Will RBI hike repo rate? What it could mean for homebuyers and property prices

The meeting comes at a time when crude oil prices and global bond yields are rising, while inflation risks are also increasing. Economists are increasingly expecting a 25-basis-point hike in the repo rate.

In Short

• RBI MPC meets October 5-7 amid expectations of 25bps repo rate hike
• Real estate sector urges RBI to maintain rate stability during festive season
• Rate hike may impact homebuyer sentiment and affordability, say experts

The Reserve Bank of India’s Monetary Policy Committee (MPC) begins its three-day meeting on Monday, with a possible repo rate hike being closely watched by the real estate sector.

The meeting comes at a time when crude oil prices and global bond yields are rising, while inflation risks are also increasing. Economists are increasingly expecting a 25-basis-point hike in the repo rate.

The MPC will meet from October 5 to 7, with its decision due on October 7. The repo rate currently stands at 5.25%. A 25-basis-point hike would take it to 5.50% and would be the first rate increase since February 2023.

REAL ESTATE SECTOR WANTS RATE STABILITY

While a rate hike is being widely expected, real estate players believe the RBI should consider keeping the repo rate unchanged, especially as the festive season gets underway.

Suresh H. A, Managing Director of Sanjeevini Group, said a rate hike could affect homebuyer sentiment and affordability at a time when property prices have already risen across several key markets.

“While 25bps hike in repo rate looks likely, the RBI should consider maintaining a status quo in October MPC, as a hike could have a direct bearing on homebuyer sentiment and affordability,” he said.

He added that even a small rise in home loan rates could influence buying decisions, particularly for first-time and mid-income buyers.

“With property values having appreciated across key residential markets, even a marginal increase in home loan rates can influence purchase decisions, particularly among first-time and mid-income buyers,” Suresh said.

According to him, stable interest rates during the festive quarter could help maintain buyer confidence and support homeownership.

RATE HIKE COULD RAISE PROPERTY COSTS

Lalit Parihar, Managing Director of Aaiji Group, said a repo rate hike could increase the overall cost of buying and financing a property.

“A repo rate hike could increase the overall cost of property acquisition and financing at a time when buyers are already evaluating affordability carefully,” Parihar said.

He said this could be particularly important for emerging real estate destinations, where demand is closely linked to infrastructure development and long-term growth expectations.

“For emerging real estate destinations, where demand is closely linked to infrastructure development, long-term investment confidence and future growth prospects, policy stability is particularly important,” he added.

Parihar said the RBI should consider holding rates in October and use the next quarter to assess the inflation trend.

“A stable interest-rate environment would support festive-season buying, sustain momentum in residential and plotted developments, and allow the benefits of infrastructure-led growth to translate into actual property demand,” he said.

INVESTORS ALSO SEEK POLICY STABILITY

The impact of a rate hike could extend beyond homebuyers to investors and other participants in the real estate ecosystem.

Ankur Jalan, CEO of Golden Growth Fund (GGF), a category II real estate-focused Alternative Investment Fund (AIF), said higher borrowing costs could influence investment decisions across the sector.

“While inflationary pressures and currency volatility warrant close monitoring, a repo rate hike at this juncture could raise the cost of capital and may affect investment decisions across the real estate ecosystem,” Jalan said.

For real estate-focused AIFs, he said, policy stability is important for planning investments, financing projects and ensuring exit visibility.

“For AIFs, policy stability is important for investment planning, project financing and exit visibility. With institutional capital showing strong confidence in Indian real estate, a pause would help preserve this momentum,” he said.

Jalan also said the RBI should give itself more time to assess whether imported inflation pressures are likely to persist before tightening monetary conditions.

“The RBI should ideally allow more time to assess the persistence of imported inflation before tightening monetary conditions,” he added.

The RBI’s October MPC decision will therefore be closely watched by the real estate sector, with developers, investors and homebuyers looking for clarity on the direction of interest rates.

(Disclaimer: The views, opinions, recommendations, and suggestions expressed by experts/brokerages in this article are their own and do not reflect the views of the India Today Group. It is advisable to consult a qualified broker or financial advisor before making any actual investment or trading choices.)

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