Affordable housing finance firms to sustain 19–20% AUM growth over next 2 years: Crisil

Affordable housing finance companies (A-HFCs) are expected to maintain strong growth momentum, with assets under management (AUM) projected to expand 19–20% in both FY27 and FY28, broadly in line with the 19% growth recorded last fiscal, according to a report by Crisil Ratings.

The growth outlook is expected to be driven by sustained demand for affordable housing and loans against property (LAP), supported by favourable demographics, rising urbanisation, and improving affordability.

Home loans, which account for nearly 68% of A-HFCs’ total AUM, are expected to grow at 17–18% over the next two fiscals. Meanwhile, loans against property, the second-largest business segment, are projected to outpace home loans with growth of around 23%, even as lenders tighten underwriting standards for select borrower categories.

According to Crisil Ratings, structural demand drivers remain intact despite moderation in launches and sales of affordable housing projects in metropolitan markets.

Subha Sri Narayanan, Director, Crisil Ratings, said the slowdown in affordable housing activity in metros is unlikely to materially affect the growth trajectory of A-HFCs.

According to Subha Sri Narayanan, more than 75% of industry loans below ₹35 lakh are concentrated in Tier 2 and smaller markets, where A-HFC portfolios remain heavily skewed. Additionally, nearly 45% of lending by affordable housing financiers is directed towards self-construction and resale housing segments, reducing dependence on new residential project launches.

Demand in Tier 2 and smaller markets is expected to remain supported by India’s economic growth, continued infrastructure development and sustained government policy support, reinforcing the sector’s long-term growth prospects.

LAP segment to remain a key growth driver

Loans against property, which recorded a compound annual growth rate (CAGR) of 37% between FY23 and FY25, are expected to continue growing faster than home loans, although at a more moderate pace.

The segment has benefited from robust demand among micro, small and medium enterprises (MSMEs), alongside better access to borrower data, increased adoption of analytics and stronger underwriting frameworks.

For lenders, the segment’s relatively higher yields have also become attractive at a time of intensifying competition and pressure on margins.

However, lenders reduced disbursements in sub-₹10 lakh ticket-size segments last fiscal due to elevated borrower leverage and spillover stress from microfinance borrower pools, contributing to slower growth in those categories.

Aesha Maru, Associate Director, Crisil Ratings, said LAP growth is expected to remain around 23% over FY27 and FY28, broadly in line with the 24–25% growth recorded last fiscal.

She added that lenders are adopting a cautious approach in lower-ticket borrower segments to manage emerging stress. Global uncertainties and any inflationary pressures arising from geopolitical tensions in West Asia could also weigh on borrower cash flows and temper lender risk appetite in the near term, leading to tighter credit filters and more selective disbursement strategies.

Despite these risks, Crisil expects continued demand for affordable housing and MSME financing, supported by prudent underwriting and stronger risk controls, to help affordable housing finance companies sustain healthy portfolio growth while maintaining asset quality.