Realty prices in India may fall 30 percent: Goldman Sachs


New Delhi : Leading global financial services firm US-based Goldman Sachs has estimated that Indian realty prices may fall by up to 30 percent from current levels, with a significant knock on the economy.

Support TwoCircles

In a report released Monday, Goldman Sachs said in commercial real estate, supply outstrips demand in a big way so that construction activity, in particular, will slow down.

Construction activity directly accounts for 7.3 percent of India’s gross domestic product (GDP) but has sector linkages which Goldman Sachs estimates to be 14 percent of GDP.

After India’s last housing bust in 1996, real property prices fell some 40 percent over three years, negatively affecting consumption and investment demand, the report said.

The realty sectoral index of the Bombay Stock Exchange has lost more than 83 percent in the last one year dragged down by heavyweights like Unitech, DLF and IndiaBulls Real Estate.

In the last month, the sectoral index came down by more than 14 percent. The index is currently trading at 1,631 points, as against 9,783 points a year ago.

“From the demand side, a property downturn, we think, will have negative effects on consumption and investment,” said Goldman Sachs economist Tushar Poddar.

“As housing forms the largest component of household wealth, consumer demand will be impacted,” he said.

“The fall in collateral will also hurt firms’ balance sheets, increase their funding costs, hurt confidence, and reduce investment demand. However, the impact on demand will be lower than in developed countries,” he added.

“Mitigating factors, such as India’s favourable demographics, low mortgage penetration, falling interest rates, and ongoing infrastructure demand, in our view, will keep the property downturn from being protracted. However correction is imminent,” he said.