Rate cut to revive housing demand, help affordability: Real estate industry

Business Standard

3 days ago

Housing demand should improve nationwide after the Reserve Bank of India (RBI) cut the repo rate by a larger-than-expected 50 basis points (bps) on Friday, said real estate industry executives.
The rate cut comes after housing sales in top Indian cities in the first quarter of 2025 dipped 28 per cent due to skyrocketing residential property prices and geopolitical headwinds, according to Anarock.
Experts believe that rate cuts of 100 bps in 2025 may lower the cost of borrowing and equated monthly instalments (EMIs) for homebuyers, as the current average home loan rates are around 8.5 per cent, which may reduce to 8 per cent once the benefit is passed on by the banks to the borrowers.
Reduced EMIs are expected to improve buyer sentiment and encourage first-time homebuyers to enter the market, said Shekhar Patel, president of Credai, which represents real estate developers.
'For aspiring homebuyers, especially first-time buyers, this is a golden window to act,' said Ankit Shah, chief operating officer and chief marketing officer of Grahm Realty. Jayant Manmadkar, CFO, Brigade Enterprises, is expecting a strong uptick in residential inquiries and conversions as EMIs become more manageable for aspirational buyers.
The rate cut is likely to help demand for interest-sensitive, affordable and mid-segment housing the most. In the past few years, affordable housing has suffered amid declining sales and launches.
The momentum in the housing market for the past few years is concentrated in premium properties amid signals that lower segments are weakening, according to Shishir Baijal, chairman and managing director, Knight Frank India.
Dr Niranjan Hiranandani, chairman, Naredco & Hiranandani Group, said, 'For the real estate sector, this rate reduction is set to bolster credit lending, accelerate buying velocity, and enhance development momentum.'
According to Anarock, affordable housing sales plummeted from 38 per cent in 2019 to 18 per cent in 2024. Supplies dropped from 40 per cent to 16 per cent.
'This effectively lowers the cost of borrowing, making home loan EMIs easier on the pocket and thereby directly improving affordability for buyers. This can potentially boost demand in the Indian real estate sector, especially in affordable and mid-income segments,' said Anuj Puri, chairman of Anarock.
The RBI lowered the cash reserve ratio (CRR) by 100 bps to 3 per cent — a step that is expected to help developers access more capital and complete projects on time. 'The reduction in CRR is expected to infuse significant liquidity in the banking system, which will prompt banks to lend even more,' said Pradeep Aggarwal, founder and chairman of Signature Global (India).
Sanjay Dutt, MD and CEO, Tata Realty and Infrastructure, believes that in an era of rising construction costs and increased cost of doing business, the rate cut will reduce borrowing costs of developers. 'We hope the rate cut is quickly translated through reduction in Bank MCLR's resulting in reduction in the long-term borrowing costs. Surplus domestic liquidity situation has already helped reduce short-term borrowing costs significantly'
Anshul Jain, chief executive of India, SEA and APAC Tenant Representation at Cushman & Wakefield, expected the lower borrowing costs to improve the viability of capital-intensive projects like global capability centres, data centres, and logistics.
Samantak Das, chief economist and head – research and REIS, India at JLL, said the rate cut's impact on financial markets will likely attract institutional capital in real estate debt and equity. 'This could unlock financing mechanisms for developers, accelerating project execution and fostering a more competitive and dynamic supply landscape.'
Additionally, the developers' community is expecting the rate cut to spur investments into the sector.
Vimal Nadar, national director & head, research, Colliers India, believes that over the medium term, the reduction in the cost of capital is also expected to enhance investor confidence, potentially boosting activity in both residential and commercial real estate segments.
However, Anarock's Puri believes that the positive impacts may be partially dampened by the global trade tensions and tariffs imposed by the Trump administration, which have increased the cost of imported construction materials and created economic uncertainty. 'We may see some impact on the demand for luxury and commercial projects, and developer margins may be squeezed.'