Affordable Housing Lenders Set for Major AUM Growth as Resilience in Tier 2 Markets Secures Sector Future

Affordable Housing Lenders Set for Major AUM Growth as Resilience in Tier 2 Markets Secures Sector Future​

Affordable housing finance companies (A-HFCs) are forecast a strong growth trajectory over the next two years, with assets under management (AUM) expected to expand by 19-20% during FY27 and FY28. This sustained growth mirrors the nearly 19% increase recorded in the previous fiscal year, according to a detailed report by Crisil Ratings.

Growth Forecast for Affordable Housing Finance Companies​

The foundation of this healthy growth trajectory remains solid fundamentals across the sector. Home loans currently account for approximately 68% of A-HFCs' portfolio and are projected to expand by 17-18% over the next two fiscal years.

Loans Against Property (LAP), the second major segment for these lenders, are set to grow at a faster clip of around 23%. This growth is underpinned by robust demand from MSMEs and improved borrower data availability across markets.

Resilience Driven by Tier 2 Market Focus​

Despite reports indicating moderation in project launches and sales within metropolitan areas, Crisil Ratings notes that this trend should not materially affect the A-HFCs' growth path.

Director Subha Sri Narayanan of Crisil Ratings stated that the industry portfolios are structurally focused on Tier 2 and smaller markets. These secondary cities account for over 75% of industry-wide loans below ₹35 lakh, providing a stable base for lenders.

A significant counterpoint is the resilience found in self-construction and resale segments. Approximately 45% of lending conducted by A-HFCs is directed towards these areas, which are not dependent on new project launches.

LAP Segment Outlook Amid Prudent Lending Standards​

The Loans Against Property (LAP) segment has previously demonstrated impressive performance, recording a compound annual growth rate of around 37% between FY23 and FY25. This momentum is expected to continue at a moderate pace moving forward.

However, lenders are increasingly cautious in their underwriting standards for certain lower-ticket borrower segments. Aesha Maru, Associate Director at Crisil Ratings, noted that this caution reflects prudent risk management by the lending institutions.

Macro Drivers Fueling Affordable Housing Finance​

The demand for affordable housing remains strongly supported by macroeconomic trends across India. Key drivers include rising urbanization rates and favorable demographic patterns within the country's population.

Improved affordability is also a critical factor, as income growth has managed to outpace property price appreciation in recent years. This dynamic, coupled with low mortgage penetration, gives these lenders a long-term runway for growth.

Risk Mitigation and Credit Filters​

While the outlook remains positive, heightened global uncertainties introduce near-term risks to the sector. The conflict in West Asia and subsequent inflationary upticks could temper risk appetite among lenders.

This potential headwind is expected to lead to tighter credit filters and more selective disbursements from A-HFCs. However, Crisil believes that prudent underwriting and stronger risk controls will support stable asset quality moving forward.