In order to track your investments in any financial market over a period of time, indices have always been an effective tool. A number of general indices have been in existence to track the stock market as well as other economic parameters; however as the economy expanded and the number of companies increased, it became imperative to have sectoral indices in order to analyze performance of a particular industry or sector. Since the parameters and companies are chosen from the same industry, the sectoral indices present a clearer picture about the sector than the general indices.
Real estate indices can be considered as a relatively late entrant to these sectoral indices due to the unorganized nature of the industry and lack of available market data. The other factors that prohibited the development of real estate indices were lack of transparency in the sector, low level of corporatization of real estate entities and proprietorship control of the business. However, for the past few years, efforts have been made to develop real estate indices on the back of entry of large corporates in the sector, favorable government policies in terms of corporate governance and disclosure norms that has led to improved transparency in the sector, increase in the foreign investments at the corporate as well as project level, change in the funding pattern for real estate players with increasing emphasis on equity finance and increase in the buyer awareness with regards to property and its features.
Real Estate Indices
There are a number of real estate indices which help the buyers to take an informed decision –be it investing in real estate stocks or buying an apartment for end-use or for investment.BSE Realty Index
With an aim to achieve greater investment in Indian real estate and to assist international real estate players to judge Indian companies for investment, Bombay Stock Exchange launched BSE Realty Index in 2007. Currently, comprising of 12 scrips, this index gives an in-depth perspective about the financial performance of the listed real estate entities as well as general trends on the direction in which the sector in moving.NHB Residex
NHB Residex tracks housing prices across 26 Indian cities; which can serve as an useful input for different interest groups. For general consumers and property buyers, the index helps in their decision-making by enabling comparisons over time and across cities and localities. From the lenders’ point of view, the index helps in estimating the value of the property; while from the developers’ point of view, the index can help them to assess the demand scenario in a locality, and in mapping the housing needs in different parts of the country.RBI RPPI
Reserve Bank of India has come up with its own residential property price index (RPPI) that maps residential property prices across 13 cities. In this index, the information is collected from financial institutions as well as housing finance companies about the sanctioned loan amount. Reserve Bank of India also compiles Housing Price Index (HPI) for which the data is collected from the Department of Registration and Stamps of state governments of 10 cities. HPI has some advantages over RPPI in terms of coverage and accuracy, as all housing transactions are not financed by financial institutions
In addition to these indices, there are a number of real estate indices devised by realty portals, real estate research agencies and valuation companies.