One of the industry’s leading voices, Deepak Parekh, the chairman of Housing Development Finance Corp (HDFC), believes interest rates may crawl up somewhat, but are unlikely to hit the 13-14 per cent highs it saw in 2008.
Parekh told Hindustan times in an interview that the current round of inflation is not serious enough to cause an interest rate crunch.
“The inflation is food driven and even though commodity prices are hardening, the global demand is not there. I think the inflation is temporary till the new crop comes in,” he said.
“While there has been a rise in the short-term interest rates, I do not think they are going to go up to 13-14 per cent as the last time. The interest rates will inch up but not shoot up.”
Banks are already talking of raising the interest rates for home loans after March, though marginally. Banks have always been quick to revise the rates on their way up but usually do it with a lag and only partially on their way down.
Parekh said this resulted from the way bank finances function.
“We have to borrow to lend and the borrowing is either on fixed rate or varies as per annual rest and if the rates increase we have to pay a higher rate. In case we prepay we have to pay a penalty. We have paid huge amounts in prepayment penalties. World Bank, IFC, ADB, SBI, LIC—they all charge it,” he said.
The real estate sector has been among the first to react to the revival in the economy as home prices surged. While there has been no big land deal (involving a developer buying land from a state authority or market) to suggest that there has been a rise in land prices, built-up homes are costing more.
“Residential prices have been rising in urban areas and there is a little cause of concern there because it is just the developers who want something extra while there has been no rise in land prices and no significant rise in the labour and steel prices,” Parekh said.
He advocated the need for a real estate regulator (a draft bill for which is already prepared) that can look at protecting the consumer with a clause to blacklist developers who cheat consumers.