BB should develop property price index to assess risks: IMF

The Bangladesh Bank should focus on developing a publicly available Residential Property Price Index (RPPI) for the assessment of developments and risks in the property market and to understand the linkages between property markets and financial soundness, according to the International Monetary Fund (IMF).
From a broader perspective, analysts, policymakers, and financial institutions follow trends in house prices to expand their understanding of real estate and credit market conditions.
For instance, lenders often give loans against property which is kept as collateral. So, if there was a RPPI, it would help them better understand the value of such properties.
Similarly, central banks around the world often rely on movements in house price indices to monitor households’ borrowing capacity and debt burden and their effects on aggregate consumption.
The multilateral lender made the recommendation in a report that was published recently based on its technical assistance mission that visited Bangladesh from May 19-27 this year to assist the central bank with the ongoing development of their index.
The BB should publish the experimental RPPI for Dhaka on their website, along with the sub-indices for the six regional strata, the IMF said.
Initially, the indices can be circulated internally, requesting feedback from researchers and economists, it said.
The authorities should publish the RPPI on their website, labelled as experimental, along with an accompanying methods document and a quarterly dissemination report.
The RPPI should be updated quarterly according to a pre-announced publication schedule.
Once further improvements outlined in this report are implemented, the experimental label can be removed, according to the IMF.
Year-on-year percentage changes and quarter-on-quarter percentage changes can be illustrated in the indices.
An experimental RPPI was successfully calculated at the BB, which was identified by the IMF as a significant achievement.
The BB introduced a new data collection template in January 2022 for eight financial institutions in the initial pilot phase.
The authorities have been slow in making the new template a mandatory requirement and expanding the data collection to all financial institutions, including non-banks, the IMF said.
The BB management said the issue will get priority in the coming months.
As a matter of urgency, the authorities should make the new reporting template mandatory and provide additional staff to the Residential Property Price Analysis (RPPA) wing.
To support the increased volume of survey forms, the junior level officials — joint director and below — with the relevant skills within the RPPA wing should be increased to about five staff in total, the IMF recommended.
The progress of the activities was impeded by a shortage of staff with relevant skills.
There are currently two junior-level officials in the RPPA wing, one of whom only joined earlier this year.
In this regard, placing some officials from the statistics department and the IT department with the relevant skills in the RPPA wing would be beneficial, the IMF believes.
The authorities should finalise the draft quarterly dissemination report and the draft methods document that were developed during the mission, the IMF said.
The dissemination report, which highlights the key inflation information and trends for the user, should be updated quarterly and published on the website alongside the RPPI time series data.
A methods document is an important step for finalising each step of the compilation, ensuring transparency for users, and solidifying the knowledge and understanding of the BB staff, it added.
The central bank used the available mortgage loan data to compile the experimental RPPI for Dhaka.
The BB has two data sets available to them, both of which relate to mortgage data collected from financial institutions and other non-banks.
The first data set was received quarterly from a single financial institution called Delta Brac Housing Finance Corporation, one of the largest mortgage loan providers in the market.
This data collection was initially established in the late 1990s. However, the data is usable from 2009.
While the variables collected are somewhat limited and valuation prices are used instead of transaction prices, there is still value in developing RPPIs using this data source.
In the medium to long term, the authorities should continue to monitor the potential of listing data from property websites to expand the coverage of the real estate market, the IMF said.
The existing mortgage data used by the BB does not provide coverage of cash purchases of residential property. Ideally, the index would cover all transactions, it added.