RBI’s 50 bps Rate Cut Boosts Affordable Housing Market, Experts Say
The Reserve Bank of India's (RBI) 50 basis points rate cut to the repo rate may finally provide the necessary impetus to the affordable housing sector, encouraging first-time homebuyers to enter the market.
RbiRepo RateAffordable HousingReal EstateHome LoansReal Estate NewsJun 06, 2025
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 into the real estate sector. Samantak Das, chief economist at property consultancy JLL India, noted that the relative slowdown in real estate sales, including in the premium categories, makes this rate cut particularly beneficial.
Developers' groups have welcomed the RBI's decision, stating that the potential reduction in mortgage rates and EMIs may draw more first-time homebuyers to the market. Shekhar Patel, national president of the Confederation of Real Estate Developers' Associations of India (CREDAI), emphasized that this decision comes at a pivotal time. India, now the world’s fourth-largest economy, is witnessing strong real estate momentum across metros as well as 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. Then-newly appointed governor Sanjay Malhotra announced a 25 bps cut, followed by another of the same magnitude in the April policy meet. 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.
Amit Bhagat, CEO and managing director of ASK Property Fund, highlighted that the RBI’s announcement of a further rate cut of 50 bps is a significant proactive step. At a time when demand for residential real estate is seeing signs of slowing down across segments due to increased prices, home ownership continues to be an aspiration and dream for every Indian household. 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. Banks have been 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 home loans are linked to, experts say.
A Mumbai-based financial planner noted that 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. 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.
Frequently Asked Questions
What is the current repo rate after the RBI's latest rate cut?
The current repo rate is 5.50 percent after the RBI's latest rate cut of 50 basis points.
How might the rate cut impact first-time homebuyers?
The rate cut is expected to reduce mortgage rates and EMIs, making it more affordable for first-time homebuyers to enter the market.
What is the significance of the RBI's rate-cutting cycle?
The rate-cutting cycle is aimed at boosting economic growth and improving affordability in the housing sector, particularly for affordable and mid-income categories.
How have banks responded to previous rate cuts?
Banks have been slow to pass on the benefits of previous rate cuts to borrowers, often citing their own cost structures and the type of loans.
What is the expected impact of the cash reserve ratio cut?
The 100 basis point cut in the cash reserve ratio is expected to inject around Rs 2.5 lakh crore into the system, potentially increasing the availability of funds for lending, including home loans.
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