RBI policy meeting: Decision to hold rates again expected to boost real estate demand, say experts

The Reserve Bank of India (RBI) has unanimously voted to leave the repo rate unchanged at 6.5 percent on August 10

The Reserve Bank of India (RBI) has unanimously voted to leave the repo rate unchanged at 6.5 percent on August 10.

This decision to hold rates displays the ‘steadfast and vigilant stance’ of the monetary policy committee (MPC), and is expected to boost housing demand, said real estate experts.

In fact, according to ANAROCK Research, equated monthly instalments (EMIs) have jumped up by 20 percent in the last two years. Home loan borrowers, who were paying an EMI of approximately Rs 22,700 in July 2021, are now paying approximately Rs 27,300 - an increase of approximately Rs 4,600 per month, it said.

“The focus on withdrawal of the accommodative policy stance is likely to continue with the stickiness in inflationary pressure due to the expectation of a sub-normal to normal monsoon,” said Samantak Das, Chief Economist and Executive Director, Research, JLL India.

This third pause in policy rates continues to remain as positive news for the real estate sector, with the residential segment carrying forward its growth momentum through successive quarters, he added.

Buying momentum to continue: JLL

Residential sales during H1FY2023 grew by 21 percent year on year (YoY) -- yet another period of high growth.

Residential sales have consistently reached new peaks in each successive quarter over the past year. While home prices have also risen by 8-15 percent over the last 12 months, this increase is likely to be kept in balance by the countervailing forces of the unchanged policy rates, said JLL.

“With interest rates holding steady, affordability synergies will continue to persist and thus support the home-buying momentum and residential sales during the coming quarters,” said Das.

The RBI's stance of maintaining the repo rate at 6.5 percent is a cautious step towards further controlling inflation in the long run. With the economy on track and driven by sustained demand across sectors, we reiterate our view that it will be beneficial for consumer sentiment if a repo rate cut is announced in the next MPC review. This will increase consumer spending in the festive season and fuel demand across sectors, boosting the India growth story,” said Boman Irani, president, Confederation of Real Estate Developers Association of India (CREDAI).

As widely anticipated, the RBI has decided to keep the repo rates unchanged at 6.5 percent. India continues to outperform other countries in terms of consumption and with the festive season coming up, the RBI will not risk denting it,” said Anuj Puri, Chairman - ANAROCK Group.

“This is nothing but good news for aspiring homebuyers on the market for a purchase in the near future. The unchanged repo rate will help maintain the momentum in housing sales - particularly in the mid and luxury segments, which did significantly well in H1 FY2023,” he said.

However, the risk of inflation continues to lurk, and if it rises further, there could be some repercussions on overall sales, especially in the cost-sensitive affordable housing segment, which has already been severely impacted by the pandemic over the last couple of years. Amidst the rising cost of these properties and the cumulative 250 bps rate hikes by the RBI in the last one year and more, affordable housing buyers have taken the hardest blow, he said.

‘EMIs have jumped 20% in 2 years’

As per ANAROCK Research, homebuyers’ EMIs jumped up by 20 percent in the last two years. Home loan borrowers who were paying an EMI of approximately Rs 22,700 in July 2021 are now paying approximately Rs 27,300 - an increase of approximately Rs 4,600 per month.

The RBI’s decision to keep the repo rate steady at 6.5 percent since February this year will continue to bring in respite for EMI-dependent homebuyers. Stability in financing costs will also stand to benefit the balance sheet of real estate developers, he said.

Real estate construction activity remains buoyant and is reflected in healthy steel consumption and cement production. Stable interest rates, favourable pricing and supply will augur well with first time homebuyers, especially in the affordable and mid segments in the upcoming festive season, said Vimal Nadar, Head of Research at Colliers India.

Pradeep Aggarwal, founder and chairman, Signature Global (India) Ltd, said that the RBI's decision to keep the current interest rates unchanged is a promising step towards easing the financial burden on prospective homebuyers. The surge in monthly EMIs observed over the past few months has considerably constrained the budgets of individuals belonging to the middle and lower-income brackets who aspire to own a home