Development of index for commercial property prices and rents in Bangalore

Abstract

The economic growth of above 6% over the last decade combined with the suitable demographics has made India a favourable location to do business. This has led to demand pressures on the real-estate sector, both commercial and housing properties. This has sent property prices soaring in cities like Bangalore which is considered the IT hub of India. Monitoring asset price movements using an accurate index can help the regulator take decisions to control cyclicality and increase financial stability. Constructing a price Index in India is difficult because the real estate sector is unorganized. The lack of a central authority to do title registration and the high taxes and stamp duties on property transactions lead to reporting of prices that are below the actual value of the transacted property. Lagging Infrastructure growth also causes skewness in property prices, which is the reason why the returns on commercial property are the highest in India. Thus, a method to circumvent the above problems must be created. This paper studies the most popular index construction methodologies: repeat sales method, Hedonic method and Hybrid method. Their advantages and limitations are studied to understand the methods that is best suited for Indian cities. Besides, the indices that have been developed so far have also been studies to understand how the data collection is implemented. RESIDEX, by the National Housing Board a government ministry and another index RESSEX by a private real estate research agency are studied to further understand the methods suited for India. RBI ( reserve Bank Of India) has appointed an Experts Group to develop a commercial Based on our literature survey, we have suggested the use of Hedonic and Repeat Sales method to construct the index to control for quality as well as get data representative data. A detailed data collection methodology is explained to get credible data that reflect the market trends.