On 10 July the National Housing Bank (NHB) launched its revamped housing price index—the NHB Residex. Compared to its earlier version, this one contains more recent data and the property prices listed are as recent as on 30 March 2017. Unlike earlier, the index now also displays the average prices per square foot (sq. ft) and square metre (sq. m) for all the three categories of houses that it covers—these are houses with carpet areas of: below 60 sq. m, between 61 and 110 sq. m and above 111 sq. m for about 50 cities in the country. Many new features have been added to the index this time. But will these changes make the index more useful to all stakeholders? Will it, for example, help end users and small investors while planning to buy or sell real estate?
The revamped NHB Residex Housing Price Index (HPI) can be further segregated in four indices: HPI@Assessment Price, HPI@Registered Price, HPI@Market Price for under-construction properties, and HPI@Market Price for resale properties. All of these indices get data from different sources to provide a detailed picture of the prevailing price in cities and their suburbs.
As of now, only two out the of four indices—HPI@Assessment Price and HPI@Market Price for under-construction properties—are operational. The other two indices are expected to be operational soon.
These indices take into account valuation data from banks and housing finance companies (HFCs) for the HPI@Assessment Price index; property registration data from states and union territories for HPI@Registered Price index; and primary and secondary market data for HPI@Market Price for under-construction properties and HPI@Market Price for resale properties indices. It should be remembered that NHB Residex is not the only index for real estate. There are two more, albeit by different agencies. All these indices differ from each other primarily in their source of data, which are used to build the indices. The Housing Price Index (HPI) developed by the Reserve Bank of India (RBI) is based on official data available on property price transactions collected from registration authorities of the state governments. There is another index from the RBI, which was launched in May 2015, called the Residential Property Price Index (RPPI). It takes into consideration property values as appraised by banks and housing finance companies while giving home loans.
Benefits of indices
“These indices have been around for a while but till now most industry analysts and end users have not relied on this data,” said Amit Oberoi, national director, knowledge systems, Colliers International India.
The main reason why these indices are not used more often is that the data on them is not current—typically it is more than a year old and is not updated regularly. For instance, RBI’s HPI was last updated for the quarter ending December 2016. Whereas RPPI has not been updated since it was launched in May 2015.
It is therefore welcome that the revamped NHB Residex claims it would be updated on a quarterly basis. If that is done, it would be used more often by homebuyers and real estate investors. “These indices are useful tools for both homebuyers and investors as they indicate the benchmark property rates of localities. They provide the broad range of pricing and also price growth trends, which makes it easier to decide which locality suits one’s budget for home purchase or can yield good returns on investment,” said Anuj Puri, chairman, Anarock Property Consultants.
The other problem with these indices is that they provide city-level price trends only, whereas each property commands different prices based on several factors such as location within a city, quality of construction, and neighbourhood amenities.
And then there is the issue of margin of error. While the NHB Residex would provide unit rates across three categories of houses in a city—with a margin of error as low as 1% in many cases—price of apartments could vary even in that category. “Let me put it this way. Real estate is not a consumer durable where an MRP is fixed and nothing more or less can be charged to the customer. While price ranges provided by these indices indicate the trends in an area, it must be kept in mind that there are various factors that affect the prices of individual projects and even properties within one project,” said Puri.
While the revamped NHB Residex is better than previously available indices, there is still a long way to go when compared with such indices in other countries. However, it should be noted that the date is more reliable and easily available in those countries because of their rules and regulation.
“In the first place, residential real estate in more developed countries tend to be more standardised. For instance, in Germany the developers cannot erect buildings that are at complete odds with the rest of the neighbourhood. Stricter norms are imposed and also readily followed,” said Puri. “In comparison, residential real estate in a majority of locations in Indian cities tends to be a mishmash of different building styles and project specifications, with very old buildings existing cheek-to-jowl with brand new ones. Therefore, applying a standard price range becomes challenging and often the results are not exactly accurate,” said Puri.
Echoing Puri’s views, Oberoi, said, “The challenge in the Indian market has been to source reliable data on the housing sector, which leads to scepticism about the reliability of the various indexes available in the market.” However, with implementation of the Real Estate (Regulation and Development) Act, 2016 (RERA), it is expected that things will improve and we will have more reliable indices in the future.
“Now, with RERA in force, which will eliminate spurious developers and projects from the market, we will see a much more wholesome level of standardisation of products. As a result, these pricing indices will also start becoming even more aligned with the market realities,” said Puri.
Like HPI, NHB is also in process of launching three more indices—Housing Rental Index (HRI), which will track the movement in housing rental prices over a period of time using market data; Land Price Indices (LPI), which will track prices of land; and Building Material Price Indices (BMPI), which will track price trends of traditional building materials such as cement, steel, sand, brick, wood and energy saving material such as glass and fibreglass.
The Residex provides city-level data, which is useful at various levels. If you need more detailed information, You can check out any of the various property portals to know the prices of individual properties as well as price trends in a neighbourhood.