RBI Repo Rate Cut: A Boost for the Real Estate Sector and Housing Demand
The Reserve Bank of India's (RBI) decision to cut the repo rate by 50 basis points is expected to lower borrowing costs, making home loans more affordable and boosting housing demand.
RbiRepo RateReal EstateHousing DemandEconomic GrowthReal Estate NewsJun 06, 2025
The Reserve Bank of India's Monetary Policy Committee decided to reduce the repo rate by 50 basis points (bps) from 6 percent to 5.5 percent, marking the third consecutive time the key rate has been cut. Market observers believe that a repo rate cut is not just about making more money available; it is also a powerful way to encourage spending and boost purchasing power, ultimately fueling economic growth. For the real estate sector, lower borrowing costs are a significant win, as reduced home loan interest rates act as a major draw for potential homebuyers.
Pradeep Aggarwal, Founder and Chairman of Signature Global (India) Limited, stated that the twin reduction of the repo rate by 50 basis points to 5.50 percent and the cash reserve ratio by 100 basis points to 3 percent provides significant relief for homebuyers across the country. 'This bold move by the apex bank comes at a crucial time when inflation is easing, and the economy requires strong stimulus to sustain growth. Lower borrowing costs will make home loans more affordable, thereby encouraging more buyers to enter the market. The reduction in CRR is expected to infuse significant liquidity in the banking system, which will prompt banks to lend even more,' he said.
Aggarwal added that the demand for mid and premium segment homes has already been on the rise following previous rate cuts, and this larger reduction will further accelerate interest from both homebuyers and investors.
Anshul Jain, Chief Executive, India, SEA and APAC Tenant Representation at Cushman & Wakefield, noted that India’s macroeconomic fundamentals continue to provide stability and confidence amidst global volatility. The RBI has delivered a boost to consumer sentiment with a 50 bps cut, which is seen as positive for the real estate sector, particularly housing. 'With this, the cumulative cut for this year of 1 percent is indeed going to help translate into lower EMIs and relatively better affordability, thereby helping the mid-segment housing across top tier cities. With inflation expected to remain below the 4 percent threshold, the timing of this policy move is both prudent and well-calibrated,' he said.
Jain further stated that the decision comes at an opportune time as India is well-positioned to attract long-term investments across asset classes. Lower borrowing costs will significantly improve the viability of capital-intensive developments, particularly in high-growth sectors such as Global Capability Centers (GCCs), Data Centers, and the Industrial & Logistics segment. 'This continued monetary easing underscores India’s commitment to sustaining economic momentum while reinforcing its appeal as a stable, growth-oriented market. For domestic and global investors alike, the move further cements India’s position as a compelling destination for capital deployment, innovation, and large-scale infrastructure creation,' he added.
The RBI had started hiking repo rates in May 2022 in view of the Russia-Ukraine war and continued until May 2023. The repo rates remained unchanged at 6.50 percent until February 2025. In February 2025, repo rates were reduced by 25 bps.
Ankur Jalan, CEO of Golden Growth Fund (GGF), a category II Real Estate focused Alternative Investment Fund, said that the three consecutive reductions in repo rate and 100 bps cut in CRR are a welcome move by RBI to spur consumption demand and economic growth in view of global uncertainties, growth acceleration, and a decline in inflation. However, with expectations of further cuts in repo rate in FY26, the consequent decline in fixed deposit rates, which are currently under 7.5 percent, will disincentivize savers and HNI/UHNI investors, prompting them to look for potentially high return asset classes like Alternative Investment Funds (AIFs) which not only have regulatory oversight but also offer risk diversification and high returns.
Frequently Asked Questions
What is the repo rate?
The repo rate is the rate at which the Reserve Bank of India (RBI) lends money to commercial banks in the event of any shortfall of funds. A reduction in the repo rate makes borrowing cheaper for banks, which is expected to lower lending rates for consumers.
How does a repo rate cut affect homebuyers?
A repo rate cut reduces the cost of borrowing for banks, which they often pass on to consumers in the form of lower interest rates on home loans. This makes home loans more affordable, reducing monthly EMIs and making it easier for homebuyers to purchase properties.
What is the impact of a repo rate cut on the real estate sector?
A repo rate cut lowers borrowing costs for both homebuyers and developers, making home loans more affordable and encouraging more property investments. This can lead to increased demand for housing and a boost in the overall real estate market.
What is the CRR and how does reducing it affect the economy?
The Cash Reserve Ratio (CRR) is the percentage of total deposits that banks are required to keep with the RBI. Reducing the CRR allows banks to lend more money, increasing liquidity in the banking system and potentially stimulating economic growth.
Why did the RBI cut the repo rate by 50 basis points?
The RBI cut the repo rate to stimulate economic growth, reduce borrowing costs, and encourage spending. This move comes at a time when inflation is easing and the economy requires strong stimulus to sustain growth.
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