Home prices, credit well managed in India: IMF

Post global financial crisis, house prices in emerging markets have steadily increased for the nine consecutive quarters since 2012, revealed the International Monetary Fund’s (IMF) ‘House Price Index for Emerging Markets’.

The global study findings were released at IMF-Indian Institute of Management Bangalore conference on Housing Markets, Financial Stability and Growth here on Thursday.

“This run-up — four times as fast as that in advanced economies — would be even more pronounced if the larger countries in the group of 30 emerging markets such as China and India receive greater weight in the index,” Ratna Sahay, Deputy Director, Monetary and Capital Markets Department, IMF told BusinessLine .

For the past decade, house prices have steadily increased in the vast majority of the 30 countries that make up the IMF’s House Price Index for Emerging Markets.

“History teaches us to be wary when house price surges are accompanied by booms in the availability of credit. Such ‘twin booms’ in house prices and credit are more likely to end in busts, and the recovery from those busts is slower and more costly in terms of lost income,” explained Sahay.

Managing booms To minimise the damage, IMF has been monitoring credit growth across the world. Sahay said “In particular, since 2009, house price increases have been higher in countries like China, where there has been a more rapid growth in credit availability; statistically, credit growth can account for nearly half of the variation in house price increases across countries since 2009.”

“While India is well-managed and regulated, it needs to simplify a few laws as too many regulations stifle growth. Policymakers are, of course, aware of these developments and are taking active steps to manage housing booms,” she added.

Change in attitude According to Sahay, “This reflects a change in attitudes from the past, where the dominant view was that because it is difficult to identify and prick housing bubbles as they are developing, it is just better to clean up the mess after they burst.”

“But policymakers now realise that it is difficult sort out issues after the bubbles burst. Hence, many countries are trying both to limit the extent of the boom and the likely damage caused by a bust, even though the task remains arduous,” she added. Housing is not all about ‘bubbles’. In many emerging markets, developing housing finance systems and providing affordable housing remain key challenges.

“In fact, it is often the case that in many cities in India that there is an excess supply of homes in the high-end segment and lack of supply in the low and middle segment.

“That is why the conference together not only experts on macroprudential policies, but some of the world’s leading experts on sustainable housing finance systems and managing urbanissation,” said Prakash Loungani, Senior ReSource Manager and advisor, IMF Research Department.

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