The Reserve Bank of India (RBI) announced in its monetary policy committee (MPC) meeting on June 7, 2024 that it would keep the repo rate unchanged at 6.5 per cent. RBI has maintained the status quo on repo rate for the eighth consecutive time and has continued with its stance of “withdrawal of accommodation.” The last time it had raised rates by 25 basis points (bps) was in February 2023 to 6.5 per cent.
The repo rate is the rate at which the RBI lends money to commercial banks. When the repo rate is high, banks have to pay more to borrow money from RBI, and this cost is passed on to customers in the form of higher interest rates on loans. Conversely, when the repo rate is low, banks can borroReal Estatw money at a lower cost and offer loans at a lower interest rate.
Real estate industry leaders say that RBI’s decision to keep the repo rate unchanged will make housing affordable for buyers, with some even suggesting a lowering of rates in the future. However, some believe rates will not go down in the future. Overall though, the real estate sector believes that the housing market will receive a boost.
According to Anuj Puri, chairman, Anarock Group, the mandate of a stable government and an unchanged monetary policy will maintain the overall growth momentum in the housing sector. “The RBI’s decision to keep the repo rate unchanged is a boon for the Indian real estate sector. This stability will ensure that home loan interest rates remain low, making housing more affordable for potential buyers. With unchanged borrowing costs, both developers and homebuyers will benefit from increased market confidence and predictability,” he says.
Atul Monga, CEO and co-founder, Basic Home Loan, said that the RBI’s decision to keep the repo rate unchanged at 6.5 per cent would translate into stability in borrowing costs for banks, which in turn will keep home loan interest rates steady.
“Existing borrowers will benefit from consistent equated monthly instalments (EMIs), while new borrowers can anticipate similar interest rates as before. This stability can encourage continued growth in the housing market, as potential buyers may feel confident about predictable loan costs, thus fostering a favourable environment for both lenders and homebuyers,” says Monga.
Monga also expressed a possibility of rate cuts in the future. “While an immediate rate cut may not be on the radar, the potential reduction in the rates is likely to happen later in the year – maybe sometime around October this year,” Monga adds.
Ramani Sastri, chairman and managing director, Sterling Developers said that while stable home loan rates improve consumer confidence and enable more informed investment decisions, since there is a noticeable shift in the intent and aspirations of Indian homebuyers, “a future repo rate cut would serve as a big boost to homebuyer sentiment and enable better affordability, which is an extremely sensitive factor in the housing market.”
The Indian real estate sector is projected to show consistent growth going forward. With the economy looking up and showing positive signs, there is no hesitation among homebuyers to invest in residential real estate for long-term returns, including in the luxury segment.
Ashwin Chadha, CEO, India Sotheby's International Realty, said: “The RBI’s decision to keep the repo rate unchanged at 6.5 per cent aligns with the MPC’s calibrated measures to tackle persistent inflation. The RBI has successfully maintained the resilience of the Indian economy, contributing to sustained growth momentum even amidst a challenging global environment. Additionally, the monsoon is expected to be favourable, 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.
Adds Sastri: “We will continue to see a multi-fold growth in real estate investments, since the real estate market is less volatile than other investment markets and delivers higher returns. We also hope that the new government will continue to focus on infrastructure development, lowering home loan interest rates, prioritising tax incentives, easing regulatory constraints, and streamlining approval processes for the overall growth of the real estate sector.”
However, according to some industry experts, home loan interest rates may continue to remain high in the current year. When banks increased the rates of interest on home loans following hike in the repo rate, home loan owners had to take that burden as their EMIs increased significantly. They were left with no choice, but to increase their home loan tenures. The blow was quite heavy for first-time home buyers and those seeking affordable housing.
Given the mixed signal from the industry, potential homebuyers need to keep a careful watch on the developments. While unchanged repo rate has certainly brought a cheer to homebuyers, it does not necessarily indicate lower interest rates in the near future. Also, banks might maintain their lending rates, keeping higher lending rates as compared to pre-pandemic times.
Consequently, first-time homebuyers and those looking for affordable housing may have to bear the brunt, as they are most sensitive to interest-rate volatility.
