In light of the recent deceleration in economic growth and the rise in inflation, the Reserve Bank of India (RBI) in its MPC meet on Friday opted to maintain the repo rate at 6.5% for the eleventh consecutive time. To alleviate liquidity challenges, it also reduced the cash reserve ratio (CRR) to 4%.

This adjustment is beneficial for the Indian real estate sector, as it enhances the lending capacity of banks, thereby enabling developers to secure additional funding for their projects.

“While a reduction in the repo rate could have further stimulated housing sales, particularly given the observed decline in sales over the past two quarters, the persistence of relatively low home loan interest rates is likely to attract potential borrowers. This is especially pertinent as housing prices experienced a notable increase in the previous quarter,” observed Anuj Puri, Chairman, ANAROCK Group.

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According to ANAROCK Research, the third quarter of 2024 witnessed an annual increase of 23% in average housing prices across the top seven cities, with average prices rising to approximately Rs 8,390 per square foot by the end of Q3 2024, up from around Rs 6,800 per square foot in Q3 2023. Despite the price surge, housing sales experienced a decline in Q3 2024, with ANAROCK Research reporting an 11% decrease in residential sales compared to Q3 2023. Additionally, new property launches fell by 19% during this timeframe.

Consequently, the stable home loan rates are likely to sustain demand in the current market. Furthermore, “given the recent slowdown in sales, developers have been cautious about increasing prices. In this context, it is advisable for homebuyers to consider making purchases, as the overall cost of acquiring property remains relatively manageable,” added Puri.

Samir Jasuja, Founder and CEO of PropEquity, stated that achieving a $1-trillion real estate economy necessitates significant reforms in both fiscal and monetary policies. He emphasized the importance of making home loans more accessible and affordable to meet the substantial housing demand, which would, in turn, unlock the full potential of the Indian economy.

Jasuja said, “The reduction in CRR by the RBI will enhance liquidity in the economy, enabling developers to secure more funding, as there is an ongoing and substantial need for capital in this sector. However, a reduction in the repo rate would have further stimulated consumption and increased housing demand.”

Piyush Bothra, Co-Founder & CFO, Square Yards said the RBI decision to maintain the repo rate is somewhat disappointing, as many anticipated a reduction of at least 25 basis points.

“Nevertheless, the reduction of CRR by 50 basis points is expected to enhance liquidity within the banking sector and promote overall credit distribution. The real estate market remains strong, driven by considerable pent-up demand and improved affordability. We do not foresee any adverse effects on demand from the unchanged rates as we approach the final quarter, which is typically the most robust period of the financial year,” he added.

Aman Sarin, Director & CEO, Anant Raj Limited was also of the view that while the central bank opted to keep the repo rate steady, the decision to lower the CRR that banks must hold will release additional capital for lending, benefiting both retail and institutional borrowers.

“A reduced CRR also lowers operational costs for banks, which may lead to decreased interest rates. The housing market, especially in the luxury segment, continues to show strong demand, and this CRR reduction is anticipated to further enhance this momentum. With a growing economy and an increasing interest in luxury real estate projects, demand in this sector is expected to remain vigorous,” Sarin added.

Developers feel the RBI decision to keep the repo rate steady at 6.5% underscores the importance of financial stability, which is essential for the growth of the real estate sector, especially within the premium and luxury markets.

“This decision is particularly significant given the recent surge in inflation during September and October 2024, which has placed additional pressure on household finances. Nevertheless, 2024 has emerged as a pivotal year for luxury housing, driven by changing aspirations, international lifestyle influences, and a growing demand for spacious, well-appointed homes. This market segment has demonstrated exceptional resilience, consistently outperforming others with ongoing sales activity. The RBI Governor’s commitment to a robust growth outlook further enhances confidence in the economy, paving the way for sustained success in the high-end real estate sector,” said Aditya Kushwaha, CEO and Director, Axis Ecorp.

The current stability in interest rates offers a level of assurance for both prospective homebuyers and the real estate industry, which relies on consistent rates.

“Should inflation remain manageable, we may anticipate a reduction in rates during forthcoming meetings, providing essential relief to borrowers and further invigorating the housing market. For the real estate sector, stable interest rates are advantageous as they help preserve affordability for potential buyers, thereby sustaining demand and fostering growth. This, in turn, contributes to overall economic stability, particularly given that the sector accounts for 7% of India’s GDP. Looking ahead, we are hopeful that the Reserve Bank of India’s approach will continue to cultivate a favorable climate for both consumers and the broader economy,” said N. K. Gupta, Chairman, Manglam Group.

Mohit Goel, Managing Director, Omaxe Ltd, said, “This consistency in home loan interest rates is vital for fostering buyer confidence and ensuring predictable repayment schedules, which subsequently encourages investment in the real estate market. We anticipate a significant increase in sales activity in the fourth quarter of 2024, propelled by these advantageous circumstances. As property values continue to escalate, stable lending conditions become increasingly crucial for sustaining growth within the sector. The RBI decision is instrumental in generating the momentum necessary for a thriving real estate market.”