REAL ESTATE - Property indices of little help to buyers

Thriving real estate mar- kets across Indian cities offer enormous potential in terms of market research and data collection. And yet there is no real data that homebuyers can fall back on in order to com- pare prices. With the real estate market primarily in the hands of large as well as small brokers, even data provided by the three property indices in India are only indicative and don't really give the real picture.

Says Vineet Singh, business head, 99acres.com, a real es- tate portal, “Property indices are a way to present the trend in respective markets.“

The National Housing Bank's (NHB) Residex was the first property index and was launched in 2007. Makaan.com's Property Index came a little later in February 2010, followed by PropIndex, an index launched some months back by property portal Magicbricks.com. Chen- nai-based portal Indiaproper- ties.com is also planning to bring a property index, according to Ganesh Vasudevan, business head, Indiaproperties.com.

Property indices feature res- idential capital values and their movements across the primary and the secondary markets. While these figures help you understand the pric- ing trend in the market in key cities, this may not be of much use if you want to ascertain the fair value of a property that you intend to buy. Here is a closer look at the indices and their limitations. What they showcase?

Residex: NHB's Residex tracks rates of residential properties across 15 cities, in- cluding Delhi, Faridabad, Mumbai, Kolkata, Bangalore and Chennai. For each city, there are details of individual municipal areas or zones.

At present, the index deals only with residential space and is based primarily on the records of banks, brokers and real estate consultants for get- ting transactional rates.

Makaan.com Property Index: This provides information on price movements of residential properties across Delhi-NCR, Mumbai, Bangalore, Pune, Hy- derabad, Chennai, Kolkata, Ahmedabad and Chandigarh.

“The property index that comes every month is based on listings on our website. The same listing when used for the research is cross-checked with our sales team for its reliability and authenticity,“ says Aditya Verma, senior vice-president and chief operating officer, Makaan.com.

PropIndex: Being in the apartment space, PropIndex focuses on apartment trends and covers the most active top 11 cities of the country.

“In each city report, to ensure a holistic perspective of the per- formance of real estate markets, four different key metrics are coveredPropIndex (which is a composite index of capital ap- preciation, supply and apart- ment rates), price monitor (which shows capital apprecia- tion or depreciation), rent mon- itor (which shows rental appre- ciation or depreciation) and yield monitor (which shows the rental yields within each city),“ says Sudhir Pai, business head, Magicbricks.com.

PropIndex covers supply trends, rental yield and rental rate movements, apart from capital value appreciation.

Started this year in March, PropIndex will cover trends for each quarter. The data is pri- marily based on the listings on the website. “However, to be sure on end result, we have bounced the outcome of our re- search, PropIndex, with indus- try experts, who have validated its authenticity,“ adds Pai.

Where they lack?

Limited cities and areas cov- ered: The data from these indi- ces will not be of any use for you if you live in a city other than the ones that these indi- ces track. Moreover, not all ar- eas are covered even in the cit- ies that are part of the indices.

While Residex covers 15 cit- ies, PropIndex is limited to 11.

“By 2012, Residex will cover 20 cities,“ says R.V. Verma, chair- man, NHB. “By April next year, Makaan.com property index will cover 12 cities instead of the present eight,“ adds Makaan.com's Verma.

Apart from being limited to a few cities, these indices do not cover emerging residential destinations, which are now attracting homebuyers. For in- stance, Residex gives informa- tion on Faridabad, but fails to give price movements in the already established National Capital Region markets such as Noida and Gurgaon.

On the other hand, PropIndex doesn't cover Faridabad and other emerging destinations, in- cluding Bhiwadi and Dharuhera, which are seeing activity. Barring a few cities, Makaan.com too fails to capture emerging markets completely as of now. Commenting on rea- sons for not expanding to most emerging markets, Pai says, “We have been monitoring other cit- ies as well. But some of these cities are not yet ready with so many listings that these can be included in the index.“

Data only indicative: The data in these indices cannot be fully relied upon since they are only indicative. Usually, the actual market prices are based on transactions and in some cases depend on local brokers, but the indices follow a differ- ent method to arrive at prices.

Warns Singh, “Most indices currently available in the mar- ket are based on the asking rates or the quoted price and not on the real transaction rates. Even NHB's data is relat- ed to registry rates, which are often misquoted and false.“ o No uniformity in findings: f Another challenge is that there t is no similarity in the market t values reflected by each of the indices, which makes it diffi- c cult for a homebuyer to rely s upon them. For example, Resi- f dex shows a 16.29% apprecia- b tion in Delhi, while PropIndex o shows a drop of 11% in Delhi, s during the April-June period. s The Makaan.com index's data i for this quarter is awaited.

Similar disparities are in other l findings too. t NHB collects data from vari- ous sources, including banks, d independent dealers and con- i sultants in the region while i property portals largely de- t pend on their listings and sales a for data. Says Anshuman Mag- azine, chairman and managing director, CB Richard Ellis t South Asia Pvt. Ltd, an interna- d tional property consultant i firm, “This kind of research re- j quires a lot of investment. In my opinion, most property portals are not putting enough investment in this area. Also, from the valuation point of view, rates vary between the asking rates and the actual transaction rates. It is likely that two adjacent properties within the same locality may have different rates. However, ascertaining the exact value in the apartment space is much easier than in other categories of residential real estate.“

Delayed data: Delay in col- lecting and presenting data is also a problem. For instance, if you want to buy a house now, data is available only for the last quarter.

Says Makaan.com's Verma, “Real estate prices change at a fast pace. An up-to-date monthly index will bring more clarity on rates. Prospective homebuyers may not come to know about the real rates at a given time looking at the index as the rates may get revised by the time they are released.“ Makaan.com has a monthly in- dex but it has been updated since March.

How can you use them?

While it may be a while be- fore the indices mature and overcome the challenges they face now, they can be used in their present form too, even though to a little extent.

You can choose an index ac- cording to your needs. For in- stance, PropIndex will be use- ful in case you are looking at buying apartments. On the other hand, Residex can aid a secondary market transaction since it also factors in the reg- istrar's records. Since Makaan.com's data is month- ly, you can use it as an add-on to PropIndex and Residex.

“For end users this is of aca- demic value. But people living in an area can know from the index that there is an apprecia- tion of their property value,“ adds Makaan.com's Verma.

So while property indices will give you a broad indica- tion of prices, don't expect a detailed insight on an area. Do individual research instead of just relying on the indices.

MINT | Page: 20 DEVESH CHANDRA SRIVASTAVA, New Delhi | September 30, 2011

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