Dec 17, 2010

3 Realty Tools to help you in property purchase


Are you thinking of buying a property? If yes, then here’s something which can help you in making an informed decision.

First, it is a well known fact that complex nature of real estate coupled with lack of regulation in Indian property market and existence of fly-by-night operators makes a property deal highly risky. It is indeed very difficult for you as a prospective buyer or investor to search properties, benchmark property prices, understand the real estate price trend prevailing in Indian residential property market and assure yourself about the reliability & credibility of the project & the developer. Now there’s a solution:

These following three real estate tools available online will help in making the process of property acquisition
easier for you:

1. NHB RESIDEX for understanding price trends
NHB REXIDEX is a property index launched by the National Housing Bank, the regulator of housing finance in India and can help you to study the real estate price trend in India. The purpose of this real estate price index is to bring more transparency by bridging the information gap. It is similar to Sensex which tracks the stock prices and on the basis of which we decide whether stock market is overvalued or undervalued and whether to buy/sell or to hold and wait for the market to correct.

Although measuring house prices developed accurately over time is not simple, most developed countries have housing price indices and with the launch of NHB RESIDEX in July 2007 as the India’s first official housing price index to capture price movements in residential properties a beginning has been made in India also.

Currently the index covers following 15 cities: Hyderabad, Faridabad, Patna, Ahmedabad, Chennai, Jaipur, Lucknow, Pune, Surat, Kochi, Bhopal, Kolkata, Mumbai, Bangarulu and Mumbai. Gradually, it will cover more cities across India. Each city is further divided into various zones for price comparison as the price movements are not uniform across the cities.

The only limitation of NHB RESIDEX is that the prices are not being updated on monthly basis, the index figures are quarterly (half-yearly till 2009) but published after a lime lag of 3-4 months which reduces its relevance. Anyway, it helps you in assessing and understanding the price trends prevailing in residential property market.

Let’s see how to interpret the figures of NHB RESIDEX …here is the current index values:


In the above table I’ve mentioned the city wise NHB RESIDEX values and also tabulated the zone wise NHB RESIDEX values for Jaipur City. You can see the zone wise NHB RESIDEX details of other cities from the NHB site (http://www.nhb.org.in/).

We can observe that similar to stocks, there is wide variation in property prices over a period of time and across the cities. Comparing the index values for the qtr ending Jun 2010 with the period ending Jun 2008, you can notice that during the last two years, while the best performing property market is Chennai (CAGR of 32.65%), the worst performer is Jaipur city with a CAGR of minus 28.40%.

You can also note that the price trend don’t remain uniform across the city. There is a wide variation in property prices in different parts of the city. While some zones show a rising trend, others show a decline; continuing the above example, while the property prices in Jaipur city as a whole shows a negative trend, some zones in the city are showing a rising trend. Note that while last 2 years property returns in Hawaa Mahal and Mansarovar zones are in positive territory, rest all other sectors are in negative including the worst hit zones of Moti Dungri (down by around 73 percent with a CAGR of -47.48%) and civil lines (down by 68 percent with a CAGR of -43.46%.).This should be an eye opener for those who think that property prices only follow a one way movement.

This real estate price index will help you whether or not to buy the house and also help you compare the performance of real estate with other asset classes such as stocks and debt.

2. Online Realty Portals for making the search process easy
You have understood the broad price trends in the property market with the help of NHB RESIDEX. That’s fine! Now, won’t you like to search for availability of various properties for sale / rent from the comfort of your house avoiding making visits to property dealers.

The online real estate portals make the process of property search a lot convenient for you. Unlike print advertisements, here you get more detailed information. The major benefit is that you can search while sitting anywhere, filter the results the way you want and cut down the time in finding a suitable accommodation to buy/rent in the location of your choice.

Some of the top real estate search sites in India are makaan.com,99acres.com, magicbricks.com, indiaproperties.com and sulekha.com. In addition to allowing you to search the available properties, these online real estate portals also allow you to list the property you intend to sell or give on rent.


3. Crisil Real Estate Star Ratings for judging the project quality
After having assessed the broad price trends in the property market and after searching for properties in various locations you’ve shortlisted a few of them for making the final selection. Now here the Crisil Real Estate Star Ratings System started a few months back (August 2010) can help you get an assurance about the quality of the project.

Crisil Real Estate Star Ratings takes into account the following parameters for awarding a star rating to a construction project:

-construction quality, building design, availability of various amenities & location of the project
-after-sale services; time & cost overruns
-clear & marketable land titles
-legal documentation
-financial viability of the project
-financial strength and track record of the project sponsor

The ratings are based on city-specific eight point scale: While ‘City 7- Star’ is highest, the lowest rating is ‘Non-Deliverable’ Project. City specific means that an individual real estate project is benchmarked against other projects within the same city. So, it is quite possible that a particular project of a developer, say, Project ‘Grand Heights’ in a particular city will receive 6-Star, the same or similar project in an another City receives 5-Star or a 4-star.

The other important point worth noting down about Crisil Real Estate Star Ratings is that it is possible for an affordable housing project to get higher rating than a premium luxury apartments project. Why? Because the rating considers the expected performance of a project to the stipulated specifications.

Another thing to understand is that these ratings will be continuously reviewed by the Crisil at least once a year till the receipt of occupancy certificate and can be downgraded or upgraded at any time.

These real estate star ratings will surely help you in identifying quality projects and by investing / buying only for properties with a rating of 5-star to 7-star will substantially reduce your risk involved in property deals such as sub-standard projects, delay in project completion, incomplete documentation, faulty titles etc. However, as the ratings are not mandatory, only a few developers are opting for it, but gradually as the demand for rated properties increase, developers will have no choice but to go for it. Obviously, good projects will surely go for it as it will enhance the credibility and pricing power of the developer.

The current list of projects rated by Crisil (as on 16 Dec 2010) is as follows:



More details about the above rated projects can be downloaded from the CRISIL Site (http://www.crisil.com/star-ratings/index.html).

You can make use of the CRISIL Real Estate Star Ratings before making the final selection of property, the way you use Mutual Fund Star Ratings while investing in mutual funds.

Going forward, I think the above three online real estate tools will immensely help you at the time of property acquisition. In short, they will radically change the real estate market. What do you think?


Also see:

1. What is the right time to buy a home
2. Selling Your House: Know the tax implications
3. Home Loan EMI Calculator

1 comment:

  1. Hi Fisher
    As usual an informative piece. When I read your blog I never cease to marvel at the large amount of really useful info not covered by the popular media. It is indeed benevolent of you to take the effort to share this with us in your inimitable simple style.
    Why are such important issues not given a honest and exhaustive coverage in the popular media?

    For how long will real estate continue to be a wise investment option?

    regards,

    Hari

    ReplyDelete

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