The housing finance sector in India plays a crucial role in the loan market, comprising a substantial portion of secured loan portfolios held by banks and other lenders. The market for home loans is continuously growing, indicating sustained progress in the housing finance industry.

As per the findings by Mordor Intelligence, the Indian market for housing loans is significant, with an approximate value of ₹22.4 lakh crore (US$270 billion). The market is projected to reach ₹40 lakh crore (US$480 billion) by 2026, representing consistent annual growth.

The primary players in the Indian housing loan market are the following types of institutions:

Public and private sector banks: These banks provide home loans as part of their comprehensive banking services. They generally have a more extensive branch network and offer lower interest rates due to their large scale and government support, especially the public sector banks. Key players in the Indian housing loan market include the State Bank of India (SBI), HDFC Bank, ICICI Bank, and Axis Bank.
Housing finance companies: These firms focus on offering home loans and are frequently viewed as more competitive in terms of interest rates compared to banks. Key HFCs in the Indian housing loan market comprise HDFC Housing Finance, LIC Housing Finance, Indiabulls Housing Finance, and L&T Housing Finance.
Non-banking financial companies (NBFCs): An increasing number of NBFCs are providing home loans, offering a viable alternative for borrowers who may not meet the eligibility requirements of banks or HFCs. Accessibility for those with lower credit scores or untraditional income sources.
Small finance banks (SFBs): These banks are a newer category of banks dedicated to offering financial services to underserved and unbanked populations. Some SFBs also provide home loans. They fill a critical gap in the market by servicing low-income groups and small businesses that might not be catered to by larger banks.

Growth trends in the housing finance market

Affordable housing plays a crucial role as a driving force in housing finance. The sector has witnessed impressive growth, with a total portfolio value amounting to trillions of crores up until now. This upward trend is predicted to continue due to the large population in need of homes. Moreover, the increasing urbanisation is also a significant factor. With more people moving to cities, there will be a higher demand for housing and the loans associated with it.

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Also, when Real Estate Regulation and Development Act (RERA) came into existence, it transformed the Indian real estate sector. The Act has brought significant transparency to the housing market by requiring developers to publish all project details online, such as carpet area, amenities, approvals, and project timelines. This enables buyers to make informed decisions based on factual information, rather than just marketing claims.

As such, RERA encourages a standardised sales agreement format, removing hidden clauses and unjust terms that typically favour developers. Buyers now have a quicker and more streamlined process to lodge complaints against developers for delays, defaults, or quality concerns.

The government introduced numerous initiatives to narrow the gap between supply and demand in India’s housing sector. For instance, the Pradhan Mantri Awas Yojana – Urban (PMAY-U) scheme offers financial aid to underprivileged urban families who are constructing or purchasing a home. It provides interest rate subsidies on home loans and serves the economically weaker sections (EWS) and low-income groups (LIG).

The Pradhan Mantri Awas Yojana-Gramin (PMAY-G) scheme concentrates on rural housing, offering subsidies for the construction of new homes or the renovation of existing ones. It aims at rural households in the EWS and LIG categories.

The special financing window enables banks and HFCs to introduce special home loan products with simplified eligibility requirements and reduced interest rates, making homeownership more achievable. The relaxation of the External Commercial Borrowings (ECBs) guidelines has also simplified the process for developers to secure funds from overseas through ECBs.

This influx of capital into the real estate sector could potentially boost the housing supply. The government also provides several tax incentives for homebuyers, including deductions on home loan interest payments and principal repayment. This can substantially decrease the overall cost of purchasing a home.

Collaboration between banks and fintech boosting housing segment

Partnerships between banks and fintechs have significant potential to enhance inclusivity in the housing finance segment for consumers in India. Fintechs are proficient in leveraging alternative data sources such as rental payments, utility bills, and digital transactions to evaluate creditworthiness. This can be advantageous for individuals with limited credit history or those from the informal sector, who might be underserved by conventional banks that depend solely on credit scores.

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These organisations can also provide intuitive online platforms for loan applications, document uploads, and tracking application status, making the process easier, particularly for those new to traditional banking methods. They are also flexible and can design innovative loan products to meet specific requirements. This may involve flexible repayment plans, loan amounts tailored for smaller properties, or financing options for co-living arrangements.

How technology expands housing market potential

Technology can serve as a potent tool to unleash the full potential of India’s housing market. Property technology platforms can enhance processes for developers and builders. This encompasses online permitting systems, design and construction software utilising Building Information Modelling, and AI-driven project management tools. Such advancements can boost efficiency, lower costs, and potentially expedite project completion, resulting in a quicker growth in housing supply.

Emerging technologies such as 3D printing for housing and prefabricated modular construction can provide quicker and potentially more cost-effective methods for home construction. This could be especially advantageous for creating affordable housing units in remote areas.

Big data analytics can assist developers in pinpointing suitable locations for new housing projects by considering factors such as demographics, infrastructure availability, and market trends. This data-driven approach can result in projects that are more closely aligned with real demand.

The potential of the Indian housing loan market is unmistakable. With a burgeoning economy, increasing urbanisation, and government efforts to encourage homeownership, this market is set for substantial growth in the upcoming years.

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