India’s real estate market has never been in a tighter spot. But Keki Mistry, the soft-spoken CEO of HDFC who has seen the industry through the best and worst of times, tells Piya Singh that the current high interest rate regime will have no material impact on a home buyer’s decision. Excerpts from the interview:
Where do you see interest rates heading? Will this deter potential home buyers?
I don’t think interest rates make much difference in a person’s decision to buy a house. We have been seeing periods of very high interest rates over the last couple of years. There has been no material impact. Demand for housing is more a function of a person’s confidence in holding a job, getting his salary on time, the family liking the house, and finding it affordable. We just saw the CPI at 10 per cent. Food inflation is the biggest worry. But a good harvest with a good monsoon can lower food prices. Considering the high weightage food has, especially on the consumer side, it should bring down inflation substantially. I personally don’t think we’ll see a rate cut in March because the inflation number will start trending lower in February, after the harvest reason. Post-April, there is a possibility that rate cuts will take place unless some catastrophe happens.
What is your assessment on the real estate market?
Commercial real estate market has been weak for a very long time. If you look at the residential segment, there is a bit of slowdown in big cities, particularly for high priced properties.
What is your view on rapidly-rising builder inventories and “graveyard malls”?
When you take stock of inventory, you don’t look at just numbers. So much construction has started in Bombay in the last 12 to 18 months. For a long time there were no approvals. Suddenly the approvals came a year and half ago. Inventory is not so much of complete construction but that which is under construction.
FIIs hold 73.77 per cent of HDFC. The FDI policy rehaul in 2009 said any company with more than 50 per cent overseas investment would be seen as foreign-owned. Has that tangle been resolved?
We have never sold shares to a foreigner. They have chosen to buy from the secondary market. We don’t have one foreign employee, or any director on the board who is from overseas. It doesn’t affect the way we do business, whether we are 100 per cent domestic or 74 per cent foreign owned. Please remember these are portfolio investors, not strategic investors.
The contribution of subsidiaries to your business has been improving. Comment.
The share of profits from subsidiaries, as a proportion of HDFC’s consolidated profit, will keep growing. Subsidiaries have a small base and therefore their percentage growth will be higher than HDFC.
So is growth still restricted to non-urban areas?
We just seem to see publicity for central or south Mumbai. But how many properties are there are like that? Very little construction takes place in the heart of cities. Our largest growth is from Delhi NCR, then Chennai, Mumbai, Bangalore and Pune, in that order.
What keeps you up at night?
Nothing. The only time we worry is when people in the 35-plus age bracket lose their jobs. Their confidence gets shattered and they don’t go out and buy houses.