Portfolio

Reading the Residex

Aarati Krishnan | Updated on January 09, 2018 Published on August 01, 2017

Have you ever wished for a benchmark to measure real estate returns against your investments in bank deposits, gold and stocks? Well, you now have one – the NHB Residex - published by the National Housing Bank.

Flagged off a week ago by the Ministry of Housing and Urban Poverty Alleviation, the new NHB Residex may be your answer. It provides housing price data for 50 cities across India at a quarterly frequency. While the Residex was available in an earlier avatar between 2007 and 2015, the new index is a refurbished and upgraded version with a new base year, wider city coverage and more data points.

The original index as well as the revamped version are based on the recommendations of a Technical Advisory Group consisting of experts from the Government of India, RBI, NSSO, NHB, Labour Bureau and housing market players. On an ongoing basis, the index will be published by the National Housing Bank with data and analytics support from the research agency Liases Foras Real Estate Rating and Research.

The base year for the NHB Residex has been shifted from 2007 to 2012-13, and is proposed to revisited every five years. The cities covered by the new Residex have been chosen from the key state and Union Territory capitals, as also the proposed smart cities, as these are expected to be hubs of real estate activity. Currently, the NHB Residex includes data for 37 Smart cities and 18 state capitals. Plans are afoot to expand this to 100 cities eventually.

The key indices

The NHB Residex is not a single index but a cluster of indices designed to provide a range of housing price-related data points. It currently offers two key Housing Price Indices (HPIs) that are useful to home buyers.

HPI @ Market Prices is an index of prices for under-construction homes in 47 cities across India, compiled through a survey of the developers and builders.

HPI @ Assessment Prices, available for 50 cities, is an index based on data shared by banks and housing finance companies, based on their own valuation of the property against which they extend housing loans.

Of the two, the HPI @ Assessment Prices may be a more reliable guide for home buyers as it represents the completed deals in their city and is based on verified deal prices sourced from the lenders. The HPI @ Market Prices for under-construction homes may be a quick guide if you are looking to assess the prices quoted by developers in a city.

Reading the index

Both indices start out with a base value of 100 (based year 2012). Therefore, the January-March quarter HPI@Assessment of 133 for Chennai indicates that housing prices in Chennai have appreciated by 33 per cent since 2012, based on deals financed by lenders. In fact, the data shows positive long-term trends in housing prices (as per lender’s data) across key markets such as Mumbai (41 per cent), Kolkata (28 per cent), Pune (44 per cent) and Bengaluru (37 per cent). But before you pop the champagne, do note that, annualised, these may amount to just 7-8 per cent a year, not much higher than returns on your bank FD. Trends, on the other hand, have been muted in Delhi (4 per cent), Ahmedabad (no change), Bhopal (9 per cent) and Coimbatore (7 per cent).

Apart from providing a single reference point for housing prices in a city in the form of the HPIs, the Residex indices also provide breakdowns of the data for three categories of residential units based on their size – less than 60 square metres, 60 to 110 square metres and over 110 square metres. Apart from the HPI index for each city, these sub-component indices have also been made available with back data. You can, therefore, assess trends in housing prices for the specific apartment size that you are planning to acquire.

More on the way

There are plans to add on more indices too under the Residex umbrella. While the present HPIs cover completed new homes, there are plans to provide a HPI for resale homes. The dataset will also be eventually widened to include Land Price Indices, Housing Rental Indices and Building Material Indices.

You should, however, keep two factors in mind while reading the Residex. Given the splintered nature of the real estate market, no two transactions need be alike, even if you’re looking at the same locality. Therefore, use the Residex as a broad indicator of the trends in your city and don’t give one or two data points too much importance.

Two, as this is a new indicator, and the real estate market is quite a difficult one to crack, wait for data points over a longer time frame before using it to make your home purchase decision.

But despite all this, the advent of the Residex does make life vastly easier for you - the home buyer - as you no longer need to grope in the dark while assessing returns from real estate as an asset class, across key Indian cities.

Datasets on the Residex are available at https://residex.nhbonline.org.in



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