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Indices of current market prices can be compared to measurements of what might be called long-term property values. "Long-term value", might be thought of as the fair value of housing services, a rational and unbiased estimate of the potential market price of an asset, taking into account such factors as: -

• Relative Scarcity

• Perceived Utility

• Potential Risk/ Return Characteristics

• Replacement Costs or Costs of Close Substitutes

One advantage of estimating such long-term value is that it could potentially prevent banks from financing property transactions or construction based on unrealistic expectations about future market prices.

(For relation between real estate cycles and banks Refer Appendix II )

Second, extreme volatility in the price index, or extreme differences between the index of current market prices and "long-term value", can function as a warning that a market bubble has occurred, perhaps requiring a different public policy response.

Apart from above mentioned uses, establishing a comprehensive property administration database and reliable REPI system would:

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* Contributed by: -
Rahul Abrol & Rahul Gulati,
MBA - IInd Year,
Institute of Management Technology, Ghaziabad.