Builders should sell properties at current prices to avert loan defaults: HDFC's Deepak Parekh

MUMBAI: Housing Development Finance Corp, the country’s largest mortgage lender, is nudging builders to sell properties at current prices to avert loan defaults. Expecting property rates, particularly in markets such as Mumbai to rise, most developers are refusing to cut prices, despite a dip in demand.

While HDFC cannot force builders to liquidate rising inventories, officials at the financial institution are trying to drive home the point at every meeting that it makes sense to sell at current prices.

“Don’t sit on stocks; sell it fast now while you can. This is what my colleagues and I are telling developers,” Deepak Parekh, chairman, HDFC told ET. “We don’t see prices going up; selling at current prices is the best way to generate cash to repay loans than borrowing at higher rates to replace them.”

While there has been no ‘default’, builders have been delaying interest payment to banks by a month or two. Some have raised funds by selling non-convertible debentures to finance firms and local funds, and borrowing from private financiers to pay interest to institutional lenders. “Borrowing from informal market at fancy rates may not be a good idea. Instead of doing that, they (developers) can look at offloading inventory even with 5-10% discount,” said Parekh, who had repeatedly talked about a correction in prices.

It’s unclear whether builders will act on Parekh’s advice. “It’s a great advice, but may not be applicable to everyone. Someone with a lot of debt on books may want to consider this and get better cash flow,” said Niranjan Hiranandani, MD of Hiranandani Constructions.