Stable government, improved law and order situation, and rising income levels have been identified as key drivers of credit demand for real estate in Uttar Pradesh, brokerage firm ICICI Securities said in a report.

During a visit to Uttar Pradesh, the brokerage engaged with key stakeholders, including senior executives and branch-level staff from over five affordable housing finance entities, to gain insights into the region's demographic dynamics and the strategic approaches of lenders towards tapping into the growing credit potential.

ICICI Securities' interactions showed that disbursements are estimated at Rs 1,000 crore for loans averaging Rs 25 lakh. The market, currently served by a diverse array of entities including banks, housing finance companies (HFCs), and affordable housing companies (AHFCs), has seen each player carve out a niche in various metrics such as turnaround time, self-construction, and competitive rates.

Of particular interest is the observation that AHFCs predominantly operate beyond city limits, catering to properties falling under gram panchayat areas, while banks and large HFCs focus within city limits.

Moreover, the proposed Lucknow - State Capital Region (SCR) - is expected to be a game-changer in the economic development of the state, encompassing areas like Hardoi, Raebareli, Sitapur, Barabanki, and Unnao, the brokerage noted.

The surge in property prices, particularly supported by increasing ticket sizes, reinforces the evolving real estate landscape in cities like Lucknow, Ayodhya, and Varanasi.

While the proposed SCR, property prices are expected to witness further escalation, akin to the trajectory seen in Delhi – NCR, the Mumbai-based brokerage highlighted.

Moreover, housing finance in Uttar Pradesh is categorised into apartment markets, self-construction, and plot and construction segments, with banks dominating the former and AHFCs focusing on the latter, driven by higher yields. As competition intensifies, AHFCs are gradually shifting focus towards plot and construction, tapping into the substantial credit demand in these segments.

Considering these factors, ICICI Securities foresees Uttar Pradesh as a key growth market driven by political stability, government schemes, and structural changes, with Ayodhya emerging as a promising city for future development.