The festive season is usually a time when homebuyers start making big purchase decisions. But this year, a higher repo rate could make that decision a little harder, especially for buyers already stretching their budgets.
The Reserve Bank of India’s Monetary Policy Committee (MPC) on Wednesday raised the repo rate by 25 basis points to 5.50%, its first rate hike since February 2023. The move comes as inflation pressures rise and the global economic environment remains uncertain.
For the housing market, timing matters. The festive season is traditionally an important period for property sales, but before signing on the dotted line.
A repo rate hike can eventually push up borrowing costs for banks and lenders, which may affect home loan rates. Even a small rise in the interest rate
Jason Samuel, MD, House of Swamiraj, said the industry will be watching the impact of the rate hike closely as the festive season brings more buyers into the housing market.
“A higher repo rate can translate into increased borrowing costs and, over time, put some pressure on home loan EMIs and affordability, particularly for price-sensitive buyers,” Samuel said.
However, he does not expect the rate hike alone to change the decision of buyers who are already serious about owning a home.
“Festive demand should remain reasonably steady, although buyers may take a little more time to finalise their finances before making a decision,” he said.
The impact is likely to be more visible among first-time and mid-income homebuyers, who tend to be more sensitive to changes in monthly EMIs.
Harsh Jagwani, Managing Director, Notandas Realty, said the 25-basis-point increase could affect housing sales sentiment in the coming months, particularly as buyers were expected to step up purchases during the festive season.
“Marginal increase in home-loan rates play an influential role in purchase decisions and its impact in the upcoming months will be noticed,” Jagwani said.
He expects luxury housing to remain relatively insulated from the rate hike. According to Jagwani, premium and luxury homes could continue to see strong demand during the festive period, with sales in the segment expected to rise 20-30%.
The impact of higher borrowing costs is not limited to homebuyers. Small businesses typically increase inventory, production and hiring ahead of the festive season, often relying on working capital and short-term loans.
Shrikant Goyal, Managing Director, Getfive Funds, said even a modest rise in borrowing costs could put pressure on MSME margins, particularly for smaller businesses with limited pricing power.
“The timing is notable for MSMEs, as the festive season is when they ramp up inventory, production and hiring, and rely heavily on working capital and short-term credit,” Goyal said.
He added that a stable interest-rate environment would have provided greater certainty to businesses heading into the festive season. However, he expects MSMEs to remain resilient, helped by formalisation, digital adoption and better access to credit.
The bigger concern for the housing market is whether buyers decide to wait rather than take on a higher loan burden.
Keshav Mangla, GM-Business Development, Forteasia Realty, said the lower-end and mid-segment housing markets are likely to be the most vulnerable because buyers in these categories are more sensitive to changes in EMIs.
“Conversion will slow down during the festive quarter, with luxury housing being an exception,” Mangla said.
He added that the rate hike could also signal that borrowing costs may remain higher for longer. In such a situation, ready-to-move homes could gain an advantage over new launches as buyers may be more cautious about taking on additional financial commitments.
“Unless there is a spike in demand, new project launches may have to wait,” Mangla said, adding that moderation in demand could give buyers more negotiating power.
The rate hike does not necessarily mean the housing market will see a sharp slowdown. Home purchases are long-term decisions, and many buyers who have already finalised their budgets may still go ahead with their plans.
Shekhar Patel, President, CREDAI, said the increase in borrowing costs could have some impact on festive-season sales, but underlying housing demand remains strong.
He pointed out that a home loan is usually a commitment of at least 15 years, during which interest rates can move both up and down. Therefore, buyers should not look at a single repo rate change in isolation.
For now, the festive season could see a more cautious housing market. Buyers may take longer to arrange finances, compare loan offers and assess their EMI burden before making a final decision. The luxury segment may remain relatively comfortable, while first-time and mid-income buyers could feel the pinch more clearly.