Repo Rate: The Reserve Bank of India (RBI) has given great relief to the general public by reducing interest rates in the third consecutive monetary policy review. This time the repo rate has been reduced by another 0.50 percent. In this way, the repo rate has been reduced by a total of one percent since February.
It is expected that banks will also give full benefit to the customers and reduce their loan interest rates by the same amount. The real estate sector will benefit the most from this decision. About 200 sectors including steel and cement are related to real estate, so if real estate gets a boost, the entire economy will get a big boost. Demand will increase in the affordable and mid-income housing segment.
Anuj Puri, chairman of property consultant Anarock Group, said that, as expected, the Reserve Bank has reduced the repo rate by 0.50 percent to 5.5 percent. RBI has taken this step due to the fall in inflation in recent months. This will make loans cheaper, reduce home loan EMI, and overall improve the affordability of home buyers.
This is expected to increase demand in the real estate sector, especially in the segment of affordable housing demand and mid-income home buyers. Affordable housing was the worst affected after the pandemic. Their sales and new launches declined in seven major cities of the country.
Data from Enrock shows that the share of affordable housing in total home sales fell from 38% in 2019 to 18% in 2024. Their supply also fell from 40% to 16%. It is expected that banks will pass on the full benefit of this cut in repo rate to customers. This will make loans cheaper for customers as well as developers.
Developers will get help in completing projects on time
The reduction in Cash Reserve Ratio (CRR) will increase liquidity in the banking system and banks will have more money available to lend. From a real estate point of view, developers can get more capital for their projects. This will help them complete their projects on time, which will speed up construction work and stuck projects can also get back on track.
Impact of global uncertainty on luxury and commercial projects
However, despite all these positive steps, tension in trade at the global level and tariffs imposed by the Donald Trump Administration in the US have increased the prices of imported construction materials. Along with this, economic uncertainty also persists. This may have some impact on luxury and commercial projects. The developer’s margin is also expected to decrease in this segment, as production costs may increase.
Reduction in interest rates and increased liquidity will encourage consumption
According to Sameer Jasuja, Founder and CEO of PropEquity, the reduction of one percent in repo rate and one percent in CRR three times is a bold and progressive step. These steps will increase liquidity and encourage growth in loans, as India’s GDP growth rate rose to a four-quarter high of 7.4% in the fourth quarter of the last financial year.
With retail inflation remaining in a comfortable range, this deep cut in interest rates and liquidity measures will boost consumption. Both these measures will ensure that the benefit of interest rate cuts reaches the customers quickly so that new home buyers get relief from the impact of rising housing prices and also boost the affordable housing sector.