Realty prices need to decline by 30%: Report

NEW DELHI: Real estate prices in India requires to drop by 30% to spur demand, said Goldman Sachs in a report. However, the report further maintained that the sharp decline in the prices will have a negative impact on the economy.

Goldman Sachs said: ���Our India Real Estate Team believes that prices need to fall by up to 30% in some geographies for affordability to catch up.���

The report pointed out that prices in areas like suburbs of Mumbai and Bangalore need to decline by up to 30% to boost demand. ���Although prices over the past three years have gone up in line with other economies globally, they have not corrected substantially, unlike its global peers,��� the report said.

It further said due to ongoing economic crisis, demand for property would also fall. ���Demand for real estate is largely driven by income growth, demographics, interest rates, and inflation , but also people���s expectations of future prices. As the economy continues to slow down due to the knock-on effect of the global financial crisis, income growth will suffer, thereby reducing demand for housing,��� it said.

Demand for commercial real estate would also be adversely affected due to the slowdown in the IT and Business Process Outsourcing sectors. ���From the demand side, a property downturn, we think, will have negative effects on consumption and investment,��� it said.

It maintained realty downturn in India would not be protracted due to favourable mitigating factors. ���Mitigating factors, such as India���s favourable demographies, low mortgage penetration, falling interest rates and ongoing infrastructure demand will keep the property downturn from being protracted,��� it said, adding that a sharp downturn, however, was imminent.

���Although the sector directly accounts for 7.3% of GDP, its backward linkages in terms of the sector���s usage of iron, steel, cement etc, and forward linkages to other sectors, have an impact of 14% on GDP.