Mr. Sachin Sandhir, MD of RICS India deliberates on whether real estate ratings and house price indices can emerge as useful aids in making buying decisions on Navyroof.com
Why rate Indian real estate?
Just imagine how easy home buying would be if all apartment options came with ratings, which would make decision-making simpler for customers. Better still, imagine if we could get on to a property website and see if the home prices in a particular location have increased or decreased compared to last month. Both of these seemingly impossible tools to aid home buying-decisions have been initiated and are currently being offered, although there is still a long way to go before we can benefit from the results.
Make informed decisions while investing
CRISIL star ratings’ for realty projects have been launched as an initiative to introduce an objective benchmarking and transparency mechanism to an unregulated and fragmented sector. In a market where customers have to base their purchase decisions on gutfeel or broker advice, these ratings will act as an analytical tool in helping us make informed decisions while investing in a particular project. Since the ratings are based on important parameters such as structural/construction quality, legal documentation, financial planning, project innovation, developer’s background etc., they are likely to serve as an overall performance indicator for projects.
Rating real estate projects is a tricky task.
However, one should stress on the fact that Indian real estate projects are very different from consumer products, where the expectations associated with such goods are quite uniform. Realt estate products are quite unique as consumer aspirations and expectations vary drastically across offerings. Also, real estate markets are subject to constant change influenced by several economic, financial and social factors which highlight market dynamics. Therefore, rating realty projects can be a tricky task.
Also, ratings are a relatively new product category. These were first introduced in India about a decade ago, but the Indian realty market lacked the maturity to accept such tools. Even today, ratings are not that widely understood and given the dynamic nature of realty markets and projects, the rating mechanism would need improvisation over time. However, as the market has opened up to international competitors and investors, ratings will definitely play a much wider role, especially for developers to improve their brand value, attract investment and push sales.
Real estate ratings new intiative
However, most property markets across the globe are fairly regulated and governed by a number of building codes and stipulations, which require developers to adhere to certain quality and sustainability standards. So, while credit and green ratings have found widespread acceptance, ‘real estate ratings’ as a tool to adjudge developers and projects on quality and execution parameters is still a relatively recent initiative.
CRISIL ratings
The CRISIL ratings have been launched with good intent and potential benefits. However, their success will depend on the ability of the rating agency to educate and provide easy access to rating information for multiple projects. Also, as such ratings are still in their nascent stage, a lot will depend on the robustness of the rating process and methodology to include a wider project base across additional cities, adherence and acceptance of such ratings by developers and the accuracy with which such rat-ings are administered.
National Housing Bank (NHR) – ‘Residex’
Also, to help bring some level of transparency as far as property prices are concerned, National Housing Bank (NHR) pioneered the task of putting in place a housing price index called ‘Residex’ – the only methodical and accurate source designed to mirror price movements in the market. This would have been a boon for customers, only if it had been able to increase its frequency from the current time lag of six months.
RICS India most experienced to advise Indian market
However determination of housing prices is a complex task and the existing challenges such as underreporting in an unorganised market makes it even tougher. While NHB’s Residex is trying to sort practical issues and improve the quality of data by collaborating with National Association of Realtors (NAR) to provide market data on a more frequent basis, the Reserve Bank of India (RBI) has set up a taskforce to ascertain other forms through which house prices can be monitored. The results are under consideration. Since RICS has been monitoring prices and activity in the UK residential property market for over 30 years, we have offered to assist the taskforce in recommending a solution for the Indian market.
Tags: india, Indian Real Estate, Navyroof.com, ratings, RICS, Sachin Sandhir
Leave a Reply