Affordable housing lenders stare at defaults as MSME workers set to take the biggest hit of Trump’s tariffs

Housing finance companies (HFCs) lending for affordable homes are expected to see headwinds and defaults as a large segment of borrowers working in SMEs and MSMEs, as a collateral damage, are likely to take the sharpest blow from the tariff imposed by U.S. President Donald Trump on India’s imports.

According to Central Government estimates MSMEs alone contribute nearly 30% to the country’s GDP and over 45% of exports. Over 260 million people formally and informally employed in labour-intensive textiles, engineering, auto components, gems and jewellery, food processing industries which will take the biggest hit from the trade war, feel analysts.

“India’s affordable housing segment is mainly driven by demand coming from the country’s MSMEs and SMEs which, despite their relatively modest scale, are deeply integrated into India’s export ecosystem. Their workforces are the primary clientele for affordable housing,” said Prashant Thakur, Executive Director – Research & Advisory, Anarock Group.

“Housing finance institutions that cater to this segment’s home loans will look at a growing risk – of defaults at worst, and dampened disbursements on account of lower demand at best,” he said. 

He said post-pandemic, the demand for affordable homes, which cater to about 17.76% of India’s population, declined, clearly reflecting in a drop in supply of affordable housing. Its share of the total launches plummeted from 40% in 2019 to just 12% in H1 2025, he said. 

Now, with affordable housing sales in crosshairs, the HFCs catering to this buyer segment may see more loan defaults, he added. “This category of homes priced Rs 45 lakh or less was already gravely hit by the COVID-19 pandemic and is still struggling to find any semblance of firm ground. Trump’s mercenary tariffs will snuff out even the dimmest ray of hope for this segment,” Dr. Thakur cautioned.

According to Anarock data, as of H1 2025, the sales share of affordable housing has dropped to a mere 18%, or about 34,565 units of a total of 1.90 lakh units sold in the top 7 key cities. “The fact that affordable housing had an overall sales share of more than 38% in 2019 shows how badly its momentum has faltered,” he said.

He said when the SME/MSME workers would find the going tough and will be in not position to contribute to the growth of affordable housing, this segment may collapse.

“So far, the global economy presented a major opportunity to Indian MSMEs to seize new export markets, build global supply chains, and diversify revenue streams. The new tariff imposition, if it takes hold, puts a roadblock on what should be a no-limits speedway – and a chakka jam on the affordable housing vehicle that drives the homeownership dreams of the largest lower quadrant of the Indian population,” Dr. Thakur said.

“Because of the disruption in this large workforce’s future income thanks to the tariffs, affordable housing demand may very possibly derail and further impact sales in this highly income-sensitive segment,” he cautioned. 

“Concurrently, such a drop in demand will curtail launches by developers, who will have to contend with tighter working capital due to lower sales. As it is, they have been grappling with serious input cost inflation since the pandemic,” he added. In short, the fate of India’s affordable housing segment hangs in the balance. How the government addresses the issue through coordinated policy, fiscal safeguards, and buyer-focused support measures would be pivotal, Dr. Thakur concluded.