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Housing index to keep track of property rates
6 Mar 2009, 0411 hrs IST, Mahendra Kumar Singh, TOI
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NEW DELHI: Reserve Bank of India (RBI) is soon going to launch a housing start-up (HSU) index which will reflect the availability of housing stocks and real estate prices in cities across the country.
The HSU aims to measure changes in the level of activity in housing sector and to identify growth and recessionary tendencies in housing and related sectors of the economy.
The central bank is likely to set up a standing committee which will consist of officials from Central Statistical Organisation, Office of Registrar General and housing ministry to launch the index and monitor its progress.
"The number of housing starts during a period indicates the demand and supply situation in the housing market, as reflected in conversion of the building permits into actual starts," the RBI said in a statement.
The proposal has come after a technical advisory group (TAG) on the issue submitted its report based on pilot survey in five cities for the start-up index and recommended setting up of the standing committee.
The survey compared the number of building permits issued across five cities, including Delhi, Mumbai, Coimbatore, Villupuram and Saswad, with how many had actually translated to construction activity.
The TAG, which suggested field survey once in three years, argued that the present system of data collection by National Buildings Organisation (NBO) could be finetuned to get data on building permits on quarterly basis which would constitute the basic information for the index.
The base year of the index is 2003-04.
The lack of reliable and accurate data on housing restricts experts and government's ability to make economic forecasts which could change with the launch of the index.
"Presently, the government is not aware of what is really happening in the housing sector, even though construction has strong forward and backward linkages with various sectors," said an official.
The HSU index is likely to become an important indicator to monitor the housing sector, considering the global economic downturn being partially linked to the development in the sector.
All major economies, including US, Canada and Japan, use similar indices to assess economic activity using demand and supply data on the housing sector.
As housing has forward and backward linkages, the proposed index will be useful in assessing demand and supply situations in other sectors, such as cement and steel.
An official said a rise in the index would indicate economic growth, potential rise in real estate prices and potential pressure on interest rates. Conversely, a fall in the housing index would mean a fall in real estate prices and interest rates would follow suit. It would also mean that GDP growth is slowing.
The index will also echo the commitment of builders to new construction activities. Also, high construction activity is usually associated with increased economic activity, and can be considered an indicator of where short-term interest rates might go.
While individual buyers trading in stock market and builders can benefit by interpreting the indices to get an idea of demand and price movements of different types of houses in various regions and localities, the housing finance industry can use the indices to assess the likely demand for finance. The index would also provide data across variables like owners' income level, occupational and social groups and sources of finance, said an official. Sources in the ministry said it was premature to assume how such data would be collated, since there was a lot of illegal construction.
"We are taking the help of local bodies, which issue permits, to collect data. However, there is no doubt that unauthorised construction is going to be a major problem for us," said an official.
