Keki Mistry, vice chairman and chief executive officer of Housing Development Finance Corporation Ltd., expects the Narendra Modi government’s focus on the housing sector to create more jobs in the economy. “In this Budget, we have to get the thrust back on economic growth,” says the head of India’s biggest mortgage lender, adding that sops to the sector will kick-start growth.
“Housing sector creates jobs. If you look at anywhere in the world, housing is a barometer to get economic growth,” Mistry says. While India does not have official data such as housing starts in developed countries, Mistry believes the housing sector to be the second highest employer in India when you combine construction, cement and its allied services.
On the New Year’s Eve, the Prime Minister, in a televised address to the nation, announced interest rate concessions for home loans up to Rs 12 lakh. “This is a boost to the construction sector but details such as property value, size, income of the borrower are still awaited,” he says, even as the industry expects more incentives in the Budget.
In the past two budgets, Finance Minister Arun Jaitley increased tax benefits on housing loans and announced sops with conditions in the government’s ‘Housing for All’ scheme. Mistry believes any such support to the construction sector would create more jobs.
If the Government provides further fiscal benefits, whether it is for home loans or for the construction sector, anything to encourage more construction will create more jobs.Keki Mistry, Vice Chairman and CEO, HDFC
Mistry also expects tax rates -- both for individuals and corporates -- to be lowered in the Budget. “One reason why black money got generated over the years is because we have a high tax rate. If you lower the tax rate, my sense is, compliance will become significantly better.”
Demonetisation Worth The Pain
The HDFC CEO sees only short-term pain from demonetisation, but says benefits in the medium term “will be huge”. “I support it even with some degree of inconvenience.”
Some amount of cash will not come back into the system, which will be a gain for the government, he says, adding that the Centre can “use it for developmental purposes”, which will boost growth.
Moreover, if media reports about people converting black money into white are true, some amount of that cash may have gone into the hands of those who will spend that money, he says.
My sense is the consumption will pick up once the currency notes situation in the economy improves.Keki Mistry, Vice Chairman and CEO, HDFC
The critical thing to watch, according to him, is how long will it take for the Reserve Bank of India to put back enough notes into the system to get businesses to conduct their day-to-day operations.
Mistry also does not see a “significant impact” of demonetisation on the realty or housing finance sectors. “I have not heard of any significant change in the job situation,” he says.
“Average age of a home buyer is 37-38 years. As long as these people have a job… and they identify a property, (they) will go and buy it,” he says, adding that the only impact could be that they may postpone the decision by a month or two.
(A home) is not an investment or a speculative activity. It’s an actual need, so people will buy a houseKeki Mistry, Vice Chairman and CEO, HDFC
Nearly 80 percent of the people buy homes directly from builders and most of them pay by cheque, Mistry says. The remaining 20 percent is the secondary market where “we have heard of cash being more prominent”, he says, adding that it discouraged people from buying a home.
“So if the cash is going out of the system, it will bring more people into the market.” And the average loan size will go up if the entire value of the property is paid in cheque, Mistry says.
Mistry says looking at the U.S. Federal Reserve commentary, there is room to cut rates by about 50 basis points, even though the Reserve Bank did not oblige in the last policy review. One basis point is one hundredth of a percentage point.
RBI cutting rates is a matter of discussion, and it could happen one, two or three months later, Mistry says. Besides the Fed commentary, the RBI will want to see how OPEC production cuts impact oil prices, and where the monsoon is headed, he says.
The Fed has hinted at three rate hikes in 2017, instead of the earlier expected two, which could impact the rupee.
The central bank will look to time the reduction to whenever it will provide the maximum boost to investments and growth, adds Mistry.