Whenever the Reserve Bank of India (RBI) Monetary Policy Committee (MPC) interacts to take a decision on the benchmark lending rates, most real estate stakeholders wait impatiently to hear the decision. After all, the resultant effect on the lending rates of banks and housing finance institutions has a direct impact on the home loan eligibility, equated monthly instalments and at times, tenure of existing and new customers. However, an even greater impact is felt vis-a-vis market sentiments and that is the real cause for concern across the spectrum.
The good news or rather great news this time, is that after six consecutive rate hikes, RBI has opted to keep its benchmark lending rates unchanged at 6.5%. This not only gives a breather to those who feared yet another hike, but also raises expectations a possible reduction the next time around. We present reactions and feedback from real estate representatives on this development.
Dr Niranjan Hiranandani, Vice Chairman, NAREDCO National
"In contrast to the World Bank, India Inc. applauds the RBI’s decision to pause the rate hike cycle. This act of relief will restore confidence in homebuyers’ sentiment and boost demand rally in the real estate. The industry body now calls for fiscal intervention from the Government of India to cool the inflationary heat caused by persistent geopolitical turbulence caused by the collapse of foreign banks, supply chain challenges, and global financial instability. Additionally, devising innovative flexi or step-up EMI schemes by the banks and FIIS will be conducive for the market players to onboard new home buyers in the high interest rate regime."
Dr. Samantak Das, Chief Economist and Head – Research and REIS, India, JLL
"RBI has taken a bold step in keeping the repo rate unchanged at 6.5% backed by the country’s macro-economic resilience, robust banking system and strong financial markets. This is the right step to assess the impact of the previous six consecutive rate hikes working their way through the current inflationary cycle and overall economy. This is a welcome move for the real estate industry wherein the RBI has heeded the call from various stakeholders. India’s residential markets have maintained their trajectory with the first quarter of 2023 registering robust sales growth of 20% y-o-y while also hitting a 15-year high. A new wave of optimism with improving consumer confidence is seen resulting in rising sales due to sustained buying. Given that the affordability synergy was under challenge with home loan EMIs rising by 15-17% from April 2022 and home prices also increasing during the same period by 4-12%, the current status quo in policy rate will provide some respite. This should positively support the current home-buying sentiment."
Binitha Dalal, Founder and Managing Partner, Mt K Kapital
"The RBI’s MPC has opted to maintain the policy repo rate at 6.50%, as well as other policy rates. The governor’s bold decision to pause interest rates amidst a global trend of increasing rates is a strong show of support for India’s growth trajectory. The stable interest rates are expected to drive growth in the real estate sector, as they will help maintain sales and keep interest cost on real estate development in check. Furthermore, recent changes to capital gains on debt mutual funds have led to an increase in deposits in FDs and AIFs, which should improve credit flow to the sector. FD rates are currently at an all-time high, and investors are choosing to park their money in banks as a safer choice of investment. Overall, the governor’s decision is supportive of India’s ambition to become the world’s third-largest economy and reflects a commitment to India’s growth story. This move is likely to attract foreign investment and encourage companies to set up operations in India for both manufacturing and services."
Gurmeet Singh Arora, National President, Indian Plumbing Association
"RBI has kept the rates unchanged, drawing strength from the Indian economy’s strong footing. The Indian economy is looking upbeat and most of the agencies believe it will grow at a rate of 6.5-7% in the current fiscal. Likewise, the inflation is also pegged at 5% and this further renews optimism. Backed by the overall healthy outlook, the government does not need to take additional steps to rein liquidity and let economic growth unfold at a natural pace. This is also a healthy sign for real estate and the allied business, as lower inflation and optimistic growth will drive consumption and foster demand."
Anurag Mathur, CEO, Savills India
"In the first MPC meet of FY24, the RBI has taken the bold step to focus more on growth despite uncertainties especially in advanced economies. The decision to pause the rate growth cycle, keeping benchmark lending rates unchanged at 6.5% has been received positively by markets and economic experts alike. The central bank has marginally increased the GDP growth forecast for FY24 to 6.5%, while inflation projection has been decreased slightly to 5.2%. With clear growth-oriented signals for the rest of the year, investor confidence is likely to get a significant boost in the coming days. The financial stress on part of select developers and homebuyers is likely to get a relief from the pause in rate hikes. All of this is expected to translate into sustained demand in residential real estate. Moreover, with this balancing act of RBI, affordability of home-ownership is expected to remain intact. However, real estate stakeholders will remain watchful of the macro-economic situation and policy response in the near term."
