“There’s too much money in the real estate market... now the situation is that too much money is chasing shrinking real estate in the country. Prices were rising because of the surplus liquidity,” he told The Indian Express. Realty prices had risen by 100-300 per cent in metros across India in the last two years.

According to Parekh, foreign funds found are bringing a huge money for investing in real estate projects. “These funds don’t want to miss the action in India which is witnessing a high growth rate,” he said. However, retail investors are yet to participate in the realty sector as an investment option as the Sebi has not allowed funds to come out with schemes which will allow them to invest.

Parekh says the high prices are unlikely to sustain for a long time. “Personally speaking, prices cannot sustain at high levels for a long time,” he said, hinting at a correction. The new FDI rules have attracted a host of foreign investors and real estate companies are hogging the limelight on the stock exchanges. Concerned over the massive inflow of money into the realty segment, the Reserve Bank of India (RBI) tried to bring some sanity by restricting the flow of money. However, foreign funds are circumventing this by opting for the FDI route.

“Realty developers normally create special purpose vehicles (SPVs). Foreign funds then acquire stake in such ventures as per the FDI norms. They are investing directly and through venture capital funds in India,” said an analyst. Though there’re no figures readily available, market estimates are that foreign funds have invested around $4-4.5 billion last year.

Another $ 12-13 billion is waiting in the wings to enter the realty sector. Funds from Middle East, Hong Kong, London and the US are active in the realty market, but the identity of investors who put money in such funds is unknown, analysts say. Besides, there’s the market route. Realty companies like Unitech, Hiranandanis and Rahejas have tapped the AIM market of the London Stock Exchange recently and mopped up huge funds. Unitech alone had raised over $700 million from the London’s AIM.

The RBI has already warned about the real estate market and cautioned banks against overexposure to the overheated segment. The exposure of public sector banks to the realty sector had doubled in 2005-06, raising concerns about the safety of this lending.