Deepak Parekh, chairman of HDFC Ltd, which is awaiting regulatory approval for the reverse merger with its banking subsidiary, expects the home loan market to double to $600 billion over the next five years.
In the annual letter to shareholders, which will be his last if the merger (announced April 4, 2022) receives regulatory approvals, Parekh said the proposed merger date would be the third most important day in the life of the 46 year-long institution that has changed the national mortgage market since its inception on October 17, 1977 by his uncle Hasmukhbhai Parekh.
Parekh, who has been the company’s president since 1998, expressed his optimism about the home buying market saying that he “has never been so optimistic about the demand for home loans as I am. despite the recent headwinds in the global macro landscape, I continue to maintain this position.”
“We are on the cusp of an economic transformation and much of our growth will continue to be fueled by domestic consumption. The aspiration to own a home will only grow further.
“The national home loan market is just over $300 billion, representing a mortgage to GDP ratio of just 11% and that is expected to double to around $600 billion over the next five years as conditions Supportive developments such as increased income levels, improved affordability and tax support bode well for housing demand,” he said.
But he lamented that despite this, “our mortgage penetration rate will still be low, at around 13% of GDP, which should ideally be above 20%, whereas among comparable Asian peers the average mortgage ratio to GDP is between 20 and 30 percent.
This implies that the home loan market has an exponential growth trajectory for decades to come, he said.
Over the past 46 years, HDFC has financed a total of more than 9.3 million housing units, he said and asserted that the merger arose from the fact that the optimal path to increase housing finance must being housed in a banking structure given the large number of lending resources for a bank is significantly more important and at a lower cost.
From a regulatory perspective, it is prudent for all major housing finance providers to operate on a level playing field, with the same rules. Also globally, the scale of mortgage assets is exponentially greater in banks than in non-bank financial entities, he noted.
Stating that both organizations are awaiting regulatory guidance on the way forward, he said they were confident the outcome would be sound and systemically fair.