Identifying the true value of a property is equally important for a buyer and a seller, and especially so in the prevailing subdued real estate market conditions. For a seller, quoting an unreasonably high price will shut down a genuine enquiry, and quoting too less will lead to lower profit. For a buyer, paying more than what a property deserves can reduce the potential return from it. But, even though this information is crucial, it is not easily available.

Unlike the share market, where you can see the price of a particular share on real time basis, or a mutual fund, where value of a unit is declared each day, determining a property’s value is difficult.

Though there are some real estate indices, their utility is limited. A homebuyer still has to do a lot of homework to ascertain the correct property price.

What’s available?

There are three key indices developed by different agencies that can be used. These indices differ from each other based on the data source that they consider to build the index. For instance, National Housing Bank’s (NHB’s) Residex takes into account actual transaction prices of properties to build the index. Primary data on the housing prices is collected from real estate agents, housing finance companies and banks, which is based on housing loans contracted by these institutions.

Another index is the Housing Price Index (HPI), which has been developed by the Reserve Bank of India (RBI). This one is based on official data available on property price transactions collected from registration authorities of respective state governments. There is one more index from RBI, which started only in May 2015, called Residential Property Price Index (RPPI). This takes into consideration property values as appraised by the bank or housing finance company while giving home loans.

“All these indices are dependable and useful, provided that the buyer refers to one of them consistently and is able to determine the trend,” said Anuj Puri, chairman and country head, JLL India, a real estate consultancy.

Few steps behind

The problem with these indices is that most of them are not updated regularly and thus do not reflect the most recent trends. For instance, at present, information on NHB Residex is only till September 2014, and RBI’s HPI has till March 2014. The RPPI, being new, has the latest information, but that’s also only till December 2014. So much lag dilutes the purpose of having these indices. If someone has to buy a property in the near future, price trends of a year back are not helpful.

In many developed real estate markets, indices are more robust. In the US, for example, the S&P/Case-Shiller 20-City Composite Home Price Index is updated monthly. It seeks to measure the value of residential real estate in 20 major metropolitan areas.

In India, industry participants say things are improving. “The time lag is being brought down; of late, it has become less than six months,” said Puri.

The other block that prevents these indices from being effective is absence of regulatory framework and an organized set of rules. Discrepancies in index output makes drawing a trend complicated for homebuyers. For instance, if we take movement in property prices of Kolkata on Residex and RPPI, the rate of increase in prices differs significantly. Between April-June 2012 and July-September 2014, Residex rose from 196 points to 209 points, an increase of about 3% per annum, while RPPI rose by about 11% per annum for the same period. According to HPI data for Kolkata, which is available only till March 2014, the index rose by about 12% per annum since April-June 2012.

“Unlike many developed countries where there are set standards for collection and analysis of data, there are no set guidelines to follow (in India),” said Samir Jasuja, founder and chief executive officer, PropEquity, a real estate research and analysis firm.

Furthermore, these indices provide city level price trends whereas real estate is a heterogeneous market in which properties, even in the same locality, command different prices. Therefore, you may not be able to determine the property price of a particular apartment or a house with help of these indices.

“Customers cannot rely solely on these indices to plan their investment decisions,” said Jasuja. So, if you are a buyer or a real estate investor, these indices can be used to get a sense of how property prices are moving in a particular city.

“The indices do not give the actual price, but are useful to know the general trends in a city or locality. However, with no real time indices available, it is a challenge to take a decision based only on the indices,” said Puri.

Property prices also depend on factors such as location, locality, construction quality, amenities and economic and socio-cultural level of the area. “It is very difficult for an index to take all these into account,” said A.S. Sivaramakrishnan, head–residential services at global real estate consultancy CBRE South Asia Pvt. Ltd.

What should you do?

Property price indices have limited utility for a home buyer, especially if she is looking at a property in the primary market—buying directly from a developer or builder. It also holds true for buyers and sellers in the secondary or resale market. All have to do the research on their own.

“You could refer to prices quoted or advertised by developers (for new projects), speak with property consultancy firms and brokers, and refer to property classifieds in print media and web portals (more so for secondary sales) to get a good sense of prices,” said Puri.

The most realistic way of checking property value is figuring out at what rate a similar property was bought or sold in the area, in the past 3-6 months. “Take the help of neighbourhood real estate agents to get an idea,” said Sivaramakrishnan.

Alternatively, one can check on realty portals such as www.99acres.com, www.housing.com, and www.magicbricks.com. Some of these websites have their own indices, based on data collected from real estate agents, advertisements posted by individual sellers, and their own data collection agents. These indices give a more micro perspective of property prices. You can also search for rates in particular localities or projects. The updates are comparatively more frequent, usually every quarter.

Besides these, a few banks and financial institutions also have ready reckoners of property prices. For example, HDFC Developers Ltd (a wholly owned subsidiary of HDFC Ltd) has www.hdfcred.com.

You can also look at a few other sources. “Rates published by respective state governments (also called ready reckoner rates, circle rates, guidance values in different states) is another yardstick to validate information gathered from developers, brokers and advertisements,” said Puri. These are the minimum rates at which stamp duty has to be paid on a plot, independent house, or flat in a locality.

If you are still not satisfied, you could approach a property valuer. Generally, they charge Rs.2,000-10,000, but that depends on the property’s estimated value, condition, size, structure and other aspects.

As of now, information on property values is available in a piecemeal fashion. Every entity that provides such information uses its own set of parameters.

To be relevant and useful, it is important that the various available property price indices provide more recent data and do so for micro-markets as well. Only then will they be of use to individual buyers and sellers, and make the sector more transparent and efficient.

Source And Courtsey By :- http://www.livemint.com/Money/DwUkkuBVZGJ7JMKMndUQrJ/Why-is-it-difficult-to-track-property-prices.html