Excessive greed?

BALLOTING for allocating plots is not new. It has been done by development authorities and private colonies. But making money off people who are eventually not going to get plots, ie unsuccessful applicants, is the issue at stake here and one that concerns the Defence Housing Authority, Lahore, that recently advertised they will be selling some residential and commercial plots in developed sectors, I to VI, of DHA, Lahore to the public.

Most entities balloting for plots are not in a position to get so many applications, charge such high processing fees and keep so much money in their account for long. If DHA were to auction plots they would probably make more per plot. But they would not have as much in processing fee or through interest earned by keeping applicants' money for some months.

DHA, Lahore will have a ballot for the plots on March 17. The DHA scheme asks for Rs100,000 to be deposited for a two-kanal residential or an eight-marla commercial plot, Rs50,000 for a one-kanal residential or a two- to four-marla commercial plot and Rs30,000 for a 10-marla residential plot. It announced that 25pc to 30pc of this amount, depending on the plot, is non-refundable processing fee. The rest is to be returned to unsuccessful applicants in due course.

However, DHA forms make it clear that the depositor has to give the undertaking that "The amount has been deposited at my will, it may remain with the Authority till the time of refund of the amount, free of interest/charges etc." Details of the scheme are available on the DHA, Lahore website.

The authority is not giving these plots at a discount. The prices listed on the website reflect, more or less, market prices: two-kanal plots range from Rs24 million to Rs57.5m, one-kanal from Rs6m to Rs23m, 10-marla plots from Rs7m to Rs13m, while eightmarla commercial plots go up to Rs135m; even two-marla commercial plots are around Rs4m.

Why is it choosing to ballot the plots? Why aren't they auctioning the plots or using the real estate agent network in DHA to sell them? Ballots allow for random selection. Isn't it a concern for fairness that it is using balloting instead of alternative market mechanisms to sell these plots? Have the government and courts not frowned upon raffle and ballot schemes by companies? Courts have also not liked it when companies have tried to hold on to public money for too long without providing the goods and services they are supposed to: for instance, car manufacturers were told not to take the full amount at the time of booking from customers.

It is evident that DHA feels this is the best way to maximise revenues. They get Rs10,000 to Rs25,000 as nonrefundable processing fee from each applicant. They get to keep Rs30,000 to Rs100,000, per application until such time they refund the remainder to the unsuccessful applicants. And they do not have to bear the cost of having auctions or paying commission to agents.

There are unconfirmed reports that DHA has already received around 100,000 applications. If true and we assume the average applicant paid Rs50,000 as deposit, then it gets to keep a whopping Rs5 billion for as long as refunds are not made. Even if they keep the deposits for three months, just the interest on the deposit is going to be substantial.

In addition, if the average nonrefundable portion is taken to be 25pc, DHA stands to make Rs1.25bn just in the name of processing fee. The income from the plots is of course separate from this. DHA stands to gain substantially from the scheme. And, we can say, this is indeed a clever scheme to make money.

But is it really fair to people? Plots in DHA are sold at a premium. That is granted. This is a good opportunity for people to buy plots in the developed sectors of DHA. Property rights are much more secure in DHA than in other private societies and/or government schemes. The incidence of fraud is lower and the living part, in DHA, is considered to be of better quality. And it is quite true that DHA offers better infrastructure and services to residents.

If it were to auction these plots, there would be no objection to the scheme. Whosoever can pay for the plot could buy it. Given the prices that have been quoted for the plots even for the balloting, it is clear the scheme is not for giving the poor or even the middle classes a chance to own a piece of DHA land. So, why go for the ballot?

This is where the greed part comes in. DHA knows, given the premium their plots get, that many will apply for being part of the ballot. It seems that they are banking on making money from the nonrefundable processing fee and from interest generated by keeping the deposits for a few months. This part is unfair. Why is the processing fee in the range of Rs10,000 to Rs20,000? What sort of processing requires this much money? Is there any other place where we see processing fees that are this high? Isn't there a need for DHA to justify charging this level of processing fee?

Then there is the issue of keeping deposits for a few months. Why is DHA Lahore asking for a deposit that is larger than the processing fee? Given that the total amount of deposits is going to be very large, the interest generated is not going to be trivial. Why should DHA be allowed to keep it? Why should it not be returned to the people? Or if keeping deposits for this period is necessary, why should DHA not be made to donate the interest to charity.

It is okay for DHA, Lahore to sell plots and get a premium on them. It is not okay for them to fleece the public. The Competition Commission of Pakistan, charged with probing unfair practices, and the courts, should have a look at this latest DHA scheme closely.