Real estate is generally considered as an option for shelter and security. Till recently, due to high interest rates and security offered, investment in banks was the first choice. In addition, shares, securities and mutual fund were attractive among investors, interested in short-term investment.

But recently, real estate has transformed into a separate asset class and a new avenue of investment for individuals. The most significant advantage of real estate investment is that such investments do not require day-today tracking unlike investment in stocks and shares where rate of interest fluctuates every now and then.

Rising real estate prices and relaxation of FDI rules by the government have started attracting foreign funds and thereby further fuelling the realty boom. According to reports, an estimated USD 12 billion of investment has been pledged by foreign and domestic funds over the next couple of years.

Global names like Morgan Stanley, Lehman Brothers, HSBC, Merrill Lynch and ABN Amro are among those showing interest in local realty firms. Recently, SEBI has issued guidelines allowing real estate mutual funds to invest directly in properties. The prospective high returns in this sector have been the primary motivating factors. Merrill Lynch expects the Indian realty sector to grow almost nine times to $90 billion by 2015.

Recently, Morgan Stanley has picked up stake in two local real estate firms. The US-headquartered investment bank major Morgan Stanley has forayed into India's booming real estate sector by investing Rs 300 crores (around $68 million), through its real estate investment arm Morgan Stanley Real Estate. Tishman Speyer's has already tied up with ICICI Bank to invest $1 billion in the country.

The heightened activity in Indian real estate has been a result of higher prices and improvement in underlying demand conditions. India presents an extremely compelling investment story and expects to be a long-term investor in the real estate sector. The residential market is attractive because of rapid urbanisation, the availability of housing finance and the strong growth of the consumer segment.

Foreign investors believe Indian real estate to be a bargain with initial yields of 15-20 percent. While accepting that higher yields are not without risks, they believe that some of these risks are built into the high yields that can be found in emerging markets.

Traditionally, the Indian property market has been largely a residential market. However, this is now changing with the emergence of the IT/ITES sector and organised retail as big growth drivers. McKinsey has forecasted demand for 4-6 billion square feet of new residential housing by 2015. The office market in India has doubled over the past three years to 100 million square feet, a CAGR of 26 percent. Demand is estimated to grow at an annual rate of 20-25 percent over the next 10 years, which equates to 500-650 million square feet. The industrial real estate market in its current state is slowest to develop. According to analysts, suburban offices and residential sectors are likely to offer greatest opportunities in the short term, while the retail sector would be the growth driver in the medium term.