As RBI Maintains The Repo Rate, India Home Sales Will Continue to Grow

Mumbai: 

The decision by the Reserve Bank of India to maintain the repo rate at 6.5% for a second consecutive time is expected to assist the real estate market in maintaining a constant growth momentum in residential sales, particularly in the interest rate-sensitive segment of affordable, low- and middle-income housing.

Prior to April, the central bank had raised policy rates by a total of 250 basis points through six consecutive increases, bringing the repo rate to 6.5 percent. The increases have caused cost escalation in the sector, which is interconnected with more than 260 auxiliary industries. In addition, mortgage interest rates have risen from a record low of 6.6% a year ago to around 9%.

Demand for affordable housing, which is more sensitive to interest rate increases, had already begun to feel the effects of the rate increases.

Real estate developers applauded the central bank's accommodative posture, exemplified by the repeated pauses in repo rate hikes, as record-high inflation progressively abates.

The news in the real estate industry is that a reduction in inflation and a steady interest rate will aid in maintaining supply and demand.

According to him, the supply of new housing stock matches the increase in housing demand across property markets, and with the holiday season providing tailwinds, a pause in interest rate hikes will serve as a growth catalyst and accelerate sales velocity.

"In light of the RBI's decision to maintain the reserve rate at 6.5 percent, we anticipate that both housing supply and demand will maintain their current momentum. In the impending monetary policy committee (MPC) meetings, there is potential for the RBI to reduce the repo rate in order to stimulate development across all industries, according to Boman Irani, president of Credai National.

According to developers, a further increase in the repo rate would have resulted in even higher financing costs and a more difficult lending environment. This would have ultimately led to greater project costs and housing prices, on top of the 5%-6% increase in housing prices over the past year.

Since the outbreak of the Covid-19 pandemic, residential real estate performance has been robust. During this time period, housing transactions across all markets and segments have reached new heights. During the quarter ending in March, the housing market in India's main property markets saw a slight increase in demand and conversion, led by the luxury and middle-income segments. The sales momentum for affordable and low-income housing had begun to be impacted by rising interest rates.