Housing Development and Finance Corporation Ltd. (HDFC) Chairman Deepak Parekh said, on Friday, that home prices in the country were inflated and that increasing supply was the only way to bring down the prices.
“At the cost of perhaps now sounding like a broken record, I continue to hold the stance that increasing supply is the only way home prices can come down in India. Even in Tier-II and Tier-III cities, home prices are inflated,” said Mr. Parekh in his annual statement to shareholders. The company’s annual general meeting is scheduled for July 19, 2013.
“Solutions to the acute housing shortage in the country have been discussed endlessly though action remains slow and sputtered. Having spent so many years in this business, one recognises that one’s voice can never be loud enough when so many vested interests exist as far as land markets are concerned. Nonetheless, I am of the firm belief that one must not give up or be beaten down to silence,” he added.
On an optimistic note, however, he said that it was worth recognising the efforts of a new breed of entrepreneurs and first time developers who had ventured into the affordable housing space. "Such projects may be few and far between, but the trend is encouraging because this is where the real demand lies. Most of these affordable housing projects have been sold out immediately. Hopefully, the more established and larger developers will take a cue and focus on the affordable housing segment, rather than high end luxury homes that they currently cater to,” he said.
Nonetheless, it was important to safeguard the housing finance market and ensure that it continued to grow in a prudent manner, he said. “Customers must understand the risks entailed in the products they opt for and lenders should fulfil their obligations of responsible lending. Red flags must be raised if schemes or products are detrimental to the system as a whole. Unhealthy business practices can infiltrate into the system due to the herd mentality instinct and business compulsions. However such breeding grounds must be nipped in the bud,” he added. As a basic tenet, construction finance entailed higher risks, and, therefore, such risks had to be built into the pricing. “Construction finance should not, through any innovative structuring, be available to developers at the rate of interest being offered on individual home loans. Further, complete up-fronting of construction finance to developers, even before the ground is broken, is dangerous,” Mr. Parekh warned.