Govt plans to use Residex to assess loan value
To assess collateral values for home financing, the UPA-II government is planning to attach greater importance and weightage to Residex, an index to capture changes in the prices of residential buildings at the national level.
This drive was initiated keeping in mind the need for new financing schemes for the urban slums’ housing.
The economic survey tabled by the finance minister P Chidambaram said that, the shortage of innovative financial schemes and inadequate housing activities have also hampered the urban slums.
To examine the feasibility of preparing a Residex, the National Housing Bank (NHB) had undertaken a pilot scheme, which had eventually been launched in July 2007. Since 2011-2012 it has been released with a quarterly frequency in 20 cities, but has not been widely and effectively used for assessing collateral values from the financing point of view.
The share of urban population had gone up from 17 percent in 1951 to 30 percent in 2011. The share of urban population is expected to go up to 50 percent by 2040. According to the finance minister, the rising share of urban population generates both opportunities and challenges for raising resources.
It has also reflected on the act that the pace of change of prices of residential properties varies considerably across the cities. In case of cities like Bangalore, Hyderabad and Jaipur, there was a decline in property prices in July-September 2012, compared with the prices in 2007.
Bhopal, Chennai and Pune have witnessed a 100 percent increase in residential price. In other cities like Kolkata, Delhi and Mumbai, there is an increase in the range of 75 percent to 100 percent. Therefore, it is important to have an index at the national level.
In its research report, Knight Frank India focused on the lack of sustained financing options in the India’s real estate sector. It is said that in 2031, there will be around 600 millions Indians residing in urban areas, an increase of over 200 million in just 20 years. This change in the socio-economic landscape will have a bearing on several things, housing being the foremost.
Bank credit to the sector has seen a slope down on account of increased risk perception translating to higher provisioning and increased cost of funds. In the past two years it has come down from 19.08 percent in November, 2010, to 5.29 percent in November, 2012.
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Bangalore, housing for urban slums, National Housing Bank, NHB, properties in Bangalore, Property prices in India, Residential properties, Residex, urban population, urban slums
