"Some years ago, Camellias flats used to begin at around Rs 30 Crores, and I remember thinking how exorbitant those prices were. However, today, the same Camellias flat starts at Rs 45 to 50 Crores, illustrating the substantial increase in prices post-COVID-19 pandemic," shared Aakash Ohri, Group Director and Chief Business Officer at DLF Ltd, in an interview on ET Now.
Several years back, following the success of their upscale properties on the Golf Course road, namely The Aralias and The Magnolias, DLF embarked on another luxury project in the same vicinity called The Camellias, with approximately 450 flats. The Camellias is more than just a residence; it's a canvas for homeowners to craft their own masterpieces. As described by Mr. Ohri, it features seven distinct 'energy zones,' an expansive fitness center, a luxurious spa with a Turkish hammam, a boxing ring, a rock climbing wall, and even a four-lane Brunswick bowling alley. Additionally, it offers five dining options and much more. Notably, The Camellias has access to an 18-hole Par-72 golf course adorned with two large lakes, and the DLF Golf Academy, India's first professional golf school.
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The journey for The Camellias has been far from smooth since it began selling its first flat back in 2014. It faced numerous cancellations, and there were widespread doubts that the market prices for these flats would ever surpass the 'Basic Selling Price' (BSP) set by DLF. However, if we fast forward to the present day, only 10-20 flats remain unsold in this remarkable development, as revealed during the latest analyst conference call.
Another noteworthy detail I've gathered from multiple investor con-calls held over the past two years pertains to the BSP at various points in time -
Here is how Camellias per sq. feet rates have changed in over last ~2 years:
>May 2021- Rs 37,500 sq. feet
>May 2022- Rs 50,000 sq. feet
>July 2023- Rs 60,000 sq. feet (Market rate - Rs. 65,000 sq. feet)
>Announcing soon- Rs 70,000 sq. feet
>Short to medium term expected rate- Rs 1,00,000 sq. feet
If these rates surprise you, it's important to note that this is the standard in the Mumbai property market, where land is in short supply, and the demand is high. This dynamic results in renowned property developers being able to command a significant scarcity premium.
In contrast, North India has faced its share of challenges with several bankrupt developers such as Jaypee Infratech, Amrapali group, Unitech group, Supertech, and many others failing to fulfill their promises of delivering flats in the Delhi NCR region over the past decade. Consequently, a good reputation is a rare commodity in this region and rightfully deserves to come with a premium price tag.
Impact of Scarcity Premium
In March 2023, DLF unveiled a new project in Gurugram called 'The Arbour.' This development comprised over 1,100 flats, each with an average basic selling price of approximately Rs 7 Crores. Initially, the project was anticipated to be sold over a period of 3-4 quarters, with a substantial portion of sales expected to spill over into the fiscal year 2024.
However, what transpired was quite remarkable. Flats worth a staggering Rs 8,000 Crores were completely sold out within a mere 2.5 days from the project's launch in March itself. Buyers were required to make an upfront payment of about 10% for a flat to be considered as sold.
Here's an interview with DLF management on this remarkable development, with ET Now for your reference:
There were some research analysts who harbored suspicions when the sales at 'The Arbour' occurred. They believed that the surge in sales during March was due to a tax-saving opportunity, which would expire on March 31, 2023, where in investment limit was capped at Rs 10 crore for capital gains account scheme from FY2023-24 in the latest budget by the central government.
Additionally, with interest rates on the rise and nearing their peak, these analysts anticipated that future DLF projects might not receive the same level of response. However, the market's response to DLF shares tells a different story. DLF's shares witnessed returns of over 40% within the last six months, reaching a 52-week high since the launch of 'The Arbour'. This suggests that the market is pricing in DLF's ability to leverage its brand name and successfully sell luxury residential projects in a short timeframe, despite challenges like high interest rates.
It's worth noting that during this same period, the Nifty index saw an approximately 10% increase, and the Nifty Realty index surged by 40%, with DLF being a significant contributor to this increase.
Can the rally go on?
At a time in market when everything is rising, mid-caps & small-caps making new highs on a daily basis, and poor quality stocks witnessing rising interest from certain sets of investors, investing becomes a riskier game. Fund managers across the board have become cautious after the recent rally & the cash pile they sit on is increasing day after day due to continued fund inflows. One of the outcomes in such a market, where investing ideas are scarce, is the excessive premium few quality shares start trading at after putting strong results. Look at something like ‘Trent’, which is currently the fastest growing retail player in clothing (consumption theme) and has risen ~45% since its Q4 FY23 results came out in May’23 and is now trading at a PE of ~150 times TTM.
But should we stop investing in such a scenario? I believe disciplined investing holds the key. No one knows how long the market can rally. Maybe we are in the starting phase of a capex-led bull run & might end up investing afterward due to FOMO after a few more months if we don’t invest today. That’s where SIPs help.
When it comes to DLF, here are certain triggers that make me feel confident about making money when I buy more shares of DLF:
The Macro trigger
The income disparity in India seems to be widening, with the wealthy getting richer at an accelerated pace. According to data released by the Income Tax (IT) department for the recently concluded IT filing cycle on July 31, 2023, the number of individuals in the income bracket of 50 Lakhs and above has seen the fastest growth. This group has witnessed remarkable growth rates ranging from 40% to 50% CAGR. In practical terms, this means that DLF's target market in India is essentially doubling every two years if such growth rates continue.
(Source: IT department, taken from WWAS-1-129)
Add to it the rising interest of NRIs in investing in Indian real estate, for settling back in India, or for investment purposes is only getting stronger. The share of NRIs in the sales of premium and luxury products has more than doubled to 20%. Before the coronavirus pandemic, NRIs used to account for less than 10 % of total sales. "The NRI market is looking for good real estate investments to make for the future… the US is one of our biggest markets and we also have buyers from the Middle East and Southeast Asia. Last year, there was a concerted plan from Q1 to target NRIs and this year again, we will continue the trend." DLF’s Aakash Ohri said in the Q4 FY23 investor call. Read for more details here- India calling: NRI investments in Indian real estate have doubled
The Micro trigger
There are many triggers for DLF to rally higher in the next 6 to 18 months and I try to list a few where my primary focus is:
Upcoming Residential projects: After the quick success of ‘The Arbour’, DLF’s management has decided to launch 2 new luxury/premium residential projects in Gurugram in 2nd half of FY24 with a value of sales estimated to touch Rs 15,000 Cr. Against ‘The Arbour’ which sold flats worth ~Rs 8,000 Cr, if this prospective sale of Rs 15,000 Cr passes through well with a strong response, DLF brand & hence its share price has the ability to witness glory, in my personal view. Read about upcoming projects here.
DLF REIT soon? DLF is not just about residential projects, but also about commercial properties. I believe the office properties are the ones that have actually played the most important role in building the brand DLF over the years. Here is an old picture I found of the Cybercity area, Gurugram (under construction).
After the cybercity project, they came up with many more projects including One Horizon, Downtown towers & more within the Gurugram area. And not just Gurugram, they expanded the commercial projects to Chennai, Noida, Hyderabad, Chandigarh, Kolkata & more. DLF plans to launch a REIT for its commercial properties, (hence listing them as a separate entity) leading to value unlocking & better governance. Management has not confirmed a timeline yet, but I personally believe it’s coming soon, and we might hear more on the REIT timeline in the next two con-calls hopefully.
Improving financials & Investor focus: The company has made focused efforts to make it net-debt free today from Rs 20,000 Cr of net-debt just a few years ago. The dividend payout of 50% from FY23’s earnings per share is good to hear & the company continues to make commitments to improve its disclosures & sharp focus on shareholder value in its investor con-calls.
Risks
Investing in real estate companies can be rewarding, but very risky. Do remember that DLF's share price 15 years ago in Jan 2008 was at Rs 1200, and today’s price of ~Rs 520 is still 60% down from that price! Apart from this, DLF’s old and well-known proximity with previous governments and political parties, the controversies that reached parliament, pending court cases, shouldn’t be completely forgotten before investing. Here’s a ~10-year video that might interest you:
Recently, promoter KP Singh did sell some shareholding in DLF which later management clarified was for the purpose of setting up a charitable trust. Any further sale from promoters need to be closely followed.
Personal Note
One of the projects I have closely witnessed currently being constructed, due to its proximity to Cyberhub, Gurugram (where I work), is ‘The Atrium’. The construction started just this year and from my interaction with the workers working there, I realized on average 5,000 to 8,000 workers work at the site. It is under construction by Shapoorji Pallonji Group (DLF has given the contract to them).
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Disclaimers-
I am not a SEBI registered advisor; personal investment/interest in the shares exists for the company mentioned above; this isn’t investment advice but my personal thought process; DYOR (do your own research) is recommended; Investing & trading are subject to market risk; the Decision maker is responsible for any outcome.
Well...one of the triggers can be the election rally