October 8, 2007
The Economic Times

HDFC chairman Deepak Parekh has had one of the biggest influences on policy-making in the financial sector for over a decade. The head of the country’s largest housing finance institution has advised the government and regulators on issues such as funding infrastructure, fixing the Unit Trust of India, securities market regulation and many other issues. HDFC, which he headed for over 14 years, has funded over three million homes and provided among the best returns to shareholders.

There is a perception that a surge in stock market indices is followed by a rise in property prices. Do you see such a connection?

Today, markets are going up with the Sensex rising significantly in the last three months. But the last few months have not seen any increase in real estate prices. Real estate stocks may have gone up but real estate prices have not. We are also underestimating the investment by domestic investors in the stock markets. Domestic investors are buying equities through unit-linked insurance plans, which invest largely in equities. Besides, asset management companies have also a much larger proportion of equity investments. Many domestic high net worth individuals have appointed fund managers to manage their personal investments. Indian public savings are going into the markets through institutional channels such as insurance and asset management, which is a very good thing. Now less money is going into property markets. One reason why there has been a slowdown is because investors are convinced that prices have peaked.

Where do you see real estate prices?

There has been a slowdown across the country and there has also been softening in a few cities. The speculators — those who buy when the building is coming up and leave when the building is ready — run out of the market. I feel that in the commercial side, and even shopping side, India is building excessively and this supply will hit the market next year. This is happening in cities like Hyderabad, Pune and Chennai. As a result of the investors getting out, sales have slowed down but developers have not reduced prices in any region except a few areas such as Pune, Gurgaon and in Whitefield in Bangalore. In most places, builders are holding on, they are sacrificing sales rather than reducing prices. This is the first phase of reduction in prices. If sales do not happen, builders are not going to stick with completed stock and they will have to sell it.

It was widely expected that HDFC would reduce its prime lending rate, given the cut in borrowing costs?

We are waiting for a signal from RBI before revising PLR. If it raises CRR to remove liquidity from the system, the interest rate cannot came down. So we have to see what RBI does in its monetary policy before we take a decision. In fact, all banks are waiting for a signal before revising rates. On one hand, inflation is within control, but the rupee is appreciating rapidly because of dollar inflows. These inflows are pushing up money supply as RBI is buying dollars and releasing rupees. Now whether they will take away liquidity by raising CRR we do not know.


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