Mumbai: In a move that is expected to bring transparency to the real estate market, finance minister P. Chidambaram launched the official housing price index, developed by India’s home loans regulator, the National Housing Bank.
Mint had first reported on 6 February about the plan to launch the index.
Called the NHB Residex, the index has been introduced as a pilot for five cities—Bangalore, Bhopal, Delhi, Kolkata and Mumbai. The index covers different localities in each of the five cities for five years: 2001-2005.
The index will track the movements of residential property prices and can be used to estimate the house wealth—considered an important component of personal wealth. Banks and housing finance companies can also use it in portfolio evaluation and collateral security for their housing loans.
In the next phase, the regulator will compile indices for 35 cities/towns with a population of more than a million as per the 2001 census. These indices are planned to be prepared on a half-yearly basis. Subsequently, it will be expanded to cover the 63 cities covered under the Jawaharlal Nehru National Urban Renewal Mission.
The launch of the new index coincided with the debut of the Bombay Stock Exchange’s (BSE) 11-stock realty index on Tuesday. It opened at 7,353.81, rising to 7,447.75 before closing at 7,377.53.
The combined market capitalization of the 11 stocks was Rs1.78 trillion, a little over 4% of BSE’s total market capitalization of Rs43.83 trillion.
This is against the typical global norm of about 15%.
The largest real estate stock, DLF Ltd, with a 35.94% weightage in index, lost 0.38% on Tuesday to close at Rs571 a share. Another Delhi-based developer, Unitech Ltd, which has 31.57% weightage in the index, rose marginally by 0.12% to close at Rs526.10. Together, these two stocks account for nearly 67% of the market cap of the realty index.
The industry is taking a cautious view of the exchange’s move to introduce a realty index. “It’s a good move, but I don’t think that the 11 stocks on the index will reflect the Indian real estate market entirely,” said Anuj Puri, chairman of Jones Lang LaSalle Meghraj, a real consultancy firm. “Two of the biggest stocks—DLF and Unitech—are largely Delhi-based and what happens in the Delhi market is not reflective of what is happening in other real estate markets in India.”
IndiaBulls Real Estate Developers Ltd, the third largest player by market cap, gained the most on Tuesday—4.47% to close at Rs468.45 a share. It has a weightage of 13.94% on the index. Other stocks on the index are Akruti Nirman Ltd, Anantraj Industries Ltd, Ansal Properties & Infrastructure Ltd, Mahindra Gesco Ltd, Parsvnath Developers Ltd, Peninsula Land Ltd, Phoenix Mills Ltd and Sobha Developers Ltd.
Puri also pointed out that the index does not include some of the largest land holders in the country such as Reliance Industries Ltd, Bombay Dyeing Ltd, or companies such as Larsen & Toubro Ltd, which have a large realty play.
“This index just clubs the listed real estate companies together and this will give an indication of how the stocks are doing,” says Pranay Vakil, managing director, Knight Frank India, another consultancy firm. “What we really need is an index of how real estate prices in different segments across the country are doing.”
Vivek Dahiya, director at DTZ, yet another real estate consultancy, said: “BSE needs to focus on making the index as representative as possible. It needs representation from big players, regional players as well as developers who are in specialized segments such as retail, residential and commercial developments.”
According to A. Balasubramaniam, chief investment officer of Birla Sun Life Asset Management Co., the index will not lead to new products being created because what funds would like is a mix of listed companies and the REIT (real estate investment trusts) model. The capital markets regulator is yet to introduce guidelines that will enable real estate developers to list their income yielding properties as REITs.
Ashwin Ramarathinam contributed to this story.