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A BENCHMARK FOR ALL STAKEHOLDERS
RESIDEX - INDIA'S FIRST HOUSING PRICE INDEX
By M H Ahsan
HYDERABAD: This is India’s first housing price index. It will guide home buyers and other stakeholders in the industry. You could see it as a Sensex for residential house prices. Residex, India's first housing residential price index compiled by the National Housing Bank (NHB), will give an indicative trend of the prices of properties in different cities and serve as a benchmark for different users. A composite index, it can be used by policy makers, home buyers, brokers, developers, and housing loan companies to take informed decisions on cities or localities.
Being a non-biased reference point to understand the trend in the market, lenders can protect themselves from over-valuing a property and lending greater amounts while buyers can bargain better looking at the index. The index will also give an idea of the parallel economy in real estate transactions and policy makers can use this to reduce stamp duty on transactions to increase compliance, besides other policy interventions. For instance, if the Residex indicates the price at a particular location is Rs 10 lakhs and the stamp duty payable is eight percent i.e. Rs 8,000, a person paying Rs 4,000 would mean the property is being undervalued.
Manoj Vaish, president and CEO, Dun & Bradstreet Information Services India Pvt Ltd, says the index is welcome as there was a big need for authentic information. Reveals R V Verma,executive director,National Housing Bank,it is a granularised model and has a basket of parameters which are factored in and will include the market prices, broker's price, buyer's price, seller's price, ultimately to reflect the trend in prices.
The Sensex tracks India's 30 most valued and transacted companies, while Residex will collect data and track fluctuations in the property market. "This index will remove the opacity in the market and allow for more efficiency in market pricing. It will throw up a uniform kind of approach for determining the prices in different areas and hence allow for a more homogenous property market.The pricing based on demand and supply and other factors will be more efficient and transparent",Verma explains.
Right now, the index looks at five cities - Bangalore, Bhopal, Delhi, Kolkata and Mumbai - with two sub-groups in Kolkata (Kolkata Municipal Corporation and Kolkata Metropolitan Area) and Mumbai (Greater Mumbai City Corporation and Other Municipalities). NHB proposes to extend the Residex to 63 cities covered under the Jawaharlal Nehru National Urban Renewal Mission (JNNURM) scheme and eventually move towards a National Index.
"It is a good way to objectively study the merits and the demerits of this asset class and is also useful in the area of property taxes, which is very litigious", points out Sanjiv Swarup, president, Synergy Consultants. Elaborating on this he says, currently the government officer assesses the properties at a particular rate and there is an opportunity to make a special case for an individual. With this, there will be less scope for subjective decisions. The whole exercise will be more transparent and sometime in future, we can look forward to property taxes linked to a particular index.
"Ultimately,the Residex will become an area-wise index. Just as initially there was only the BSE-30 index but now you have the IT,Bankex etc for different sector stocks. In property too, you will have an area wise index, to be followed by special sub sets of the index like residential,commercial and retail index.There will also be other competing indices which will appear", says Akash Deep Jyoti, head, Corporate and Infrastructure Ratings, Crisil.
"The real estate price index in India assumes high importance in view of the contribution of the sector to the national GDP, the large exposure of the banking sector through developer and home loans and the dependence of governments at the Centre (for capital gains), state (for stamp duty) and Urban Local Bodies (for property tax)", he adds. "Most developed countries have similar indices - Singapore (index developed by Urban Redevelopment Authority), USA (index developed by the Office of Federal Housing Enterprise Oversight), Canada (New Housing Price Index) and UK (Halifax index).
"Residex in whatever form is a good beginning and will be helpful for individual or institutional decision makers in evaluating and benchmarking their decisions", points out Mahesh Gandhi, director advisory, Trikona Capital India, a fund dedicated to investing in real estate in India.It will be one more step in bringing in transparency in the real estate business, which FDI investors greatly look forward to", states Gandhi.
The key difficulties in index development, points out Akash Deep Jyoti, are low accuracy of data due to the sector's heterogenity and illiquidity, high data requirement due to diversity and non-standardisation of real estate units, and disparate prices for apparently similar properties due to a high degree of volatility.
According to Gandhi, "The ultimate usefulness of the index will depend on its accuracy, which will be based on factors including the source of data collection the most accurate source of information would be data collected from the offices of sub-registrar of assurances, where all agreements are registered. Sampling techniques are very important as are index error tracking and stabilisation, which will take some time".
The government has to constantly reinforce the need and use of this benchmark. Being a more independent and neutral benchmark, it will have its own credibility. The whole exercise will start driving the back end of the market,which implies governance of land,registering of land, and mode of registry. As people start relying on this benchmark, the data will become more transparent and sensitive to the market. All this will improve the quality of the benchmark itself.
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