Can India have a problem in housing market as well?

Continuing with this housing loan scam post.

Y’day, Dr Reddy was quoted in many newspapers saying India ‘s microfinance crisis is similar to sub-prime crisis. He pointed we have similar kinds of incentives at play.

On similar lines, could we see a housing sector problem in India like we saw in US. After all we have quite a few similarities here as well:

  • In US it was felt house prices can never fall. And even if they do US has never had a full country level price fall. So it may fall in some states and could be managed. Similar situation is happening in India as well. Talk to anyone and he says the same. Home prices can never fall in India, Brokers promise buy right now and they will sell at 20% plus in 6 months
  • Corrupt and faulty practices are common in both India and US. In US banks did not do their homework properly as loans could be securitized. In India, banks are just ignorant about the risks because of competition in home loans. Moreover, there is this feeling that in India there can be no crisis. We have not suffered any major banking crisis and have been least hurt in all global crisis so far.
  • Both had teaser home loan rates. US defended it on sub-prime lending grounds. India we are again doing the same. As RBI passed measures to limit teaser loans, bankers questioned the move saying they were special loans for festivals etc.
  • In both there are huge construction lobbies trying to bend rules in their favor. The situation is far worse in India as we have no rules at all which favor the buyer. Sellers can dump anything on you and delay their projects but no penalties on them.
  • In both, the issues kept coming up as a chain of events. All this points to very important connections between housing, finance and banks.

Interesting times ahead….A season of scams in India. Hope something useful happens and government does not put push the issues under carpet. Media has a very strong role to play. Time to get tough and clean the system.

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