Keki Mistry, CEO of Housing Development Finance Corporation (HDFC), India’s largest mortgage lender, says growth will continue to be robust driven by demand from the young among the population. But HDFC, he told reporters on Thursday, would rather stay away from entering the reverse mortgage market. Excerpts from an interaction:
What is your outlook on growth, going forward?
Growth will continue to remain extremely robust in individual loans. We are a very under-penetrated market. Some 50% of the Indian population is below 25 years of age, while the average age of people availing HDFC loans is 37. So, many more Indians will buy a house in the next 5-10 years. The demand will remain strong in the individual segment. Not just for one or two years but for a very long time.
Will HDFC’s shift to individual loans affect margins?
Not really. If you look at our total loan book in first six months, 78% growth came in individual loans and 22% came in non-individual loans. Individual loans have a lower spread at 1.96% than non-individual loans, which has a spread of 2.72%. But there are other costs with respect to non-individual loans. For instance, there is standard asset provisioning requirement which is much higher for non-individual loans. There is also a tax benefit on individual loans and not on non-individual loans. The effective return on equity is the same.
Where do you see realty prices going from the current levels?
The inherent demand for real estate in Mumbai is always going to remain strong. And unless you get to a situation where the infrastructure in the city dramatically improves due to which supply, too, rises, I don’t see a big drop in prices.
Any plans to launch reverse mortgage products?
No. One of the issues on reverse mortgage is taxation. In reverse mortgage, you receive income only at the end of the term, but you are required to pay tax on the income you accrue every year. So, you are accruing income on a yearly basis, but collecting the income only in the end. You are effectively paying taxes out of your pocket.