House Price Inflation Eases

By | May 3, 2016

House Price Inflation Eases

According to the latest data released by the Reserve Bank of India (RBI), the House Price Index (HPI) rose 9.8% year on year (yoy) in the third quarter of the Financial Year (FY) 2015-16. This would be the quarter that ended on 31st December, 2015. This is the lowest ever rise that the index has shown. What does it mean for you? Let’s find out.

What is HPI?

HPI was created by the RBI to measure the change in the price of residential housing in India. It is meant to serve as a gauge for house price trends in the country. HPI was created in 2010-11.

What does it cover?

HPI considers the transacted amount for the house, based on registration details available in Government houses across 10 cities including Delhi, Mumbai, Bengaluru and Kolkata. The RBI considers the date you register the house as the date that the house was sold. The data is analysed and compiled based on the transaction price mentioned during registration. This would be the price declared by you, the buyer.

How is it calculated?

Seemingly obvious, it is an average of house prices across India. First, the price per square meter (PSM) of all the houses is considered and a simple average is taken. For this the houses are classified into small, medium and large, based on the floor space area. Median prices are considered. Next, the percentage of houses transacted in each of the categories is considered. This is taken as the weight. Finally, price relatives are calculated based on the average PSM for small, medium and large houses in each ward of each city.

What does the current data indicate?

In the quarter that ended on 31st December, 2015, the overall rate of increase in the index has fallen below the 10% mark. This is for the first time in almost 4 years. This is just like the Consumer Price Index (CPI), where fall in percentages indicates slower growth. So, house prices have increased but at a slower pace than before.

Which are the cities that stand out?

Out of the 10 cities, six cities showed a slow-down with regard to the growth in house prices. Kolkata saw the slowest increase in the third quarter of the FY2015-16. Chennai is another city that recorded a modest rise among the top 5 cities. The city’s HPI grew by 8.2% yoy. Bengaluru was the city that registered the highest increase in growth in its house prices. The city clocked a 12.5% rise in its HPI. Mumbai was a close second, with a growth of 11.1%.

Why is this the right time to buy a house?

Here are three reasons why you could look at buying a house now:

  • House prices have come down – With unsold inventories in several cities, it is no surprise that house prices seem to be coming down. If demand doesn’t pick up, more slides cannot be ruled out.
  • Interest is showing a downward trend – Interest rates have fallen significantly in the last 2 years. Consider this – RBI’s repo rate has come down from 8% to 6.5% now. This would mean lower interest rates on your Home Loan.
  • Protection in place – The Real Estate Bill has now become an Act as of 1st May 2016. This should help protect home buyers.

Buying a house is not a simple process and requires a lot of due diligence. A lot depends on your financial situation. This should be given prime importance over all other factors. Make sure you think it through before you go for that Home Loan.

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