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Buying a house? Look at the property price index

Buying a house? Look at the property price index
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First Published: Tue, Apr 20 2010. 01 15 AM IST

Updated: Mon, May 10 2010. 04 20 PM IST
If you are planning to buy an independent house, the market survey could completely stump you. The more brokers you meet, the more chances of you getting confused about the actual price of a property. For instance, talk to a few brokers about the estimated price of a 300 sq. yard property in Delhi’s Vasant Kunj, a prime residential location, and you would get quotes varying between Rs6.5 crore and Rs9 crore. Talk to a few more and the variation would become wider.
“Brokers work for the seller and they are motivated to obtain the highest purchase price. The higher the price of a property, the higher their commission,” says real estate adviser, Ken McElroy, in his book, Guide To Real Estate Investing.
But is there a way out from the brokers’ spiel and ascertain the real prices? Looks like there is. The National Housing Bank (NHB) has been working on a property database that indicates price movements in a particular area of a city. Though still in its initial stages, the property index, called the NHB Residex, can help you at least reach a value closer to the current market rate.
What is it?
The NHB Residex, which started in 2007, tracks residential rates of properties across 15 cities, including Delhi, Faridabad, Mumbai, Kolkata, Bangalore and Chennai. The NHB proposes to expand the Residex to 63 cities by 2012.
The base of the Residex has been kept as 100 points. Any movement in the price band in a particular area is denoted by an increase or decrease over or below 100 base points. For example, Delhi started with an average base point of 100 in July 2007. From January to June 2008, the index moved up by 24 points, indicating that there was an upward price movement. Between July and December 2008, prices moved up further and the Residex touched 130 points from the previous 124. But between January and June 2009, residential rates fell to 121, indicating a fall in property prices during the downturn.
Also See | How To Use It (Graphic)
Under each city head, there are details of individual municipal areas or zones.
At present, the index deals only with residential space. The website of the NHB, however, says, “At a later stage, based on experience of constructing this index for a wider geographical spread, the scope will be expanded to develop separate indices for commercial property and land.”
The limitations
If you are looking for an exhaustive listing, you are in for a disappointment. The Residex covers only those areas that fall under the municipal limits. Moreover, emerging destinations are not included in the Residex. For instance, it gives information on Faridabad, but fails to give price movements in the already established National Capital Region markets such as Noida and Gurgaon.
“The work on Residex is still in its early stages. It would take time before it matures to cover the entire nation and the primary markets,” explains Niladri Bose, deputy manager, Residex and Housing Policy Cell, NHB.
Also, the NHB is supposed to update the Residex every six months; it was last updated in June 2009 and the data for December 2009 is set to come out soon. However, this gap reduces the relevance of the index. Says Sanjay Dutt, CEO (business), Jones Lang LaSalle Meghraj, international property consultants: “The data obtained will be more or less accurate indicators of the status at the time of publication. However, considering how dynamic the Indian real estate market currently is, the data will be obsolete within a few months at the most. Only a dedicated research mechanism will be able to preserve the sanctity of its accuracy.”
In its present format, the NHB Residex can give you an idea of the price movement only in the secondary market, which involves resale of property.
It gives no indication whether there is more buying activity in the market or selling. Transaction volumes give an idea about the occupancy and demand in a particular market, which is missing from the Residex.
The challenges
In its present form, the NHB Residex has several challenges to overcome. For one, there is no parity in the market values reflected by it. The NHB collects data from various sources, including banks and independent dealers in the region.
Sachin Sandhir, managing director (India), Royal Institution of Chartered Surveyors (RICS), international property consultants, says: “Currently, property valuations in India are done by diverse groups of professionals with varying backgrounds and skills. This brings certain deviation in their reading. There are set standards in other developed markets like Europe. Most valuations across the globe conform to the International Valuation Standards Committee and RICS norms.” Like it has done in other countries, RICS is trying to develop localized valuation norms for India.
Lack of proper land records slows down the valuation process. Says Sandhir: “Availability of land records is a major drawback. It is necessary to include the cost of land while evaluating the total cost of the flat.”
Banks are credible sources of information on property valuation but the problem is you can’t access it unless you are taking a loan. Says Mumbai-based practising valuer, R.K. Gandhi of KC Gandhi and Co.: “Often bank officials go on the field to assess the value of the property.”
The road ahead
Incentives for valuers are still not high. Says Sandhir, “If that goes up, banks can follow a standard method of property valuation.” According to rough estimates available with RICS, there are around 25,000 valuers associated with banks operating in India, but even then there is a huge shortage of skilled valuers.
In fact, valuation can even develop as an independent field of study. Says Gandhi, “At present, only two universities in India give training in this field. Shivaji University in Kolhapur offers a two-year diploma course through distance learning mode, while Sardar Patel University in Vallabh Vidyanagar runs a course on valuation. Both universities award a master’s degree in real estate valuations on successful completion of the course.”
Till the time standard valuation norms come into play, homebuyers can depend on the small database of the NHB and banks’ valuation as a rough indication. But do your due diligence before investing.
Graphic by Ahmed Raza Khan/Mint
devesh@livemint.com
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First Published: Tue, Apr 20 2010. 01 15 AM IST