The Reserve Bank of India’s decision to cut the repo rate by 25 basis points is expected to drive a further push to automotive and real estate demand, spurred by the Budget announcement of nil tax on an annual income of up to Rs 12 lakh.
In automobiles, the two-wheeler and the compact four-wheeler segments are expected to benefit the most from the central bank’s decision, while in real estate, it is likely to revive demand in affordable and mid-income housing. The affordable housing segment, a focus area of the government, has been struggling with lower sales in the past couple of years due to high interest rates.
The rate cut, first in nearly five years, will provide the much-needed boost to demand in these rate-sensitive sectors, according to industry players and experts.
Anish Shah, managing director and CEO of automobile manufacturer Mahindra & Mahindra, said, “The fundamentals of the Indian economy are very strong, though we have seen some blips in the short run.” The rate cut, along with the tax proposals in the Budget, will provide “a demand stimulus,” he added.
M&M is planning to increase the production of its XUV 3XO – a compact SUV – to meet the growing demand. This SUV is expected to gain better traction since the salaried class prefers it to other models in the M&M portfolio, according to M&M executives.
CS Vigneshwar, president, Federation of Automobile Dealers Association (FADA), echoed his sentiment. “With auto loans set to become more affordable, we expect stronger demand in the price-sensitive two-wheeler and the entry-level car segments, which have faced the brunt of steep price hikes and affordability concerns,” Vigneshwar said.
In the real estate sector, affordable housing is expected to be the key beneficiary of the rate cut.
“For real state, this development is a significant boost, particularly for affordable and mid-segment housing, where the demand has been steadily rising,” said Venkatesh Gopalakrishnan, director, group promoter’s office, and managing director, Shapoorji Pallonji Real Estate (SPRE).
The share of affordable housing in the overall housing supply in the top seven cities fell to 16% in 2024 from nearly 40% in 2019. In terms of sales also, the segment’s share has been declining since the Covid-19 pandemic — from over 38% in 2019 to nearly 18% in 2024 – according to Anarock Property Consultants.
Gopalakrishnan said lower borrowing costs will not only help fulfil the dream of aspiring homebuyers but also fuel more investments in the sector.
Sanjay Dutt, MD and chief executive at Tata Realty and Infrastructure, said that while premium and luxury housing has been doing well, a reduction in rates will immensely benefit the affordable housing segment, especially in Tier 2 and 3 cities.
Anuj Puri, chairman at Anarock Property Consultants, said that with the rate cut, “many first-time homebuyers who had been hesitating to take the plunge are likely to make a move now,” given banks pass on the key benefits to buyers.
As housing prices have risen across the top seven cities in the past year, this breather is timely, Puri added.
According to Anarock Research, average housing prices rose 13-30% in the top seven cities in 2024, with the National Capital Region (NCR) registering the highest 30% jump. The average price in the top seven cities stood at nearly Rs 8,590 per sq ft at the end of 2024, an increase of 21% from Rs 7,080 per sq ft at the end of 2023.
Tata Realty’s Dutt also expects an accelerated consumption-led growth in the industry due to the rate cut as well as the government’s “progressive Budget measures, including tax benefits and infrastructure investments.”
Amit Bhagat, co-founder, CEO and MD, ASK Property Fund said: “The RBI’s rate cut, along with the Budget initiatives such as providing tax benefits across tax slabs, provisions on self-occupied houses, and SWAMIH Fund 2, will aid in maintaining the housing demand momentum and drive a sustained sales growth.”
In the Budget for FY26, presented on February 1, the finance minister proposed that there will not be income tax till the income limit of Rs 12 lakh under the new regime, which is expected to leave disposable income in the hands of taxpayers.