Real estate sector hails RBI repo rate pause

June 12th, 2023

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The Reserve Bank of India’s decision to keep repo rate unchanged is likely to lead to stable home loan interest rates and continue the uptick in housing demand, say real estate sector leaders. This is the second consecutive time that the central bank has kept the lending rate unchanged.

Mumbai: The real estate industry has welcomed RBI’s decision to keep the repo rate unchanged for the second consecutive time in the monetary policy meeting on Thursday.

Repo rate is the rate at which commercial banks borrow money from the central bank.

Dr Niranjan Hiranandani, National Vice Chairman, National Real Estate Development Council (NAREDCO) said, “India Inc hails accommodative stance of RBI with recurrent pause in repo rate hike at 6.50% as record high inflation eases off gradually. As a snowball effect, respite in home loan interest rate will augur well to fuel uptick in housing sales across the segments. Now, the discerning homebuyers should avail the benefits of cooling inflation, stable home loan rates, conducive real estate market dynamics in the backdrop of buoyancy in GDP growth, domestic demand and availability of sufficient liquidity. With the festive season in tailwinds, a hiatus in interest rate hike will act as a growth catalyst and boost sales velocity.”

Shishir Baijal, Chairman & Managing Director, Knight Frank India said the pause in repo rate will support the housing demand. “We appreciate the decision of the RBI to maintain the repo rate unchanged for the second consecutive time. Although inflation still remains higher than the tolerance level, it has decreased over the last few months, allowing the RBI to maintain its stance. We believe that this status quo will facilitate positive decision-making for home buyers.”

Baijal said indicators such as GST collection, manufacturing and services PMI, and E-way bills suggest strength in economic growth, but certain crucial growth indicators, particularly consumer durable goods in the IIP (Index of Industrial Production), which reflects household consumption, are yet to show sustained recovery. “Therefore, maintaining the policy rates unchanged for a while will support consumer demand amid diminishing inflation, thereby fostering economic growth. Despite a significant increase in interest rates, the real estate sector has been performing well. Real estate loan demand from both housing and commercial segments has remained strong, despite a 150 basis points rise in the base lending rate (MCLR) over the past year. However, we remain cautious about the industry, as the complete transmission of the repo rate hikes to lending rates is yet to be observed,” he added.

Anuj Puri, Chairman, Anarock Group said the unchanged repo rate will give some respite to prospective homebuyers looking to avail home loans in the near future. “The unchanged repo rate can help maintain the momentum in housing sales, which has so far been firing on all cylinders in 2023. As per Anarock Research, we saw housing sales in first quarter of 2023 scale new heights, breaching the one lakh mark at 1.14 lakh units across the top seven cities. Given the current unchanged rates, the outlook for those looking to buy their first home via a home loan soon remains favourable.

Puri pointed out that interest rates from most banks will continue to remain in single digits. “With top banks, they currently hover between 8.7 to 9.65%. A future rate hike, if any, may push the rates into double digits. The persisting financial instabilities in advanced economies of the world may have repercussions in India, causing the RBI to take such a step to face these headwinds,” he added.

Anurag Mathur, CEO, Savills India said the unchanged repo rate will keep the home loan EMIs unchanged in the near term, leading to sustained demand across categories in the residential real estate. “Developers with debts on their balance sheets stand to benefit as long as the monetary policy finely balances inflation and growth prospects. However, market experts should remain vigilant, as policy normalisation across the world including India is expected to take at least few quarters,” he said.

Venkatesh Gopalkrishnan, Director Group Promoter’s Office & CEO, Shapoorji Pallonji Real said, “The unchanged repo rate provides a sense of certainty to developers and homebuyers alike, instilling faith in the real estate market. It is a positive development that will have far-reaching implications for the industry. While residential demand has showcased resilience, particularly in the luxury and premium segments, this decision by the RBI is poised to further propel the real estate sector. The unchanged repo rate not only encourages investment but also facilitates affordable home loans, making homeownership more accessible to aspiring buyers. We anticipate this to contribute positively to the overall market sentiment.”

Manju Yagnik, Vice Chairperson of Nahar Group and Senior VP, NAREDCO, Maharashtra, said, “It was mentioned that the real estate sector was given a much-needed break by the RBI’s decision to maintain the repo rate constant. This choice would claim the same EMIs while bringing stability to the home loan category. It will keep the real estate market in a buying mood and could increase the mid-segment housing market. We also anticipate no change in the demand for upscale and exclusive dwellings. Despite the good effects of this choice, the governor of the RBI has indicated that this action may only offer short-term solace and may be required to stop the nation’s inflationary trend. This decision of keeping the rates unchanged will enable the real estate sector to consistently grow.”

Vimal Nadar, Head of Research at Colliers India, said the headline inflation continues to be lower but still poses upside risks due to volatile global conditions. “RBI’s move to keep the repo rate unchanged at 6.5% reinforces the Central Banks’s effort to support domestic growth and create a conducive lending ecosystem... As home loan rates are already at elevated levels of 9% and above, this is a significant breather for lenders, developers and homebuyers. First time homebuyers will be better placed to make their home buying decision in a stable lending rate regime. Fence sitters in the affordable & mid segment will have greater visibility of their EMIs & thus effect buying,” he said.

Amit Goyal, Managing Director, India Sotheby’s International Realty said the RBI decision to keep repo rate unchanged for second consecutive time after a series of six consecutive rate hikes was on expected lines. “The RBI’s decision reflects their cautious approach in light of the persistent inflationary pressures and their potential impact on domestic consumption growth. However, the positive aspect is that the pause in rate hikes will instil a sense of optimism among borrowers and we expect the housing sales momentum to continue,” he said.

Another hike would also lead to even higher borrowing costs for developers too. Hence, we expect a continuation of existing policy rates through 2023. Undoubtedly, a further reduction in interest rates in the near future would be preferred to bolster overall market confidence and make it more enticing for home buyers and support the growth momentum in the real estate sector.

Ram Raheja, Managing Director at S Raheja Realty said the central bank’s decision was in line with accelerating transition towards growth. “A typical monsoon season is anticipated to help reduce inflation, boost demand, and subsequently drop interest rates. The MMR region is expected to have high consumer demand for real estate. Additionally, the completion of infrastructural projects will in fact result in even higher demand for luxury residences since it will increase high-ticket buyers’ and investors’ confidence and incentive to buy.”

Piyush Bothra, Co-founder and CFO, Square Yards, said the RBI decision indicates that interest rates will only have one direction which is downwards. “This is a big positive for the home buyer as they know that their EMIs down the line will only decrease further. A lot of fence sitters are expected to jump in, and the developers are likely to cash in on this pent-up demand. We firmly believe that we are at the beginning of a multi-year real estate bull market buoyed by high disposable incomes, high affordability and moderate-to-low interest rates.”