Impact of Repo Rate Reduction on Real Estate: Residential and Commercial Sectors
The RBI’s 25 bps repo rate cut to 6.25% will boost both residential and commercial real estate by lowering borrowing costs, increasing housing demand, and improving market liquidity. This move enhances affordability, stimulates sales, and supports business expansion, contributing to overall economic growth.
The Reserve Bank of India's six-member Monetary Policy Committee has reduced the repo rate by 25 basis points to 6.25%, the first rate cut since May 2020.
Here’s our take on the impact it is set to have on both the residential and commercial real estate markets.
Positive Impacts on the Residential Real Estate Sector
Lower Home Loan Interest Rates: With the reduction in the repo rate, banks are likely to lower home loan interest rates. This will lead to lower Equated Monthly Instalments (EMIs), making homeownership more affordable and encouraging more buyers to invest in property.
Increased Housing Demand: The Indian real estate market has witnessed strong sales over the past 2-3 years. The rate cut will further boost buyer sentiment, encouraging first-time homebuyers and investors to enter the market.
Reduced Unsold Inventory: G Hari Babu, National President of NAREDCO, notes that with lower borrowing costs, the inventory of unsold homes will reduce, prompting developers to launch new projects and expand housing options.
Higher Disposable Income and Tax Benefits: Reduced interest rates, tax benefits in the recently presented Union Budget, including higher TDS limits on rent and home loan interest deductions, and enhanced affordability will further drive home purchases.
Boost for the Commercial Real Estate Sector
Lower Cost of Borrowing for Businesses: The lower interest rates make borrowing cheap for businesses when purchasing or leasing office spaces, retail stores, and other commercial properties. This will spur growth in the commercial real estate segment.
Enhanced Liquidity for Developers: The rate cut will increase liquidity in the banking system, and developers will be able to finance projects that are in progress while developing new ones. Completion of projects on time would not get delayed because of a lack of funds.
Potential for Demand in Office Spaces: Lower interest rates make investments in commercial real estate attractive. Business when looking to expand will be able to finance office spaces easily, and demand for quality workspace will go up.
Economic and Market Sentiments
Stronger Consumer Spending: The rate cut is expected to enhance discretionary spending, benefiting not just real estate but also sectors like automobiles, jewellery, consumer durables, and travel.
Stable growth in the GDP: Deepak Ramaraju, Senior Fund Manager at Shriram AMC, pointed out that the country's GDP will grow from 6.3% to 6.6% for FY26 and that inflation will ease down to 4.26%.
Such stability in the economy is responsible for the resultant buoyancy in the demand for real estate.
Pro-Growth Policy Measures: The fiscal discipline and expenditure plan of the government have helped it to create space for this rate cut, according to Shishir Baijal, Chairman & MD of Knight Frank India, adding to confidence in economic growth..
Conclusion
The repo rate cut down to 6.25% has been a game-changer for the industry of real estate, making home loans more favorable, stimulating sales, and improving market liquidity. It supports the expansion of commercial property and thus Favors businesses and developers. This reduction of the repo rate is a good stepping stone toward a robust and growing real estate sector in India, considering supportive government policies, tax benefits, and good economic fundamentals.