Unchanged repo rate to keep housing demand high

The Reserve Bank of India in its latest Monetary Policy Committee (MPC) has kept the repo rate unchanged at 6.5% for the eighth consecutive time.
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NEW DELHI: The Reserve Bank of India's decision to keep the repo rate unchanged has largely been welcomed by the real estate industry as they believe it provides stability in home loan interest rates at a time when buyers’ and developers’ confidence in the market is strong. However, the industry anticipates a rate cut shortly as India’s consumer inflation is steadily approaching the RBI mark of 4%.

“With the mandate of a stable government now manifest in an unchanged monetary policy, the housing sector's overall growth momentum will continue,” said Anuj Puri, Chairman - ANAROCK Group

Puri explained that 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. He said that 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 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,” added Puri.

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RBI maintains status quo for 8th time in a row; repo rate unchanged at 6.5%

The Reserve Bank of India in its latest Monetary Policy Committee (MPC) has kept the repo rate unchanged at 6.5% for the eighth consecutive time. This is the first time the MPC met after the results of the general elections were declared. As the repo rate remains unchanged, all external benchmark lending rates that are linked to the repo rate will not rise. This means that equated monthly instalments (EMIs) for consumers will not increase.

Pradeep Aggarwal, Founder & Chairman, Signature Global (India) Ltd, said, "Economists predict that if inflation continues to decline, rate cuts of 25-50 basis points could be expected in the second half of the fiscal year. Such a reduction in interest rates could significantly boost the real estate sector, which is already benefiting from strong end-user demand. We anticipate this robust demand trend to remain healthy over the coming years, particularly in cities like Gurugram, which are experiencing substantial infrastructure development."

Retail inflation came down to a fresh 11-month low of 4.83% in April 2024, steadily approaching RBI's target of 4%.

Samir Jasuja, CEO and MD of PropEquity, said that with overall inflation falling within the RBI range, a policy rate cut may not be very far away.Real estate prices have gone up substantially and a future rate cut will give much higher purchasing power to the customer which is the need of the hour. Such a move would be welcome news for homebuyers across cities including metro cities as well as tier II and III cities.

Samantak Das, Chief Economist and Head – Research and REIS, India at JLL said that with controlled inflation paving the way for future rate cuts, 2024 holds the promise of heightened affordability levels within the residential real estate sector, second only to the peak levels of 2021.

“This transformation is expected to fuel the growth cycle within the sector and act as a catalyst, uplifting overall market sentiment. Anticipating an upsurge in demand, particularly in the mid-tier and high-income segments, the Indian housing market is set to witness skyrocketing growth with residential sales in India's top seven markets predicted to further show a bump of 15%-20% over the historic high of 2023,” added Das.

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