Deepak Parekh calls for easing of norms to fund land purchases

The letter sent by HDFC Chairman Deepak Parekh to shareholders every year is read keenly for the insights and comments he makes on the current issues of topical interest in the real estate and housing finance market.

In his latest letter, attached along with the 41st annual report, Parekh argues that housing finance companies (HFC) and banks must be allowed to fund land transactions – especially for affordable housing – so that land can be made available at reasonable prices.

He points out that NBFCs and private equity players are allowed to do this, and there is a regulatory arbitrage which allows them to levy prohibitively high interest rates on developers borrowing to acquire land.

While acknowledging the regulator/central bank’s reluctance to let banks fund land purchases, Parekh points out that housing finance companies have a core mandate to support housing. He said: “If HFCs of a certain threshold size are permitted to fund developers to acquire land for affordable housing, then the current high interest rates are likely to get rationalised. And this, in turn, will reduce the ultimate cost for a home buyer.”

Parekh also came down heavily on the practice of poaching each other’s home loan borrowers. He said: “The growing practice of housing finance players picking loans off each other’s balance sheet needs to be carefully monitored. With the regulators prohibiting prepayment charges on most home loans, no one gains in this game, except the agent who keeps collecting commissions. Lenders do incur costs while originating loans. It is thus logical that there be some compensation to a lender, especially when a customer is poached within, say, less than two years. To my mind, regulators should not encourage ‘lazy housing finance’.”

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