India realty sector set for correction - report

MUMBAI (Reuters) - India's property market is poised for a correction and residential property rates will have to drop by up to 30 percent in some geographies for affordability to catch up, a report on said on Monday.

However, such a fall could trigger significant negative effects on the economy with construction, consumption and investment taking a hit, a Goldman Sachs Economic Research report said.

Related industries such as steel and cement on the backend, and hotels, trade and transport on the front-end will be impacted, it said.

Income growth will fall, reducing demand for housing as the economy continues to slow due to the knock-on effects of the global financial crisis, lowering demand for real estate.

Besides income growth, demographics, interest rates, inflation and expectations of future projects affect demand. Commercial real estate demand will also take a beating due to the slowdown in IT and business process outsourcing sectors, it said.

A fall in collateral will hurt firms' balance sheets, increase funding costs, hurt confidence and reduce investment demand, it added.

However, India's favourable demographics, low mortgage penetration, falling interest rates and ongoing infrastructure demand will keep the property downturn from being protracted, it said.