Movements in prices of real estate, particularly residential housing, is of vital importance to the macro economy as well as to individual households. A House Price Index (HPI) in this context will not only give an indicative trend of the prices of properties in different cities but also serve as a benchmark for different users and a useful tool for monitoring real estate bubble. The absence of a strong database on the real estate sector is well recognized and considered critical in the context of on-going reforms in India. Information system and data need to be strengthened to enable better understanding and management of financial flows to enhance the sectors’ contribution to GDP and revenue base of governments to monitor and formulate policy to minimize economic slump due to burst of real estate bubble.

Housing market in India took off mainly from the year 2001. The retail loan portfolios of banks, including housing and real estate advances, expanded a lot. The incremental growth in housing loan market has been supported inter alia by the growth in the middle-class population, favorable demographic structure, rising job opportunities in the metropolitan cities, emergence of a number of second tier cities as upcoming business centers, IT and ITES related boom and rise in disposable income and rising number of high earning young population. Furthermore, attractive tax advantages for housing loans make them ideal vehicle for tax planning for salary earners.

In the context of the perceived overheating of the housing market during the past few years as well as the recent slump in the housing market, a number of questions arise: What are the determinants of the housing price? Can we assess a housing bubble?

Movements in prices of residential properties are of vital importance to the macroeconomy as well as to the individual households. For most of the people a house is the single largest component they buy and one that has been acquired with considerable efforts and possibly some sacrifice.

The peculiarity of house is that it is both a consumer good and an investment good. The other unique characteristics of the real estate market are durability, heterogeneity, high transaction costs, long time delay in adjustment mechanism and immobility. Owning a house also has a lot of emotional attachment that makes the buying of a home different from other products.

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