RBI Unchanged Repo Rate Boon for Housing Sector but Affordable Housing Requires Govt Incentive

With the economy looking up and all signs being positive, there is no hesitation among home buyers to invest in residential real estate for long-term returns. Moreover, 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 home buyers.

Kolkata:The Reserve Bank of India's decision to keep the repo rate unchanged is a boon for the Indian real estate sector even though experts feel that there is a need for the government to come out with incentives to promote affordable housing in the country.

“This stability ensures that home loan interest rates remain low, making housing more affordable for potential buyers. With unchanged borrowing costs, both developers and home buyers benefit from increased market confidence and predictability,” said Anuj Puri, chairman of ANAROCK Group.

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.

The affordable housing sector is, of course, the 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 Rs 40 lakhs) 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,” said Puri.

With the mandate of a stable government now manifest in an unchanged monetary policy, the housing sector's overall growth momentum will continue, feels the real estate sector.

“With the economy looking up and all signs being positive, there is no hesitation among the homebuyers to invest in residential real estate for long-term returns. Moreover, 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. However, 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,” said Ramani Sastri, Chairman and MD, of Sterling Developers.

Sastri added “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 would 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.”

Abheek Barua, chief economist and executive vice-president, of HDFC Bank, said that the one positive outcome of the policy was the upward revision in the GDP growth forecast to 7.2% from 7% earlier for FY25. On the other hand, inflation forecasts were kept unchanged.

The RBI remains in a wait-and-watch mode to assess domestic developments like the monsoon performance, food inflation and the new fiscal strategy before moving on rates. “We continue to see the possibility of a rate cut in Q4 2025,” said Barua.

“Despite the Governors’ emphasis that monetary policy decisions are driven primarily by domestic considerations, we think that any rate cut action could end up being aligned with the timing of the Fed’s rate cut cycle to limit financial market volatility. On the regulatory front, the increase in bulk deposit limit to Rs 3 crore from Rs 2 crore, signals the RBI’s intention to encourage banks to garner greater retail deposits to fund credit growth,” he added

Murthy Nagarajan, Head-Fixed Income at Tata Asset Management, felt that a normal monsoon and fall in commodity prices in the coming months may lead to a change in stance in the August monetary policy. “Given fiscal deficit is expected to come down below 5 per cent, due to RBI dividend of Rs 2.11 Lakh crore against Rs 85,000 crore expectation, long end bonds are expected to be well bid in the coming months. The ten-year is expected to trade below 7 percent in the coming months,” he said.