Building a Dream

By Simon Robinson / New Delhi

From the window of his ninth-floor office, Kushal Pal Singh looks down over New Delhi's Jantar Mantar, an elaborate astronomical observatory built by a far-sighted 18th century Hindu ruler. The stone curves and pillars of the observatory worked in conjunction with its massive sundial to measure time, forecast eclipses and determine the positions of stars and planets. The Jantar Mantar "gave me inspiration," says Singh, chairman of DLF, India's largest real estate company. "If this guy who conceived and made the Jantar Mantar centuries ago could be a forward-looking man, why is it that we can't be forward-looking in our development and start to do something ahead of the time?"

DLF is doing just that. Barely known outside its northern-India base a few years ago, the company is building houses, apartments, office towers and shopping malls across India's booming cities. It has plans for airports, hotels and cinemas. Singh, 75, wants to be a prime mover in the country's drive to erect modern cities where India's new middle class can live, work, shop and play. To do all that, though, DLF needs a lot more money, which is why on July 5 the company held an initial public offering for just over 10% of the company, bringing in some $2.24 billion. DLF's shares rose 14% by early August, giving it a market capitalization of $25.5 billion--roughly $5 billion more than General Motors. The IPO netted Singh and several family members, who together hold 87% of DLF, nearly $20 billion--enough to make them one of the richest clans in the world. "Frankly, that is embarrassing to me," Singh says. "That is not the yardstick by which I want to be known."

Whether he likes it or not, that fortune is bound to attract attention. DLF is, after all, the hottest property developer in one of the hottest markets in the world. India's economy has grown more than 8% a year for the past four years, boosting demand for houses, offices, megamalls and hotels. Land prices in some areas have tripled in value since 2004, while office rents in Mumbai (formerly Bombay) and New Delhi are now more expensive than those in Paris, Hong Kong or midtown Manhattan. Yet the boom may still have room. Merrill Lynch forecasts India's property industry will grow to $90 billion by 2015, up from $12 billion in 2005. "You will need 100 DLFs," Singh says.

DLF, though, has a big head start on the rest of the industry, thanks largely to Singh. The amiable tycoon, known by his initials K.P., was dressed during a recent interview in a white suit with a polka-dot pocket square. He recalled how prescient strategy--and a stroke of luck--turned DLF into a property powerhouse. Founded by Singh's father-in-law Chaudhury Raghuvendra Singh, DLF (originally Delhi Land & Finance) got started in 1946, a year before India won its freedom from Britain. Raghuvendra bet that hundreds of thousands of refugees who were expected to settle in India's capital when partition split the subcontinent into India and Pakistan would need places to live. He persuaded farmers around New Delhi to hand over their land on the promise of future payment, borrowed money to develop residential neighborhoods and then sold at considerable profit to the influx of newcomers.

But the good times ended in 1957 when New Delhi's socialist government granted itself sole development rights for the city, forcing private firms out of the business. By then, Singh had married into the family. The son of landlords as well, he had studied aeronautical engineering in Britain before returning home as an officer in the Indian army. By the time he joined his father-in-law's business in 1960, real estate development work had dried up completely. Instead the company tied up with two U.S. firms to manufacture electric motors and automotive batteries. The joint ventures eventually foundered, but by 1980, Singh had hit upon a new scheme. "I was hungry," he says. "And the best things in life are done when you are hungry for more business."

Singh's plan centered on Gurgaon, a dry, scrubby plain in the state of Haryana, near New Delhi. If he could buy enough land and then convince authorities to change their regulations preventing companies from acquiring farmland for commercial use, perhaps he could outdo his father-in-law's success. By 1981, though, the company had acquired just 40 acres and failed to change the law. Frustrated and despondent, he sat beside a well one scorching summer day. What the heck can you do in this place? he recalls wondering.

That was when the driver of an overheating four-wheel drive stopped to request some water. The supplicant was Rajiv Gandhi, son of Prime Minister Indira Gandhi and soon to be India's leader himself. "Rajiv Gandhi was like a ray of hope for India," says Singh. "We found that we were on the same wavelength very quickly." He was later repaid for his water when Gandhi pushed the Haryana government to ease the commercial-development restrictions. Their two-hour conversation that day, says Singh, was "the birth of the entire urban-development policy of India today."

Over the next two decades, as economic regulations were slowly liberalized, DLF amassed 3,500 acres in Gurgaon and built some of India's first modern commercial structures, including offices for General Electric, Swedish cell-phone maker Ericsson and Swiss food giant Nestle. The company also built luxury apartments and houses, including a residential estate incorporating an 18-hole golf course designed by golfing legend Arnold Palmer. Land that cost Singh as little as $65 an acre now sells for about $4 million an acre. In the run-up to its IPO, DLF has been on another buying spree and now has holdings in 31 cities.

Over the past few years, Singh has handed over much of the day-to-day running of DLF to his son Rajiv, 48, who studied engineering at Massachusetts Institute of Technology. Daughter Pia, 36, a Wharton economics graduate, runs the retail business. Older sister Renuka handles some international business. Singh says he plans to slowly step away from DLF to concentrate on his golf (handicap: 14), collect more art (DLF owns one of the biggest private collections in the country) and travel (he is the honorary consul general of Monaco and vacations in London).

DLF, obviously a family-run operation, must execute its ambitious agenda amid growing scrutiny, a by-product of going public. Critics say DLF, like the Indian property market itself, isn't transparent enough. There are questions surrounding the true value of DLF's recent land acquisitions, in part because 35% of the land on its books is not owned but under "agreement to purchase," according to IPO documents. Sydney-based Macquarie Research criticized the fact that more than half of DLF's land is in New Delhi, Gurgaon or Mumbai--where, some analysts believe, growth will lag smaller cities'.

The biggest threat, though, is a crash in the property or stock market. When U.S. property and media tycoon Sam Zell visited India in April, he told local real estate executives that they were "on the brink of excess" and that the boom could end in a bust. Real estate stocks plunged as much as 50% in a general market sell-off last spring, while property prices have fallen 20% or so in some areas in the past six months. Both the government and the Reserve Bank of India are trying to cool the real estate sector without crashing it. The RBI has raised interest rates six times in the past 18 months to try to rein in inflation, which peaked in March at an annual rate of 7%. The Securities and Exchange Board, meanwhile, has tightened up regulations on foreigners investing in real estate firms ahead of public listings. All that has made it harder and more expensive for Indian builders to raise money.

Considering the challenges, it's hard to see how DLF's spectacular growth rate can be sustained for long. In its fiscal year ending March 31, 2007, DLF reported that its profit grew more than 1,000%, to $470 million, while sales tripled, to just under $1 billion. After a stupendous two-year run, DLF's stock is unlikely to move much further, says Mukesh Agarwal, a manager at Indian financial-services firm HDFC Securities. "The upside may be limited."

Singh doesn't see it that way. "Urban development in India ... will be the biggest sunrise industry that any country has seen in any part of the world," he says. The trend is being driven by macro forces. As the country becomes richer and more urban (the number of people living in cities will rise to 461 million by 2025, from 286 million today, according to the Asian Development Bank), demand for housing should go right on booming.

As its economy grows, India will need millions more square feet of offices as well. Industry analysts estimate that India has less modern urban office space than a single large American city. "It's not a bubble," says Arjun Divecha, the California-based manager of investment firm GMO's $15 billion emerging-markets fund. "The reason prices have risen so rapidly is that there has been so little increase in supply. If you look at the experience of other emerging markets, the real wealth escalator has been real estate, and I expect the same in India."

So does Singh, who laments that in its first 60 years, India's philosophy was to "think small, make small buildings and never to think that we could make bigger things, better things." He pauses, looking old when he stops, but animated and younger as soon as he begins talking again. "I ask you, Why can't we be excellent?"

INDIA'S RISING REALTY

OFFICE RENT IS WORLD-CLASS COSTLY ...

London (West End) $2,597

Tokyo (Inner Central) $1,745

Mumbai $1,490

Moscow $1,298

New Delhi $1,251

Paris $1,202

Hong Kong $1,046

Ranked by annual occupation cost per sq m

... AND HOME PRICES ARE SOARING TOO [This article contains a chart. Please see hardcopy of magazine.]