Unchanged repo rate bodes well for housing sector, say property consultants

The Reserve Bank of India today decided to keep the repo rate unchanged at 6.5%, leading to a rate pause for the eighth consecutive time. This decision bodes well for the housing sector which is already witnessing a strong demand across the country.

This stability ensures that home loan interest rates will remain low, at least in the near future, making housing more affordable for potential buyers. With unchanged borrowing costs, both developers and homebuyers will benefit from increased market confidence and predictability.

“The mid-range and premium property segments together account for more than 55% of the current supply. Together, they recorded approx. 76,555 units sold in Q1 2024 – nearly 60% of the total sales. The buyers of this segment are sensitive to volatile interest rates, and upward hikes would cause many of them to defer home purchases. This policy continuity supports sustained demand in these two segments,” said Anuj Puri, Chairman, ANAROCK Group.

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The affordable housing sector is, of course, most cost sensitive. While PMAY Urban has sanctioned 118.64 lakh homes against a demand of 112.24 lakh homes, affordable housing (homes priced under INR 40 lakh) sales in Q1 2024 recorded 26,545 units – a mere 20% of the total sales.

However, “as we have seen, unchanged home loan rates alone are insufficient to induce new vibrancy in the affordable segment. It is hoped that the government will soon introduce further incentives to support it. With the mandate of a stable government now manifest in an unchanged monetary policy, the housing sector’s overall growth momentum will continue,” added Puri.

Anurag Mathur, CEO, Savills India, said, “The RBI policy decision to maintain status quo fosters consumer confidence and bodes well for the already thriving economy, especially the housing sector which is already witnessing a strong demand across all major cities of India. However, near-term fluctuations in food inflation will have to be monitored and tackled prudently.”

It may be noted that the RBI has successfully maintained the resilience of the Indian economy, contributing to sustained growth momentum even amidst a challenging global environment.

“The good news is that CPI inflation continues to soften, and the GDP growth rate is projected to remain above 7% for all quarters of FY2024-25. Additionally, the monsoon is expected to be favorable, reducing potential risks to the economy. Given these positive indicators, we anticipate optimistic sentiments to continue, also the upward trend in housing demand, particularly in the high-end and luxury segments, will persist for the foreseeable future,” said Ashwin Chadha, CEO, India Sotheby’s International Realty.

“The choice to keep the repo rate unchanged at 6.5% indicates a balanced method to helping economic balance even as handling inflation. This ensures a predictable environment that encourages both customers and traders to make informed choices. Stability in interest prices is prime to maintaining self belief and fostering boom inside the housing marketplace,” said Shiwang Suraj, Director & Founder, InfraMantra.

Although the rates have been left unchanged for now, there is all likelyhood of the policy rate cut in the months to come.

Commenting in this, Samir Jasuja, CEO and MD of PropEquity, said, “With overall inflation falling within the RBI range, a policy rate cut may not be very far away. Real estate prices have gone up substantially and a future rate cut will give much higher purchasing power to the customer, which is the need of the hour. Such a move would be welcome news for homebuyers across cities, including metro cities as well as tier II and III cities.”

Shrinivas Rao, FRICS, CEO, Vestian, is also of the view that this may be the last time the RBI has maintained status quo. “The repo rate may start its descent from the upcoming MPC meeting as higher kharif production is expected amid an above-normal monsoon, easing the prices of food items. Furthermore, this reduction in repo rates may provide respite to the real estate sector and fuel the growth momentum further.”