How Unchanged Repo Rate Will Impact Home Loan, Debt Instruments & Real Estate Sector?

In accordance with forecasts, the Reserve Bank of India (RBI) today kept repo rates at 6.50%. Due to high inflation rates, the repo rate has gone up since February 2022 by up to 250 basis points, or 2.5%. However, the main justification for today's move to maintain current interest rates was due to declining inflation. In reality, the consumer price index-based inflation rate fell to an 18-month low of 4.7% in April 2023 from 5.7% in March 2023 after the last policy was implemented in April 2023. Analysts claim that the RBI's decision to keep the repo rate at 6.5% at its second bimonthly monetary policy meeting of FY24 will have an influence on the home loan, debt instrument, and real estate sectors.

Anoop Bhargava, CEO & Director, Empire Centrum

When the RBI maintains repo rates, it typically means that the central bank is not making any changes to the cost of borrowing for commercial banks. Here's how it could potentially affect the real estate sector:

Home loan sector: If repo rates remain unchanged, it implies that the interest rates on home loans might also remain stable. This could be positive for individuals seeking home loans, as it provides stability and allows them to plan their finances accordingly. However, it's important to note that home loan interest rates can be influenced by various factors, including inflation, market conditions, and competition among lenders.

Debt instruments: Debt instruments, such as bonds and fixed deposit schemes, may not see an immediate impact due to unchanged repo rates. These instruments are influenced by a range of factors, including market demand, credit ratings, and prevailing interest rates in the economy. While unchanged repo rates don't directly affect debt instruments, they can indirectly impact market sentiment and investor behavior, which could influence the performance of these instruments.

Real estate sector: The real estate sector can be influenced by changes in interest rates. Unchanged repo rates may lead to stable borrowing costs for developers and investors, which could potentially support the sector. Additionally, if interest rates on home loans remain stable, it may encourage homebuyers, leading to increased demand for real estate. However, the real estate market is influenced by multiple factors such as supply and demand dynamics, economic conditions, government policies, and local market conditions, which can have a more significant impact than just the repo rate.

Sunil Damania, Chief Investment Officer, MarketsMojo

As anticipated, the Reserve Bank of India (RBI) has chosen not to increase interest rates, citing the belief that the previous 250 basis points rate hike implemented since last May has yet to fully impact the economy. The presence of global uncertainty is an additional factor influencing the RBI's cautious approach, as a rate hike could potentially hinder economic growth. Predictions indicate that inflation for the fiscal year 2024 is expected to remain above 4 percent, and fluctuations in crude oil prices, influenced by Saudi Arabia's announcement of production cuts, could further elevate inflation. The unresolved uncertainty surrounding El Nino also poses a risk of inflationary spikes. Consequently, the RBI has opted to adopt a careful stance by refraining from raising interest rates.

Anuj Puri, Chairman - ANAROCK Group said "As was anticipated, the RBI has decided to keep the repo rates unchanged at 6.5%. This gives some respite to prospective homebuyers looking to avail of home loans in the near future. The unchanged repo rate can help maintain the momentum in housing sales, which has so far been firing on all cylinders in 2023. As per ANAROCK Research, we saw housing sales in first quarter of 2023 scale new heights, breaching the one lakh mark at 1.14 lakh units across the top 7 cities. Given the current unchanged rates, the outlook for those looking to buy their first home via a home loan soon remains favourable. Interest rates from most banks will continue in single digits. With top banks, they currently hover between 8.7 to 9.65%. A future rate hike, if any, may push the rates into double digits. The persisting financial instabilities in advanced economies of the world may have repercussions in India, causing the RBI to take such a step to face these headwinds."

Shishir Baijal , Chairman & Managing Director, Knight Frank India said "We appreciate the decision of the RBI to maintain the REPO rate unchanged for the second consecutive time. Although inflation still remains higher than the tolerance level, it has decreased over the last few months, allowing the RBI to maintain its stance. We believe that this status quo will facilitate positive decision-making for home buyers. The decision to pause is well justified, as the inflation outlook for FY24 is within the central bank's tolerance range. However, the momentum in key macro-indicators related to growth is uneven. Indicators such as GST collection, manufacturing and services PMI, and E-way bills suggest strength in economic growth. However, certain crucial growth indicators, particularly consumer durable goods in the IIP (Index of Industrial Production), which reflects household consumption, have yet to show sustained recovery. Therefore, maintaining the policy rates unchanged for a while will support consumer demand amid diminishing inflation, thereby fostering economic growth."

"Regarding the real estate sector, the trajectory of India's economic growth will be beneficial. Despite a significant increase in interest rates, the sector has been performing well. Real estate loan demand from both housing and commercial segments has remained strong, despite a 150 bps rise in the base lending rate (MCLR) over the past year. However, we remain cautious about the industry, as the complete transmission of the repo rate hikes to lending rates is yet to be observed," said Shishir Baijal.

Nitin Bavisi, CFO, Ajmera Realty & Infra India Ltd said "Today's RBI policy announcement decision to maintain the repo rate at 6.5% for the second consecutive time reflects the positive impact of inflation easing in various sectors, along with maintaining its stance of withdrawal of accommodation. Consequently, the Indian economy is exhibiting promising signs of improvement, compelling a trajectory towards growth. Since May 2022, India's apex bank has hiked interest rates six consecutive times, cumulatively by 250 bps. Considering the prevailing circumstances, inflation shall be closely monitored to bring down to 4% level, potentially prompting the RBI to reconsider its stance on interest rates and achieve a balance between growth and inflation."

"This move will not only bring stability to the real estate sector but also contribute to its overall growth and development. With the repo rate being kept unchanged, it is expected to stimulate investment in the real estate market as borrowing costs remain favourable. This favourable environment is set to provide a significant boost to the real estate sector, fostering confidence among investors and homebuyers alike. Largely, it is expected that the RBI may start easing rates by CY24, expecting pricing power to return for most players in the next 12 months," Nitin Bavisi added.
Amit Jain, CMD, Arkade Group said "The RBI has maintained it's policy stance of keeping a pause on the rate hike which is in line with market expectations.
Bond markets were already factoring in the pause.

There is no indication from the RBI that the rate cycle will change anytime soon. The path thereon will be dependent on the evolving domestic inflation and growth dynamics and the US Fed stance. This is a positive move for the real estate sector and for home buyers as well as it will not impact EMIs. Therefore we expect the momentum in home sales to continue. Mr.Amit Jain, CMD, Arkade Group."

Pramod Kathuria, Founder & CEO, Easiloan said "Investors have faced difficulties in past due to the recent rise in interest rates. RBI today announced unchanged rates at 6.50%, the real estate industry is expected to prosper as middle-income groups can now invest without worrying about escalating home loan interest rates. The demand for both residential and commercial properties has surged, driven by the availability of top-notch amenities and facilities. Should repo rates remain stable, investors will find it increasingly convenient to participate in project investments."

Akshar Shah, founder , Fixed Invest said "The RBI unanimously voted to keep repo rate unchanged at 6.5%. Inflation easing in April and RBI stance is indicative of the fact that perhaps we have reached the peak of interest rate cycle. With more liquidity in the banking system after withdrawal of 2000 rupee note and indications of easing inflation banks may start reducing FD rates over the next few months. It's perhaps one last good time for investors to lock in high, safe returns in FDs."

Aalesh Avlani, Founder, Credit Wise Capital on Bi-Monthly RBI MPC Announcement said "With inflation numbers down by 90 bps compared to last month, GDP growth on the upward trend - we all expected the rate to be unchanged. A slightly aggressive stance of reducing the rate would have been appreciated to fuel growth. However, macro policies are aligned with the GDP estimates and that is something to cheer on. One can sense the optimism and it's a good time to build in India."

Boman Irani, President CREDAI National said "On the back of RBI's decision to maintain the repo rate at 6.5%, we expect both housing supply and demand to sustain its ongoing momentum. However, given that the inflation is at an 18-month low, there is scope for the RBI to reduce the repo rates in the upcoming MPC meetings, to stimulate growth across all industries.

"Dharmendra Raichura VP Finance at Ashar Group Comment on RBI kept REPO rate unchanged

"We are pleased that the RBI has decided to maintain REPO rates unchanged. Considering that inflation appears manageable, the Market expects that RBI will likely keep unchanged RERO rates throughout 2023.

Recently we saw GDP numbers come out, which says Q4 GDP growth of 6.1% beats estimates, and overall FY23 growth at 7.2%. These factors indicate that the Indian economy is stable and doing well.

Homebuyers would be much relieved by this decision because the market has been steady following a period of instability. There is a growing demand for real estate, and buyers want to buy properties from reputable developers.

We are optimistic that RBI will consider reducing the REPO rates in the upcoming monetary policy, which will great relieve the Home buyers and the Real estate industry.

1) Mr Atul Banshal, Director-Finance, Omaxe Ltd.

We welcome the RBI's decision to maintain the status quo on key policy interest rates. As anticipated, the RBI has displayed a growth-supportive policy stance.

However, following a series of successive policy rate hikes, the real estate sector had anticipated some relief from the central bank in the form of a modest rate cut. Such a move would have bolstered demand and, subsequently, the overall economy. Consequently, we maintain our expectation that the RBI will opt for a policy rate reduction in the next review meeting, providing a much-needed impetus to various sectors, including real estate, and fostering economic growth

2) Vimal Nadar, Head of Research at Colliers India

Indian economy stands out strong amidst weakening global economic growth, at an estimated 6.5% for the year 2023-24. Headline inflation continues to lower, but still poses upside risks on back of volatile global conditions. RBII's unabated commitment towards 'withdrawal of accommodation' is on expected lines and essential in the current uncertain global economic environment, marred with tight financial conditions, elevated inflation & geopolitical tensions. RBI's move to keep the repo rate unchanged at 6.5% reinforces the Central Banks's effort to support domestic growth and creating a conducive lending ecosystem. The latest inflation at 4.7% is encouraging, however needs to be aligned with other high-frequency indicators to buoy growth in a sustainable manner. As home loan rates are already at elevated levels of 9% and above, this is a significant breather for lenders, developers & homebuyers. First time homebuyers will be better placed to make their home buying decision in a stable lending rate regime. Fence sitters in the affordable & mid segment will have greater visibility of their EMIs & thus effect buying.

3) Mr. Amit Goyal, Managing Director, India Sotheby's International Realty

In line with expectations, the Reserve Bank of India (RBI) has maintained the policy rate at 6.5% for the second consecutive time, following a series of six consecutive rate hikes. The RBI's decision reflects their cautious approach in light of the persistent inflationary pressures and their potential impact on domestic consumption growth.

However, the positive aspect is that the pause in rate hikes will instil a sense of optimism among borrowers and we expect the housing sales momentum to continue.

4) Mr Pradeep Aggarwal, Founder & Chairman, Signature Global (India) Ltd

We appreciate the change in policy approach by the apex bank and decision to maintain the policy rate, instead of voting for another increase. This demonstrates a positive intent towards supporting the housing market and benefiting homebuyers.

Home loan borrowers have embraced the previous interest rate hikes, and as long as the home loan interest rates hover around 9% per annum, it is unlikely to have a significant impact on housing demand.