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mpc meeting: RBI’s repo rate status quo likely to help ongoing real estate sales momentum

The Reserve Bank of India’s decision to hold repo rate for the second successive instance at 6.5% is expected to help the real estate market sustain its momentum of steady growth in residential sales especially in the interest-rate sensitive segment of affordable, low- and mid-Income housing.

Through six successive increases since last May, the central bank had raised policy rates by a cumulative 250 basis points, taking the repo rate to 6.5% before hitting the pause in April.

The increases have led to cost inflation for the sector that has linkages with more than 260 ancillary industries. Housing loan rates also now hover around 9% from a record low of 6.6% a year ago. Affordable housing demand, which is more sensitive to interest rates, had already started seeing the impact of the rate hikes.

Realty developers cheered the central bank’s accommodative stance with recurrent pause in repo rate hike as record high inflation eases off gradually.

“As a snowball effect, respite in home loan interest rate will augur well to fuel uptick in housing sales across the segments. Now, the discerning homebuyers should avail the benefits of cooling inflation, stable home loan rates, conducive real estate market dynamics in the backdrop of buoyancy in GDP growth, domestic demand, and availability of sufficient liquidity,” said Niranjan Hiranandani, National Vice Chairman, NAREDCO.

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According to him, the supply of new housing stock is in tandem to the uptick in housing demand across property markets and with the festive season in tailwinds, a hiatus in interest rate hike will act as a growth catalyst and boost sales velocity.“On the back of RBI’s decision to maintain the repo rate at 6.5%, we expect both housing supply and demand to sustain its ongoing momentum. However, given that the inflation is at an 18-month low, there is scope for the RBI to reduce the repo rates in the upcoming monetary policy committee (MPC) meetings, to stimulate growth across all industries,” said Boman Irani, President, CREDAI National.Developers are of the view that an additional hike in the repo rate would have led to even higher borrowing costs and made it a more challenging lending environment. This would have ultimately resulted in higher project costs and housing prices, on the back of prices already increasing by 5-6% in the last one year.

The performance of residential real estate has been robust since the outbreak of the Covid19 pandemic. Housing sales across markets and segments have scaled new peaks during this period.

During the quarter ended March, the housing market witnessed marginal growth in demand and conversion across India’s key property markets mostly led by the luxury and mid-income segments. Higher interest rates had started impacting the sales momentum in affordable and low-income housing.

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