Economics Project

The Rise of D.L.F

The real estate giant in India

Group B-7

Submitted By

Dhruv Chadha 09910052867

Shivam Behl

Chirag Vashishta

Rachna Mishra

Amit Kumar

Index

Introduction 3

Literature Review 5

GENERAL TRENDS IN THE INDUSTRY. 5

Real Estate Giant 7

Demand and supply 13

Impact of recession 17

Conclusion 26

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Introduction

Real estate or immovable property is a legal term (in some jurisdictions) that encompasses land alongwith anything permanently affixed to the land, such as buildings. Real estate is often consideredSynonymous with real property (also sometimes called reality), in contrast with personal property (alsoCalled personality). However, in technical terms, real estate refers to the land and fixtures themselvesAnd real property are used primarily in over real estate. The term real estate and real property are usedprimarily in common law, while civil law jurisdiction refers instead to immovable property. In law, the word real means relating to a thing as distinguished from a person. Thus the law broadly distinguishes between real property (land and anything affixed to it) and personal property (everything else e.g.clothing, furniture, money).Real Estate Business Includes: With the development of private property ownership, real estate has become a major area of business. Purchasing real estate requires a significant investment and each parcel of land has unique characteristics, so real estate industry has evolved into several distinct fields.Some kind of real estate businesses include-• Appraisal – Professional valuation services• Brokerage – Assisting buyers and sellers in transactions• Development – Improving land for use by adding or replacing buildings• Property Management – Managing a property for its owner(s)• Real Estate Marketing – Managing the sale side of the property business• Relocation Services – Relocating people or business to difficult countryTypes of Ownership Interests: Real property (immovable property) can refer to the real estate itself or to various types of ownership interests in real estate, including:• Freehold: Provides the owner the right to use the real estate for any lawful purpose and sell when and to whom the owner wishes.• Life estate: An interest in real estate which is granted to a life tenant until that person dies. The interest terminates upon the death of the life tenant.

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• Estate for years: Similar to life estate but term are a specified number of years.• Leasehold: The right to posses and use real estate pursuant to the terms of a use.• Reversion: The right to posses the free interest in real estate after the expiration of a life estate, estate for years or leasehold.• Concurrent or co-tenancy: The ownership of an interest in real property by more than one party. Rights of any single party may be limited in various ways depending on the jurisdiction and type of concurrency.Participants of Real Estate Market: The main participants in the real estate markets areOwner/User: These people are both owners and tenants. They purchase houses or commercial property as an investment and also to live in or utilize as a business.Owner: These people are pure investors. They do not consume but rent out or lease the property to someone else.Renter: These people are pure consumers.Developers: These people prepare raw land for building which results in new product or the market.Renovators: These people supply refurbished buildings to the market.Facilitators: This includes banks, real estate grocers, lawyers and others that facilitate the purchase and sale of real estate.The owner/user, owner and renter comprise the demand side of the market, while the developers and renovators constitute the supply side. In order to apply the simple demand and supply analysis to real estate markets a number of modifications need to be made to standard microeconomic assumptions and procedures.Real estate can divided into three categories: These are• Commercial• Residential• AgriculturalWe can invest into all the given areas and can make return by capital appreciation, rental income, agricultural produce, lease and commercial use.The following factors influence the price and cost of the real estate:1. The physical characteristics of the property2. The property rights3. The time horizon of holding the property4. Geographical area

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5. The development rate

Literature Review

DLF has always been a key player in the real estate industery since its formation . The firm has risen in all aspects over the period of time . The decision of going public was a wise one but perhaps the firm did not anticipate what the future had in store for them and did not utilize the funds wisely .The Company had also increased home and office prices by a great deal but was forced to reduce them after the demand dissapeared .Later on the firm has regained some strength and is all set for the future . According to the Harvard university, the indian economy has been affected by the impact of recession but as paul imbesi points out, there is still a great limit for growth for the industry. Although the indian real estate sector was booming before the onset of the recession , yet it has still not recovered completely from the impacts of it although the road to recovery has begun steadily.according to the journal of the construction industry in india, the housing sector is showing better recovery than the commercial while the growth of the infrastructure has been supperted by the government by a change in policies inviting fdis and fiis along with the formations of several public-private partnerships as mentioned by the construction industry.

The real estate industry also derives support from the banking sector whose lowering of the interest rates in the recent past has further helped to boost the growth of the real estate industry post recession.

GENERAL TRENDS IN THE INDUSTRY.

The Indian real estate sector plays a significant role in the country's economy. The real estate sector is second only to agriculture in terms of employment generation and contributes heavily towards the gross domestic product (GDP). Almost five per cent of the country's GDP is contributed to by the housing sector. In the next five years, this contribution to the GDP is expected to rise to 6 per cent. According to

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industry players, housing accounts for 4.5 per cent of gross domestic product (GDP) with urban housing accounting for 3.13 per cent.

According to Jones Lang LaSalle, faster economic growth in Brazil, Russia, India and China (BRIC) could result in the property markets of those nations recovering at a faster rate than the UK and US real estate markets. It has also been suggested that India's property sector could begin to improve from late 2009 and may attract up to US$ 12.11 billion in real estate investment over a five-year period.

The IT and ITES sector alone is estimated to require 150 million sq ft of office space across urban India by 2010. Organized retail is also responsible for the growth in commercial office space requirement. The organized retail industry is likely to require an additional 220 million sq ft by 2010. Moreover, growth is not restricted to a few towns and cities but is pan-India, covering nearly all tier-I and tier-II cities.

Almost 80 per cent of real estate developed in India is residential space, the rest comprising of offices, shopping malls, hotels and hospitals. According to the Tenth Five-Year-Plan, there is a shortage of 22.4 million dwelling units. Thus, over the next 10 to 15 years, 80 to 90 million housing dwelling units will have to be constructed with a majority of them catering to middle- and lower-income groups.

The real estate rental trends in commercial sector are momentous as the key tendency among the investors is to rent a commercial space instead of buying. It will facilitate low risk and less worry on maintenance. Commercial rentals including corporate office space, BPO spaces, mall space, shopsand showrooms are an integral part of the commercial rentals in India. Buying good space in high quality development and leasing it to a good brand is a wise investment decision. Usually, commercial lease agreements specify a 15% escalation in the real estate rental in every three years which is a goodenough yield. For those considering regular rental returns rather than capital appreciation, mall space has the distinction to be an excellent option. It gives returns higher than that received with office space and much higher than the rental returns from residential space.

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A REAL ESTATE GIANT IS BORN……

In early 1946,way before our independence, a company was started by Chaudhary Raghuvendra singh and Mr. K.P. Singh .This company was christened as DELHI LEASING AND FINANCE pvt ltd .The first assignment of the company was to build up the Krishna Nagar colony in east delhi which was completed in 1949 and after which there was no looking back for the company. Many of Delhi’s poshest areas like Greater Kailash, Hauz khaz, Kailash colony, South extension have been built by DLF. After the passage of the Delhi development act in 1957, the company was forced to operate elsewhere and it was during this time that DLF acquired land at very low prices in regions surrounding Delhi. Their first landmark real estate project included the DLF QUTAB ENCLAVE which has now been rechristened as DLF CITY which was a township built in 3000 acres area.Traditionally, DLF’s core business included 3 prime divisions: residential, commercial and retail but now they have added 3 more divisions ie hotels, infrastructure and sezs.

INTRODUTION ON DEMAND AND SUPPLY

The Indian real estate sector has witnessed a revolution, driven by the booming economy,favourable demographics and liberalised foreign direct investment (FDI) regime. Growing at a scorching, 35 per cent the realty sector is estimated to be worth US$ 15 billion and anticipated to grow at the rate of 30 per cent annually over the next decade, attracting foreign investments worth US$ 30 billion, with a number of IT parks and residential townships being constructedacross-India. This substantial growth has been the result of increasing DEMANDS from off-shoring businesses.Off-shoring consulting houses and call centres have generated DEMAND for DLF INDIA to the extent of more than 10million sq.ft. Every year, 78 percent of the money spent on real estate goes to the GDP (Gross Domestic Product). About 80 percent of the real estate development in India has been in the field of residential housing. The remaining 20

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percent of the real estate includes office, shopping malls, entertainment centers, hotels, multiplexes and hospitals.What prompts an average person to try his fortune in the real estate sector? The reasons arenumerous, the first and foremost being the myth that the real estate business is riskless. The second reason is the growing Indian middle class with a low propensity to consume and more botheration about future. Thirdly, the ever growing housing needs fueled by low interest rate.Last but not the least, herd behavior leading to the 'keeping up with the Joneses' notion i.e. investing in the sector where everywhere else does can also be cited as one of the important factors leading to heavy investment in this sector.

Overview

The Indian economy has transformed substantively over the last two decades, growing consistently at an average of 8 percent and is poised to take place among the leading economies in the years to come. The economic performance of India has provided strong impetus to the real estate sector, which has been witnessing heightened activity in the recent years. Substantial end users and investor interest, large scale investment in infrastructure and rapid urbanization have contributed to the growth trajectory of Indian real estate. The real estate growth story is clearly visible in urban centre’s such as Delhi, Mumbai and Bengaluru which have acquired globalcharacter and recognition. Growing at a rate of 30 per cent, the real estate sector has emerged as one of the fastest growing investment areas for domestic as well as foreign investors. The sector will remain as a booming sector and more investment is expected in the coming years. Construction and allied sectors are considered as one of the largest employing sector in India(including construction and facilities management). This vital sector is linked to about 300 ancillary industries like cement, brick and steel. So this sector has a strong backward and forward linkages and the growth will translate into an overall positive impact on these ancillary sectors too. Resultantly, a unit increase in expenditure in this sector has a multiplier effect andthe capacity to generate income as high as 4.5 times.

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According to ‘Housing Skyline of India 2007-08’, a study by research firm, Indicus Analytics,there will be DEMAND for over 24.3 million new dwellings for self-living

in urban India alone by2015. As a result of this, this real estate sector is likely to throw huge investment opportunities. In fact, an estimated US$ 25 billion investment will be required over the next five years in urban housing, says a report by Merrill Lynch.

Scope

"If the human race wishes to have a prolonged and indefinite period of material prosperity, they have only got to behave in a peaceful and helpful way toward one another." -Winston Churchill.The heresy of typical Indians has changed the orthodox mindset of building and designing a house to live in it. A ramification of this is that houses are nowadays counted as a transitory asset. The idea of buying a house that will last a lifetime has gradually vanished. The buzzwordnowadays is 'investment'. Both the policymakers and the stock-brokers share an united view in this aspect.The second largest employing sector in India (including construction and facilities management), real estate is linked to about 250 ancillary industries like cement, brick and steel through backward and forward linkages. Consequently, a unit increase in expenditure in this sector has a multiplier effect and the capacity to generate income as high as five times. The scope of this project is to analyze the DEMAND/SUPPLY pattern in the Indian real estate industry(DLF INDIA). Also, it will give you a detailed insight to the impact of the DLF INDIA on the Indian economy.

Objective

· Analyze DEMAND dynamics of the DLF INDIA.· The SUPPLY analysis of this Industry.· Current Scenario· Analysis of the real estate market in certain regions of India· Impact of the economy of the country on the DLF INDIA.· FDI in Real estate.

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· Economic role of the Government: Its effect on the Indian real estate industry.

Methodology

We have collected secondary data from journals, magazines, newspaper articles and the internet. Thereafter we have analyzed the data to find out the following:-· DEMAND and SUPPLY pattern of the real estate industry in India,· Factors affecting the DEMAND and SUPPLY of DLF INDIA· Impact of the economy on the DLF INDIA.· Current scenario and future prospects of the industry.

Limitation

Due to time constrain we have relied only on the secondary data taken from internet andnewspaper articles. We have taken the DEMAND and SUPPLY conditions of certain regions of the country which we believe are the major contributors of this sector. Our analysis is based on the DEMAND and SUPPLY prevailing in these regions.

DEMAND Side AnalysisLaw of DEMAND

The law of DEMAND states that, citerus peribus, DEMAND decreases with increase in price and vice versa. There are various other factors which affect the DEMAND for DLF INDIA. Based on these factors we can derive the DEMAND function for DLF INDIA.The DEMAND Function isD= f {I, P, Cb, Cr, T, Ti, Ps}D- DEMAND for DLF INDIA.I- Income of consumersP- Price of housingCb- Cost of borrowingCr-Availability of creditT- Consumer’s preferencesTi- Investors’ preferencesPs- Price of substitutes and compliments

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Rising income levels of a growing middle class along with increase in nuclear families, lowinterest rates, modern attitudes to home ownership (the average age of a new homeowner in 2008 was 32 years compared with 45 years a decade ago) and a change of attitude amongst the young working population from that of 'save and buy' to 'buy and repay' have all combined to boost housing DEMAND. Simultaneously, the rapid growth of the Indian economy has had a cascading effect on DEMAND for commercial property to help meet the needs of business, such as modern offices, warehouses, hotels and retail shopping centers.

Growth in commercial office space requirement is led by the burgeoning outsourcing and information technology (IT) industry and organized retail. For example, IT and ITES alone is estimated to require 150 million sq. ft across urban India by 2010. Similarly, the organized andunorganized retail industry is likely to require an additional 220 million sq ft by 2010.With the economy surging ahead, the DEMAND for all segments of the real estate sector is likely to continue to grow. The Indian real estate industry is likely to grow from US$ 12 billion in 2005 to US$ 90 billion in by 2015. The IT/BPO sector is expected to generate 100Mn sq ft of DEMAND for office space over the next five years. The rising middle class and its consumer DEMAND is driving the retail boom – around 22 malls are under development. Income of consumers, price of housing, cost of borrowing, availability of credit, consumerspreferences, investors preferences, price of substitutes and compliments are the major

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determinants of the DEMAND for housing. The large shortage in the housing sector will continue to fuel the growth in the residential market. The real DEMAND is not in the high end residentialmarket but in the affordable housing segment and this will be the driver for the residential market

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This huge DEMAND will spill over to all parts of urban India. Lease rentals have been picking upsteadily and there is a strong DEMAND for quality infrastructure. A significant DEMAND is alsolikely to be generated as the outsourcing boom moves into the manufacturing sector.

SUPPLY Side Analysis

Law of SUPPLY

The law of SUPPLY states that other things remaining constant, more of a good is supplied at ahigher price and less of it is supplied at a lower price. However, in examining the forcesdetermining the SUPPLY curve, we need to analyze the factors upon which the SUPPLY of a good depends. The factors determining SUPPLY of DLF INDIA can be stated in the form of a SUPPLY function:

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S= f {P, A, B, Cr, L}S- SUPPLY of DLF INDIA.P- Price of the propertyA- Availability of landB- Efficient buildersCr- Easy accessibility of creditL- Skilled laborIn future, a high proportion of SUPPLY of IT/ITes space will come from Special Economic Zones(SEZs). According to the C&W report, of the 366 formally approved SEZs in the country, 62% are dedicated IT-ITes SEZs. The availability of space within SEZs is expected to reduce the attractiveness of STPIs, as both developers and occupiers will enjoy considerable tax benefitswithin SEZs. The residential sector, which accounts for 75-80 % of the turnover of the entire real estate sector,has been on a high growth path. According to the ministry of housing and urban poverty alleviation, there is a shortage of 24.7 million houses in the country. The LIG and EWS segments account for a majority of this shortage. However, in the luxury segment, there is already an over SUPPLY in some pockets of the country, such as the NCR.Another major development within the residential real estate segment is the development of integrated townships. The DEMAND for quality lifestyle and walk-to-work concept are some of the drivers of DEMAND for integrated townships that offer commercial, retail, residential, and leisure facilities within a given area. Approximately, 400 townships are expected to be developed over the next five years around 30-35 major cities in the country. Hiranandani Gardens (Mumbai), JP Nagar (by Keppel Land Development in Bangalore), DLF's 9,178-acre township at Bidadi nearBangalore, and Magarpatta City near Pune are some of the examples of integrated townships.

So far, the situation in both the office and the residential market has been that whatever is built gets sold or rented. In future, as SUPPLY increases, developers will have to be more careful about factors like location and target those segments for which they are developing their products. In this SUPPLY-rich environment, accurate DEMAND estimates will become very important. Currently, the real estate sector is quite fragmented with most players having presence limited to select cities or regional geographies and relatively few players having national

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presence. Ernst & Young expects a radical change in the next 2- years with most of the larger regional players anticipated to expand aggressively across the country. While at least 10 major developers are estimated to have a national level presence, some of the well known city focused developers are expected to venture out into other locations based in that region. Larger regional developers increasing their footprints across the country include Rahejas (Mumbai), DLF (NCR), Ansals (NCR), Unitech (NCR), Sobha(Bengaluru) who have already started penetrating other regions and have announced several projects.

Analysis of the Industry in Key Regions

Mumbai

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Mumbai is a mature and well-developed Real Estate market. It is a DEMAND-motivated market;where the property is bought for current use and not with the aim to speculate and sell it infuture. This has led to the burgeoning of the Mumbai Real Estate market. The spurt in DEMANDas well as SUPPLY of Real Estate products and the consequent increase in capital values areencouraging High Networth Investors (HNI) and other investors to make active investments in

the Mumbai Real Estate market.

Chennai

Chennai real estate is a budding market. Chennai being the fourth largest metropolitan city has regional offices of all major corporate houses and is among the trade capitals of India. It thus offers tremendous real estate influx and is a hub of some of the top real estate builders and developers of India. Chennai Real Estate Builders follow a trend of the best quality at the most affordable prices.

Delhi

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Absorption across NCR was approximately 6.6 million sq ft during 2007 and recommitments amounted to an additional DEMAND of 4 million sq

ft. Gurgaon Accounted for 4.64 million sq ft or 70 per cent of total absorption in the NCR. Noida, the next biggest market, accounted for 1.37 million sq. ft or 21 per cent of total absorption. Delhi witnessed absorption of 0.66 million sq ft Of this approximately 3.28 lakh came from new developments in Jasola, while the remaining 2.95 lakh sq ft

came from older, second-generation developments in the CBD and South CBD. The total SUPPLY in the NCR amounted to 11.53 million sq ft. Gurgaon accounted for the largest share of approximately 6.4 million sq

ft Noida and Delhi accounted for 4 million sq ft and 1.7 million sq ft respectively. Availability of land, improving infrastructure, and better connectivity are some of the factors why most of the SUPPLY came in

the suburban areas. Prime locations and buildings in most micro markets have low or negligible vacancy. DEMAND for grade-A Properties

Continues to rise in NCR, as is evident from the pre-lease commitments signed

Kolkata

Kolkata is one of the oldest urban agglomerations in the country. Kolkata lost its position as the

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erstwhile commercial capital of India to Mumbai due to the socialist manifesto adopted by the West Bengal government post independence. Now JLLM believes the state is witnessing a resurgence driven by government policy and support for the service industry and infrastructure development that is once again attracting industry and capital to the city.

Bangalore

Real estate values around Bangalore have shot off the charts since 1991. Land on the outskirts of Bangalore that was selling for US $0.10 per square foot rose to $2.00 per sq. ft. Prices started to drop in 1995 and are now beginning to show gains again. Real estate investorsand real estate developers in Bangalore have been on a wild ride.

Hyderabad

Of late, Hyderabad has witnessed a remarkable growth in real estate business, thanks to apredominantly information technology driven boom in the 1990s and the retail industry growthover the last few years spurring hectic commercial activity. However, the real estate prices havespiraled only in some hot spots of the city and continue to be flat mainly due to the slow downwitnessed during the last few quarters.

Impact on Economy

Real estate has been instrumental in India emerging as the top destination in Asia (excluding Japan) in attracting private equity investments during the first ten months of this year. Real estate accounted for 26 per cent of total value of private equity investments, with 32 deals valued at US$ 2.6 billion. And according to industry estimates, another US$ 10-20 billion would pour intothe sector in the next three years. The flow of private equity continues in 2008. During the first five months of 2008, PE commitments into the Indian real estate companies has surpassed US$ 3 billion, whichincidentally is the total PE investment into the Indian real estate companies for the whole of 2008.

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FDI in DLF

In 2002, the Government of India permitted 100 per cent foreign direct investment (FDI) in housing through integrated township development. The merits of FDI are well known – it provides the much needed investment in the sector brings professional players equipped with real estate expertise and facilitates the introduction of new technology. However, the FDI rules in its current form are rather stringent - prior approval of the Foreign Investment Promotion Board is required which admittedly can be rather tedious and there is a lock-in for repatriation of original capital invested for a period of three years. What is rather self-defeating is the stipulation of a minimum land holding of 100 acres. Getting 100 acres of free land in an urban area is almostimpossible and consequently barely a handful of projects have been approved. If the minimum area restriction is reduced at least by half and repatriation of profits after the construction period is completed is allowed, FDI in this sector will certainly pick up. In this aspect, I think we have a lot to learn from our Chinese compatriots. Recently, the Securities and Exchange Board of India,India's capital market regulator has permitted venture capital funds to invest in real estate - thisaugurs well for the industry.

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ROLE OF FDI IN DLF INDIA IN INDIAN ECONOMY

According to the Associated Chambers of Commerce and Industry of India (Assocham), the DLF INDIA is likely to see a growth rate of 40-45% in 2012. The organization expects that more than $ 10 billion worth of FDI is likely to flow in the sector by the end of the year. Also the organization believes that the rate of growth is likely to be stable for the next three years when it might go down a little. Also most of the FDI investment is still predicted in the tier 1 cities. Since FDI in DLF is beneficial to economy, measures should be taken to increase toprovide congenial investment atmosphere to foreign direct investors. There is also a need to completely overhaul the union and state legal system governing various aspects of real estate. There is need to open up more avenues to facilitate long-term finance for the housing sector.Computerizing land records and circulation of and access to this database, would be one of the most useful features of reform in this country. Like the IT, banking and insurance sectors, the real estate sector too should have certain specialized institutions and vocational courses for professionals. This will go a long way inshaping the real estate scene in the country. Moreover, foreign design and consultancy companies should be encouraged to set up offices in the country to introduce world class designs and technology

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Conclusion

From the above data we can conclude that there is a significant demand for quality housing in india.India is on a growth path with a significant element of consistency & fundamental strengths to boot. Economic indicators such as the GDP (Gross Domestic Product), Per Capita Income, Forex reserves, FII's (Foreign Institutional Investments) & Industry growth rate which includes the manufacturing & farm sector are all at their record highs. Also a tender Stock Market & a significant shift from a traditional agriculture & manufacturing based economy to a service oriented one, especially in Urban & Semi-urban segment; are factors which most economists would support. Mumbai, Delhi & their respective suburbs have predominantly witnessed thehighest growth; with some projects being benchmarked against global standards. Rationalization by the respective state governments with regard to allowing divestment of non-operational textile mills & other such manufacturing units which had so far occupied large tracts of land in prime locations; have been an important factor responsible for exciting new creations. Also, quite a few home-grown family run property development companies have truly gone professional whilefacing competition from real estate off-shoots of larger corporations from the organized sector. The road ahead, while needing a well chalked out vision & infrastructure support, does in fact seem bullish.Another case in point is Gurgaon, a suburb of New Delhi, which has seen a radical change in not just its skyline but also in its basic urban demographics. Gurgaon was once described as just a little town built on a cow pasture. But in the past three years, Gurgaon has budded six malls -with five more under construction and has a skyline of shiny new office buildings and call centers. Gurgaon is a shopper's paradise and the malls are vertical versions of their US counterparts: five story high bazaars, housing almost every international brand be it Nike, Nokia,Tommy Hilfiger, Levi and McDonalds along with multiplex cinemas, escalators and huge parking lots. The advent of call centers, programming houses and other such BPOs in India has led to an influx of over 785,000 new jobs. Outsourcing has changed the face of commercial real estate in India, but its greater impact has been the demographic shift characterized by risingdisposable incomes and increased consumerism.

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The real DLF in India predominantly continues to remain unorganized, fairly fragmented, mostly characterized by small players with a local presence. Traditionally,developers were viewed with an element of skepticism. Developers were often identified with dealing with large amounts of unaccounted money, lacked transparency and would use unscrupulous means to obtain various regulatory approvals. Lending to developers was perceived as being risky as builders were known to borrow for one project and utilize it for another or overstretch their limits and not have sufficient funding to complete the building. But things have clearly changed today: for starters, developers have realized the merits of corporatizing themselves and enhancing transparency in terms of their financials. While earlier even the reputed builders had difficulty accessing formal channels of credit, today almost every bank and housing finance company has relationship tie-ups with developers and are keen to lend to them at competitive rates. Lenders are also monitoring the projects more closely. For instance lending developers is often through a mechanism which ensures that funds are utilized only for that particular designated project. Today specific projects of developers are also being rated. Theobjective of the ratings is to help the financers as well as the end users to take a decision while investing in a real estate project. The rating system also means a greater amount of transparency and disclosure on the part of the developers. DLF INDIA have increased in number in recent times due to the boom in the real estate sector itself which again was a function of the information technology boom in India in the last few years, accompanied by the growth of the Indian economy at 8%. The soaring prices of real estate in India have led to corporate attention to this sector, with a number of India real estate companies jumping onto the real estate bandwagon in recent years. The demand for property is constantly getting steeper in India and as a result, the growingnumbers of real estate companies in India comes as no surprise. India real estate companies have witnessed growth in business in the last few years. Thegovernment, however, needs to keep an eye on this sector to ensure that the infrastructureprovided by these companies is of international standards, at least in the IT sector. Thegovernment also needs to ensure that India real estate companies are fair in their dealings with

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people.

The Impact of Recession

January 18th 2008 saw the biggest slump in the Indian stock market , FII’s started withdrawing their funds to cope up with the subprime crisis in the USA , land prices were the one that initiated the Global meltdown . India soon followed ,with the fanatically growing constructions in NCR coming to a halt al of a sudden . Builders took advantage of the high demands of real estate and had soon risen the prices to an extent that was out of reach of a common man . The major point to be considered is that were these prices justified by any means ? The answer is no , This phenomenon was not justified , instead this was a major reason for the slump in the real estate market . As soon as their was a news of USA entering into recession the prices came crumbling. The constructions in progress were stopped due to lack of funds , delays in possession were a ususal sight . The real estate giant went public on June 11 , 2007. The firm primarily controlled by Kushal Pal Singh entered into a new era .The firm had never faced liquidity crunches prior to 2008 , perhaps that is the reason that within 1 year of its listing the firm issued interim dividends to cherish its shareholders. DLF was it and it was hit hard .It suddenly came to face the reality of business , loans mounted, sales crashed ,losses crept in. Net income fell to 1.59 billion rupees ($32 million) in the three months ended March 31, from 21.8 billion rupees a year earlier.

This fact is more evident from the charts below .

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Profits of DLF(crores Rupees)

No matter how strange the chart looks, this is how it should be . The profits peaked in 2008 .

This was just the beginning for DLF , lack of funds and fallingdemand of home and offices prohibited it from starting new projects to cover up the mounting losses. DLF estimated a revenue loss of 6.9 billion rupees following “one-time price resets and other benefits to customers.” The impact of the reductions on profit was estimated at 3 billion rupees. Full-year profit fell 41 percent to 46.3 billion rupees and sales fell 28 percent to 105.4 billion rupees, the company said. The figures include 1.63 billion rupees of losses from non-real estate businesses such as DLF Pramerica Life Insurance Co., hotels and power.

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Sales figures of D.L.F in crore Rupees

Its strange that firm that declares interim dividend in 1 year comes to near bankrupcy in the next . The major issue for DLF though was the repayment of its loans . The projects in which it had ventured into in various cities such as Delhi , Gurgaon, Bangalore, Chennai etc had forced the firm to go in for the debt option . The banks were not at all pleased with the near end in the sales , the question at stake was weather or not the DLF the largest realtor in India would come sailing through the hardships .DLF has converted 30 billion rupees of short-term debt into long-term debt by securitizing cash flows, it said. The quality of the debt portfolio has improved substantially with an average maturity in excess of three years. DLF reviewed the strategic relationship with DLF Assets, based on the fact that in the last quarter DLF had suspended further sales to DLF Assets and by end of the fiscal year has not fully completed the originally proposed volume of delivery. The DLF board appointed advisers to evaluate the strategic initiative, an exercise expected to be completed by the end of the current quarter.

Home prices may have dropped by as much as 40 percent across India and lease rentals for office space fell an average 20 percent in the three months to March 31, according to Jones Lang LaSalle Inc.

Most micro markets are plagued with high vacancy levels and values are expected to remain under downward pressure over the next few

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quarters,CB Richard Ellis said in a report on the quarter to March 31 released April 20. Mumbai, New Delhi, Bangalore, Chennai, Hyderabad, Pune and Kolkata witnessed further drop in both rental and capital values.

Its confusing to analyze if DLF caused the real estate slump or the real estate slump caused the DLF episode . What point I have stressed upon in this project is that , The situation is possible either way . One cannot expect the real estate market to be normal after its biggest players gets on its knees , and one can certainly not expect the biggest player to be unaffected if the game itself goes haywire .

Recently various articles and magazines have reported that the worst Is behind us . DLF too works on the same principle . The sales have grown to an extent for the firm to allocate funds for its debt repayment .

New projects were always the key for its survival and funds ensured their beginning .Recently DLF undertook the metro project of Gurgaon for all its recidential blocks .Ensuring the development of its assets and the rise in land value of its housing and office proects after the metro is completed .

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Conclusion

DLF has always been a key player in the real estate industery since its formation .

The firm has risen in all aspects over the period of time . The decision of going public was a wise one but perhaps the firm did not anticipate what the future had in store for them and did not utilize the funds wisely .

The Company had also increased home and office prices by a great deal but was forced to reduce them after the demand dissapeared .

Later on the firm has regained some strength and is all set for the future .

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