Affordable housing finance companies grow, but demand-supply gap remains

The overall Indian real estate market might be down, but a new report has found that affordable housing finance companies catering to low-income customers have bucked the trend and grown at an impressive pace over the past five years.

The 'Low-income Housing Finance Market’ report by industry body Federation of Indian Chambers of Commerce and Industry (FICCI)released on Wednesday says loan books of these companies grew from close to Rs 1,000 crore in March 2013 to over Rs 27,000 crore in December 2017 and they facilitated the ownership of more than 230,000 homes.

Financing affordable homes in India is not easy as most low-income households work in the informal sector and do not have reliable documentation of income which makes it tough for them to get housing loans from banks and traditional housing finance companies.

“In order to assess the income, assets and repayment capability for such customers, they (affordable housing finance companies) developed field-based, detailed credit assessment and verification processes,” says the report.

Rapid urbanisation and lack of planned affordable housing in India have led to a shortage of homes for millions of urban dwellers, many  of whom live in poor conditions.

Rashesh Shah, president of FICCI and chief executive officer(CEO) Edelweiss Group, said there is a demand-supply gap of 20 million in the housing sector. “It will take around 8-10 years to fill the demand-supply gap in the housing sector,” he added.

According to Ashish Karamchandani, managing director of consulting firm FSG, low-income housing finance is expected to grow at 30-40% over the next five years.

The report says 62% of the new housing finance is being used to fund self-constructed standalone houses while 38% of financing from affordable housing finance companies  is taken up by low-income customers to buy  apartments, often in areas with higher land costs.

The report adds that the growth in housing finance has still not reached a large share of the urban poor.