Parekh slams builders for rigid pricing, ignoring affordable housing

Eminent banker and chairman of HDFC, Deepak Parekh has slammed developers for their inflexible stand on pricing issues despite a rising pile of unsold inventory and a growing debt burden in his annual letter to shareholders.

Known for his outspoken views, Parekh has further advised the developer community not to focus so much on building luxury homes stating that the real demand for housing existed in the growing affordable homes category.
 
He further added that delays in project completion were now a common practice since developers were not keen on following standard building norms and were ready to pay to circumvent established rules.

Parekh stressed that such unethical practices were hazardous to all and developers needed to ensure a strict adherence to ethical building codes and standards. Flaying the practice of speed money, he opined that a single-minded focus on speed would instead go a long way in making the housing sector more affordable to all.

Lending his support on key issues like easier access to funding and a simplification of the complicated approvals process, Parekh agreed that there was a strong case for banks and housing finance companies to be allowed to fund land transactions meant for residential purposes and also sought immediate steps to fast-track numerous approvals required for such projects.

The Reserve Bank of India (RBI) had issued an order directing banks and housing finance companies in 2006 to refrain from funding land transactions to prevent asset price bubble. Stating that the fears of any such speculative pricing bubble had now abated Parekh felt that it was time regulators lifted the restriction and allowed banks and HFCs to finance such transactions.

The high costs incurred by developers while borrowing funds for land purchase keep getting multiplied which is what is making housing so unaffordable for a majority, he opined. Adding that this was a simple solution which could help reduce prices, increase stock of affordable homes and help fulfill the housing needs of many.

Sharing his views on the steps needed to help revive the construction and realty sector in the country, Parekh stressed on two important factors. An urgent need for a credible and efficient arbitration and dispute resolution mechanism to safeguard against lengthy litigation processes and finding a efficient way to reduce delays in the settlement of property claims lying with various government agencies.

With regard to a viable strategy to make housing more affordable, he noted that there was disconnect in the housing market presently. While there was an acute shortage of housing in the country, some urban pockets were staring in the face of a growing pile of unsold inventory.

The answer according to him lay in correcting the price points. Developers are not relenting on the pricing of existing stock, while the cost of launching new projects is only rising, he said.

Voicing his suggestions on possible solutions to the woes of the housing industry, Parekh stressed that faster approvals would ensure a reduction in overall costs while online approvals would bring in the much-needed transparency.
 
He felt that with approx 50 different approvals needed from various agencies, approvals consumed anywhere from 18-24 months. The fast tracking of approvals was essential if the costs and timelines were to be contained for the benefit of home buyers.

Parekh views have since drawn a strong rebuttal from the developer community. In his counter to the HDFC chairman's opinion that the current property pricing was unrealistic and developers were concentrating only on luxury projects, CREDAI's National President Getamber Anand clarified that the high-end housing segment formed only a small percentage of the overall development activities in the country and was mostly limited to some metros like Mumbai.

He further opined that the realty market's average price points in the rest of the country was in the range of INR 3,500 - 5,500 psf and hence was quite realistic. Ruling out the possibility of lowering prices further, Anand reiterated that input costs had increased considerably and developers were also saddled with the additional burden of bearing interest costs in a slowing economy.