RBI Rate Cuts Could Boost Home Affordability in Next 12 Months: JLL
A potential 50 basis point (bps) rate cut by the Reserve Bank of India (RBI) over the next year could significantly enhance home affordability, reversing the challenges faced by homebuyers due to stagnant interest rates and rising property prices since 20
Rbi Rate CutsHome AffordabilityIndian Real EstateJll ReportResidential MarketReal Estate PuneNov 27, 2024
According to JLL's Home Purchase Affordability Index (HPAI), the reduction in repo rates over the next few months could enhance affordability in most housing markets by 2025, with the notable exception of Delhi NCR and Bengaluru. While Kolkata is set to maintain its position as the most affordable market, cities like Mumbai and Pune are expected to approach optimal affordability levels by 2025.
The residential market is currently experiencing a sustained bull run, driven by evolving homeownership dynamics. This momentum has led to consecutive peaks in sales and an acceleration in project launches. Residential sales are expected to reach an impressive 305,000-310,000 units in 2024, with further growth anticipated in 2025, potentially creating a new peak at 340,000-350,000 units, as per JLL.
While a rate cut before the end of 2024 is uncertain, experts anticipate a total reduction of 50 bps within the next 12 months. This monetary easing is expected to lower borrowing costs across the economy, benefiting both homebuyers and developers. Mumbai and Pune are projected to approach near-peak affordability levels by 2025, while Kolkata is expected to maintain its status as India's most affordable market among the major cities, potentially hitting new affordability peaks.
Meanwhile, Delhi NCR and southern markets like Bengaluru, Hyderabad, and Chennai are likely to see improved affordability levels on a year-over-year basis, although they will remain below their peak values. The anticipated interest rate reduction, combined with moderate price growth and sustained income increases, is expected to create a conducive environment for home purchases over the next 12-18 months. This will maintain buoyancy in homebuyer behavior and market activity is expected to have a long and resilient runway, even with continued economic challenges.
Dr. Samantak Das, Chief Economist and Head of Research and REIS, India, JLL, noted, 'The anticipated interest rate reduction, combined with moderate price growth and sustained income increases, are expected to create a conducive environment for home purchases over the next 12-18 months with affordability levels set to improve to their best since 2022 for all cities. This will maintain buoyancy in homebuyer behavior, and market activity is expected to have a long and resilient runway.'
With 2011 as the base year, Hyderabad leads in price growth with a 132 percent increase, followed by Bengaluru at 116 percent and Delhi NCR at 98 percent. On the income front, Mumbai has seen the highest growth at 189 percent, with Pune and Hyderabad following at 173 percent and 163 percent, respectively, over the same period. The combination of healthy income growth, potential interest rate reductions, and moderating price growth is expected to improve affordability levels over the next 12 months, paving the way for sustained market activity and continued strong performance in India's residential real estate sector in the medium term.
Siva Krishnan, Senior Managing Director (Chennai & Coimbatore), Head - Residential Services, India, JLL, added, 'The combination of healthy income growth, potential interest rate reductions, and moderating price growth is expected to improve affordability levels over the next 12 months, paving the way for sustained market activity and continued strong performance in India's residential real estate sector in the medium term.'
Frequently Asked Questions
What is the anticipated impact of the RBI's rate cuts on the Indian real estate market?
The anticipated 50 basis point (bps) rate cut by the RBI is expected to enhance home affordability, lower borrowing costs, and benefit both homebuyers and developers, leading to sustained market activity and strong performance in the residential real estate sector.
Which cities are expected to see the most significant improvement in home affordability?
Kolkata is set to maintain its position as the most affordable market, while Mumbai and Pune are expected to approach optimal affordability levels by 2025. Hyderabad, Bengaluru, and other southern markets are also likely to see improved affordability levels.
How has the residential real estate market been performing recently?
The residential real estate market is currently experiencing a sustained bull run, with consecutive peaks in sales and an acceleration in project launches. Residential sales are expected to reach an impressive 305,000-310,000 units in 2024 and potentially create a new peak at 340,000-350,000 units in 2025.
What factors are contributing to the improvement in home affordability?
The improvement in home affordability is driven by the anticipated interest rate reductions, moderate price growth, and sustained income increases. These factors are expected to create a conducive environment for home purchases over the next 12-18 months.
What does the JLL Home Purchase Affordability Index (HPAI) indicate for the future of the residential market?
The HPAI indicates that the reduction in repo rates over the next few months could enhance affordability in most housing markets by 2025, except for Delhi NCR and Bengaluru. This will maintain buoyancy in homebuyer behavior and ensure a long and resilient runway for market activity.
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