'I'm not sure of a price fall'

Real estate prices have been soaring for some years now, but there’s always the nagging fear that this is just a bubble. Rakesh Rai spoke to Renu Sud Karnad, executive director, HDFC, to find out what the country’s biggest home finance company thinks of the current environment.

Rakesh Rai        Print Edition: April 3, 2008

Renu Sud Karnad

Renu Sud Karnad

Real estate prices have been soaring for some years now, but there’s always the nagging fear that this is just a bubble. Find out what the country’s biggest home finance company thinks of the current environment.

Q. What is the extent of the correction in residential prices?

A. Though property prices have corrected by 15-20% in areas where large construction is happening, this has not been uniform. The correction depends on the demand-supply equation. For instance, the correction has been noticeable in Whitefield in Bengaluru, Gurgaon, Noida and some suburbs in Mumbai. Conversely, areas like central Delhi or south Mumbai have not seen many signs of price correction, due to the lack of fresh supply, coupled with developers’ ability to hold prices. However, property prices seem to have definitely stabilised.

Q. But sales are slowing down.

A. Although there has been a considerable slowdown in sales, developers are reluctant to bring prices down. We hear that many, instead of reducing the prices, are offering freebies like free interiors, free air-conditioners or payment of the first six EMIs of your mortgage loan.

Q. Is this a good time to buy or invest in property?

A. For first-time buyers who are looking for a home to live in, any time is good. For those looking at real estate as an investment, however, my advice would be to stay away. Prices are close to their peak and interest rates are also high.

Q. So, do you think prices will come down?

A. Some investors believe that if they postpone buying property for three or six months, they will be able to buy at a lower price. I am not sure this is true. Property price movement depends on a lot of factors such as fresh supply of property in that area, liquidity in money markets among others.

Q. How do you see home loan rates panning out in 2008?

A. We were the first to cut interest rates by 25 basis points. Further fall will depend on factors such as inflation, liquidity and economic growth, and global factors such as crude prices and money inflow. I see the Indian economy continuing to grow at 8% and above for the next couple of years and hence interest rates would more or less be stable around the current rates during 2008.

Q. What kind of innovations can consumers expect from HFCs?

A. One could look at products for different segments, especially senior citizens, like a reverse mortgage. But these will work only under specific conditions.

Q. And what from developers?

A. The quality of housing has improved. Closed-circuit television, environment-friendly construction and earthquake proofing are expected as standard features in most upmarket blocks with modular kitchens, piped gas and Internet connections as value additions. Differentiators will also be in the form of innovative use of technology like remote-controlled houses, services such as guarantees in housing and pricing transparency. The next few years could be the harbinger of defining moments for this industry.

Q. What can the Government do to make housing more affordable for the masses?

A. Shelter is one of the basic needs of mankind. We seem to have achieved self-sufficiency in food and clothing but makaan is beginning to appear like a distant dream for a large number of middle-class Indians. However, land is a scarce commodity in India not because it is not available but because it is not made available. This is because a lot of land is either locked in disputes, under encroachment or lies in no-development zones. We need to seriously look at land reforms and the issue of floor space index to augment supply of land. All this is in the government domain and it could really help in a big way to promote affordable housing.

Q. What other measures could help?

A. The government has plans to introduce the American concept of “equity homes” in India. Here, financial institutions buy out projects from developers and rent them to end users who pay a premium along with the agreed rent to the institution. Once the price of the property is recovered over time, the tenant gets the total ownership.


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