MUMBAI: Deepak Parekh, chairman of HDFC Ltd which is awaiting regulatory nod for the reverse merger with its banking subsidiary, expects the home mortgage market to double to USD 600 billion over the next five years.
In the annual letter to the shareholders, which will be the last from him if the merger (announced on April 4, 2022) gets the regulatory nods, Parekh said the proposed merger date will be the third most important day in the life of the 46-year-old institution that has changed the domestic home mortgage market since it was instituted on October 17, 1977 by his uncle Hasmukhbhai Parekh.
Parekh who has been the chairman of the company since 1998, expressed his optimism about the home buying market stating that he has "never been as optimistic about the demand for home loans as I am currently. Despite the recent headwinds in the global macro landscape, I continue to maintain this stance".
"We are on the cusp of an economic transformation and much of our growth will continue to be powered from domestic consumption. The aspiration to own a home will only grow further. The domestic home loan market is a little over USD 300 billion, which represents a mortgage to GDP ratio of just 11 per cent and this should double to around USD 600 billion within the next five years, as favourable conditions like rising income levels, improved affordability and fiscal support augur well for the demand for homes," he said.
But he rued that despite this, "our mortgage penetration will still be low at an estimated 13 per cent of GDP, which ideally should be above 20 per cent, while in comparable Asian peers the average mortgage to GDP ratios range between 20 and 30 per cent.
This implies that housing loans market has an exponential growth trajectory for decades to come, he said.
In the past 46 years, HDFC has cumulatively financed over 9.3 million housing units, he said and asserted that the merger is spawned from the truth that the optimum path to scale up housing finance is to be housed within a banking structure given the large pool of resources lending for a bank is significantly larger and at lower costs.
From a regulatory perspective, it is prudent for all large providers of housing finance to operate on a level-playing field, with the same rules. "Globally too, the scale of mortgage assets is exponentially larger in banks compared to non-banking financial entities," he noted.
Stating that both the organisations are awaiting regulatory guidance on the path forward, he said they are confident that the outcome will be judicious and fair at a systemic level.