The Housing Finance Industry in India: Evolving Trends

In terms of development and maturity, the Indian financial sector has recently exhibited an encouraging trend. The amount of outstanding mortgage loans has increased by a healthy 16 percent over the past 5 fiscal years. Rising disposable income, strong demand, and an increase in new competitors joining the market have been the main drivers of this trend. The sector of home finance is anticipated to grow further during the following five years.
The sector will expand as a result of increased accessibility, greater openness, rising urbanization, and government incentives. Housing demand has increased across the country as a result of changing lifestyles, societal perspectives, and expanding labor mobility. Future forecasts show that these patterns will persist. Moving into larger residences is more likely as income grows.
Younger borrowers of housing loans, increased need for independent homes, government programmes to provide cheap housing, and interest concessions under the Pradhan Mantri Awas Yojana should all contribute to rising housing financing demand.
By 2040, it is predicted that the real estate market will reach Rs. 65,000 crores. This represents a considerable increase over the 2019 real estate market value, which was pegged at Rs. 12,000 crores. 13 percent of India’s GDP is projected to be generated by the housing industry by 2025.

According to a recent poll, the top seven Indian cities purchased more than 1700 acres of land in the previous year. Additionally, between 2017 and 2021, foreign investors spent US$10.3 billion on commercial real estate. Other players in the housing finance sector include public and private sector banks and home finance companies. Public Sector Banks (PSBs) and Housing Finance Companies (HFCs) had around 40% and 39% of the market share, respectively, in the 2019 fiscal year.
In comparison to the needed construction pace of five dwellings per 1,000 inhabitants, about three houses are built per thousand people per year. As a result, there is a housing shortage in urban areas that is estimated to be around 10 million units. To handle the country’s urban population expansion, an additional 25 million units of affordable housing will be required by 2030.
Given the growing significance of real estate in the recovery of the Indian economy, both the industry and the government have been concentrating on new developments in the house loan category since the epidemic’s inception.

RBI streamlines the loan-to-value ratio
For all new house loans issued up until March 31, 2022, the RBI streamlined the risk weights and tied them to loan-to-value (LTV) ratios. Linking the risk weight of mortgages to LTV for all new housing loans has proven to be a smart move.

Banks and Their House Loan Book
Home loans (secured loans) have historically had the lowest delinquencies. As a result, banks provide the greatest rates to create a house loan book during times of crisis, rather than focusing on unsecured lending books such as personal loans and credit cards. From the perspective of the banks, home loans are a safer proposition.

Loan Moratorium
A loan moratorium was implemented to give a temporary reprieve from repayments to borrowers who had been hurt by the outbreak. Restructuring, partial pre-payments, and switching to fixed-rate loans are other options for relieving borrowers of the stress of hefty EMIs.

Digital Banking
Banks quickly took advantage of the growing demand from millennials for home loans by setting up online channels to speed up loan distribution. Many banks and financial institutions have introduced digital initiatives to help customers get loans more quickly and go forward with their plans to buy a home.

Government Initiatives
Working with state governments, the Union government has taken a number of steps to promote industry growth. Real estate firms may make use of the Smart City Project, which aims to build 100 smart cities.
The Pradhan Mantri Awas Yojana received Rs. 48,000 billion from the Union Budget 2022–2023 announced by the finance minister (PMAY). Additionally, it facilitated quicker urban housing approvals.