The RBI’s 25-basis-point repo rate hike comes largely as expected, against the backdrop of persistent inflationary pressures and geopolitical uncertainty stemming from the West Asia crisis. The higher cost of borrowing could weigh on consumer sentiment and discretionary spending, while creating some affordability pressures, particularly in interest-rate-sensitive housing segments. This could have implications for housing demand, especially during the crucial festive season when home purchases typically pick up, real estate experts said.
Commercial real estate, however, is likely to remain relatively insulated, with demand continuing to be anchored by structural requirements from global capability centres (GCCs), technology, BFSI and other occupier segments. Retail real estate could see some near-term pressure as higher borrowing costs weigh on consumer spending.
“The RBI’s 25 bps increase in the repo rate was expected because of the prevailing inflationary pressures and geopolitical uncertainty brought on by the Gulf conflict. The rate hike will put pressure on consumer sentiment and discretionary spending – this has a direct correlation to housing demand. The festive season is a key period for housing demand, and an increase in borrowing costs will affect buyer sentiment,” said Anuj Puri, chairman, ANAROCK Group.
As per Anarock Research data, average residential prices increased 7% y-o-y. With the rate hike, more expensive home loans will make buyers more selective and delay decision-making, particularly in price-sensitive segments. As per Anarock data, Q3 2026 recorded approximately 1,00,220 housing sales across the top 7 cities, up 3% y-o-y and 10% q-o-q. Affordable housing accounted for 16% of these sales.
Also Read: RBI Repo Rate Hike: What does a 25 basis point increase mean for your home loan EMI?
{{/usCountry}}Also Read: RBI Repo Rate Hike: What does a 25 basis point increase mean for your home loan EMI?
{{/usCountry}}“This momentum will now be tested because even a modest increase in EMIs will result in deferred purchase decisions or budget recalculations among affordable housing buyers,” said Puri.
RBI repo rate hike may have a bearing on the cost and availability of funds
The RBI’s decision to increase the repo rate by 25 basis points, from 5.25% to 5.50%, the first rate hike since February 2023, needs to be seen in the context of global developments. Besides, the stance has also been changed to calibrated tightening. “The SDF rate now stands at 5.25%, while the MSF rate and Bank Rate have been raised to 5.75%. Taken together, these measures will have a bearing on the cost and availability of funds, and the impact on liquidity will need to be watched,” said Shekhar Patel, president, CREDAI.
Having said that, we should also not lose sight of India’s robust growth trajectory. The need for housing will continue to grow as our cities expand and urbanisation increases. "We are also entering the festive season, an important period for the housing market, and rising borrowing costs could affect sales during this period, although underlying demand for housing remains strong. At the same time, we should understand that for a homebuyer, the interest rate at any particular point is only one part of a much longer decision,” he said.
Affordable, price-sensitive segments may bear the brunt
In the residential segment, a rise in borrowing costs is likely to drive homebuyers to adopt a nuanced and selective approach in their purchase decisions, particularly in price-sensitive categories. “In this scenario, developers could absorb most of this financing pressure and provide comfort to homebuyers through festive discounts and innovative pricing plans, to boost sales,” said Vimal Nadar, National Director and Head, Research at Colliers India.
For real estate, higher borrowing costs could create some affordability pressures, particularly in interest-rate-sensitive and lower-priced segments, but we do not expect a material disruption to the sector’s broader trajectory in the near future, said Shishir Baijal, International Partner, Chairman and Managing Director, Knight Frank India.Agrees Lata Pillai, senior manager director and head of capital markets, India, JLL. “For real estate, the rate certainty of the past year is likely coming to an end. We do expect that floating home rates will be repriced and higher construction costs will be passed onto the buyers, with mid-segment affordability likely to remain under the scanner.”
However, demand fundamentals remain strong and robust GDP growth, growing investments and a healthy construction sector are likely to absorb the negative impact. The pace and extent of any further rate hikes are likely to matter more to the overall market than a single 25 bps hike, she said.
Impact on home loan affordability
The immediate effect will be felt in home loan affordability, and some buyers may defer decisions in the short term. Even so, the demand drivers for real estate remain firmly in place, said experts.
“Our view is that a steady rate environment would have offered the sector more comfort, but long-term end-user demand should continue to anchor growth,” said Jash Panchamia, Executive Director, Suraksha Infra And Developers Limited (formerly Jaypee Infratech Limited).
Developers may respond with flexible payment plans during the festive season
While policy predictability supports homebuyer confidence and urban demand, the increase, just as the festive season begins, "may temporarily weaken affordability, particularly for financing-dependent first-time buyers and those in the affordable-to-mid segment,” said Nitesh Kumar, MD and CEO of Emami Realty on RBI Repo Rate.“Despite short-term borrowing-cost pressures, strong cultural and financial intent continues to support festive real estate demand. Developers are responding with flexible payment plans, stronger value propositions, and targeted offers to sustain quarterly momentum," he added.
Pradeep Aggarwal, founder and chairman, Signature Global (India) Ltd said that higher borrowing costs may temporarily moderate buyer sentiment, particularly in the mid-income segments. “Still, with strong fundamentals and the upcoming festive season, we expect the sector to remain resilient,” he said.
Anshuman Magazine, Chairman & CEO - India, South-East Asia, Middle East & Africa, CBRE said that the current inflationary environment, driven by the West Asia conflict, high crude prices and supply chain disruptions, is somewhat reminiscent of what we saw in 2022 after the Russia-Ukraine conflict.
“India's growth fundamentals, though, are relatively strong, and that gives housing demand a supportive backdrop. What matters from here is where inflation and interest rates go, and whether this increase stays a calibrated response rather than the start of a long tightening cycle,” he added.