Housing Prices Can Fall on Transparency, Timely Approvals: HDFC
On : Jun 20, 2014
Calling for major reforms in housing sector, HDFC chairman Deepak Parekh has said transparency and timely approvals from different authorities can reduce home prices by almost 20 per cent.
Mr Parekh also pitched for banks and housing finance companies being allowed to fund land transactions during periods when there was "no real estate bubble".
He laid emphasis on the need to increase the threshold limit for priority sector housing loans to at least Rs. 40 lakh per unit, from the current "unrealistic" level of up to Rs. 25 lakh.
"When there is no real estate bubble, as is currently the case, then banks and housing finance companies should be allowed to fund land transactions," he said, as property transactions costs comprise almost 70-80 per cent of the total cost.
In his annual communication to the shareholders of HDFC, Parekh called upon the developers to diversify their focus away from luxury projects and said an "online, single window clearance mechanism" should be put in place for affordable housing projects.
"Regulators prohibit banks and housing finance companies from extending finance to private developers to acquire land.
Developers have to then resort to high cost funds from non-banking financial institutions private equity and even from informal sector often paying interest rates ranging from 18-22 per cent per annum," he said.
Various approvals currently take 18-24 months, while multiplicity of approvals also result in "speed money" being demanded at every stage of approval.
"The end result is that all these time and cost overruns are eventually borne by the home buyer," the HDFC chairman said.
With regard to the Indian economy and corporate sector, the industry leader said the worst was behind us and a decisive mandate given by the people to the new government was "reflective of the change India wants".
"However, the real challenge was that of delivery, Parekh said.
"The new government has to simultaneously work on several levers -- increase growth, reduce the fiscal deficit, contain inflation, create a conducive investment climate for both, domestic and foreign investors and work towards improving hard and soft infrastructure," he said, adding the foremost among the aspirations of Indians was that of being a homeowner.
In order to meet these aspirations, developers should focus on building more number of one and two bedroom apartments and strive to provide more affordable housing in the price range of Rs. 15-40 lakh, he said.
Priority sector housing loans should be increased to at least Rs. 40 lakh per unit, he added.