Housing Finance Cos’ AUMs To Grow In Double-digits In FY24-25: Report

Driven by underlying demand and supported by strong balance sheets; the Assets Under Management (AUM) of housing finance companies (HFCs) are poised for a double-digit growth in FY2024 and 2025, CareEdge Ratings has said in a report.

With the declining pace of fresh slippages and recoveries in the wholesale portfolio, asset quality issues are receding for HFCs.  It added that the housing finance sector continues to be aided by strong macro drivers supporting demand; despite elevated interest rates, residential sales and launches are on a strong footing.

“While net Interest Margins (NIM) are expected to remain under pressure, overall profitability is expected to improve on the back of waning asset quality stress,” according to the report.

Notably, the Indian residential real estate sector is experiencing robust demand, backed by strong macroeconomic fundamentals. While drivers such as improving affordability, rising urbanisation, a low mortgage to gross domestic product (GDP) ratio, favourable demographics and government policies have been traditional underlying growth drivers, premiumisation, and factors such as low interest rates, stamp duty rebates, resulted in an up-cycle in residential real estate market. 

The rating agency stated that these forces are set to sustain housing demand over the medium to long term. Since the pandemic, housing demand has surged, further supported by low-interest rates and beneficial policy measures, leading to sales of residential units reaching a decade-high of 470,424 units in CY23, with 467,449 new launches. 

Despite the Reserve Bank of India's cumulative repo rate increase of 250 basis points from May 2022 to February 2023, residential demand has remained robust.

In sync with a rebound in the residential real estate market, retail loans started witnessing an uptick from FY22. Consequently, the AUM growth has been led by retailisation. During FY23, the overall AUM of HFCs grew by roughly 9 per cent with the housing segment growing by 13 per cent while the non-housing portfolio including the developer finance book contracted marginally. The total outstanding portfolio of HFCs as of 31 March 2023, stood at Rs 7.4 lakh crore (excluding HDFC) of which housing loans comprised Rs 5.5 lakh crore vis-a-vis housing loans by SCBs amounting to Rs 19.4 lakh crore.

Gaurav Dixit, Director– BFSI Rating, CareEdge Ratings said, “Continued growth momentum in housing loans coupled with an expected revival in developer loans is likely to lead to 12 to 14 per cent AUM growth for HFCs. Segment-wise, while the share of wholesale financing of HFCs is expected to rise in the medium term, it is broadly expected to remain in the range of 10 to 12 per cent as financiers embark on cautious growth.”

Dixit added that driven by an up-cycle in the residential real estate market and waning wholesale credit stress, the pool of stressed wholesale assets as a proportion to HFCs net-worth is expected to improve to roughly 10 per cent by March 2024.’’

While NIMs may be marginally impacted; profitability during FY24 is expected to remain robust supported by portfolio growth with comfortable asset quality and receding credit costs. 

“The downside risks to this outlook are regulatory changes, tighter liquidity, a continuation of elevated interest rates, delayed resolutions/ recoveries concerning wholesale loans and competition from banks,” the CareEdge report added.