RBI Policy: How A Repo Rate Move Could Affect Homebuyers And Real Estate

A small change in the RBI’s repo rate can make a noticeable difference to someone paying a home loan for 20 or 25 years. That is why the central bank’s October 7 policy decision comes at an important time for the housing market, with the festive season underway and many buyers considering a purchase.

The big question is whether the RBI will raise rates to deal with rising inflation or leave them unchanged to avoid adding to borrowing costs. A 25-basis-point hike is one possibility being discussed, but several real estate developers would prefer the RBI to hold rates steady. For buyers, even if there is no immediate shock, the direction of interest rates could influence how much they are willing to borrow and when they decide to buy.

Some industry observers expect a cautious approach, with the possibility of a 25 basis point increase in the repo rate to 5.50 per cent. Others believe that keeping rates unchanged would provide much-needed stability during the festive season, traditionally an important period for residential sales.

Dr Amit Goenka, Chairman & MD, Nisus Finance, expects the RBI to weigh inflation and global rate movements against the resilience of the domestic economy.

“With inflation broadening and global rates moving higher, the RBI has to balance price stability with growth. A 25 bps hike would be a measured response,” he says.

Retail inflation rose to 4.82 per cent in August, while higher crude oil prices and capital outflows have added pressure on the rupee. At the same time, the economy has remained relatively strong, with GDP growth of 7.8 per cent in the first quarter of FY27.

For real estate, Goenka does not expect an immediate shock from a moderate rate increase, particularly for projects backed by healthy demand and manageable debt. The bigger concern, he says, would be a prolonged period of high borrowing costs.

“If rates remain elevated for longer, project viability, returns and fresh investment decisions could come under pressure,” he says.

What A Rate Hike Could Mean For Home Loans

For homebuyers, even a small movement in interest rates can affect monthly cash flows, particularly for borrowers taking large, long-term loans.

Adhil Shetty, CEO, BankBazaar, says a 25 bps hike could increase the cost of borrowing, although the impact would be manageable for most borrowers.

“For a Rs 50 lakh loan at 7.5 per cent over 25 years, the EMI is around Rs 36,950. A 25 bps increase could add roughly Rs 817 a month,” he says.

Over a 25-year tenure, the additional interest could amount to around Rs 2.45 lakh, assuming the rate remains higher for the entire period.

The actual impact, however, would depend on the lender and the loan structure. Borrowers with repo-linked floating-rate loans are likely to see the change reflected after the lender resets the applicable rate.

Shetty advises borrowers not to wait for the rate increase to materially affect their finances. Increasing the EMI or making periodic partial prepayments can help reduce the overall interest burden.

“Borrowers should also check whether a rate revision will increase the EMI or extend the loan tenure,” he says.

Festive Season Becomes Important

The timing of the policy decision is particularly significant for the housing market. The festive season is typically a period of higher home-buying activity, with developers launching projects, offering incentives and buyers bringing forward purchase decisions.

Shishir Baijal, International Partner, Chairman and Managing Director, Knight Frank India, expects the RBI to remain cautious because of inflation and oil prices, while acknowledging that a rate increase could affect housing demand.

“Higher rates could weigh on borrowing costs and near-term demand, but the impact should remain measured because underlying housing demand is still resilient,” he says.

The alternative, however, is to maintain the existing rate. Several developers believe this would be preferable at the current stage of the housing cycle.

Ramani Sastri, Chairman & MD, Sterling Developers, says stable rates would support both affordability and buyer confidence.

“A rate hike could increase the cost of capital and affect affordability, particularly for first-time and mid-income buyers. Stability would help buyers plan with greater certainty,” he says.

For developers, predictable borrowing costs are equally important. Higher financing costs can affect project economics, particularly for developments that require substantial upfront capital.

Developers Favour Stability

Several developers expect the RBI to leave the repo rate unchanged.

Parvinder Singh, CEO, Trident Realty, says stability would allow both buyers and developers to plan better.

“Steady borrowing costs give homebuyers greater financial visibility and allow developers to remain focused on execution and timely delivery,” he says.

Anil Godara, Managing Director, J Estates, also favours policy continuity rather than frequent changes in interest rates.

“Stable rates give buyers confidence when taking long-term financial commitments and can help sustain residential sales,” he says.

According to Godara, the nature of housing demand is also changing. Infrastructure development is creating new residential corridors, while a larger share of demand is coming from genuine end-users rather than purely speculative investors.

This could make the housing market somewhat more resilient to moderate changes in borrowing costs.

Demand Remains Broader Than Interest Rates

Interest rates remain an important part of the home-buying equation, but they are no longer the only factor driving residential demand.

Urbanisation, improving connectivity, rising household incomes and infrastructure development are creating new housing markets across major cities and emerging corridors. Premium plotted developments are also attracting increasing interest from buyers looking for larger spaces and long-term value.

Rayan Munawer, Founder & CEO, Terray Realty, says stability in borrowing costs could encourage buyers who have been waiting on the sidelines to make their purchases.

“Rate stability gives both buyers and developers better visibility. It can also bring forward decisions from buyers who have been waiting for the right opportunity,” he says.

However, he expects global economic developments to remain an important factor for the future direction of interest rates.

This is likely to remain the key uncertainty for the property market. A single 25 bps rate movement may not significantly alter the housing outlook, but a sustained period of higher rates could gradually affect affordability, project financing and investment decisions.

For now, the real estate sector appears to be looking for predictability rather than aggressive rate cuts. A stable rate environment would allow developers to plan projects with greater certainty and give homebuyers clearer visibility on their monthly commitments.

The October MPC decision, therefore, could have significance beyond the immediate direction of the repo rate. For a housing market entering the crucial festive-sales period, the message on the future trajectory of borrowing costs may be almost as important as the rate decision itself.