India's Housing Finance Sector Set to More Than Double Over the Next Six Years: Report
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Synopsis
A recent report reveals that India's housing finance market is expected to grow significantly, doubling by FY30. The sector's growth is driven by government incentives and a strong residential property market, indicating a robust future for lenders.
Key Takeaways
- Current market value of housing finance is Rs 33 lakh crore.
- Projected growth rate of 15-16% from FY25-30.
- Residential market has seen a 74% increase since 2019.
- HFCs and banks both have space for growth.
- Improved asset quality with GNPA at 2.2%.
Mumbai, March 5 (NationPress) The individual housing finance sector in India, currently valued at Rs 33 lakh crore, is projected to expand at a Compound Annual Growth Rate (CAGR) of 15-16% from FY25-30, reaching Rs 77-81 lakh crore, according to a report by CareEdge Ratings released on Wednesday.
CareEdge Ratings suggests that this growth will be underpinned by strong structural factors and supportive government incentives, rendering housing finance an appealing asset class for lenders.
The residential property market remains vibrant, a crucial driver of the housing finance sector, experiencing total growth of 74% since 2019, reaching 4.6 lakh units in 2024. Although sales performance in 2024 normalized, it still demonstrated persistent buyer confidence.
From FY21-24, banks have achieved a CAGR of 17% in the housing loan arena, while Housing Finance Companies (HFCs) reported a growth rate of 12%.
Despite banks dominating the housing loan market with a market share of 74.5% as of March 31, 2024, aided by cost of funds advantage, market reach, portfolio buyouts, and co-lending agreements, CareEdge Ratings believes both banks and HFCs have significant growth opportunities, given the housing finance market's potential.
The market share of HFCs remained stable at around 19% as of March 31, 2024, and this trend is anticipated to persist.
In FY24, HFCs' loan portfolio grew by 13.2% to Rs.9.6 lakh crore, aligning with CareEdge Ratings' growth estimate of 12-14%.
For FY25 and FY26, CareEdge Ratings forecasts Year-on-Year (YoY) growth of 12.7% and 13.5%, respectively, driven by strong equity inflows and capital reserves.
The retail segment remains the primary growth catalyst for HFCs, with cautious growth noted in the wholesale segment.
Geeta Chainani, Associate Director at CareEdge Ratings, stated, “HFCs predominantly operate in ticket sizes below Rs.30 lakh, which constituted 53% of total AUM as of March 2024. However, there is a gradual increase from 23% to 27% in the proportion of AUM with ticket sizes between Rs.30-Rs.50 lakh and a decrease in the share of AUM below Rs.30 lakh from March 31 to September 30, 2024.”
In line with growth trends, the asset quality of HFCs has shown notable improvement, with Gross Non-Performing Assets (GNPA) at 2.2% as of March 31, 2024, down from a peak of 4.3% as of March 31, 2022. The improved asset quality trend is largely attributed to enhanced wholesale GNPA and stable retail GNPA.
Two-year lagged GNPA, along with stage 2 gross assets, are also not exhibiting significant stress, leading CareEdge Ratings to conclude that HFCs' asset quality remains stable.
Despite robust AUM growth for HFCs, the sector's gearing level remained largely stable at 6.0 times as of March 31, 2024, decreasing to 5.5 times by September 30, 2024.
Like Non-Banking Financial Companies (NBFCs), HFCs have also undergone deleveraging following the liquidity crisis and the impacts of the pandemic. Post-pandemic, the sector has attracted substantial equity inflows due to the secured nature of lending and low credit costs, the report indicated.
