1. Shun ‘speed money’, focus on speed: Deepak Parekh to housing sector

Shun ‘speed money’, focus on speed: Deepak Parekh to housing sector

Raising concern over high housing costs in the country, eminent banker Deepak Parekh today said developers need to shun 'speed money' and focus only on speed in delivering projects...

By: | New Delhi | Updated: June 25, 2015 7:01 PM
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Deepak Parekh, the HDFC Ltd Chairman, also asked regulators to allow banks and housing finance companies to fund land transactions meant for residential purposes. (PTI)

Raising concern over high housing costs in the country, eminent banker Deepak Parekh today said developers need to shun ‘speed money’ and focus only on speed in delivering projects to the customers.

Parekh, the Chairman of the country’s largest mortgage lender HDFC Ltd, also asked regulators to allow banks and housing finance companies to fund land transactions meant for residential purposes, while he sought immediate steps to fast-track numerous approvals required for such projects.

Praising the ‘Housing for All’ scheme, launched today by Prime Minister Narendra Modi, Parekh said that the housing sector needs to get its pricing points right and the focus of developers needs to shift from luxury to affordable housing.

“The path to any grand vision is rarely smooth, but some roadblocks can be overcome. One of my greatest concerns today is who will physically build in India on the scale required,” Parekh said in his annual letter to shareholders.

Stating that 600 million Indians will be living in urban India by 2030, Parekh said the country will need to rejuvenate its existing urban areas and create new cities.

“It is the construction sector that has to deliver most of this,” he said, while adding that the sector contributes 8 per cent to India’s GDP and constitutes 10 per cent of the country’s workforce, translating into 45 million jobs, created directly or indirectly by it.

“By 2022, the largest incremental growth in jobs is expected to come from this sector at an estimated 77 million new jobs. India needs growth, physical infrastructure and jobs — all of which can be delivered by the construction sector, provided a conducing policy framework supports the sector.

“Many construction companies are hamstrung with over balance sheets, though this is only one aspect of the problem. For the construction sector to revive, there is an urgent need to reduce delays in claims settlement. Ironically, a majority of these claims are with government bodies,” Parekh said.

He stressed on an urgent need for a “credible and efficient arbitration and dispute resolution mechanism to safeguard against lengthy litigation processes.

“Further, standardisation of contracts (which would also facilitate standardisation of taxation) and ensuring strictu00a0 adherence to contractual terms will go a long way in boosting the sector.

“Where there is a will, there is affordable housing. The perennial question is how can housing be made more affordable,” Parekh said, while adding that there was a disconnect in the housing market.

“On one hand there is an acute shortage of housing, but on the other, in some of the large cities, there is a growing stock of unsold inventory. The answer lies in the pricing points not being right. The real demand is in the affordable housing segment, not of high-end luxury housing.

“Developers are not relenting on the pricing of existing stock, while the cost of launching new projects is only rising,” he said.

Suggesting solutions for the housing sector, Parekh said faster approval processes will reduce overall costs and online approvals can bring in the much needed transparency.

“Approvals take between 18-24 months. Needless to add, there are at least 50 approvals required across different authorities. If there is consensus that fewer approvals and interventions reduce overall costs, compresses timelines and ultimately benefit the home buyer, then fast-tracking of approvals is imperative,” he said.

“Equal onus must lie with the developers as well to ensure strict adherence to ethical building codes and standards. Projects often get delayed as certain developers try to deviate from standard building norms by paying to flout rules. Such malpractices are hazardous for all. A regime that shuns ‘speed money’ and focuses only on ‘speed’ would go a long way in improving affordability in the housing sector.

“The other critical issue pertains to the high cost that developers incur while borrowing to fund the purchase of land. This initial high cost keeps getting multiplied and is the key reason why housing becomes more unaffordable for many.

“The root of the problem is that banks and housing finance companies have been prohibited from funding land transactions by the regulators.

“So at the initial stage, it is the private equity players, the NBFCs and informal private lenders that fund developers to acquire land. These are at prohibitive costs, ranging between 18-24 per cent per annum.

“It is only at the construction stage and after requisite approvals are obtained that banks and HFCs are allowed to fund the projects,” Parekh said, while adding that the time has come to relax these “near decade long restrictions” on banks and HFCs.

“The regulators should, within limits, permit banks and HFCs to fund land transactions, or at least land transactions that are acquired specifically for residential purposes,” Parekh said.

“This is a simple, doable solution. It will bring residential prices down, increase the stock of affordable housing and fulfil the aspirations of more Indians becoming homeowners,” he added.

Parekh said HDFC, which has so far cumulatively financed 5 million housing units, has finished another year of steady growth and it remains committed in helping build a “property owning democracy for it guarantees a peaceful and prosperous society”.

“We are excitedu00a0about the prospects of India’s future and hope the vision of 100 smart cities and a rejuvenated urban India turn into reality. The challenges are immense, yet I remain optimistic to reiterate that India has never had a better chance than today to make the ‘big change’ for generations to come,” Parekh said.

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