India's Affordable Housing Finance Sector Set for Remarkable Growth by FY28

Industry experts have projected that India's affordable housing finance sector is poised for unprecedented expansion, with assets under management expected to witness remarkable growth in the coming years. The sector appears to be riding a wave of increasing demand from underserved segments of the population.

Sector AUM Expected to Nearly Double by FY28

According to industry estimates, the assets under management for affordable housing finance companies are likely to surge from ₹1.4 lakh crore by the end of FY25 to ₹2.5 lakh crore by FY28. This projection represents an impressive 80% growth trajectory that reflects the broader expansion occurring in India's housing credit market.

The retail mortgage portfolios of non-banking financial companies and housing finance companies are also expected to experience significant growth, rising from ₹13 lakh crore in FY25 to ₹20 lakh crore by FY28.

AHFCs to Outpace Overall Mortgage Market Growth

Affordable housing finance companies are projected to achieve a compound annual growth rate of 20–22%, which substantially outpaces the overall mortgage market's CAGR of around 17–19%. Industry analysts attribute this accelerated growth largely to increasing demand from low- and middle-income borrowers, particularly in semi-urban and rural regions where formal banking access remains limited.

The growth momentum is further supported by government initiatives such as PMAY Urban 2.0 government boosts which has allocated significant funds for affordable housing development.

Borrower Demographics and Lending Patterns

Industry reports indicate that affordable housing finance companies typically serve self-employed individuals and lower-income families. Their loan portfolios are largely composed of small-ticket home loans and loans against property. Analysts estimate that approximately 40% of their business comes from loans for self-construction, reflecting the significant demand from borrowers building homes on family-owned or purchased land.

The sector maintains a conservative approach with an average loan-to-value ratio of approximately 55%, which helps these lenders manage risk effectively despite their rapid portfolio expansion. This prudent approach has enabled several companies to maintain affordable housing projects in major cities while ensuring sustainable growth.

Asset Quality Metrics Remain Encouraging

Despite their focus on underserved segments, affordable housing finance companies have demonstrated stable asset quality performance. Gross non-performing assets have remained within the 1.1–1.3% range, while credit costs have been maintained at around 0.3% of assets under management.

Profitability indicators show that return on average managed assets has held steady at around 3.5–3.6%. This performance is supported by healthy interest spreads, although operating costs tend to be relatively higher due to field-intensive operations and personalized customer service requirements.

Emerging Challenges in the Competitive Landscape

While growth prospects remain robust, industry observers note that affordable housing lenders are likely to face increasing competition from larger NBFCs and mainstream housing finance companies that are beginning to target similar customer segments. This intensifying competition could result in compressed net interest margins, especially as loan yields begin to moderate in response to market pressures.

Operational efficiency is becoming a critical challenge for many companies in this sector. Several affordable housing finance companies still rely on traditional branch networks and manual underwriting processes, which increase cost ratios and reduce scalability potential. The need for digitization and streamlined operations is becoming increasingly urgent as the market continues to evolve and modernize.

Capital Management Strategies Take Center Stage

Most affordable housing finance companies currently operate with moderate leverage, maintaining a gearing ratio around 3.5x. As loan books continue to expand, industry experts emphasize that maintaining strong capital adequacy and managing funding costs will be essential to sustaining long-term growth and weathering potential credit cycles.

The sector's growth is also being supported by regulatory developments, including RBI's stricter deposit rules for housing finance companies, which aim to ensure better governance and risk management practices across the industry.

Industry Outlook Points to Continued Expansion

The overall outlook for the affordable housing finance sector remains stable and promising. If current market trends continue, and if companies succeed in enhancing operational efficiency while maintaining disciplined risk management practices, the industry is positioned to play a pivotal role in India's home ownership journey.

This growth trajectory is particularly significant for first-time and self-employed borrowers who have traditionally faced challenges in accessing formal housing finance. The sector's expansion is expected to contribute meaningfully to affordable housing development across India's major cities and emerging urban centers.

The success of this sector will largely depend on companies' ability to balance growth ambitions with prudent risk management while adapting to evolving customer expectations and technological advancements in the financial services landscape.