Repo Rate and CRR Cuts - A Double Boost for Affordable Housing Amid Global Headwinds
Anuj Puri, Chairman – ANAROCK Group
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. 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% in 2019 to 18% in 2024, while its supply share dropped from 40% to 16% in
the same period. However, a 19% 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.
