RBI's 50 bps rate cut may finally give an impetus to affordable housing, say experts

RBI governor Sanjay Malhotra announced a 50 basis point cut to the repo rate, which can translate to lower EMIs and borrowing costs for homebuyers

The Reserve Bank of India's (RBI) move to cut its benchmark repo rate by 50 basis points (bps) to 5.50 percent may finally provide an incentive for more buyers of entry-level homes to definitively enter the housing market in the affordable category, which has been sluggish for the past two years but have shown green shoots in recent months due to above-normal price increases for higher-category residences.

"Coming on the heels of a marginal decline in sales witnessed in Q1 2025, this rate cut is perfectly timed to help regain momentum and infuse much-needed buoyancy," said Samantak Das, chief economist at property consultancy JLL India, referencing the relative slowdown in real estate sales in recent months, including in the premium categories that had shown more strength in sales.

Developers' groups welcomed the RBI move, saying that the potential reduction in mortgage rates and EMIs may draw more first-time homebuyers to the market.

"This decision comes at a pivotal time as India, now the world’s fourth-largest economy, is witnessing strong real estate momentum across metros as well as Tier 2 and Tier 3 cities. Lower lending rates will directly enhance home loan affordability, particularly in interest-sensitive categories like mid-income and affordable housing. Reduced EMIs are expected to significantly improve buyer sentiment and encourage first-time homebuyers to enter the market," said Shekhar Patel, national president of the Confederation of Real Estate Developers' Associations of India.

The central bank started its rate cutting cycle from its February policy meeting, when the repo rate stood at 6.50 percent. Then-newly appointed governor Sanjay Malhotra announced a 25 bps cut, followed by another of the same magnitude in the April policy meet. The latest rate cut comes at a time when real estate sales are showing signs of fatigue, and sales of smaller and more affordable homes are holding up in terms of share of registrations and volumes in markets like Mumbai, despite declining inventories.

"RBI’s announcement of a further rate cut of 50 bps is a significant proactive step at a time when demand for residential real estate is seeing signs of slowing down across segments due to increased prices. Home ownership continues to be an aspiration and dream for every Indian household, and these rate cuts, followed by reduced home loan interest rates, will strengthen homebuyer confidence," said Amit Bhagat, CEO and managing director of ASK Property Fund.

However, it remains to be seen as to how much of the rate cut is passed on to borrowers by banks and financial institutions. The last two rate cuts, while welcomed by the real estate industry, did not achieve any meaningful reduction in EMIs, due to the banks delaying the pass-through of the benefits of rate cuts on account of their own cost structures, including the cost of funds, or the instruments that the home loans are linked to, experts say.

"Banks and financial institutions have been struggling to pass on the benefits of the two previous rate cuts this year to borrowers, especially for MCLR (marginal cost of funds based lending rates)-linked loans, which do not change quickly. It remains to be seen how much benefit is passed on to borrowers as a result of today's rate cut. The 100 basis point cut in the cash reserve ratio, which can inject around Rs 2.5 lakh crore into the system, may come of help in terms of more cash available for banks and financial institutions for lending, including for retail loans like homes," said a Mumbai-based financial planner.