India slow to reform, but consumer confidence robust: Parekh

Despite a series of recent set-backs in the Indian economy, consumer confidence has remained steady, says HDFC Chairman Deepak Parekh

Optimistic about the India story getting better going forward, industry leader Deepak Parekh today said the consumer confidence remains robust in the country despite its 'unpredictable and slow to reform' nature.

"No doubt, India is a complex and challenging market. It is dynamic and exciting, yet often unpredictable and slow to reform. Despite a series of recent set-backs in the Indian economy, consumer confidence has remained steady," he said.

"The middle-class segment is growing, there has not been widespread loss of jobs and incomes of our target customers (home loan borrowers) have been rising," he said.

Parekh, the Chairman of the country's biggest housing finance provider HDFC, in his annual letter to the company's shareholders, also said it was his "strong belief that the India story will get better".

However, he expressed concern on the persisting delay in implementing reforms in the real estate sector and accused the developers of lobbying against measures aimed at making the sector more transparent and bringing in better regulation.

"As far as legislation to improve transparency in real estate sector is concerned, it once again is the unfortunate case of the proverbial one step forward, two steps back.

"Various attempts have been made to revive the Real Estate (Regulation and Development) Bill. The case for a real estate regulator remains compelling to protect home buyers and ensure transparency on the part of developers.

"Developers continue to lobby against the bill as they consider it far too draconian and claim this would be one more deterrent in long-drawn out process of obtaining approvals.

"However, 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 part of the authorities in granting approvals," he said.

Parekh, who has been a member of various government advisory bodies, also stressed on the need to speed up the grant of approvals and setting up of a single-window mechanism in the sector.

"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.

"Ironically, the country is still left with a Land Acquisition Act that is over a century old while the new Land Acquisition Bill is being debated for over a decade, having been tossed over three different governments.

"The fate of the bill is now uncertain and this is extremely regrettable since recently, consensus was achieved with the Opposition. However, a disruptive Parliament once again rendered this effort fruitless," he said.

Parekh, at the same time, lauded the steps taken by many states to move ahead with computerisation of land titles.

Talking about the interest rates where banks offer a low rate at the beginning and later increase them for the home loan borrowers, Parekh said such products were risky and should be avoided.

"To my mind, teaser products, of any nature entail risks. Customers need to be cautious of 'too-good-to-be-true' type of products. 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, thereby impacting his or her creditworthiness.

"Ultimately, developers need to recognise that in the long-run, it is to their advantage to allow a correction in prices which will help their cash flows," he said.

On positive side, Parekh said the housing finance sector in India has never been more stable and this puts the future of the business on a surer footing.

During the last fiscal, the growth in individual home loans was strong and the demand for home loans is immense given the acute shortage of housing, he said.

"Being increasingly convinced that the worst is probably behind us, the future outlook for the housing finance sector is extremely promising. Nonetheless, it is important to safeguard the housing finance market and ensure that it continues to grow in a prudent manner.

"Regulators need to be vigilant and have their ear to the ground. Customers must understand the risks entailed in the products they opt for and lenders should fulfil their obligations of responsible lending.

"Red flags must be raised if schemes or products are detrimental to the system as a whole. Unhealthy business practices can infiltrate into the system due to the herd mentality instinct and business compulsions.

"However, such breeding grounds must be nipped in the bud," said Parekh, who has been on numerous advisory panels of the government and regulatory authorities.

Parekh said the government has been supportive of the housing finance sector through continued fiscal incentives on both, the principal and interest component of a home loan.

In the Union Budget 2013-14, the first time homebuyers were allowed an additional one-time benefit of interest deduction up to Rs 100,000 on a home loan.

"The avenues for raising long-term funds for housing finance companies have improved significantly. Earlier, long tenor funding was hard to come by. However, with the opening up and growth of the insurance sector in India, the investor appetite for long-term bonds has increased," Parekh said.

"The investor base in the bond markets too has widened to include banks, insurance companies, pensions and provident funds, mutual funds and foreign institutional investors. Bonds now constitute an important source of funding for housing finance," he added.