The Reserve Bank of India (RBI) made a significant move today, February 7, 2025, by announcing a 25 basis point cut to the benchmark repo rate, bringing it down to 6.25%. This marks the first repo rate reduction in five years and comes during the sixth bi-monthly monetary policy review for FY25. The RBI’s Monetary Policy Committee, led by Governor Sanjay Malhotra, also maintained the policy stance as ‘Neutral.’
The rate cut has been welcomed by the real estate sector, especially amid a high-interest rate environment that had made home loans more expensive and increased the burden of EMIs. The reduction is expected to provide relief to both existing and potential homebuyers, ultimately boosting demand for housing and improving affordability.
Dr. Niranjan Hiranandani, Chairman of NAREDCO, highlighted the significance of this decision, stating that it comes at a crucial time with inflation under control, a moderate fiscal deficit, and an anticipated acceleration in economic growth. He added that the move signals a renewed sense of resilience in India’s domestic economic climate, despite external geopolitical uncertainties. Combined with tax benefits announced in the FY26 budget for the middle class, this policy change is expected to drive sales and encourage homebuyers to invest in homes that offer an upgraded lifestyle.
Boman Irani, President of CREDAI National, emphasized that the rate cut complements recent budget announcements aimed at boosting economic growth. He pointed out that, alongside a recent 50-basis-point reduction in the Cash Reserve Ratio (CRR), this policy should inject further liquidity into the banking system. Although inflation remains slightly above the medium-term target of 4%, Irani expressed optimism that additional rate cuts in upcoming monetary policy meetings would provide an even stronger boost to demand, particularly in mid-income and affordable housing segments.
The impact on the housing sector is already visible. The rate cut aligns with other recent fiscal measures, providing much-needed relief to homebuyers, especially those looking for affordable housing. First-time buyers who have been hesitant due to high home loan rates may now take the plunge as they can benefit from lower borrowing costs, assuming banks pass on the full benefit.
The timing is particularly crucial given the continued rise in housing prices across India’s top seven cities, where average prices have increased by 13-30% in 2024. Anuj Puri, Chairman of ANAROCK Group, noted that the rate cut could further bolster consumer sentiment, especially as housing prices have jumped significantly. However, the full effectiveness of this policy will depend on whether banks pass on the rate cut promptly and the continued rise in property prices, influenced by inflation.
Additionally, the commercial real estate market, particularly office spaces, may also benefit from reduced borrowing costs for businesses. REITs could see heightened interest from investors seeking stable returns in a lower interest rate environment.
Overall, the RBI’s repo rate cut is expected to have a positive ripple effect across both residential and commercial real estate sectors, supporting growth and boosting confidence among developers, investors, and homebuyers.
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