Wizergos uncovers the potential of this market, along with a blueprint to build a greenfield AHF business in a 3 article series. This is the second article that helps businesses understand the Affordable Housing Loan market landscape in India and identify the "movers and shakers" in the space.
Affordable Housing Finance offers a win-win to all players
In the burgeoning affordable housing (AFH) loan market in India, several key vendors are instrumental in providing customers with access to more affordable credit. These vendors offer interest rates ranging from 12-14%, a significant drop compared to the exorbitant 20%+ rates prevalent in the unorganized sector. Even after the conclusion of the Credit Linked Subsidy Scheme (CLSS) in March 2022, these reduced rates remain a pivotal factor in making homeownership more financially viable for many. Figure below presents a view of the lifecycle of an affordable housing loan and economics involved that make AFH companies attractive.
Source: Marcellus Investment
The market is abuzz with the following participants:
Established banks such as SBI, HDFC, etc that offer regular home loan products
Established Non-Banking Financial Services companies (NBFCs) that also offer regular home loan products like their Banking peers
Early movers into the AFH market
Some of the key players in the AFH market in India are  (not in any order of revenue):     Â
Shriram Housing
CanFin Homes
Aadhar Housing Finance
India Shelter Finance
Mahindra Rural Housing
Muthoot Home Finance
Mannapuram Home Finance
Poonawala Housing
Motilal Oswal Housing Finance
Punjab Housing Finance
Early Movers:
Aptus Value Housing
Aptus Value Housing Finance India Ltd is a Home Loan Company. Aptus has commenced operations in 2010 to primarily address the housing finance needs of self-employed, low and middle income families primarily from semi-urban and rural areas. Company targets affordable home buyers where collateral is self- occupied residential property.
It has presence in 231 locations across India.
Aptus Value Housing Finance is the most profitable HFC (FY23 RoA/RoE of 8/16 per cent) in India, thanks to its focus on less crowded segments (rural, informal segment, small loan size, high share of non-housing loans), frugal cost structure (lowest cost to income) and best in class asset quality (lowest write-offs).
Aptus has built an in-house cost-efficient model that is difficult to disrupt. A high margin operating segment with cost leadership implies high return ratios. The Total Assets Under Management is Rs 6738 Crores as on March 2023.
HomeFirst Finance
Home First Finance Company India Limited is an Indian housing finance company in the affordable housing segment based in Mumbai and founded in 2010. The company operates mainly in Tier-I and II cities and its target audience is low ticket size customers which are underserved by larger corporate banks.
It is a technology driven affordable housing finance company that targets first time home buyers in low and middle-income groups. . Around 69% of the loans are given to completely new-to-credit category of customers who have no credit history. The company has technology at the core - right from sourcing to collections and this elevated level of focus on technology is creating an edge for the company in many ways like reducing turn-around times and transaction costs, building a scalable operating model, uniformity in operations, enhance customer experience.
 It has presence in 265 locations with a total customer base of 77,512. The Total Assets Under Management is Rs 7198 Crores as on March 2023.
Avas Housing
The Company commenced its operations in 2011 from Jaipur, Rajasthan. It has presence in 346 locations. The total Assets Under Management is Rs 14,166 Crores as on March 2023 with an year on year growth of 28% and ROA of 3.5%.
The following figure illustrates the customer target mix for the three AFH players mentioned above.
Source: JM Financial
Concluding Remarks- Key considerations on Market Landscape and Growth
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As per JM Financial, they expect HFFC, Aavas and Aptus to deliver avg ROEs of 15.4%/15.5%/17.4% over FY24-25e with avg. RoAs of 3.6%/3.6%/7.1% respectively.
It expects HFFC, Aavas and Aptus to record a strong CAGR of ~32%, ~25% and ~32% over FY23-25, respectively.
The yield profile of AFHCs is strong across products, and it has remained relatively healthy and sticky across cycles. The business models are relatively operationally intensive and thus entail higher opex, the strong yield profile and access to low cost NHB funding drives a strong Pre-Provision Operating Profit profile (PPOP/AUM at 4.4-11.5% for coverage companies).
Read More
With an estimated 95 million units shortage, the Affordable Housing Finance (AHF) Market is anticipated to reach INR 6,242 billion (US$ 75.2 billion) by the end of FY 2025.
Stay tuned!- Part 3 (to be published soon)
Part 3: Blueprint to build a greenfield Affordable Housing Loan Business or Product
Author
Sudapalli Jaya Prasad Rao
Vice President - BFSI, Wizergos
picture credit- freepik.com (vectorjuice)