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home sales: RBI’s repo rate pause likely to help sustain housing sales momentum

The Reserve Bank of India’s decision to keep the repo rate unchanged for the fifth successive time at 6.5% is expected to support the housing property market and help sustain a consistent trajectory of growth in home sales.

The prevailing momentum in mid-income and premium housing sales is expected to persist, whereas affordable and low-income housing, sensitive to interest rates, may experience a subdued pace.

Responding to the inflationary environment, the central bank, through six successive increases since May 2022, had raised policy rates by a cumulative 250 basis points, taking the repo rate to 6.5% before hitting the pause in April. Following this, home loan rates are already hovering around 9% from a record low of 6.6% a year ago.

“Both residential and commercial real estate markets may benefit from stable interest rates. By keeping borrowing costs low, stable interest rates can make it more affordable for individuals and businesses to purchase properties. This can result in increased demand for residential and commercial properties, stimulating the industry. To cope with unstable economic shocks, affordable housing must be given designated attention,” said Niranjan Hiranandani, National Chairman of NAREDCO.

While stable interest rates are cheered by many in the real estate sector, some have also expressed that a rate cut would have helped in accelerating the pace of housing sales.

“With inflation relatively in check, economy growing at a faster than expected pace, reasonably good monsoon, RBI could have opted for a rate cut that would have provided the ideal opportunity to accelerate housing momentum and overall consumer spending, not just positively impacting growth of real estate but other sectors too,” said Boman Irani, President, CREDAI National.The sustained liquidity in the economy is poised to enhance construction activity, positively impacting new property launches in crucial real estate markets. This is expected to instil confidence in homebuyers by ensuring predictability in loan repayments and mitigating the risk of abrupt rises in borrowing costs, experts said.The residential real estate market in major Indian cities has maintained its growth momentum, reaching a six-year peak. This upswing is primarily driven by substantial sales volumes in the mid-income and premium segments, despite increased mortgage rates and property prices.

Conversely, the affordable and low-cost housing segment, sensitive to interest rates, experienced a decline in sales volume during the quarter ending in September.

Interestingly, this marks the first instance where sales in the mid and high-end segments have surpassed those in affordable housing, indicating a noteworthy shift in the market towards higher-value properties. This shift is attributed to escalating cost factors, leaving the affordable segment behind in sales.

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