 "Deepak Parekh, chairman of HDFC Life Insurance and HDFC Asset Management Company (left) and Dinesh Khara, chairman of State Bank of India (SBI) at the Business Standard-IMGC India Mortgage Leadership Conclave (Photo: Kamlesh Pednekar)")
Two prominent voices in India’s banking industry have advocated for incentives to boost the country’s residential housing sector.
Deepak Parekh, chairman of HDFC Life Insurance and HDFC Asset Management Company, has suggested allowing banks to lend to developers for land purchases, while Dinesh Khara, chairman of State Bank of India (SBI), has called for more tax incentives.
Speaking in a fireside chat at the Business Standard-IMGC India Mortgage Leadership Conclave, Parekh said that banks should be permitted to lend to developers for financing land purchases. He argued that in some cases, the cost of land is as much as 80 per cent of the project costs and hence can be good collateral.
“This is a wrong policy; nowhere (in the world) are banks restricted from financing land purchases. Why can’t we lend 50 per cent of the value of the land? In urban areas, we conduct a 30-year check on land ownership. Lending can be done on the condition that the builder puts in a significant amount,” said the veteran banker.
With banks not lending to builders for land purchases, builders are forced to borrow at a high rate from alternative investment funds and non-banking firms for short-term borrowings at higher interest rates, which can be as high as 22 per cent per annum.
The chairman of HDFC Limited said that with better checks for land titles in urban areas, banks must be allowed to lend to developers for buying land, which is the largest cost in a construction project.
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Parekh said that India is in a ‘sweet spot’ for growth, and there must be a focus on affordable housing.
“The housing market was never as buoyant as it is today. However, very few developers are making affordable homes. There is a need to incentivise developers to put more focus on the mass market segment,” he added.
Parekh also criticised moves within the industry of poaching existing home loan customers by offering loans at a few basis points lower. This should be avoided, at least in the initial years.
In another fireside chat, Khara said that such situations are here to stay.
Addressing a gathering of housing finance and banking officials, the chief of the country’s biggest lender also called for a review of tax rebates on the interest component of home loans.
“I feel there would be a scope for giving some incentive so that homeowners are encouraged. While housing rent is deductible in terms of tax, the interest on home loans can be revisited,” said Khara.
“With the latest narrative and numbers of housing enablers given in the Budget, there is a Goldilocks moment for the sector in the offing,” said Khara.
Khara added that the bank was utilising analytics and digitisation to bring down the processing time from the current eight days (on average), identifying customers for upgrading to a second home, and implementing better risk management practices.
In a panel discussion on building a resilient housing finance ecosystem, Vipul Roongta, managing director (MD) and chief executive officer (CEO), HDFC Capital Advisors, said at the Business Standard-IMGC India Mortgage Leadership Conclave, “Financiers need to play a role that goes beyond just providing capital. It has to be strategic in nature, product-specific and has to focus on how to scale up. That results in a delta for the fund. It is what value addition is being done.”
At the conclave, top industry players also echoed the change in the demand profile from affordable housing to the mid-market segment after the pandemic. However, they also called for a review of the definition of affordable housing.
“After the pandemic, everyone wants a little more space, more elbow room. However, the houses are shrinking. The Rs 45 lakh limit for the affordable segment is falling off the definition. Instead, the unit size for good quality housing could be looked at,” said Shobhit Agarwal, MD and CEO, Anarock Capital Advisors.
In another panel discussion on affordable housing, T Adhikari, MD and CEO, LIC Housing Finance, reiterated the need for a change in the affordable category definition. He said, “If the government needs to relook at it, they should define the size of the element; rates can be higher in Mumbai and lower in cities like Lucknow. It would make it more equitable and fair.”
To ensure housing for all, the chiefs of housing financiers pinned their hopes on the reintroduction of a scheme similar to the credit-linked subsidy scheme (CLSS), which ended in December 2023.
Lakshminarayanan Duraiswamy, MD, Sundaram Home Finance, said, “There is a scheme 2.0 in the offing. It needs to drive people back into affordable housing financing fundamentally rather than giving a Rs 2.5 lakh monetary incentive that will set a wrong behaviour both from financing and customer side to buy affordable homes.”
Meanwhile, Ravi Subramanian, MD and CEO, Shriram Housing Finance, also cautioned against the misuse of such provisions. He said that people who did not necessarily belong to the economically weaker section or lower-income groups took advantage of the scheme with the help of some ‘rogue housing finance companies’.
“They need to plug that gap. Half of the money going to the ‘haves’ doesn’t make sense at all. They need to make it simpler to claim and administer. You need to come hard upon them (housing finance companies and banks misusing the scheme),” he said.
At the conclave, the industry’s top voices called for a better partnership between the government and financial services companies.
Shantanu Rege, MD and CEO, Mahindra Rural Housing Finance, said, “A couple of enablers need to be discussed like simplification and harmonisation of the definition of affordable, making liquidity and cheaper capital available. For customers who are in the affordable and smaller ticket home loan segment, their cash flows are not the same as those of urban. Some dispensation may be given towards provisioning and non-performing assets.”
To match the supply of housing units to the rising demand, the industry backed a supportive ecosystem for housing finance companies to scale up.
“There is a need to create a liability structure which is supported by government agencies in some ways that allow affordable housing finance companies to provide truly affordable housing,” said Jairam Sridharan, MD at Piramal Capital & Housing Finance.
As part of the first panel, Sandeep Menon, MD and CEO, Vastu Housing Finance, said, “A large part of India is into self-construction and individual houses, rural houses. That is the single biggest opportunity. There is a genuine market beyond the apartment business. Self-employed people in India build their individual houses.”
Industry players also called for establishing a robust securitisation market.
Stuart Take, board member, IMGC, said, “The establishment of a well-regulated government-sponsored securitisation market would significantly boost funds into the system and attract international attention. While India maintains strong underwriting norms, veering towards more exotic products without adhering to these guidelines would not be advisable. The inclusion of mortgage guarantee mechanisms instils confidence, both in borrowers and lenders, making advancements in this area crucial for overall development.”
Offering a view from the other side, Abhinandan Lodha, chairman of Lodha Ventures, said, “As Tier-II India evolves into Tier-I, the current Real Estate (Regulation and Development) Act regulations provide an opportunity for high-quality developers to establish a presence. This transition is poised to instil a substantial boost in consumer confidence, laying the foundation for the coming generation.”
Khushboo Tiwari, Anjali Kumari, Abhishek Kumar, and Abhijit Lele contributed to this story
