India's housing finance sector hits home run as demand rebounds strongly

The country’s housing market has evolved in sync with the aspirations, lifestyle choices and financial capabilities of homebuyers. After a lull during the pandemic, all housing segments have bounced back, spurred by supportive government policies, vibrant consumer demand and urbanisation. Additionally, civic infrastructure development across India has enhanced accessibility, availability and connectivity to various housing projects. 

The National Housing Bank’s residential housing price index (NHB Residex) showed positive momentum in the first quarter of FY26. Property prices appreciated in 45 cities from April to June 2025, while the 50-city composite House Price Index based on assessment prices increased by 5.7 per cent from the previous year. This positive momentum complements broader statistics that point to rising outstanding loans and steady disbursements, reinforcing the case for continued institutional support to bridge regional gaps. 

The outlook for the housing sector is bright because of the government’s rising budget outlays for Pradhan Mantri Awas Yojana-Urban 2.0. The outlays include the provision of 30 million additional housing units in urban and rural regions, plus an investment of ~10 trillion to address the housing needs of 10 million urban poor and middle-class families. The allocation of ~2.66 trillion for rural development shows commitment to improving living conditions. 

The housing finance sector has emerged as a game-changer in India’s economic landscape, despite home loan penetration at around 12 per cent in FY24. By FY30, outstanding housing loans are expected to touch ~72 trillion, indicating a 14 per cent compounded annual growth rate from FY22 while financing a projected incremental 23 million housing units.

Housing finance companies (HFCs) play a key role in democratising home loans and catering to home buyers’ varied needs — by offering flexible eligibility criteria, seamless customer service and minimal processing time. HFCs have set their sights firmly on the fast-expanding Tier-II and Tier-III centres. 

The other interlinked elements contributing to the growth of HFCs include a young population, financial products and digital technology, as outlined below: 

Demographic dividend: A large, young population – primarily comprising a burgeoning middle-class consumers – alongside rapid urbanisation and swelling disposable incomes, has transformed consumption patterns. It has augmented the demand for both housing and financing options. 

Novel credit offerings: Realising the need for bespoke home loans, HFCs have tweaked offerings to suit the distinct needs of borrowers. Backed by interest rate options, flexible repayment alternatives and home loan terms aligned with borrowers’ needs, HFCs have substantially expanded their customer base. Moreover, with the extension of credit facilities to consumer cohorts previously excluded from mainstream finance, these entities are expediting financial inclusion in rural and semi-urban areas. 

Leveraging technology: Technological advances have upended traditional housing finance protocols, spawning a new age of efficiency, comfort and convenience. Digital platforms drive seamless loan applications, speedy approvals and real-time updates on the loan status, ensuring a more user-friendly process. Innovations such as mobile banking and e-KYC have also simplified documentation, boosting borrowers’ convenience while curbing the operational costs of lenders. 

HFCs are set to play a pivotal part in meeting India’s housing demand via customised loans for buying, constructing or renovating homes. They support the homeownership aspirations of millions by using innovative financial products and inclusive funding strategies. 

Yet, challenges persist, including affordability in urban areas, delinquencies in small ticket loans, and the management of non-performing assets. Nevertheless, the future outlook for housing finance is promising. Institutional support, tech innovations and steady consumer demand are anticipated to steer stable growth in the industry. As the country’s realty landscape evolves, HFCs reflect the transformative power of financial services in fulfilling the homeownership dreams of millions. Even as their focus on financial innovation and customer-centricity sustains growth, the future of housing finance will continue to shine brightly.

 

The writer is executive director, PNB Housing Finance.