The Reserve Bank of India (RBI) has announced a pause in its policy repo rate hike, keeping it unchanged at 6.50% and creating a positive ripple in the real estate market. Experts have welcomed the decision, saying that it is good news for homebuyers and realty as a whole. A rate hike would have pushed home loan interest rates to an all-time high, impacting property buyers' sentiment.

The RBI's six-member Monetary Policy Committee (MPC) decided to remain focused on the withdrawal of accommodation to align inflation with the target while supporting growth. Inflation is still above RBI's upper tolerance limit of 6%, but it has projected it to go down to 5.2% for the fiscal year FY24, while GDP growth is predicted at 6.5%.

The rate hike cycle has led to a significant jump in banks' lending and deposit rates. The one-year median MCLR has climbed to 8.55% in February from 8.45% in January, and the share of external benchmark lending rate (EBLR) on total outstanding floating rate rupee loans surged to 48.3% by the end of December 2022.

The outstanding home loans grew by 15% in FY23 till February 2023, according to Knight Frank. However, the home loan rates have peaked at 9.5% since RBI began to hike rates in May 2023 to tame inflation. Before April 2023 policy, RBI hiked the repo rate six consecutive times in 11 months, taking the total upside to 250 bps in the repo rate from 4% to 6.5%.

Experts believe that the pause in the repo rate hike will help boost the affordable housing segment, which is crucial for the growth of the economy. Sankey Prasad, CMD, Colliers India, said, "India’s residential markets have maintained noted 15-year high sales maintaining their trajectory in the first quarter of 2023. This will bring in a new wave of optimism amongst home buyers resulting in higher property sales."

The decision to maintain the status quo on the policy rate comes as a major relief for homebuyers who have seen their EMI swelling up by up to 17% as compared to April 2022, said Likhita Darshan, Vice President - Marketing & Customer Experience, Vaishnavi Group. She added that "this positive sentiment would get a further boost, reflected in improved sales traction and a healthy pipeline of supply in the ongoing quarter."

However, Kalpesh Dave, Head – of Corporate Planning & Strategy, Star Housing Finance, has cautioned that the pause in the repo rate hike should not be seen as a flattening of the rate hike cycle as RBI remains focused on withdrawal of the accommodative stance. The credit cost for retail and institutional borrowers is expected to remain high, and this should be factored in their budgetary planning for FY2023-24. Existing and new home buyers who have availed finance for their units should brace themselves for continued relatively higher outgo in the form of their monthly instalments.

In conclusion, the pause in the repo rate hike is good news for homebuyers and the real estate market as it will ease the pressure on their EMIs. However, borrowers should be mindful of the possibility of the RBI resuming the rate hike cycle in the future, and plan accordingly.