Real estate sector welcomes RBI’s decision to keep repo rates unchanged at 6.5%

The real estate sector has welcomed the Reserve Bank of India’s decision to keep the repo rates unchanged at 6.5%, saying given that housing prices have risen across most cities in the last one year, this breather by the apex bank gives a distinct advantage to homebuyers as it allows them to continue enjoying low interest rates and improves their affordability levels.

The Reserve Bank of India on February 8 decided to keep the policy rate unchanged for the sixth time in a row. What this means is that homebuyers’ equated monthly installments are expected to stay unchanged. The rate increase cycle was paused in April last year after six consecutive rate hikes aggregating to 250 basis points since May 2022.

Announcing the bi-monthly monetary policy, RBI Governor Shaktikanta Das on February 8 said the Monetary Policy Committee (MPC) has decided to keep the repo rate unchanged at 6.5 per cent.

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He also said that services sector activity is expected to remain resilient on the back of strong domestic demand and stable global prospects. The PMI services increased significantly in January (2024), suggesting continued strong expansion. The buoyant demand for residential housing, coupled with increased thrust on government capex, is expected to propel construction activity.

Breather by the RBI gives homebuyers a leg-up

The policy rate pause augurs well for the real estate sector as steady interest rates and improved buyer sentiments will further support the momentum in the residential market over the next year as well. This is expected to translate into a decline in home loan interest rates which will improve affordability levels and provide a fillip to the market with sales expected to surpass the 300,000 units mark in 2024, said Samantak Das, Chief Economist and Head of Research and REIS, India, JLL

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He hoped that a future repo rate cut would give a massive fillip to affordability in 2024, which will be second only to 2021 peak affordability levels reported in JLL’s Home Purchase Affordability Index. “This is likely to push India’s residential sales in value terms to over ₹3 lakh crore over the next year with the potential to double over the next five years, supported by the policy ecosystem and a pragmatic interest rate regime.”

The move helps homebuyers retain the advantage of relatively affordable home loan interest rates, said Anuj Puri, Chairman, ANAROCK Group.

“If we consider the present trends, the housing market has been unstoppable, and unchanged home loan rates will help maintain the overall positive consumer sentiments. Given that housing prices have risen across the top 7 cities in the last one year, this breather by the RBI is a distinct advantage to homebuyers,” he added.

Shishir Baijal, Chairman and Managing Director, Knight Frank India said that stability in the interest rate environment to support the housing market augurs well for the housing market and is a “comforting signal for the industry. .. In the case of the country’s housing market, even as the mid and premium segment continue their growth trajectory, the lower segment has witnessed pressure from elevated interest rates and higher property prices. We believe that lower home loan interest rates in the near future will serve as a big boost to homebuyer sentiment and enable better affordability, which is an extremely sensitive factor in this segment of the housing market.”

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The Indian real estate sector remains largely optimistic and hopes that the steps taken by the RBI would further strengthen the housing loan portfolio of banks, make construction finance and housing loans cheaper in the next financial year and thereby sustain the housing sector’s growth, said Boman Irani, president, CREDAI.

Some experts hope interest rates would start to drop soon

The update is in line with the last policy statement from RBI where the expectation was for the benchmark repo rate to stay unchanged at 6.5% and to have the target inflation rate of 4%, down from the current average of around 5.5%.

“For the Indian real estate space, we do not expect today’s update to have any material impact on the on-going positive sentiment. However, we hope the interest rates start to drop soon as this will also revive sentiments of affordable homebuyers,” said Anshul Jain, Managing Director, India & Southeast Asia and Head of Asia Pacific Tenant Representation, Cushman & Wakefield.

Pradeep Aggarwal, founder and Chairman, Signature Global (India) Ltd, said that RBI’s decision to keep the rates on hold was on expected lines but was of the view that reduction in policy rates would have helped the interest-sensitive sector.