Budget 2024: Home financiers root for revamped PMAY scheme, housing loan subsidies

Since the election results were announced on June 4, housing finance companies have surged on the stock markets

Affordable housing is expected to receive continued attention from the government, with market observers predicting increased allocation under the Pradhan Mantri Awas Yojana (PMAY) and subsidies for housing loan borrowers in Budget 2025.

If these announcements come through, it could spell cheer for the housing finance sector and fire up sentiment for the listed stocks in this segment.

Since the election results were announced on June 4, housing finance companies have surged on the stock markets. Shares of LIC Housing Finance, Can Fin Homes, HUDCO, PNB Housing Finance, Home First, Aptus Value Housing, and Aavas Financiers have jumped up to 46 percent, compared to the benchmark Nifty 50's 12 percent rise.

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2024 Budget checklist

Analysts at Morgan Stanley noted that the housing finance industry is seeking increased allocation in the PMAY-Gramin scheme, which would boost demand for homes in tier-2 and tier-3 cities. Under the revamped PMAY-G scheme, industry experts expect cash support to increase to Rs 2.3-2.4 lakh per housing unit from Rs 1.2-1.3 lakh in the previous scheme, due to rising construction costs.

According to Anuj Puri, Chairman of ANAROCK Group, the government should also revive the credit-linked subsidy scheme under the PMAY scheme. Expired in 2022, this scheme provided subsidies for economically weaker sectors and low-income groups purchasing affordable homes. Revamping this scheme would once again stimulate demand among first-time home buyers.

Tax incentives

The industry is also hoping for an income tax revision, according to a Morgan Stanley report. Specifically, they want the government to increase the limit of eligible deduction for interest paid on home loans to at least Rs 3 lakh.

Industry experts are also seeking a redefinition of affordable housing. Currently, affordable housing is defined as a house or flat with a carpet area up to 90 square meters in non-metropolitan cities and towns, and 60 square meters in major cities, valued up to Rs 45 lakh. Experts want this limit increased to at least Rs 60-65 lakh in non-metro cities and Rs 85 lakh in metros, enabling further construction under the 'affordable housing' tag and extending benefits to customers.

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The affordable housing segment has been struggling since the Covid-19 pandemic, in contrast to larger and more expensive homes that have been selling rapidly. According to data from real estate consultancy Anarock, the sales share of affordable housing in India reduced significantly from over 38 percent in 2019 to 20 percent this year. Due to low demand, the share of affordable homes in the overall supply also fell to 18 percent this year, from nearly 40 percent in 2019.

Analysts believe that if these measures are implemented gradually, they would not only revamp the realty sector but also bolster the prospects of housing finance companies due to stronger demand and credit offtake.

HFCs outpace banks

In the past decade, housing finance companies grew faster than banks in the first five years (FY13-18), leading to market share gains, said analysts at Nomura. Outstanding individual housing loans in India registered a healthy CAGR of 15 percent during the past decade and stood at Rs 30 lakh crore as of September 2023, they added.

From an investment standpoint, Nomura preferred Aadhar Housing Finance out of the housing finance pack due to its diversified presence in 20 states. Its closest competitor, Aavas, is present in 13 states.

“Aadhar and Aavas are more focused on self-employed and informal salaried customers versus Homefirst’s focus on salaried customers. Aadhar has a longer runway for growing its LAP book due to its higher share of home loans and its lowest opex ratios in the industry," they added.

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