India Insight

from Anooja Debnath:

In India, what goes up must keep going up

With a faltering economy, political gridlock, high interest rates, delayed monsoons and an epic power outage that has plunged half its 1.2 billion population into darkness, optimism is a sparse commodity in India.

Just not when it comes to rising house prices.

'What goes up a lot must keep going up' was the conclusion from the very first Reuters Indian housing market poll this week. And it sounded very familiar.

Past experience shows that respondents to housing market polls - whether they be independent analysts, mortgage brokers, chartered surveyors - tend to cling to an optimistic tone even as trouble clearly brews below the surface.

That was the case before the historic U.S. housing market crash that sent prices plummeting by more than a third and triggered the financial crisis. Five years later the market is still trying to find its footing.

Spin the globe over to South Asia.

India's two biggest cities, Mumbai and Delhi, have become prohibitively expensive for average people to purchase property without stretching themselves financially. Average Indian house prices have doubled over the past five years.

Filling the gap one brick, one hospital bed at a time

Two stories this week stand out as examples of how entrepreneurs in India are doing what the government and the private sector have largely failed to do.

A woman carrying a child walks past a construction site on the outskirts of Hyderabad February 26, 2010. REUTERS/Krishnendu Halder/FilesOne is on housing, the other on healthcare, hot-button topics in India, which is struggling to house and heal its 1.1 billion population even as it gallops toward double-digit growth.

Various state governments and real estate firms have made lofty promises of “affordable housing”, but few have delivered.

Can I lend you some bucks for that swamp? Practising what you preach

Greetings from my insanely overvalued Mumbai apartment!

Mumbai’s skyline is seen April 9, 2008After experiencing Japan’s bubble economy through the 80s as a near starving student, I watched how loans based on overinflated property values, led to the slow motion destruction of banks considered to be the bedrock of the Japanese economic miracle.

Sumitomo, Mitsubishi, Mitsui, Fuji, Daichi Kangyo – and Long Term Credit Bank of Japan (bought by a US hedge fund post collapse and now reincarnated as Shinsei Bank) – these were the banks who helped build Japan from the ruins of WW2… So, when things went too far and collapsed early the 90s, American economists told the Japanese to get rid of “non performing loans” and restructure.

Well, it took ten years , but they kinda did. Fast forward to 2008, and what do you know – it’s American banks who have made loans to people who can’t really pay, on the basis of you guessed it… inflated property values! Even better they managed to hawk off packaged versions to companies not even in the banking industry… think AIG.