House Price Indices in India - 2015

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477
WORKING PAPER NO: 477
HOUSING PRICE INDICES IN INDIA
Charan Singh
RBI Chair Professor
Economics & Social Science
Indian Institute of Management Bangalore
Bannerghatta Road, Bangalore 5600 76
Ph: 080-26993818
[email protected]
Year of Publication January 2015
Electronic copy available at: http://ssrn.com/abstract=2564428
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Housing Price Indices in India1

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 inuences 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 increasing
dominance of the sector necessitated setting up of a mechanism which could track the movement
of prices in the residential housing segment. Therefore, it becomes necessary to prepare an
accurate measure of aggregate house price, despite limited availability of data, in order to
understand the behavior of housing markets and their inuence 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.
Key words: Housing Indices, housing prices, RESIDEX. HPI, Housing, Real Estate, monetary
policy.
1
The paper was completed in July 2014 and has benefitted from discussions and inputs from Rishab Jain, Magicbricks; Ashutosh
Limaye, Jones Lang LaSalle; and Pankaj Kapoor, Liases Foras. The author would also like to thank Debeleena Datta, Jafar Baig,
Siddharth Sharma, Divya Sadana, Dr. B. Anand and Shara Bhattacharya for research assistance.
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In India there is a lack of scholarly work on real estate markets. However, 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. To encourage
housing activities, the government is extending incentives such as easier flow of FDI, inclusion of slum
development in the list of Corporate Social Responsibility (CSR) activities and additional tax incentive on
home loans to encourage people, especially the young, to own houses. The government has also proposed
to set up a Mission on Low Cost Affordable Housing to be anchored in the National Housing Bank
(NHB) with an allocation of Rs. 4,000 crore for NHB with a view to increase the flow of cheaper credit
for affordable housing to the weaker segment. To further encourage this, projects which commit at least
30 per cent of the total project cost for low cost affordable housing will be exempted from minimum built
up area and capitalisation requirements, with the condition of three year lock-in. The government has also
proposed to increase the allocations for the year 2014-15 to Rs. 8,000 crore for NHB with a view to
expand and continue to support rural housing in the country.
A change in the house price affects the households perceived lifetime wealth and hence inuences the
spending and borrowing decisions of households. An increase in the house price raises the value of the
housing variable relative to construction costs; hence a new construction is protable when house price
rise above the construction costs. Residential investment is, therefore, positively related with house price
increase. House prices may also affect bank lending and vice versa. 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. These indicate that house
prices may affect economic activity through private consumption of households, residential investment
and credit allocation of the financial systems.
Over the last few years, housing and real estate has emerged as a major area for creation of both physical
and financial assets and it is a fast expanding component of the service sector and constitutes an
increasing proportion of national wealth. The increasing dominance of the sector necessitated setting up
of a mechanism which could track the movement of prices in the residential housing segment. However,
information on house prices is not easily accessible; lack of transparency in the residential property
market and limited availability of price information pose signicant challenges for identifying the nature
of real estate price dynamics and their relationship with financial stability and monetary policy.
Therefore, it becomes necessary to prepare an accurate measure of aggregate house price, despite limited
availability of data, in order to understand the behavior of housing markets and their inuence on the
economy.
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Housing indices help to gauge the housing prices reflecting a balance between demand and supply of
houses in any country. This paper intends to conduct a detailed examination about different housing price
indices in India. The paper is organised in six sections. In Section II, a brief review of literature on
general housing issues as well as those related to housing index are discussed. The details of the housing
index in India and their computation is explained in section III. A cross-country experience, spanning
advanced and emerging countries, separately, is presented in Section IV. A comparison of the select city
indices in India is made in Section V. Finally, conclusions and recommendations are offered in Section
VI.
Section II: Brief Review of literature
House prices are an important determinant of household sectors gross and net wealth and thereby of
consumption and savings. In many countries, including India, house property is the households largest
asset, and price developments in housing markets can impact growth directly but mainly through credit
channel since real estate can serve as collateral for consumer borrowing (Kiyotaki and Moore, 1997; and
Bernanke and Gilchrist, 1999). Furthermore, housing cycles can influence the economic activity through
wealth effects on consumption and private residential investments mainly due to changes in profitability
and the impact on employment and demand in property related sectors.
The decision to purchase a house is a policy decision of the households to demonstrate a different kind of
life (Shiller, 2007). The increase in home ownership has its origin in housing boom which has been
evident in Australia, Canada, China, France, India, Italy, Korea, Russia, Spain, UK and the USA (Shiller,
2007).
If house prices are not aligned with the fundamentals they can threaten the economic and financial
stability of the country mainly because of the macro-financial linkages, as recent empirical evidence from
the US and some countries in Europe demonstrates. One of the most important causes of financial crises
was collapses in real estate prices, either residential or commercial or both (Reinhart and Rogoff, 2009).
There have been cases where such collapses have taken place after bubbles in the real estate prices and
both, the financial sector and the real economy are adversely affected after the bubble bursts. The current
crisis can be taken as another example, wherein decline in the real estate prices led to a drastic drop in the
securitized asset prices in 2007. Further, the instability which followed impacted the balance sheets of
many financial institutions as was predicted by Feldstein (2007). The financial crisis then got carried
forward to the real sector.
Housing sector is impacted by both, monetary and fiscal policy, macro prudential norms and labour
policy prevalent in the economy (Hilbers et.al. 2008). To explain the global financial crisis, a generally
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accepted argument was that the loose monetary policy and excessive availability of credit were the causes
for the real estate bubble in these countries. As argued by Taylor (2008), levels of interest rates were
lower than in previous U.S recession relative to the economic indicators captured by the Taylor rule.
The low interest rates encouraged borrowing and buying of houses. While Spain had one of the largest
deviations from the Taylor rule, this country also had the largest housing boom.
Swedens Central bank, the Riksbank is one of the rare central banks that have taken the approach of
targeting the real estate prices. Policy of the Riksbank is to look at property prices while taking decisions
about interest rates (Ingves, 2007). In comparison with larger countries, the smaller ones have a stronger
monetary transmission through the housing channel but a robust financial system is an imperative
requirement for such transmission to be successful (Singh, 2013).
Cross country studies indicate that the growth in housing finance depends upon a number of factors such
as credit history of the borrower, ability of the financing institution to secure collateral, macroeconomic
stability prevailing in the economy and trends in household income (Warnock and Warnock, 2007).
According to Case and Shiller (2004), locational factors such as accessibility, schools, crime, construction
costs, and age of housing stock and industrial organization of the housing market also influence
movements in housing prices.
According to Shiller (2014) Sophisticated innovations that rely on data sources, such as home price
indices, cannot be implemented until the accurate indices are publicly provided, and with enough history
to permit understanding the properties of the data. Moreover, the price index used can have dramatic
ramifications on the assessment of whether a home price bubble exists (McCarthy and Peach; 2004).
On indices, constructing an index of home prices, a number of empirical studies establish that key
determinants of housing prices are income levels, interest rates, supply conditions, demographic changes,
number and size of households, maintenance costs, property taxes and speculative pressures (Case and
Shiller, 2004; Poterba, 1984; Allen et.al. 2002 and OECD, 2005). To construct an index across the nation
or a region is a complex exercise because home sales do not occur in centralized markets, as do, for
example, corporate equity transactions. House price transactions are infrequent and apply to a highly
heterogeneous item. Comparing the prices of different things because each house is different, on a regular
basis is highly problematic. Moreover, secondary source data are generally used for Housing Price Index
(HPI), and their nature depends on the institutional arrangements in a country for selling, financing,
taxing, and registering the sale of a residential property. This gives rise to the potential for quite
significant methodological and coverage differences in HPI measurement (Silver; 2012).
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Internationally, the house price index is compiled using three methodologies. The rst methodology is
based on simple average of observed prices. The second looks at repeat sales of the same property. The
third treats a house as a bundle of attributes, each with its own price that changes over time and makes use
of the hedonic methodology. In practice, development of an aggregate HPI is difcult because of its
inherent heterogeneity and infrequent nature of sales. This means houses vary in quality across sectors
and over time. As no two houses are the same, the observed difference in characteristic (quality) between
two houses will be reected in difference in price. Also, since a transaction on any specic house occurs
relatively infrequently, it is hard to know the amount at which a specic house will transact on a
particular day. Thus, the characteristics of heterogeneity and infrequency of sales together make it all the
more difcult to nd a representative sample of house prices on which an aggregate price index can be
estimated. Accurate estimation of house prices is important for a variety of reasons. Housing consumers,
urban economists, and housing policy analysts require information on house prices when making housing
consumption decisions, while modeling housing market behaviour and when evaluating the equity and
efficiency implications of alternative government housing assistance programs. This is typically done by
constructing quality-adjusted house price indices from hedonic price regressions for given metropolitan
areas (Thibodeau; 1995, Can and Megbolugbe; 1997). Two basic techniques for measuring and analyzing
the structure of housing price are hedonic models (Kain and Quigley, 1970) and repeat sales model
(Bailey et.al., 1963).
At its simplest, a hedonic equation capturing the quality variables is a regression of expenditures (rents or
values) on housing characteristics (Shiller, 1996). Hedonic models relate the selling prices of dwellings to
measure their physical and locational characteristics and to some representation of time. Hedonic pricing
models based on multiple regression techniques have the advantage of being able to use several times as
much data since all sales may be included, repeat or otherwise. Attempts to adjust for quality and quantity
changes are based upon regression models that inherently control for these influences. Hedonic models
can be run on whatever sales data are available to date and do not require the recent sales to have prior
sales (Miller and Skalarz; 2008). However, the major disadvantage associated with the hedonic-price
method is the cost of data collection. Constant-quality methodologies are ideal for many uses and
applications such as attempting to identify a bubble in housing markets. In this type of analysis, the
pure price signal is what should be identified and analysed in an attempt to see if pricing has become
irrationally high (Case and Hachter; 2005).
Case and Shiller (1987, 1989, 1990) were the first to produce repeat sales indices in real time and these
are now produced by Corelogic, Inc., and the major indices are managed by Standard and Poors
Corporation (Shiller,2014). Repeat Sales indices are estimated by analyzing data where all units have
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sold at least twice. Such data allow us to annualize the percentage growth in sales prices over time. These
are time series indices in their pure form. They do not provide information on the value of individual
house characteristics or on price levels but they have the advantage of being based on actual transactions
prices, and in principle allow us to sidestep the problem of omitted variable bias. The advantage of the
repeat sales index approach is that there is an attempt to control for changes in the quality or quantity of
the homes represented. Homes may age and wear out over time, so such an index is appropriate for those
with a typical home who wish to gauge changes in price. Over the years, repeat sales models have come
to wide and even commercial use. However, considering the subset of dwellings sold twice entail several
challenges. Small sample problems constitute a special concern in repeat sales models, since sample sizes
tend to be smaller than hedonic methods based on all transactions in a given period of time. Moreover, a
cluster of observations in one time period does not only influence the index corresponding to that
particular time period, but all other estimated indices (Miller and Skalarz; 2008., Sommervoll; 2006).
Hybrid indices combine elements of two or more methods into one index. Such methods seek to take
advantage of the strengths while minimizing the weakness of the constituent indexes. These could be time
series, cross section, or both (Quigley; 1995. Malpezzi; 2002).
Section III: The Indian scenario
Housing is an important subject for any economy. Its volatility concern banks as well as corporates
having large exposure to real estate. Further house prices are an important consideration for policy makers
in framing monetary and fiscal policies. Granular information on movement of these prices (location,
zone and city) are an important relevant indicator for the local authorities in formulating their property tax
policies.
Closely following the supply side is the housing finance industry which has been a complementary focus
of shelter programs of the government. One of the major considerations in housing finance is the proper
valuation of the properties which has critical bearing on the assessment of collateral security. The house
prices in India have generally been following a rising trend when measured in nominal terms, but in real
terms, on 2008 prices, house prices have declined in some cities (Table 1).
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Table 1: Lowest and Highest House Prices in Rupees per sqft in June 2008 prices
Cities
Bangalore
Kolkata
Mumbai
Delhi
Pune
Jun-08
Jun-09
Jun-10
Jun-11
Jun-12
Jun-13
Jun-14
Lowest
1843
1707
1490
1746
1854
2205
2303
Highest
7052
8534
7973
12472
9662
9439
9309
Lowest
1252
1339
1525
1405
Highest
13953
13241
10521
9024
3467
59236
3671
75037
4456
73114
4680
63430
5360
60567
5579
58683
Lowest
1607
1490
1398
1632
2017
1818
Highest
9830
10465
10065
10866
9287
9365
1885
4444
1714
4303
1873
5027
1840
9389
1991
6644
2058
7135
Lowest
Highest
Lowest
Highest
4096
82898
2158
4882
Note: House Prices are deflated using WPI monthly from RBI and making June 2008 price as base.
Source: Liases Foras Real Estate Rating & Research Pvt. Ltd.
In India, two major indices are released by the NHB and the RBI, respectively (Table 2).
Table 2: HPI and Residex for selected cities

RBI
Cities
Ahmedabad
Bengaluru
Chennai
Delhi
Jaipur
Kolkata
Lucknow
Mumbai
All India
Annual
Avg (AM)
2012-13
Annual
Avg (AM)
2013-14
Base
Q4:2008
- 2009
Q4:2009
- 2010
Base
2010-11
100
124
100
148
169
100
99
100
138
162
100
118
100
128
160
100
110
100
194
218
100
143
100
120
126
100
108
100
154
171
100
113
100
157
194
100
136
100
154
167
100
119
100
152
A-M April to March
Note: RBI's HPI base year were Q4: 2008-09 and 2010-11
Source: RBI and National Housing Bank
NHB
Base
2007
Annual
Avg
(A-M)
2013
100
100
100
100
100
100
100
100
192
109
315
197
109
195
187
222
Average
Jan-Jun
2014
211
108
352
196
102
209
194
231
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NHBs RESIDEX
RESIDEX is calculated and released by the NHB to measure residential price changes in India.
Historically, NHB at the behest of the Ministry of Finance undertook a study to examine the feasibility of
preparing an index at a national level which could track the movement of prices in the residential housing
segment. Despite the existing gaps in tracking the true prices, NHB believed that an organized mechanism
to track prices can be put in place through a suitable index.
NHB recognized that development of a credible database on actual price trends has emerged as a crucial
element of market development and for enhancing the efficiency of market process. However, being a
heterogeneous good in terms of qualitative and quantitative aspects like locality, covered area, community
facilities, individual layouts etc., determination of prices are an outcome of complex interaction of various
factors. Such factors posed challenges for NHB in choice of appropriate methodology, selection of
sampling techniques, collection of data and finally development of a representative price index. To
analyse the data and chart the course of action for computing indices a Technical Advisory Group (TAG)
with representations from Government, RBI and market players, was constituted. 2
NHB RESIDEX an early Timeline
-
The TAG after reviewing international best practices decided to use both the hedonic regression
model and the basic Laspeyres weighted index for constructing a housing index for Delhi for their
pilot study.
2001 was taken as the base year for the study to be comparable with the WPI and CPI. Since
registered prices are grossly under estimated due to high registration fee and stamp duty,
information was also collected from property dealers, Residents Welfare Associations, Municipal
Corporations and private builders.
For the housing index, basic data was collected for each year since 2001 for select 5 cities. For
each selected colony of the 5 cities and for each year, information was collected for 20
transactions which took place during that year.
Period wise change in RESIDEX calculation followed the following timeline 1. 2001-2007 Calculated yearly, only 5 cities which are Delhi, Mumbai, Kolkata, Bengaluru and
Bhopal were included and 2001 was the base year.
2. 2008- 2009 Calculated half yearly, 10 more cities namely Ahmedabad, Faridabad, Chennai,
Kochi, Hyderabad, Jaipur, Patna, Lucknow, Pune and Surat were added and base year was shifted
to 2007.
3. 2010 - 2011 - Calculated quarterly, total 15 cities, 2007 as base year.
4. January 2012 - December 2012 - Calculated quarterly, expanded to cover five more cities Bhubaneswar, Guwahati, Ludhiana, Vijayawada and Indore.
2
National Housing Bank, 2007
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5. January 2013 - September 2013 - Calculated quarterly, following 6 more cities added Chandigarh, Coimbatore, Dehradun, Meerut, Nagpur and Raipur.
Whenever the new cities were included in the RESIDEX calculation, the zones and locations once defined
for those cities were not changed in the future updating of RESIDEX.
Data for computing the Index
Primary data on housing prices was being collected from the real estate agents/property dealers, private
builders, Development Agencies, municipal corporations and resident welfare associations. The data is
also collected from the housing finance companies and bank, which is based on housing loans contracted
by these institutions.
The data is collected from a very heterogeneous group of institutions. Illustratively, the Index for the
quarter July-Sept, 2013 was constructed with approximately 60,000 transactions provided by 11 HFCs
and 11 Banks namely State Bank of India, Bank of India, United Bank of India, IDBI Bank, Indian Bank,
Punjab National Bank, State Bank of Patiala, Allahabad Bank, UCO Bank, Punjab & Sind Bank and
Oriental Bank of Commerce. 3
The data coverage was further expanded in order to increase and expand the coverage of Residex and also
the frequency of updating, a single point source was adopted from October-December, 2013. CERSAI
collects data related to mortgages from all Banks, HFCs and other lending institutions. It provides
housing transaction data every quarter for all the Residex cities in a prescribed format. The data captures
major fields like institution name, town, locality, property address, pin code, property type, carpet built-up
area, evaluated price of asset etc.
Methodology
Modified Laspeyers approach is used in the calculation of the RESIDEX: 4
PI (Modified Laspeyers) =
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Weights Weights are at the zone level transaction - volume based and stock based weightages have been
used.
The methodology involves 3 steps
1. In each zone for every category, the average price was obtained by taking average of all the prices
pertaining to that category in the zone. After this the ratio of the current quarter average price to
the base year is taken and multiplied by hundred and hence the price relative for that category for
the year was worked out.
2. The category wise price relatives were combined using the number of the transactions reported
under different categories during 2007 (the base year) in a zone as weights, to get an index for the
zone. 5
3. The city index was calculated by aggregating the zone level indices using the area covered in the
different zones/housing stock during 2007 as the weights.
Merits
The key merits of RESIDEX are- a) RESIDEX covers both, the transactions and the home loan disbursals
while compiling data; and b) Since the information is collected from various sources such as real estate
agents, housing finance companies and banks, it can be considered as a representative value of the
property. RESIDEX suffers from the following limitations a) Since a large part of the data collected to
compile the index comes from real estate agents via different private consultancy/research organizations
and as there are no set standards and valuations, the property valuations done by people with varying
skills may differ; and b) It does not segregate the residential properties as apartments or houses or villas
or other types of properties. It does consider the size and zones/localities but prices within every locality
may vary based on the type of property or the kind of segment it is catering to. Therefore, RESIDEX may
not be the correct representative index of the housing markets in India.
RBIs House Price Index (HPI)
Beginning with Mumbai city, the Reserve Bank initiated the work of compiling HPI in 2007 and brought
out a quarterly HPI for Mumbai city (base 2002-03=100) in the fourth quarter review of Macroeconomic
and Monetary Developments 2008-09. Over the years/quarters, the coverage was extended by
incorporating eight more cities, viz., Delhi, Chennai, Kolkata, Bengaluru, Lucknow, Ahmedabad, Jaipur
and Kanpur, and the base was shifted to Q4:2008-09=100. Trends in all-India HPI and its constituent
cities were also disseminated regularly by the RBI.
Stratification of the colonies was based on the house stock distribution as available in census 2001.
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The price data on transacted houses while registering of a house are collected from the Registration
Departments of respective state governments. This approach attempts to develop a house price index on
the basis of registration price data and stratified weighted average measures, where transactions are
stratied in three categories, viz., small, medium and large houses and different geographical
wards/zones. However, this measure captures prices relating only to those houses that are sold during a
period and not relevant to all houses in the economy. In addition stamp duty is known to lower prices and
number of transactions (Dachis, et al., 2012). And, stamp duty is varies across states and time (Duranton,
et al., 2014).
Methodology for the Compilation of HPI
Registration of property is a legal and ofcial necessity for any property transaction in India. Therefore, in
principle, the ofcial authority of property registration has the details of all transactions during a reference
period. Registration authorities of respective state governments possess the data on the registration of
transactions of properties including shops, land and residential houses located in their jurisdiction. The
data are reported on transaction basis. For most centers, basic information is available in local language.
Even though the data structure is not strictly common across states, it contains the following fields: date
of registration, registration number, address, survey number, area, sellers name, buyers name,
consideration amount (transacted price) and market value. From this, data related to residential
occupancies is suitably extracted and analyzed for the compilation of house price index. The house price
index is compiled on a quarterly basis with Q4:2008-09=100 as the base. The data on prices of residential
properties are scrutinized and unacceptable data points are removed using z-scores 6 calculated separately
for each stratum in each quarter. All the observations above/below plus/minus 3 z-scores are removed.
Since the data do not include the information on type of house, i.e., under-construction or new or resale
house, the date of registration is considered as date of sale of the house. The analysis of data as well as
compilation of the index is done on the transacted price. While interpreting the results, the fact may be
taken into account that the index is based on the price which is officially declared by the buyer for the
purpose of registration.
The house price indices are calculated using weighted average method. The sample data are
stratied/segregated in different dimensions reecting size, wards/zones for each city. First, the indices
are estimated at ward/zone level, which is averaged (weighted) to obtain the city indices. An all-India
level weighted average house price index is also compiled based on the nine city indices. Weighted
The z- score is
z=
where: x is the variable to be standardized, is the mean and is the standard deviation. The
quantity z represents the distance between the individual observations and the population mean in units of the standard deviation
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Average Method Compilation of weighted average price index is done using Laspeyres weighted average
methodology. The methodology for computing the respective indices is as follows1. The simple average of price (per square meter) of houses (Pij) in each category, classied by
Floor Space Area (FSA) into small, medium and large for each ward/zone in each quarter is
calculated. As a method of averaging, median is used.
2. The proportion of number of houses transacted in the three categories of FSA within a ward/zone
during the period January 2009 March 2009 is taken as the weight (wi,j ).
3. Based on an average per square meter price for three FSA category houses in each ward/zone,
price-relatives are calculated for each quarter. The price relative is nothing but a ratio of current
period price to the base period price. Price relative per square meter for the ith FSA, jth ward/zone,
tth quarter is given by: RP i,j,t = Pi,j,t/Pi,j,0
Where pi , j , 0 is the price in the base period
4. The quarterly ward/zone weighted average price relatives are calculated.
5. These weighted relative prices are again averaged using proportion of number of houses in each
ward to the total number of houses transacted in the city during the period January 2009 March
2009 as the weight Wt . The following formula is used for compiling the city-wise HPI for the tth
quarter.
City HPI t = (
( RP
i , j ,t
Wi , j ) W j ) 100 for all t .
6. The city-wise price indices are averaged using the population proportion (based on 2011 census)
of the nine cities to its total to obtain the all-India index.
The HPI has some limitations- a) There is a perception that registration price is not the actual price paid
by a buyer. To avoid high registration fees and stamp duty as well as obligations for the payment of
property tax; b) The differences in the time gaps between the actual transactions and registrations also do
not always follow the similar pattern across different states; c) Registrations of the properties are done
taking into account different criteria in different states, some of which are - (i) partial consideration of undivided share of land, (ii) partial consideration of sale of terrace rights, and (iii) consideration of
agreement to sale at the time of booking for total price; d) HPI does not have separate information on the
type of property (residential/commercial) for Chennai. Thus, for trends both are considered and both get
reflected for the city; e) As no two houses are the same, observed difference in characteristics (quality)
between two houses will be reflected as difference in price.
Section IV: House price indices of Select Countries
This section, undertakes a brief study and indices prepared by other countries. A number of countries
compute housing indices with different frequency and methodologies. In a number of advanced and
emerging countries, monthly indices are released (Table 3). The methodology used in a number of
countries is mixed and not only repeat sales or hedonic (Table 4).
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Table 3: Frequency of publication of house price indices in various countries 7

Frequency
Advanced Economies
Emerging Economies
Monthly
UK, Canada, Australia, USA, Germany
Quarterly
Australia, USA
China, Brazil, Israel, Korea,

Thailand, Russia
India,
Indonesia,
Mexico,
Philippines
Germany
Annually
Source: Annex I and II.
Table 4: Methodology adopted by advanced countries 8
Methodology
Advanced Economies
Hedonic
UK, Australia, Germany, France
Repeat Sales
Mix-Adjusted
Median Estimate
Source: Annex III.
UK, Canada, Australia, USA

UK, Australia, Spain, Italy, Japan, Switzerland, Belgium, Sweden
Australia, USA, New Zealand
IV a. Advanced Countries
1. USA
(a) House Price Index
The US Federal Housing Finance Agency (FHFA) (formerly the Office of Federal Housing Enterprise
Oversight, OFHEO) publishes the HPI index, measuring movement in single-family detached house
prices. Mortgage transactions of apartments, cooperatives, multi-unit properties, and planned unit
developments are excluded. It serves as a timely, accurate indicator of house price trends at various
geographic levels and provides an analytical tool useful for estimating changes in the rates of mortgage
defaults, prepayments and housing affordability in specific geographic areas. FHFA uses data supplied by
Federal Home Loan Mortgage Corporation (Freddie Mac) and the Federal National Mortgage Association
(Fannie Mae), as it has access to this information by virtue of its role as the federal regulator responsible
for these government-sponsored enterprises. Moreover, Fannie Mae and Freddie Mac are the largest
mortgage finance institutions in the United States representing a significant share of total outstanding
mortgages. 9
The FHFA began publishing the HPI in the fourth quarter of 1995 (March 1996). A comprehensive report
is published every three months. Beginning in March 2008, OFHEO began publishing monthly indexes
7
Details in Annex I and II

Details in Annex III
http://www.fhfa.gov/KeyTopics/Pages/House-Price-Index.aspx
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for census divisions and the United States. FHFA continues publishing and updating these indexes each
month.
The methodology is a modified version of the Case-Shiller geometric weighted repeat-sales procedure.
The HPI is a weighted, repeat-sales index, meaning that it measures average price changes in repeat sales
or refinancing on the same properties. For model estimation, the loan origination date is used as the
relevant transaction date. This information is obtained by reviewing repeat mortgage transactions on
single-family properties whose mortgages have been purchased or securitized by Fannie Mae or Freddie
Mac since January 1975. The HPI is updated each quarter as additional mortgages are purchased or
securitized by Fannie Mae and Freddie Mac. The new mortgage acquisitions are used to identify repeat
transactions for the most recent quarter and for each quarter since the first quarter of 1975.
Office of Management and Budget (OMB) recognizes 381 Metropolitan Statistical Areas (MSA), 11 of
which are subdivided into a total of 31 Metropolitan Divisions. As noted earlier, FHFA produces indexes
for the divisions where they are available, in lieu of producing a single index for the MSA. In total, 401
indexes are released: 370 for the MSAs that do not have Metropolitan Divisions and 31 Division indexes.
The starting dates of indices differ and are determined by a minimum transaction threshold; index values
are not provided for periods before at least 1,000 transactions have been accumulated.
To construct the quarterly index, all transactions from the same quarter are aggregated and index values
are estimated using the assigned quarters. In the monthly indexing model, all transactions for the same
month
are
aggregated
and
separate
index
values
are
estimated
for
each
month.
The Census Division indexes are constructed from statistics for the component states.
The weights used in constructing the indexes are estimates for the shares of one-unit detached properties
in each state. For years in which decennial census data are available, the share from the relevant census is
used. For intervening years, a states share is the weighted average of the relevant shares in the prior and
subsequent censuses, where the weights are changed by ten percentage points each year.
(b) S&P/Case-Shiller Home Price Index
The Case-Shiller Home Price Index originated in the 1980s and was formulated by Karl E. Case and
Robert J. Shiller. Case and Shiller developed the widely used repeat sales pricing technique to track
changes in the housing price levels and the index is published by Standard and Poor (S&P) (Annex IV).
To the accumulated sales pairs the repeat sales methodology is applied. Different weights are assigned to
different changes in home prices to measure changes in the value of the residential real estate rather than
15
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the atypical changes in the value of individual homes. Each sales pair is assigned a weight equal to the
first sale price and also sales pairs with longer intervals are given less weight than sales pairs with shorter
intervals to exclude physical changes factor. 10
HPI versus S&P/Case-Shiller Home Price indexes
Although both indexes employ the same fundamental repeat-valuations approach, there are a number of
data and methodology differences. Among the dissimilarities:
a. The S&P/Case-Shiller indexes only use purchase prices in index calibration, while the alltransactions HPI also includes refinance appraisals. FHFAs purchase-only series is restricted to
purchase prices, as are the S&P/Case-Shiller indexes.
b. FHFAs valuation data are derived from conforming, conventional mortgages provided by Fannie
Mae and Freddie Mac. The S&P/Case-Shiller indexes use information obtained from county
assessor and recorder offices.
c. The S&P/Case-Shiller indexes are value-weighted, meaning that price trends for more expensive
homes have greater influence on estimated price changes than other homes. FHFAs index
weights price trends equally for all properties.
d. The geographic coverage of the indexes differs. The S&P/Case-Shiller National Home Price
Index, for example, excludes valuation data from 13 states. FHFAs U.S. index is calculated
using data from all states.
(c) Zillow Home Value Index (ZHVI)
Zillow approximates the home price index using the Zestimates. A Zillow Home Value Index (ZHVI) is a
time series tracking the monthly median Zestimate home value. A Zestimate home value is Zillow's
estimated market value for an individual home and is calculated for about 100 million homes across US.
The Zestimate is automatically computed using a proprietary formula three times per week based on
millions of public and user-submitted data points on every home. Though they are not an official
appraisal, the index is created from estimated sale prices on every home instead of using actual sale
prices. Zillow has estimated sale prices not just for the homes that get sold, but for all homes even if they
didnt sell in that time period (Annex V).
Zillow receives the data from counties and other municipalities, though not all jurisdictions make it
available. Only residential properties are considered and other properties such as office buildings,
shopping centers, and farms are excluded. Zestimates in turn are computed based on proprietary statistical
and machine learning models which observe recent sale transactions and learn the relative contribution of
10
http://us.spindices.com/index-family/real-estate/sp-case-shiller
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various home attributes in predicting the sale price. These home attributes include physical facts about the
home and land, prior sale transactions, tax assessment information and geographic location. Based on this
information the models then estimate sale prices of homes that have not been sold yet. 11
To see the price variations in different US indices see Annexure VI
2. U.K
In the UK, a number of housing price indices are computed. The important ones can be briefly
summarised as follows:
(a) Halifax House Price Index
The Halifax House Price Index measures the monthly house price changes covering the whole country
from January 1983. For Halifax HPI calculation, the mortgage data of the country's largest mortgage
lender, Bank of Scotland, is used. 12
As the houses differ according to their characteristics, Halifax uses standardized rather than simple price
averages. Also, as the house price changes occur during the course of the year irrespective of the
underlying trend in price movements, so the results are seasonally adjusted and the seasonal factors are
updated monthly.
While calculating, hedonic method is used that is prices are disaggregated into their constituent parts 13
and the coefficients are then estimated and 1983 is taken as the base year. The index numbers themselves
are computed by comparing the weighted (i.e. mix-adjusted) prices in each current period with the
weighted average price in the base period.
(b) Land Registry House Price Index
The Land Registry House Price Index (HPI) calculates the change in prices of the residential properties
using the sales data collected by the Land Registry on all residential housing transactions, whether for
cash or with a mortgage, in England and Wales since January 1995. The HPI is calculated monthly using
repeat sales regression method. At present it contains details on over 19 million sales, of which over
seven million are identifiable matched pairs, providing the basis for the repeat-sales regression analysis
11
12
13
http://www.zillow.com/research/data/
http://www.lloydsbankinggroup.com/media/economic-insight/halifax-house-price-index/
The constituent parts are qualitative characteristics (type of property, region, etc.) and quantitative characteristics (age of
property, number of habitable rooms, garages, bathrooms, etc.) of a property.
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used to compile the index. 14 The Land Registry HPI is designed to remove the influence of seasonal
variations on house price changes. It measures the average price change for the same property that is price
changes of one property is not compared with the other properties.
(c) Asking Price Index
The Asking Price Index (API) measures changes in the prices asked by house sellers across the nation.
The measure is an indicator of what might happen to actual selling prices in five months time. The API is
calculated monthly using a dataset of more than 500,000 UK properties for sale found through the
Home.co.uk Property Search Engine. 15 Depending on property characteristics such as Property Type
(detached, semi-detached, terrace or flat) or Region (governmental office regions), asking price
observations are divided into groups of price observations. Mix-Adjustment method is used in the
calculation. Mix adjustment improves upon the reliability of an index calculated using simple averages by
applying weightings to the constituents of the averages. The data used in API calculation is based on
asking prices rather than actual completed sales and the results are not seasonally adjusted.
(d) Nationwide House Price Index
Nationwide measures the mix adjusted house price for houses across the UK. The publication of the
house price data started in 1952 but it was yearly, then from 1993 the frequency was increased to
monthly. All house price information is derived using nationwide mortgage data and hedonic regression
method is used. While calculating, a set of characteristics that describes the typical UK house in order to
track the value of a typical UK property over time is used. Nationwide house prices are mix-adjusted.
And, also it produces a seasonally adjusted series for UK house prices which seeks to remove seasonal
effect. 16
(e) Rightmove House Price Index
The Rightmove House Price Index (RHPI) is produced entirely from asking prices of residential
properties that are currently in the market. It was initiated in 2002 and a survey of 200,000 houses asking
price each month is used in the calculation which is obtained from the 10,000 estate agency branches who
list their properties on the Rightmove website. 17 In the index calculation, averaging of prices that is
the mix-adjustment standardization method is used. The properties which are already on the market are
14
15
16
17
http://www.landregistry.gov.uk/public/house-prices-and-sales/about-hpi
API Technical calculation document http://www.home.co.uk/asking_price_index/Mix-Adj_Methodology.pdf
http://www.nationwide.co.uk/about/house-price-index
http://www.rightmove.co.uk/house-prices.html
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not taken in calculation, but only those properties which are new on the market in any given month are
considered. The RHPI does not adjust the data to seasonal changes. If the initial asking prices are high
compared to actual transaction prices then the RHPI house price figures can be very misleading.
(f) Office for National Statistics House Price Index
From 1986 to 2012, the Department for Communities and Local Government (DCLG) calculated a
quarterly house price index but from April 2012, Office for National Statistics (ONS) is publishing the
HPI on a monthly basis. The HPI is based on completed mortgage transactions and data is taken from the
Regulated Mortgage Survey as collected by the Council of Mortgage Lenders (CML). 18 The ONS HPI is
a mix-adjusted chained Laspeyers-type price index. The chain linking of the index is carried out annually,
with each years index being based on January of the current year. Prices are estimated using hedonic
regression based on the data provided each month by CML. 19 The transaction weights are based on the
preceding three years transactions data (for instance, the 2012 weights are based on transactions
completed between October 1, 2009 and 30 September, 2011). The HPI is adjusted seasonally but the
ONS also publishes the non-seasonally adjusted estimates each month. The dataset used in HPI
calculation is limited to mortgage purchases i.e. it does not include the cash sale transactions.
3. Canada
(a) Teranet National Bank House Index (NBHI)
There are two forms of NBHI, both calculated monthly but have a two month lag release
1. Composite 11 - It gives the rate of change of home prices in eleven metropolitan areas. 20 A
national composite index is then obtained by the combination of these sub-indices. It was initiated
in March 1999 but first published in May 1999.
2. Composite 6 It is calculated in the same way as Composite 11 but uses only six metropolitan
cities. Calculation started in February 1999 but the index was first published in April 1999.
The index is calculated using the repeat sales methodology . Using simple linear regression the model is
estimated and regression coefficient is the reciprocal of the desired index. In estimation, those properties
whose price may be impacted due to the endogenous (e.g., renovations) factors are excluded and only
those which were sold at least twice in a particular time frame are considered.
(b) New Housing Price Index (NHPI)
18
19
http://www.ons.gov.uk/
Developments in the United Kingdoms Housing Price Index by Office of National Statistics
19
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NHPI measures the monthly changes in the contractors' selling prices of new residential houses. Surveys
are conducted in 21 metropolitan cities by Statistics Canada covering single dwellings, semi-detached and
row houses. The NHPI was developed in 1981 and is published monthly with 2007 as the base year. 21
Through surveys the selling price of the new residential houses and the estimated current value of the land
are collected mainly from the contractors/builders. This index does not measure the change in price for
the existing houses.
(c) Multiple Listing Service (MLS) Home Price Index
The HPI tracks relative price level by comparing the price level at a point of time to the reference or base
period (January 2005) price level. It is calculated for one- and two- storey single family homes,
townhouse/row units, and apartment units. 22 The measuring of HPI started in February 2012 and from
then it is calculated every month covering ten major housing markets. The property considered as
Benchmark property (BP) have median values for the quantitative attributes and the modal value for
qualitative attributes. The relative benchmark prices (RBP) measures the percentage change in the prices
of benchmark property for a particular area and then categorizes it on the basis of whether it is below or
above the overall market BP.
Multivariate regression is used to calculate the index value. Also, Repeat-Sales and Hedonic Price
methods are used while calculating HPI. It does not include the data on private transactions, that is,
properties marketed outside the MLS system. And MLS system is also limited to metropolitan areas only.
The Benchmark prices may not be able to capture the overall volatility in the market.
4. Spain
The main objective of HPI in Spain is to measure the evolution of the level of the merchanting prices of
new and second-hand housing over time. This is therefore an indicator conceived solely for establishing
comparisons over time.
The HPI is prepared quarterly, which enables estimating the evolution of prices between consecutive
quarters that accumulated over the year, as well as the annual evolution. Not included within its scope is
the measurement of price levels. Therefore, spatial comparisons cannot be established for the price levels,
whereas they can for the price evolutions.
21
22
http://www23.statcan.gc.ca/imdb/p2SV.pl?Function=getSurvey&SDDS=2310
MLS Home Price Index Methodology, http://homepriceindex.ca/docs/ref/HPI_Methodology.pdf#View=FitV
20
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The information used for calculating the HPI is from the General Council of Notaries (GCN). GCN, via
the Notarial Certification Agency (ANCERT), provides the data making up the main source of
information for this indicator. Every month, ANCERT provides the information from the transfers of
property occurring in Spain, in addition to the subsequent updates in which new observations or
modifications are included of those previously sent. The information submitted monthly by ANCERT
includes following variables- (a) Dwelling location variables - autonomous community, province,
municipality, postal code, type, name and number of the road, duplicate, block, stairwell, floor and door;
(b) Time variable indicating the day on which the dwelling is transferred - date of authorization; and (c)
Variables relating to the price of the dwelling- price of the operation and value of the object.
The HPI is a short-term, quarterly index, and involved in its compilation is the latest data that the National
Statistics Institute has at the time of calculation, which represents, on average, more than 90 per cent of
the total transfers carried out each quarter. The calculation system of the HPI is based on the combination
of two basic elements that reflect the characteristics of the real estate market, and which are essential to
the calculation of the price indices: the prices of the dwellings, which represent the confluence of market
supply and demand, and the weightings, or relative importance of each type of dwelling according to the
value of the purchase. The combination of these two elements in order to obtain the HPI is carried out
using the chain-linked Laspeyres index formula. 23
5. Australia
Australian Bureau of Statistics (ABS) prepares the index measuring the change in prices of established
houses in each of the eight capital cities namely Sydney, Melbourne, Brisbane, Adelaide, Perth, Hobart,
Darwin and Canberra. 24 HPI is calculated at the end of each quarter, and is published five weeks after it.
In April 1994, HPI was published for the first time for the period December 1993 to March 1994.
For each of the eight capital cities, suburbs which are the building blocks of the index, are grouped
together to form different clusters. An analysis (2004 HPI review) determined that four structural
variables, 25 four locational variables 26 and one neighborhood variable were the most relevant in
determining the similarity of suburbs for stratification purposes. The weight assigned to a cluster is
basically the value of stock of established houses in the cluster. This stock of houses is recorded in the
23
24
http://www.ine.es/en/daco/daco42/ipv/metodologia_en.pdf
House Price Indexes: Concepts, Sources and Methods, Australia, 2009, Chapter 6 Coverage and Classification, of Australian
Bureau of Statistics http://www.abs.gov.au/
25
2001 Census of Population and Housing data
26
ABS Socio-Economic Index for Areas (An Introduction to Socio-Economic Indexes for Areas (SEIFA), 2006 (cat. no.
2039.0).), which is a measure, derived from Census data
21
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Census of Population and Housing and is held constant from period to period. HPI is calculated using
Laspeyers methodology.
The scope for the HPI is restricted to those dwellings where the primary purpose is residential (i.e.
excluding commercial properties) regardless of ownership or tenure of the occupants (i.e. including
government-owned properties and properties owned by private landlords). This approach does not include
flats, apartments and terrace houses. Price comparison between the cities is not calculated.
Other than HPI released by ABS, there are several private players releasing house price indices in cities.
Two popular ones are the Residex (released by Residex), 27 and ASX Property Index (released by RP Data
Rismark). 28
6. Portugal
The Confidential Imobilirio Index tracks developments in the residential market in Portugal, in particular
in the Lisbon and Oporto metropolitan areas covering the new and existing dwellings. It is released
monthly starting in January 1988 and uses data available at www.lardocelar.com, which in 2005
contained around 280,000 real estate registers. 29 This index is calculated on the basis of asking prices and
weighted by region and dwelling condition (new or existing). 30
IV b. Housing market in Emerging Economies 31
Data on housing prices and activity are particularly weak in the LAC region, despite recent progress. Only
Brazil, Chile, Colombia, Mexico, Peru, and Uruguay publish housing price data. However, even these
time series are short, and coverage is limited to large metropolitan areas. Lack of comprehensive time
series on house prices is perhaps the most serious shortcoming for monitoring and assessing housing
market developments in many emerging countries.
Section V: Indian house price indices: A comparison of Select Cities
This section probes into the relative efficacy of the two major house price indices in India earlier
discussed in section III, by comparing them on different parameters. These two indices are computed
through different methodologies by taking into account limited samples.
27
http://www.residex.com.au/
http://www.asx.com.au/
29
European Central Bank http://www.ecb.europa.eu/
30
Fonseca and Guimares (2006).
31
For description and sources of housing indices in emerging countries see Annex: VII; For frequency see Annex II.
28
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HPI (RBI) is based on registered values while RESIDEX (NHB) uses transacted values and disbursals on
residential properties. RBIs HPI covers all residential properties that are officially registered in the 9
cities tracked except Chennai. In Chennai, since separate information on the type of the property is not
available both commercial and residential properties are covered. HPI covers the lowest number of cities
as compared to other indices. A distinct characteristic of the HPI is that it gives official data derived from
the registered values of properties. Since these registered values are considered while charting out
government policies, hence they form official records. RESIDEX covers price movement of residential
properties over a period of time by size and location of the dwelling units (location wise, zone wise and
city wise) in 26 cities.
Trend analysis between NHBs RESIDEX and RBIs HPI
The following graphs analyze trends in RESIDEX and HPI for eight major cities in India. Interestingly,
trends in house prices shown by these two indices do not follow a uniform pattern.
From Graph 1 it is evident that, there are significant differences between the two indices over the period
of time. HPI showed an upward trend during the last quarter of 2010 and first two quarters of 2011
whereas; the RESIDEX was indicating a downward trend during the same time period. Also, Q3 and Q4
of 2010-11 had witnessed the same trend where HPI was rising and RESIDEX was falling. However,
during Q1 of 2012-13 a reverse trend has been reported i.e. RESIDEX was showing an upward trend but
apparently HPI was observing a declining tendency.
Graph 1: HPI vs RESIDEX- MUMBAI
Source: RBI and NHB, Authors Calculations.

Graph 2 shows the difference between HPI and RESIDEX in Delhi. In the case of Delhi, differences
between the two indices are quite noticeable. Up to Q1 2011-12 both the indices show contradictory
trends and it was only until Q3 of 2011-12 somewhat synchronized trends are visible. But, during the
23
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subsequent periods, again we see conflicting results. However, Q2 of 2012-13 onwards apparently both
the indices show similar trends.
Graph 2: HPI vs RESIDEX- DELHI

From the graph 3, it is evident that RESIDEX shows less volatility than HPI. The difference is quite
noticeable especially after Q4 of 2011-12. From Q4 of 2011-12 onwards RESIDEX shows a stable trend,
meanwhile HPI suggests for many ups and down during the same period of time. However, the two
indices have different coverage as pointed out earlier.
Graph 3: HPI vs RESIDEX- CHENNAI

From Graph 4 it is evident that in the case of Kolkata also, there had been sharp differences between both
the indices. For example, during Q4 of 2009-10 RESIDEX indicates a sharp decline in the house prices
on the contrary during the same time period HPI suggests a clear escalation in the house prices. Similarly,
during Q3 of 2012-13, HPI suggests a downward trend in the house prices whereas, the RESIDEX shows
an exactly opposite trend.
Graph 4: HPI vs RESIDEX- KOLKATA
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In the case of Bangalore (Graph 5), the difference is quite visible during the Q4 of 2010-11. While the
RESIDEX indicates that the house prices had plummeted sharply during this period, HPI gives
completely different picture by indicating a surge in the house prices. Apart from that, even when both the
indices suggest a rise, the magnitude differs significantly. From Q4 of 2011-12 onwards, HPI shows a
consistent rise except for a marginal dip after Q3 of 2012-13. However, the RESIDEX shows somewhat
volatile trend during the same period.
Graph 5: HPI vs RESIDEX BANGALORE

Graph 6 shows that, like other cities the contradictory trends repeat in the case of Ahmedabad also.
Moreover, there was huge mismatch between the two indices in terms of the magnitude, for example
during Q1 of 2011-12 HPI shows a sharp price escalation whereas, and the price hike was moderate
according to RESIDEX.
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Graph 6: HPI vs RESIDEX AHMEDABAD

There was a notable difference between the two indices in Lucknow (Graph 7) during the period ranging
from Q4: 2010-11 to Q3 2011-12. But thereafter both indices show a similar trend even though the
magnitude varied significantly.
Graph 7: HPI vs RESIDEX- LUCKNOW

Graph 8 shows that HPI and RESIDEX in Jaipur have differed from each other and with different
magnitudes from Q3: 2011-12 to Q1: 2013-14. This contradiction in the price trends needs to be
addressed, as many sectors in the economy follow the house price indices as an indicator of real estate
performances and a base to form expectations about the market.
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Graph 8: HPI vs RESIDEX- JAIPUR
Other indices in the market

In India, select private sector real estate entities also compute their own indices. In this context, two most
important are Magicbricks (computes PropIndex; Annex - VIII) and Jones Lang LaSalle (JLL computes
REIS; Annex - IX).
A comparison was made by Magicbricks for two respective cities Delhi and Mumbai for a limited period.
The HPI and RESIDEX have followed a similar pattern. The PropIndex of Magicbricks also follows a
similar pattern but growth is significantly lower over the period of comparison.
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Graph: 9 - Comparative analysis between RESIDEX, HPI and PropIndex by Magicbricks
Source: Magicbricks, Annex VIII.

A comparison was made by JLL for Kolkata and Chennai and the findings reveal contradictory trends.
Three Indices, REIS, HPI and RESIDEX, cannot be compared overall as the simultaneous data existence
is only available for three quarters which is not sufficient to judge and interpret the performance. The
value of the data is different as three indices capture different market scenarios. While RESIDEX and HPI
covers only the main city, REIS also includes the suburbs and hence the average value comes down as
most of the main cities contain high priced residential units. Although the geographic coverage is
different, RESIDEX and HPI in Kolkata are probably able to capture the markets ups and downs (Refer
graphs peaks and troughs). The value of the market swing could be different, but the trend that is
required to understand the whole market is much evident. In the case of Chennai, suburban locations
represent around 95 percent of actively selling projects. Since the REIS Index includes the suburban
locations and off late with the suburban locations gaining more dominance, REIS Index is relatively flat
representing the price trends in suburban locations. In addition, the NHB and RBIs Housing index is
represented only by a smaller sample size, therefore these indices exhibit more volatility than the REIS
Index.
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Graph 10: Comparison made by JLL for Kolkata and Chennai

Chennai
Kolkata
115
REIS vs RESIDEX vs HPI (KL)
115
110
110
105
105
100
100
95
95
90
90
REIS
HPI
RESIDEX
REIS vs RESIDEX vs HPI (CN)
REIS
HPI
RESIDEX
Source: Jones Lang LaSalle, Annex IX.

Section VI: Conclusion and Recommendations
The Indian economy is passing through a transition from a low growth economy to a high growth
economy. The government is encouraging the housing sector which is inter-linked with nearly three
hundred industries in the country. The housing sector also has strong linkage with credit market and
banking institutions. The monetary policy also has a two-way relationship with the housing sector.
Housing price indices play an important role in understanding the price movement of housing as well as
general trend of growth in the country. To understand about house prices, it is important to understand
about housing indices. These indices need to be publicly provided and accurately calculated to help
understand the underlying asset. 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. Illustratively,
RESIDEX is based on extensive data collected by different commercial banks and finance company
located in 26 cities and is widely accepted in the country. Innovations that rely on data sources cannot be
implemented until precise indices are provided in public domain and with robust history to inspire
confidence.
In India, neither data definitions are standardized nor is the methodology. The data is also collected by
non-trained officials. The methodology of the RBIs HPI is somewhat standardized but also has gaps.
HPI only covers data collected from registration department of 9 cities but computes a national HPI based
on that limited data set. RBIs HPI is a weighted average of city-level HPIs. Ideally, the number of
transactions at city level could have been used as weight. However, in the existing data collection
29
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mechanism, separate information on the type of the property (residential/commercial) of Chennai is not
available. As a result, the proportion of population of the city (to the total population of nine cities
together) is used as the weight, as a proxy to the number of transactions. Indeed, the trend in two indices
is generally contradictory and confusing for economic analysis.
Ideally, in any housing index, house price data series should have national coverage and differentiate
between new and existing homes and between commercial and residential real estate. Those series should
be complemented by information on the stock and flows of housing, as well as on construction activity
(including employment, price of inputs, and land prices). The housing price index in India needs reexamination, especially the methodology of collecting data and computing indices. First, there should be
a scientific basis for collecting data by a well trained staff. The data definitions, characteristics of houses,
locality and region data as well as qualitative factors need to be standardized and documented. The
methodology used should be a hedonic method while mix-adjusted techniques could also be used and
supplemented. India being a widely dispersed country and highly heterogeneous in its demand factors due
to varied geography would need a seasonally and regionally periodically adjusted national index. It would
also be helpful to have a monthly index, similar to the recently introduced Consumer price Index. On a
regular basis, it is important that housing data collected for the price index should be periodically verified
by survey undertaken by National Sample Survey Organization (NSSO) while the Census should help in
verifying and cross-checking the data every ten years.
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31
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Duranton, G., Ghani, E., Goswami, A.G. and Kerr, W. (2014), The misallocation of land and other
factors of production in India, November.
Eurostat (2013), Handbook on Residential Property Prices Indices (RPPIs).
Feldstein, M.S. (2007), Housing, Housing Finance, and Monetary Policy, NBER Working Paper
No. 13471.
Fonseca, I. and Guimaraes, R. (2006) Confidential Property Index: Methodological Procedure,
October.
Forsyth, F.G and Fowler, R. F. (1981), The Theory and Practice of Chain Price Index Numbers.
Gandhi, R. (2014), Real estate and housing- a sensitive sector or Samvriddhi sector?, Speech,
Mumbai, August.
Government of U.K. (2014), About the House Price Index, Land Registry, July.
Goodman, A.C. and Thibodeau, T.G. (1995), Age related Heteroskedasticity in Hedonic House Price
Equations, Journal of Housing Research, Volume 6, pp 25-42.
Hilbers, A., Hoffmaister, A.W., Banerji, A. and Shi, A. (2008), House Price Developments in
Europe: A Comparison, IMF Working Paper 08/211.
Ingves, S. (2007), Housing and Monetary Policy: A View from an Inflation-Targeting Central
Bank, Federal Reserve Bank of Kansas City Publication.
Kain, J.F. and Quigley, J.M. (1970), Measuring the Value of Housing Quality, Journal of American
Statistical Association, Volume 65, Issue 330, pp 532-548, June.
Kiyotaki, N. and Moore, J. (1997), Credit Cycles, Journal of Political Economy, Volume 105, No.
2, April.
Lloyds Banking Group, Halifax House Price Index- September 2014.
McCarthy, J. and Peach, R.W. (2004), Are Home Prices the Next Bubble?, Economic Policy
Review, Volume 10, No. 3, December.
32
IIMB-WP N0. 477
Miller, N. and Skalarz, M (2008), Irrational Despair in the Housing Market, Manuscript, Volume 7,
August.
National Housing Bank (2007), NHB RESIDEX: Tracking the prices of residential properties in
India.
National Housing Bank (2013), NHB RESIDEX- Status, Challenges and Way Forward, December.
Office for National Statistics (2012), Developments in the United Kingdoms House Price Index.
Poterba, J.M (1984), Tax Subsidies to Owner-occupied Housing: An Asset Market Approach
Quarterly Journal of Economics, Volume 99, No. 4, November.
Quigley, J.M. (1995), A Simple Hybrid Model for Estimating Real Estate Price Indexes, Journal of
Housing Economics, Volume 4, pp 1-12.
Reserve Bank of India (2014), Pilot Housing Start-Up Index, Trend in New construction of
residential housing during 2009-2011 in 27 cities across India, February.
Reinhart, C.M. and Rogoff, K.S. (2009), The Aftermath of Financial Crises, NBER Working Paper
No. 14656, January.
Shiller, R. J. (1996), Measuring Asset Values for Cash Settlement in Derivative Markets: Hedonic
Repeated Measures Indices and Perpetual Futures, Cowles Foundation Paper No.856
Shiller, R.J. (2007), Understanding Recent Trends in House Prices and Home Ownership,
September.
Shiller, R.J. (2014), Why is housing finance still stuck in such a primitive stage?, Cowles
Foundation Discussion Paper No. 1934, January.
Shiller, R.J. (2014), Speculative Asset Prices, Cowles Foundation Discussion Paper No. 1936,
February.
Silver, M. (2012), Why House Price Indexes Differ: Measurement and Analysis, IMF Working
Paper, May.
Singh, C. (2013), Housing market in India: A Comparison with the US and Spain, IIM B Working
paper.
33
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Sommervoll, D.E. (2006), Counterintuitive response to tax incentives? , Statistics Norway Research
Department, Discussion Papers No. 492, January.
Taylor, J.B. (2008), The Financial Crisis and the Policy Responses: An Empirical Analysis of What
Went Wrong, Stanford University Research Paper.
Warnock, V.C. and Warnock, F.E. (2007), Markets and Housing Finance, NBER Working Paper
No. 13081, May.
34
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Annexure: I
Frequency of the indices in advanced countries
Country
Index
Monthly
Quarterly
Annually
Halifax House Price
Index
Land Registry House
Price Index (HPI)

Nationwide House
Price Index (HPI)

United Kingdom
Rightmove House Price
Index
Office for National
Statistics House Price
Index (HPI)
Teranet National Bank
House Index (NBHI)

New Housing Price
Canada
Index NHPI
MLS Home Price
Index (HPI)
Residential Property
Price Index (RPPI)

Australia
Residex
Daily Home Value
Index
FHFA HPI
S&P National Home
United States of
Price Index
America
Zillow Home Value
Index
Bulwiengesa Property
Market Index
Germany
VDP Property Price
Index
Source: Various websites of Central Banks, Real Estate Research Institutes and Statistical Organizations
35
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Annexure: II
Frequency of the indices in emerging countries
Country
India
Index
RESIDEX
House Price Index
Monthly
Quarterly
China
Shanghai house price

index
Argentina
Average value of old

apartments, Buenos
Aires
Brazil
Residential Real Estate

Collateral Value Index
Indonesia
Price Index
Israel
Index of Prices of
Dwellings
South Korea
Mexico
Philippines
Annually
Transaction-based
Sales
Price Indices
Housing Sales Price
Index
Housing Jeonse Price
Index
Housing Price Index
Residential Capital
Values
Thailand
Housing Price Index
Russia
House Price Index
36
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Annexure: III
Data and Methodology: Advanced Economies
Country
House Price Index
Halifax House Price

Index
Land Registry House

Price Index (HPI)
Asking Price Index (API)
Data Type / Data

Available From
The mortgage data of the
country's largest mortgage
lender Bank of Scotland is
used.
From: 1983
Data collected by the Land
Registry
From: 1995
Dataset of more than
500,000 UK properties for
sale found through the
Home.co.uk Property
Search Engine.
From: 2006
Methodology
Hedonic
Repeat sales regression
Mix-Adjustment
Nationwide mortgage data

Hedonic Regression
is
used.
Model Mix Adjusted
United Kingdom
From: 1952
A survey of 200,000 houses
asking price each month is
used in the calculation
which is obtained from the
Rightmove House Price
Mix-Adjustment
10,000 estate agency
Index
Standardization
branches who list their
properties on the
Rightmove website.
From: 2002
Office for National
Statistics Based on
completed mortgage
ONS House Price Index
Mix-adjusted chained
transactions and the data is
(HPI)
Laspeyers Index
taken from the RMS.
From: 1986
Nationwide House Price
Index (HPI)
37
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Data and Methodology: Advanced Economies Continued

House Price Index
Data Type / Data
Methodology
Available From
Teranet National Bank
From: 1999
Repeat sales
House Index (NBHI)
NHPI measures the
monthly changes in the
New Housing Price Index
contractors' selling prices of Chain-Laspeyers index
Canada
NHPI
new residential houses.
From: 1981
MLS Home Price Index
Repeat Sales with
From: 2012
(HPI)
Multivariate Regression
Data are provided by State
and Territory Land Titles
Stratification Approach
Office or Valuers General
Price Index (RPPI)
Mix Adjusted
Office in each capital city.
From: 1986
Recently sold (median price
index), established and
previously sold properties
Australia
(repeat sales index) and
Residex
properties with detailed
Hedonic / Repeat Sales /
attribute data (hedonic
Median Price Indices
index).
From: 1970 / 1975
Calculated by RP DataDaily Home Value Index
Hedonic
Rismark. From: 2006
FHFA uses data supplied
by Federal Home Loan
Mortgage Corporation
Repeat Sales
HPI
(Freddie Mac) and the
Federal National Mortgage
Association (Fannie Mae).
From: 1975
United States of
Information is from local
S&P National Home
Repeat Sales
America
recording offices across the
Price Index
country. From: 1987
A Zestimate home value is
Zillow's estimated market
Zillow Home Value
value for an individual home
Index
Median Estimated Value
and is calculated for about
100 million homes across
US.From: 1996
Country
38
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Country
Germany
Spain
France
Italy
Japan
Switzerland
Belgium
Sweden
Data and Methodology: Advanced Economies Continued

House Price Index
Data Type / Data
Methodology
Available From
Bulwiengesa Property
Market index is calculated
Year by Year population
Market Index
for 125 German cities.
weight average
From: 1975 / 1986
VDP Property Price
Prices from mortgages by
Index
member banks are used.
Hedonic
From: 2003
Destatis house price
From: 2000
Hedonic
index
All dwelling transactions
Mix Adjusted - ChainHPI
via merchandise contracts
linked Laspeyres index
are included. From:2002
INSEE Apartment and
From: 1984 / 1996
Hedonic
House Price Index
Nomisma Real Estate
From: 1988
Weighted Average
Index
Annnuario Consulente
From: 1965
Other
Immobiliare
Osservatorio Mercato
From: 2002
Other
Immobiliare
Japan Real Estate
From: 1955
Mix-adjusted
Institute Index
Wuest & Partner / SNB
From: 1971
Mix Adjusted
Statistics Belgium /
Mix Adjusted
From: 1953
DGSEI
Mix Adjustment and
Statistics Sweden (SCB)
From: 1975
SPAR
REINZ House Price

Index
New Zealand
QV Quarterly House
Price Index
Note: SPAR Sale Price Appraisal Ratio
From: 2009
From: 1980
Stratified Median
SPAR
39
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Annexure - IV
S & P/ Case- Shiller Home Price Index
Standard and Poor (S&P) publishes the Case-Shiller US National Home Price Index in collaboration with
CoreLogic and MacroMarkets LLC. The index is an integration of single-family home price indices for
the nine U.S. Census divisions and is calculated quarterly. Other than the national home price index, S&P
calculates a 20-city composite index, a 10-city composite index, and twenty individual metro area indices.
This index measures changes in the housing market prices with a constant level of quality using the repeat
sales methodology.
To calculate the indices, data is collected on transactions of all residential properties from the information
that becomes publicly available at local recording offices across the country. Each sales pair is aggregated
with all other sales pairs found in a particular Metropolitan Statistical Area (MSA) to create the MSAlevel index. The 10 and 20 Metro Area Indices are then combined, using a market-weighted average, to
create the Composite of 10 and the Composite of 20. 32
The main variable used for index calculation is the price change between two arms-length sales of the
same single-family home. In an arms-length transaction, both the buyer and seller act in their best
economic interest when agreeing upon a price. The price for the property must be obtained through a
potential buyer and seller operating through an arm's length transaction, otherwise, the agreed-upon price
will likely differ from the actual fair market value of the property.
An automated sale pairing process is designed to collect arms-length, repeat sales transactions for
existing, single-family homes. Subsequent sales by mortgage lenders of foreclosed properties are included
in repeat sale pairs, because they are arms-length transactions. Since the index is calculated for properties
with a given level of quality and not the ones which have gone through renovation or size additions, the
pairing process is designed to exclude sales of properties that may have been subject to substantial
physical changes immediately preceding or following the transaction. Also, transactions pair that occur
once or more than once in less than 6 months are excluded. The data also excludes sale prices associated
with new construction, apartments and multi-family houses.
32
http://us.spindices.com/index-family/real-estate/sp-case-shiller
40
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Annexure V
Zillow Home Value Index
A Zillow Home Value Index (ZHVI) is a time series tracking the monthly median Zestimate home value.
The methodology involved is estimating the market value of every home, the Zestimates, is constructed in
steps. The regional and market segregation is ensured in the estimates. Zestimate errors are both time and
region dependent. While the errors produced by the Zestimate algorithm are generally equally distributed
above and below the actual sale price, there can be some residual systematic error detected once more
historical sales are known (systematic error here is defined as the median raw error being slightly greater
or less than zero). In this event, raw median Zestimates are adjusted through the use of a correction factor.
The three-Month moving average is to filter out noise in the data.33
According to Zillow, home sales are affected by seasons within the same year. This seasonality is
adjusted so that the trend is more apparent for ease of comparison and forecasting.
33
http://www.zillow.com/research/data/
41
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Annexure -VI
Price trends between various U.S indices

a) Comparison between Zillow and FHFA
3.00
2.00
1.00
Oct-13
Feb-14
Jun-13
Feb-13
Oct-12
Jun-12
Feb-12
Oct-11
Jun-11
Feb-11
Oct-10
Jun-10
Feb-10
Jun-09
Oct-09
Feb-09
Jun-08
Oct-08
Feb-08
Jun-07
Oct-07
Oct-06
Feb-07
Jun-06
Oct-05
Feb-06
Jun-05
Oct-04
Feb-05
-1.00
Jun-04
0.00
-2.00
-3.00
zillow HPI
FHFA HPI (NSA)
b) Comparison between Zillow and S&P

2.00
1.00
Feb-14
Oct-13
Jun-13
Feb-13
Oct-12
Jun-12
Feb-12
Oct-11
Jun-11
Feb-11
Oct-10
Jun-10
Feb-10
Oct-09
Jun-09
Feb-09
Oct-08
Jun-08
Feb-08
Oct-07
Jun-07
Feb-07
Oct-06
Jun-06
Feb-06
Oct-05
Jun-05
Oct-04
Feb-05
-1.00
Jun-04
0.00
-2.00
-3.00
zillow HPI
S&P 20 cities
c) Comparison between FHFA & S&P

2.00
1.50
1.00
0.50
0.00
-0.50Sep-02 Jan-04 May-05 Oct-06 Feb-08 Jul-09 Nov-10 Apr-12 Aug-13 Dec-14
-1.00
-1.50
-2.00
-2.50
Source: Data from the respective websites of the house price index calculators
42
zillow HPI
S&P 20 cities
IIMB-WP N0. 477
Annexure - VII
Description and Source of Indices: Emerging Countries
Country
Index
RESIDEX
Description
Measure residential
price changes in India
Source
National Housing Bank
India
House Price Index
China
Shanghai Second-hand
house price index
Indonesia
Price Index
Israel
Index of Prices of
Dwellings
Philippines
Residential Capital
Values
Housing Price Index
Thailand
House Price Index
Registration price data

used
Tracks prices of
second-hand houses in
Shanghai, as well as
several other cities.
Data on the selling
price, number of
dwellings and total
sales collected directly
from developer
describing the
condition of each
quarter and for the next
quarter predictions
Covers new and
existing owner
occupied dwellings
New and residential
price of the floor area
of commercial or
residential
condominium space in
Makati central business
area.
Data taken from
Government Housing
Banks mortgage loans
contains 5 indices
(single detached house
with and without land,
town house with and
without land and land).
Data from Commercial
Bank Mortgage Loan
contains 4 indices
(single detached house
with land, town house
with land,
condominium and
land).
43
Reserve Bank of India
http://ehomeday.com/
Bank Indonesia (BI),

Price Survey (SHPR)
Central Bureau of
Statistics
Colliers International:
Philippines
Bank of Thailand
Bank of Thailand
IIMB-WP N0. 477
Description and Source of Indices: Emerging Countries continued

Country
Russia
Brazil
Index
Price index for Housing

market
Residential Real Estate

Collateral Value Index
Housing Price Index

Mexico
Apartment Price Index
Description
Prices for newly built
dwellings and for the
dwellings of existing
private housing stock if
they are objects of
market bargains.
Collateralized
dwellings 11
metropolitan areas
Covers mortgaged
housing dwellings
(standard houses,
condominiums.
Apartments)
Covers new and
existing detached
dwellings, row houses
and apartments and
data based on a survey
of licensed real estate
brokers.
Source
Federal State Statistics

Service
Central Bank of Brazil
Sociedad Hipotecaria
Federal (SHF)
Kookmin bank
Transaction-based
Korean Statistical
Sales Price Indices
Information Service
Housing Jeonse Price
Korean Statistical
South Korea
Index
Information Service
Housing Sales Price
Korean Statistical
Index
Information Service
Source: Various websites of central banks, real estate research institutes and statistical organizations
44
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Annexure: VIII
PropIndex by Magicbricks 34
PropIndex is based on properties listed on the Magicbricks site. The website has over 600,000 active
properties posted by more than 1, 50,000 active users in 300 cities and 10,000 localities. The
methodology followed for PropIndex is very different from the others. It tracks apartments and single
floor unit values, commonly known as builder floors, listed on Magicbricks. The index is structured in
such a way that individual properties are aggregated into their respective cities and then to the National
Index. The 11 cities chosen are based on their activity levels. In addition to this, an individual city index
for each of these cities is also compiled. Weightages for the PropIndex are based on the supply of
properties within the locality/city.
Based on this structure, PropIndex gives a realistic picture of trends in price and supply change across
different cities.
PropIndex, with tables provided for Listed Price Monitor, Rent Monitor, Yield Meter and Capital Values,
gives a holistic perspective of the property market performance in the quarter. While listings and their
values/supply provide a level of understanding of the market, there are meticulous data checks to prevent
aberrations creeping in the Index. These are based on statistical calculations, industry inputs and logical
interpretations.
The base of the PropIndex is taken as 100 points. Any movement in the price band in a particular area is
denoted by an increase or decrease. Insights into customer demand are gathered through the
requirement/searches posted on Magicbricks. Similarly, the supply is calculated based on the properties
posted on the website. User behavior is taken into account while compiling the preferred localities list.
Merits
34
One of the major factors that work in favor of PropIndex is that all data published is the
actively transacted component of the real estate market. This means that the quarter-onquarter changes in the capital or rental values, preferred localities, rental yields or any
other data gets exhibited in the index.
Locality wise capital and rental values and fluctuations are also provided.
Factors such as demand and supply, yield meter or any other change in a locality or city,
are covered only in this index.
PropIndex provides a record of quarter-on-quarter change of property prices and supply
trends across different property markets in each city.
Prepared and provided by Magicbricks on request.
45
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It gives zone wise information on demand and supply, which is helpful for developers,
Government authorities/institutes and real estate agents.
Limitations
PropIndex is computed based on the properties listed online. Properties listed and
transacted offline are not covered in the report.
Listing values are considered while compiling the data. However, it could vary from
actual transaction value depending on the negotiations and the market scenario.
Capital and rental values, along with quarter-on-quarter changes within a locality or a city, are helpful
while buying or investing in a property. Information about the top ten preferred localities for sale as well
as for rent within a city is also useful for prospective buyers and builders. The yield meter could be used
to understand which localities are clocking the highest rental returns in a city. Similarly, demand and
supply data helps buyers to know what is being supplied and demanded in a zone/city. This
information/data can be used by policy makers, institutes and banks to create policies and carry out real
estate related studies, etc.
46
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Annexure: IX
REIS by Jones Lang LaSalle 35
NHB RESIDEX
Data Source
Methodology
Coverage
Base Period
35
Constructed with
transactions provided by
14 HFCs and 11 Banks
including State Bank of
India, Bank of India,
Bank of Baroda, Punjab
National Bank,
Syndicate Bank and
Dena Bank.
The index has been

constructed using the
weighted average
methodology with Price
Relative Method
(Modified Laspeyres
approach).
RBI House price Index

JLL REIS Index
Registration authorities
of respective state
governments possess the
data on the registration
Constructed based on
of transactions of
quoted prices of
properties. The data are developers
reported on transaction
basis. From this, data
related to residential
occupancies is suitably
extracted and analysed
for the compilation of
house price index.
Compilation of
weighted average price
index is done using
Laspeyres weighted
average methodology
The data covers only the

notified city area for
Chennai, while in case
of Kolkata it covers
some of the adjoining
suburbs in a haphazard
manner
2001 was taken as the
base year for the study
to be comparable with
the WPI and CPI. Year
to year price movement
during the period 20012005 has been captured
in the study, and
subsequently updated
for two more years i.e.
up to 2007
The data covers the

notified city areas for
the cities
Base Q4:2008-09=100
Prepared and provided by JLL on request
47
The index has been

compiled using
weighted average
methodology with
effective active stock in
the sub-market (stock in
the projects that are not
completely sold out)
The data covers not only
the notified city
jurisdiction but also the
adjoining suburbs to
have an overall outlook
2003 was taken as the

base year
IIMB-WP N0. 477
Index Comparison: Kolkata

REIS vs Residex (KL)
225
REIS vs House Price Index (KL)
200
175
200
150
175
125
150
100
125
75
100
50
KL REIS (Rebased)
REIS (Capital Value Index) KL
280
HPI
KL REIS (Rebased)
Residex
115
REIS vs RESIDEX vs HPI (KL)
110
260
240
105
220
200
100
180
160
95
140
90
120
100
REIS
HPI
RESIDEX
Index comparison: Chennai

350
REIS vs Residex (CN)
200
175
300
150
250
125
200
100
150
75
100
50
CN REIS (Rebased)
280
REIS vs House Price Index (CN)
Residex
CN REIS (Rebased)
REIS (Capital Value Index)
115
260
HPI
REIS vs RESIDEX vs HPI (CN)
110
240
220
105
200
100
180
160
95
140
120
90
100
REIS
Source: JLL
48
HPI
RESIDEX

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IIMB-WP N0.

WORKING PAPER NO: 477

HOUSING PRICE INDICES IN INDIA

Year of Publication January 2015

Electronic copy available at: http://ssrn.com/abstract=2564428

IIMB-WP N0. 477

Housing Price Indices in India1

Electronic copy available at: http://ssrn.com/abstract=2564428

IIMB-WP N0. 477

Electronic copy available at: http://ssrn.com/abstract=2564428

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Table 2: HPI and Residex for selected cities

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National Housing Bank, 2007

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Wi , j ) W j ) 100 for all t .

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Table 3: Frequency of publication of house price indices in various countries 7

UK, Canada, Australia, USA, Germany

China, Brazil, Israel, Korea,

UK, Australia, Germany, France

UK, Canada, Australia, USA

Details in Annex I and II

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property, number of habitable rooms, garages, bathrooms, etc.) of a property.

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Graph 1: HPI vs RESIDEX- MUMBAI

Source: RBI and NHB, Authors Calculations.

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Graph 2: HPI vs RESIDEX- DELHI

Source: RBI and NHB, Authors Calculations.

Graph 3: HPI vs RESIDEX- CHENNAI

Source: RBI and NHB, Authors Calculations.

Graph 4: HPI vs RESIDEX- KOLKATA

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Source: RBI and NHB, Authors Calculations.

Graph 5: HPI vs RESIDEX BANGALORE

Source: RBI and NHB, Authors Calculations.

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Graph 6: HPI vs RESIDEX AHMEDABAD

Source: RBI and NHB, Authors Calculations.

Graph 7: HPI vs RESIDEX- LUCKNOW

Source: RBI and NHB, Authors Calculations.

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