HDFC 's chairman sees 20% fall in realty prices

MUMBAI: Property prices are likely to fall by up to 20%, according to Deepak Parekh, chairman, HDFC. He said prices have gone up exceptionally and a correction was in the offing. Mr Parekh also attributed the fall in asset prices to the tightening of liquidity globally.

Speaking at the sidelines of a function to announce a bancassurance tie-up between HDFC Standard Life and Bank of Baroda (BoB), Mr Parekh said there was an upward pressure on interest rates because of an increase in the cost of funds. “We have no plan to increase home loan rates now. However, there is an upward pressure due to the escalating cost of funds,” said Mr Parekh.

However, an increase in interest rates would not affect HDFC’s growth targets. “Our home loan portfolio has been growing at 25-30% and we expect this pace to continue,” said Mr Parekh.

On the impact of a fall in property prices on lenders, Mr Parekh said that their asset quality was unlikely to be affected. “Our average loan-to-value ratio, which has gone up this year, is still only 66%,” said Mr Parekh. In the case of banks, he said their outstanding home loan portfolio was a small percentage of their total assets to make a difference in the overall asset quality.

BoB said that it was looking at selling insurance to get an experience of this new line of business before it decides to venture out on its own.

Besides, authorities have also been slow in clearing insurance plans of firms floated by banks. Except for SBI, none of the public sector insurance companies have seen their plans for setting up of a life insurance business take off.

AK Khandelwal, chairman, Bank of Baroda, said that signing of the joint venture with HDFC Standard Life would result in nullifying all other tie-ups the company had for life insurance. Earlier the bank had indicated that it would pursue a joint venture life insurance activity with Delhi-based Oriental Bank of Commerce.