Will real estate rocket higher? RBI’s decision holds the fuse

The Reserve Bank of India’s decision to maintain the Repo rate at 6.5 per cent for the sixth consecutive time, alongside the moderation of inflation to 5.5 per cent from April to December 2023, serves as a cornerstone for reducing market volatility and enhancing affordability within the real estate sector. The status quo on the policy rate was on expected lines as the focus of the Monetary Policy Committee (MPC) has been on prioritising growth and giving demand stimulus during the ongoing festive season. Though the inflation has been softening over the long term, it still remains above the upper tolerance limit of the Central Bank and the impact of monsoons is yet to be factored.

There is no doubt whatsoever that the latest move by the Reserve Bank of India reflects a deep understanding of the need for economic stability, which is of paramount importance for the growth and confidence of both developers and investors. By keeping the Repo rate steady in the face of global uncertainties, the RBI has provided a predictable financial environment, allowing for more strategic planning and investment in real estate projects.

With the fundamentals of the Indian economy remaining strong despite all global headwinds and inflation well under control, the RBI move of extending the festive bonanza that it had given to the homebuyers in its last two policy announcements, the home buyers can retain their advantage of relatively affordable home loan interest rates. One has to keep in mind that the decrease in inflation rates brings into focus the critical aspect of affordability, making home ownership more accessible to a larger segment of the population. With CPI inflation projected to stabilize at 5.4 per cent for FY24, and an even more optimistic projection of 4-5 per cent for the current quarter, one can understandably look at a robust real estate year ahead. That’s what sector analysts feel. And mind you that it is not only aimed at pushing up buyers’ confidence, but from the investors’ point of view also, it is expected to ensure that investments made today would yield positive outcomes in the future.

Interestingly, this is the fourth pause in policy rate and it certainly augurs well for the real estate sector, especially residential as the sustained affordability is reflected in the growing sales momentum. Mind you that the residential sales for the first nine months of 2023 have already touched 91 per cent of the annual sales of 2022. The synergy between steady interest rates and the ongoing festive season sentiment will lead to sales clearly outpacing last year's numbers to a new high. Going forward, the steady employment growth and incomes will improve the affordability of home buyers and support growth of residential sector.

That’s not all. Experts do not rule out the possibility of a policy rate cut in 2024, provided the GDP growth and inflation support such a stance of RBI. In such an eventuality, one is likely to see a further growth trajectory in the real estate sector, particularly, in the residential segment.