India's Housing Finance Sector Booms as a Top Investment Destination in 2024

The housing finance sector in India has emerged as one of the most attractive investment opportunities in 2024, drawing massive interest from private equity (PE) and venture capital (VC) firms. Once overshadowed by the tech-dominated investment landscape, the sector has experienced a remarkable resurgence, driven by rising housing demand, lucrative opportunities in tier-3 and -4 towns, and a proven record of delivering stable, long-term returns.

From exponential fundraising growth to headline-worthy acquisitions, India’s housing finance sector is commanding attention. This article explores the data, drivers, and future of this growing industry, highlighting why it has become a preferred choice for investors seeking both resilience and rewards.

A Sector in High Demand

India’s housing finance companies raised an impressive $826.8 million across nine funding rounds in 2024, compared to just $82.6 million across five rounds in 2023, according to Tracxn. This tenfold surge in capital underscores the sector’s newfound prominence as investors gravitate toward its stability and growth prospects during uncertain economic times.

Why the Sudden Surge?

Three main factors have fueled the massive wave of interest in housing finance:

1. Rising Housing Demand: Urbanization, rising disposable incomes, and government-backed affordable housing schemes like PMAY (Pradhan Mantri Awas Yojana) have significantly increased the demand for home loans. Aspiring homeowners see these schemes as stepping stones into housing markets that were once inaccessible.
2. Resilience of Mortgage Lenders: Housing finance companies have consistently demonstrated their capacity to maintain profitability, even during challenging periods. Their ability to control operational costs while catering to a growing audience has inspired confidence in investors.
3. Opportunities Beyond Metros: With tier-1 cities nearing saturation, tier-3 and -4 towns are leading the next wave of growth. Home loans ranging from ?5–25 lakh for property construction, renovation, and purchases are driving opportunities in economically weaker sections (EWS) and lower-income groups (LIG).

2024’s Key Funding Highlights

This year saw several impactful funding rounds, underscoring the sector’s investment potential.

• Vastu Housing Finance stood out with a $100 million infusion from Prosus in December. Earlier in the year, TA Associates and IFC collectively led a massive $400 million funding round for the company.
• Vridhi Finserv Home Finance raised $37 million in September, with backing from Norwest Venture Partners and Elevation Capital.
• Shubham Housing Finance secured $47 million from Multiples Alternate Asset Management, among others.

Highlighting the shift in investor priorities, Apoorve Goyal, Managing Director at India Investments (Prosus), remarked, “Over the last 12–18 months, tech-first investors have realized the attractiveness of affordable housing finance.”

Strategic Acquisitions Pave the Way

Adding further momentum to the sector were two landmark acquisitions in 2024, signifying long-term investor confidence:

• Warburg Pincus acquired Shriram Housing Finance for ?4,630 crore in May.
• EQT purchased 100% of Indostar Home Finance for ?1,750 crore in September.

These buyouts highlight housing finance firms’ strategic importance in balancing diversified portfolios and capturing India’s growing demand for home loans.

IPO Boom Reinforces Investor Confidence

Housing finance companies made a splash in public markets this year, with two noteworthy IPOs filling the void left by the HDFC-HDFC Bank merger:

• Bajaj Housing Finance raised ?6,560 crore in its IPO debut in September.
• Aadhar Housing Finance went public with a ?3,000 crore issue in May.

The success of these IPOs marks a new chapter for emerging companies, providing both visibility and an infusion of fresh capital.

Looking to the Future

The Indian home loan market, currently valued at $300 billion, is projected to grow at a robust CAGR of 22.5% over the next five years. Investors are now betting on housing finance firms not only for stable returns but also for consistent growth.

“Specialist housing finance companies leveraging technology and local expertise have consistently delivered over 30% returns per annum over the past decade,” said Abhijit Chiripal, Managing Director at DC Advisory.

Why Tier-3 and -4 Towns Are the Next Frontier

While tier-1 cities grapple with soaring property prices and limited availability, smaller towns hold immense potential for scaling. Tier-3 and -4 towns, home to much of India’s EWS and LIG populations, represent an untapped market for affordable housing solutions.

Housing finance companies catering to these underserved regions are uniquely positioned to benefit from higher demand for smaller loan amounts tied to affordable housing projects. Additionally, with advancements in fintech, housing finance firms can streamline application processing, improving loan accessibility for newer borrowers.

The Big Picture

India’s housing finance sector is at the intersection of resilience and growth, making it a strategic addition to diverse investment portfolios. By addressing fundamental housing needs and tapping into new geographies, the sector aligns itself with long-term, sustainable development.

From private equity funding to IPO wins, India’s housing finance firms are not just rebuilding the nation—they’re reshaping its investment ecosystem. Armed with government-backed incentives and rapidly evolving fintech capabilities, the sector is poised to accommodate India’s rising housing aspirations while delivering strong financial returns.

For PE and VC firms, this isn’t just a passing trend; it represents a calculated shift toward investments that sustain profitability amidst macroeconomic fluctuations.

Investments Rooted in Human Needs

The resurgence of India’s housing finance sector demonstrates the powerful draw of investments anchored in fundamental human requirements—housing is, after all, a universal need. And in this dynamic space, the opportunities for growth, profit, and societal transformation are boundless.

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Disclaimer

This article should not be interpreted as investment advice. For any investment decisions, consult a reputable financial advisor. The author and publisher are not responsible for any losses incurred by investors or traders based on the information provided.