The plan by the National Housing Bank (NHB) to start a housing price index, called the Residex, is a helpful one for many home buyers in the country, but it is important to define its limits as we laud its potential. NHB, as a supervisory agency for the sector, has started off the index for Delhi, Mumbai, Bangalore, Kolkata and Bhopal and assigns weights to 12 factors that govern the price of a house to arrive at the average price of a residential property which can then be used as a benchmark. The welcome point is that the index will take into account factors like location, quality of construction, amenities, surrounding infrastructure facilities and demand in a neighbourhood.
The important thing to bear in mind is that this benchmark index is not to be treated as a State-ordained price, but an indicator of the facilities and costs linked to a property. The exploding growth of the housing and real estate sector has created both challenges and opportunities in India. Steel, cement and other goods that go into the making of a house or apartment are now part of a free market environment, but we are not talking anymore about brick-and-mortar roofs as an apology for a house. Growing affluence and aggressive marketing and branding have now become part of the housing game, and builders try to add facilities and features ranging from jacuzzis to broadband cables in their bid to attract premium buyers. While that may show the maturing of a market, aggressive purchase of land, speculation over real estate prices and leveraging of bank finance bring in their own dynamics into the game.
In such a context, the Residex may help bankers benchmark their lending to what could be called a rational way of arriving at prices, while home buyers and State agencies may use the same to get an idea of what a fair price could be. Having said that, it must be realised that the Residex cannot be no panacea. What it can do is to serve as a talking point for informed debates about the price of a house, and enable buyers and bankers to keep a sharp eye on speculators, big-mouthed salespeople and fly-by-night builders. Developed nations such as the US and Britain have well established housing price indices. Residex is a good starting point to arrive at a more mature real estate market.