The Reserve Bank of India’s decision to maintain the repo rate at 6.5% for the sixth successive time in the first monetary policy of 2024 and a broader growth outlook for the economy is likely to help sustain the steady pattern of growth in the housing property market by supporting a consistent trajectory in home sales.
The ongoing positive trend in middle and high-end residential property transactions and a cautious approach observed in the interest rate sensitive affordable and low-income housing segments is expected to continue.
“The status quo in RBI policy is driven by a mix of global and domestic factors reflecting better inflation anchoring and nimble liquidity management. New housing activity is robust across property markets, prices have appreciated up to 5% on average, luxury home sales have soared demonstrating a robust performance by the realty market in conducive conditions. However, affordable and low-income housing needs intervention either on taxes or fiscal basis,” Niranjan Hiranandani, MD, Hiranandani Group.
In reaction to inflationary pressures, the central bank had implemented six consecutive rate hikes since May 2022, resulting in a total increase of 250 basis points in policy rates. This had pushed the repo rate to 6.5%, with a temporary halt in April. Consequently, home loan rates have surged to approximately 9% from their previous record low of 6.6% a year ago.
“The government and RBI have announced measures for risk management and strengthening the banking sector, with the Finance Minister recently emphasizing more need for bigger banks to further strengthen the financial ecosystem,” said Boman Irani, President, CREDAI.
This, according to him, along with the government’s target of 7% GDP growth and maintaining a fiscal deficit of 5.1%, indicates the economy is stable with relatively healthy macro-economic indicators and can absorb any impact of a repo rate cut, if announced, in the next financial year.
Despite increased mortgage rates and rising property prices, the residential real estate market in major Indian cities has maintained its growth momentum, reaching a six-year peak. This upswing is primarily driven by substantial sales volumes in the mid-income and premium segments.
According to Irani, the property sector remains largely optimistic and hopes that the steps taken by the RBI would further strengthen the housing loan portfolio of banks, make construction finance and housing loans cheaper in the next financial year and thereby sustain the housing sector’s growth.
Industry experts are of the view that the central bank may start reducing the rates this year and that would support housing sales further across segments.
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