Terming the home prices as highly inflated in the country, including in smaller cities, industry leader Deepak Parekh on Friday asked builders to focus on affordable housing, rather than luxury homes, and said it is a dangerous thing to lend aggressively to developers.
Parekh, chairman of the country's largest housing finance company HDFC, also asked the home buyers to be cautious of 'too-good-to-be-true' offers from the property developers and warned them against schemes where builders claim of paying interest on the borrowers' loans.
He also asked the financing firms to stay away from innovative and aggressive loans, including teaser rates where the interest rates rise gradually and lending money to developers at the same rate as being offered on individual home loans.
While lauding the growth in the home finance market, Parekh in his annual letter to shareholders said: "As a basic tenet, construction finance entails higher risks and, therefore, such risks have to be built into the pricing.
Construction finance should not, through any innovative structuring be available to developers at the rate of interest being offered on individual home loans. Further, complete up-fronting of construction finance to developers, even before the ground is broken is dangerous."