RBI's 50 bps Rate Cut Boosts Affordable Housing Market, Experts Say

The Reserve Bank of India's (RBI) decision to cut its benchmark repo rate by 50 basis points (bps) to 5.50 percent is poised to provide a much-needed boost to the affordable housing market. This rate cut, announced by RBI governor Sanjay Malhotra, is expected to translate into lower EMIs and borrowing costs for homebuyers, particularly first-time buyers.

Coming on the heels of a marginal decline in sales witnessed in Q1 2025, this rate cut is perfectly timed to help regain momentum and infuse much-needed buoyancy, according to Samantak Das, chief economist at property consultancy JLL India. The real estate market has shown signs of fatigue, especially in the premium categories that had previously shown more strength in sales.

Developers' groups have welcomed the RBI's move, emphasizing the potential reduction in mortgage rates and EMIs. Shekhar Patel, national president of the Confederation of Real Estate Developers' Associations of India (CREDAI), noted that this decision comes at a pivotal time as India, now the world’s fourth-largest economy, is witnessing strong real estate momentum across metros and Tier 2 and Tier 3 cities. Lower lending rates will directly enhance home loan affordability, particularly in interest-sensitive categories like mid-income and affordable housing. Reduced EMIs are expected to significantly improve buyer sentiment and encourage first-time homebuyers to enter the market.

The central bank started its rate-cutting cycle from its February policy meeting, when the repo rate stood at 6.50 percent. Newly appointed governor Sanjay Malhotra announced a 25 bps cut in February, followed by another 25 bps cut in April. The latest rate cut comes at a time when real estate sales are showing signs of fatigue, and sales of smaller and more affordable homes are holding up in terms of share of registrations and volumes in markets like Mumbai, despite declining inventories.

According to Amit Bhagat, CEO and managing director of ASK Property Fund, the RBI’s announcement of a further rate cut of 50 bps is a significant proactive step. Home ownership continues to be an aspiration and dream for every Indian household, and these rate cuts, followed by reduced home loan interest rates, will strengthen homebuyer confidence.

However, it remains to be seen how much of the rate cut will be passed on to borrowers by banks and financial institutions. The last two rate cuts, while welcomed by the real estate industry, did not achieve any meaningful reduction in EMIs due to banks delaying the pass-through of the benefits of rate cuts on account of their own cost structures, including the cost of funds or the instruments that the home loans are linked to.

Banks and financial institutions have been struggling to pass on the benefits of the two previous rate cuts this year to borrowers, especially for MCLR (marginal cost of funds based lending rates)-linked loans, which do not change quickly. A Mumbai-based financial planner noted that the 100 basis point cut in the cash reserve ratio, which can inject around Rs 2.5 lakh crore into the system, may come of help in terms of more cash available for banks and financial institutions for lending, including for retail loans like homes.