The Reserve Bank of India’s decision to keep repo rates unchanged at 6.5% for the 10th consecutive time will help the housing market to maintain momentum during the festive season. With interest rates staying steady, equated monthly installments will remain manageable for current and future homeowners, potentially leading to increased home sales, particularly in the festive months.
A few experts are of the opinion that a rate cut would have given a golden opportunity to reinvigorate the real estate market with reduced interest rates ahead of the festive season, which is a crucial period for real estate sales.
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“The unchanged home loan rates are much-needed demand support in the ongoing festive quarter. Unchanged interest rates will play an important role in achieving and maintaining the sales momentum,” said Anuj Puri, Chairman – ANAROCK Group.
“With the fundamentals of the Indian economy remaining strong despite global headwinds, geopolitical tensions and inflation well within control, the RBI has once again decided to keep the repo rates unchanged at 6.5% – thus helping the housing market to maintain momentum during the festive season. While a repo rate cut would have been preferable, it is clear that the RBI is on a tightrope walk and must keep various macro-economic factors in mind,” said Anuj Puri, Chairman – ANAROCK Group.
From the point of view of homebuyers, the relatively affordable home loan interest rate regime will continue at a critical time for the Indian housing market – the festive season – amid rising housing prices and tapered sales. Q3 2024 saw average housing prices rise by a cumulative 23% in the top 7 cities even as average prices in these markets collectively rose to approximately ₹8,390 per sq. ft. by Q3 2024-end, from approximately ₹6,800 per sq. ft. in Q3 2023.
Housing sales also declined to an extent in Q3 2024, even as prices rose. As per ANAROCK data, Q3 2024 saw residential sales go down by 11% annually against Q3 2023. New launches also fell by 19% in this period.
Also Read: Top eight housing markets witness a 5% drop in sales, 25% fall in new launches; demand up only in NCR: Report
“We are expecting faster sales momentum in Q4 2024 when compared to the preceding quarter. This year’s festive quarter may see similar demand to that seen in this period a year ago, if not higher. Over 1.27 lakh units were sold across the top 7 cities back in Q4 2023,” he said.
According to Samantak Das, Chief Economist and head of research and REIS, India JLL, while a rate cut would have been favorable for the real estate sector, further boosting home buyer sentiment in conjunction with the upcoming festive season and reducing borrowing costs, the status quo is not expected to negatively impact the market’s current momentum. The change of stance to neutral is early indicator of the change in the interest rate policy going forward.
Revised neutral stance seems somewhat like a missed opportunity, a rate cut would have helped
“As RBI remains cautious regarding potential inflationary pressures, the central bank’s decision to keep the repo rate unchanged at 6.5% – albeit with a revised neutral stance – seems somewhat like a missed opportunity, especially with the festive season around the corner. With GDP growth clocking in at 6.7% in the last quarter, lesser than RBI’s target of 7%, a rate cut at this juncture would have provided the ideal boost to accelerate consumer demand across industries – positively impacting economic growth going into Q3 FY 2025,” said Boman Irani, president, Credai.
“The housing sector, in particular, typically experiences a surge in homebuyer interest and transactions during the festive season and with the sector’s unique multiplier effect in play, a rate cut would have enabled real estate to have an even bigger compounding impact on India’s GDP growth and other macro-economic indicators. CREDAI remains hopeful that the central bank will cut rates in the next quarter and provide further momentum to the economic growth and demand across sectors,” he added.
Developers welcome RBI’s decision to keep repo rates unchaged for 10th time in a row
“The RBI has once again kept the repo rate unchanged which implies that there will be no immediate effect on home loan EMIs,” said Raman Shastri, Chairman and MD, Sterling Developers.
While the real estate sector has witnessed robust growth in recent years in the context of continuous demand, a rate cut would have given a golden opportunity to reinvigorate the real estate market with reduced interest rates ahead of the festive season, which is a crucial period for real estate sales. Going forward, we hope to see lower interest rates which will provide an impetus to not just real estate and housing demand but across industries and economic growth, he said.
Manju Yagnik, vice chairperson of Nahar Group and senior vice president of NAREDCO Maharashtra said that the RBI’s decision to maintain the repo rate at 6.5% represents a significant positive step for the real estate sector, providing essential stability amid ongoing global economic uncertainties.
“This consistency is particularly crucial as we approach the festive season, which is traditionally a peak time for home purchases. By keeping borrowing costs steady, EMIs remain manageable, encouraging potential homebuyers to invest in property, especially in the affordable housing segment,” said Yagnik.
This stability will benefit developers by improving cash flow and reducing borrowing expenses for ongoing projects, Yagnik added.
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“Policy stability bodes well in the ongoing festive season which promises to be a significant phase in terms of real estate demand as the industry is hopeful of the continued rise in residential sales. As and when a rate cut is anticipated soon, which, when implemented, will benefit both homebuyers and real estate developers to capitalize on the market and strengthen overall economic growth,” said Pradeep Aggarwal, founder and chairman, Signature Global (India) Ltd.
Vimal Nadar, Head of Research, Colliers India is of the opinion that while RBI has kept the benchmark lending rates unchanged at 6.5%, a change in stance from “withdrawal of accommodation” to “neutral” indicates its clear direction for a possible reduction in interest rates in the foreseeable future.
“This ongoing stability in repo rate should provide a significant thrust to residential real estate during these festive months as home loan interest rates are likely to remain steady,” he added.
Homebuyers usually wrap-up their property purchases in the fourth quarter during the auspicious period aided by developers offering attractive discounts.
“Additionally, steady borrowing costs and recent extension of Input Tax Credit (ITC) by the Supreme Court can potentially benefit property developers engaged in construction of commercial office buildings,” added Nadar.
