An interesting column appeared in the Financial Times two months back, where a reader questions why Real Estate prices in third world countries like India, tend to be even more than those in the US. The article itself got a lot of responses from readers.

Real estate prices in India have been on an upward spiral for some time now – and we all know that. The trend is not only limited to the metros, but also visible in tier II and tier III cities as well. But why these prices have actually upshot comparable cities in developed countries brings some interesting arguments to the fore.

The biggest impediment of Indian development is infrastructure, and that leads to bad connectivity of places, thus exponentially increasing demand for well connected cities. But these factors have been present forever in India. So What is driving the Indian real estate prices today?

Here are the top factors:

• Greater liquidity – Perhaps never before has there been so much money in the market. And all of it is chasing just a little available land.
• Foreign Institution Investments – Most real estate investments are open to FDI. Its not only money which we Indians are earning, but money the multi-nationals are putting into Indian Real Estate. This has been discussed Indian Business Review in its Real Estate Reports.
• NRI capital – It’s no longer a minor part of the investment. For example, visit any of so called “rural areas” in Punjab, and you will see that the villas there are perhaps are bigger than many in Delhi or Mumbai. So real estate prices are moving up in these smaller cities as well.

With all these factors, it becomes a simple equation of Demand and Supply.

And because land in India is not available in plenty (ie, land/person is much less than most countries) and most Indian families value investment in land as the best investment – so that is also big reason for increasing prices.

As most of these factors seem likely to stay around for the foreseeable future, places like Delhi and Mumbai are competing with London, New York and Tokyo, for the costliest real estate per square feet.

The Times of India reports of a conference in Chennai hosted by Dun & Bradstreet about ‘Dynamics of the Real Estate Market: The Investment Perspective’. As per the conference, the Indian Real Estate Market is pegged at around $14 billion. Although the article presents a summary on the major discussions, 2 major points of discussion emerge.

Read the rest of the article and analysis here