A Reliable Index?

While analysts feel the time lag and low frequency of residential property price indicator,RESIDEX,benefits few,the NHB says the index is still evolving and will reflect trends more accurately in future

Given the important implications of residential price change,price indicators of good statistical quality are essential to gauge the market. Since financial analysis by most central banks across the world are usually focussed on local as well as nationwide area developments,an aggregated residential property price indicator acquires particular significance.

An important function of any House Price Index HPI is,therefore,to provide a consistent measure of price movements over time and facilitate monitoring of its key determinants that include both macroeconomic and micro market factors such as global market conditions,prevailing interest rates and market sentiment. Also,it should be able to serve the needs of a wide range of prospective users.

To help bring some level of transparency in property markets in the country,as far as property prices are concerned,the National Housing Bank NHB has pioneered the task of putting in place RESIDEX the only methodical source designed to mirror residential price movements in the market. It is an initiative of the NHB to provide an index of residential prices in India across cities with the year 2007 as base year. But does the index really help investors? Can customers and developers base their future plans on the basis of the data thrown up by the index?

BETTER FREQUENCY NEEDED

Presently,there is a time lag of six months before information is shared with the public,resulting in the data being outdated,based on which investment decisions should ideally not be made. This would have been a boon to customers only if it had been able to increase its frequency. We would prefer a higher frequency measure of house price movements,though we believe that a quarterly index is a good starting point,as it does have the advantage of eliminating much of the noise that is visible in monthly indices as long as the data is made available on a timely basis, says RICS India country head and managing director Sachin Sandhir. RICS is a self regulatory body for standards in land,property and construction.

NHB chairman and managing director R V Verma says that the RESIDEX will soon be better indicative of price trends. The index,which was earlier on a yearly basis,now shows quarterly price changes. We have improved the frequency and have plans in place to also reduce the time lag.

Verma says NHB is trying to improve data collection. We are diversifying our sources for data collection. Apart from agents and developers,banks are coming forward to share data. It is important to have data from diverse sources to have a more accurate picture. While data collection may take time,it will be worth it in the long run. He said that the RESIDEX for the October-December 2010 quarter is expected to be released by the second week of April.

For the index to gain further prominence over time,it would need to expand its reach to more cities and areas that are currently not covered under municipal limits. Disparity in market values due to lack of proper land records which affect property values and inaccessibility to certain property related information are other challenges that would need to be overcome for such an index to work effectively, says Sandhir.

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Verma says that the index is not reflective of absolute prices,but merely shows the changes in price trends. The NHB also has plans of releasing city-specific zonal data. We realise that it is important to have data on various zones within a city. However,we are in the process of making RESIDEX more accurate. Once that is done,and we have our data collection sources in place,we could also release zone-specific data, Verma says.

MIXED TRENDS

In the quarter ended September 2010 JulySeptember,the property price index shows mixed trends in the 15 cities covered under RESIDEX,the housing ministry said. The index showed that residential housing prices in five cities have shown an increasing trend in the July-September quarter over the previous quarter April-June. They are Chennai,Jaipur,Hyderabad,Pune and Bengaluru.

Eight cities showed correction over the previous quarter,namely Surat,Lucknow,Bhopal,Faridabad,Ahmedabad,Kochi,Kolkata and Delhi. Patna and Mumbai showed no change in prices.

The contrasts are striking. House prices have more than doubled in Chennai from 2007 to today with the index moving from 100 to 204. During the same period the house price index fell from 100 to 66 in Jaipur.

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Prices are still rising in Chennai 11.5 per cent on a quarter-on-quarter basis,and Bengaluru 2.9 per cent. Quarter-on-quarter declines ranged from -1.8 per cent for Delhi,-2.8 per cent for Kolkata to -21.3 per cent in Surat. Compared to last year property prices are sharply up in Chennai 43 per cent,Mumbai 27 per cent,Pune 24 per cent,Bengaluru 19 per cent and Hyderabad 8.6 per cent. Cities which suffered included Bhopal -12 per cent,Surat -13 per cent,Kolkata -7.6 per cent and Delhi -4.4 per cent.

LIMITED SCOPE

While developers point out that the index is just an indicator and will not alter their plans,the also feel that data should be tracked more often. The purpose of RESIDEX is to bring more transparency by bridging the information gap. Each city is divided into various zones for price comparison as the price movements are not uniform across cities. The only limitation of RESIDEX is that prices are not being updated on a monthly basis,the index figures are quarterly but published after a time lag of 3-4 months,which reduces its relevance. But it helps people in assessing and understanding price trends prevailing in residential property market, says NCR-based developer Logix Groups managing director Shashi Kant.

The RESIDEX is a just an indicator of price movements in residential markets. To this end,the fall in property prices in Bengaluru are indicative of market dynamics,the factors of which will need to be further investigated, says Sandhir.