Affordable housing finance firms to see 19-20% AUM growth: Crisil

According to Crisil Ratings, affordable housing finance companies' AUM growth is set to remain steady at 19-20% this fiscal and next. Home loans will grow 17-18%, while loans against property are expected to grow faster at around 23%.

Home loans, which account for ~68% of assets under management (AUM) are expected to grow at 17-18 per cent in fiscals 2027 and 2028. According to Crisil Ratings, the overall AUM growth of affordable housing finance companies (A-HFCs) is projected to remain steady at 19-20 per cent this fiscal and the next, aligning with the ~19 per cent growth observed last fiscal. Loans against property (LAP), the other major business segment, are expected to grow faster at around 23 per cent over the same period, even as lenders strengthen underwriting in some borrower cohorts.

The steady expansion of A-HFCs remains underpinned by macro fundamentals such as rising urbanisation, favourable demographics, and low mortgage penetration. Furthermore, housing affordability has improved in recent years as income growth outpaced property prices.

Affordable Housing Segment Growth Drivers

Subha Sri Narayanan, Director, Crisil Ratings, stated that changes in major urban centers will not disrupt this momentum. "While headline data points to a moderation in launches and sales of affordable housing projects, this largely pertains to metros and is unlikely to materially affect the growth trajectory of A-HFCs for two reasons," Narayanan said.

"One, their portfolios are structurally skewed towards the Tier 2 and smaller markets, which account for over 75% of industry-wide loans below Rs 35 lakh. Two, ~45% of the lending by A-HFCs is directed towards self-construction and resale of houses, segments that are not dependent on new project launches," Narayanan added.

Demand in Tier-II and smaller markets is also getting a leg-up from India's economic growth, ongoing infrastructure buildout, and sustained government support.

Loans Against Property (LAP) Segment Outlook

As per Crisil, in the LAP segment, which experienced a compound annual growth rate of about 37 per cent between fiscals 2023 and 2025, strong demand from micro, small, and medium enterprises (MSMEs) continues to drive activity. While higher yields attract lenders looking to protect margins amidst intensifying competition, disbursements to the sub-Rs 10 lakh segments were curtailed last fiscal due to elevated borrower leverage and stress spillovers from microfinance cohorts.

Strategic Caution and Risk Management

Aesha Maru, Associate Director, Crisil Ratings, highlighted the strategic caution being exercised by lenders in response to these risks. "Over this and next fiscals, LAP is expected to grow at ~23%, nearly in line with the ~24-25% last fiscal. This reflects the cautious stance adopted by lenders in certain lower-ticket borrower segments to manage the potential stress there," Maru said.

"In addition, heightened global uncertainties and uptick in inflation stemming from the conflict in West Asia, and their potential impact on borrower cash flows, could further temper risk appetite in the near term, leading to tighter credit filters and selective disbursements," Maru added.

Sustained Demand and Key Watch Factors

Nevertheless, sustained demand for both affordable housing and MSME financing, coupled with prudent underwriting and stronger risk controls, is expected to help affordable housing finance companies maintain healthy portfolio growth and controlled asset quality metrics.

Crisil warned that moving forward, any sustained uptick in interest rates and other macroeconomic headwinds will remain key factors to watch. (ANI)

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