Repo Rate and CRR cuts: A double boost for affordable housing amid global headwinds

While the rate cut is a strong positive for real estate, especially for affordable housing, much now depends on how well it can adapt to higher input costs and ongoing global uncertainties

By Anuj Puri

As widely anticipated, the RBI decided to reduce the repo rates by 50 bps (to 5.5%) to the backdrop of moderating inflation in the country. This is the third consecutive time this year that the apex bank has cut the repo rates. This effectively lowers the cost of borrowing, making home loan EMIs easier on the pocket and thereby directly improving affordability for buyers.

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This can potentially boost demand in the Indian real estate sector, especially in affordable and mid-income segments. Affordable housing faced the sharpest pandemic fallout, with sales and new launches shrinking in the top 7 cities.

ANAROCK data shows that affordable housing sales share plummeted from 38 per cent in 2019 to 18 per cent in 2024, while its supply share dropped from 40 per cent to 16 per cent in the same period. However, a 19 per cent dip in unsold stock hints at sustained demand led by end-users. It will also lower developers’ borrowing costs. It is sincerely hoped that banks pass on the benefits of this move seamlessly to borrowers.

The reduction in the Cash Reserve Ratio (CRR) will help boost liquidity in the banking system, which means that banks have more funds to lend. Developers will be able to access more capital for their projects, and this can positively impact project completion timelines. It also gives banks the option to reduce home loan interest rates, which will have again positively impact sentiment in the affordable and mid-income segments.

Nevertheless, these positive impacts may be partially dampened by the ongoing global trade tensions and tariffs imposed by the Trump administration, which have increased the cost of imported construction materials and created economic uncertainty. We may see some impact on the demand for luxury and commercial projects, and developer margins may be squeezed.

While the rate cut is a strong positive for real estate, especially for affordable housing, much now depends on how well it can adapt to higher input costs and ongoing global uncertainties. Continued policy support and a shift to domestic sourcing could be critical for sustained growth.

 

(The author is Chairman of ANAROCK Group)