Housing Bubble in India?

I am trying to study the parallels between the housing bubble in Japan and the one that I believe is on in India.

In Japan, housing prices in the major metropolitan regions nearly tripled from 1985 to 1991, then proceeded to lose two-thirds of their value over the next 14 years. Japanese house prices in 2007 were only slightly higher than the level before the boom, more than two decades ago.

In India too, prices have risen from 2004 to 2007 by about 300% in some cities. Comparatively, United States metropolitan region house prices rose 82 percent from the end of the last recession in November 2001 to their peak in June 2006, according to the Standard & Poor’s Case-Shiller home price index. Since the peak, house prices have declined about 10 percent, and most economists expect a further decline of 10 to 15 percent.

So, why was the Japanese housing price bubble not contained? Government officials in Japan were fearful that a strengthening yen would hurt Japanese exporters, so they not only tolerated the housing price bubble, but actively encouraged it. Funding was diverted to real estate so that a building boom would fuel consumer spending and drive up the economy.

Japan’s post-bubble recession should have lasted from 1992 to 1994, according to Adam S. Posen, a senior fellow at the Peterson Institute for International Economics in Washington. But Japanese officials were too conservative and too protective of failing banks, he said, and thus prone to policy steps that were counterproductive, like the decision in 1997 to raise Japan’s sales tax to 5 percent, from 3 percent.

Excerpted from the New York Times. You could read the original article here.