RBI Cuts Repo Rate-Home Loan Gets Cheaper

With the Financial year 2019 budget off to kickstart, the Reserve Bank of India held its first bi-monthly monetary policy review meeting and announced a landmark reform that is set to boost the Indian Realty Markets.

Having cut the GST rates on the Housing Sector already and implementing a repo rate cut of 25 basis points at the start of 2019, the Reserve Bank of India announced another Repo rate cut by 25 basis points making it a cut of 50 basis points in total, bringing the repo rate down to 6%.

This move has come at a time when Real Estate Developers from all over have been insisting on and eagerly expecting economic reforms from the government to revive spending and boost sales in the Indian Real Estate Market. Even though Banks will enjoy the benefits of these back to back rate cuts the most, this reform would also ease the scope of lending and bring down the rates for both Developers and financial institutions.

RBI Repo Rate

RBI Repo rate is the rate of interest at which the RBI lends money to banks. In spite of the repo rate being brought down, its proportionality to the Marginal Cost of funds-based Lending Rates (MCLR) is what makes the difference for the home buyers.

MCLR is an internal benchmark that banks have, beyond which banks cannot lend. MCLR is calculated based on factors like cost of deposits, operating costs and other costs. MCLR is important as it measures the impact of the RBI repo rate cut and helps us understand the extent to which this repo rate cut will benefit the home buyers.

As per Indian Real Estate Trends, Experts say that this boost of liquidity into the economy is essential to boost the economy, saving it from inflation and recession. For these benefits to make the intended impact on the economy, banks must cut down the rate of interest on Housing Finance.

Now what's left to be seen is, how much of this benefit is passed on to homebuyers looking to avail a home loan.

The industry is currently expecting more rate cuts in June and August of this year when a review of the new budget is done by the newly elected government. Thanks to the ever-low inflation rates and positive growth in the economy, the situation is expected to only improve with industry experts expecting more economic reforms after the elections to make a significant impact on the market and create a healthy environment for investment and consumer spending.

Homes247.in Experts View

With Home loan interest rates set to come down to roughly 8.6%, all leading financial institutions are set to announce the new lower interest rates, lower EMIs, higher MCLRs.

Indian Real estate news says that all these factors indicate a boost of liquidity, the fresh cash flow that shall ignite consumer spending. Thanks to the low inflation rates and the current government’s Housing for All initiative a massive rise on the real estate sales trajectory is expected.

We encourage homebuyers to take advantage of the current circumstances and invest as the time is right and the benefits are higher.

Other Experts Take on Current Scenario

• Shishir Baijal, Chairman & Managing Director, Knight Frank India

We are delighted with the second consecutive rate cut that ushers an era of falling interest rate regime. We hope that the reduction in rate is passed on by the banks to the home buyers. Lower interest rates, along with the recent reduction in GST rates for under construction properties, should provide the fillip to end-user demand. The real estate sector has been looking forward to such stimuli to boost sales velocity.

• B Prasanna, Head – Global Markets group, ICICI Bank

“The MPC decision taken today to cut the repo rate by 25 bps while keeping the stance neutral is a prudent and laudable one. It has successfully managed to keep its stance flexible to react to the need to support growth even as it keeps a close watch on the upside concerns on inflation from rising oil and food prices going ahead. However, the sharp downward revisions in the CPI trajectory for FY2020 and expectations of benign inflation till FY2021 as well as the downward revisions in growth forecasts for FY2020 do give the MPC more room to support growth if required. If incoming data on inflation and growth were to further surprise on the downside, we could see the MPC cutting rates once more going ahead. It was surprising though that the MPC chose not to be more proactive on liquidity management while still deliberating on the need for keeping liquidity neutral in order to aid transmission. Further dispensations on FALLCR, while not aiding systemic liquidity will surely ease the burden on banks to raise fresh resources to manage LCR requirements. On the developmental front, the proposal to commence the process of implementation of international settlement of Government securities by ICSD is a positive step towards internationalization of our G-Sec market.”

• VS Parthasarathy, CFO, Mahindra Group

“With the headwind of synchronized global contraction threatening to hit domestic growth, there was a need for India to get into “Power play” mode to boost its “Run Rate”. By giving a “Doosra” rate cut, the RBI has, amidst all “field restrictions”, provided a window to spur consumption growth. With inflation remaining in the comfort zone, the need of the hour is monetary transmission through durable liquidity.

Going forward the outlook is dependent on how India scores against the “swing” of the monsoon or “spin” of global crude oil prices. The harmonisation of the Liquidity coverage ratio with SLR will release additional liquidity to spur banks’ credit growth. Initiatives on the development of the housing finance securitisation market and the market for corporate loans will deepen the secondary market for these assets—a ‘helicopter shot’ for long term stability in the banking sector.”

• Farshid Cooper, Managing Director, Spenta Corporation

“The RBI decreasing the repo rate by 25 basis points is a boon to the sector. This might quicken the pace on both private consumption and private capital expenditure. Furthermore, it is imperative for banks to reduce the lending rates and ensure that the home loan borrowers reap the benefits of this move. The rate reduction will also provide the much-needed stimulus to build upon the various initiatives announced by the Government about reviving the demand in the realty sector in an affordable manner.”

• Parth Mehta, Managing Director, Paradigm Realty

“The MPC (Monetary Policy Committee) statement of having a 25bps cut is something the industry was expecting and which was currently needed in order to boost liquidity and investment cycles as few data points like IIP and car sales numbers which came out recently have been timid. One of the major reasons RBI could give a go-ahead to the cut was because the inflation was in check giving them headroom to accommodate cut. This rate cut shall help the borrowing rates related to construction finance getting lowered, as well as the home loan rates easing out bringing back interest levels in property buyers with already lowered GST as buying sentiment booster. We also believe that if the inflation continues to be stable then we can expect another rate cut in the next MPC meeting to revive consumer spending and restore economic growth.”

• Rohit Poddar, Joint Secretary, NAREDCO West and Managing Director, Poddar Housing and Development

"The actual inflation has stayed below than projected since February so there was a space for a further cut down in the rates. This is an election year and we can expect transient policies by the authorities due to the ambiguity over the possible policy changes by the newly elected government. This rate cut will affect the buying sentiments in a roundabout way as it is likely to make home loans cheaper. It will be a buoyant Gudi Padwa for the sector."

• Ashok Mohanani, Chairman, EKTA World, Vice President, NAREDCO Maharashtra

“The rate-cut and monetary announcement by the RBI has come down to 6 per cent for the second consecutive time in 2019 after a surprise rate cut in the month of February 2019. This certainly is an expected move to achieve higher availability of funds and to ensure additional liquidity is infused into the overall sectors. This decision is in consonance with the aim of achieving the medium-term target for consumer price index (CPI) inflation of 4 per cent while supporting growth. The movement has boosted the sentiment that has recently proposed budgetary reforms and revised GST rates, will see further improvement and convert fence-sitters into purchasers. This move is also very beneficial for potential buyers. A rate cut by RBI will help push up the consumption demand in the country due to a boost in sentiment. We look forward to seeing a sharp rise in sales and demand and a significant drop in unsold inventory by the end of 2019.”

• Prabhakar Kudva, Founder Director, Samvitti Capital

“The RBI today cut the repo rate or the rate at which it lends to banks, by 25 basis points to 6%. This was broadly in line with market expectations. The easing cycle is likely to continue in line with the global central banks and the persistently low inflation. In fact, the real rate adjusted for inflation is still quite high in India compared to other countries which should give enough headroom for the Governor to cut rates further. It’s important to note that unlike the past the RBI is not dependent on the repo rate alone but is using other instruments like currency swaps and OMOs to inject liquidity into the system which should continue for the private capex and consumption to bounce back.”

• KV Srinivasan, CEO, Profectus Capital

“The lowering of repo rates by 25 bps is a welcome step by the RBI. However, since inflation is at a fairly low level, real rates of interest are still high and the potential for further easing exists. It is now up to the banks to pass on this reduction to borrowers to bring down funding costs to the SME sector. Perhaps the RBI is worried about fuel prices in retaining a neutral stand, but it is time to kick start capital investment in the manufacturing sector and a benign rate regime is imperative for that.”

• Manoj Gaur, MD, Gaurs Group

“The benchmark lending rate cut by 25 bps to 6 per cent is a positive move for real estate sector. This move will surely benefit banks which eventually can ease Lending in the sector. The second consecutive reduction shows positive signs which can surely enhance the demand for housing, marginally. Though the last cut wasn’t passed on to the consumers so we would have to wait and watch whether this time the consumers get the benefits or not”

• Prakash Pandey, Director, Fairwealth Group

As Expected, RBI cuts rates by 25bps and keeping the stance neutral. Looking at the rising crude oil prices, upcoming general elections and global ‘trade tension’ this 25 bps rate cut is a prudent step towards pushing overall economic growth. This will definitely help NBFCs and small finance banks like Equitas, Ujjivan Financial Services and L&T Finance. we are hoping another 25 bps rate cut in June policy. This welcome move will help the Auto sector and Real Estate sector up to a certain extent.

• Amit Modi, Director- ABA Corp, President (Elect) CREDAI (Western UP)

“This is a good and much-awaited development since easing interest rate will help revive the investment cycle, especially in sectors like Real-Estate which are highly sensitive to interest rate movements. RBI’s decision of reducing its key policy rate by 25 basis points for the second time in a row shows a softer stand towards lending. It’s good news especially for home loan borrowers with the RBI bringing down the key policy rate by 25 bps in its first bi-monthly monetary policy review of the financial year 2019-20, signalling lower interest rates. Hence we also hope that with this development, the banks will immediately pass on the cut to the home buyers, since that’s the confidence booster for the real buyer, and will finally lead to much-needed investment spur in the sector, which will not only culminate in more launches in real estate sector, but more importantly timely project completions as well”.

• Pradeep Aggarwal, Founder & Chairman – Signature Global India Pvt. Ltd and Chairman – ASSOCHAM National Council on Real Estate, Housing and Urban Development

The RBI policy cut rates will not only be a positive outcome for the Real Estate sector, but also for the eligible new home borrowers who can take advantage of the subsidies scheme under PMAY (Pradhan Mantri Awas Yojana). This move will be a big boost for affordable housing and help for first time home buyers also the rate cut brings fetches confidence for the market as this will make availability of more money at the banks thereby lowering the EMI burdens. And to add icing to the cake, the government has also extended the time-limit of the PMAY scheme to March 31, 2020, for middle-income group buyers.

• Deepak Kapoor, Director, Gulshan Homz & Former, President, CREDAI Western UP

“With RBI reducing the repo rate back to back this financial year, shows a softer stand towards lending. I am sure Bank’s would surely reduce the lending rates, though marginally, which can boost the sentiments in the market. Also with the push which the government showed towards affordable segment in the budget 2019 where the income tax rebate was extended to Rs 5 lakh, I am sure end users would now be more motivated, to purchase their homes, post the repo rate cut.”

• Ashok Gupta, CMD, Ajnara India Limited

The 25 basis point policy rate cut is anticipated to rejuvenate the real estate market as this step will give assistance in lowering the marginal cost of fund based lending rates (MCLR) thereby bringing in more availability of money at the banks. The RBI Policy rate cut will not only benefit the developers but also will favour the homebuyers by lowering the EMI burden.

• Vikas Bhasin, CMD, Saya Group

This is surprisingly a good development — two back to back repo rate cuts this year — and indeed a step in the right direction. It will help to ease the pressure off the market by attracting a greater number of buyers to invest in the real estate sector. It will accentuate the recent softness in momentum in the domestic economy.

• Dhiraj Jain, Director, Mahagun Group

This is really good news especially for home loan borrowers with the RBI bringing down the key policy rate by 25 bps in its monetary policy review, signalling lower interest rates. With lower repo rates banks would be able to set the direction and reduce the level of interest rates, which eventually witness the increase of demand for homes in the real estate sector. The year has been good so far with a lot of policy measures being taken by the authorities that will help the sector improve its standing.

• Kamal Taneja, MD, TDI Infracorp

The real estate segment is expected to pick up with RBI monetary policy’s rate cut. The repo rate cut of 25 bases points will not only benefit the developers but will also favour the homebuyers. More money available in banks at a lower cost will result in increased purchasing power as there will be a lower EMI burden on the buyers. It will also lighten the liquidity crunch and lower the cost of finance for the developers. Such a positive announcement by the RBI was much needed for the realty sector to take off.

• Amit Raheja, CMD, Wealth Clinic

“A stance neutral policy by RBI is anticipated to revive the real estate sector to a great extent and also cue the banks for hiking or cutting lending rates. Not only developers, but even the end-users can also take advantage from the policy as the rate cut will minimize the marginal cost of fund-based lending rates (MCLR) and make more money available in the banks thereby lowering the burden of EMI.”

• Prateek Mittal, Executive Director, Sushma Group

“The second consecutive rate cut of 25 basis points by RBI in its monetary policy would provide relief to the borrowers and will provide a boost to the real estate segment. This move will certainly bring greater liquidity for the economy and is anticipated to revive the real estate sector to a great extent. The reduction in repo rate will help the borrowers of big-ticket loans like home loans which will certainly lead to the increased demand for homes”.

• Kaushal Jain, MD, Arihant Group

“The repo rate cut by RBI will aspire the real estate sector to pick up their businesses in the market. It will be a constructive progression for the sector and is counted on with the RBI policy rate cut by 25 bps. This step is highly expected to rejuvenate the real estate market as it will give assistance in taking down the marginal cost of fund-based lending rates (MCLR) thereby bringing in more availability of money at the banks.”

• Rajesh Goyal, MD RG Group and VP CREDAI NCR

This is a good development, since easing interest rate will help revive the health of businesses like Real-Estate which are highly sensitive to interest rate movements, but while it is indeed a step in the right direction, there is definitely more required to improve the sentiment towards investments in the country. The back to back repo rate cuts will boost affordable and mid-segment housing sales.

• Dhiraj Bora, General Manager, Corporate Communication, Paramount Group

Now the repo rates are brought down by 25 basis points to 5.75 per cent from 6 per cent, we are assuming the banks would pass on the rate cut in a similar direction. From the point of view of the real estate sector, the lowered interest rates on home loan EMI is likely to give another sign of relief after the Interim budget.

• Om Ahuja, Chief Operating Officer- Residential Business, K Raheja Corp

The central bank has shown a positive stance by announcing a reduction in key lending rates. This decision will augur well for the country’s GDP growth and key industries particularly residential real estate. Homebuyers now stand to benefit by having a higher purchasing power enabling them to buy premium homes of their choice. Overall, this decision will bring cheer to the housing industry and enhance the investors’ sentiment.

• Sagar Saxena, Project Head, Spectrum Metro

The 25 basis point policy rate cut is anticipated to rejuvenate the real estate market as this step will give assistance in lowering the marginal cost of fund-based lending rates (MCLR) thereby bringing in more availability of money at the banks. The RBI Policy rate cut will not only benefit the developers but also will favour the homebuyers by lowering the EMI burden.

• Tushad Dubash, Director, Duville Estates

“The earlier rate cut broke the deadlock, this one should provide further momentum given the timing of Gudi Padwa being around the corner. We hope that this will spur home buyers in taking a decision. There seems to be a definite buoyancy in the market given the regulatory changes of lower GST and higher velocity in terms of offtake over the last quarter which we hope will carry onwards into the first quarter of this financial year. Further, the rate cut is also expected to help boost money supply into the market which will help create a positive environment for the industry”.

• Samyak Jain, Director, Siddha Group

” The rate cuts that have come in the first two announcements of the calendar year augur well for the Nation’s GDP and will lead to an overall jump in consumer sentiment, with a specific focus on the real estate industry. The onus of ensuring that this happens lies with the banks who need to pass on this benefit to investors and home buyers by lowering the home loan interest rates. The heartening part of this is that this development has set the realty market on a road to recovery. We welcome this positive move and applaud the central bank on setting the economy on a positive path.”

• Harvinder Singh Sikka, MD, Sikka Group

Developers are working hard to bring the real estate back on track and Government is also supporting us in every possible way. We believe that the decision to reduce a repo rate by 25 basis point will prove beneficial from a consumption and lending perspective, thereby boosting economic growth. This was a surprise announcement for both developers and buyers.

• Niranjan Hiranandani – National President – NAREDCO and Sr VP-Assocham

The need for flexibility with the evolving situation in India, given that both, inflation and growth have slowed, was reflected in the RBI’s move. Economic growth weakened to 6.6 per cent at end-2018, the slowest in five quarters; while annual retail inflation was low, at 2.57 per cent in February following five months of deflation in food prices. The RBI move is expected to lift industry sentiments, as also provide relief to various stakeholders like corporates as also in real estate, homebuyers. We expect that banks further pass down the benefit for the rate cut to the home buyers which shall further trigger the home buying into the actual sales.

• Mr Rakesh Reddy, Director, Aparna Constructions & Estates Pvt. Ltd

Revision of repo rate by 25bps by RBI for the second time this year is a much needed and encouraging move for the real estate sector. Such consistent initiatives not only help ease liquidity crunch, but it also aids in improving access to affordable credits thereby reviving consumer demand and overall health of the sector. The recent reduction in GST for under construction properties clubbed with easing the interest rate will surely provide the much-needed stimulus to the end user demand. We are hopeful that these benefits will be passed on to the homebuyers by the banks as affordable home loans have a direct influence on buying sentiments in an ancillary way.

• Madhusudhan G, Chairman and MD, Sumadhura Group

“After lowering the GST rates, this second consecutive repo rate cut by RBI will further propel the Indian real estate industry into a recovery drive in the coming year. There is already a significant boost witnessed in the housing sales after the first repo rate reduction, and this move is another shot in the arm. However, the industry would be hopeful that RBI establishes a mechanism for effective transfer of these rates leading to lower lending rates, which would accelerate consumer spending, further bolstering economic growth.”

• Shailesh Puranik, Chairman and Managing Director

The RBI’s decision to cut the repo rate to 6% comes at the right time and will play a significant role in reducing the EMI burden, especially for first-time homebuyers. Moreover, it will equip consumers with a better purchasing power and allow them to buy a home without a steep financial burden. However, we hope the banks pass on this benefit to the homebuyers by lowering the interest rates which will give a big push to affordable housing. Overall, this decision is positive for the end users and the real estate industry.

• José Braganza, Joint MD, B&F Ventures (P) Ltd.

The decision of reducing the Repo Rate to 6% will be a relief for the real estate industry as there will be more liquidity due to the lower marginal cost of fund-based lending rates. Further, the lower EMI’s on loans which are likely to come down will make the property affordable and will attract potential buyers. This is a positive change and it will give a boost to the lately languishing real estate sector.

Here's some information on recent updates:

• The Repo Rate: Contrary to forecasts, the RBI has purposefully kept a constant repo rate for the previous six bi-monthly meetings, including the most recent in May 2024. This key benchmark rate sets the tone for commercial bank lending rates, and its stability effectively prevents a sudden decline in home loan interest rates.

• Why No Immediate Relief for Aspiring Homeowners?

Controlling inflation is a top priority for the RBI, which is responsible for India's financial stability. While inflation has eased from the highs of 2023, it remains over the targeted level. Maintaining the repo rate allows the RBI to closely examine the price situation before deciding on a future cut. This vigilant approach assures that inflation does not spiral out of control, perhaps causing a larger economic hit in the long run.

• A Glimpse of Hope on the Horizon: Financial experts foresee a likely repo rate drop later in 2024, providing inflation continues its downward trend. This might result in reduced home loan interest rates in the future. However, it is essential to note that banks do not automatically reflect every repo rate adjustment in their lending rates. There often exists a time lag, and other factors such as individual bank risk assessment and loan market competition all play a role in establishing the ultimate interest rate offered to borrowers.

• A Silver Lining for New Borrowers: Despite the lack of an immediate windfall, there is good news for individuals hoping to enter the housing market. Home loan rates are now in a more reasonable range of 8.30-8.50% with some lenders, down from a peak of nearly 9% in 2023. This gives a more favorable starting point for new borrowers than the previous year's circumstances.

Tips for Home Loan Journey:

Here are some proactive steps you can take to navigate the current home loan landscape:

Become a Loan Comparison Guru: Don't settle for the first offer you receive. Shop around and compare rates meticulously across different banks and housing finance companies. A little extra effort can lead to significant savings in the long run.

The Art of Negotiation: Don't underestimate the power of negotiation. Discuss the spread (the difference between the repo rate and the interest rate offered to you) with your chosen bank. A persuasive conversation might just nudge them to offer a slightly better deal.

Embrace External Benchmarking: Consider opting for loans linked to external benchmarks like the repo rate. While not a guaranteed path to lower rates, it offers the potential for future reductions if the RBI decides to cut the repo rate.

RBI have further increased the REPO Rate to 6.25%, resulting in the increase in cost of home loan in 7 December 2022. Read the blog to known more about it. READ NOW.

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