Introduction
CareEdge Ratings: Affordable housing finance companies (AHFCs) are poised to witness 30 percent growth in FY25, building on growth in the last two years, CareEdge Ratings said in a report on the sector.
Table of Contents
Housing finance companies that lend to the affordable sector saw subdued growth over FY20 to FY22, then there was a resurgence in FY23 when they expanded 27 per cent and are set to end FY24 with a 29 per cent growth, the report said.
Growing Section
AHFCs represent a niche yet rapidly expanding segment of the broader housing finance market. They account for approximately 6 percent of the total market share. Housing finance is the fastest-growing domain.
They have steadily emerged as a growing segment. The government in particular has considerable pressure on this sector. The government is close to meeting the target of providing 3 crore houses under the Pradhan Mantri Awas Yojana.
Funding constraints and a cautious approach by these companies resulted in a slowdown in activity during the COVID-19 years. But the growth in the Indian economy has seen a rebound in growth in FY23 with an expansion in their portfolios, CareEdge said.
Conventional Banking Institutions
“Their small base, compared to conventional banking institutions and prime housing finance entities, can penetrate unorganized market segments. AHFCs’ optimistic outlook is supported by several factors, such as their adept valuation skills,” the CareEdge report said.
“These capabilities enable AHFCs to effectively serve customers who may not meet prime credit standards,” he said. He says good customers are there.
Loan Limits Are Lower
A factor in favor of AHFCs is the decline in priority sector lending by banks that typically cater to low-income groups. This is because loan limits are lower when house prices rise. “This, in turn, serves as an opportunity for AHFCs to further build their portfolio through co-lending or direct assignment transactions with banks,” the report said.
AHFCs are diversifying their loan book into non-housing segments, and property loans, especially for small and medium enterprises. The share of housing loans in their portfolio fell from 79 per cent in FY19 to 74 per cent in FY23.
Debts Can Be Further Curbed
Sales of affordable homes have slowed over the past year or so as high mortgage rates and rising home prices in low-income segments hurt affordability.
Sales of premium and luxury residences increased. It will also prompt AHFCs to increase their non-housing portfolio. AHFCs’ borrowing rates are relatively high. This may further curb lending in this segment.
Conclusion
According to CareEdge Ratings, these are expected to grow by 30 per cent in FY25 based on growth in the last two years. Several factors, like their valuation skills, a decline in priority sector lending by banks, and diversification into non-housing segments, support their outlook. They are also aligned with the government’s objective of providing affordable housing under the Pradhan Mantri Awas Yojana. For more information, visit our Openplot.
Also read: Infragate Palace: Low-Priced Housing Project in Pushpak Nagar, Mumbai