Index to track house prices
National Housing Bank (NHB) — the regulator for housing finance companies in the country — has prepared and launched first housing price index called NHB RESIDEX for five cities — Delhi, Mumbai, Banglore, Kolkata and Bhopal.
The index was launched by FM P Chidambaram on Tuesday. The index will give people an idea of increase in the price of residential accommodation in a city. RV Verma, ED, NHB said the bank would work to launch a similar index for land prices also. Verma said in the next phase, NHB will launch the index to 35 new cities with population over a million as per the 2001 census. The residential index of a city will be a number which will suggest the average value of residential properties at that point of time in the city in comparison to 2001, which has been chosen as the base year. The index will be prepared every six months.
But, analysts feel the index will not be an accurate representative in the diverse markets of Indian cities. Like In Delhi, when residential property prices in posh areas like Golf Links, Vasant Vihar and Chanakya Puri are rising, it is declining in suburbs like Rohini, Mayur Vihar and Vikas Puri. Therefore, the index, which will be the weighted average rise and fall in the prices of a city, might give contradictory picture. Also, the index for Delhi will not include Noida and Gurgaon.
The index will use official transaction value, which most of the time is hugely understated to save tax and because of the prevalent black economy. Therefore, the index will not be very accurate representative of the market prices. Despite the shortcomings, RESIDEX will be used to estimate the house wealth. It will help banks and housing finance firms in portfolio evaluation and collateral security for their housing loans. The index will also be useful tool for macroeconomic policy analysis for monetary and fiscal policy formulation.
Source: Times of India
Date: 11/07/07
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