RBI repo rate pause brings relief to home buyers, real estate sector

The repo rate is the rate of interest at which the Reserve Bank of India (RBI) lends money to commercial banks.

Mumbai: After six consecutive hikes, the Reserve Bank of India’s decision on Thursday to keep the repo rate of 6.50 per cent unchanged came as a huge relief to the real estate industry as well as home buyers paying back home loans.

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The repo rate is the rate of interest at which the Reserve Bank of India (RBI) lends money to commercial banks. The central bank had increased the repo rate six consecutive times since February to control rising inflation, and the rate increased by 250 basis points from 4 per cent in January 2022 to 6.5 per cent, taking home loan interest rates up to 9.5 per cent.

“It is a big relief for home buyers like me. My home loan EMIs had increased from ₹80,000 to ₹1.02 lakh per month,” said Praveen Bohra, a trader. He said the central bank should consider reducing the repo rate in future, as home buyers were now facing the heat of high interest rates. “When I availed of the home loan in 2017, the interest rate was 12 per cent, then it dipped to 6 to 6.5 per cent. Now again it is rising. I am trying to sell my flat, but with the rising interest rates, buyers seem to be delaying their decision to purchase.”

The real estate industry, which was anticipating a 25 basis point hike on Thursday, cheered the RBI’s decision to keep the repo rate unchanged. Niranjan Hiranandani, national vice-chairman of the National Real Estate Development Council (NAREDCO) said, “In contrast to the World Bank, India Inc applauds the RBI’s decision to pause the rate hike cycle. This act of relief will restore confidence in home buyers’ sentiment and boost a demand rally in real estate. The industry body now calls for fiscal intervention from the Government of India to cool the inflationary heat caused by persistent geopolitical turbulence caused by the collapse of foreign banks, supply chain challenges, and global financial instability. Additionally, devising innovative flexi or step-up EMI schemes by banks and FIIs will be conducive for market players to onboard new home buyers in the high interest rate regime.”

Shishir Baijal, chairman and managing director of Knight Frank India said the RBI’s decision to pause its rate hike cycle was supportive of economic growth. “India’s economy is expected to grow at 6.5% in FY24, which is an optimistic outlook for the economy amidst the ongoing global financial market volatility and economic slowdown anxieties,” he said. “From a real estate market perspective, the sector has weathered multiple home loan interest rate increases from a low of 6.5% to 8.75%, supported by favourable house purchase affordability and the strong desire towards home ownership. Therefore, a pause in any further rise in the lending rates should support the existing growth momentum in the housing sector.”

Anshuman Magazine, chairman and CEO, India, South-East Asia, Middle East & Africa, CBRE, said, “The RBI’s decision to keep the repo rate stable was a surprise move but has been done with the view of the withdrawal of accommodation while keeping a close eye on inflation. The move is highly encouraging for the infrastructure, housing, and other real estate segments, as this decision, for now, allays fears of a further increase in financial burden on developers and borrowers.

Sanjay Dutt, MD and CEO, Tata Realty & Infrastructure Ltd, said the RBI move would have a positive effect on home loan borrowers. “The RBI has taken note of the impact of market dynamics and home buyer sentiment towards the economy,” he said. “This will provide stability and encourage banks to lend to consumers, which will result in a higher credit flow to the housing sector. This will further boost the demand for residential real estate and make it an attractive investment for aspiring homebuyers.”

Venkatesh Gopalkrishnan, CEO, Shapoorji Pallonji Real Estate, said the move was a much-needed respite for the real estate sector. “Despite the positive impact of this decision, the RBI governor has signalled that this move may only provide temporary relief and may be necessary to combat inflationary growth in the country,” he said. “Overall, this decision is likely to stabilise the real estate sector in the short term.”

Ashish Kukreja, Founder & CEO, Homesfy.in said the real estate industry and homebuyers can breathe a sigh of relief now. “The real estate industry was concerned about the increasing repo rate, which had led to higher borrowing costs for individuals and businesses. Within the span of 6 months, the repo rate had increased from 4 to 6.5%, which is a substantial percent increase in short span. These continued increases in the repo rate could have caused the interest rate on a home loan to exceed the psychologically acceptable threshold of 10%, which would significantly affect buyer perceptions of affordability.” he said.

“Thankfully there has been no alteration in repo rate but the current situation is still serious, with its affects seen in budget segments leading to drop in sales numbers in the lower ticket size. Also, the undeniable fact is that this whole aspect is not impacting the luxury segment. As we also provide home loan assistance, we have observed that out of 10 people, 3 to 4 of them go for loans. Nearly 70% of the higher ticket size do not opt for the loan. As of April 2023, the repo rate remains stable at 6.50%. So, will sales numbers will likely remain steady, and the real estate industry can continue to evolve positively. In conclusion, it is vital to remember that the market is known to bounce back, and this time will be no exception,” he said.