The largest mortgage lender in the country HDFC is hopeful of achieving 19% growth this year, with housing loan as a proportion of GDP being at 8% against 20% in China. In an interview with The Economic Times, Keki Mistry, the company’s VC and MD, said that though there could be some correction in real estate prices, it would not collapse. Excerpts:
Do you think high interest rates are holding back people from buying homes and affecting the mortgage market?
For the middle class, interest rates do not determine, affordability does. There are tax benefits on housing loans and repayment of housing loans is one of the avenues of saving tax. Total outstanding housing loan as a proportion to GDP is close to 80% in the US. But in emerging markets like China, it is 20%. In India, the total housing loan as a proportion to GDP is only 8%. We are talking of doubling it to 16% in 10 years. Saturation level for India is still very far away and our pace of business will continue to grow at 18-20% a year for a long time. Another factor that will determine high growth is demographics. We know India is a young country where 60% of population is less than 30 years. People think of buying a house and taking a loan when they are in their mid-thirties. Affordability is 4 to 5 times of their annual income.
There are not too many properties within Mumbai limits. Most of the demand is coming from Navi Mumbai and Kalyan area. Only Mumbai has variations like this where property prices could range from 3,000 a square feet in Virar to Rs 1 lakh a square feet in South Mumbai.
What is the competitive strength of HDFC?
We have core competence about the housing market: for us, housing is the only business. In the 90s, banks were aggressively getting into housing. We realised that we have to keep the cost low. We are operating at a cost-to-income ratio of 7.6%, compared to 30% for most banks. For us, asset quality has been very important. Our total loan loss has been 0.04% from the time we started writing business in 1977. We have four objectives: our return to equity must rise every year, cost-income ratio should be lower, NPAs should come down, and we should grow at a pace that we have set for ourselves.
What is your view on real estate prices in Mumbai?
I don’t see any big collapse. Price of a product is the function of demand and supply. There is some correction in some places. The infrastructure in the city has to improve, with sea on three sides, sewage and healthcare. For a customer buying a house, the confidence comes from a steady job. If demand slows down significantly, prices will come down in big cities like Mumbai or Delhi. For a city like Mumbai, demand for a house is always going to be there. But transport has to be eased either through the coastal road or through bridges. Water, power, schooling, healthcare are relatively easier to solve than transportation. Housing in Mumbai is expensive. If you go to smaller cities, it’s affordable.