## House Prices and Macroprudential Policies: Evidence from City-level Data in India

_IMF Working Papers, December 18, 2020_

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## Bibliographic details
- Authors: Bhupal Singh
- Published: December 18, 2020
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781513552514.001

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### Summary
- This paper examines the efficacy of macroprudential policies in addressing housing prices in a developing country while underscoring the importance of fundamental factors.
- Estimated models using city-level data for India suggest a strong influence of fundamental factors in driving housing prices.
- There is compelling evidence of the effectiveness of macroprudential tools — Loan-to-value (LTV) ratio, risk weights, and provisioning requirements — in influencing housing price movements.
- A granular analysis indicates an even stronger impact on housing prices of a change in the regulatory LTV ratio for large-sized vis-à-vis small-sized mortgages, which buttresses their potency in fighting house price speculations.
- Tightening of the risk weights on the housing assets of banks causes significant downward pressure on house prices.
- Regulatory changes in standard asset provisioning on housing loans also influence house prices.

### Key Findings
- Fundamental factors are a strong driver of city-level housing prices in India.
- Macroprudential tools with demonstrated influence on housing prices:
  - Loan-to-value (LTV) ratio.
  - Risk weights on housing assets.
  - Provisioning requirements (standard asset provisioning on housing loans).
- Differential effects by mortgage size:
  - Changes in the regulatory LTV ratio have a stronger impact on large-sized mortgages than on small-sized mortgages.
- Bank regulatory tightening (higher risk weights) exerts significant downward pressure on house prices.

### Policy implications (as conveyed by the paper)
- Macroprudential instruments (LTV limits, risk weights, provisioning) can be effective tools to temper housing price growth and curb speculation, particularly through targeted measures affecting large-sized mortgages.
- Adjusting bank-level regulatory parameters (risk weights, provisioning) is a channel through which authorities can influence aggregate housing price dynamics.

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_Source: https://www.imf.org/en/publications/wp/issues/2020/12/18/house-prices-and-macroprudential-policies-evidence-from-city-level-data-in-india-49622_