With a hefty $35.25 billion by way of loan assets as at December 2013, Housing Development Finance Corporation (HDFC) is the market leader in home loans in India. HDFC’s average loan size is Rs 21.9 lakh and the institution has cumulatively financed 4.6 million housing units, with mortgage loans clocking a five-year compounded annual growth rate (CAGR) of 21 percent.
In an exclusive interview with Forbes India, HDFC’s vice chairman and CEO Keki Mistry busts some popular myths about housing in India. Excerpts:
Q. What are the trends you’re witnessing in the residential market in India?
The residential market in India, in my view, can never really come down in a significant manner. There might be dips here and there, there might be dips in some quarters where prices can come down, but if you take a five-year view, over the next five years prices have to go up. And the reason for this is, it’s a simple question of demand and supply. The demand for housing in India is structurally going to remain strong for a number of years.
This will be so for a variety of reasons. One is penetration levels are very low in India. The second is urbanisation. More and more people will move to urban areas. Places that are today considered non-urban or rural will, over the next five, ten or fifteen years, get urbanised. That means more jobs will get created, more people will shift to these places and there will be demand for housing there. But my personal view why demand will remain strong will be the demographics in India. As we know, 60 percent of our population is below 30 years of age. And unlike the West, in India people do not go and buy a house in their 20s.
So the average age of a customer when he takes a loan from us or when he buys his first house would be 35 years plus. Somewhere in the 35-38 years band. And with 60 percent of our population below 30, there will come a stage in the next five, ten, fifteen years where all these people will get to a stage where they need housing. So the demand will be strong. Now, if demand is strong, then the only way prices can correct or come down is by increasing supply.
But supply has its own constraints. Infrastructure is the biggest one. In Mumbai, for instance, you could connect the northern part of the city with the southern part, and keep appropriate transport or pathways into various points of the city, and you could permit buildings to go higher. You create the schools, the colleges, the health centres, the hospitals, all the infrastructure a big city needs and you permit buildings to go higher, you’ll be increasing supply and prices will come down.
The other thing is, land is a major problem. In cities, getting land is a very challenging process. Purchase of land is a big challenge, the process of getting approvals for property is a nightmare from what I hear. It’s tedious and time-consuming.
Q. What kind of growth are you witnessing in the housing sector now?
See, I can’t get into quarterly numbers, but if you look at December 2013, where the numbers are public, our individual loan book increased by 27 percent, which is much higher than what our targets have been. When we talked to investors we’ve always talked of a growth of 18-20 percent. We never talked of one quarter or one year, we talked of a sustained period of time. And I continue to believe that over a sustained period of time, growth of that magnitude would happen. But the base is high. It’s not small.
Q. You mentioned that there could be slight corrections in some quarters. But what about a time correction? Prices may not rise for three years, for instance…
Practically, we’ve never really seen a time correction…In 1995-97 maybe there was a slight correction. There were some reasons for that, like the Urban Land Ceiling Act got repealed, a lot of property had been bought in 1992-95 by non-resident Indians largely living in Hong Kong which was moving to the Chinese. Then it picked up.
(This story appears in the 16 May, 2014 issue of Forbes India. To visit our Archives, click here.)