Deepak Parekh, CEO of HDFC, on the builder lobby, the imperfections in the property market, teaser home loans and more...

In the past 10 years, builders have emerged as a formidable lobby with proximity to the powers that be...They go about changing rules, so much so that a police station in Maharashtra had to be relocated to house a project. Does it worry you?

Deepak Parekh:

That is why I have been a proponent of a real estate regulator for the past three years. The builders do not want it because they see it as one more hurdle, one more layer of bureaucracy. The point is, we need to ensure that there is some distinction. Today, anything goes — you don’t need to be a civil engineer to be a builder. I can become a builder tomorrow. If I have access to land, not even ownership, I can put up a board and people will come and start booking.

I don’t need to know anything about construction, but because of the shortage, people will just come and book a flat. Basically, the entry-level in construction is zero. Anyone and everyone can become a builder. And then they do all this...breaking the FSI rules....But, believe me builders around the world have a reputation of being close to the powers that be. They need to be, because they are dealing in land in urban areas which are expensive and politicians have vested interest.

Property prices are once again high. We hear that developers have more staying power and are controlling supply...

Deepak Parekh:

This is happening only in a few cities like Mumbai and Central Delhi. First of all, non-housing prices have not gone up, they have only come down. IT, commercial, SEZ, industrial park, retail malls... all these prices have come down. In Pune, prices have not gone up. In Hyderabad prices have come down even in residential segment. If the residential sector experiences what happend in the non-residential sector, price will come down in residential properties. What happened in non-residential sector is oversupply, overbuilt offices, built offices with no takers. How long will the builders keep them to themselves?

RBI as well as the government want lenders to waive loan prepayment charges..

Deepak Parekh:

On every loan that HDFC has prepaid we have paid massive prepayment charges — to World Bank, to ADB, to LIC to State Bank. So if a borrowing institution has pre-payment penalties we have to pass it to our constituents. You can’t give a 15-year loan to someone only to have the borrower turn around in 15 months and say that he wants to prepay because the neighbouring bank is giving quarter per cent lower. It’s not incremental housing, it is only adding to paperwork.

It is not increasing the GDP.... And then he does not want to make pre-payment charges. You have done documentation, you have examined legal documents, you have put it in a storage place that is far away and safe. The closing charges for a real estate abroad are 25 times higher than that in India. You go and try and close a loan and see what happens in Europe or the US or even in Singapore.

You called teaser rates on home loans a gimmick, and then HDFC started offering teaser rates...

Deepak Parekh:

We were losing business. I still feel that teaser rates are a gimmick; it is a marketing tool. But my marketing people said that if we do not have attractive rates in the first two years no one would come to us. So we had to fall in line immediately. So everyone is doing it now and financial innovation takes 24 hours. ....There are two things in this.

If the teaser rates are much lower than the normal rates, borrowers may not have the cash to pay when the normal rates kick in. Secondly, even when we give these rates the quantum of loan is calculated as if the rates are higher ...we don’t want the family to be short of money two years from now. So our eligibility is much lower because we take into account the higher rates. But if suppose in two years time rates become 12-13%, how are they going to pay? Then 8.5% will become 13%

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