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Affordable housing is rapidly vanishing from India's major cities as real estate developers increasingly shift focus toward premium and luxury projects, forcing lenders to rethink growth strategies in the home loan market, said a report based on Antique Stock Broking's BFSI Conference 2025.
Housing finance experts and lenders speaking at the conference said developers are no longer willing to build homes priced below Rs 50 lakh, citing high land costs, thinner margins and reduced policy incentives under the revamped Pradhan Mantri Awas Yojana (PMAY) framework. "Banks are not inherently set up to cater to the micro-level assessment required for affordable housing. They are expected to enter via co-lending partnerships rather than direct exposure," the post-Conference report said. At the Conference, lenders said the management identifies two primary headwinds in the low-ticket segment. One is that the real estate developers are no longer actively building affordable spaces. Second is that the traditional affordable housing was historically concentrated in builder-run projects in Tier 1 and 2 cities, which are now drying up in favor of premium developments. In cities such as Mumbai, sharp land price appreciation has made affordable housing projects commercially unviable, pushing builders toward higher-ticket developments aimed at affluent buyers. At the Conference, lenders noted that demand for homes priced Rs 2-3 crore is rising sharply, while supply in the affordable segment continues to dry up. "By targeting these premium customers, the company avoids putting in more efforts to disburse individual loans," the post-Conference Report said. Banks are not inherently set up to cater to the micro-level assessment required for affordable housing. They are expected to enter via co-lending partnerships rather than direct exposure. To compete, the Housing Finance Companies (HFCs) must build deep infrastructure in Tier 3 and 4 cities, similar to how the successful reach of existing affordable players, the leaders noted at the conference. Experts noted that while the market for salaried customers is dominated by PSUs and large banks with pre-approved offers, the focus should be on proprietorship and partnership firms. "Salaried cash flows are easily predictable but offer lower yields. The complexity of assessing non-salaried cash flows provides the expert with higher yields and lower competition from traditional banks," they said. (ANI)
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