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Realty prices need to drop by 30%: Goldman Sachs reports |
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Goldman Sachs, a full-service global investment banking and securities firm has reported that Real estate prices in India requires to drop by 30% to prompt demand.
However, the report further maintained that the sharp fall 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."
According to the report, prices in areas like suburbs of Mumbai and Bangalore need to decline by up to 30% to increase demand. The report added, "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 Company further added that demand for property would also fall due to ongoing economic crisis. It said, "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."
The demand for commercial real estate would also be badly affected due to the slowdown in the IT and Business Process Outsourcing (BPO) sectors. The report pointed out, "From the demand side, a property downturn, we think, will have negative effects on consumption and investment."
However, it maintained that the realty downturn in India would not be prolonged due to favourable justifying factors.
The Goldman Sachs report said that a sharp downturn, however, is forthcoming. It added, "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."
The downturn in the realty sector will also affect the economic growth. As per the report, "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. Therefore, a slowdown in construction sector can potentially have large knock-on effects on the economy."
The study cautioned that a slowdown in the construction sector, which has been at the forefront of job creation, would also have a significant impact on employment.
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| Realty prices need to drop by 30%: Goldman Sachs reports |
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