India's housing finance landscape presents a compelling narrative of untapped potential and burgeoning opportunities. Despite being one of the world's fastest-growing economies, India's mortgage penetration remains markedly lower than that of developed and several emerging markets. This disparity underscores a significant growth avenue for India's housing finance sector, driven by demographic shifts, economic policies, and evolving market dynamics.
As of 2024, India's mortgage penetration stands at approximately 12%, slightly above the global average of 10% but significantly lower than many developed nations, where rates range from 20% to 65%. For instance, countries like the United States and the United Kingdom boast mortgage-to-GDP ratios of 52% and 69%, respectively.
However, India's housing market is experiencing a revival, with outstanding housing loans increasing by nearly ₹10 lakh crore (approximately $120 billion) over the past two fiscal years, reaching a record ₹27.23 lakh crore as of March 2024.
(Source of Information: Business Standard)
This growth is fueled by a strong post-COVID recovery, rising property sales, and favourable government initiatives aimed at promoting affordable housing.
Cultural attitudes significantly hinder mortgage adoption in India. A strong preference for outright property ownership drives individuals to save and purchase homes without incurring debt, limiting their engagement with mortgage products.
Additionally, borrowing is often stigmatised, with debt perceived as a burden rather than a financial tool, particularly in rural and semi-urban areas. Owning property outright is closely linked to social status and financial stability, and the fear of defaulting on loans deters many from seeking mortgages.
Furthermore, generational beliefs about debt and property acquisition are passed down, perpetuating low mortgage penetration as younger generations inherit their parents' attitudes towards debt and homeownership.
Tier-1 cities such as Mumbai, Delhi, Bangalore, and Hyderabad have experienced substantial growth driven by rising property prices and strong demand in these metropolitan areas. Government initiatives like the Pradhan Mantri Awas Yojana (PMAY) have enhanced the affordable housing segment, making homeownership more accessible to lower-income groups.
Emerging Tier-II and Tier-III cities are seeing increased mortgage adoption due to urbanisation, rising incomes, and improved access to financing options. While mortgage penetration remains low in rural areas, there is significant potential for growth as financial institutions begin to focus more on these regions to address the acute housing shortage among low-income populations.
Several factors are set to drive growth in India's mortgage market over the next five years. Continued government initiatives, such as the Pradhan Mantri Awas Yojana (PMAY), will enhance housing accessibility and affordability.
Robust economic growth is expected to raise incomes, enabling more individuals to pursue homeownership. Technological advancements and the digitization of financial services will improve access to mortgage products, particularly for first-time buyers and those with limited credit histories.
Additionally, changing demographics, with two-thirds of India's population under 35, create a structural demand for housing that is likely to increase mortgage uptake as this demographic matures. Overall, analysts predict the mortgage market could expand at a 13- 15%% CAGR from FY23 to FY26.
Yes, the trend indicates that more people are likely to take home loans in the future. Factors such as rising urbanisation, government incentives for affordable housing, and a shift in cultural attitudes towards financing will contribute to this increase. The expected rate of mortgage penetration in India by 2030 is projected to increase significantly, potentially reaching around 20-25% of GDP.
Recognising the disparity in the Indian mortgage landscape, Akul Agarwal and Rishu Garg founded Credit Dharma, with the mission to simplify the home loan process, transparency, cost-effectiveness, and accessibility for potential homeowners.
With a digital and education first approach Credit Dharma aims to to organise the market by providing unbiased comparisons and partnering with all major banks to ensure our customers get the best possible rates. By developing an in house soft underwriting system, they are creating a fully digital journey for their customers.
"We are approaching a pivotal shift. As India's GDP per capita grows and the aspiration for homeownership strengthens, we anticipate a substantial increase in the demand for home loans. This growth is expected to be significant, moving beyond gradual increments to a rapid expansion. “ explains Rishu Garg and Akul Agarwal.
The landscape of mortgage penetration in India is evolving rapidly, driven by economic growth and supportive government policies. However, cultural barriers and regional disparities remain significant challenges that need addressing. By fostering an environment conducive to mortgage adoption through education and tailored financial products, India can unlock its vast potential in housing finance. As we look toward the future, the combination of demographic shifts and economic reforms suggests a promising horizon for increased mortgage penetration across the nation.
