Interest rate cuts will increase demand for homes

The real estate industry hopes that the Reserve Bank of India’s decision, to cut the repo rate by 50 basis points (more than expected) should improve demand for homes across the country. The rate cuts come amid a sharp decline in recent home sales.

According to Anarock, housing sales declined by 28 per cent in the first quarter of 2025 due to rising house prices and geopolitical challenges.

At present, the average interest rate on home loans is around 8.5 per cent and if banks pass on the full benefit of the rate cut to customers, the average rate will remain 8 per cent.

Real estate body CREDAI said that the reduction in EMIs will boost customer morale and first-time home buyers will come to the market. This is a golden opportunity for people wishing to buy a house, especially those buying their first home.

The rate cut is likely to increase the demand for affordable and mid-range houses, which are more affected by interest rates. In the last few years, affordable houses have suffered the most due to the decline in house sales and no new projects. For the last few years, premium properties have been booming in the housing market and affordable house sales have weakened.

According to Anarock, 38 percent of the houses sold in 2019 were in the affordable category, but their share declined to 18 percent in 2024. The supply of these houses also decreased from 40 percent to 16 percent.

The Reserve Bank also reduced the cash reserve ratio (CRR) by 100 basis points to 3 percent. This will provide more capital to developers and may help them complete projects on time. The reduction in CRR is expected to increase liquidity in the banking system significantly. This will enable banks to lend more money.

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