Buying Your Dream House? At Repo Rate Of 6.5%, Will Your Home Loan Interest Rates, and EMIs Be Impacted?

Any significant change in RBI's policy repo rate has a direct impact on the borrowing cost of banks. If the cost of funds is pushed to rise due to a repo rate hike, banks usually pass on the impact of higher interest rates to end consumers by hiking their lending rates as well. This makes EMIs costlier. However, RBI once again held the repo rate at 6.5% on December 8. Although the repo rate is at a multi-year high, it has remained unchanged since the start of FY24. Will the latest status quo impact home loan rates and EMIs?

On Friday, RBI kept the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 6.50%. Subsequently, RBI also kept the standing deposit facility (SDF) rate unchanged at 6.25% and the marginal standing facility (MSF) rate and the Bank Rate at 6.75%.

RBI governor Shaktikanta Das revealed that the weighted average lending rate (WALR) on fresh rupee loans rose by 199 basis points (bps) while that on outstanding loans rose by 112 bps during the current tightening cycle (May 2022 - October 2023).

It needs to be noted that since October 2019, banks have stopped using MCLR as the benchmark for deciding term loan rates, and instead have linked their lending rates to external benchmarks such as RBI's policy repo rate. Hence, any change in repo rate will have a direct impact on home loan EMIs.

So will your home loan rates and EMIs be impacted?

Rishabh Siroya, Founder of Siroya Corp:

Any change in the repo rate directly impacts the interest rates of these loans. However, with the repo rate remaining steady at 6.5 per cent, the existing borrowers need not worry about any immediate change in their Equated Monthly Instalments (EMIs). The real estate industry expects housing demand to remain strong The recent decision by the Reserve Bank of India to keep the repo rate at 6.5% for the fifth consecutive time is highly positive for both potential homebuyers and the real estate sector, setting an optimistic tone for 2024. This consistent stance promises a favourable outlook for those looking to purchase homes and for the real estate market as a whole.

This stability is expected to enhance the allure of real estate as a sound investment option, potentially attracting a greater number of individuals to participate in the market. Furthermore, the steady borrowing costs contribute to a positive economic environment, reinforcing the real estate sector's pivotal role in overall economic recovery. In essence, the RBI's decision maintains a favourable climate for homebuyers and strengthens the resilience of the real estate sector, underscoring its significance in the broader economic landscape.

Dharmendra Raichura VP Finance at Ashar Group

The RBI's decision to keep the repo rate unchanged is a positive move for the real estate sector, ensuring stability in interest rates. The recently revealed Q2 GDP growth rate of 7.6% solidifies India's status as the world's fastest-growing major economy. Given that inflation is under control, the market anticipates that the RBI will probably maintain the current REPO rates. This decision brings a welcome period of stability after recent market volatility, providing much-needed support to the real estate sector and fostering sustained growth in the housing market.

Shishir Baijal, Chairman and Managing Director, Knight Frank India

Steady policy interest rates and maintained policy stance were widely expected and aligned with the trajectory of key global central banks. The undertone however remains precautionary over inflation risks in the upcoming months due to seasonal volatility in food prices. The decision will continue to support the existing momentum of residential real estate demand in India. Despite the escalations in borrowing costs, the overall housing market has continued to remain upbeat; however, the momentum in the affordable segment has lagged. Thus, a pause is supportive of catering to the housing needs of the vulnerable segment.

Anshuman Magazine, Chairman & CEO - India, South-East Asia, Middle East & Africa, CBRE

A sustained GDP growth forecast and manageable inflation have helped RBI to maintain the status quo on the key policy rates. The pause on the interest rate is expected to push sentiments further for home buyers, and this continued pause in rates is likely to boost the real estate sector significantly. Expected inflation within the comfortable range will further rekindle the hope of a declining rate regime.

What Real Estate Developers Think About Latest RBI Policy?

Sandeep Runwal - President, NAREDCO Maharashtra

The positive sentiments being witnessed among home buyers and the need for home ownership have been amply reflected in the excellent home sale figures generated in the past few quarters. Also, the government has implemented a range of constructive policy measures that have sustained the housing sales momentum. We hope that these positive advancements will uphold the enthusiasm of homebuyers, encouraging them to step forward and buy their dream home. We certainly see this healthy sales momentum continuing into the New Year as well. We hope for the repo rate reduction next year onwards.

Pritam Chivukula - Vice President, CREDAI-MCHI and Co-Founder & Director, Tridhaatu Realty

The real estate market has been buoyant on the back of appropriate government intervention along with positive policy measures that will insulate the economy from global headwinds.

Aakash Patel, Director, Atul Projects India

his decision will convince prospective home buyers that now is the opportune moment to proceed with the purchase of their much-anticipated dream homes. This, in turn, is expected to sustain the momentum in home sales.

Rohan Khatau, Director, CCI Projects

By temporarily holding the repo rate, more funds will be available to potential home buyers. Given the significance of home ownership and the optimistic outlook among potential buyers, it is anticipated that prospective homebuyers will seize this opportunity to initiate their home purchases.

Srikanth C - Managing Director, Intercontinental Infrastructure

The long-term benefits of homeownership have fueled steady growth in the residential segment, sustaining demand in the real estate sector. Going forward, a potential reduction in interest rates shortly would be favourable to bolster overall market confidence and enhance the attractiveness for potential homebuyers.