Monetary Policy Wish List to Unlock Real Estate Potential

By Anuj Puri, Chairman, ANAROCK Group

As the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) prepares for its June meeting, the real estate industry stands at a critical juncture. Despite robust long-term fundamentals, the sector faces persistent headwinds: affordability crises, funding constraints, regulatory complexity and uneven demand across residential, commercial, warehousing and hospitality segments.

Here’s what the industry needs from the MPC and why.
 
Pain Points Across Segments
 
Residential Real Estate: India faces an acute shortage of affordable housing—urban India alone has a deficit of around 10 million units with an additional 25 million needed by 2030. While luxury and premium housing have seen growth, sky-high prices and rising mortgage rates have sidelined first-time and middle-income buyers.

The first quarter saw residential sales in the top seven cities drop by 28 per cent compared to Q1 2024 primarily due to affordability pressures and high borrowing costs.
 
Affordable housing (units priced at less than INR 40 lakh) took a major hit during and after COVID-19 as the livelihood of buyers in this segment was seriously compromised. It has yet to revive convincingly.

ANAROCK data finds that this segment’s sales share plummeted from 38 per cent in 2019 to 18 per cent in 2024 and its supply share dropped from 40 per cent to 16 per cent in the same period. That said, unsold affordable housing inventory fell by 19 per cent across the top seven cities in the past year from 1.40 lakh units (Q1 2024-end) to 1.13 lakh units (Q1 2025-end). This 19 per cent dip shows that there is still strong demand from end-users.
 
Affordable housing is in serious need of direct support, and not only for lower-end homebuyers. Smaller developers, who have become the backbone of affordable housing after larger players gravitated towards the more profitable premium and luxury segments, are grappling with expensive debt and limited access to traditional financing channels.
 
Commercial Real Estate (Offices & Retail): The commercial sector is rebounding driven by demand for flexible workspaces, e-commerce and technology-driven offices. However, rising construction costs, regulatory hurdles and global economic volatility remain significant challenges. Policy reforms and liquidity support are needed to sustain this momentum, especially as businesses expand into tier 2 and 3 cities.
 
Warehousing: Warehousing is among the brightest stars on the real estate firmament with the market set to nearly double by 2033 with a CAGR of 8.7 per cent. Yet, supply lags demand by 1.4 times, pushing rents up by 5 per cent in 2024 and construction costs up by 10 per cent. The sector needs easier access to capital for infrastructure expansion and automation as well as continued policy support for logistics modernisation.
 
Hospitality: The hospitality industry is on track for record-high RevPAR and occupancy rates of 72-74 per cent by FY2026. However, high interest rates and input costs threaten new project launches and upgrades, especially in the branded and mid-market segments.
 
What the MPC Can Realistically Do
 

• Further Rate Cuts and Transmission: With inflation at a multi-year low (3.16 per cent in April 2025), the RBI has scope to continue its accommodative stance. A further repo rate cut—building on the cumulative 50 basis points already delivered this year—would lower borrowing costs for homebuyers and developers. This is critical for reviving demand in affordable and mid-income housing, where buyers are most sensitive to interest rates. The MPC must also ensure that banks transmit these cuts fully to end borrowers, not just large developers. The RBI has cut repo rate twice in the past two MPC meetings. However, banks have been slow to transmit them. While a further rate cut would be positive, what is even more important is that the benefits are passed on to borrowers.

• Liquidity Support: Ensuring ample systemic liquidity is vital. Recent RBI measures have turned liquidity deficits into surpluses, but ongoing support is needed to enable timely project completion and new launches, particularly for smaller players and in capital-intensive segments like warehousing and hospitality. 

The industry’s wish list from the monetary policy is invariably longer. However, it is important to remember that it is not a panacea for all fiscal ills and has limitations. The real estate industry’s immediate needs from the upcoming monetary policy—deeper rate cuts, effective transmission and sustained liquidity support—are well within its purview. With inflation well-anchored and growth prospects steady, the RBI has the room to act decisively on these, thereby helping to unlock more of the sector’s potential.

DISCLAIMER: The views expressed in the above piece are personal and solely those of the writer. They do not necessarily reflect Realty&More’s views.