Monetary Policy - Can A Repo Rate Cut Revive Real Estate Demand?

Overall consumption in India has taken a serious beating in the recent past, and the RBI needs to give a serious booster shot to hike up consumer sentiments.

A massive rate cut of at least 50 bps in the upcoming monetary policy could be meaningful since a cut of such magnitude would make it feasible for commercial banks to lower the interest rate substantially.

At the end of the day, only significant transmission of a repo rate cut can help revive much-needed consumer demand. Real estate is a highly cost-intensive investment and demand for it will only pick up if the cut is deep enough to result in significant cost savings on home loans.

Over and above, even if a cut in the repo rate happens, banks will need to percolate it down to borrowers.

Also, it does bear keeping in mind that it is not only affordability but other factors such as low ROI and lack of confidence in under-construction projects that have impacted housing demand in recent times.

Reduced interest rates alone may not help kick-start a wholesale revival in housing demand for all budget segments.

However, an interest rate reduction coupled with the existing Government benefits for affordable housing can certainly boost sentiment in this highly cost-sensitive segment.