Riding high on record  fundraising,  the housing finance sector is set to chart a sturdy path  with good  prospects for  healthy growth in the new year.  Vinod Behl

Housing finance was on a high in 2024 amidst  the growing trend of home ownership reflected in robust home sales spurred by luxury housing. What more, close to 80% of home buyers go for a home loan to fulfill their dream of home ownership. According to RBI, credit outstanding to the housing sector rose by nearly INR 10 lakh crore in the last two fiscals to reach a record INR 27.23 lakh crore in March 2024. Crisil has projected mortgage finance to grow 16-17% in FY 25 and FY 26.

The inflow of huge capital into housing finance firms was a major driver for home loans. Fresh capital from private equity and VC firms rose ten fold in 2024 as a large number of investors diversified their investment portfolio , putting more money into housing finance companies for safe deployment. Moreover the sustained returns given by the housing finance companies to the investors, was also a crucial reason to attract them. The attractiveness of conventional lending segments, particularly affordable housing, also made tech-first investors put money into housing finance.

According to market intelligence company, Tracxn, housing finance companies raised a total of USD 826.8 million last year  against USD 82.6 million raised a year earlier. Vastu Housing Finance garnered USD 100 million in December while Vridhi Finserv Home Finance raised USD 37 million in September. Shubham Housing Finance did USD 47 million of fundraising.

The housing finance sector also witnessed consolidation in 2024 with a couple of major buyouts.  US private equity fund Warburg Pincus  acquired Shriram Housing Finance for  INR 4630 crore  for equity and convertible instruments and global investment organisation EQT did complete acquisition of Indostar Home Finance for 1750 crore.

Going forward, housing finance continues to be a huge opportunity with compounding growth potential. Currently valued at USD 300 billion, India’s home loan market is expected to expand at a CAGR of 22.5% over the next 5 years. Favourable economy, rising disposable incomes , government initiatives and rise of home ownership in Tier 2-3 cities will ensure that the home loan market maintains a stable growth through FY25-FY 26. Affordable home loan market, currently estimated at INR 13 trillion, will particularly get a boost as HFCs focused on the affordable segment, are expected to grow faster at a CAGR of 22-23%, especially after the restoration of interest subsidy by the government.

The projected cumulative 50 bps cut in interest rates at the end of FY25 or in the beginning of FY26, together with the expected  home price stabilisation, will boost home ownership by making homes more affordable, in turn propelling the growth of housing finance.