Mumbai realty rates not sustainable, says Parekh

Chairman of Housing Development Finance Corporation (HDFC) Deepak Parekh warned that property rates in Mumbai are "unsustainable".

"Rates have reached unsustainable levels and are bound to drop. International investment cannot happen until a leveling of real estate rates takes place, and the craze for buying land at any price has to end," he said.

Today, the rental of BPO space in Mumbai is quoting as high as Rs 80 per square foot against property rentals of Rs 20-30 in Chennai and Hyderabad. Parekh was speaking at HDFC's 28th annual general meeting of shareholders, here in Mumbai.

Nevertheless, HDFC has assured its investors an 8 per cent assured return in the Rs 1,000-crore real estate fund, which was recently launched jointly with State Bank of India (SBI).

The fund is expected to generate an annual return of 15-16 per cent over a 7 year period, added Parekh. Meanwhile, a joint venture of Singapore-based Keppel and Bangalore-based Purwankara group is scheduled to announce a housing township project on a 25-acre plot tomorrow.

On the lending rates, Parekh said rates will only inch up in medium term. "There is no likelihood of any steep increases," he said. The shareholders authorised the board to come out with employees' stock option scheme.

Parekh speaking on the hike in home loan rates said that HDFC had recently increased its lending rates by 0.5 percentage points as its cost of funds had gone up with the renewal of old loans at higher interest rates. HDFC raised lending rates in order to maintain its interest rate spreads in a band of 2 to 2.2 per cent.

In the current fiscal year, the housing finance major has budgeted a 25 per cent growth in net profits.

During the first quarter, HDFC has reported a 21 per cent rise in net profit. Its market share on a cumulative basis is estimated to be at 50-55 per cent. On a current year basis it stands at about 33 per cent.