NEW DELHI: India's middle-income housing segment accounts for much of the growth in the slowing real estate sector, a top executive of the country's biggest mortgage lender said.
"Consumer sentiment is still robust. For us, there has been good growth from the mid-income housing segment," said Keki M Mistry, vice-chairman and chief executive officer of HDFC. The lender recorded a 23% year-on-year growth in its loan book in the first quarter of 2012. According to the Confederation of Real Estate Developers' Associations of India, sales in the mid-income and affordable housing category have dropped only 5-15% over the last one year, as compared with over 60% for luxury apartments.
"For end-users, high interest rates are not too much of a worry. They need to buy a house and they know that over 15-20 years interest rates will average out," Mistry said.
The overall drop in home sales, Mistry said, is primarily because investors, who make up a big chunk of buyers, have gone out of the market and high-priced apartments are not selling as much as those in the mid-income category.
According to Mistry, developers have become cautious since 2008-09, launching an affordable housing project for every luxury project they undertake. "Developers who are making mid-income housing are doing good," he said.
The slowdown in 2008-09 was preceded by a period of boom when several developers bought land at high valuations, launched luxury housing projects and opted for public offerings. When the slump came and markets tanked, they found it difficult to handle their debt.
Mistry said that a change in buyers' thinking had stemmed the flow of money that builders were earlier receiving as customer advances. "There is a shift. Few people now want to buy when a developer launches a project. Now they want to ensure that approvals are in place and construction has not stalled."
This has resulted in developers being forced to borrow more for their working capital requirements. "So, we see more debt on the balance sheets of developers," he said.
Over the last few years, property prices have risen across the country, with the increase unusually high in some pockets. According to property research firm Liases Foras, there is an unsold inventory of 40 months in the Mumbai Metropolitan Region and 23 months in the National Capital Region.
Mistry said there could be some pockets in the country where there might be a build up of unsold inventory, but home sales have been healthy in areas where developers have launched mid-income affordable homes.
The average loan size for HDFC is 19.5 lakh and its loan to value ratio is about 65%, so the average property value works out to about 30 lakh, which falls in the mid-income category.
"Growth for us is now coming from the outskirts of cities," said Mistry. Delhi-NCR is still the top city for HDFC, followed by Chennai, Mumbai, Pune, Bangalore and Hyderabad. There is also good growth in Tier-II and -III towns because property prices are still low.