The runway for mortgage finance in India is immense as the mortgage to gross domestic product (GDP) ratio in the country is just 11 per cent, which is very low compared to other peer economies like China, Malaysia, and Singapore and significantly lower than western world where the ratio is upwards of 60 per cent to 90 per cent, said Deepak Parekh, chairman, HDFC Ltd.
Speaking at the Dainik Bhaskar Group Real Estate Conclave, Parekh said, “Urbanisation in India is an irreversible trend. Currently 32 per cent of the population reside in cities and this is expected to be 40 per cent by 2030.”
“Recent estimates forecast that the Indian real estate market is likely to touch US$ 1 trillion by 2030. India still has a huge housing shortage estimated at over 29 million units. The government has been supporting housing, especially through its Pradhan Manti Awas Yojana Scheme and the Credit Linked Subsidy Scheme, or the CLSS which came to an end last year, was a game changer, especially for the economically weaker sections and low-income groups,” Parekh said.
However, he cautioned that the withdrawal of the CLSS and concessional stamp duties in certain states coinciding with the uncertainty on the interest rate trajectory has had some dampening impact on housing, especially for the low-income segments. “I also believe the definitions of economically weaker sections and low income groups or even the loan and property amounts used to qualify for priority sector housing loans need to be periodically revised to reflect changing market realities,” he said.
"I still maintain that affordability has not been eroded as far as housing is concerned. There are a lot of screaming headlines stating how the interest rate hikes has led to sharp increases in EMIs or very stretched tenors. Here it is important to recognise that it is the primary responsibility of a lender to ensure that a customer is not over extended while taking a home loan," Parekh said.
The more important driving point is that a home loan is generally for a long tenor and over this period, there will be both, upward and downward interest rate cycles. India is lucky that its mortgages are not underwater like parts of the western world where the mortgage loan in itself is higher than the value of the property, he added.
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According to Parekh, with the government’s focus on making India a global manufacturing hub and with the development of industrial corridors, the opportunities for real estate development have increased manifold. There is growing demand for new real estate assets such as warehousing, fulfilment centres, data centres, hospitality, lab offices, amongst others expanding into the tier II and tier III cities and beyond.
“As a country if we look to increase homeownership or deepen retail credit markets in a responsible manner, it is important we keep the experiences of several other countries in mind and ensure our households do not get excessively overleveraged. The share of household savings needs to increase from current levels because this is what will drive future consumption and investments,” he said.
In his advice to developers in tier-II and tier-III cities, he said, the Indian real estate market needs a lot more of affordable and mid-income housing stock; developers should not be too ambitious in trying to launch too many projects at one time; they should look to so keep governance practices at the core of their investment decisions; and build sustainably.