Affordable HFCs to grow 30% in FY25, says CareEdge Ratings

February 16, 2024

Affordable housing finance companies (AHFCs) are set to see a growth of 30 per cent in FY25 building on the growth in the last two years, CareEdge Ratings said in a report on the sector.

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 segment

AHFCs represent a niche yet swiftly expanding sector within the broader housing finance market, accounting for approximately 6 per cent of the total market share. They have consistently emerged as the most rapidly growing segment in the housing finance domain, especially as the government has been laying considerable stress on this segment. The government is closing to achieving the target of providing 3 crore homes under the PM Awas Yojana.

Funding constraints and a cautious approach by these companies resulted in a slowdown in activity during the Covid years. But the growth in the Indian economy has seen a rebound in growth in FY23 with an expansion in their portfolios, CareEdge said.

“The optimistic outlook for AHFCs is supported by several factors, including their relatively smaller base compared to traditional banking institutions and prime housing finance entities, their capacity to penetrate unorganised market segments, and their adept appraisal skills,” said the report. “These competencies enable AHFCs to effectively serve customers who may not meet the prime credit criteria,” it added.

A factor that is favouring AHFCs is that priority sector lending by banks, which usually catered to the lower income segments, have been declining. Part of the reason is that loan thresholds have remained at low levels while house prices have risen. “This, in turn, acts as an opportunity for AHFCs who can further build their portfolio through co-lending or direct assignment transactions with banks,” the report said.

AHFCs are also diversifying their loan book in the non-housing segment such as loan against property especially for small and medium enterprises. The share of housing loans in their portfolio has slid to 74 per cent in FY23 from 79 per cent in FY19.

Higher lending rates

Affordable housing sales have taken a dip in the last year or so and those of premium and luxury residences have picked up, as higher mortgage rates and rising house prices have hit affordability in the lower income segments. This may also be prompting AHFCs to grow their non-housing portfolio. Lending rates of AHFCs are relatively high and this could further deter borrowings in this segment.

CareEdge Ratings said it expected the non-housing share to further increase to 27 per cent in FY24 and FY25, as AHFCs pursue margins.

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