30/09/2024
The Indian housing finance industry has experienced substantial growth in recent years, driven by factors such as increasing urbanization, rising disposable incomes, and supportive government initiatives. It plays a pivotal role in providing affordable housing, contributing to economic development and addressing the nation’s housing shortage. From FY18 to FY23, the housing finance market grew at a healthy compound annual growth rate (CAGR) of approximately 14%, due to favorable interest rates, strong demand from smaller cities, and government emphasis on housing. Looking ahead, the market is projected to grow at a CAGR of 13-15% between FY24 and FY27, according to Crisil MI&A.
As of March 2023, housing finance made up nearly half of India’s overall retail loans, followed by auto loans and personal loans, each accounting for 17%, and gold loans at 12%. However, the housing shortage remains significant, with the RBI estimating that it could rise to 100 million units by 2022, particularly affecting the Low-Income Group (LIG) and Economically Weaker Sections (EWS). The unmet demand for housing loans to address this shortage is estimated to be between Rs.50 trillion and Rs.60 trillion, while the current outstanding housing loans (excluding Pradhan Mantri Awas Yojana loans) stood at Rs.31.1 trillion in March 2023, indicating vast potential for market expansion if the housing deficit is addressed effectively.
The mortgage-to-GDP ratio in India varies widely across regions. Chandigarh, with a 41% ratio, leads the country, followed by Maharashtra and Telangana. Meanwhile, urban nuclearization, a trend where large joint families break up into smaller single-family units, is gaining momentum, driven by lifestyle changes, individualism, and labor mobility for better employment opportunities. This trend is expected to persist, contributing to increased housing demand.
In the lower ticket loan segment, competition between Public Sector Banks (PSBs) and Housing Finance Companies (HFCs) has intensified. PSBs have lost market share in loan sizes of Rs.0.75-1.5 million, with HFCs gaining a 3% market share in both the up-to-Rs.0.75 million and Rs.0.75-1.5 million categories in the nine months leading to December 2023. PSBs, on the other hand, saw a 4% reduction in market share in the Rs.0.75-1.5 million category during the same period, reflecting the growing dominance of HFCs in the affordable housing segment.
Overall, India’s housing finance market holds tremendous potential, especially in addressing the affordable housing shortage, supported by favorable economic trends, government policies, and the shift toward nuclear families. However, realizing this potential requires targeted efforts to improve housing supply, particularly for lower-income groups.