(MENAFN- The Arabian Post)

A 25-basis-point reduction in the policy repo rate has set the stage for a notable shift in housing sentiment as the year draws to a close, giving the real estate sector a stronger footing after months of price escalation across major urban centres. Market participants described the cut as a timely boost for homebuyers facing rising borrowing costs and double-digit appreciation in property values through 2025, with many developers expecting the decision to influence purchase behaviour almost immediately.

The RBI move lifts realty outlook theme echoed through the sector as developers, housing finance executives and market analysts assessed the implications of lower lending rates on affordability and sales velocity. The cut follows earlier easing phases this year, forming a broader cycle aimed at supporting domestic demand while keeping inflation within the central bank's comfort range. Housing markets have been particularly sensitive to borrowing costs, and the value proposition for aspiring homebuyers had tightened as average prices climbed around 10% across the seven largest cities, according to widely tracked industry assessments.

The central expectation among market analysts is that the rate cut could ease pressure on households evaluating home purchases in the affordable and mid-income categories. These segments have shown persistent demand through the year, supported by rising urban employment and continuing interest from younger households. Yet higher prices and limited correction in construction costs have constrained affordability. A lower repo rate opens the possibility of more competitive home loan pricing once lenders adjust their marginal cost of funds-based lending rates and benchmark-linked rates.

Banks are now under scrutiny for the pace at which they transmit the reduction to borrowers. Transmission has varied across lenders in earlier cycles, with some responding quickly and others adjusting rates more cautiously, depending on liquidity conditions and deposit costs. Senior executives in the mortgage market indicated that lending rate revisions are under active consideration and that competitive pressure would likely encourage faster alignment. A prompt pass-through is expected to be a decisive factor in determining whether the anticipated surge in sales materialises through the first quarter of 2026.

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Developers are preparing for an uptick in enquiries, particularly from buyers who had deferred decisions amid upward price trends. Several large developers noted that ready-to-move inventory in key metros has been absorbed at an accelerated pace this year, leaving new launches in the mid-income category positioned to capture renewed interest. Many builders believe that households that had been undecided due to higher equated monthly instalments would reassess their position once banks adjust retail lending rates, potentially adding momentum to year-end bookings.

Luxury housing, which has played an outsized role in supporting revenue growth in the sector this year, is expected to maintain its strong performance into 2026. This segment has been less affected by interest rate movements, relying instead on wealth-driven demand and portfolio diversification among high-net-worth buyers. Developers pointed to sustained traction in high-value projects across major metros, supported by resilient stock market gains and stronger capital inflows into premium residential assets.

The affordability challenge, however, remains significant for many households despite the policy easing. Construction input costs have risen steadily over the year, and land prices in established urban clusters show no sign of correction. These factors have been passed on to consumers, compressing the share of buyers in the lower and mid-income categories who are able to meet both down-payment requirements and monthly repayment thresholds. The rate cut eases the burden but does not eliminate structural pressures, prompting some market economists to emphasise the need for calibrated price discipline and wider supply in budget-friendly categories.

Housing finance companies have also highlighted the potential for refinancing activity as borrowers explore opportunities to switch to lower-rate products. Such movement typically intensifies during periods of policy easing and can influence lender strategies as they work to retain existing customers. The scale of refinancing will depend on how individual lenders approach rate revisions and how aggressively they compete for home loan market share.

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