# Mature stabilised size of housing finance market

I was think about how large the housing finance market will be at its peak without turning into a bubble. So, did some rough calculations taking some assumptions (there will be errors, pls feel free to correct):

Average Age (life expectancy) of house or apartment = 80 yrs.

India’s peak population=150cr.

Average household size when Indian economy matures = 3 members per household (right now it is 4.8 for India , 3.1 for China iirc and 2.x for US, Germany, Japan etc)

Meaning India needs 150/3=50cr new houses every 80 yrs. Or 50/80crore new houses per year.

Occupancy rate = 100% (meaning all houses are occupied, either owned or taken on rent)

For each and every house, let us say 15 lac loan is taken. (pls correct me). Let us say the loan is taken for 15 yrs period on average.

Let us assume, for every loan of 15lacs, 14 lacs is outstanding loan after 1 year (1 lac principal is paid back to the bank in 1 yr), 13 lac is outstanding after 2 years…and 1 lac loan outstanding after 14 yrs.

So when India becomes a optimal economy (where say everyone is eligible for a 15 lac loan), then at all times, the total asset size (loan book size) of the home loans would be=

50/80(15+14+13+12…+2+1) lac crores=

75 lac crore = 75trillion rupees

According to NHB (national housing board) data, it was 10 trillion rupees 2 yrs back growing at 20-25% cagr. So, at this point, it should be 15trillion rupees.

That gives a 5 fold increase possibility till the time India becomes a more prosperous economy.

One can multiply RoA of between 1.5 to 1.7 to get at the profits figure per year.

Largest players in housing finance market are SBI,Icici home loans and HDFC.

1 Like

Compare with GDP size: 15 trillion rupees is 11.5% of 2 trillion dollar economy (taking exchange rate of 65 rupees per USD).

Let us say, the GDP size is 5 trillion USD when the housing finance market does become 75 trillion rupees. Taking same exchange rate of 65rupees: 75/(5*65)=23%

China’s home loan market is 20% of its GDP at this point BTW. And USA’s mortgage debt is 45% of its GDP.

I could not understand how you are trying to explain the current market size of Housing loan. 15 Lac loan seems to be too low. You can look at the figures from HDFC annual report.

What I could make out is the market is pretty big and companies can grow for many many years at CAGR of 20%+?

Some people need no loan, some 5 lacs , some 20 lacs, some 30 lacs…
I have taken 15 lacs as an average for every new house bought. You can correct me if the assumption is off. What does the HDFC report say?

What else did you not understand? ( I can try to put it in a better way)