According to India Ratings, the affordable housing finance segment is likely to grow to Rs 6 trillion in size in the next four years from Rs 1.5 trillion now. This will make the segment a major contributor to the overall housing finance activity.
Affordable housing finance, largely dealing in loan ticket size of up to Rs 15 lakh, will become a large segment for housing finance companies (HFCs) in the next five years, with its market share estimated to increase to around 37 per cent in FY2022, the rating agency said.
Currently, the affordable housing AUM is around Rs 1.5 trillion and it is expected to increase four times to Rs 6 trillion by FY22.
The accelerated urbanisation on account of fast economic growth over the last decade-and-a-half has created massive need for affordable housing, it said.
The agency anticipates a demand for 25 million homes, which is nearly four times of the entire current housing finance stock, over FY17-FY22 in the medium and lower income group categories.
A combination of factors like the government's financial and policy thrust, regulatory support, rising urbanisation, increasing nuclearisation of families and increasing affordability is converting latent demand into a commercially lucrative business opportunity, it said.
Ind-Ra expects the sector to attract over Rs 200 billion of equity inflows over FY17-FY22 which would support growth.
The agency, however, pointed out that aggressive expansion without ensuring appropriate credit assessment could be a risk for the segment, especially in view of limited financial data available and possibly less financial savvy customer segment.
"Also, the segment requires high customer connect, therefore, attracting and retaining people with on ground connect would be of prime importance. HFCs would need to build a sense of ownership, as well as develop a right incentive structure to manage this risk."
Further, operationally, managing liquidity, mainly in view of long tenure nature of assets, would be a key consideration and there is a need for creating a prudent asset liability tenure management by HFCs, the rating outfit said.