Amritha Pillay (ML): Where do you see property prices over the next six months?
RR NAIR (RRN): At present property prices are very high. I think if they continue to go up exorbitantly then surely this will affect the demand. If the prices do not rise too high, then the current demand should remain as it is. If the prices of property continue to move upwards then it can create problems like lower demand. In some pockets especially like Delhi and Mumbai, the property prices have already started moving up.
ML: Do you think the present hike in property prices is a well-planned strategy by some developers so that they (the developers) can attract higher valuation for their proposed IPOs?
RRN: I don’t think it is possible for the developers to manage and control such a massive pricing (move). The increase in prices is a phenomenon all over the country and I don’t think it is possible for a handful of developers to manage this kind of price hike on their own.
ML: Given the fluctuation in property prices, do you expect any changes in home loan interest rates over next six to twelve months?
RRN: There is less possibility of the interest rates falling further. The likelihood is of the rates to go up and harden in the fourth quarter. In the next six months the lending rates should remain stable. If the RBI increases cash reserve ratio (CRR), then there will be an upward movement. For the next three months definitely the interest rates would continue to remain stable. It also depends on the government’s decision whether to continue or stop the incentives given to this sector. If the government stops the incentives then interest rates might go up.
ML: Do you perceive the concept of affordability to be realistic as promoted by the developers? Is there still a gap between affordability and availability in real terms?
RRN: There needs to be a precise definition of affordability. There should be set parameters so as to call it an affordable home, which at present are not existent. So everyone uses the term ‘affordable homes’ as per their convenience. If homes are made available at lower prices, then there is a chance that affluent people would hoard these cheap homes in better areas or localities. Such loopholes need to be plugged to make good use of the ‘affordability’ concept. I think there is a need to establish the parameters of affordability and definition of the exact target segment.
ML: According to you, what are the concrete steps that can be taken to plug these loopholes in the concept of affordability?
RRN: The solution has to come in the form of a package, affordable homes should be offered at actual affordable rates, and then loan opportunities need to be made available with guarantees offered by the government and other nodal agencies, coupled with revenue generation programmes so that the loan can be serviced.
Affordable homes can be worked through a private-public partnership model. In any construction, land cost comprises 30% to 35% of the project. Suppose, if the government can provide land at a subsidised cost or even free of cost then such things (like affordable homes) can materialise. In turn, the government should provide clear guidelines to builders, developers on the property rates and the segment to whom it can be sold. To make such projects viable, financial institutions also should be in a position to lend to this particular segment. Otherwise the repayments could turn problematic.
ML: What is the quantum of loan that LIC HF has disbursed towards the low cost housing schemes offered by various developers?
RRN: There has not been any significant contribution. This is because we have been working more on the middle class segment, than the lower class segment. Previously, we had to face a lot of defaults in the lower class segments. Unless we have assured guarantees, we will not enter the segment at this point of time. However, suppose in the future, there is an arrangement of guarantee in the market, we may start lending more vigorously. Right now we are lending, but not to the extent of availability of demand in the market. Speaking otherwise too, low cost housing will not have a huge impact because the numbers may add up, but the amount will be significantly low.