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    RBI Monetary Policy & Its Positive Impact on Real Estate Investors

    • 5 min read
    • Last Modified Date: February 2, 2023
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    The Reserve Bank of India has on the 4th of June announced that the interest rates shall remain unchanged. The interest rates on home loans are on record low and this is expected to help the homebuyers and boost the real estate sector. The governor of RBI has stated while announcing the outcome of the bi-month policy review that the repo rates will be 4% and reverse repo rates will be 3.35%. The governor also stated that by ‘unchanged rate’, means that the home loans will not become any expensive soon and homebuyers can continue to take advantage of the prevailing low rates. This is also expected to sustain demand for real estate assets as well. Even the real estate experts have opined it to be the best time to start your real estate investments as the home loan rates have been the lowest now in comparison to those in the last two decades. 

    Key Highlights of Monetary Policy June 2021

    Some of the key highlights of the recent monetary policy include:

    • Repo rate being retained at 4% and the Reverse repo rate being retained at 3.35%.
    • The scaling down of Growth projection for FY22 to 9.5%
    • The Consumer Price Index (CPI) inflation outlooks as 5.1% in 2021-22, 5.2% in Q1, 5.4% in Q2, 4.7% in Q3, and 5.3% in Q4
    • RBI to buy government securities worth INR 40,000 crore by June 17
    • A separate liquidity window to be set up for the hospitality sector of INR 15,000 crore.

    How is the monetary policy of 2021 favouring investors?

    The continuation of the low interest rates will have a positive impact on the real estate investors as it helps in creating an affordable environment for the investors. The policy to reduce the home loan interest rates was the result of the pandemic and its impact on GDP growth.  

    The real estate reports of various real estate platforms have shown recovery of the industry since the third quarter of 2020 and it is expected to recover completely to pre-Covid levels by the end of December 2021. The recovery of the residential investments has been witnessed in the first quarter of 2021 despite the lockdown imposed due to the surge of the second wave. Apart from the competitive mortgage rates, overall economic recovery leading to the creation of more employment opportunities and income generation will help in increasing the demand for residential investments. 

    Builders have also started taking initiatives to add value to the investors and thus have started providing various discounts on investments. The developers have also started focusing on the completion of the projects to improve the economic conditions. The government has also taken active participation to improve the real estate markets as most of the states announced a reduction in stamp duty and registration charges. RBI is also focusing on creating liquidity in industries such as hospitality and tourism and this is also expected to benefit the overall development of the real estate sector as well.

    One of the major concerns at present for the real estate sector is the increased cost of raw materials such as steel and cement. Thus, builders have also raised a suggestion that measures should be taken to curb these uncertainties among the investors along with the unchanged interest rates and repo rates. Many real estate experts think that with the introduction of policies to enhance the liquidity rate in the sector along with good credit provisions, the buyer’s sentiments can be evoked as the confidence increases. They have also urged monetary support for NHB (National Housing Bank) to revive the realty sector. 

    Bottom Line

    The Reserve Bank’s policy of keeping the benchmark repo rate unchanged for the fifth time in a row is expected to boost the Indian residential real estate market and to revive it to the pre-Covid conditions. The decision to keep the repo rate constant was taken despite the retail inflation which resulted in the elevation of the Consumer Price Index. From the consumer’s point of view, the fall in the bank loan interest rate is a positive factor and thus more investors are looking forward to investing in the real estate sector. Many experts also believe that the historical fall in the bank loan interest rates will play a crucial role in recovering the realty sector during the second wave of the pandemic.

    Assetmonk is an online realty platform offering real estate assets suitable for each budget group. We also offer properties capable of yielding high capital returns. Our products are categorized as Growth, Growth +, and Yield. Visit our website for more details. 

    RBI Monetary Policy & Its Positive Impact on Real Estate Investors FAQ's:

    RBI monetary policy is the policy which is formulated by the central bank relating to the monetary matters of the country. These policies include the regulation of money supply, cost of credit, etc.

    Under the RBI Act, the Reserve Bank is required to announce monetary policy four times a year.

    The monetary policy has a huge impact on the real estate sector as it affects the price of houses. India as a country is highly dependent on bank loans for real estate investments and with the increase in the interest rates, the demand for the property reduces and vice versa.

    The housing demand and affordability are heavily dependent on monetary policy and fluctuating interest rates. The interest rates have the power to affect the flow of capital and also the demand for commercial assets. Commercial real estates are normally costlier and loans are often the best ways to finance them. Thus with the increase in the interest rates, the cost of investment increases and demand reduces.

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