RBI Monetary policy: RBI's decision to cut interest rates by 25 bps expected to boost housing demand
RBI's decision to cut interest rates is poised to enhance homebuyers' affordability. Coupled with tax cuts in Budget 2025, move to boost housing demand
After a tax cut in Budget 2025, the country’s middle class gets a gift of an interest cut. The Reserve Bank of India, under the new governor, Sanjay Malhotra, on February 7 announced a repo rate cut of 25 basis points to 6.25% for the first time in nearly five years. The reduction in repo rates is expected to provide relief to existing homebuyers as it helps lower their equated monthly instalments on home loans and ignite overall homebuying sentiment.
Real estate experts say the rate cut will enhance affordability and boost housing demand. The rate decision comes soon after the government slashed personal tax rates in Budget 2025 to boost spending and stimulate growth.
Having said that, a few believe that the rate cut may be less effective by rising property prices if inflation remains as high as it is now. Also, it remains to be seen if banks pass on the full benefit to borrowers promptly and seamlessly.
“The Reserve Bank of India's 25 basis point repo rate cut marks a pivotal shift, deftly aligning monetary policy with the government's fiscal strategies to reignite consumption. By easing the cost of capital, the RBI injects vital momentum into the economic engine, setting the stage for a resurgence in spending and investment across the board,” said Samantak Das, Chief economist and head of Research and REIS, India, Jll.
“For the real estate sector, the implications are profound and far-reaching. We anticipate this rate cut to be a catalyst, igniting homebuyer sentiment, enhancing affordability, and potentially unleashing a new wave of demand in the housing market. While 2024 was the best year ever in terms of sales and market activity, rising prices were beginning to have a lagging effect on market momentum, as evidenced by a decline in Q4 2024 sales numbers. The rate cut, coupled with budget tax benefits favouring mid-income buyers, will provide additional support to homebuyers and help sustain market buoyancy,” he said.
Vimal Nadar, Head of Research at Colliers India, believes that as housing demand has begun to stabilize after witnessing record sales in the last 2-3 years, this rate cut comes at an opportune time and will significantly boost homebuyer sentiments. Evidently, tailwinds will boost real estate demand across asset classes in the upcoming quarters.
RBI rate cut to make homeownership accessible
Sahil Agarwal, CEO of Nimbus Group, said that the repo rate cut will improve liquidity and boost consumption and purchasing power, ultimately driving economic growth. Lower borrowing costs are set to significantly push the real estate sector, as reduced home loan interest rates make homeownership more accessible. This move is expected to encourage higher demand for housing, benefiting both end-users and investors alike.
A rate cut in the next MPC may provide further impetus
Boman Irani, President of CREDAI National, said that the RBI’s decision to reduce the repo rate by 25 basis points to 6.25% supplements recent announcements in the budget aimed at boosting spending and spurring economic growth.
"While the current cut may have a limited direct impact, we anticipate that a further rate cut in the next MPC meeting will provide stronger impetus to overall demand, accelerating housing sales, particularly in the mid-income and affordable segments. Together, these measures signal a robust framework for sustainable growth, fostering confidence among homebuyers, developers, and investors alike," he said.
Anuj Puri, Chairman of ANAROCK Group, says it is undeniably a major boost to homebuyers, particularly affordable housing buyers. Many first-time homebuyers who had been hesitating to take the plunge are likely to make their move now as home loan rates will reduce—as long as banks pass on the key benefits to buyers. Reduced home loan rates can help the overall positive consumer sentiment.
Lower business borrowing costs can also benefit commercial real estate, especially office spaces. Lower rates also make REITs more appealing since investors look for stable returns in a falling interest rate environment, he said.
That said, the rate cut may be less effective by rising property prices if inflation remains as high as it is now. Also, it remains to be seen if banks pass on the full benefit to borrowers in a timely and seamless manner, he added.
Pradeep Aggarwal, founder and chairman of Signature Global (India) Ltd, said that lower borrowing costs would improve home affordability and strengthen buyer sentiment, particularly in the mid-income and premium housing segments. Historically, reduced interest rates have triggered an upswing in housing demand, benefiting both homebuyers and developers. Additionally, improved credit access will support developers in securing funding for project execution, ensuring steady supply and timely deliveries.