India’s first housing price index
The Economic Times, July 29, 2009, Page 12
The launch of NHB Residex in India is arguably the maiden attempt by a developing country to capture the price movements in the residential properties on such a comprehensive scale, says Raj Pal
MOVEMENTS in prices of real estate, particularly residential housing, is of vital importance to the macroeconomy as well as to individual households. For most Indians, a house is the single largest component of wealth and one that has been acquired with considerable efforts and possibly, some sacrifice. Besides the obvious wealth effect and implications for households, at the macro level, housing prices have emerged as a good indicator of output, inflation and financial health, which can be useful in developing appropriate monetary policy responses and establishing financial stability framework. It has acquired added importance in the light of increase in property prices in the resent past (till 2007). In the context of the perceived overheating of the housing market during the past few years as well as the recent slump in the housing market, a number of questions arise. What are the determinants of the housing prices? Can we assess a housing bubble? How do we measure the role of liquidity in housing price increases?
Most of the developed countries and some developing countries have housing price indices. These indices have multiple uses and are utilised by planners, real estate developers, building material industries, financial institutions as well as the individual home buyers. Measuring house prices accurately over time is not simple or straightforward. The complex nature of markets for real estate is one of the major challenges towards constructing a representative house price index. The housing market is generally illiquid, the resale transactions are generally negotiated and actual transaction price is often not reported. Houses are sold infrequently and the composition and quality of houses transacted in the market changes over time.
Being a heterogeneous good in terms of qualitative and quantitative attributes — like location, covered area, quality of construction, etc, — determination of housing prices is an outcome of complex interaction of various factors. Such characteristics pose a challenge in choice of appropriate methodology, selection of sample basket of houses and collection of data for construction of a house price index.
There are numerous methods for constructing house price indexes, each with their own advantages and disadvantages. Some of these methods are based on simple summary measures (averages), such as the median price of houses transacted in a particular period. The advantage of these methods lies in their relative simplicity, both in terms of computation and the interpretation of results. However, such simple measures are likely to suffer from compositional and quality problems. Recent advances in more sophisticated methods (such as hedonic regression and repeat sales methods) have enabled price statisticians to adequately account for compositional and quality changes. However, these methods are data intensive.
Keeping in view the prominence of housing and real estate as a major area for creation of both physical and financial assets and its contribution in overall national wealth, a need was felt for setting up of a mechanism, which could track the movement of housing prices in India. Accordingly, National Housing Bank (NHB), at the behest of the Union ministry of finance undertook a pilot study to examine the feasibility of preparing such an index at the national level.
THE pilot study covered five cities, viz., Bangalore, Bhopal, Delhi, Kolkata and Mumbai. Besides, a Technical Advisory Group (TAG), with adviser, ministry of finance, as its chairman and comprising expert members was constituted to deal with all the issues relating to methodology, collection of data and also to guide the process of construction of an appropriate index. NHB launched an index for tracking prices of residential properties in India, in July 2007, as the first official housing price index of India. The index has been named NHB RESIDEX. The launch of NHB Residex in India is arguably the maiden attempt by a developing country to capture the price movements in the residential properties on such a comprehensive scale.
NHB Residexis based on actual transactions prices. Initially, it covers residential properties. Year 2001 was taken as the base year for the study and year-to-year price movement during the period 2001-2005 were captured, and subsequently updated up to 2007. NHB Residex has been expanded to cover ten more cities, viz, Ahmedabad, Faridabad, Chennai, Kochi, Hyderabad, Jaipur, Patna, Lucknow, Pune and Surat. At the time of last updation and expansion of coverage of NHB Residex to 10 more cities, the base year has been shifted from 2001 to 2007 and has been updated up to December, 2008, with two half yearly updates (Jan-June and July-Dec) during 2008.
In the compilation of NHB Residex, the cities/towns have been divided into tax/administrative zones/municipal wards or any other criteria according to availability of the data for different cities/towns. The lowest level of the stratification has been the colonies/localities. In order to ensure true representative character of the index, the housing units are grouped into three categories based on built-up area — less than 500 sq ft, 500-1,000 sq ft and more than 1,000 sq ft. Data on housing prices is being collected from 20-30 colonies for each city/ town, which are fairly distributed across all the tax/administrative zones. The sample size of price observations consists of 500-600 observations for each city/town. The index has been constructed using the weighted average methodology with Price Relative Method (Modified Laspeyre’s approach). For the present NHB Residex is proposed to be updated on half-yearly basis.
At present, NHB Residexhas covered 15 cities, in the first phase is it proposed to cover 35 cities having million plus population. The proposal is to expand NHB Residex to 63 cities, which are covered under the Jawaharlal Nehru National Urban Renewal Mission, to make it a truly national index, in a phased manner. It is envisaged to develop a residential property price index for select cities/towns and subsequently an all-India composite index by suitably combining these city/town level indices to capture the relative temporal change in the prices of houses at different levels. Index methodology would be examined periodically for further improvement.
(The author is an IES officer presently on deputation as Principal Adviser to the NHB)
Wednesday, July 29, 2009
India’s first housing price index
Govt to make short work of SEZ nods
Govt to make short work of SEZ nods
The Economic Times, July 29, 2009, Page 11
Zonal Authorities May Get More Activities To Okay
With more zonal sway, plight of SEZ developers who move the Board of Approval for every little permit may end
Amiti Sen NEW DELHI
SETTING up ancillary services such as effluent treatment plants and Wi-Max facilities inside a notified special economic zone (SEZ) may be shifted from under the purview of the central board to regional authorities concerned, according to a government move aimed at faster completion of such projects.
The proposal, mooted by the commerce department, is up for review by the SEZ Board of Approval (BoA), a panel comprising officials from various government ministries that gives permission to such tax-free industrial zones.
A department official pointed out that approaching BoA, which is bogged down with loads of such applications from across the country, is a time-consuming process that slows down the implementation of these projects.
“It increases the BoA’s work load too,” the official said asking not to be named.
Currently, activities inside the notified area for building roads, water supply lines and treatment plants, setting up electricity, gas and PNG distribution networks, boundary walls and telecom and other communication facilities don’t need BoA nod.
The latest proposal seeks to include rail-heads for steel and power, police posts, security offices, fire stations, fire protection systems, play zones, bus bays, effluent treatment plants and pipelines and Wi-Fi, Wi-Max services in that list, said the official.
“The reason it takes several months for SEZ projects to get implemented after being approved is because the developer has to approach the BoA for every step,” the official added.
To cut the work load, the government is also looking at setting up a sub-committee of the BoA to look at approval applications for authorised activities in zones. Both proposals will be taken up at the BoA meeting slated for August 11.
“If a sub-committee is formed to share the workload with the BoA, it will definitely help in expediting all clearances,” the official said.
The BoA includes senior officials from key ministries such as commerce, finance and home, its meetings are spaced out. The frequency of meetings is determined more by the number of new proposals that are to be cleared rather than the authorised activities to be given a go-ahead.
Of course, next month’s meeting will approve fresh SEZ proposals.
The last BOA held on 19 June had approved two fresh proposals, ratified extension of time to 23 developers, including Satyam Computer Services, for implementing tax-free enclaves.
Till date, 576 formal approvals have been granted for setting up of SEZs, of which 319 have been notified, as per commerce ministry records.
QUICK FIX
PRESENT APPROVAL PROCESS
First stage: Gives in-principal clearance to projects that do not possess land
Second stage: Gives formal approval to projects after land is acquired
Third stage: Notifies SEZs after the zones get all required clearances at the state level
Fourth stage: Approves authorised activities in the zones
THE PLAN
List of activities for which developers get approvals from zonal authorities may be expanded
These activities include setting up play zones, bus bays, effluent treatment plants and pipelines and wi-fi, wi-max services
Govt is also looking at setting up a BoA subcommittee to look at approval applications for authorised activities in zones
Tuesday, July 28, 2009
RBI pegs growth at 6.5%, projects 5.4% inflation
The Times of India, July 28, 2009, Page 21
Mumbai: Revising the growth projection to 6.5% from the earlier 5.7% for 2009-10, Reserve Bank on Monday said it expected inflation to go up to 5.4% by this fiscal end. In its macro economic review, RBI, however, said indications are that dampened growth impulses may continue due to significant delay in monsoon in certain parts of the country and persistence of global recession.
It said that recovery in export growth could be weak in the near-term, coupled with lagged impact on manufacturing growth. The review, ahead of the quarterly review of RBI's annual monetary policy on Tuesday, quoted the central bank's Professional Forecasters Survey to indicate that the average inflation in the fourth quarter of 2009-10 will be around 5.4%.
On the inflation outlook, the review said, while certain indicators suggest possible firming up of inflation over time, other developments could also help in keeping the inflationary presures subdued. The indication of inflation firming up by this fiscal could be due to high base-effect, increase in commodity prices, especially oil and global recovery, RBI said.
Noting that the global econoic environment continues to be uncertain, RBI said the conduct of the monetary policy had to contend with the scale and pace of external shocks and their spillover effects through the real, financial and confidence channels.
“The thrust of the various policy initiatives has been on providing ample rupee liquidity, ensuring comfortable US dollar liquidity and maintaining a market environment conducive for continued flow of credit to the productive sectors,” RBI said. PTI
India’s external debt at $230 billion:
India's external debt went up by $5.3 billion or 2.4% to $229.9 billion as of March 2009, RBI said. The debt denominated in US dollar accounted for 57% of total external debt. PTI
Revenue deficit will be at its highest:
Revenue deficit would be at its highest-level ever while primary deficit would both be at its highest in India’s post-reform period, RBI said, adding the rise is due to higher growth in revenue expenditure. PTI
Confidence, growth estimates better: RBI
The Financial Express, July 28, 2009, Page 1
fe Bureau, Mumbai
Two key pieces of data released by RBI on the eve of announcing its position on interest rates for the July-September quarter shows a higher growth estimate for the economy and a turnaround in business sentiment. The data is part of the Macroeconomic & Monetary Developments: First Quarter Review 2009-10.
The latest survey of professional forecasters conducted by RBI in June 2009 indicates most estimates converging on a 6.5% rate of GDP growth, higher than the 5.7% in the March survey. Average inflation in the fourth quarter is also expected to rise to 5.4% from the current negative 1.31%.
Similarly, the business expectation indices of private sector manufacturing companies has improved both for the April-June quarter and expectations for the July-September quarter. Company expectations are 20.3% and 14% more for better performance, compared with the previous quarters. The indices had dropped to their lowest level ever in the January-March quarter of 2009. RBI, however, cautioned that early indications suggest the revival impulses need to strengthen further to boost consumer and investor confidence.
Analysts, therefore, said it was difficult to take a call on possible repo and reverse repo rates the central bank would announce on Tuesday. These are the rates at which RBI respectively sells and buys surplus cash from banks, and provide a benchmark for interest rates at which banks provide credit.
Based on the RBI assessment, bond yields moved up in the debt market. The benchmark ten-year 6.90% maturing in 2019 ended at 6.95%, above Friday’s close of 6.92%, but volumes were moderate at Rs 7,640 crore after traders hedged their bets.
Yes Bank chief economist Shubhada Rao said RBI may revise its inflation forecast upwards on Tuesday, but would wait until early 2010--the fiscal fourth quarter--to drain liquidity by lifting cash reserve ratio requirements. “We believe RBI will provide comfort on the liquidity front. The fourth quarter is the one where we expect RBI to remove the ‘froth’ in liquidity,” she said.
RBI has cut repo six times since last October, lopping 425 basis points off to the present 4.75% as it tried to guard against economic deceleration in the middle of the global financial crisis. It also slashed reverse repo by 275 basis points since early December and brought down the cash reserve requirement by 400 basis points to 5% to keep credit flowing.
“The growth outlook for 2009-10 (therefore) needs to be assessed in the context of indications emerging from lead indicators so far… Indicators such as the higher growth in core infrastructure sector, positive growth in IIP, gradual revival in demand for non-food credit, improving performance of the corporate sector in terms of both sales and profitability, gradual return of risk appetite in the capital market, more optimistic business expectations and forecasts could be viewed as signs of recovery from the slowdown,” says the report.
Factors that could dampen the growth outlook, according to RBI, are the delayed progress of the monsoon, decline in exports due to the persistent global recession and the lagged impact of negative growth in manufacturing in the last quarter of 2008-09. But according to the central bank, chances of these happening are weaker.
FM LETS GOOD TIMES ROLL
FM LETS GOOD TIMES ROLL
The Economic Times, July 28, 2009, Page 1
India Inc tax sops to propel growth
With an eye on 8% growth amid difficult times, FM continues to pull out more goodies for India Inc and the aam aadmi. While industry got a slew of tax breaks, housing dreams of millions of Indians came closer to reality
Our Bureau NEW DELHI
THE government has lowered the interest rates on loans for affordable housing, extended a tax holiday given to industrial parks, and lifted the tax burden off road repair costs, adding to the four existing stimulus packages in its effort to propel GDP growth to 8-9% by the end of 2010.
Finance minister Pranab Mukherjee on Monday told Lok Sabha that home loans up to Rs 10 lakh for properties with a market value not exceeding double that amount will now come with a 1% subsidy on the interest charged by commercial banks.
The minister has earmarked Rs 1,000 crore for this, a step expected to give a leg up to lower and middle income families looking to buy a house.
Mr Mukherjee proposed an amendment to the Income-Tax Act so that profits from housing projects approved by a local authority between April 1, 2007, and March 31, 2008, will be tax-free if they are completed before March 31, 2012. He urged builders to pass on the benefit to consumers.
Renu Sud Karnad, joint managing director of HDFC, said the interest subsidy on home loans will result in increased activity in the affordable housing segment and creation of employment. “With the real estate segment directly and indirectly supporting 269 big and small industries, it will have a positive impact on the economy. Also, with the fear of below-normal rainfall looming, a step like this is a well-timed, well-thought one,” she said.
Companies working out of industrial parks can now plan long term, with tax breaks being extended by two years to March 31, 2011. Accordingly, profits from development, operation and maintenance of industrial parks will continue to be tax-free.
Industry body Ficci welcomed the measures saying these, along with the fiscal steps introduced in the Budget for 2009-10 and the stimulus packages rolled out earlier, will give a new momentum to the economic recovery currently underway.
STIMULUS UNLIMITED
FOR INDIVIDUALS
1% interest subsidy for loans up to Rs 10 lakh for a year, provided purchase price is up to Rs 20 lakh
Tax deduction on interest paid on education loans for legal guardians
I-T deductions for assessees with severe disability raised from Rs 75,000 to Rs 1 lakh
FOR INDUSTRY
Extended tax holiday for special investment zones
Tax break for realtors extended by three years
Food processing tax incentives to cover milk & meat industry
Coal bed methane gas to get tax holiday
Service tax waiver for road repair & maintenance services
Tax on new services from September 1
As part of its continuing efforts to generate activity in the infrastructure sector, the government exempted repair and maintenance of roads from service tax, a la construction of new roads. The tax break will be available immediately.
“We can push domestic demand with stimulus measures. But it is very essential that exports, which are now in the negative territory, should turn positive for faster economic growth,” said DK Joshi, director and principal economist, Crisil.
In a step that will help higher education, Mr Mukherjee said taxpayers can now deduct the interest paid on education loans availed for those under their legal guardianship. Earlier the benefit was available only on loans taken for the benefit of the taxpayer, spouse and children.
Also, the minister said the eligible deductions for assessees with severe disability will be raised from Rs 75,000 to Rs 1 lakh for purposes of income tax. Firms engaged in processing, preservation and packaging of meat, poultry, marine and dairy products have also been given exemption from tax on their profits.
The new services brought under service tax in Finance Bill 2009—those in relation to transport of goods by rail and inland water, coastal goods, legal consultancy, cosmetic and plastic surgery—will come into force only from September 1, 2009. The government also extended the tax holiday earlier proposed for natural gas production from blocks licensed under the eighth round of the national exploration licensing policy (Nelp-VIII) to natural gas production from blocks licensed under the fourth round of bidding for exploration of coal bed methane as well.
Small housing sector gets tax shelter till 2012
Small housing sector gets tax shelter till 2012
The Economic Times, July 28, 2009, Page 11
Our Bureau NEW DELHI
THE Centre’s move to extend by two years a key tax exemption available to builders of smaller homes and give interest subsidy to home buyers is likely to boost supply of lower-priced homes and could nudge fence-sitters to return to the market, industry officials say.
Finance minister Pranab Mukherjee on Monday told Parliament the government was extending the provision of section 80IB(10) of the Income Tax Act to projects approved before March 2008 and to be completed before 2012.
Earlier, the provision was limited to projects sanctioned before March 2007 and to be completed before March 2010. The extension exempts builders from paying tax on income from the sale of houses of 1,000 sq ft built-up area within 25 km of municipal limits of big cities and 1,500 sq ft in other sites.
“The government’s decision will prompt more property developers to launch smaller-sized and lower-priced homes, which is the need of the hour,” said Navin Raheja, chairman of Raheja Developers, which plans to soon launch homes in the “affordable” bracket.
Ravi Ramu, CFO of Southbased builder Purvankara, called the government move “a big step” that would increase the supply of affordable homes in the country. Purvankara has, through a subsidiary Provident Housing, entered the affordable housing segment with offerings in the sub-Rs 20 lakh price point.
The company has already launched such a housing project in Chennai and will be launching another in Bangalore soon. “It gives us confidence that we are in the right segment,” said Mr Ramu.
A realty boom between 2004 and 2007 saw many developers target large-sized and expensive homes in pursuit of higher margins. Prices rose, sometimes manifold, across categories and homes became unaffordable. The sector went into a tailspin after RBI hiked interest rates to battle rising inflation.
Many developers realised their business model had gone wrong and reworked strategies to focus on lower-priced homes. Some cut prices while others cut apartment sizes and frills to make homes affordable. All this helped rekindle interest among home buyers.
Now, with tax exemption for developers launching small homes, the lower-priced segment is likely to get a boost.
“Many developers who had their projects sanctioned earlier but were not launching them due to a realty downturn will now be incentivised to start their projects,” said Pradeep Jain, chairman of Parsvnath Developers, adding that developers would partially pass on the benefits of tax exemption to consumers.
The FM also said home buyers would get an interest subsidy of 1% on loans up to Rs 10 lakh for homes priced up to Rs 20 lakh. “This will boost housing in tier-II and tier-III cities,” said Mr Jain.
“It will result in increased activity with regard to real estate in the affordable segment, which in turn will create employment and…will have a positive impact on the economy,” said Renu Sud Karnad, joint managing director of the country’s largest housing finance company HDFC.
Realty Developers cheer Pranab announcement
Business Standard, July 28, 2009, Page 4
Banks to offer subsidy on home loans, says FM
Times of India, July 28, 2009, Page 22
New Delhi: Finance minister Pranab Mukherjee said that the interest rate subsidy for mid-segment housing would be routed to customers through commercial banks and housing companies registered with the National Housing Bank. He said to further provide stimulus to the housing sector, it will be allowed a tax holiday in respect of profits derived from projects approved between April 1, 2007 and March 31, 2008, if such projects are completed on or before March 31, 2012.
‘‘I expect the developers to pass on the benefit of tax holiday to home buyers by appropriately reducing their prices. I am sure that both the expenditure and tax-foregone initiatives would provide relief to a large segment of prospective home owners and help revive the real estate sector,’’ he added.
The interest subsidy is aimed at mid-segment housing loan borrowers from the lower middle to middleincome groups. Even on Monday, Congress MP from Mumbai (North) Sanjay Nirupam, while speaking on the finance bill, said 42.4% of Maharashtra’s population was urbanized and trends pointed to increasing migration to cities. With home loan rates climbing steeply, there was a case for providing relief to borrowers. Providing an interest subsidy and a targeted tax break also answers in part the demand that the becalmed real estate sector needs a leg up.
The government’s message to the real estate developers is to lower prices and make housing more affordable for the aam aadmi.
The housing loan subsidy came with a slew of other concessions such as exempting road repairs and maintenance from the ambit of service tax while extending the sunset clause for tax holidays for industrial parks by a further two years up to March 2011 to boost growth in infrastructure. The FM clarified that service tax on new services and any alteration in the existing services as announced in the Budget would be effective from September 1, 2009.
‘‘It’s a welcome step from the government. The decision is sure to improve loan eligibility and affordability of a large section of the Indian middle class. It will also lead to increased activity with regard to real estate in the affordable housing segment which in turn will create employment,’’ said Renu Sud Karnad, Joint MD, HDFC Ltd.
FM sees recovery, offers realty more sops
FM sees recovery, offers realty more sops
The Financial Express, July 28, 2009, Page 1
Steering the Finance Bill’s passage through the Lok Sabha on Monday, finance minister Pranab Mukherjee asserted that an economic recovery is underway and India would be back on a high-growth trajectory by 2010. Reiterating the government’s commitment to economic reforms, he said, “Reform will be on the agenda—it is a continuous process, not a mantra to be chanted occasionally.”
The finance minister admitted that 2009-10 is an “extremely difficult year” and the Centre had reached the limit of fiscal expansion, with tax revenues falling and stimulus measures so far adding up to Rs 2.4 lakh crore. Nevertheless, he introduced a few more concessions for industry and consumers in the Finance Bill with a firm focus on providing a further boost to economic activity.
The most tangible benefits from Mukherjee’s latest dose are expected to accrue to prospective homeowners and the realty sector. Developers of affordable housing projects (units of 1,000-1,500 sq ft) have been granted a tax holiday on profits from projects initiated in the 2007-08 financial year. Such projects would have to be completed before March 1, 2012.
At the same time, the finance minister allocated Rs 1,000 crore to grant a 1% interest subsidy on home loans up to Rs 10 lakh, provided the cost of the home is not more than Rs 20 lakh. This subsidy would be available for one year.
“I expect developers to pass on the benefit of the tax holiday to home buyers by appropriately reducing their prices. I am sure that both the expenditure and tax foregone initiatives would provide relief to a large segment of prospective homeowners and help revive the real estate sector,” Mukherjee said.
While the deadline for tax sops under the Software Technology Parks of India (STPI) and Export-Oriented Units (EOU) schemes was extended to March 2011 in the Budget, Mukherjee on Monday harmonised with them the sunset clause under the Industrial Parks scheme. The scheme, which offered a tax holiday to developers of industrial parks until March 31, 2009, has now been extended to March 2011. Mukherjee hoped this would attract investment into industrial infrastructure.
The tax holiday available to natural gas producers operating blocks licensed under Nelp-VIII has also been extended prospectively those licensed to explore coal-bed methane, from the assessment year 2010-11.
While the creation of new roads and highways is a thrust area in the UPA’s second innings, the finance minister has exempted repair and maintenance work on roads from service tax.
“Construction or laying new roads is exempt from service tax. But repairs and maintenance of roads are chargeable. I propose to remove this anomaly with immediate effect,” Mukherjee said. Granting a month’s time for industry to realign its accounting systems and software to capture the new services brought under the tax ambit in the Budget, the finance minister has instructed the Central Board of Excise and Customs to make the new levies effective from September 1, 2009.
Posts
