R. Suryamurthy
In a move poised to invigorate India’s real estate sector, the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) today announced a substantial 50 basis point (bps) reduction in the policy repo rate, bringing it down to 5.50 percent with immediate effect. This decision, coupled with a Cash Reserve Ratio (CRR) cut, signals the RBI’s confidence in achieving its inflation target while actively stimulating domestic economic activity, particularly in sectors like real estate that are highly sensitive to interest rates and liquidity.
The MPC, chaired by RBI Governor Sanjay Malhotra, highlighted the sustained moderation in consumer price index (CPI) inflation, which reached a nearly six-year low of 3.2 percent year-on-year in April 2025. This significant dip was largely attributed to a consistent decline in food inflation, marking its sixth consecutive monthly fall.
“Inflation has softened significantly over the last six months from above the tolerance band in October 2024 to well below the target with signs of a broad-based moderation,” Governor Malhotra stated, emphasizing the MPC’s conviction that headline inflation is durably aligning with the 4 percent target and is likely to undershoot it marginally during the year.
Key Policy Moves and Real Estate Impact
The MPC, chaired by Governor Sanjay Malhotra, reduced the repo rate from 6.00% to 5.50%, adjusting the Standing Deposit Facility (SDF) rate to 5.25% and the Marginal Standing Facility (MSF) rate and Bank Rate to 5.75%. Additionally, the CRR cut, to be implemented in four 25 bps tranches from September 6 to November 29, 2025, will inject ₹2.5 lakh crore into the banking system, reducing banks’ funding costs and boosting lending capacity.
For the real estate sector, these measures are a game-changer. Anuj Puri, Chairman of ANAROCK Group, emphasized, “This 50 bps cut, following earlier reductions, lowers borrowing costs, making home loan EMIs more affordable and boosting demand, especially in the affordable and mid-income segments. Affordable housing, which saw sales share drop from 38% in 2019 to 18% in 2024, could see a revival as affordability improves.”
Shishir Baijal, Chairman and Managing Director of Knight Frank India, added, “The cumulative 100 bps cut will rekindle demand in the low and mid-value housing segments, which have weakened recently. We expect improved affordability to drive sales, with developers likely to renew focus on these segments to sustain the housing market upcycle.”
Home Loan Savings and Market Dynamics
The rate cut directly benefits homebuyers. Annuj Goel, Chairman of Goel Ganga Developments, noted, “For a ₹50 lakh, 20-year home loan, borrowers could save approximately ₹1,960 per month on EMIs, totaling nearly ₹4.7 lakh over the loan tenure. This, coupled with inflation below 4% for three months, is expected to drive housing demand, particularly in key markets like Noida and Mumbai.”
Aman Gupta, Director of RPS Group, highlighted strategic options for borrowers: “A ₹30 lakh loan over 20 years will see EMI savings of about ₹1,176 monthly. Borrowers can either reduce EMIs or maintain current payments to shorten loan tenure, saving significant interest. However, transmission may lag for MCLR-linked loans, which comprise 36% of bank portfolios.”
Deepak Kumar Jain, Founder and CEO of CredManager.in, quantified savings: “For a ₹50 lakh loan, EMIs drop by ₹3,164 monthly; for ₹1 crore and ₹1.5 crore loans, savings are ₹6,329 and ₹9,493, respectively. These reductions enhance affordability in a high-cost housing market.”
Keshav Mangla, GM Business Development at Forteasia Realty, projected broader impacts: “A ₹1 crore loan borrower saves ₹3,920 monthly, freeing up ₹21,000 annually for discretionary spending. This could spur demand in Noida and Mumbai, where affordability has been a challenge. Borrowers with credit scores above 750 should negotiate better terms or consider prepayments to maximize savings.”
LC Mittal, Director of Motia Builders Group, cautioned, “While a ₹75 lakh loan sees EMI relief of ₹2,940 monthly, MCLR-linked loans (40% of portfolios) may delay benefits. Borrowers should use EMI savings for accelerated principal repayments, potentially saving ₹14 lakh in interest and reducing a 20-year loan by three years.”
Developer and Investor Benefits
The CRR cut enhances banks’ lending capacity, benefiting developers. Anurag Mathur, CEO of Savills India, stated, “Lower borrowing costs will accelerate construction and infrastructure development, boosting employment and new launches. The accommodative environment will attract investor interest in residential and commercial real estate.”
Niranjan Hiranandani, Chairman of NAREDCO and Hiranandani Group, added, “The ₹2.5 lakh crore liquidity infusion will drive capital expenditure and development momentum. Lower mortgage rates enhance affordability, spurring demand and refinancing activity, particularly for Grade A developers.”
Vimal Nadar, National Director & Head of Research at Colliers India, noted, “This 50 bps cut, bringing the repo rate to a three-year low, will boost homebuyer confidence and sales volumes in urban markets. Lower capital costs will also enhance investor sentiment in both residential and commercial segments.”
Anshuman Magazine, Chairman & CEO of CBRE India, emphasized, “Reduced borrowing costs and increased liquidity will stimulate homebuyer demand and encourage developers to launch new projects, creating a positive cycle for real estate growth and employment.”
Economic Tailwinds Supporting the Cut
A key factor underpinning the optimistic inflation outlook and the MPC’s decision to ease monetary policy is the robust performance and promising future of the agricultural sector. The provisional estimates for 2024-25 placed India’s real GDP growth at 6.5 percent, with agriculture playing a crucial role. This strong agricultural performance is expected to bolster rural incomes and, in turn, drive demand for housing in Tier 2 and Tier 3 cities, a growing segment of the real estate market.
Governor Malhotra also highlighted the “very good harvest in both the kharif as well as rabi cropping seasons,” leading to a comfortable supply of major food crops. This contributes to moderating inflation expectations, providing the RBI with the necessary headroom to support growth-oriented sectors like real estate.
Growth Imperative Amidst Global Headwinds
Despite the encouraging inflation trajectory, the MPC acknowledged that growth remains “lower than our aspirations amidst challenging global environment and heightened uncertainty.” To counteract these headwinds and stimulate domestic demand, the MPC emphasized the imperative to “continue to stimulate domestic private consumption and investment through policy levers to step up the growth momentum.” The decision to frontload the rate cut by a substantial 50 bps is a clear signal of the RBI’s commitment to supporting economic expansion.
While the agricultural sector is expected to provide a strong foundation for rural demand, sustained expansion in the services sector is anticipated to bolster urban demand, further benefiting the residential and commercial real estate segments. Investment activity is also projected to improve, driven by higher capacity utilization, healthier balance sheets of financial and non-financial corporates, and the government’s continued push on capital expenditure, all of which indirectly support real estate development.
Monetary Policy Stance Shifts to Neutral
With the policy repo rate having been reduced by a total of 100 bps since February 2025, the MPC also announced a shift in its monetary policy stance from ‘accommodative’ to ‘neutral’. This indicates that while the RBI has provided significant support to growth, its future policy actions will be more data-dependent, carefully assessing incoming information to strike the right growth-inflation balance.
Overall, today’s monetary policy announcement signals a confident RBI, leveraging the gains made on the inflation front, largely aided by a robust agricultural performance, to provide a substantial impetus to economic growth. For the real estate sector, this translates into a highly favourable environment with the promise of increased affordability, renewed buyer confidence, and accelerated development.