RBI repo rate cut to 5.50%: What should homebuyers do now?
Homebuyers are set to benefit from improved loan affordability. Real estate developers may gain relief as lower borrowing costs could ease financial stress
The Reserve Bank of India’s (RBI) decision to cut the repo rate by 50 basis points from 6.00% to 5.50% on June 6, marking the third consecutive reduction, is expected to provide a much-needed boost to real estate demand. Coming on the heels of a slight dip in sales during Q1 2025, the timing of this rate cut could help revive momentum in the real estate sector.
Homebuyers are expected to benefit from improved home loan affordability, particularly first-time buyers and those targeting affordable housing, provided banks pass on the rate cut to consumers. For developers, the reduced cost of borrowing could ease financial pressure, aid in clearing unsold inventory, and offer relief across segments.
The Reserve Bank of India has surprised markets with a significant 50 bps reduction in the repo rate, the largest cut seen in recent years. This is the central bank’s third consecutive repo rate cut. The MPC also decided to change the policy stance to ‘Neutral’ from ‘Accommodative’, RBI Governor Sanjay Malhotra announced in his monetary policy speech.
“This effectively lowers the cost of borrowing, making home loan EMIs easier on the pocket and thereby directly improving affordability for buyers. This can potentially boost demand in the Indian real estate sector, especially in affordable and mid-income segments. Affordable housing faced the sharpest pandemic fallout, with sales and new launches shrinking in the top 7 cities,” said Anuj Puri, chairman, ANAROCK Group.
ANAROCK data shows that affordable housing sales share plummeted from 38% in 2019 to 18% in 2024, while its supply share dropped from 40% to 16% in the same period. However, a 19% dip in unsold stock hints at sustained demand led by end-users. It will also lower developers’ borrowing costs. It is sincerely hoped that banks pass on the benefits of this move seamlessly to borrowers.
The reduction in the Cash Reserve Ratio (CRR) will help boost liquidity in the banking system, which means that banks have more funds to lend. Developers will be able to access more capital for their projects, and this can positively impact project completion timelines. It also gives banks the option to reduce home loan interest rates, which will have again positively impacted sentiment in the affordable and mid-income segments, Puri said.
“For the residential real estate sector, it's a critical enabler for a more equitable and sustainable growth trajectory. Coming on the heels of a marginal decline in sales witnessed in Q1 2025, this rate cut is perfectly timed to help regain momentum and infuse much-needed buoyancy," said Samantak Das, Chief Economist and Head of Research and REIS, India, JLL.
While the direct benefit of enhanced home loan affordability is evident, "we also anticipate a more profound impact on the financial markets, potentially attracting a fresh wave of institutional capital into real estate debt and equity. This could unlock financing mechanisms for developers, accelerating project execution and fostering a more competitive and dynamic supply landscape,” he said.
May lead to pickup in sales volumes across key urban markets
For the real estate sector, this move is a strong tailwind: it lowers borrowing costs for buyers and developers, boosts homebuyer confidence, and enhances affordability, especially in the affordable and mid-income housing segments. This could lead to improved buyer sentiment, an increase in residential property enquiries and conversions, and a pickup in sales volumes across key urban markets, said Vimal Nadar, National Director and Head, Research, Colliers India.
Also Read: Housing sales across top seven cities decline by 12% in Q1 2025: JLL report
Over the medium term, the reduction in the cost of capital is also expected to enhance investor confidence, potentially boosting activity in both residential and commercial real estate segments, he said.
RBI rate cut to improve sales of mid-income housing properties
Shekhar G Patel , president, CREDAI, is of the opinion that “lower lending rates will directly enhance home loan affordability, particularly in interest-sensitive categories like mid-income and affordable housing. Reduced EMIs are expected to significantly improve buyer sentiment and encourage first-time homebuyers to enter the market,” he said.
The RBI’s 50 bps rate cut marks a strong and proactive stance aimed at lifting the low and mid value housing segments, said Shishir Baijal, chairman and managing director, Knight Frank India.
“Over the last few years, the strong housing market momentum was increasingly concentrating in the premium end even as there were signals of weakening the lower segments. With this cumulative 100 basis point cut in the policy interest rate we expect rekindling of the lower segments as affordability will witness a meaningful improvement for such homebuyers,” said Baijal.
Manju Yagnik, vice chairperson of Nahar Group and senior VP, NAREDCO, Maharashtra, said that the rate cut is poised to create a significant improvement in affordability, especially for first-time purchase, this will help revive interest in mid-income and premium housing segments. For developers, available cheaper credit will ease liquidity constraints, accelerate project implementation, and improve delivery timelines. This will, in turn, provide much need cash flow to absorb the unsold inventory, she said.
Anshuman Magazine, chairman and CEO - India, South-East Asia, Middle East & Africa, CBRE, said that the rate cut is particularly beneficial as "it will make home loans more affordable, stimulating demand and driving growth. The reduced interest rates will also encourage developers to take on new projects, boosting construction activity and creating employment opportunities."
Positive impact may be dampened by global trade tensions
Puri cautioned that these positive impacts may be partially dampened by the ongoing global trade tensions and tariffs imposed by the Trump administration, which have increased the cost of imported construction materials and created economic uncertainty. “We may see some impact on the demand for luxury and commercial projects, and developer margins may be squeezed,” he said.
Will the repo rate cut reduce home loan EMIs? What should homebuyers do?
The recent 100 basis points (bps) cumulative cut in repo rate, spread over three consecutive announcements, will led to a noticeable drop in home loan interest rates. This reduction significantly boosts both affordability and loan eligibility for prospective homebuyers.
If a borrower planned to take a home loan of ₹1 crore for 20 years at 9% interest earlier this year, and the rate has now dropped to 8%, the impact is significant. The EMI will reduce from ₹89,865 to ₹83,644, resulting in a monthly saving of around ₹6,221, explained Raoul Kapoor, co-CEO of Andromeda Sales and Distribution Pvt Ltd.
While lower interest rates make borrowing attractive, it’s important to remember that interest rate cycles are dynamic. Over the past five years, rates have fluctuated significantly—from above 9% in 2019, to a historic low of 6.5% during the COVID-19 period, and then rising again above 9% by 2023-24. Although the current trend indicates a rate-cutting cycle, this can reverse in the coming years, he said.
Given that home loans are long-term commitments—typically spanning 15 to 25 years—borrowers should not base their decisions solely on short-term reductions. Building in a buffer for potential rate hikes is a smart move to avoid financial stress later, he said.
He advises key financial discipline.
- As per sound financial principles, your total EMIs should not exceed 40% of your take-home salary—the lower, the better.
- Evaluate your home buying budget in light of other financial goals—like retirement, children’s education, and emergency savings.
- If possible, choose part pre-payment or increase EMI with income growth to reduce interest outgo over time.
Kamal Khetan, chairman and managing director, Sunteck Realty Ltd, points out that a strong uptick in residential inquiries and conversions is expected as EMIs become more manageable for aspirational buyers. The move is also expected to give a much-needed push to the affordable housing sector, where even a small drop in EMIs can decisively influence buying decisions.
