RBI's Interest Rate Cuts Raise Homebuyers' Hopes, But Banks Hold Key

The Reserve Bank of India on Wednesday announced its second consecutive 25-basis-point repo rate cut, bringing it down to 6%. This step, taken amid global economic uncertainties and a slowdown in domestic real estate sales, is aimed at driving economic revival.

Dr. Samantak Das, chief economist and head – research and REIS, India, JLL, described the rate cut as “a bold move in the face of global economic headwinds". The rate cut builds on RBI's “growth-centric strategy", he added.

“This move is a clear vote of confidence in India's economic resilience, aiming to reignite consumption, investment and improve consumer sentiments in a challenging global landscape,” he said.

With a second consecutive rate cut, expectations are high that the residential real estate sector could see a turnaround. “For the property sector, this rate cut could be transformative. With two consecutive reductions, we're looking at a potential boost for homebuyer sentiment and affordability,” he added.

Das highlighted a 12% to 15% year-on-year decline in sales in the first quarter of 2025. “This intervention by the RBI could be the spark that reignites the flame in the residential real estate sector.”

“The second rate cut could serve as a powerful catalyst, potentially propelling the market to new heights in the latter half of 2025. With borrowing costs likely to ease further, the landscape for both homebuyers and investors is evolving rapidly," he said.

The RBI's back-to-back rate cuts, combined with the government's fiscal push, signal a proactive economic strategy. This could unlock new opportunities for India's residential real estate sector, Das said.

But despite the rate cut, many home loan borrowers may not experience immediate relief due to banks' cautious approach, according to Anuj Puri, chairman of ANAROCK Group.

“Banks have not transmitted earlier MPC rate cuts to borrowers because of higher funding costs, pressure on net interest margins, higher NPAs and a cautious lending climate,” said Puri.

If banks do respond and reduce lending rates, the impact on first-time homebuyers, particularly for those eyeing affordable housing, could be significant, according to him.

Data from ANAROCK Research shows that housing prices across India's top seven cities rose between 10% and 34% over the past year, Puri said. The National Capital Region and Bengaluru saw the steepest hikes at 34% and 20%, respectively. Average property prices in these cities rose from around Rs 7,550 per sq. ft. at the end of Q1 2024 to around Rs 8,835 per sq. ft. by the end of Q1 2025, which is an overall rise of 17% annually.

Puri advises borrowers, whose banks do not reduce rates, to explore balance transfer options or negotiate a lower rate. Any reduction in EMIs should ideally be used “to prepay home loans or invest for higher returns instead of on mere consumption", he cautioned.