Tracking house price movements
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The NHB RESIDEX has so far covered 15 cities and it is proposed to cover 35 more cities, writes Raj Pal
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Photo: C.V. Subrahmanyam
A felt need: A reliable housing price index has been developed with the help of advanced statistical methods.
The house is the single largest component of wealth. Tracking house price movements is, therefore, a felt need and has acquired added importance of the light of fluctuating property prices. Most of the developed countries and some developing countries publish real estate indices regularly as they are utilised by planners, developers, financial institutions and individual home buyers.
However, to monitor and keep track of house price are inherently difficult. Unlike other price indices, house price indices cannot be measured accurately. Houses are sold infrequently, the composition of houses transacted in the market changes over time and the quality of houses is not constant.
These issues pose challenges relating to choice of appropriate methodology, sampling, and the development of a representative price index. But recent advances in sophisticated methods have enabled price statisticians to adequately account for the variations.
Genesis
National Housing Bank (NHB), at the behest of the Ministry of Finance, Government of India, undertook a pilot study to examine the feasibility of preparing such an index at the National level. The pilot study covered 5 cities viz. Bangalore, Bhopal, Delhi, Kolkatta and Mumbai. Besides, a Technical Advisory Group (TAG) with expert members from various agencies such as RBI and NSSO, was constituted to deal with the issues relating to methodology, data and the process of construction of an appropriate index. NHB launched the first official housing price index of India in July 2007.
Methodology
Stratification
In compilation of NHB RESIDEX the cities have been suitably stratified by administrative zones or municipal wards according to availability of the data. The lowest level of the stratification has been the localities. In order to ensure true representative character of the index, the housing units are grouped into three categories based on built up area viz. built up area less than 45 sq. mt. (500 sq. ft.) 45-90 sq. mt. (500-1000 sq. ft.) and more than 90 sq. mt. (1000 sq. ft.).
Sample Size
Based on the appropriate degree of stratification, data on housing prices is being collected from 20-30 colonies for each city, which are fairly distributed across all the administrative zones. The sample size of price observations consists of 500-600 observations for each city.
Statistical Model
The index has been computed by using Price Relative Method (Modified Laspeyre’s Approach). Under this method price relatives are calculated only once (at the basic stratified unit) and the weighted average of these price relatives leads to the index at next level.
Data Sources
Data on housing prices is being collected by utilizing the services of private consultancy and research organization of national repute. In addition information on housing prices is being collected from housing finance companies and banks, which is based on housing loans contracted by these institutions.
Partnership
In order to regularly update the RESIDEX, NHB has been engaged in partnerships with selected housing finance companies and bank for gathering data on housing prices on regular basis.
Furthermore, NHB is will be soon entering into a memorandum of understanding with the National Association of Realtors, India (NAR-INDIA), under which the members of the NAR-INDIA will be providing transactions based information on housing prices for NHB RESIDEX. Avenues for similar collaborations are being explored with other prominent associations.
Way forward
NHB RESIDEX has so far covered 15 cities and it is proposed to cover 35 more cities having million plus population.
It will further expand to 63 cities, which are covered under the Jawahar Lal Nehru National Urban Renewal Mission. Index methodology would be examined periodically for further improvement.
The author is an Indian Economic Service Officer presently on deputation as Principal Advisor to the National Housing Bank.
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