RBI’s monetary policy could shape the future of the housing market: ANAROCK Chairman Anuj Puri’s insights

The Reserve Bank of India (RBI) is set to announce its monetary policy decision, which could have significant implications for various sectors, particularly the housing market. Anuj Puri, Chairman of ANAROCK Group, shared his analysis of how interest rate movements could impact homebuyers, developers, and investors alike.

The RBI Monetary Policy Committee (MPC) will announce its decision for the October policy meeting tomorrow, October 9, at 10 am. The meeting, which began on Monday, October 7, has sparked widespread anticipation. Most experts expect the MPC to maintain key interest rates but see a shift in policy stance to neutral.

Impact of Repo Rate on Housing Demand

According to Puri, the housing market in India is highly sensitive to changes in acquisition costs, as most homebuyers finance their purchases through home loans. A cut in the repo rate, which determines the interest rates on loans, could make equated monthly instalments (EMIs) more manageable. This could potentially encourage more homebuyers to enter the market, especially during the festive season.

“Lower interest rates make EMIs more affordable, which is a key factor for homebuyers,” Puri explained. He further noted that favourable lending conditions could act as a catalyst for home purchases, especially as residential property prices have risen significantly in recent years. ANAROCK Research reported that property prices in the top seven cities have jumped by 46 per cent since 2021. More attractive loan terms could improve overall affordability, boosting housing sales.

Developers and Investors Stand to Benefit

An increase in home sales would also benefit developers, Puri said, as better sales would enhance cash flow and reduce borrowing expenses for ongoing projects. Furthermore, Puri believes that a rate cut could positively impact market sentiment and lure back investors.

"After years of low price growth, investors returned to the housing market after the pandemic, driven by rising demand and prices. However, with prices appearing to peak, many investors have taken a pause. More attractive interest rates could bring them back,” Puri added.

A Tightrope Walk for the RBI

Despite these potential advantages, Puri urged caution, acknowledging that broader global economic factors could influence the RBI’s decision. While the recent rate cut by the U.S. Federal Reserve might have prompted expectations of a similar move by the RBI, the ongoing geopolitical tensions and economic uncertainties make it more likely that the central bank will hold steady for now.

“The RBI faces a challenging situation. It is possible that they may maintain the current repo rate until these global pressures ease,” Puri said, tempering expectations of an imminent rate cut.

While a reduction in the repo rate could provide a significant boost to India’s housing market, encouraging homebuyers, improving developer cash flows, and potentially bringing back investors, global economic uncertainties could lead the RBI to exercise caution. As Puri noted, the outcome of the upcoming policy decision will be crucial for the real estate market and may determine the future trajectory of housing demand and investment in India.

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