How accurate is the NHB's housing index?

The National Housing Bank (NHB), in its benchmark index for real estate prices - RESIDEX - has shown a downward trend in the housing prices in 22 major cities in the April-June period compared to the previous quarter.

A report in the Business Standard today noted that as per the NHB Index, property prices in majority of the cities, 22 out of 26, are witnessing a marginal downward trend in majority of the cities, ranging from -0.45% in Mumbai to -5.99% in Ludhiana.

The NBH Index stated that residential property in Kochi declined by (-3.37%), Patna (-3.29%), Coimbatore (-3.26%), Ahmedabad (-3.13%), Faridabad (-2.42%), Chennai (-2.26%), Jaipur (-1.79%), Delhi (-1.49%) and Bhopal (-1.30%).

On the contrary, there was a price rise in four cities, 0.55% in Dehradun and 3.07% in Nagpur during the quarter April-June, 2013.

But how reliable is the NHB’s RESIDEX?

While NHB RESIDEX is a good start to establishing a realty index for the country, it has scope for improvement.

Launched in July 2007, as the country’s first and only official housing price index, it started off a a pilot for just five cities - Mumbai, Bhopal, Delhi, Kolkata and Bengaluru - for five years till 2005. The base year was set as 2001, and only the actual transaction price (i.e. price excluding stamp duty, brokerage fee, etc.) were considered. It was also set up such that it would be specific to different localities in each of the cities, which made the potential of the NHB Index immense. The NHB RESIDEX has now been expanded to include six new cities namely Chandigarh, Coimbatore, Dehradun, Meerut, Nagpur and Raipur from this quarter - taking it to a total of 10 cities. But can 10 cities be an index of housing in the country?

While the index may obtain property prices from various sources like government registration authority, builders, real estate agents, individual buyers and sellers, housing societies, banks, housing finance companies, it may still not acquire the actual price since many real estate transaction in India are still dealt in black money.

Also a real estate property builder having a status has a tendency of overpricing their property. The other problem is that builders may not disclose property price information due to the intense competition.

There are also micro market dynamics that needs to be taken into consideration. Prices within every locality differ based on the kind of segment the project is catering to. So basing the index on projects may be a better option.

Samir Jasuja, Founder and CEO, PropEquity, a real estate intelligence research company, says that the market has been slightly muted.

“The real estate sector has been giving an average performance since 2012. The market has softened especially on the resale side owing to the slow sales,” he said.

While the developers have been trying out various options to give the sector a boost by offering freebies and discounts, new launches have been curtailed, Jasuja said.

“Schemes like subvention and 20:80 have gained prominence during the last 4-5 quarters to prevent increase in the demand supply gap,” he said.