China, India stimulus will not halt property slide | india | Hindustan Times
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China, India stimulus will not halt property slide

india Updated: Jan 22, 2009 21:54 IST

Reuters
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Efforts by China and India to revive their ailing property markets could well compound a slide in home values.

Shares of Chinese developers have rallied as much as 70 per cent since Beijing performed an abrupt policy U-turn to revive the property sector.

Worried by the prospect of growing social unrest as people lose their jobs, China plans to spend nearly half of a $585 billion economic stimulus package on building cheap housing.

A similar scenario is unfolding in India as well.

Land prices doubled over three years despite government cooling measures, but developers are now in deep trouble because of a lack of finance and a slump in home sales.

Many investors believe land prices will drop by a half, and shares of the country's biggest developers DLF, Unitech and Indiabulls Real Estate have tumbled by 75-90 per cent in the last year.

A worried central bank has asked state-run banks to give lower interest rates on mortgages of up to Rs 20 lakh, but developers say that level is too low.

"These measures are not enough to kickstart demand," said Ramani Shastri, a council member of the Confederation of Real Estate Developers Associations of India (CREDAI).

"We've asked the government to raise the mortgage limit for priority lending to Rs 35 lakh, because houses in big cities are just not available for less than Rs 40 lakh."

Both China and India plan to spend billions of dollars on infrastructure, which should also help lift land prices.

However, analysts say this may not be enough. The government may have to offer bigger incentives for home purchases, analysts say, possibly including income tax rebates as well as easing restrictions on foreign buyers.