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Deepak Parekh: Average home loan = 17 lakhs


An excellent interview with Deepak Parekh (DNA)

What is the trend in real estate development across cities?

It’s all going suburban in the bigger cities. I will give you the example of Mumbai. Guess where HDFC’s business is mainly from? It’s from the far-flung suburbs of Dombivili, Thane, Virar, Kalyan, areas that far from Mumbai. We have nothing this (indicating the city) side, nothing in Bandra, nothing in Khar. Even in New Delhi, if you see most of the business is coming from Greater Noida, Ghaziabad and Faridabad, which are on the outskirts. Noida has become expensive, Gurgaon is expensive so we get only a handful of applications these days from Gurgaon. Growth is all from the outskirts of big cities. But in the smaller cities we are very active and here prices haven’t gone up that much. For example, prices in Kolkata, Lucknow and Jalandhar have not gone up that much. Our average loan size all-India this year is Rs 17 lakhs, which includes Mumbai and Delhi. If you take them out, the average is down to Rs 12 lakhs. In Mumbai, the average loan would be around Rs 25-30 lakhs.

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Deepak Parekh is a very smart person and his views are quite interesting. Average non-Mumbai/Delhi exposure of 12 lakhs a loan is amazing. Shows me how overvalued these cities are.

HDFC he says has a loan to value of 65% – meaning they finance just 2/3rd of the property, and I imagine the borrowers has further “black” component as equity. That makes for an overall stable market, except for pockets of overvaluation like Gurgaon or Mumbai.

He makes the case for more cities and for spreading out. If you can get fully ready commercial places in Hyderabad near the airport, for rent at Rs. 15 per sq. ft. why stay in Mumbai and pay the Rs. 60 (min) to Rs. 400 on them?

HDFC’s model also looks very interesting – though I still think they are overvalued, with this kind of attitude and conservative mentality they won’t go insolvent. Overall they are still vulnerable to a real estate bust, but that should only help get valuation to a better point, rather than bring in concerns of survival.


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