Real estate prices in India will require a drop of about 30 per cent to spur demand in the beleaguered sector albeit at the cost of negative effects on the economy, says global financial institution Goldman Sachs.
According to a report on Indian real estate, Goldman Sachs said: "Our India Real Estate Team believes that prices may have to fall by up to 30 per cent in some geographies for affordability to catch up."
The report by the global financial institution comes as an endorsement of views expressed by Finance Minister P Chidambaram, who last week, asked industry to reduce prices in order to boost consumer demand.
Goldman Sachs pointed out that prices in areas like suburbs of Mumbai and Bangalore need to decline by up to 30 per cent in accordance 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," Goldman Sachs said.
The firm, however, warned that such a drop "will have negative effects on the economy".
It further said due to ongoing economic crisis, likely to be continued, demand for property would also continue to fall.
"Demand for real estate is largely driven by income growth, demographics, interest rates, and inflation, but also peoples expectations of future prices. As the economy continues to slow due to the knock-on effect of the global financial crises, income growth will come off, thereby reducing demand for housing," Goldman Sachs said.
It said demand for commercial real estate would also be adversely affected due to the slowdown in the IT and business process outsourcing (BPO) sectors.
