Housing Finance Market in India 2022

In India, housing finance is offered by banks and housing finance companies (HFCs). Following the introduction of several economic reforms and a rise in demand for housing infrastructure across cities, globally renowned industrial houses are venturing into the housing market. At present, public and private sector banks, as well as foreign banks, are extending loans to prospective buyers. However, the market is dominated by HFCs. The key players in the home loan market are Indiabulls Housing Finance Limited, LIC Housing Finance Limited, Housing Development Finance Corporation Limited, PNB Housing Finance Limited, and IIFL Finance Limited.

Market insights:

The housing finance market is expected to expand at a compound annual growth rate (CAGR) of 20.58% during the FY 2022 - FY 2027 period. Increasing urbanization and affordable mortgage rates are the two key factors propelling the growth of the market. In 2021, the affordable housing segment made up 90% of the market in terms of volume and about 60% based on value. Millennials and young borrowers (below 36 years), with high disposable incomes and an increased need for urban accommodation, are potential consumers for home loans. They account for 27% of borrowers.

Market Influencers:

Demand for housing is directly proportional to people’s income and the affordability of homes. Government initiatives for affordable housing and interest subsidies under PMAY leads to higher demand for housing finance. Also, lifestyle changes, and increased labor mobility have resulted in higher demand for separate nuclear homes, especially from young people. Young borrowers who want housing loans usually need separate homes in metro cities, which is propelling the growth of the housing finance market. However, housing finance is a long-term investment that necessitates plenty of funds. One of the major issues affecting the housing finance sector is the unavailability of long-term capital for investments.

COVID-19 Impact Analysis:

Limited job prospects and a drop in income during the pandemic resulted in a fall in housing, market as well as housing loan demand. In Q1 FY 2022, housing finance companies did not register any sequential growth in the on-book portfolio because the second wave of COVID-19 impacted their disbursements and collection efficiency (CE). The quality of assets also deteriorated across all segments during the pandemic. The segment for construction finance was affected the most, followed by loans against property and home loans, respectively. However, the demand improved slightly in FY 2022 in comparison to FY 2021. After the first wave of COVID-19, the residential housing market recovered significantly. This was primarily because of factors such as concessions on stamp duty in some states, discounts on premiums and developers’ schemes, and low interest rates. At present, the prevalent inventory suggests that the market will continue to prosper and sales will continue to grow.