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In a move that is expected to provide significant support to the housing sector, the Reserve Bank of India (RBI) has announced a reduction in the repo rate by 25 basis points. According to Anuj Puri, Chairman of ANAROCK Group, this decision, combined with recent taxation benefits introduced in the Union Budget, will undoubtedly boost homebuyers, particularly those in the affordable housing segment.
The reduction in repo rates comes at a crucial time when many first-time homebuyers had been hesitant to make the leap into home ownership. The lowering of home loan rates offers these potential buyers a timely opportunity to secure financing on more favourable terms. As long as banks pass on the rate cut to borrowers, this move is expected to encourage more activity in the residential real estate market.
This rate reduction aligns well with ongoing positive trends in the housing sector, which has been experiencing strong momentum in recent times. With home loan rates now more affordable, there is hope that consumer sentiment will remain positive. Furthermore, the rate cut could provide some relief amidst the rising property prices that have been seen in the top seven cities over the last year.
As per ANAROCK Research, housing prices have surged significantly in 2024, with an increase of 13-30% across these cities. Notably, the National Capital Region (NCR) recorded the highest rise at 30%. At the close of 2023, the average housing price in the top seven cities stood at approximately INR 7,080 per square foot. By the end of 2024, this figure had climbed to around INR 8,590 per square foot, marking an overall annual increase of 21%.
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For commercial real estate, particularly office spaces, the repo rate cut also holds potential benefits. Lower borrowing costs can make it more affordable for businesses to invest in commercial properties. Additionally, real estate investment trusts (REITs), which offer investors stable returns, may become more attractive in this lower interest rate environment.
However, while the rate cut is a positive development for the housing market, its effectiveness could be tempered by rising property prices and ongoing inflationary pressures. It remains to be seen whether banks will pass on the full benefits of this rate reduction to borrowers in a timely manner, as this will play a crucial role in determining its success.
In conclusion, the RBI's decision to reduce the repo rate is an encouraging step for homebuyers and the housing market as a whole, but the full impact will depend on whether banks offer the benefits to consumers and how inflationary trends develop.
