RBI

In a move that bodes well for the real estate sector, the Reserve Bank of India (RBI) has decided to keep the repo rate unchanged at 6.5% for the ninth consecutive time. This decision, announced on August 8, aligns seamlessly with the recent announcement on August 7 regarding indexation benefits on the sale of property, offering a double boost to the real estate market.

The RBI’s choice to maintain the current policy rate offers much-needed stability to the housing market, particularly at a time when food inflation remains a concern. With the repo rate holding steady, home loan EMIs will remain manageable for both current and prospective homeowners, a development that could drive an uptick in home sales, especially in the price-sensitive affordable housing segment.

“The monetary policy committee decided by a 4:2 majority to keep the policy repo rate unchanged at 6.5%. Consequently, the standing deposit facility (SDF) rate remains at 6.25%, and the marginal standing facility (MSF) rate and the bank rate at 6.75%,” said RBI Governor Shaktikanta Das during the policy announcement.

Real estate experts are optimistic about the potential impact of this decision. Anuj Puri, Chairman of ANAROCK Group, noted, “Maintaining interest rates offers consistency in borrowing costs, which will prompt more aspiring homebuyers to consider taking the plunge—thus driving demand in the housing market. With interest rates staying steady, EMIs will remain manageable, potentially leading to increased home sales.”

The RBI’s decision also coincides with the recent announcement of indexation benefits, which is expected to have a positive impact on the property market. The indexation benefits allow for adjustments to the purchase price, taking inflation into account, which in turn reduces capital gains tax upon the sale of property. This tax advantage makes real estate investments more appealing, further spurring demand and capital flow into the housing sector.

Samantak Das, Chief Economist and Head of Research and REIS, India, JLL, emphasized the significance of the RBI’s steady approach: “The RBI’s intention in keeping rates unchanged is to ensure a stable interest rate environment and price stability, which is crucial for sustained growth. However, future rate cuts in India will primarily be influenced by domestic factors.”

Looking ahead, experts believe that the sentiment in the real estate sector is likely to remain positive throughout the upcoming festive season. The combination of stable interest rates and recent government initiatives, such as the rationalization of stamp duty charges and concessions for women homebuyers, is expected to further support this momentum.

Vimal Nadar, Senior Director and Head of Research at Colliers India, remarked, “Strong visibility in financing charges should help homebuyers and developers alike in the upcoming festive season. The partial withdrawal of the applicability of the revised LTCG tax arising out of the sale of land and buildings retrospectively provides elbow room to affect housing sales with minimal tax outgo. This is likely to buoy investor and homeowner sentiment, benefiting the real estate sector at large.”

Real estate developers have welcomed the RBI’s decision, viewing it as a positive signal for the industry. G Hari Babu, National President of NAREDCO, expressed confidence in the stable environment created by the unchanged repo rate and the RBI’s forecast of 7.2% GDP growth for FY25. “With steady borrowing costs, home loans become more affordable, which is likely to boost demand in the housing market, especially during the upcoming festive season,” he said.

The RBI’s balanced approach to economic management, amidst global economic uncertainties, has reassured investors and provided a stable backdrop for the real estate sector to thrive. As the festive season approaches, the current status quo on the repo rate is expected to further support the momentum in the housing market, creating a conducive environment for both homebuyers and developers.

In conclusion, the RBI’s decision to keep the repo rate steady is a welcome development for the real estate sector, offering stability and predictability in borrowing costs. Combined with recent government initiatives, this move is likely to boost demand in the housing market, particularly in the affordable segment, and position real estate as a strong avenue for long-term wealth growth.