Housing prices in registration data higher than what is quoted in advertisements: RBI study

The price level of the residential houses based on advertisement data is lower than the level of residential house price based on registration data, according to an article in Reserve Bank of India's latest monthly bulletin.

The authors observed that the advertised prices are displayed at a discounted rate to attract buyers whereas the final transaction takes place at a higher cost.

The authors picked up data on residential property prices from select web portals and processed it using big data tools to compile a residential house price index (HPI).

"The WEB Index graphs are smoother than the HPI. It means advertisement prices are not changed frequently, whereas, the HPI based on actual registration data is having higher price variation over time (as the actual sale varies significantly)," the article said.

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Moreover, the registration prices are embedded with several underlying factors of the property such as floor rise, position, facing, and other factors, which may not be displayed in the advertisements, the report, written by Indranil Gayen and Sasanka Sekhar Maiti from RBI’s Department of Statistics and Information Management, said.

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Residential property is the largest single asset for most households around the world. The variations in residential property price affect households’ long-term investment strategy influence their spending and borrowing patterns.

Change in the property price influences the banking and financial sectors of the economy through bank lending and mortgage channel.

Referring to the divergence between HPI and WEB indices, the authors said this could be due to the following factors:

> Advertised prices are changed at a longer time horizon, whereas the actual prices of properties are much higher as various underlying factors are incorporated in it.

> Advertised prices are displayed at a discount to attract buyers whereas the final transaction takes place at a higher cost.

> Several reports on real estate market research state that there is a declining trend in the sale of the residential properties from 2013-14 onwards. As a result, the properties displayed in the advertisements may not be representative of the set of properties actually sold.

> As per the compilation methodology of HPI, the set of residential properties differ from one quarter to another, which is dependent on the actual sale during the underlying period.

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Residential property price is an important piece of information for policymakers, especially for the central banks.

In the Indian context, there are two established housing price indices — HPI compiled by RBI; and RESIDEX, which is compiled by the National Housing Bank. These indices are typically available with a lag of (at least) one quarter.