The Reserve Bank of India’s decision to raise the repo rate by 25 basis points to 5.50 per cent is expected to have limited impact on residential demand, with developers saying the housing market is holding up despite a marginal rise in borrowing costs. The rate increase comes during the festive season, when homebuying activity typically gains momentum.
The hike, the first since February 2023, comes against a backdrop of inflation concerns, crude-price volatility and renewed uncertainty in global markets. At the same time, the domestic economy remains on a strong footing, with real GDP growth at 7.8 per cent in the first quarter. For homebuyers, the immediate change will be in the cost of finance, although the decision to purchase a home continues to depend on a range of factors beyond the interest rate.
Broader economic context remains solid
According to Mayank Jain, CEO, KREEVA, the RBI’s decision to raise the repo rate by 25 basis points is understandable given the renewed pressure from crude prices and the global inflation outlook.
“The change in stance to calibrated tightening also shows that the RBI is prepared to act if inflationary pressures persist. At the same time, India’s domestic economy remains resilient, with real GDP growth at 7.8% in Q1. For real estate, the key will be how these changes play out through financing conditions and liquidity. The underlying demand for housing remains strong, and a single rate increase needs to be seen in the context of a long-term market rather than as a change in the broader housing outlook,” Jain said.
Value-driven projects key to countering near-term headwinds
Preksha Singh, CEO, Agrasheel Infra, notes that current market conditions highlight the need for developers to offer well-planned, value-driven projects that meet evolving buyer expectations and deliver long-term value.
“The RBI’s 25-basis-point repo rate hike to 5.5 per cent reflects the need to manage inflation while maintaining macroeconomic stability. In the near term, higher borrowing costs may influence home loan affordability and buyer sentiment, particularly for interest-rate-sensitive segments. However, India’s underlying housing demand remains resilient, supported by urbanisation, infrastructure growth and improving consumer confidence. For developers, this environment reinforces the importance of offering well-planned, value-driven projects that deliver long-term value and remain aligned with evolving buyer expectations,” Singh said.
Experts believe that the festive season is expected to keep housing activity firm, with buyers likely to factor the change in borrowing costs into their purchase plans while continuing to look at location, quality and long-term value.
“The 25-basis-point increase in the repo rate is likely to impact the real estate sector primarily through higher home loan interest rates. The impact may be more noticeable in Tier-2 and Tier-3 cities, where homebuyers tend to be more sensitive to interest rates and EMIs, potentially affecting their purchase decisions in the short term. However, the overall impact is unlikely to be significant, as demand for affordable and mid-segment housing remains strong in these markets. Over the long term, improving employment opportunities, infrastructure and connectivity will continue to support the growth of the real estate market in Tier-2 and Tier-3 cities,” Sunil Goel, Managing Director, Numax Group, concluded.
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