Rising interest rates won’t impact housing demand, says HDFC chairman Parekh

Demand for housing and home loans in India should not be affected by macroeconomic changes and a rise in interest rates, said HDFC Chairman Deepak Parekh.

The financial sector veteran said that despite rate hikes by the Reserve Bank of India (RBI), current interest rates on home loans were below pre-pandemic levels. A home loan is long-term and during that time there are bound to be cycles of up and down interest rates, he told the Housing Development Finance Corporation’s annual general meeting. (HDFC) Thursday.

At the height of the pandemic, the RBI cut the repo rate by 115 basis points (bps) in quick succession, in addition to other liquidity measures to support the economy. This position is being unwound as the central bank raised rates by 90 basis points and further hikes are likely to follow. It was unrealistic to believe that such low interest rates and high levels of excess liquidity would continue, he said.

The reality is that markets started to price in policy rate hikes from October 2021 itself, when the variable repo rate started to match the repo rate.

During the quarter ended June 30, 2022, HDFC’s retail business continued to perform well, but the way interest rates moved caused some transmission lag. This may have a short-term impact on margins, largely compared to the corresponding quarter of the previous year. The impact on the net interest margin, which was 3.5% for the March quarter and 3.7% for the June quarter of 2021, will be approximately one “quarter”. “We expect stable spreads and margins going forward,” Parekh said.

Despite the changes in the macroeconomic environment, the potential for housing growth in India remains immense. Property prices are seeing measured increases in line with rising input costs and developers are unlikely to opt for large increases. They recognize that overvaluing homebuyers’ prices and having large inventories of unsold inventory is counterproductive for them, he said.

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