Real Estate Sector Seeks RBI Rate Pause To Sustain Housing Demand

Whether it is a young couple saving up for their first home or a family considering if now is the right time to move up the property ladder, every basis point decrease in the rate at which people can borrow affects affordability and could impact their decision to buy. The Reserve Bank of India’s rate announcement is clearly of keen interest to consumers, but it also has real estate players rooting for one particular outcome – stability.

Having enjoyed buoyant demand for homes in the last couple of years, most developers want the RBI to keep interest rates on hold in its upcoming Monetary Policy Committee (MPC) meeting. They are of the opinion that maintaining the status quo will ensure that homebuyer confidence doesn’t suffer given that global headwinds, rising crude prices and elevated inflation are causing doubts about the strength of India’s economic recovery.

Keeping interest rates unchanged will benefit not just customers but also developers. Reasonable rates will ensure that EMIs remain affordable for homebuyers while allowing builders to continue investing in projects and meeting delivery commitments. While the RBI may have reason to increase rates to combat rising inflation, the real estate industry will be hoping that it strikes the right balance and announces a policy that helps keep India’s real estate dreams on track.

“Real estate is one sector where affordability and sentiment of homebuyers are directly linked to interest rates. An unchanged stance will keep the housing demand going, help maintain the positive traction in residential sales and attract investments in the wider realty space. Rate hikes have proven ineffective in taming supply-side inflation or reigning in currency volatility. Considering these growth-friendly reasons, we believe RBI’s MPC would like to keep the interest rates unchanged and maintain its stance as calibrated and data driven,” said Shishir Baijal, International Partner, Chairman and Managing Director, Knight Frank India.

Parvinder Singh, CEO, Trident Realty, also said that home loan borrowers will rejoice if RBI keeps interest rates unchanged in the upcoming policy meet. “Stable interest rates mean borrowers can plan their finances better. Also, if RBI keeps repo rate unchanged, it will help developers to focus on execution and completing projects instead of financing themselves at higher interest rates. Global uncertainty and the challenge of higher input costs may continue but an unchanged rate cycle will protect buyer sentiment as much as possible and keep the investment cycle going, especially for end-user led residential projects,” he added.

Although elevated inflation and external uncertainty will remain top priorities for the RBI, residential real estate has consistently shown signs of resilience amidst these challenges driven by robust demand, high income growth and improving consumer confidence. 

“If the RBI signals any further rate cuts or suggests that rates are going to remain stable going ahead, that will provide additional impetus to buyers’ sentiments which will be positive for the mid-income and premium housing categories. Additionally, a stable interest rate environment allows developers and home buyers to have better visibility which helps in long term investments. Nevertheless, we feel that the Indian realty sector is poised for growth with strong underlying demand factors such as rapid urbanization and development of infrastructure,” said Pratik Tibrewala, Senior Vice President & Head - Corporate Finance, M3M India.

With global uncertainty and geopolitical tensions affecting sentiment, RBI is most likely to keep the repo rate unchanged. This will provide stability and allow individuals as well as businesses to plan for the long term. 

“Maintaining a stable interest rate regime is also crucial for keeping inflation expectations in check. Policy stability ensures confidence in the market and encourages developers, investors and buyers to continue investing in India. Keeping interest rates stable will also ensure that the demand momentum we have seen in real estate over the past few years does not slow down. Consumers can make decisions about purchasing their dream homes without worrying about interest rates rising,” says Ashish Agarwal, Director, AU Real Estate.

Developers say policy stability plays an important role in encouraging investments and projects, and creates positive sentiment in the market. 

“Real estate is quickly becoming one of the most favoured asset classes over the last couple of years. Rising demand from end-users, increasing aspirations among buyers and growing investor interest in the sector due to stable and long-term returns it offers are some of the key factors driving this growth story. The sector has also shown buoyancy despite many economic headwinds, which goes on to show the underlying strength it possesses. Maintaining the rates will ensure the confidence of buyers,” says Aman Shharma, Managing Director and Founder, Aarize Group.