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Realty prices poised for 30% fall

India’s property market 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.

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 year ago.

From the demand side, a property downturn, it says, 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 favourable demographics, low mortgage penetration, falling interest rates, and ongoing infrastructure demand, will keep the property downturn from being protracted. However correction is imminent.

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