measures are undertaken to organize, formalize and regularize it, the CCP ruled.

The CCP bench said that the order shall dispose of the proceedings initiated under Section 30 of the Competition Act, 2010 (the' Act') vide show cause notice No. 13/2019 dated 09th July 2019 (the 'SCN') issued to M/s Mir Hassan Builders & Developers (Private) Ltd, trading as Anchor City Gwadar (SMC-Private) Limited (the 'Respondent'). The SCN was issued to the respondent pursuant to the enquiry report dated 06th February 2019 (the 'Enquiry Report').

The main issue under consideration in the matter is whether the use of words 'Anchor Town' and symbol of 'Anchor' used by the Respondent for the marketing & promotion of its real estate business, amounts to deceptive marketing practices through the distribution of false or misleading information to consumers, fraudulent use of Ms Meher Developers & Construction (Private) Limited's (hereinafter the 'Complainant') trademark and/or is capable of harming the business interests of the competitors, within the meaning and scope of Section 10 of the Act.

"Further, we also cannot ignore the fact that the Respondent despite given an opportunity did not file any reply and also refused to attend the hearing when contacted by the Office of Registrar which is tantamount to deliberately obstructing the proceedings of the Commission, therefore, in the circumstances we deem it appropriate to impose a penalty of rupees fifty million the respondent for violating the provisions of Section 10 of the Act," said the Bench.

The respondent is also directed to inform public at large through appropriate clarifications in two Urdu and two English dailies that their real estate project is in no way related to that of the complainant. The respondent is also reprimanded to ensure responsible behavior in future with respect to the marketing of its business and is also directed to discontinue the use of trademark of the complainant with immediate effect and not to use it in future without due authorization, the CCP bench added.

The CCP's opinion said that the real estate sector operators made their fortune owing to regulatory vacuum and inefficient revenue machinery. In the process, tens of thousands of gullible individuals lost their life time earnings amid scattered legislation and governing by-laws in municipalities and local governments. No wonder therefore, that the real estate industry suffered from serious credibility challenges - low public confidence, unfair business practices, weak transparency and limited financial inclusion.

The Securities and Exchange Commission of Pakistan (SECP) would be bound to provide copies of any returns or information submitted by real estate companies free of cost to the concerned authority (CDA, RDA, KDA etc.,) on request, to enable them to regulate the real estate project under their jurisdiction in accordance with the applicable laws. These conditions will be in addition to, and not in derogation of, the law. The concerned authority under whose jurisdiction the project is being undertaken by the real estate company shall continue to exercise its authority in a manner provided in the relevant law. The violations of this law would be liable to a penalty of level 3 on the standard scale, leading to the project being wind up. 118.It is pertinent to mention that though the new Company Law to be administered by the Securities and Exchange Commission of Pakistan came into force on 30th May 2017, yet it was decided that the enforcement of its section 456 pertaining to real estate sector shall be notified later on, the CCP opinion said.

The issue vis-à-vis the competition in the real estate sector and the development authorities is that the Development Authorities are not just entrusted with the role of a regulator for the area under their jurisdiction but are also empowered under the relevant statutes to venture into real estate sectors to earn profits and income. This is an inherent flaw as the regulator is performing the functions of the regulator as well as regulate at the same time. This issue has also been highlighted by the stakeholders during the public hearings. 122. The consumers owing to a large number of statutes applicable in the Real Estate Sector and non-availability of proper information about them in the public domain creates problems Page 25 of 38 for the consumers. Further, lack of uniformity vis-à-vis the real estate sector at the federal level is also one of the major issues, which has been highlighted in the Public hearings and is increasing the predicament of the consumers, the CCP said.

Frequent complaints have also been submitted against failure of various public and private parties to fulfill the commitments made at the time of signing of agreements. Various private entities such developers complained that government authorities delay handing over of possession of properties even after all the payments have been made and other requirements have been fulfilled, the CCP said.

It has been observed that various undertakings on the launch of housing schemes, have indulged in deceptive marketing practices in the real estate sector of Pakistan. One of the major and most frequent issues pertinent to deceptive marketing practices in this sector is that of rampant advertisement campaigns by unapproved schemes. Builders and developers start advertising their schemes prior to attaining NOCs from relevant authorities.

Several concerns were also raised by the business community. They highlighted that not all defaulters are felons; rather there are often genuine reasons of such reported bankruptcies. There are multiple issues in the real estate sector as it is highly unorganized. Various disruptions are faced by the builders and developers due to stringent regulatory framework, inconsistencies in implementation of laws, lack of cooperation by government agencies like in timely handing over of purchased lands, provision of utilities, granting of NOCs, and so on. Moreover, there is lack of a strong network of financial facility providers at public and private levels. There are very few financial facility providers like House Building Finance Corporation Limited (HBFCL). In addition, unsuitable tax policies are also damaging the business community. All these factors hamper ability of private entities to execute their projects and fulfill their commitments, eventually hurting the general public. Therefore, serious efforts must be dedicated to formulating policies which would make the business environment in the real estate sector more conducive, the CCP opinion added.