HDFC chief Parekh sees major flaws in govt's housing policy

Indian business doyen and chairman of the Housing Development & Finance Corp (HFDC), Deepak Parekh, today called for major reforms in the housing sector, with transparency and timely approvals from various authorities.

Such measures could reduce home prices by almost 20 per cent, Parekh noted in his annual communication to HFDC shareholders.

He also made a strong case for banks and housing finance companies being allowed to fund land transactions during periods when there was "no real estate bubble".

He emphasised the need to increase the threshold limit for priority-sector housing loans to at least Rs40 lakh per unit from the current "unrealistic" level of up to Rs25 lakh.

"When there is no real estate bubble, as is currently the case, then banks and housing finance companies should be allowed to fund land transactions," he said, adding that property transactions costs comprise almost 70-80 per cent of the total cost.

Parekh called upon land developers to diversify away from luxury projects, while saying that an "online, single window clearance mechanism" should be put in place for affordable housing projects.

"Regulators prohibit banks and housing finance companies from extending finance to private developers to acquire land. Developers have to then resort to high-cost funds from non-banking financial institutions, private equity and even from informal sector, often paying interest rates ranging from 18-22 per cent per annum," he said.

Various approvals currently take 18-24 months, while multiplicity of approvals also result in "speed money" being demanded at every stage of approval.

"The end result is that all these time and cost overruns are eventually borne by the home buyer," the HDFC chairman said.

With regard to the Indian economy and corporate sector, the industry leader said the worst was behind us and a decisive mandate given by the people to the new government was "reflective of the change India wants".

"However, the real challenge was that of delivery, Parekh said.

"The new government has to simultaneously work on several levers -- increase growth, reduce the fiscal deficit, contain inflation, create a conducive investment climate for both, domestic and foreign investors and work towards improving hard and soft infrastructure," he said, adding the foremost among the aspirations of Indians was that of being a homeowner.

In order to meet these aspirations, developers should focus on building more number of one and two bedroom apartments and strive to provide more affordable housing in the price range of Rs15-40 lakh, he said.

Priority sector housing loans should be increased to at least Rs40 lakh per unit, he added.