Affordable housing finance companies (A-HFCs) are expected to maintain robust loan growth over the next two financial years, with their assets under management (AUM) projected to expand by 19-20 per cent in both FY27 and FY28, according to Crisil Ratings.The ratings agency said the growth outlook remains broadly in line with the nearly 19 per cent expansion recorded in the previous fiscal, supported by strong demand from Tier-II and smaller cities, improving housing affordability and continued financing needs of small businesses.Home loans, which account for around 68 per cent of A-HFCs’ assets under management, are expected to grow at 17-18 per cent during FY27 and FY28.Loans against property (LAP), the second-largest business segment, are projected to expand at a faster pace of around 23 per cent over the same period.
Tier-II cities to drive growth
According to Crisil, the sector’s expansion continues to be supported by rising urbanisation, favourable demographics, low mortgage penetration and improving affordability, as income growth has outpaced property price increases in recent years.Subha Sri Narayanan, director, Crisil Ratings, said a moderation in affordable housing launches and sales in major metropolitan cities is unlikely to significantly affect the sector.“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.Crisil noted that demand in Tier-II and smaller cities is receiving additional support from India’s economic growth, ongoing infrastructure development and sustained government initiatives.
LAP demand stays strong but lenders remain cautious
The report said the loans against property segment, which recorded a compound annual growth rate of about 37 per cent between FY23 and FY25, continues to benefit from strong demand from micro, small and medium enterprises (MSMEs).However, lenders have become more selective in extending smaller-ticket loans after elevated borrower leverage and stress spillovers from microfinance borrowers prompted tighter underwriting during the previous fiscal.Aesha Maru, associate director, Crisil Ratings, said lenders are expected to maintain a cautious approach in lower-ticket borrower segments.“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.She added, “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.”Despite these challenges, Crisil expects affordable housing finance companies to sustain healthy portfolio growth through continued demand for affordable housing and MSME financing, backed by prudent underwriting standards and stronger risk controls.The ratings agency, however, cautioned that any sustained increase in interest rates or broader macroeconomic headwinds could affect the sector’s growth trajectory in the coming years.
