(adsbygoogle = window.adsbygoogle || []).push({});
“At this point, a rate cut would be more beneficial for consumers,” said Shishir Baijal, chairman and managing director of real estate consultant Knight Frank India. “Growth in home loans has slowed and consumption among lower-income groups has significantly decreased, as witnessed in the sharp moderation in sales of affordable housing.”
“Industry concerns regarding affordable housing are sounding a loud alarm. A long-overdue rate cut is deemed essential to sustain steady economic and real estate growth, imperative for maintaining India’s fastest-growing GDP status,” said Niranjan Hiranandani, a Mumbai-based developer and chairman of the National Real Estate Development Council.
The RBI kept its key repo rate unchanged at 6.5% on Friday to check inflation and cut its estimate for GDP growth in FY25 to 6.6% from 7.2%. However, the RBI’s Monetary Policy Committee slashed the cash reserve ratio by 50 basis points to 4%, reducing the amount of reserves that banks have to maintain with the central bank.
Housing sales declined in the July-September quarter as prices increased. Residential sales fell 11% from a year earlier and new launches dropped 19%, according to ANAROCK Research. Sales in the affordable segment – homes costing less than ₹50 lakh – declined 14% to 20,769 units in the third quarter of 2024 from 23,026 units in the same period a year ago, according to data from Knight Frank Research.
The combined impact of rising prices, high home loan rates, and the persistent adverse effects of the pandemic in the real estate sector have suppressed demand. However, sales in the high-end segment – homes costing more than ₹1 crore – climbed 41% to 40,328 units in Q3 and have been the primary driver of the overall sales growth in the sector.
Borrowers’ challenges
High interest rates make home loans expensive, and borrowers face challenges such as higher monthly loan repayments or longer loan tenures.
HDFC Bank, the largest private lender, charges interest of 9.4% to 9.95% for standard housing loans. State Bank of India, the country’s largest lender, charges 8.5% to 9.65% and ICICI Bank levies interest in the range of 9.25% to 10.05%, Mint reported in August.
“Affordability has become challenging as loans remain expensive and property prices have steadily increased,” said Kanika Singh, chief risk officer at India Mortgage Guarantee Corporation. “Residential real estate sales have moderated, with high-end, mid-end, and affordable segments largely flat over the last quarter. Factors such as high capital values, inflation pressures, and uncertainty around the RBI’s repo rate cut may lead some homebuyers, especially in metros, to adopt a wait-and-watch approach. Meanwhile, tier 2 and 3 cities continue to drive growth in housing loans.”
IMGC is a joint venture of International Finance Corporation, ADB Bank, Genworth USA, Brookfield-owned Sagen, and the National Housing Bank.
“A rate cut could have boosted the real estate sector, particularly amidst slowing urban demand and moderation in wage growth,” said Dhruv Agarwala, group CEO of Housing.com and Proptiger.com. “However, housing demand remains strong, especially in the high-end and luxury segments, with most new launches in the December quarter targeting these categories.”
CRR cut positive
The lowering of the CRR by the RBI is aimed at increasing liquidity, which is expected to tighten in the months ahead due to tax outflows, increase in currency in circulation and volatility in capital flows.
“The cut in CRR by the RBI today will shore up liquidity in the economy and help developers borrow more as there is an unlimited requirement for funds in this sector,” said Samir Jasuja, founder of PropEquity. “However, a cut in the repo rate would have given a fillip to consumption and helped boost housing demand.”
He added that in order to achieve a $1 trillion real estate economy, radical reforms have to be made, including making home loans both accessible and affordable to tap the high demand for housing.
According to Raoul Kapoor, co-CEO of Andromeda Sales and Distribution, a loan distributor, the CRR cut is expected to result in lower lending rates, making home and personal loans more affordable for borrowers.
“Reduced borrowing costs can lighten equated monthly installments (EMIs), encourage credit uptake, and stimulate sectors such as housing and small businesses, thereby supporting economic growth while easing financial burdens on borrowers,” Kapoor said.
Future rate cut
Hiranandani had expected a rate cut, citing ‘supply-side’ constraints for accelerating inflation, and said the RBI’s decision raises significant concerns about India’s economic growth trajectory.
“Though monetary policy influences demand, it is supply-side factors that substantially drive food inflation,” Hiranandani said. “A strategic reduction in interest rates could have stimulated sustainable GDP growth while addressing inflation through supply-side measures.”
“The reduction in the existing repo rate would have been a great push for fence sitters planning to take loans anticipating lower EMIs,” said Sandeep Chhillar, founder and chairman of the Landmark Group, a real estate company based in Gurugram.
“The general expectation was for a rate cut of at least 25 basis points,” said Piyush Bothra, co-founder and CFO of Square Yards, an integrated platform for real estate and mortgages. “However, the decision to reduce the credit reserve ratio by 50 basis points is expected to help increase liquidity in the banking system and boost overall credit disbursements.”
Others see the status quo as positive but expect to see a rate cut in the near future.
“The apex bank’s decision… reflects a balanced and prudent approach to sustaining economic stability while fostering growth,” said Pradeep Aggarwal, founder and chairman of Signature Global (India) Ltd. “However, a rate cut in the future could infuse much-needed liquidity into the real estate sector, accelerating growth and enhancing accessibility for buyers.”
“The real estate sector stands to benefit from continued stability. For developers, this means sustained demand for residential properties,” said Madhur Gupta, CEO of Hero Realty.
“Lower GDP growth may indicate weaker overall demand, but on the other hand, stability in interest rates coupled with improved liquidity could continue to drive demand in the mid- and luxury housing segments, which have been rising due to growing middle-class aspirations and increasing housing requirements,” said Sharad Mittal, founder and CEO of Arnya RealEstates Fund Advisors. “Should the RBI decide to cut rates in the future, it could further spur residential real estate demand, making home ownership more affordable and attractive for buyers.”
(adsbygoogle = window.adsbygoogle || []).push({});