I have often written about the contrasts between India and China. I read two interesting pieces this week. The first is a comment from a Chinese economist in an email to another economist in Spain. It is, of course, antidotal, but if you restrict information, any accurate information is hard to get. The other is an article from the Economist about an innovative scheme in India to reap “the fortune at the bottom of the pyramid”. I have been predicting since 2005 that the Chinese real estate issues will have serious consequences, yet they can’t change policies and continue to pour money through their stimulus package into unnecessary building. While India with the advantage of transparency and flexibility has been better able to adapt to the market.

William Gamble

As a Beijing homeowner myself, I’ve experienced this puzzling phenomenon firsthand. We have been told that the value of the condo we bought last year has gone up 30% based on sales of new nearby developments, but it’s impossible to confirm since there is no secondary market. Originally we tried to rent the place, but we couldn’t find takers at any price that could remotely cover the mortgage, despite a prime location. When we decided to move in instead, we discovered that while the building was sold out long ago, hardly anyone actually lives there. Same with another 800-unit project down the street: every unit went for top dollar well before completion, but now the lights are off and nobody’s home.

The developers say the potential for very cheap housing in India is huge. Many of those living in slums today are employed as drivers, factory workers or tailors, with incomes of around 90,000 rupees a year—easily enough to afford a flat which costs 200,000-400,000 rupees. Tata Housing sees an even larger market of 180m households earning between 90,000 and 200,000 rupees. Lenders and developers are convinced that they have struck gold. Who would have guessed that the combination of subprime loans and a building boom would have become attractive again so soon?