RBI (Reserve Bank of India) is planning to launch two real estate indices to reflect movements in residential and commercial property prices in the country. The report on asset price monitoring system suggests revision of the indices every quarter.
These indices could prove handy for financial markets as well as the central bank that decides the monetary policy. Various developed countries like US, Canada, France and Hong Kong already rely on their respective property indexes to gauge the asset price movement in their countries.
The report emphasized the challenges for keeping track of real estate price dynamics and their relationship with financial stability and monetary policy.
They are:
-lack of transparency in the residential realty market transaction,
-absence of a single centralized regulator in a huge country like India and
-limited availability of property price information
It has further recommended that the RBI may compile real estate price index on quarterly intervals and begin with Delhi and Mumbai. Subsequently, it could add 11 other cities such as Chennai, Bangalore, Hyderabad, Ahmedabad, Lucknow, Bhopal, Kolkata, Pune, Jaipur, Greater Chandigarh and Bhubaneswar.
This real estate price index would be a primary index that institutional investors could rely on to sense the performance of the real estate industry. It would record how realty performed as compared to other asset classes like stocks and bonds. Moreover, it would provide a better understanding of the risk and return for commercial real estate. It may be used as a basis for developing diversification strategies like percentage allocation to real estate to minimize risk for a target portfolio return. It would be the first available index to measure the performance of income coming from realty sector.
RBI may take inputs from banks and select home finance companies on sale and resale prices as builders may be apprehensive about sharing property price information due to competition reasons.
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