New Delhi: Home prices in India, including in smaller cities, are highly inflated, according to the chairman of the country's largest housing finance company HDFC, Deepak Parekh.
"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," Parekh said in his annual statement to HDFC shareholders.
"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.
Parekh asked builders to focus on affordable housing, rather than on luxury homes.
He warned that it is a dangerous thing for banks to lend aggressively to developers and said "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," he added.
He told home buyers to be cautious of 'too-good-to-be-true' offers from the property developers and warned them against schemes where builders claim of paying interest on the borrowers’ loans.
The eminent banker asked financing companies to stay away from innovative and aggressive loans, including teaser rates where the interest rates rise gradually.
While lauding the growth in the home finance market over the years, Parekh in this annual letter to shareholders said: "As a basic tenet, construction finance entails higher risks and, therefore, such risks have to be built into the pricing."
Parekh, however, lauded the role of a new breed of entrepreneurs and first-time developers who have 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.