RBI repo rate: Developers hope for rate cuts in H2, await revival of sales in affordable segment

Though the home loan rates have remained unchanged owing to stable repo rate since a year now, the share of affordable housing sales has seen a decline in top seven cities of India, which has developers worried.

As the Reserve Bank of India (RBI)'s Monetary Policy Committee (MPC) decided to leave the repo rate unchanged at 6.5 percent for the seventh time in a row, real estate developers pinned their hopes of rate cuts on the coming months. A relaxation in key policy rates is expected to boost housing sales in the Mumbai real estate market as well as in other metro cities.

According to real estate developers and experts, they are hoping that the repo rate might be cut after the Lok Sabha elections, in the second half of 2024.

“The central bank maintains the repo rate at 6.5 percent, continuing a hawkish stance to keep the inflation under check. However, with repo rates being an industry-agnostic subject, we hope to see lower repo/interest rates later this year which will provide an impetus to not just real estate and housing demand but across industries – compounding sectoral and economic growth,” said  Boman Irani, chairman of Keystone Realtors and President of CREDAI, a real estate industry body.

“Having grown 8.4 percent in Q3 of FY 2023/24, a rate cut in the future will help sustain this economic momentum or even accelerate it - and we expect to see repo rates being reduced in Q2 of the new FY in the post-election phase," Irani said.

Samantak Das, chief economist and head of research at JLL India, a real estate consultancy firm, said possibility of a rate cut will become more realistic if controlled inflation persists.

“This would lead to increased affordability levels in 2024. The momentum is slated to continue with the current pause and potential rate cuts in H2 FY25 expected to support the growth cycle in the sector," he said .

Further, though the home loan rates have remained unchanged since a year now, the share of affordable housing sales has seen a decline in top seven cities of India, which has developers worried.

"We saw good sales in mid-segment and luxury market, but that will not go on for years to come. It is affordable housing that will generate volumes in the coming months that will generate required cash flows for the real estate sector. Hence, it is very much required to support the homebuyers by bringing down the home loan rates," a real estate developer said, refusing to be identified.

"In the last six months, the sales cycle in the Mumbai real estate market has ballooned and this is one reason why we saw 'buy now, pay later' and other subvention schemes being offered by developers aggressively. All this was for cash flow, and if home loan rates go down, much required cash flow will come in from increased affordable housing sales," the developer said.

Earlier in August 2023, real estate consulting firm ANAROCK had released a report stating that homebuyers’ home loan EMIs had jumped 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 a month.

In an indication of sales in affordable housing segment is going down, Bengaluru housing sales dipped to 13,133 units in the first quarter of calendar year 2024, down 2 percent from the year-ago period, following a sharp drop in the affordable housing segment, a report by real estate consultancy firm Knight Frank said on April 4.

According to the consultancy firm, the dip was due to a fall in sales of below Rs 50-lakh housing segment that declined by almost 68 percent in Q1. However, the Rs 50 lakh-Rs 1 crore segment has grown by 8 percent, while the sales in ticket sizes above Rs 1 crore have spiked the most.