Indian property prices need to fall 30%

8 November 2008

The average price of a home in India needs to drop by 30% to stimulate fresh demand, according to a report compiled by Goldman Sachs, although a sharp decline in prices is likely to have an adverse impact on the economy.

“Our India Real Estate Team believes that prices need to fall by up to 30% in some geographies for affordability to catch up,” said a spokesperson for Goldman Sachs. “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.”

Demand for property for sale in India has fallen by up to 35% year-on-year, according to the Associated Chambers of Commerce and Industry of India (Assocham).

The National Real Estate Development Council (Naredco) and Confederation of Real Estate Developers Associations of India (Credai) are now requesting that all developers slash property prices so that sales can increase. Consequently, industry sources say that developers will reduce property prices by 10% to 20% over the coming weeks.

Anuj Puri, chairman and country head of Jones Lang LaSalle Meghraj, comments: “An increasing number of small- to mid-sized developers are buckling under the pressure of mounting liquidity crunch. Even larger residential developments have been hit and many are now revisiting their plans to address the situation. It is, in fact, clear that developers hoping to sail through the current slowdown must reinvent their business strategies from the ground.”