Prominent Brokerage firm Nomura expects the home loan industry to more than double in the next five years with mortgages growing at a clip of 15% over the next decade, reported the Economic Times.
Citing Nomura, the report said that favourable demographic dividend, rising income levels, acute housing shortage, and the government’s support for affordable housing through several schemes suggest housing loan penetration should continue to inch up.
“As per our rough estimates, the housing loan industry should grow at 14%-15% over the next decade, leading to the market more than doubling in the next five years. Affordable housing lenders, within the larger financiers’ pool, have an edge in the low-income mass-market category, which is the least-serviced segment,” said Nomura in a report.
Outstanding individual housing loans in India posted a healthy CAGR of 15% during the past decade and stood at Rs 30 lakh crore as of September 2023.
Despite this robust growth in the past decade, housing loan penetration in India remains low, with housing loans to GDP being only 10.6% in FY23 compared to 20%-65% for other countries.
As of September 2023, public sector banks had a combined 41% market share in individual housing loans outstanding, closely followed by private banks at 38% and Housing Finance Companies (HFCs) at 18%.
In the past decade, Housing Finance companies grew faster than banks in the first five years (FY13-18) resulting in market share gains.
According to Nomura, affordable housing lenders have an edge in the low-income mass-market category which is the least-serviced segment.
The brokerage firm sees Aadhar Housing Finance as best placed amongst mortgage lenders as it is most diversified with its presence in 20 states. Its closest competitor Aavas is present in 13 states. As per the RBI regulations, HFCs need to have a minimum of 60% home loans in the overall loan book.
“Aadhar and Aavas are more focussed on self-employed and informal salaried customers versus Homefirst’s focus on salaried customers,” it added.
“Aadhar has a longer runway for growing its LAP book due to its higher share of home loans and its lowest opex ratios in the industry.” Meanwhile, for large banks, lower ticket size and underwriting to informal segment act as deterrent as they result in higher acquisition and underwriting cost, Nomura said.
Banks home loan volume CAGR in rural and semi-urban areas at 7% was lower than metro volume CAGR of 11% in FY14-24. Also for banks, growth in priority sector-compliant home loans of banks (a proxy for affordable home loans) has been lower than non-PSL home loan growth.
“Banks’ growth rates for affordable housing loans tend to fluctuate much more than non-affordable home loans. This is likely due to banks’ lower focus on affordable housing,” added Nomura.
