Ex­ces­sive greed?

The Pak Banker - - 4EDITORIAL - Faisal Bari

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.

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