The Reserve Bank of India’s decision to keep its benchmark interest rate unchanged at 6.5% for the 11th consecutive time citing continued inflationary pressures means stable EMIs for homebuyers amidst rising housing prices.
To address the liquidity woes, RBI also decided to slash the cash reserve ratio (CRR) from 4.5% to 4%. This would lead to release of โน1.16 lakh crore to banks and improve their lending capacity. The CRR is the percentage of a bankโs total deposits that it is required to maintain in liquid cash with the RBI. The CRR percentage is determined by the RBI from time to time. Banks do not get any interest on this amount.
โBy reducing the CRR from 4.5% to 4%, the RBI has freed up additional funds in the banking system, enabling banks to lend more. This move is expected to result in lower lending rates, making home and personal loans more affordable for borrowers. Reduced borrowing costs can lighten Equated Monthly Installments (EMIs), encourage credit uptake, and stimulate sectors such as housing and small businesses, thereby supporting economic growth while easing financial burdens on borrowers,โ said Raoul Kapoor, Co-CEO, Andromeda Sales and Distribution Pvt Ltd.
โThis cut in CRR is positive for the Indian real estate sector, as banks will have higher lending capacity. This directly supports developers to borrow more for development. A repo cut in repo rate would have definitely helped boost housing sales momentum further, particularly since we have seen sales tapering in the last two quarters. However, the continuation of relatively affordable home loan interest rates will attract borrowers from this segment, especially since housing prices saw a significant rise in the last quarter,โ said Anuj Puri, Chairman – ANAROCK Group.
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Thus, the unchanged home loan rates support demand in the ongoing period. Further, given that sales were tapering in the last two quarters, developers too have been cautious about hiking prices lately. In this scenario, it makes sense for homebuyers to press the ‘buy’ button as the overall cost of acquisition of a property will remain relatively affordable, he advises.
As per ANAROCK Research, Q3 2024 saw average housing prices rise yearly by a cumulative 23% in the top 7 cities even as average prices in these markets collectively rose to approx. INR 8,390 per sq. ft. by Q3 2024-end, from approx. INR 6,800 per sq. ft. in Q3 2023.
With prices rising, housing sales declined to some extent in Q3 2024. As per ANAROCK Research, Q3 2024 saw residential sales go down by 11% annually against Q3 2023. New launches also fell by 19% in this period.
While a rate cut would have been favourable for the real estate sector, further boosting home buyer sentiment in conjunction with the festive season and reducing borrowing costs, โ the status quo is not expected to negatively impact the market’s current momentum. Inflation is seasonal in nature and is expected to reduce in the next quarter suggesting potential for future rate cuts. If implemented, these cuts could invigorate both the real estate sector and the wider economy, improving housing affordability and likely accelerating market dynamics,โ said Samantak Das, Chief Economist and Head of Research and REIS, India, JLL.
A rate cut would have been beneficial for home buyers
Shishir Baijal, Chairman and Managing Director, Knight Frank India, however, is of the opinion that while the continued shift towards a neutral stance suggests that the central bank’s focus is gradually moving from inflation control to supporting growth, at this point, a rate cut would be more beneficial for consumers, including home buyers, as borrowing costs remain high despite the unchanged repo rate.
โThe growth in home loans has slowed, and consumption among lower-income groups has significantly decreased, as witnessed in sharp moderation in sales of affordable housing,โ he said.
Real estate developers hope for a rate cut in the New Year
Realtors hoped that going ahead into the New Year, “the RBI and the government continue to leverage the robust growth and potential offered by real estate and agriculture sectors in particular, via a combination of policy interventions and reduced rates to form a conducive eco-system for sustained and sustainable economic growth,” said Boman Irani, president, CREDAI.
โThe RBI decision to keep the repo rate unchanged is on the expected lines providing much-needed stability to the housing market. Going forward, the RBI should consider reducing rates as it will further boost investment in the real estate sector. We definitely hope to see lower interest rates which will provide further impetus to not just real estate and housing demand but across industries and economic growth,” added Ramani Sastri, Chairman and MD, Sterling Developers.
“A rate cut would have provided the necessary boost to the GDP while also improving homebuyerโs sentiment in the mid-and-affordable housing segment. However, we do anticipate that the RBI would provide the much-needed stimulus soon in the February-2025 MPC meet, to bolster the overall consumer spending. For the housing sector, in particular, lower lending rates would serve as a catalyst for a sustained momentum,โ said Anshul Jain, Chief Executive India & SE Asia & APAC Tenant Representation, Cushman & Wakefield.
