Rate cut to lower loan cost, boost home sales

Liquidity deficit will spike without a liquidity injection in March 2025, and the RBI is likely to alleviate the pressures - Ankita Pathak, chief macro, strategist at Ionic Wealth

- ARSHAD KHAN @ New Delhi

REAL estate developers and experts believe that the Reserve Bank of India's decision to reduce the repo rate after five long years will boost sentiment and support housing demand. Reduced rates will also lower borrowing costs for both homebuyers as well as developers, further encouraging investment in the realty market.

The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) on Friday cut the repo rate by 25 basis points to 6.25%. This decision comes a week after the Union Budget wherein the government decided to cut personal income tax to boost consumption.

"The cut in rates will not only provide a boost in housing sales by offering lower interest rates on new home loans and existing floating-rate home loans but is anticipated to enhance liquidity in the market, enabling developers to expedite the completion of ongoing projects and launch new projects," said Reeza Sebastian Karimpanal, executive President - residential business at Embassy Group.

Explaining the impact on EMIs, Adhil Shetty, CEO of BankBazaar, said that the rate cut can translate into significant savings for home loan borrowers. "If you have a 20-year home loan at 8.75% and have paid 12 equated monthly installments (EMIs) by March, a 25 basis point cut from April will bring down your interest outgo by ₹8,417 per lakh. On a ₹50 lakh loan, this results in savings of ₹4.20 lakh over the tenure, reducing the loan period by 10 EMIs," Shetty said.

The cut in repo rate comes at a time when housing sales are under pressure due to rising property prices.