RBI MPC Repo Rate Cut: Will it encourage first-time homebuyers to invest in real estate, ease developers’ burden?
RBI MPC Repo Rate: RBI’s decision to cut repo rate by 25 bps for the 2nd consecutive time is likely to boost demand if banks pass on the benefit to homebuyers
The Reserve Bank of India’s (RBI) decision to cut the repo rate by 25 basis points for the second consecutive time on April 9 is expected to boost demand, particularly among first-time homebuyers and those eyeing affordable housing, provided banks pass on the benefit. For developers, the rate cut could aid in the gradual clearance of unsold inventory and offer relief across segments by potentially lowering financing costs.
The RBI on April 9 slashed key interest rate by 25 basis points, for the second time in a row, to support a shuttering economy hit by reciprocal tariffs imposed by the US. Following the rate cut, the key policy rate eased to 6%. In its last policy in February, RBI had trimmed the repo rate by 25 basis points to 6.25%.
Real estate experts said the RBI Monetary Policy Repo Rate could boost consumption—provided banks promptly pass on the benefit to consumers.
Anuj Puri, chairman, ANAROCK Group, said that RBI’s decision to reduce the repo rates by 25 bps (to 6%) second time this year was expected in the backdrop of moderating inflation. Home loan borrowers may not see much meaningful or immediate interest rate relief. Banks have not transmitted earlier MPC rate cuts to borrowers because of higher funding costs, pressure on net interest margins, higher NPAs, and a cautious lending climate.
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“If banks do pass on the benefits of the last two rates cuts, it will be a boost to homebuyers, particularly for those eyeing affordable housing. Many first-time homebuyers who had been hesitating to take the plunge may make their move if home loan rates reduce,” he said.
Home loan borrowers whose lenders don't pass on the rate cut could consider negotiating a lower rate or a balance transfer. They should keep their expectations realistic as there may be only partial relief, if any. Any potential EMI reduction should be used to prepay home loans or invest for higher returns instead of on mere consumption, he advised.
Repo rate cut likely to improve home loan affordability
“The move is likely to improve home loan affordability, stimulate housing demand, and provide a strong impetus to the mid-income and affordable segments, where interest rate sensitivity remains high,” said Boman Irani, president, CREDAI National.
G Hari Babu, national president, NAREDCO, said that the "The RBI’s decision to bring down the repo rate by 25 basis points and adopt an accommodative stance is a timely and positive step for the real estate sector. Lower interest rates translate into more affordable home loans, which will likely spur housing demand across various categories.”
This move is expected to lead to higher residential sales, better liquidity in the market, and a gradual clearing of unsold inventory—giving developers the confidence to launch new projects, he said.
Will it spur affordable housing?
Affordable housing, in particular, stands to gain significantly. With reduced borrowing costs, more aspiring homeowners can enter the market, helping address the pressing demand-supply gap in this segment, said Babu.
Commercial real estate will also benefit, as easier financing could encourage businesses to expand and invest in office and retail spaces. Overall, the RBI’s decision reflects a strong growth outlook and provides a much-needed boost to real estate sentiment, said Babu.
Dhruv Agarwala, Group CEO, Housing.com and Proptiger.com said that the rate cut holds the potential to improve affordability and renew homebuyer enthusiasm, particularly in the backdrop of steadily rising prices. However, the true impact will hinge on the swift and effective transmission of this cut by banks and lending institutions.
