The recently concluded e-auction of penthouses, MIG and super HIG flats on January 5 has revealed some interesting data to ponder upon. The report published in various newspapers on Saturday reveals that seven of 14 penthouses (50%) were booked with the highest bid of `5.77 crore, against the reserve price of Rs 5 crore approximately, which is approximately 15% above the reserve price. The response in SHIG flats seems better.
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As many as 138 units of 170 (81%) flats under the SHIG category have been booked with the highest bid price of Rs 4.52 crore against the reserve price of approximately Rs 2.5 crore, that is approximately 80% above the reserve price. The MIG flats have received poor response. Only 129 flats were booked against the offered 963 flats (316 in Lok Nayak Puram & 647 in Sector 14 of Dwarka), which is approximately 13% only.
Let us first understand the process of e-auction. The auction was held against individual flat and the applicants who had registered against that flat and paid EMD were allowed to bid. For example, let us assume that three applicants had applied for a particular flat, say H201 (SHIG), then the price war will be among them only. If the price of flat H201 goes beyond the capacity of any bidder, he does not have the option to change and bid for some other flat in the SHIG category. This is the precise reason for some flats going unsold, even in the SHIG category, and the price of one particular flat went as high as Rs 4.52 crore, almost touching the reserve price of a penthouse. Therefore, the question arises is it a fair, equitable, and efficient auction from both DDA and flat buyer perspectives? Is there any alternative method for auction available?
From the buyers’ perspective perhaps the present auction method may not be considered equitable, as the price discovery is not fair. For example, consider the psychology of the flat buyer, who bids for a particular SHIG flat at Rs 4.52 crore, when she finds out that her neighbour got it at a much lower price (It could be that some flats sold out at just above the reserve price). Is the price of Rs 4.52 crore a fair discovery through auction? Definitely not. It is an outcome of the auction process which is not efficient. Had all SHIG flats fetched similar prices then one could say it was a fair discovery of price. From the DDA perspective also it may not be an ideal result, wherein some flats are booked at excessively high prices but many went unsold.
Consider the alternate auction methodology — SMRA auction (simultaneous multi-round auction). Under this method, one need not apply for a particular flat, as against the existing method. One just submits their interest by way of depositing EMD. For example, if some participant had deposited Rs 25 lakh as EMD (the highest kept for penthouses) then she should be eligible to bid on all categories of flats.
If one has deposited only Rs 20 lakh then she will be eligible to bid SHIG, HIG and MIG flats only, and not the penthouse. Suppose someone has deposited Rs 40 lakh and first participated in a penthouse and got one unit then her EMD of Rs 25 lakh gets consumed and she can now bid for HIG and MIG flats only if wishes to do so, but is not eligible for SHIG (because here one needs Rs 20 lakh EMD) and so on so forth.
Under SMRA auction, flats of all categories can be put to auction simultaneously or can be done category-wise. The result will remain the same. For the simplicity of understanding let us say it is category-wise. Start with a penthouse auction and put all flats (14) simultaneously for eligible buyers (who had deposited Rs 25 lakh or more as EMD) to bid for any flat. The auction will remain open and continue for such time when active bidding activity is there for any flat. For clarity, let the auction be open for an initial one hour with a clear rule that if any higher bid is received for any flat during the last five minutes, then the process will continue for another (say five or 10 minutes) and so on. It will continue till such time when no higher bid is received for any flat put to auction at the extended closure time.
The advantage of such a bidding system is that all the eligible bidders get an equal chance to bid for all available flats, thereby all flats put to auction get a fair price discovery at the end of the auction. Let us understand it with the 14 penthouse cases. Someone who bid the highest — Rs 5.77 crore — must have pipped the H2 bidder. Had a chance, H2 might have opted for the unsold penthouse. Maybe the H1 bidder could have gone for another penthouse, thereby not opting for the artificial jump in price. Similarly, the H3 bidder might have gone for an alternate flat. Thus, in the end, a fair market price for all 14 flats, definitely below the present highest bid of Rs 5.77 crore, could have been obtained, and all 14 could have been sold. Once the auction for the penthouse is done, the next auction for SHIG follows a similar process.
The biggest advantage of SMRA is the fair discovery of market price with equal participation by eligible bidders and likely chances that all flats put to auction are sold out. It also takes care of last-minute technical glitches like network problems; computer hang problems, etc, of any individual bidder because all flats are open for the auction till it ends not like the present system where a few flats must have ended in a maximum of two or three rounds of time extension and if any participants of that flat by any chance get technical glitch at last moment, she have lost the chance.
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Department of Telecommunication, Government of India, does spectrum auctions using the SMRA principle, which is fair and equitable to all eligible bidder. One may argue that the number of bidders is very few TSPs only, as compared to thousands of flat buyers, but that can be taken care of through proper auction rules and the auction design. I got the opportunity to conduct a spectrum auction in 2016 as a nodal officer and can say with confidence that many officers from my service cadre (IP&TAFS) have the expertise to design an e-auction process using SMRA principles for DDA flats to discover the fair market price, which can become a future model.
