According to analysts, the Reserve Bank of India’s pause allows homeowners to continue enjoying cheap mortgage rates while also improving their affordability.

The real estate sector has welcomed the Reserve Bank of India’s decision to keep repo rates unchanged at 6.5%, stating that given that housing prices have risen in most cities over the last year, the apex bank’s pause provides a distinct advantage to homebuyers by allowing them to continue enjoying low interest rates and improving their affordability levels.

On February 8, the Reserve Bank of India chose to hold the policy rate steady for the sixth time in a row. This implies that homebuyers’ equivalent monthly installments are projected to remain constant. The rate rise cycle was suspended in April last year after six consecutive rate hikes totaling 250 basis points since May 2022.

RBI Governor Shaktikanta Das announced the bi-monthly monetary policy on February 8, stating that the Monetary Policy Committee (MPC) has decided to leave the repo rate steady at 6.5 percent.

He also predicted that the services sector’s activity would stay resilient due to robust local demand and steady global prospects. PMI services climbed considerably in January 2024, indicating ongoing solid growth. The strong demand for residential housing, along with an increasing focus on government expenditure, is projected to drive building activity.

Breather by the RBI gives homebuyers a leg-up

The policy rate pause bodes positively for the real estate industry, as stable interest rates and increased buyer optimism will fuel the residential market’s momentum in the next year. This is projected to translate into a decrease in house loan interest rates, which would enhance affordability levels and offer a boost to the market, with sales expected to top 300,000 units in 2024, said Samantak Das, Chief Economist and Head of Research and REIS, India, JLL.

He predicted that a future repo rate drop would significantly boost affordability in 2024, which would be second only to the peak affordability levels provided by JLL’s Home Purchase Affordability Index in 2021. “This is likely to push India’s residential sales in value terms to over ₹3 lakh crore over the next year with the potential to double over the next five years, supported by the policy ecosystem and a pragmatic interest rate regime.”

According to Anuj Puri, Chairman of the ANAROCK Group, the decision allows homebuyers to keep their comparatively low home loan interest rates.

“If we analyze current trends, the housing market has been unstoppable, and unaltered house loan rates will contribute to overall favorable consumer attitudes. Given that property prices have grown in the top seven cities in the recent year, the RBI’s breather is a significant benefit to homebuyers,” he noted.

Shishir Baijal, Chairman and Managing Director of Knight Frank India, stated that the stability in the interest rate environment to support the housing market augurs well for the housing market and is a “comforting signal for the industry.” In the case of the country’s housing market, even as the mid and premium segments continue to grow, the lower segment has been impacted by elevated interest rates and higher property prices. We anticipate that reduced house loan interest rates in the near future will raise homebuyer sentiment and improve affordability, which is a critical aspect in this section of the housing market.”

The Indian real estate sector remains largely optimistic, hoping that the RBI’s actions will strengthen banks’ housing loan portfolios, make construction finance and housing loans more affordable in the coming fiscal year, and thus sustain the housing sector’s growth, according to Boman Irani, president of CREDAI.

Some experts hope interest rates would start to drop soon

The update is consistent with the RBI’s most recent policy statement, which projected that the benchmark repo rate would remain at 6.5% and the target inflation rate would be 4%, down from the current average of roughly 5.5%.

“For the Indian real estate market, we do not expect today’s news to have a significant influence on the current favorable attitude. However, we expect that interest rates begin to fall soon, since this would rekindle attitudes among affordable homebuyers,” said Anshul Jain, Managing Director, India & Southeast Asia and Head of Asia Pacific Tenant Representation, Cushman & Wakefield.

Pradeep Aggarwal, founder and Chairman, Signature Global (India) Ltd, stated that the RBI’s decision to leave the rates on quo was expected, but he believes that lowering policy rates would have benefitted the interest-sensitive sectors.

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Source : Hindustan Times