Whither Residex?

Price movement Countries where real estate is a well-developed market have very mature indices . Getty Images

What will you do if you are living in Bangalore and want to know the real estate cost in say, Delhi or Mumbai? And again what if you are looking for a reliable source of information that is unbiased and reflects the true value? Your answer is simpler than you would have imagined. The NHB Residex, the first housing price index in India launched to fill the price information gap and streamline property development process in major cities is what you would exactly need in this situation.

But, how many people are aware of this index, and whether it has worked are questions that need to be asked.

The utility factor
“The Residex is an excellent initiative that holds immense promise for bringing in transparency and stability to the real estate sector. The index has already started showing results as a reliable reference point to understand the price movement over the past few years. In an industry where a majority of the figures are based on rough estimates and gut feeling, the Residex is the sole methodical and accurate source that mirrors the price movements in the market,” opines Sachin Sandhir, MD and Country Head, RICS India.

The housing price index is an initiative of the National Housing Board to provide accurate information on the current market trend in the cities covered by the project.
This can be used to assess the movement in the value of housing stock over a period of time and also to assess the gap found between the actual and reported market prices of real estate in different locations.

The comparison across 15 cities over 2007-2008 is useful as it gives a lot of insight into how the prices have moved during this period.
While Delhi, Mumbai, Bhopal and Faridabad prices have increased 20-50 per cent, prices in Bangalore have corrected a fair bit. The bi-annual comparison further reflects the impact of the slowdown on prices.

A case in point was the marginal increase in Mumbai and Delhi prices from H108 to H208, which suggested that in these locations, correction was not as steep as was believed.

Coverage over 15 cities
The Residex with coverage of 15 cities has sown the seeds of reform. Determination of housing prices is an outcome of complex interaction of various factors and the existing challenges such as underreporting in an unorganised market makes the task tougher. “Even so, the progress over the last few years has been good, especially the fact that NHB is constantly looking to improve the quality of data that forms the basis of this index.
“The collaboration with National Association of Realtors, in order to get accurate market data from the brokers is likely to be instrumental in providing momentum to the index,” says Sandhir.

Challenges galore
Lakshminarayanan, President & CEO, Real Estate Bank India (REBI) opines, “we are aware of the existence of this index as it was one of the most eagerly awaited measures by the government to ensure availability of price data that could be relied on and used to make forecasts on market movements and the direction for the future.

“However after the launch, we are left wondering whether there has been any action to keep the index updated, so that it can be of any relevance to the industry.”
“We had anticipated that it would expand to cover increased number of markets, but that has not happened. Since it is not being updated and it is a once-in-a-year kind of exercise, it is getting reduced to the “Guideline Value” booklet published by various municipalities across the country.”

All countries where real estate is a well-developed market and is a major contributor to the economic success of the country have very mature indices.
In fact, they have more than one index just like the Stock Exchange indices and are fairly accurate and are a valuable resource to take well-informed business decisions regarding real estate development. “In its current avatar, it is more of status quo and has very limited applicability.

However, if it is developed well and involves private partnerships with leading global research companies, we can have various property indices and once these are fairly established as accurate measures of the various real estate market business segments as well geographies, we can put it to greater use and can reap fantastic benefits in terms of reduced risks, more appropriate pricing and market development strategies, etc.
However, as it stands, it is of very little use,” explains Lakshminarayanan.

Hurdles involved
Manoj Goyal, General Manager, Strategic Planning and Group Company Secretary, Raheja Developers Limited, adds, “the key difficulties in index development are low accuracy of data because of the sector’s heterogeneity, high data requirement due to diversity and non-standardisation of real estate units.

The ultimate usefulness of Residex will depend on its accuracy, which will be based on factors including the source of data collection.”

The objective of such an index is to provide reference indicators for property transactions, restrict undue price increases and prevent artificial shortages; thus discouraging sales transactions that violate permissible levels. Also presently, the government, tax authorities and other lending institutions use different valuation parameters.

After Residex is firmly in place, it can be adopted by all parties to create uniformity. Every major reform, especially at the scale that the Residex is being undertaken, faces teething problems and takes times for the process to smoothen and stabilise.
In the early stages, it is important that the project stays on the right track and the backend and practical issues are ironed out. Over a period of time, the different yardsticks used by bankers, developers, policy makers and tax authorities setting stamp duty and property taxes will be replaced with a single, accurate and consistent reference point – the Residex.

“In my opinion, it’s a welcome step because Residex can be used by home buyers, brokers, policy makers, developers and housing loan companies to take informed decisions on cities or localities,” signs off Goyal. 


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