CWG flats: Right hand buys what left hand is selling

When in trouble, dial the public sector. This is the formula babus use to get out of tight spots. And so it may be with the Delhi Development Authority’s auction of Commonwealth Games flats, which was a resounding success.

After the Shunglu Committeee criticised the DDA for bailing out private developer Emaar MGF in May 2009, the capital’s urban development body is finally heaving a a sigh of relief following the successful bids of 87 of the 110 flats it had put up for sale in the Commonwealth Village.

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But the DDA’s success is raising many eyebrows in the investment community as the flats were primarily sold by a government body to other government-run agencies like banks and oil companies, with Delhi State Cooperative Bank emerging as the highest bidder in East Delhi. The bank bought a 3,000 sq feet house for Rs 7.31 crore!

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India’s largest public sector bank, State Bank of India ( SBI), was the highest bidder across about 25 flats while HPCL emerged first in over 10. Agriculture Insurance Corporation of India, Oil India Ltd, Punjab and Sind Bank and Delhi State Cooperative Bank managed to emerge the highest bidders in four flats each.

Defending the sudden surge in realty prices, a property broker in East Delhi told Business Standard that prices have gone up 10 times in the last decade in East Delhi, with even rentals rising to Rs40,000-50,000 a monthfor 2,000-2500 sq feet. This is primarily because of the Commonwealth Games and the development that began post 2004, said industry experts.

The Games Village, with 34 towers and 1,168 flats, was built through a public-private partnership between DDA and private developer Emaar MGF. The rates at which the flats were bought reflected a more than 100 percent rise in their prices in a span of three years.

“Now that government-run agencies are outbidding each other in an already speculative market, it means the inflated costs will have a ripple effect across the real estate market in Delhi,” said Pankaj Kapoor, CEO of Liases Foras, a real estate research firm.

What this essentially means is that a new wave of speculation has come into the market. Two years back the same apartments were being sold for Rs 13,000-14,000 a square foot. Paying Rs 24,000 per sq ft for a 3,024.65 sq ft flat means almost a 100 percent hike in price.

The government has time and again cried hoarse that developers are keeping property prices artificially high, making it unaffordable for people. But by outbidding even the reserve price, the government itself is paying a premium for property and raising the base price of apartments that were once in the news for poor construction and irregularities.

The main question, however, is not whether PSUs are bidding for Games Village houses, but why they are outbidding one another. A real estate analyst in New Delhi told Firstpost that the government may have directed them to pump in money after the DDA was slammed by the Comptroller and Auditor General (CAG) for buying flats from the private developer at Rs 11,000 per square feet. " Just like LIC was directed to buy shares of ONGC when the auction failed, these companies may have been directed to pour money into the residential market too." He added that there is no reason why the apartments would command such a high price as the location has no snob value, expect for the fact that it is still in the city.

However, another real estate consultant pointed out that the Rs 7 crore price for a five BHK house is business as usual since there is absolutely no supply in the city. “Most of the private developers are unable to obtain land in the heart of the city and are forced to construct houses in Gurgaon or Noida. Given the shortage, the price commanded is more or less in line with market rates,” he said.

But it is not the price, but the buyers who should be questioned. Are these public companies, sitting on crores of taxpayer money, and using it wisely? he asked.

When public money is being used to fill government coffers, it means that there is definitely some political hand behind it, he said.