The Reserve Bank of India’s (RBI) decision to reduce the repo rate by 25 basis points is expected to provide a significant boost to sectors sensitive to interest rates, particularly automotive and real estate. This move comes shortly after the government’s announcement in the Union Budget, which proposed no income tax on annual earnings of up to Rs 12 lakh, further increasing disposable income for many taxpayers.
In the automotive sector, the two-wheeler and compact four-wheeler segments stand to benefit the most. Industry experts predict that the reduction in borrowing costs will make vehicles more affordable, stimulating demand.
Anish Shah, managing director and CEO of Mahindra & Mahindra, expressed optimism, stating, “The fundamentals of the Indian economy are very strong, though we have seen some blips in the short run. The rate cut, along with the tax proposals in the Budget, will provide a demand stimulus.”
Mahindra & Mahindra is already preparing to ramp up production of its XUV 3XO, a compact SUV, to cater to the growing demand. The SUV is particularly popular among the salaried class, which has shown a preference for it over other models, according to company executives.
CS Vigneshwar, president of the Federation of Automobile Dealers Association (FADA), also believes that auto loans will become more affordable, leading to stronger demand in the price-sensitive two-wheeler and entry-level car segments. These segments have previously faced challenges due to steep price hikes and affordability concerns.
Real Estate Sector Set To Benefit From Lower Interest Rates
In the real estate sector, affordable housing expect to see the most significant impact from the rate cut. Venkatesh Gopalakrishnan, director at Shapoorji Pallonji Real Estate, highlighted that the demand for affordable and mid-segment housing has been steadily rising, and the reduction in borrowing costs will further fuel this demand.
Also Read: RBI Governor Confident About India’s Economic Growth; Announces Rate Cut
However, affordable housing has faced challenges in recent years, with its share of the overall housing supply in the top seven cities falling from nearly 40% in 2019 to 16% in 2024. Anarock Property Consultants noted a similar decline in sales in this segment, dropping from over 38% in 2019 to nearly 18% in 2024, largely due to high-interest rates during the past couple of years.
Sanjay Dutt, MD and CEO at Tata Realty and Infrastructure, pointed out that while the premium and luxury housing markets have performed well, the rate cut will greatly benefit affordable housing, particularly in Tier 2 and Tier 3 cities.
Rising Housing Prices And Timely Relief
With housing prices rising significantly in the past year, this rate cut provides timely relief for homebuyers. Anarock Research revealed that average housing prices in the top seven cities increased by 13-30% in 2024, with the National Capital Region (NCR) seeing the highest jump of 30%.
The average price in these cities reached nearly Rs 8,590 per sq ft by the end of 2024, marking a 21% rise from the previous year.
Experts like Amit Bhagat, co-founder and CEO of ASK Property Fund, believe that the RBI’s rate cut, combined with the government’s budget initiatives, will support sustained growth in the housing sector. He emphasized that tax benefits across tax slabs, provisions for self-occupied houses, and the SWAMIH Fund 2 will help maintain housing demand momentum.
The finance minister’s budget proposal to provide tax relief for incomes up to Rs 12 lakh under the new tax regime is expected to increase taxpayers’ disposable income. As a result, both the automotive and real estate sectors are likely to see further growth, supported by the RBI’s timely intervention and the government’s fiscal measures.
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