Property market in India is poised for a deep correction and the prices
are estimated to fall by up to 30% from current levels, with significant
knock on effects on the economy, says a Goldman Sachs report.
Supply substantially outstrips demand in commercial real estate, hints
the report depicting a negative view on the real estate sector, and
its supplier industries such as cement, iron, and steel, and reiterated
their below consensus estimate of 5.8% GDP growth in FY10.
The BSE Realty Index has lost more than 83% in the last one year dragged
down by heavy weights like Unitech, DLF and IndiaBulls Real Estate.
On a monthly basis the sectoral index is down by more than 14%. The
index is currently trading at 1,631 points as against 9783 points a
"From the demand side, a property downturn, we think, will have
negative effects on consumption and investment. As housing forms the
largest component of household wealth, consumer demand will be impacted.
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.
Mitigating factors, such as India's favorable 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," said Tushar Poddar, economist
with Goldman Sachs.