Mr keki mistry 6.10.05


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Mr keki mistry 6.10.05

  1. 1. FINANCING REAL ESTATE AND HOUSING: THE INDIAN PERSPECTIVE Keki Mistry Managing Director, HDFC FICCI: “Global Banking: Paradigm Shift” October 6, 2005
  2. 2. Background on HDFC <ul><li>First specialised mortgage company in India established in 1977 </li></ul><ul><li>Loan Approvals Rs. 914 billion (upto Jun 2005) (US $ 21.02 bn) </li></ul><ul><li>Loan Disbursements Rs. 759 billion (upto Jun 2005) (US $ 17.44 bn) </li></ul><ul><li>Housing Units Financed 2.6 million </li></ul><ul><li>Distribution Outlets 300 </li></ul>
  3. 3. <ul><li>Growth in demand - driven by improved affordability </li></ul><ul><ul><li>Rising disposable income </li></ul></ul><ul><ul><li>Low interest rates </li></ul></ul><ul><ul><li>Generally stable property prices </li></ul></ul><ul><ul><li>Fiscal incentives on both interest and principal repayments </li></ul></ul><ul><li>Increasing urbanisation </li></ul><ul><li>Increased number of players </li></ul><ul><li>Housing shortage of 19.4 m units </li></ul><ul><ul><li>12.7 m units in rural areas </li></ul></ul><ul><ul><li>6.7 m units in urban areas </li></ul></ul>Housing Market Scenario
  4. 4. Improved Affordability Property price estimates in suburban Mumbai Affordability equals property prices by annual income 1 Lac = 1,00,000
  5. 5. Effective Rates On Home Loans
  6. 6. Mortgages as a % of GDP 3% 9% 13% 23% 36% 37% 49% 51% 0% 10% 20% 30% 40% 50% 60% India Thailand Korea Malaysia Singapore Taiwan Hong Kong USA 54% UK 48% Germany 70% 70% Denmark
  7. 7. Housing Shortage Source : NBO, Usable Housing Stock & No of Households (Million) Shortfall (Million)
  8. 8. Increasing Urbanisation Trends Population Projection: 2001-2025 28 72 29 71 30 70 32 68 34 66 36 64 Source: Census Population Figures
  9. 9. Typical Profile of a Customer <ul><li>Single largest investment in his/her life time </li></ul><ul><li>Typically first time borrowers </li></ul><ul><li>Besides finance, looks for advice on legal and technical issues </li></ul><ul><li>Debt adverse nature </li></ul><ul><li>Generally salaried class individuals </li></ul><ul><li>Preference for floating rate loans </li></ul><ul><li>Increased competition has meant more choices for the customer </li></ul>
  10. 10. The Indian Real Estate Market: Contribution to the Economy <ul><li>Second largest employment generator in the country </li></ul><ul><ul><li>Construction sector provides employment to 16% of the workforce – growing at the rate of 7% p.a. </li></ul></ul><ul><ul><li>Over 55% are in the unskilled category </li></ul></ul><ul><li>Estimated that for every rupee invested in construction, 78 paise is added to the GDP </li></ul><ul><li>Real estate is a growth engine for development of over 269 allied industries </li></ul><ul><li>Real estate growth gives boost to construction, steel and cement sectors </li></ul>
  11. 11. Real Estate Segmentation <ul><ul><li>Housing </li></ul></ul><ul><ul><ul><li>Housing for consumers </li></ul></ul></ul><ul><ul><ul><li>Employee/staff housing </li></ul></ul></ul><ul><ul><li>Non-housing </li></ul></ul><ul><ul><ul><li>Offices </li></ul></ul></ul><ul><ul><ul><li>Manufacturing plants </li></ul></ul></ul><ul><ul><ul><li>Malls, Retailing, Multiplexes </li></ul></ul></ul><ul><ul><ul><li>Hospitals/Educational institutes </li></ul></ul></ul><ul><ul><ul><li>Agricultural estates </li></ul></ul></ul><ul><ul><ul><li>Government owned real estate </li></ul></ul></ul>
  12. 12. Non-Housing Real Estate Market <ul><li>Greater thrust in recent years towards intellectual capital and services </li></ul><ul><li>Post 1998: IT & ITES changed the face of real estate development </li></ul><ul><li>There is a gravitation of corporates away from main cities towards the outskirts, secondary business districts </li></ul><ul><li>Public private partnerships </li></ul><ul><li>Development of other infrastructure facilities </li></ul>
  13. 13. Non-Housing Real Estate Market <ul><li>Developers are building properties and leasing out the same to consumers </li></ul><ul><li>Developers also borrow by discounting lease rental receivables </li></ul><ul><li>Several multinational companies prefer the leasing route </li></ul>
  14. 14. Opportunities <ul><li>Growth drivers </li></ul><ul><ul><li>Call centres and BPOs </li></ul></ul><ul><ul><li>Family entertainment centres </li></ul></ul><ul><ul><ul><li>Multiplexes </li></ul></ul></ul><ul><ul><ul><li>Retailing </li></ul></ul></ul><ul><ul><ul><li>Restaurants and beverage chains </li></ul></ul></ul><ul><ul><li>Biotech units </li></ul></ul><ul><ul><li>Pharmaceuticals (R&D centres) </li></ul></ul><ul><li>Venture capital funds permitted to invest in real estate </li></ul>
  15. 15. Policy Measures Needed for Real Estate <ul><li>Tax Reforms to be implemented </li></ul><ul><ul><li>Reduce stamp duty and registration charges </li></ul></ul><ul><ul><ul><li>Government will collect more revenues </li></ul></ul></ul><ul><ul><ul><li>Litigations would reduce as registrations increase </li></ul></ul></ul><ul><ul><ul><li>People will invest more into properties providing liquidity to the market </li></ul></ul></ul><ul><ul><li>Rationalise property taxes </li></ul></ul>
  16. 16. Policy Measures Needed for Real Estate <ul><li>Repeal ULCRA - many states yet to do so </li></ul><ul><li>Tedious building approval processes </li></ul><ul><li>Encourage single window clearance for land development permissions </li></ul><ul><li>Computerisation of land records and simplification of land transactions </li></ul><ul><li>Need to establish a management information system to monitor building activity </li></ul>
  17. 17. Securitisation <ul><li>Will be an important source of funding going forward </li></ul><ul><li>Benefits include diversity of funding sources, improving capital allocation efficiency, asset-liability management, moving assets off the balance sheet </li></ul><ul><li>Current Drawbacks: </li></ul><ul><ul><li>The Securities Contract Regulation Act does not recognise MBS and ABS as “securities”, hence not listed </li></ul></ul><ul><ul><li>Lack of secondary market trading </li></ul></ul><ul><ul><li>Need for market makers </li></ul></ul><ul><ul><li>Need to rationalise stamp duties </li></ul></ul><ul><li>Stronger foreclosure norms and introduction of mortgage insurance will help deepen the market </li></ul>
  18. 18. Role of Developers <ul><li>Developers need to corporatise themselves </li></ul><ul><li>Increase transparency in terms of financial disclosures </li></ul><ul><li>Need to adhere to a code of ethics </li></ul><ul><li>World over property developers are listed </li></ul><ul><ul><li>Increases credibility </li></ul></ul><ul><ul><li>Access to more funds </li></ul></ul>
  19. 19. The Future <ul><li>Private capital imperative to create permanent and supportive housing solutions </li></ul><ul><li>Smaller housing finance institutions may need to re-orient their role as originators </li></ul><ul><li>Further development of the secondary mortgage market </li></ul><ul><li>Effective foreclosure norms will help increase risk appetite </li></ul><ul><li>Access to long-term pension/provident funds </li></ul><ul><li>Real Estate Mutual Funds </li></ul><ul><li>Mortgage Insurance </li></ul>
  20. 20. Thank You