RBI’s Policy Shift Brings Hope for Real Estate Growth: Affordable Home Loans and Market Stability

In a move that could redefine India’s housing market, the Reserve Bank of India (RBI) recently announced a 50-basis point Cash Reserve Ratio (CRR) cut. This decision, hailed by industry leaders, is set to make home loans more affordable, stimulating growth across the real estate sector.

Industry experts are optimistic, foreseeing a positive ripple effect. Gurpal Singh Chawla, Managing Director of TREVOC, expressed, “Even a modest rate cut of 25 basis points can significantly uplift buyer sentiment. It’s a psychological booster that real estate needs right now.”

The Festive Boost

As the year-end festive season approaches—a traditionally strong period for home sales—the timing of this policy decision couldn’t be more apt. Mohit Goel, Managing Director of Omaxe Ltd, emphasized the importance of this stability: "Stability in home loan rates is pivotal. It ensures predictable repayment terms, boosting buyer confidence and encouraging investments in real estate."

Goel also highlighted that the favorable lending environment could lead to a surge in fourth-quarter sales momentum, further energizing the sector.

The Balancing Act

This policy adjustment comes at a critical juncture. On one hand, India faces rising inflation, driven by soaring vegetable prices, which pushed retail inflation to 6.21% in October 2024—surpassing the RBI’s tolerance threshold. On the other hand, the nation’s GDP growth slowed to 5.4% in Q2 FY2024-25, a stark contrast to the robust 8.1% growth in the same period the previous year.

Amid these challenges, Mohit Kalia, Vice President (Sales) at Raheja Developers, lauded the government’s efforts: "The government’s responsiveness to buyer sentiments supports the real estate sector’s overall growth, positioning it as a vital contributor to India’s GDP and long-term prospects"

A Year of Contrasts

Despite economic headwinds, 2024 has been a landmark year for luxury housing. Aditya Kushwaha, CEO and Director of Axis Ecorp, attributed this to evolving aspirations and global lifestyle trends. "The luxury real estate market has outpaced the affordable segment, driven by financial stability and premium consumer preferences," Kushwaha noted. Maintaining the repo rate, according to him, has been instrumental in fostering this growth.

The Road Ahead

As the RBI revises its GDP growth forecast for FY2024-25 to 6.6% from an earlier 7.2%, stakeholders remain cautiously optimistic. With favorable lending rates and government policies in place, the stage is set for the real estate sector to thrive, particularly in the premium and luxury segments.