Holding Repo Rate At 6.5% Will Boost Housing Demand In Festive Season

The unchanged repo rate is a holiday treat for homebuyers and provides them with yet another chance to make financially advantageous house purchases, according to the RBI Monetary Policy 2023.

To combat inflationary pressures, the regulator increased the repo rate by 250 basis points starting in May 2022. For the last four MPCs, the repo rate has stayed constant.

On October 6, the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) declared that the repo rate would remain at 6.5 percent. According to real estate specialists responding to the announcement, this action is anticipated to increase housing demand during the forthcoming holiday season when many homebuyers choose to book properties.

To combat inflationary pressures, the regulator increased the repo rate by 250 basis points starting in May 2022, and it has stayed constant for the past four MPCs.

Homebuyers are in for a holiday treat thanks to the unaltered repo rate, which presents them with yet another chance to make cost-effective home purchases. If we look at the current trends, the consumer market overall appears positive across all industries, especially the housing and auto markets, which in many respects mirror the state of the economy. Unchanged interest rates will serve as a significant spur for growth in the residential market as we head into the holiday quarter, according to Anuj Puri, Chairman of real estate consulting firm ANAROCK Group.

According to ANAROCK Research, housing sales in the top seven cities reached a record high in the third quarter of 2023 (despite the typically slow monsoon quarter), standing at 1,20,280 units as opposed to the over 88,230 units sold in the third quarter of 2022, thereby marking 36 percent yearly growth. We may anticipate the momentum to continue because of the stable repo rate and the ensuing stable home loan interest rates, Puri continued.

In a research published earlier in August 2023, ANAROCK stated that homebuyers' EMIs had increased by 20% over the previous two years. Home loan borrowers who were making monthly payments of roughly Rs 22,700 in July 2021 are now making monthly payments of roughly Rs 27,300, an increase of roughly Rs 4,600.

The MPC's focus has been on prioritizing growth and providing demand stimulation throughout the ongoing holiday season, thus the status quo on the policy rate was expected. Even while long-term inflation has been decreasing, the influence of the monsoons has not yet been taken into account, and it still exceeds the Central Bank's upper tolerance limit. With the cooling of vegetable prices, headline inflation decreased to 6.8% in August from 7.4% in July, according to Dr. Samantak Das, Chief Economist and Research & REIS, JLL India, a real estate consulting firm.

The fourth policy rate pause is encouraging for the real estate market, particularly residential, as the continuing affordability is demonstrated by the increasing sales momentum. Future sustained income and employment growth will increase homebuyers' affordability and promote the expansion of the residential sector. In 2024, a policy rate reduction is conceivable if GDP growth and inflation are strong enough to justify the RBI's position. In such case, the real estate industry, particularly the residential segment, would probably continue on a rising track, the speaker continued.

In its monetary policy review today, the Reserve Bank of India decided to keep the benchmark interest rate at 6.50 percent, which we applaud. The real estate industry will benefit from the RBI's commitment to consistently bringing inflation down to the four percent objective. This decision boosts market confidence and stimulates real estate investment from both domestic and international investors, according to Pradeep Aggarwal, founder and chairman of Signatureglobal (India) Ltd.

The real estate industry needs stable interest rates because they have a significant impact on how affordable mortgages are, which in turn affects home demand, he stated.

Potential homebuyers can continue to benefit from low mortgage rates because the policy repo rate won't change, making homeownership more attainable.