NHB to bring 25 cities under realty price index

NHB to bring 25 cities under realty price index
The Financial Express, July 11, 2009, Page 11

Kakoly Chatterjee, New Delhi

National Housing Bank (NHB) is hoping to take the number of cities to 25 under its ambit for Residex—the residential property price index— in another four years. The index was test launched in 2001 so as to help determine the price trends of residential properties of a region.

Once the Residex is in place, NHB is also looking at indexing commercial properties and lands at a later stage. The challenge is in collecting data and it will be easier if government issues a statutory for property brokers to get registered. “Covering 63 cities for Residex is a long journey ahead”, Raj Pal, principal advisor, NHB said.

“In order to smoothen the process of collecting data, NHB is signing a memorandum of understanding (MoU) with National Association of Realtors (NAR) in July,” Pal said. Other institutions like National Real Estate Development Council (Naredco), housing finance companies (HFCs) and commercial banks are expected to work in partnership with NHB to make data more easily available to NHB for Residex.

The apex body has spent around Rs 45 lakh in the last two years for collecting and collating data for 15 cities. Once Residex gains in terms of visibility and acceptance, a commercially sustainable model would emerge.

The National Council for Applied Economic Research (NCAER) runs primary checks on the data that is collected. The system used for NHB Residex is repeat sale model and for this the cities are divided into several zones and a couple of colonies from every zone are considered every time the updation takes place.

Suresh Chandra, deputy general manager, personal banking, State Bank of India, said, “By accessing the Residex data we will be aware of the realistic cost of the properties". He said through this data it will be easier to detect fraudulent practices of developers and counsel the borrowers accordingly. In case a property is overpriced the bank can advise clients to explore other projects.

Chandra said that mitigating risks would be easier and more scientific after the housing index includes all major cities. "The loan to value (LTV) ratio is uniform for all cities currently, but with the housing index coming into place the LTV can vary from city to city,” he said. Chandra said the Residex should also include more information like details of the builders, its financials, how many projects it has done, what has been the experience of customers with him, his fund status and so on.

Acording to Anil Kumar, CEO, Ansal API, Residex is not going to be of much help to the developer. “The previous price trend in a particular city is not going to indicate the future price trends. Prices of properties depends on a lot many factors like change in price of input costs like cement and steel. Property prices also depend on policy matters like changes in floor area ratio (FAR). The developers can bring down the price if the FAR is increased. However, all these factors cannot be included in the index”.

Data crunching

•Residex was test launched in 2001 so as to help determine the price trends of residential properties of a region

•Once the Residex is in place, NHB will also look at indexing commercial properties and lands

•In order to smoothen the process of collecting data, NHB is signing an MoU with National Association of Realtors in July