India's residential real estate market has witnessed strong demand during 2025 and we have seen major real estate companies launching new projects in big cities. Reserve Bank of India's recent decision to hold the repo rate steady at 5.5% and the government’s strategic cuts to GST on cement and construction materials will have an impact on the real estate sector. While stable interest rates support borrower sentiment and maintain existing EMI levels, the 10% reduction in cement tax signals meaningful savings for developers and buyers, particularly in price-sensitive segments. As buyer activity shifts towards premium homes and affordable housing loses ground, these reforms could reset housing affordability, spur festive demand, and create a robust outlook for homebuyers and investors alike.

As per Anuj Puri, Chairman - ANAROCK Group, "RBI's decision to keep the repo rate unchanged at 5.5% maintains home loan EMIs at current levels, which helps sustain buyer sentiment but does not improve housing affordability. This stability means existing home loan borrowers won't see any immediate EMI changes, while new borrowers will find loan interest rates holding steady. As per latest ANAROCK data, Q3 2025 residential sales in India's top 7 cities dropped 9% year-on-year to 97,080 units, yet overall sales value jumped 14% to INR 1.52 lakh crore, indicating demand shifted towards premium and mid-segment homes."

RBI’s Repo Rate Pause: Setting the Tone for Stability

In a unanimous policy decision on October 1, 2025, the Reserve Bank of India locked the repo rate at 5.5%, extending its neutral stance for the second consecutive term after slashing rates by a full percentage point earlier in the year. This stability follows a sequence of targeted cuts—50 basis points in June, 25 basis points each in February and April—that brought the rate down from 6.5% and injected liquidity into the system. Inflation’s slide to 2.07% in August enabled this measured approach, as Governor Sanjay Malhotra emphasized the need to balance prior easing with global trade uncertainties and recent fiscal adjustments.

For the housing market, this pause spells a continuation of current home loan EMI rates, granting borrowers predictability at a time when affordability remains a challenge. New loans pegged to the External Benchmark Lending Rate (EBLR) have already passed on substantial interest savings to consumers, consolidating the effects of the RBI’s proactive stance.

Home Loan Costs: Impact on Borrowers and Sentiment

Borrowers, particularly recent entrants into the housing market, will find EMIs steady for the foreseeable future. The cumulative 100 basis point repo rate reduction earlier this year resulted in sizable savings—estimates show that a ₹50 lakh loan over 20 years can save as much as ₹14.78 lakh in total interest if tenure is reduced, and ₹7.12 lakh if monthly payments are lowered instead. This is a critical factor sustaining confidence among first-time and mid-income buyers.

For those with loans anchored to legacy systems like the Marginal Cost of Funds Based Lending Rate (MCLR) or base rate, industry experts advocate shifting to repo-rate-linked loans to capture ongoing and future savings.

GST Cuts: Unlocking Construction Cost Reductions

The government's rollout of “GST 2.0” from September 22, 2025 marks a transformative shift in project economics for developers and buyers alike. By slashing GST on cement from 28% to 18%, alongside reductions in other construction materials, direct costs for developers drop by an estimated ₹1,000 per square meter. As NAREDCO President G Hari Babu notes, these reductions will trickle down to buyers, especially in new launches where procurement costs are yet to be locked in.

Property prices are projected to fall 1-1.5%, translating to buyer savings between ₹1-3 lakh depending on ticket size and location. Crucially, these fiscal incentives reinvigorate segments like affordable and mid-segment housing, where cost pressures have increasingly eroded the share of new launches.

Market Shifts: Premium Segments Rise as Affordable Housing Lags

Recent ANAROCK data shines a spotlight on changing market dynamics: while Q3 2025 residential sales in the top 7 cities slipped 9% year-on-year to 97,080 units, overall sales value rose 14% to INR 1.52 lakh crore. This divergence suggests a pivot toward premium and mid-segment homes, as affordability challenges push budget-conscious buyers to the sidelines.

Affordable housing—once commanding 38% market share in 2019—has dropped to a mere 18% by 2024. Thus, the latest GST cuts may be essential in reversing this trend, fostering viability for developers in Tier 2 and Tier 3 cities where construction cost reductions move the needle for both project execution and demand revival.

• Q3 2025 Residential Sales (Top 7 cities):
  97,080 units, -9% Y-o-Y
• Q3 2025 Sales Value:
  INR 1.52 lakh crore, +14% Y-o-Y
• Affordable Housing Market Share:
  38% (2019) → 18% (2024)

Policy Synergy: Building a Supportive Ecosystem

The convergence of monetary and fiscal levers—RBI’s policy stability and GST reform—offers a multi-pronged benefit to the real estate ecosystem. Developers gain latitude with lower working capital needs, while homebuyers see improved affordability and predictable monthly outflows. Experts anticipate that these factors, combined with the festive season’s historic boost to housing transactions, will revive buyer confidence and spur project launches across price bands.

Notably, the softening of the 10-year government bond yield to 6.571% from 6.843% in January hints at the market’s expectations for continued policy accommodation and gradual rate action should macroeconomic headwinds persist.

Investor Takeaways and Strategic Outlook

For investors and homebuyers, this is a window of opportunity. With inflation under control and the prospect of additional rate cuts not entirely off the table, floating-rate loans offer strong value. The dual advantage of locked-in affordable EMIs and stepped-down property prices due to GST cuts can strengthen portfolio returns for investors—and make ownership more attainable for buyers sitting on the fence.

India’s residential real estate sector, shaped by these coordinated policy measures, stands poised for renewed growth. Monitoring new launches in mid and affordable segments, especially in Tier 2-3 markets, could reveal early signals of a broad-based market revival. It’s incumbent upon professional and individual investors alike to combine market intelligence with decisive action in the months ahead.