GDP Share Hits 11% Amid Financial Deepening

THE SEAMLESS LINK

This robust expansion of housing finance is not merely a statistical uptick but reflects a fundamental shift in how Indians access homeownership, underpinning a dynamic real estate sector and contributing substantially to the nation’s Gross Value Added (GVA). The momentum signifies a maturation of the financial ecosystem, increasingly channeling household savings into tangible assets.

Housing Finance Enters Sustained Upcycle

The Economic Survey 2025-26 highlights a significant expansion in India’s housing finance sector, now contributing over 11% to the national GDP, a notable increase from 8% a decade prior. This surge is mirrored in the tripling of outstanding individual housing loans to approximately ₹37 lakh crore by March 2025. This deeper financialization is a direct consequence of strategic policy interventions and a favorable market environment that began its sustained upcycle in September 2021. Initiatives such as interest subvention under the Pradhan Mantri Awas Yojana-Urban (PMAY-U) and the establishment of dedicated affordable housing funds have demonstrably lowered barriers to entry for a broader spectrum of the population. Furthermore, streamlined credit processes and a sustained period of lower interest rates have amplified these effects, making homeownership more accessible. The real estate sector’s recovery, fueled by households channeling savings into physical assets, has maintained its upward trajectory, supported by favorable affordability conditions and moderating inflation. Urban development schemes, including the Smart Cities Mission and the Urban Infrastructure Development Fund, have also played a crucial role in stimulating demand, particularly in tier 2 and tier 3 cities, broadening the market’s reach.

Competitive Dynamics and Sectoral Growth

The Indian housing finance market, projected to reach ₹77-81 lakh crore by FY30 with a 15-16% CAGR, is characterized by dynamic competition and evolving structural drivers. Public sector banks currently hold a significant share, estimated at 47.33% of the home loan market in 2025, while Non-Banking Financial Companies (NBFCs) are exhibiting the highest growth trajectory at 18.38% through 2031. This growth indicates NBFCs’ crucial role in complementing banks by reaching underserved segments and offering specialized products. For instance, the affordable housing finance segment, a critical component for inclusive growth, saw its loan portfolio reach ₹10.6 trillion in Q3 FY24, representing 34% of the overall housing finance market. Affordable Housing Finance Companies (AHFCs) have witnessed robust recovery, with a projected growth of 29% in FY24 and 30% in FY25. However, this segment faces challenges such as narrow profit margins due to small loan sizes and increased credit risk, necessitating careful underwriting and risk management. Despite India’s housing finance penetration being lower than many emerging markets, standing at less than 8% of GDP compared to China’s 12% or Spain’s 46% historically, the mortgage-to-GDP ratio is projected to reach 14-15% by FY25, signaling substantial room for expansion. Major players include LIC Housing Finance, PNB Housing Finance, and Home First Finance Company India Ltd, among others, with varied market capitalizations and valuation metrics. The sector’s growth is supported by a current repo rate of 6.50%, though future adjustments will be monitored. Historically, reforms like RERA and GST have prepared the ground for this sustained upcycle, with technology adoption and algorithmic credit assessment becoming increasingly important.

Future Outlook: Sustained Momentum and Emerging Trends

The trajectory for India’s housing finance sector appears robust, driven by a confluence of demographic factors, increasing urbanization, and continued government focus on housing for all. Projections indicate a Compound Annual Growth Rate (CAGR) of 24.1% from 2024 to 2033 for the overall housing finance market, potentially reaching USD 2,669.39 billion by 2033. The sustained demand for housing in tier 2 and tier 3 cities, coupled with evolving consumer preferences for sustainable and digital solutions, presents new avenues for growth. While the sector benefits from strong structural fundamentals and policy support, vigilant monitoring of credit quality, funding costs for HFCs, and the competitive interplay between traditional lenders and newer fintech-driven entities will be crucial for sustained, stable expansion.