‘There’s too much noise... Never look at interest rates while buying a house’

KEKIMISTRY, vicechairman, HDFC

Keki Mistry, vicechairman, HDFC, which accounts for almost a fourth of the mortgage market, told HT that there is a direct linkage between the bull run in the stock market and people buying houses. Excerpts from an interview.

We have seen a correction in real estate prices.

In Mumbai, market prices can range from ₹3,000 to ₹2 lakh per sq ft, depending on the kind of property and the location. But what is selling in Mumbai is on the outskirts. Significant contribution comes from outskirts, be it Mumbai, Bangalore or Delhi, and the smaller cities.

Are metros getting saturated?

We cannot generalise. Cities have their own dynamics. Property prices in Mumbai, at least in central and south Mumbai, haven’t moved. There has been a time correction of prices due to over-supply. In 2010-11, very few projects were approved…all approvals came after. So suddenly there is a spate of construction activity.

Do you think prices will fall?

We saw prices decline in 2008-09 after the global crisis. Currently, the global economy is not in a great shape. But India stands out. Our fundamentals are very strong. Historically, we have seen linkages between property prices and stock market. When stocks rally, people feel confident to buy a house.

Your advice for home buyers?

Never watch interest rates. People make too much noise around interest rates. There are tax benefits on the interest. If a person is a first-time home buyer and meets certain conditions with regard to the size of the home and income, the tax benefit could be ₹2.50 lakh a year. The principal is also tax deductible. So the effective cost of taking a loan is just 4%. Reduction of interest rates will not bring down the cost of a property. If you believe the property is good, the family likes the house, then you should buy the house. Our average loan this year is ₹25 lakh, rising at 5% to 7%. In Mumbai, our average loan is ₹40 lakh.

Interest rates have not moved much in line with policy rates. What should be done for more transmission into lending and deposit rates?

When you say transmission, you have to look at it differently. Repo rate does not mean cost of funds. It is just while borrowing under the repo window that costs are low. Cost of funds has to come down for rates to reduce. It can come down in two ways — reduce deposit rates and second, improve CASA share (current and savings account). If you look at both, fixed deposits have reduced, but small savings rates are high. If the CASA component increases, it can come down.

CASA ratios are not going up much because people are more savvy about how their money can be utilised. So if you have money lying in a bank account, if you are a company and you have 20 different bank accounts, there is a sweep account facility available. At the end of every day, the money swept out of your bank account is brought into a central pool from where it gets invested. So there is no surplus money in the accounts. That technology may not have been as strong 10 years ago. As technology improves, there will be more efficient utilisation of surplus funds.

How much more reduction could we see?

It’s all a function of inflation. Everyone is expecting a good monsoon, and it will depend on food prices as it constitutes half of the inflation index. Commodity prices may have bottomed out. We got the advantage last year, which we may not get this year. Partly, the reduction in food prices may have compensated it. There is hope for some cut…it could be 25 bps.