Housing price indices in India

Abstract

The housing activity in the country, high already, is expected to further accelerate in the next few years, mainly because the government has already announced that it is committed to provide a house for all by 2022. The increased activity will impact the housing markets as a change in the house price affects the households’ perceived lifetime wealth and hence influences the spending and borrowing decisions of households. Further, house price gains increase housing collateral and hence housing credits. The potential two-way link between bank lending and house prices give rise to mutually reinforcing cycles in credit and real estate markets. The increasingdominance of the sector necessitated setting up of a mechanism which could track the movementof prices in the residential housing segment. Therefore, it becomes necessary to prepare anaccurate measure of aggregate house price, despite limited availability of data, in order to understand the behavior of housing markets and their influence on the economy. To understand about house prices, it is important to understand about housing indices. In India, NHB and RBI construct and release an index each, RESIDEX and HPI, respectively. In case of both the indices there are a number of problems.