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The way the market reacted to news of a penalty being imposed on DLF suggest the strong bullish trend in the real estate sector. Competition Appellate Tribunal (COMPAT) today upheld a penalty of Rs 630 crore on DLF for abusing its dominant position in the market. The stock closed 7.54% higher at Rs 182.45.
COMPAT's order upheld a 2011 order by the Competition Commission of India and the company still has the right to appeal against it in the Supreme Court. Analysts say that the penalty is already discounted by the market despite the fact that the Rs 630 crore penalty is marginally lower that DLF's consolidated profit of Rs 660 crore in the previous year.
More than the fact that the news is discounted is the expectation of a pick-up in economic activity on account of a new and stable government at the centre. A Standard Chartered report on Real Estate sector says that a pick-up in economic activity will lead to a recovery in residential demand and corporate leasing. DLF is the top pick once this recovery happens, says the report.
There are other indications also that DLF will benefit from a pick-up in activity. An Economic Times report says that the private equity investment in Delhi-NCR region is expected to go up by 50 per cent. PE activity has picked up over the last one year on account of attractive valuations and low level of bank funding for the sector. PE funds are around 10 per cent of the net real estate market liquidity in Delhi-NCR.
There can be some hope for buyers of real estate too as realtors sought a single window clearance system from Modi, according to a recent newspaper report. Realtors have been complaining that the multiple level of clearances and corruption is one of the main reason for high realty prices. The real estate body of Noida has sent a proposal to Narendra Modi to implement a single window clearance system for new projects to bring in greater transparency. Reports say that BJP leaders have met real estate groups and assured a revamp of the system which would cater to both home buyers and the industry.
Developers claim that the current multi-agency processing of projects adds 40 per cent to the overall cost of the project. Developers have also said that the industry can reduce prices by 25 per cent and double its sales if such a proposal is approved. There is also a move to accord industry status to real estate sector, review of FDI rules in housing, REIT legislations and effective implementation of Real Estate (Regulation and Development) Bill which could change the fortunes of the sector.
Developers claim that the current multi-agency processing of projects adds 40 per cent to the overall cost of the project. Developers have also said that the industry can reduce prices by 25 per cent and double its sales if such a proposal is approved. There is also a move to accord industry status to real estate sector, review of FDI rules in housing, REIT legislations and effective implementation of Real Estate (Regulation and Development) Bill which could change the fortunes of the sector.
With so much to look forward to and expectations built in for a speedy move by the Modi government, the market naturally does not think too much of the penalty imposed on DLF. The company is sitting on huge land banks in the NCR region and is ideally positioned to capitalise on the boom. The only drawback is its history of proximity to the Congress party and more specifically to Robert Vadra, son-in-law of Sonia Gandhi. The Rajasthan government has initiated a probe on Vadra's transactions in the state. While Standard Chartered in its report feels that the political risk is overstated, the stock can see increased volatility as negative news starts pouring in. But till such time, DLF is ideally placed to ride the real estate sector boom.
