Stability or stimulus? RBI's decision to hold 6.5% repo rate stirs debate in real estate

The Reserve Bank of India (RBI) on December 8, decided to maintain the policy repo rate at 6.5 per cent, marking the fifth consecutive pause in interest rate adjustments. This decision has elicited a diverse range of responses from stakeholders in the real estate sector. While some appreciate the stability and predictability it brings, others express a desire for a rate cut to further stimulate the market. In line with expectations, the move reflects the RBI's approach towards inflation, stressing on stability amid global economic uncertainties.

Real estate sector's response

Shishir Baijal, Chairperson and Managing Director, Knight Frank India, welcomed the decision, stating that the steady policy interest rates align with global central banks' trajectory. He highlighted the ongoing momentum in the residential real estate demand in India, emphasising the positive impact on vulnerable segments of the population.

“Despite escalations in borrowing costs, the overall housing market remains upbeat; however, the momentum in the affordable segment has lagged. Thus, a pause is supportive of catering to the housing needs of the vulnerable segment,” Baijal told Republic.

The real estate sector, echoing this sentiment, expressed relief as the unchanged repo rates at 6.5 per cent provide stability for homebuyers, ensuring that equated monthly instalments (EMIs) do not increase. Experts anticipate that this move will boost construction activities, positively influencing new property launches in key real estate markets.

Developers' perspective

However, some developers expressed a desire for a rate cut. Gunjan Goel, Director, Goel Ganga Developments argued that given the favourable macro-economic parameters, a rate cut would have benefited consumers and prevented potential disruptions to homebuyers' sentiments.

Economic outlook and market projections

Anuj Puri, Chairperson, ANAROCK Group, highlighted the strong fundamentals of the Indian economy and the positive GDP outlook, indicating a continued bull run in the housing market. The GDP growth at 7.6 per cent in the July to September quarter and inflation in check contribute to a healthy economic platform for sustained infrastructural and economic growth.

Experts estimate that healthy macroeconomic fundamentals and global economic normality in the coming year could support a repo rate reduction. This reduction is expected to translate into a decline in home loan interest rates, improving affordability and potentially boosting sales to surpass the 300,000 units mark in 2024.

2024 trajectory set

As the housing market outperforms 2022 sales, Vimal Nadar, Head of Research at Colliers India, anticipates a stronger 2023 with sales expected to be higher by 20 to 30 per cent compared to the previous year. Steady interest rates are seen as a key factor fuelling buoyant sentiment, keeping the housing market on a higher growth trajectory as 2024 approaches.

The RBI's decision to maintain the repo rate is met with a mixed response from stakeholders in the real estate sector. While some welcome the stability and predictability it brings, others express a longing for a rate cut to further stimulate the market. As India's economic landscape continues to evolve, the real estate sector remains a focal point for investors and homebuyers alike.