As India moves steadily toward its vision of becoming a five trillion-dollar economy, affordable housing has emerged as one of the most critical enablers of inclusive growth. It stands at the intersection of financial stability, social development, and economic aspiration. Unlike unsecured personal or consumer credit, affordable housing loans remain secured, stable, and socially transformative. They not only create tangible assets but also foster financial inclusion and intergenerational wealth creation. In a lending landscape that is expanding rapidly, this segment has proven to be the most resilient and purpose-driven growth engine.
Rethinking the Definition of Affordability
Affordability in housing has traditionally been defined by property price, unit size, and household income. Typically, this includes homes priced between forty-five and seventy lakh rupees, with carpet areas of up to seven hundred and fifty square feet, and buyers falling within the economically weaker and lower-income categories. However, as urbanisation accelerates and inflation reshapes real incomes, these thresholds appear outdated. The National Housing Bank, together with the Ministry of Housing and Urban Affairs, is working toward revising these benchmarks to make them more relevant to today’s urban and semi-urban realities. A refreshed definition would unlock greater developer interest and widen the pool of eligible borrowers, bringing a larger segment of Indians into the fold of formal housing credit.
The Demand Imperative: Demographics and Urban Aspirations
India’s demographic dividend continues to drive the housing story. With a median age of twenty-eight and over three hundred eighty million people in the fifteen to twenty-nine age group, home ownership has become a primary life goal for a young, upwardly mobile population. Urbanisation is expanding rapidly, with the share of India’s urban population projected to rise from thirty-six per cent in 2023 to forty per cent by 2030. The number of households is expected to grow from two hundred forty-five million in 2021 to three hundred eighty-five million by 2031. Yet, there remains a housing deficit of over ten million urban units, with the vast majority of unmet demand concentrated in the affordable segment.
This imbalance represents both an opportunity and a challenge. While the aspiration to own a home is widespread, the supply of genuinely affordable units has not kept pace. Recent data shows a thirty-one per cent drop in new launches below the fifty lakh rupee segment during the first half of 2025, as developers increasingly focus on higher-margin mid-income and premium projects. This shortfall underscores the need for innovative lending models that support self-construction, incremental housing, and small developer ecosystems in tier two and tier three markets.
Policy Support and Market Catalysts
Government programs such as the Pradhan Mantri Awas Yojana (Urban and Gramin) have been instrumental in driving access to affordable housing. Together, they have facilitated the construction of more than two and a half crore homes and disbursed over two point seven lakh crore rupees in central assistance. Complementing these efforts, the Credit-Linked Subsidy Scheme has made home ownership more attainable by reducing effective interest costs for low-income families. The inclusion of affordable housing under the priority sector lending framework ensures access to low-cost institutional capital for lenders. Regulatory mechanisms such as RERA and the SARFAESI Act have strengthened transparency, borrower confidence, and recovery discipline.
More recently, the introduction of residential mortgage-backed securities has created a new long-term liquidity channel.
Technology, Data, and Inclusion
Digitisation has fundamentally changed the way affordable housing loans are originated, assessed, and serviced. The India Stack ecosystem, built on Aadhaar, e-KYC, Digi Locker, and Jan Dhan, has enabled lenders to reach first-time borrowers from informal income backgrounds. More than sixty per cent of affordable housing borrowers today are new to formal credit. Technology has reduced acquisition costs, accelerated turnaround times, and improved underwriting quality through cash flow-based assessments, alternate data, and mobile-based onboarding.
Portfolio Strength and Financial Stability
Affordable housing finance has consistently demonstrated superior asset quality and stable returns. The sector’s gross non-performing assets remain around 2.2 per cent, while retail home loans average close to 1.4 per cent. Return on assets has improved to about 2.3 per cent, and credit costs continue to hover below 0.1 per cent. Even during periods of macroeconomic stress, such as the pandemic, delinquencies in this segment peaked at significantly lower levels compared with other retail asset classes. Emotional attachment to owned homes, coupled with strong regulatory support, underpins this resilience.
Regional Expansion and the Rural Frontier
The next wave of growth will be driven by rural and semi-urban India. Government initiatives have already sanctioned over three crore homes under rural schemes, with average loan ticket sizes ranging between four and six lakh rupees. Improving infrastructure, better road connectivity, and rising rural incomes have begun to reshape the credit landscape. Lenders are experimenting with models such as community-based income verification, village-level intermediaries, and localised underwriting standards. Expanding housing finance in rural India is not only a business opportunity but also a national development imperative.
Challenges and Emerging Priorities
Despite its strong fundamentals, the sector faces certain headwinds. Land prices and construction costs continue to rise, straining affordability. Small developers often face liquidity challenges, delaying project completion. On the funding side, smaller housing finance institutions still pay higher borrowing costs, narrowing margins. Maintaining underwriting discipline amid high growth is essential to ensure sustainability.
There is also a need to incorporate environmental sustainability into affordability. Green certified affordable homes can reduce long-term ownership costs and attract ESG-linked funding. Recent global capital commitments toward green housing finance are encouraging signs of how environmental and social goals can converge.
Outlook: Toward 2030 and Beyond
The trajectory ahead is clear. By 2030, India’s affordable housing demand could reach thirty-one million units, translating into a financing opportunity of more than sixty-seven trillion rupees. The future of lending growth will depend on how quickly the ecosystem aligns capital, technology, and policy to meet this demand. As the residential mortgage-backed securities market deepens and technology platforms mature, housing finance institutions will be better equipped to manage risk, expand responsibly, and scale sustainably.
Affordable housing loans are more than financial instruments. They build stability, dignity, and social equity. They represent a convergence of aspiration and policy, of market opportunity and national purpose. The question before the industry is no longer whether affordable housing finance is safe or viable; it is how fast, how deep, and how sustainably it can be scaled to power India’s next decade of growth.
Views expressed by: Alok Aggarwal, Chief Executive Officer, Muthoot HomeFin Limited.
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