Investment Banking

Investing in Affordable Housing companies: The next big wave

February 2020

Read Time: 2 minutes

The housing finance market in India is expected to become a USD 750 billion opportunity over the next 5 years, with multiple macro levers in place to propel growth. Within the overall housing space, the Affordable Housing sub-segment has become the forerunner to realize the dream of “Housing for All” under the Pradhan Mantri Awas Yojana. It is this sweet spot where there is a huge opportunity for specialized Affordable Housing Finance Companies (AHFCs) to carve a niche for themselves.

 

With their differentiated capabilities and unique ways to assess customer incomes, AHFCs perform an important role of providing financing options to the customer segment which has been unserviceable by banks in our country’s history for a long time. To encash on this huge market opportunity, more than 90 AHFCs have been registered with the National Housing Bank. These AHFCs distinguish themselves on multiple parameters – geographies served, borrower mix, product offerings, sourcing strategy, underwriting and collections methodologies and technology. All these parameters are major value drivers are of specific interest to investors while evaluating AHFCs.

 

However, there are certain risks that one needs to thoroughly evaluate to understand the risk-adjusted returns better in the housing finance space. These risks came to the fore during the recent IL&FS and DHFL liquidity events. Nevertheless, the last few months have given an opportunity for many AHFCs to take a step back and take a fresh look at their business models. Over the last three years, Avendus has had the opportunity to engage extensively with the new-age AHFCs and our conviction in the space has only grown. We feel this is one sector to look-out for over the next few years from a lending point of view.

 

We recently published a report covering cover multiple aspects with respect to AHFCs, namely – drivers for growth, a framework to evaluate AHFCs from an investors perspective, key risks in the sector and the upcoming trends that have the potential to transform the sector. 

 

To access the full report, please click here.

Author: Anshul Agarwal, Executive Director and Co-head, Consumer, FIG & Business Services, Avendus Capital

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