Housing Finance Sector in India 2024: The highs and lows

housing finance industry in india

6 mins read

Last updated on 6th June 2024

India's housing finance sector is booming, making dreams come true for many. The housing finance industry is the hero behind countless new homes. Thanks to Indian housing finance, buying a home has never been easier. With the rise of real estate finance in India, there's support for every home dreamer. Wondering who's leading the charge? There are many contenders for the top housing finance companies in India. The home loan industry in India is also growing, making the whole housing finance sector in India a key player in our nation's story.

Table of Contents

A Simple Look at the PMAY - Government's Big Home Plan

The government came up with a special plan named Pradhan Mantri Awas Yojana (PMAY) to boost the housing finance sector in India. What's it all about? Well, they have a big goal in the housing finance industry: they want to build 2 crore new houses in 305 different places. This includes both our cities and our villages, a significant step for Indian housing finance.

Now, let's say you want to buy one of these homes, but you don't have all the money. So, you think of borrowing some. Here's where the government steps in to help in real estate finance in India. If you borrow up to Rs 9 lakh, the government says, "We'll help you by making sure you pay less interest on this money." And if you borrow up to Rs 12 lakh, they'll help even more. What if you're from a village and need a smaller amount, like Rs 2 lakh? Don't worry, they've got your back too with the best housing finance company in India!

This plan is super helpful for many people, especially those who might not have a lot of money or those who work in jobs where they get paid daily or weekly. Because of this great support from the home loan industry in India, more and more people are thinking. The government really wants to make sure everyone has a roof over their head in the housing finance sector in India.

Suggested read: Pradhan mantri awas yojana eligibility

Why More People Are Struggling to Pay Back Home Loans in Affordable Housing

Imagine you take a loan to buy something big, like a house. Now, if you can't pay back the loan on time, it becomes a 'bad loan' for the bank. These bad loans are called non-performing assets (NPAs).

Recently, there's been a rise in these NPAs, especially in the affordable housing sector. Here's a clearer picture: A few years ago, out of 100 people who took a Rs 2 lakh loan, about 6 couldn't pay back on time. But two years later, that number increased to almost 9 people. Similarly, for those who borrowed Rs 5 lakh, more people are now struggling to pay back.

Why is this happening? One big reason is that many of these borrowers work in jobs that don't have fixed salaries or regular paydays, like daily wage workers or small shop owners. Earnings can fluctuate. To add to their troubles, a new tax system called GST was introduced. This tax affected their earnings, making it even harder for them to save money and pay back their loans. This information comes from ICRA Ltd, a company that checks how credit-worthy businesses and people are.

However, there's some good news too. People who borrowed money for more expensive homes (like big apartments or luxury houses) are mostly paying back on time. In this group, out of 100 people, about 98 are returning their loans without issues.

Suggested read: Top Banks for Home Loan

How Rising Costs Can Affect Home Loans

Imagine you're thinking of buying a home, and for that, you need to borrow some money. The cost you pay to borrow this money is called an 'interest rate'. Now, the housing finance sector, which is a significant part of the housing finance industry in India, can face problems if something called 'inflation' goes up.

What's inflation? Think of it as the general rise in prices of things we buy. When the cost of things goes up, it's a sign that inflation is increasing. And there are hints that this might happen more in the coming times.

Now, here's the thing: When inflation goes up, the interest rate on loans usually goes up too. This is a crucial aspect of real estate finance in India. Why does this matter? Well, when interest rates are low, many people think,  "Great! I can borrow money and buy a home." And most of them can pay back the loan without problems. But when inflation rises and interest rates go up, fewer people want to borrow money because it becomes more expensive to do so. And those who have already borrowed might find it harder to pay back, leading to more 'loan defaults' or missed payments.
In simple words, if things become more expensive (high inflation), it can make getting and paying back home loans more challenging.

Suggested read: Home loan interest rate

How RERA Changed the Home Buying Game

Imagine there's a new rulebook called RERA for everyone who's building or selling homes. This rulebook was made to ensure that everything in the real estate world (like buying or selling homes) happens fairly and transparently.

But, when this rulebook came into play, there was a big change. Builders became cautious and slowed down on starting new housing projects. A study in July 2017 by a company named Knight Frank found that the launch of new housing projects dropped by a whopping 41% all over India. This means fewer new homes were being built.

Now, if fewer homes are being built, it's likely that fewer people would be looking to borrow money to buy these homes. So, the number of home loans might decrease too.

However, there's a silver lining. Many experts believe that this slowdown because of RERA is just a short-term hiccup. They think things will get back to normal after some time, and the housing market will pick up speed again.

Closing Note

India is working hard to help everyone own a home. There are big plans like PMAY and new rules like RERA. But there are also challenges like rising costs and bad loans. Still, with the government's help and careful planning, buying a home can become easier for all. It's a journey with ups and downs, but the future looks hopeful. Everyone deserves a place to call home, and India is on the right path to make that dream come true.

FAQs about the Housing Finance Sector in India

HDFC (Housing Development Finance Corporation Limited) is the largest housing finance company in India.

The size of the housing finance market in India varies, but it is a multi-billion-dollar industry.

Housing finance in India provides financial assistance for buying or building homes, promoting homeownership and real estate development.

The "big 5" finance companies in India can change, but as of 2023, they included HDFC, LIC Housing Finance, Indiabulls Housing Finance, PNB Housing Finance, Home First Finance Company.

There are around 100+ housing finance companies in India.

The future of housing finance in India depends on economic conditions, policies, and market trends, with continued growth expected.

Housing finance, on the other hand, encompasses a broader range of financial services related to housing needs, including home loans, mortgage refinancing, construction finance, and more. Home loans are specific loans for buying homes, while housing finance encompasses a broader range of services related to housing, including home loans.

Published on 1st September 2023