Deepak Parekh, Chairman, Housing Development Finance Corporation (HDFC) in an interview with CNBC-TV18’s Latha Venkatesh spoke on varied issues like revival in economic growth, affordable housing, the Real Estate (Regulation and Development) Act RERA, banking, NPAs etc.
Below is the verbatim transcript of the interview.
Q: What are the prospects of affordable housing and can economic growth revive on back of the affordable housing boost?
A: This is the 40th year of HDFC and with the recent budget; I am more excited today than I was 40 years ago, about the prospects of affordable housing. With the incentives given in this budget, with the regulations coming in place, with the recovery of easier recovery of bad housing loans. So affordable housing is the biggest growth engine that India will have in the next five years.
Q: The Pradhan Mantri Awas Yojana (PMAY) is meant for first time buyers and there is a process. The National Housing Bank (NHB) has to approve it. Last time around, when that 6 percent interest loan was given, the NHB did not have a large number of houses approved. That is what gives me scepticism. Do you think this will pay off?
A: The first scheme which was announced under Awas Yojana was two years old. The scheme was for economically weaker sections (EWS) and lower income group (LIG). The scheme announced this year was for middle-income group (MIG) 1 and MIG 2. This is called Credit Linked Subsidy Scheme (CLSS). Now here, it is such a practical scheme and is extremely well thought out that it gives upfront money to a prospective home buyer provided he is not a homeowner, he is a first-time buyer. If your income is between Rs 6 lakhs and Rs 12 lakhs, you get a subsidy of 4 percent on a Rs 9 lakh loan and if your income is between Rs 12-18 lakhs, you get a subsidy of 3 percent.
Now, these are front-end subsidies, a 20-year loan, so what has the government done? The government has said that the down payment is not possible for most families. If you need 20-25 percent down payment, it is not possible because you do not have those savings. Abroad, you get 90 percent loans. We have 80 percent as a limit. This credit subsidy, which will be given upfront on a 20-year, amounts to anywhere between Rs 2-3 lakh. So, that adds to the down payment of the individual.
Q: But even then, the individual has to come with his 20 percent down payment.
A: Not 20 percent, this can be 10 percent. This can be 10 years to come with 10 percent and get the balance as a loan. So, what we need really is massive construction. Massive construction of homes of this type.
The other practical step here is, they have divided this into two parts -the four metros and the metros are only Mumbai, Delhi, Kolkata and Chennai and it is only municipal limits. Peripheral areas are not metros. So, Thane or Kalyan or Dombivali, they are separate municipalities. There, the limit of home is 60 sq mt, while this is 30 sq mt. Again, they have said carpet area. You add 40 percent to 60; 840 sq ft in Thane or outside the National Capital Region (NCR), you do not need larger flats and that is a reasonably sized flat.
Q: Yes, but I though already there are enough vacant flats almost finished buildings. It was announced in January and in March, we got the final rules. We have not seen that kind of movement.
A: We get to know from developers. Every developer, even the biggest of the developers who only build luxury homes have started looking for land for affordable homes, why? Single point agenda, it is tax-free. Show me one industry which has a tax incentive that whatever profits you make, there is zero tax. And this goes on till 2021 because we want more stock of affordable housing.
Now, if you have a 20-30 percent margin in a project and you pay zero tax, your returns will be phenomenal. Private equity from abroad are wanting to sign up with developers, sovereign wealth funds are wanting to come in to fund affordable housing, to buy land, to support developers. So, it is going to be a boom that we have not witnessed. Please believe me.
Q: What is the timeline?
A: Next five years.
Q: Five years?
A: Because it takes time to buy land, get approvals. I wish the approval process, the state government brings it faster, but the approval process in India takes too long.
Q: Can we see a bunch of home loans being signed up in end FY18 itself?
A: Why not?
Q: You expect?
A: You say demonetisation hit everyone in November and December. Our January sanctions were 21 percent more than December. Our February applications received were another 24 percent higher. March was 44 percent higher. So, the two months which were bad, November and December are all behind us. We see a massive growth already happening. Now, on the unsold stocks, most stocks that are unsold are
Now, on the unsold stocks, most stocks that are unsold are high-value stock. They are not the Rs 25-30 lakh flats. They are the Rs 50 lakh, Rs 1 crore and above flats. We need smaller flats, we need flats on the peripheral of big cities, we need flats which come in under the definition.
Q: So, in your estimate, how many lakh houses are you looking at under this scheme in FY18 and more importantly, in FY19?
A: Till March, this year, a lot of planning because there is now demand for big lands. We have got a private equity fund with almost USD 500 million from a sovereign wealth fund only for affordable housing, 12-year money and they are willing to put more money. So, we have already supported three developers in different parts of the country where we are saying we are funding you for the land through our private equity vehicle and affordable housing will come up there and we are looking at prices of Rs 3,000, Rs 2,999 to start off with and Rs 4,000 per sq ft. So, we need a large number.
It is not going to be tomorrow. The activity has started, the hunt for land has started. The hunt for equity has started and the benefits will come over three years.
Q: Do you expect this to satisfy a bunch of sectors? The big problem for us is really employment. We have had for too long, a no job growth kind of economy. Do you think that also gets addressed?
A: Biggest multiplier effect in any industry is housing. It impacts practically every sector of every industry, every part – cement, steel, sand, labour, skilled labour, unskilled labour, professionals, engineers, architects. The number of industries housing touches and connects is the largest in the world.
Q: So, in three years you will be back to that 25 percent kind of home loan growth that we did see in 2003-2008 period?
A: I expect it to happen. I expect maybe even more. We need supply. Funding is there, raw materials are there, labour is there, we need quicker approval from state governments.
Q: Now in that process you have the RERA?
A: The incentive is a very bold move by the government and I give full credit to the government that because it impacts so many industries and we are saying why the Indian private sector is not increasing investments, steel and cement will be in short supply if this happens, if this kicks off.
Q: By, when do you think? In two years?
A: I have got some cement companies saying we are looking at putting an expansion next year. Starting the expansion, it takes 2-3 years to build it.
Q: But they are all at 70 percent capacity.
A: Yes, but still, the new ones will take 3-4 years. You cannot build a cement plant in a short time.
Q: You think capital expenditure (Capex) is around the corner for India?
A: At least in steel, you have seen again, the government has come out with a very ambitious and a very practical solution. Now, every 2-3 steel companies I have talked to in the last weeks are saying we are planning an expansion. It takes 3-4 years to build a new facility. Please understand.
Q: The real estate regulator. How do you see that in the scheme of things? The Indian consumer has suffered at the hands of builders. No two ways about it and yours truly is one example. My flat, at the moment is delayed by 18 months. Do I get relief now?
A: You will get relief now. The Real Estate (Regulation and Development) Act, 2016 (RERA) has been notified by May 1, 2017. Maharashtra is one of the first states that have taken it on board and so far, about nine states and six union territories have adopted the RERA.
Q: But will it help only prospectively? What about those of us who are stuck now?
A: All ongoing projects, yours is an ongoing project, have to be registered with RERA within three months. Leave alone the new ones. Ongoing projects, both commercial and residential. RERA is a new era in real estate. A transparent, efficient era is being developed because real estate has been – most individuals have suffered by getting delayed housing or poor, inferior quality or not getting it or money being siphoned away. But again, it has taken some time but this government has the courage to bring out RERA. Although the land is a state subject, it was introduced as a central act. All states have been asked to follow it.