‘Home is where the heart is,’ may have been true earlier but in the present age, it may rightly be said, ‘Home is where the cash flow is.’ Property investment in India has acquired an entirely new purpose in today’s era. Investing in property, one can safely expect immediate and lucrative returns. According to a U.N. report, the Indian property market is on a roll. Property in India is termed as the ‘next big thing’ amongst seasoned international property investors. With the recent liberalisation of property ownership laws, Indian property offers a winning blend of fantastic environment and great investment returns.

The real estate sector in India has changed dramatically in the last couple of years. Indian properties have performed well recently and the expectation is that this is just the start of Indian property rush. Indian real estate sector is booming.

The returns at 10 to 13 percent per annum are almost 50 percent higher than those in the US and Europe and the current demand far outstrips availability in several metros like Delhi, Mumbai, Kolkata and Chennai. In fact Bangalore, Pune and Goa are also coming up as very attractive investment destinations.

As the real estate prices are touching the rooftop and costs of flats have gone up to Rs.50,000 and Rs.70,000 per square foot in Mumbai and Rs.1 lakh per square yard in Gurgaon, the question arises whether there is a bubble building in the Indian property market. According to a U.N. report, even though the collapse of the speculative property market could be more devastating than a stock market crash, there is no bubble as yet in the Asia Pacific region.The real estate prices, along with the runaway rise in the prices of gold and the stock market has somewhat made investors nervous. According to a real estate agent Mumbai, when a flat in Mumbai fetches a better price than a similar flat in New York, certain questions arise about sustaining the trend. It also said that with the property prices softening in developed countries, investors are likely to look for profitable avenues in the Asia Pacific region.

In principle, there is nothing wrong in borrowing to buy real estate for investment rather than for owner occupation. The action can be regarded as rational profit-seeking behaviour as long as borrowers are able to sell at a profit. However, the buying becomes speculative when people begin to borrow to buy, regardless of price or of their ability to service the debt, in the expectation of selling at an even higher price. Since prices cannot rise forever, some speculative buyers will inevitably take a loss. Losses on assets purchased with debt generate systemic risk that might affect the health of the financial system, and that is why real estate bubbles or potential bubbles have policy implications for Government and Central banks.