NHB Residex shows increase in housing prices


Recently, the Ministry of Housing flagged off a new index-The National Housing Bank Residex, designed to track housing price trends in 50 cities across India.


  • NHB Residex that captures movements in the prices of residential real estate prices revealed that prices during January-March, 2017 have increased over that of October-December, 2016, in about half of the cities covered under the survey while the other half have either registered a decline or remained the same.
  • The Ministry of Housing claimed that the new index proof that demonetization hadn’t dealt a big blow to the housing market.
  • Even the recent release of Housing Price Index of Reserve Bank of India noted that Housing prices increased by an average 10.5 per cent during the January-March quarter of last fiscal across 10 major cities of the country.

What is NHB Residex?

  • Residex is a housing price index updated quarterly by National Housing Bank (NHB).
  • NHB, the apex level housing finance institution fully owned by Reserve Bank of India (RBI).
  • It regulates activities of housing finance companies (HFCs) in India.
  • RESIDEX, the country’s first official housing price index (HPI) was launched in 2007 covering 26 cities and was published till March, 2015 on a quarterly basis. The revamped RESIDEX has been expanded to 50 cities spread over 18 States and UTs. These include 38 smart cities, of which 18 are state capitals.
  • Base year for the new RESIDEX has been moved from 2007 to 2012-13 to capture the changing structure of the economy besides capturing the latest information to accurately reflect the current economic situation, as per the internationally accepted practices.
  • NHB RESIDEX helps buyers and sellers to check and compare prices before entering a transaction
  • It helps lenders in credit evaluation. It provides promoters with a standardized tool to assess the housing demand.
  • Government agencies can monitor trends in macro and micro markets and predict future behavior of the housing.
  • The National Housing Bank collected data on land prices which showed that a correction in land prices is taking place which again reflects the declining trend in transactions of unaccounted money.

Findings of the NHB Residex:

  • According to lender’s data compiled by the NHB Residex, as many as 32 of the 50 cities tracked registered rising housing prices and 13 recorded stable trends, in the twelve months to March 2017.Only five cities saw declines.
  • Large markets also exhibited very positive long-term trends.
  • The Residex pointed out a 44% rise home prices in Pune, 42% in Mumbai, 37% in Bengaluru and 33% in Chennai, from FY13 to the first quarter of FY17.
  • Residex, for January-March, 2017 revealed that price indices for residential properties based on actual market prices for ongoing construction prices have increased over the previous quarter in 24 of the 47 cities covered in the Index including in Jaipur, Chennai, Lucknow, Guwahati, Howrah, Hyderabad, Bidhannagar etc.
  • In Delhi, Faridabad, Chandigarh, Patna and Nashik etc, prices have come down.
  • The Residex has been computed for three categories of houses with carpet of below 60 sq.mtre, 61-110 sq.mtres and 111 sq.mtres and above.

Reasons behind rise in housing prices:

  • The year 2016-17 saw a perfect storm of events came together to dampen demand housing in India.
  • Demonetisation and the resulting purge of the cash component in real estate transactions.
  • Budget delivered a rude shock by capping the tax break from ‘loss of house property’ at Rs 2 lakh a year, for second and subsequent homes. This effectively put paid to the ‘investment’ buying of homes, a key source of housing demand in Tier 1 cities.
  • Cloudy job prospects, stingy increments and layoffs for the IT sector dampened purchases by this crucial segment too.
  • The enactment of RERA (Real Estate Regulation Act) on May 1, which forces developers to segregate buyer advances and deploy it only in specific projects, was expected to result in a working capital crunch for developers.
  • The industry was in go-slow mode in the run up to this event.
  • Consulting firm Knight Frank India noted in a recent review that, the sales of residential homes in the top eight cities fell by a precipitous 48% in the second half of 2016, compared with the previous year.
  • In January-June 2017, they climbed from that abyss, but home sales in these cities were still 11% below 2016 levels.

Present situation:

  • The all-India Housing Price Index recorded a sequential increase of 0.8% in the Q4 FY 16-17 with six of the 10 cities, recording a rise in the sequential terms.
  • Kochi recorded the highest rise of 18.3%, whereas Chennai witnessed significant contraction of (-) 6.7%.
  • On an annual basis, the all-India HPI increased by 10.5% with Mumbai, Bengaluru, Ahmadabad, Lucknow, Kanpur, and kochi recorded double-digit annual growth, whereas Chennai witnessed a marginal moderation in housing prices.
  • Retail inflation climbed to a 5 month high of 3.81% in March 2017, from 3.65% in January, while wholesale inflation eased to 5.7%, from 6.55% in January, according to official figures.
  • Although still within the Reserve Bank of India’s (RBI) medium-term target of 4%, concerns about inflation hitting 5.5-6% by the last quarter of the year has prompted the bank to change its policy stance from “accommodative” to “neutral”.

The home prices didn’t fall in majority of cities:

Excess inventory in any business would normally leads to seller resorting to fire sales. However, the Residex pointed out that home prices didn’t fall in a majority of cities. There are three possibilities for this:

  1. Home ownership is a big aspiration in India. New categories of buyers may have emerged to take up the slack. For example, while investment buying was muted, it is likely to lower interest rates induced more first-time home buyers to take home loans to acquire residential property. The 12% growth in bank home loan disbursements in FY 17, as per RBI data, indicates this.
  2. The lower demand for upmarket homes may have been made up by a surge in demand for affordable homes.
  • In the past few years, much of the housing market activity in India was focused on upmarket homes in the metros, costing upwards of Rs 75 lakh. But there was a shortage of affordable homes in the sub-Rs 25 lakh segment.
  • The government launched a big stimulus package for affordable housing with an upfront subsidy, with the result that the supply of low-cost homes has jumped.
  • The Knight Frank report pointed out that homes costing up to Rs 25 lakh accounted for 36% of launches in H1 2017, compared to 17% a year earlier.

3- Private equity or political funding, many sellers in the Indian real estate industry have staying power, allowing them to wait interminably for buyers to return. The price trends captured in the Residex could also have a lot to do with the strange nature of the real estate beast.

Nature of Beast;

  • Unlike the market for shares, where all transactions take place on a national exchange and can be collated into a single ‘quote’ the housing market is fragmented into dozens of micro-markets.
  • Housing prices can vary widely between cities in the same State, localities within the same city and even neighbourhood within a locality.
  • Transactions are negotiated one-on-one between buyers and seller and then reported; deal values depend mainly on the negotiating power of each buyer vis a vis the seller.
  • For the prices in any market to realistically capture demand and supply, the number of reported transactions needs to be large.
  • In the housing market, when prices are low seller are known to refrain from deals, leading to fewer transactions.
  • Property deal-making was indeed at low ebb across the country during the last year, with sellers unwilling to drop prices, buyers, waiting for better bargains and new launches on hold.

Reasons for drop in Sale:

Some of the factors that have been detrimental to the re-sale market are as follows:

  • The demonetization move restricted all cash transactions and in turn led to an outright price reduction of 15%to 30% of the property cost, resulting in huge inventory pile-up with the real estate developers.
  • The government has unveiled new policies focusing on the affordable housing segment that are likely to induce a further drop in the sale of existing inventory.
  • The current sentiment in the market is also not in the favor of investing in the real estate market.
  • Newly-launched properties are overly hyped by the developers to bring in higher profits.

Current challenges:

  • The new landscape of transparency, efficiency, and governance brought collectively by the demonetization scheme, the Benami Transactions (Prohibition) Amendment Act, 2016 and the real estate regulation will challenge the status quo of real estate investment and transactions.
  • Developers are now focusing energies on serving the end user segment rather than investors.

Related Acts:

  1. Real Estate Regulatory Act (RERA):
  • The Real Estate Regulatory Act (RERA), giving rise to India’s first real estate regulator, was finally implemented on May 1.
  • Under the act, each state will have its regulator protecting buyers’ interest and maintaining speedy dispute resolution.
  • It will address issues like delays and quality of construction, among others.
  • All real estate projects will have to be registered with RERA, including alterations made and revenues collected.
  1. Enemy Proprty (Amendment and Validation) Bill 2016
  • The Indian Parliament recently passed the Enemy Property Bill, amending a 49 year old law.
  • In 1968, after the Indo-Pakistan War of 1965, the Enemy Property Act was enacted to administer “properties belonging to or managed on behalf of an enemy, or enemy firm.
  • It listed the Custodian of Enemy Property for India, where such properties are vested.
  • Under the amendment Bill, successors of these who migrated to Pakistan and China during partition will no longer have any claim over properties left behind in India.
  • Around 9, 5000 enemy properties have been identified, majority of which belonging to Pakistan citizens from the time of the wars.


  1. The Housing Ministry has also notified the Real Estate (Regulation and Development) Act 2016, to regulate the housing sector besides bringing transparency and ensuring timely completion of projects.


The index needs to expand its coverage to more cities and broad-base its sources, it will make the Indian housing market more transparent and empower the helpless home buyers.


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