The Demand for Residential Housing in India will always remain Strong - Keki Mistry
Fund flow: Mistry says the liquidity levels in 2014 will be a lot more comfortable compared to said 2013.
The Reserve Bank of India (RBI) will have the flexibility to cut interest rates in April, said Keki Mistry, vice chairman and chief executive
of Housing Development Finance
Corp. (HDFC) For a revival in demand for homes, the most important thing is that people must feel confident
that their jobs are secure and
that they will get their salaries, Mistry said in an interview.
Edited excerpts:
What's your assessment of the macro economic environment right now? Almost all the data points that we are seeing on growth, inflation, and industrial production seem to be negative. Would you say as we begin the New Year that the worst is behind us?
I would say, yes. Broadly the worst is behind us because in my view the inflation is going to
start heading lower and interest rates will start getting lower too once we reach April. I think the key to what will happen in the coming year or two, is that the investment cycle will start picking up which is something that we have not seen happening
so far. That is really
something that will generate more jobs, create the growth number which we are looking at but having said that front the growth standpoint we have touched the worst.
I
think things can only get better
going forward. Headline inflation
number will be lower because food prices are coming
down. Food was the largest component of inflation in the last 2-3 months and with food prices getting lower possibly as an outcome of the good monsoon or a higher base effect that we are seeing, the headline number will come down and that will give the RBI the freedom and flexibility to cut rates, which I think they will do post April.
I want to push the point about inflation. Many people are beginning to say that we are going to see the signs of inflation ease. But taking into consideration what governor (Raghuram) Rajan said In the policy statement last time, do you think even if there is indeed a marginal drop in the inflation rate, would he have the flexibility to go and ease
rates.
Not in the first three months of January, February and March because that probably coincides with the time that tapering would start. I don't think he will take the risk of cutting rates while the tapering happens—that's one reason. The other reason would be that typically February and March are the two months when the demand for money is at its maximum and at that point of time you obviously don't want to push rates lower.
But come April, the RBI will have the freedom and the flexibility
to cut rates. So it won't happen in the first quarter but I will be surprised if it doesn't happen after April.
If you see the home loan rates as a whole for 2014 then what is the trajectory that you see? For someone who is trying to get a new home loan or for an existing borrower too, how do you see the rate trajectory behaving?
For a person who is taking a home loan, the most important thing that he should look at is affordability, the family should like the property, he should be confident about his job and then
he should buy the property. Interest rates at the point of time when he takes the loan are not really important because
today majority of today's loans
are on a floating rate basis.
When you take a floating rate loan it does not matter where the interest rates are at the point when you take the loan because if rates are high then
they will come down eventually.
So you can always get
the benefits of falling rates whenever the rates come down. Talking about how interest rates will pan out in 2014,
I don't see too much of a change in the first three months of the calendar year 2014 but post April the RBI would start cutting rates, liquidity
would enter the system and
the inflation numbers are likely
to start going lower. At that time, I would also expect the home loan numbers to come down.
What would be your own assessment of liquidity right now? Do you think in 2014 you are going to see the liquidity in the system being a lot more comfortable?
I would think so. I would think that the liquidity in 2014 will
be a lot more comfortable particularly
in the context of where
liquidity was in the mid 2013. July,
August and September were exceptional months. Those
were the months when liquidity was extremely tight.
The last time when we spoke you indicated that you have shifted funding in favour of bank loans and you were hoping to repay some of these loans once the money market rates start easing. Is that happening? Did you see your profile of funding change all this time?
To some extent, yes. We did raise a lot of money through banks in Q2 (second quarter) of the financial year. I don't want to get into numbers before
we have our results but a fair bit of those loans have been paid back. So I would say about U4,000-25,000
crore of money is what we have raised from the banks in Q2 and about 7000-8000 crore is what we would have paid back.
How would you characterize the behaviour of the real estate market? I ask this in the context of both commercial and residential in the pockets of Delhi and Mumbai. Do you see demand on the ground picking up?
Let's talk of commercial and residential separately. We don't really finance commercials so we are probably not the best people to talk about it. But
commercial is hugely dependent on the state of the economy. So if the investment cycle picks up, people start creating new capacity, more demand for real estate will take place and then commercial
real estate will start increasing. Till that time, commercial real estate will remain weak and it has been weak now for a fair period of time that is the last couple of years.
The residential side is a lot different. Now if you look at the residential side, people who are buying a house because they need a house to stay in, they are not investors or speculators, they are end users. And when you need a house you have to buy a house because it is a necessity or a requirement. It is no longer a luxury.
Therefore the demand for residential housing will always remain high.
You may think that the inventory levels in Mumbai in Delhi are very high but the fact of the matter is that, if you take Mumbai as an example then there was a period of 18-24 months when almost no project got approved and in the last 1.5-2 years we have started
seeing a whole lot of projects
getting approved and taking
off.
So suddenly the supply has increased ' and because the supply has increased you see a lot of construction taking place and therefore you see a lot of unsold properties. I ant sure that over a period of time, these properties will get sold off or will be bought. The most important thing is the confidence
level of consumers.
People must feel confident that their jobs are secure, they will get their
salaries, they will get
their income and that is the time people will buy houses. But fundamentally the demand for residential housing in India will always remain strong.
You always say that the property market of Mumbai and Delhi is slightly different from the rest of the country. How do you see the prices behaving right now because when you talk to the real estate companies you get the sense that things are not looking so good and so on but you don't see that being reflected in price?
My belief is that if today a developer is convinced that a customer is a genuine customer
which means he has the capacity to buy a house, then probably Ite would even negotiate the price. You may be able to get a discount of 5-10%
on the property hut not more than
that.
And the fact of the matter is that construction cost has also gone up. Land prices have been extremely highs over the last several years. So land prices
are high, labour prices are high,
sand is not available, construction
costs have been going up.
So the profit margins of developers
have actually been shrinking.
Therefore the ability to
cut prices is to a great extent limited, it is not as much as it used to be 4-5 years
ago when the
profit margins were much higher.
Source : Mint
Source : Mint
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