Home loan borrowers must be cautious of teaser products: Deepak Parekh

Be wary of ''too good to be true" offers

Home loan borrowers need to remain cautious about the risks involved in teaser products offered by real estate developers, Deepak Parekh, chairman of Housing Development Finance Corporation (HDFC), the country's largest housing finance company, said.

"To my mind, teaser products, of any nature entail risks. Customers need to be cautious of 'too-good-to-be-true' type of products," Parekh said in his statement to HDFC's shareholders.

"Borrowers must not be blinkered into believing that there are no risks when developers offer to pay interest on a borrower's loan for a specified period. Borrowers have to be cautious because in the event of a developer delaying payment, the credit bureau reports will reflect this in the borrower's records, thereby impact his or her creditworthiness," he said.

Parekh said developers must realise that in the long-run a correction in home prices will benefit them and help their cash flows.

On construction finance, Parekh said the pricing needs to be done in a way that will cover the lenders' risks.

"As a basic tenet, construction finance entails higher risk and therefore such risks have to be built into pricing. Construction finance should not, through any innovative structuring, be available to developers at the rate of interest being offered on individual home loans," he said.

"Further, complete up-fronting of construction finance to developers, even before the ground is broken, is dangerous," he added.