There are also other reasons for the recent growth in demand. During 1997-98 and 1998-99 budgets, tax exemptions on housing loan interests were increased from Rs 15,000 to Rs 75,000. Also, the housing loan interests have dropped and the depreciation rates for dwelling increased from 20 per cent to 40 per cent on new buildings purchased by corporates. Several corporates, including LIC and L&T, have purchased large premises for their employees in the recent past, believing that this is the right time for improving their assets portfolio besides securing tax exemptions.

Another reason behind the rise in demand, feels Colliers Jardin CEO Akshay Kumar, is the revival in economy which has registered a handsome industrial growth of 7 per cent. According to him, this will finally result in increasing production capacities, demand for real estate and growth in volume.

For example, demand in Delhi has already soared. This is evident from the fact that Ansal Plaza, a 35-acre complex developed by Hudco, has sold 80 per cent of its space even before its inauguration, which is slated for August 1999.

Another major builder in Delhi, DLF, has sold record 1,000 apartments in just 14 days. RNA Builders directors Niranjan Hiranandani and Anil Agarwal agree that demand during the past four months increased by 30 per cent and may rise further. There is one more reason to believe that recession in this industry is over. HDFC, one of the largest housing finance company with a market share of 50 per cent, recorded a 37 per cent rise in loan applications during April this year as compared to the same period in the previous year.

However, Anil Agarwal feels differently about the rise in demand. According to him, no new projects were conceived during the previous three years and demands are being met from the stock of 1995. Only those projects which started during 1995 are being completed now. He is confident that the prices will rise by 10-15 per cent.

But some actual users feel that builders are only painting a rosy picture of the increasing demand. They opine that the prices may further dip on account of the huge inventories and the fall in the general purchasing power following inflation. All businesses are in the grip of recession and the fixed income group, which is the largest buyer of flats, is also facing financial problems because of losses suffered in stock exchanges. Investors are also cautious because they have already burnt their fingers.

According to Akshay Kumar, volume growth of property could be followed by value growth. But local investors are not relying on value growth. They may be interested in the market only if the rental yield is good. The rental yield works out to 6 per cent to 12 per cent depending on the location of a property.

For suburban Mumbai it is around 6 per cent for residential properties whereas in Andheri, it ranges between 10-12 per cent for commercial properties. For example, a 500 square feet residential premises may cost around Rs 10,00,000. It can give a rental value of Rs 66,000 per annum plus an interest of Rs 6,000 per annum on deposit taken, aggregating Rs 72,000.

The rental yield in this case works to 7.2 per cent. Similarly, commercial premises in Andheri which are available at around Rs 4,000-5,000 per square feet may offer a rental yield of 10-12 per cent or Rs 40-50 per square feet per month. This consideration may attract investors up to certain extent.Considering all the factors, it could be said that this is the right time for actual users to purchase a house or commercial premises. For the risk of the prices falling by a larger margin is very low.

The investors who will be satisfied with a 10 per cent rental yield may find this the right opportunity. Even with small appreciation, the returns may go up to 15 per cent per annum. Those who are looking for a mix of rental yield and appreciation could find better opportunities in far suburban areas. The risk is very less in suburbs like Borivli and beyond.

This was proved during the Kargil crisis, when real estate prices in many suburbs remained steady against the general fear of a 10-15 per cent decline. This is because several builders sold at lower than cost price, including Anil Agarwal, who is still selling his good quality flats with amenities like swimming pool, health club and concrete roads, at the rate of Rs 810 per square feet in Mira Road.

Meanwhile, speculators beware! Your expectations may not materialise in the near future.