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Housing Development Finance Corporation Ltd.

BSE: 500010 | NSE: HDFC | Series: NA | ISIN: INE001A01036 | SECTOR: Finance - Housing

BSE Live

Jul 09, 16:00
1942.00 57.40 (3.05%)
Volume
AVERAGE VOLUME
5-Day
157,108
10-Day
304,267
30-Day
290,465
161,665
  • Prev. Close

    1884.60

  • Open Price

    1870.20

  • Bid Price (Qty.)

    1942.00 (71)

  • Offer Price (Qty.)

    1946.00 (8)

NSE Live

Jul 09, 15:59
1941.85 55.80 (2.96%)
Volume
AVERAGE VOLUME
5-Day
4,650,082
10-Day
5,272,832
30-Day
6,587,399
6,703,324
  • Prev. Close

    1886.05

  • Open Price

    1871.30

  • Bid Price (Qty.)

    1941.85 (1130)

  • Offer Price (Qty.)

    0.00 (0)

Annual Report

For Year :
2019 2018 2017 2016 2015 2014 2013 2012 2011

Chairman's Speech

Dear Shareholders, For an investor, times have been difficult. The uncertainty and edginess in the markets have left many investors weary. It has been over nine months since the markets have agonisingly laboured over the subprime crisis. The origin of the subprime crisis stems from the US housing market. In the aftermath of the dotcom bubble, home prices in the US increased exponentially between 2000 and 2005. Rising house prices and easy credit gave way to a growing subprime market for borrowers with patchy credit histories. By 2006 when the interest rate cycle turned upwards, the boom in the housing market turned to bust. Several subprime borrowers who were overstretched on their loans found themselves unable to refinance anymore and defaults began to rise. Home loan defaults had an immediate impact on the broader global credit markets as these mortgages were tranched and pooled into securitised and other exotic structured products. Global investors, including hedge funds, in search of higher yields had actively pursued these structured products without entirely gauging the risks attached. Needless to say, the crisis reached ungainly proportions as confidence eroded across global financial markets. Large and reputed institutions in the western financial markets have reported approximately US$ 300 billion in write-downs and credit losses as a result of the subprime meltdown. As the knots of the subprime crisis are slowly being untied, there are questions that still remain unanswered. Will there be more pain before a recovery. Was the subprime crisis a fall-out of a combination of greed, regulatory oversight and gullible borrowers? While global markets grapple with the enormity of the crisis, a lesson that imminently stands out is the need for greater transparency. Evidence has now shown that what works best for home loan borrowers are plain, vanilla amortising loan products and not complex interest only loans or exotic structures where interest rates are kept artificially low for the initial period and then it suddenly escalates to high floating rates. In most cases, borrowers rarely understand the risks involved in these complex products and invariably end up being stretched beyond their means. The subprime crisis has also brought to light the fact that there is no substitute for cautious and prudent lending. Further, merely chasing market share often results in reckless lending. The basic tenets of home financing are simple - lending must be done according to earning capacity, which is on a cash flow basis and not on asset values. These may be conservative and cautious practices, but pay in the long run. This is also the lending philosophy that HDFC has imbibed since its inception. The Indian housing market may have saved itself from the contagion effect, but this should not relegate the need to advocate transparency in the Indian real estate market. After over three decades of being associated with the real estate market, I find myself still discomforted by the fact that little has been done by way of simplifying the process of land acquisition; au contraire, land assembly or acquisition has become more controversial and approval processes have grown in complexity rather than being streamlined. Admittedly, these are not new issues that I am raising, but what is baffling is the inability to effect beneficial change even on simple procedural issues. A case in point is the requirement of environmental clearance for all construction projects from the state or central government, depending upon the size of the project. Why should a residential project, school or hospital be subject to similar environmental rigours as a toxic emitting factory? Environmental concerns are extremely valid, but the present procedures involving multi tiered approvals from various bodies and the mandatory no objection public hearings calls for an urgent reassessment. I fail to understand why the government is propagating red tape under the guise of being green. I have been witness to projects that have been unable to take off owing to bureaucratic processes and inordinate delays involved in seeking environmental clearances. As new jobs are being created, demand for housing increases. If this demand is not met, home prices spiral upwards, excluding more people from the housing market. It is estimated that even for a residential project, a developer requires over 57 approvals from various entities. This multiplicity of approvals often takes 12 to 15 months, resulting in significant cost and time overruns, which needless to say is passed on to the hapless purchaser. It is not unusual for developers to have to resort to beg, borrow and pay to obtain approvals. A single window, time- bound approval mechanism can go a long way in resolving housing issues in India. If housing for all has been accorded national priority, then is it not in the governments interest to expedite rather than delay housing projects? Another issue that I have been vociferously raising for a while now is the need for developers to mandatorily sell flats based on carpet area, which is the internal wall-to- wall area, representing the actual liveable space. Many developers continue to misguide buyers by selling on the basis of super- built up area, without differentiating the actual liveable area from the common facilities.There are instances where the difference between the carpet and super built up area is as high as 50 per cent. Bifurcating the carpet area and common amenities increases transparency in the transaction. Ironically, though some states have legislation for flats to be sold on the basis of carpet area, what is lacking is enforcement. Key sectors in India today have independent regulators - most of whom have been effective with good track records. The real estate sector has been growing rapidly and is a sensitive sector given its strong inter-linkages to other industries in the economy. I have advocated the need for a real estate regulator, though I understand this proposal has been met with stiff resistance from certain members of the developer fraternity. Though land is a state subject and would therefore require regulators at each state level, there can be a mechanism whereby there is an apex national body, which can oversee the functioning of the state level real estate regulators. My strongest contention for a real estate regulator is to protect buyers. Just about anyone today can become a developer or broker, irrespective of whether they have any civil engineering background or knowledge of land laws. Developers rarely offer any warranty for the flats and in case of disputes, consumers have only the consumer or civil courts as recourse - both of which may take ages before a case can even come up for hearing. Delays in handing possession of the property to a purchaser has become the order of the day. Needless to say, the developer community is free from any liability in case of delays. From the consumers perspective, a house is the single largest investment a person makes in his or her lifetime. It is only fair that there is some effective mechanism that can take care of grievances and ensure basic consumer protection. I believe a real estate regulator can effectively take on the role of an ombudsman, ensuring best practices and enforcing transparency within the sector. My objective is not to be unduly critical but my viewpoint stems more from concern that sufficient measures are not being put in place to avoid an impending urban crisis. According to a recent United Nations Report, over 900 million people in India will be living in urban cities in another four decades - a threefold increase from the present 300 million urban dwellers today. How will these cities house this influx of people? The cities have created job opportunities, but are unable to match up by providing sufficient affordable housing. This is why policy intervention is urgently required. Stimulating a rental market will go a long way in providing affordable housing. Developers need to be incentivised to build rental accommodation. Last year, the Urban Land (Ceiling and Regulation) Act, 1976 was finally repealed in the state of Maharashtra. But contrary to what was anticipated, no fresh supply of land has come into the market. This is because there are several cases registered under the act that are still locked up in litigation and pending in court. These cases need to be withdrawn or dismissed immediately. Again, many housing boards are flush with funds, auctioning land to the highest bidder, but one does not see this money being ploughed back into housing and related infrastructure facilities. If all land transactions are increasingly being driven by maximising profits, then socially relevant institutions like schools, vocational training centres or primary health care centres will constantly be muscled out by vested commercial interests. I have come to believe that if we have to change the face of our cities for a better tomorrow, we need to find solutions, perhaps not from our head but from our heart. Increasing home ownership in India has been HDFCs raison detre. For over three decades, HDFC has pursued this mission relentlessly and successfully. HDFC, however, realises that its efforts are miniscule compared to the scale of housing shortage in the country. Mortgage penetration is barely 6% of GDP - abysmally low compared to its Asian peers. Nevertheless, HDFC remains unwavering in its commitment to increase home ownership, which in turn provides families with a safe haven and a sense of security - all for the betterment of civil society. Looking ahead, HDFC has sufficient reason to be optimistic: the middle-class segment is estimated to swell to over 580 million people over the next 15 years. This segment mainly comprises young, vibrant individuals, armed with growing disposable incomes and waiting to unleash their aspirations - key among them being a homeowner. The potential of this market is exciting, though challenging and HDFC looks forward to the opportunity of housing all these aspirants. Thank you for your continued support. Yours sincerely, Deepak S. Parekh