Research on real estate in India is in its infancy in spite of it being a major asset class estimated to contribute about 6.3% of India's GDP in 2013 through private residential investment and consumption spending on housing services. National Housing Board's RESIDEX and RBI's Housing Price Index (HPI) are currently the only available indexes tracking the Indian Real Estate Markets. There is however no credible and impassionate tracking of the sentiment of residential real estate players in India currently.
Indian Institute of Management, Bangalore (IIMB)'s Real Estate Research Initiative (RERI) has developed the first robust leading indicator of real estate sentiments beginning with the Indian residential market to serve this space. IIMB-RERI has tied up with MagicBricks (MB), a major online real estate portal with wide reach across the country and gathered data from home buyers through a survey questionnaire designed to capture buyer sentiment, demographics and micro market preferences. The goal of this index is to effectively capture consumer sentiments in 8 major cities across India to begin with. We consider this attempt to capture consumer sentiments in this sector a first of its kind in the country.
The first pilot survey was carried out in Q2 2013. Below results are a comparison of Q2 and Q3 survey results.
Key Highlights of Q3 (Jul-Sep 2013) Survey
Survey results over the last two quarters indicate that home buyers across the nation expect real estate prices to fall over the next six months. The aggregate Housing Sentiment Index (HSI) dropped to 93 in Q3 2013 from 117 in Q2 2013, a drop of over 20%. Buyers in Bengaluru expect prices to marginally increase (HSI 106), while in all the other 7 cities surveyed, buyers expect prices to fall with Mumbai having the lowest HSI score of 81. Hyderabad experienced the steepest sentiment drop of 34% Q/Q due to the Telengana issue.
Need for a Sentiment Index
One of the most important financial decisions made by common man is unarguably investing in a home. It is not only influenced by individual capabilities like earning potential, disposable income, etc but also by external factors like availability of home loans, strength of the job market, government regulations and tax concessions. Hence, gauging the sentiment and moods of buyers will also lead to an understanding of the health of the economy and the role that regional and national governments play.
Index Methodology
Since the purpose of the HSI index is to capture leading sentiment, we have chosen diffusion index as the ideal calculation methodology. Diffusion Index methodology is widely used to accurately measure economic turning points. A number above 100 indicates that respondents vote in favour of price increase and a value below 100 indicates price decrease; 100 being the neutral value. HSI scores from quarter to quarter will hence track buyer sentiment changes across time.
Professor Venkatesh Panchapagesan, Chairperson, RERI-IIMB, says: "Home buyers' sentiment continues to remain weak across major cities as many expect house prices to further decrease this quarter. While price expectations were universally down this quarter when compared with last quarter, the drop was most severe in Hyderabad and least severe in Bengaluru. Buyers seem to prefer a "wait and watch" strategy that could force developers' hands to cut prices more aggressively to reduce inventory during the festive season."
Research on real estate in India is in its infancy in spite of it being a major asset class estimated to contribute about 6.3% of India's GDP in 2013 through private residential investment and consumption spending on housing services. National Housing Board's RESIDEX and RBI's Housing Price Index (HPI) are currently the only available indexes tracking the Indian Real Estate Markets. There is however no credible and impassionate tracking of the sentiment of residential real estate players in India currently.
Indian Institute of Management, Bangalore (IIMB)'s Real Estate Research Initiative (RERI) has developed the first robust leading indicator of real estate sentiments beginning with the Indian residential market to serve this space. IIMB-RERI has tied up with MagicBricks (MB), a major online real estate portal with wide reach across the country and gathered data from home buyers through a survey questionnaire designed to capture buyer sentiment, demographics and micro market preferences. The goal of this index is to effectively capture consumer sentiments in 8 major cities across India to begin with. We consider this attempt to capture consumer sentiments in this sector a first of its kind in the country.
The first pilot survey was carried out in Q2 2013. Below results are a comparison of Q2 and Q3 survey results.
Key Highlights of Q3 (Jul-Sep 2013) Survey
Survey results over the last two quarters indicate that home buyers across the nation expect real estate prices to fall over the next six months. The aggregate Housing Sentiment Index (HSI) dropped to 93 in Q3 2013 from 117 in Q2 2013, a drop of over 20%. Buyers in Bengaluru expect prices to marginally increase (HSI 106), while in all the other 7 cities surveyed, buyers expect prices to fall with Mumbai having the lowest HSI score of 81. Hyderabad experienced the steepest sentiment drop of 34% Q/Q due to the Telengana issue.
Need for a Sentiment Index
One of the most important financial decisions made by common man is unarguably investing in a home. It is not only influenced by individual capabilities like earning potential, disposable income, etc but also by external factors like availability of home loans, strength of the job market, government regulations and tax concessions. Hence, gauging the sentiment and moods of buyers will also lead to an understanding of the health of the economy and the role that regional and national governments play.
Index Methodology
Since the purpose of the HSI index is to capture leading sentiment, we have chosen diffusion index as the ideal calculation methodology. Diffusion Index methodology is widely used to accurately measure economic turning points. A number above 100 indicates that respondents vote in favour of price increase and a value below 100 indicates price decrease; 100 being the neutral value. HSI scores from quarter to quarter will hence track buyer sentiment changes across time.
Professor Venkatesh Panchapagesan, Chairperson, RERI-IIMB, says: "Home buyers' sentiment continues to remain weak across major cities as many expect house prices to further decrease this quarter. While price expectations were universally down this quarter when compared with last quarter, the drop was most severe in Hyderabad and least severe in Bengaluru. Buyers seem to prefer a "wait and watch" strategy that could force developers' hands to cut prices more aggressively to reduce inventory during the festive season."