RBI Monetary Policy: Will the central bank’s rate cut revive housing demand and convert fence-sitters into buyers?
RBI’s repo rate cut could attract first-time, affordable, and mid-market buyers, but its effect will depend on how quickly banks pass on the reduction
The RBI’s 25-basis-point repo rate cut to 5.25% is expected to make advances, including home loans, more affordable, offering timely year-end relief for homebuyers as high property prices persist. Real estate experts say the move could draw first-time, affordable, and mid-market buyers back into the market.Its true impact, however, hinges on the speed and extent of bank transmission. If lenders quickly pass on the reduction to home loan rates, the housing market could see a strong pickup in sales through the rest of FY25 and into Q1 2026, experts said.
Announcing the fifth bi-monthly monetary policy for the current fiscal, RBI Governor Sanjay Malhotra said on December 5 that the Monetary Policy Committee (MPC) has unanimously decided to cut the repo rate by 25 basis points to 5.25 per cent with a neutral stance.
The rate cut comes after two consecutive MPCs kept the rate unchanged at 5.5%.
Shishir Baijal, International Partner, Chairman and Managing Director, Knight Frank India, said, “We welcome the RBI’s positive move to cut rates by 25 bps, as it signals growing confidence that inflation will remain low on a durable basis. The decision also reflects a greater willingness to support growth more assertively. The reduction in borrowing costs should offer timely relief to the real estate sector, where lower home loan rates can help sustain momentum in end-user demand and improve developers’ cost structures. We hope this will be instrumental in boosting affordable and mid-income housing sales, which have been witnessing a sequential decline over the past few quarters.”
“For the real estate sector, especially the residential segment, this rate cut builds on the momentum created during the recent festive season and GST rationalization of key construction materials. Lower borrowing costs will further improve affordability and buyer sentiment, particularly in affordable and mid-income housing segments. Additionally, steady growth in average income levels can potentially drive property enquiries and boost housing sales in the next few quarters,” said Vimal Nadar, National Director and Head, Research at Colliers India.
Repo rate reduction expected to help transform fence-sitters into active buyers
Demand for affordable and mid-segment homes remains strong in the country, but is hamstrung by high prices impacting affordability. The rate cut can potentially bring at least some fence-sitters to the market, said real estate experts.
The RBI’s decision to cut the repo rate by 25 bps is a distinct positive for the Indian real estate sector as we close 2025. Coming on the back of earlier easing cycles this year, this move further sweetens the value proposition for homebuyers, particularly in the affordable and mid-income segments which are highly sensitive to interest rate fluctuations.
Also Read: Ahmedabad, Hyderabad lead as India’s most affordable housing markets: Colliers report
With average housing prices across the top 7 cities having risen by notable double-digits (approx. 10%) in 2025 as per ANAROCK Research, “this rate cut provides a critical cushion to affordability, potentially bringing home loan interest rates to more attractive levels. This can encourage aspiring homebuyers who had paused their decisions due to price hikes to finally take the plunge. The rate cut is a distinct sentiment multiplier for year-end sales,” said Anuj Puri, chairman, ANAROCK Group.
However, the real impact hinges on the effective transmission of these benefits. If banks swiftly pass on this rate cut to borrowers, we anticipate a renewed surge in sales velocity carrying firmly into Q1 2026. The current trends indicate that luxury homes will continue to drive residential real estate in 2026, as well, he said.
“For the residential sector, this is a direct boost to affordability which has been a growing concern amid rising property prices. We have been observing price resistance in the affordable and mid-segment housing categories, with our estimates projecting residential sales in 2025 to be 8-9% down from last year's robust 300,000+ units (in the top seven markets of India). Given the high penetration of external benchmark-linked loans, the transmission to homebuyers is expected to be quick, providing tangible EMI relief that directly addresses this affordability challenge,” said Samantak Das, Chief Economist and Head of Research & REIS, India, JLL.
The move is the catalyst needed to revive purchasing power and activate the crucial segment of first-time affordable and mid-market homebuyers who have been waiting on the sidelines, transforming fence-sitters into active buyers. “We anticipate this will not only invigorate demand in the top metro areas but also significantly boost the burgeoning housing markets in Tier 2 and Tier 3 cities,” he said.
“The RBI’s decision to reduce the repo rate by 25 basis points to 5.25% is a welcome development for the real estate sector and a strong confidence-booster for homebuyers. At a time when demand for residential housing—especially in the mid-income and premium segments—continues to grow across major markets, this move will provide meaningful relief by lowering home loan EMIs and improving affordability. The rate cut reinforces a positive borrowing environment and is expected to stimulate further momentum in both new launches and property sales," said Praveen Sharma, CEO, REA India (Housing.com).
May lower cost of capital for real estate developers
For developers, this final easing bullet significantly lowers the cost of capital, encouraging accelerated execution of planned inventory, particularly in the affordable housing segment. This ensures that 2026 kicks off with renewed, broad-based residential momentum, said Das.
Also Read: Worli dominates India’s ₹40-crore-plus luxury real estate market, logs ₹5,500 crore in two years
Impact on the commercial real estate segment
On the commercial front, the lower cost of capital for developers encourages faster project completions and new launches. This aligns perfectly with the unabated expansion of Global Capability Centres (GCCs) and the government's 'Make in India' initiative, ensuring supply can meet the high-velocity demand. Ultimately, this move underwrites a confidence-driven surge in real estate activity and enhances the long-term investment potential of the asset class for both domestic and global players, said Das.
