Long-term growth outlook remains positive for affordable housing finance industry: ICRA

The total portfolio of new AHFCs in affordable housing space stood at Rs 55,061 crore as on September 30, 2020 and registered a moderate year-on-year growth of 9 per cent as compared to sector's overall negative growth.

Given the target borrower profile (largely self-employed and middle-to-low-income borrowers), the impact of Covid-19 pandemic on earnings and savings could be high, leading to the deferment of home purchases for some time by such borrowers.

Manushree Saggar, Vice President and Head of Financial Sector Ratings at ICRA, said the growth numbers for FY21 could thus be much lower at 8 to 10 per cent.

"However, the long-term growth outlook for sector remains positive, given the large underserved market, favourable demographic profile, housing shortage and government support in the form of tax sops and subsidies. We expect that the growth will pick up to 12 to 15 per cent in FY22," she said.

Over the last decade, several new players have emerged in the housing finance space, focusing primarily on the affordable housing segment. The property cost in this segment is usually below Rs 20 lakh and borrowers have relatively low income and usually do not have any formal income proof.

Earlier, most large players did not cater to this segment. However, over the last couple of years, even large HFCs have set up dedicated verticals focused on the affordable housing segment.

While banks are also present in the smaller-ticket home loan market, their lending to the economically weaker section and low-income group segments and borrowers without any formal income proof is limited.

"These specialised HFCs are trying to tap this underserved market segment," said Saggar.

"Over the long-term, ability of companies to improve operating efficiencies and control credit costs will be imperative to improve the return indicators," she added.