HDFC's Parekh warns home buyers of teaser products

Says the real estate sector is characterised by opaqueness, speed money, vested interests and complete lethargy

Home buyers should not fall for teaser products offered by real estate developers, said Deepak Parekh, chairman of Housing Development Finance Corporation (HDFC).

"To my mind, teaser products of any nature entail risks. Customers need to be cautious of 'too-good-to-be-true' type of products," Parekh said in a statement to shareholders of India's largest housing finance company.

The slump in housing demand has prompted many developers to entice customers with attractive offers ranging from freebies to part- payment of interest on behalf of the borrower.

"Borrowers must not be blinkered into believing that there are no risks when developers offer to pay interest on a borrower's loan for a specified period. Borrowers have to be cautious because in the event of a developer delaying payment, the credit bureau reports will reflect this in the borrower’s records, and impact his or her creditworthiness," said Parekh.

He added there was a need to cleanse the country's real sector and said he supported the move to have a regulator to protect the interest of home buyers.

Real estate developers have so far opposed the Real Estate (Regulation and Development) Bill, as they considered it far too draconian. Developers claim the Bill will become one more deterrent in the long-drawn out process of obtaining approvals.

“There is no denying how imperative it is to cleanse the real estate sector, which has been characterised by opaqueness, speed money, vested interests and complete lethargy on the part of the authorities in granting approvals. Why should construction permits take two years to obtain for a residential housing project and why can there not be a single-window clearance mechanism? These have been constant questions raised with no answers," said Parekh.

He felt that a real estate regulator will also help to improve transparency on the part of developers.

"As far as legislation to improve transparency in the real estate sector is concerned, it once again is the unfortunate case of the proverbial one step forward, two steps back... While getting a real estate regulator in place requires parliamentary approval, which may be difficult in the current milieu, implementing a single-window clearance is an administrative job and is clearly doable," Parekh added.

On construction finance, he said the pricing needs to be done in a way that will cover the lender’s risks. Parekh also reiterated the need to increase the supply of housing projects to reduce home prices.

“Having spent so many years in this business, one recognises that one's voice can never be loud enough when so many vested interests exist as far as land markets are concerned. Nonetheless, I am of the firm belief that one must not give up or be beaten down to silence,” Parekh said.

Pointing to the unrealistic levels that property prices have shot up, he said: “At the cost of perhaps now sounding like a broken record, I continue to hold the stance that increasing supply is the only way home prices can come down in India. Even in tier-II and tier-III cities, home prices are inflated.”