Interestingly, a careful look at the performance of the sector reveals that the pace of activity has been shifting to smaller cities. Several reasons could cause this shift. First, speculative investments in real estate, which have been largely confined to the metros, resulted in greater price volatility in these cities.

Secondly, the high price of real estate in large cities has caused a number of offshore companies setting up operations in India to expand into smaller cities, resulting in a substantial increase in demand.

Thirdly, builders and developers have mainly focused on high-end housing projects in large cities. The recent economic slowdown has meant large stock of unsold inventory. They have, therefore, shifted focus on developing projects aimed at medium-income, middle-class households. Lastly, the special economic zone policy has also resulted in a shift of activity from large to smaller cities.

So, where are we headed? The advent of the private sector in real estate and the government's proposal to offer fiscal concessions and creating an enabling environment for housing development have led to rapid growth in private investment in housing, with the emergence of developers mainly in metropolitan centres and other fast-growing towns.

The growth has been fuelled by rising business opportunities in new and emerging enterprises, increasing income levels, low interest rates, employment generation and demographic changes.
The real estate market has also been boosted by a proposal to permit 100% FDI in the sector. Also, a significant factor that drove the growth of the housing market was easy availability of bank finance at affordable interest rates.

Finally, it is important for policymakers to be vigilant and track the pace and economics driving the evolution of the sector. There should be adequate supervision to prevent reckless credit growth to fund its expansion.