Gaurav Bhalla, executive director of real estate developers Vatika Group, cannot hide his excitement. Within the last 10 months he has raised the price in his premium residential project in Gurgaon by over 65 per cent.

But that has not deterred the queue of customers wanting to book flats, even though construction is yet to begin. Exclaims an elated Bhalla, "Fifty per cent of our flats covering 35 lakh sq ft of space in Vatika Green have already been sold. We are, in fact, slowing down bookings as we expect prices to firm up to Rs 3,000 per sq ft by May next year, from Rs 2,250 currently."

In Mumbai, a three-bedroom flat in suburban Powai could be had for Rs 2,300 per sq ft as recently as May this year. But six months on, prices have risen a stiff 35 per cent to Rs 3,100 a sq ft and are expected to escalate even further.

Chennai-based builder Vijaya Shanthi had been hawking over 100,000 sq ft of commercial space in its high-tech Prakruti project in Perungudi along the IT corridor at Rs 1,100 per sq ft just six months ago. But the company recently hiked rates by over 20 per cent to Rs 1,350 sq ft. The reason, says Naresh Jain, managing director of the company, is growing demand and the rising cost of construction.

For the country's real estate business, it is boom time again. Spurred by the IT and call centre businesses, and the easy availability of cheap housing loans, real estate prices across most parts of the country are rising. But it has been a long wait. Eight years ago, real estate prices had hit the roof on the back of furious speculation and shortage of land. The bubble burst in 1996 as speculators desperately liquidated their holdings and prices tumbled by 40 per cent to as much as 80 per cent, virtually wiping out their entire capital.

The first signs of recovery became evident in 2002 when prices started inching forward on the wave of the BPO boom and a burgeoning middle class looking for affordable homes. According to Sanjay Verma, joint managing director of Cushman and Wakefield, "Prices in the last two years have gone up at an average by 30-40 per cent. But what you are seeing is not a bubble but an up-trend based on genuine demand." Yet he agrees that prices in the last six months have been rising faster because speculators, till now conspicuous by their absence, are again jumping on to the real estate bandwagon.

Rising prices are straddling both residential and commercial spaces, and hitting new markets. In Pune, for instance, commercial rental values have shot up by 20 per cent in the last five-six months as the city has caught the eye of IT businesses and call centres. Industry estimates indicate that as much as 1.2 million sq ft may be required in the next 12 months in this pensioner's haven to meet the demand for upscale commercial space. In Kolkata, cheaper lease rentals (15-20 per cent lower than in Gurgaon or Bangalore) are pulling in IT and call centre companies.

In Mumbai, residential prices are moving up firmly. Says ICICI Venture director investments Kishore Gotety, "There was a growing demand for good residential space within the city." On average, residential rates have soared by 20-25 per cent in the last 12 months, he says. "Sixty per cent of this rise has been in the last six months".

The mill area covering Parel and Mahalaxmi is suddenly awake with numerous residential projects, with rates going up from Rs 4,500 a sq ft to Rs 6,000 in the last eight months -- an increase of 33 per cent. Land values in Mumbai's growing Bandra-Kurla commercial area have shot up by over 60 per cent in 12 months.

On Delhi's outskirts too, no one is complaining. The Omaxe Group, which announced the upmarket residential complex Putting Greens in Greater Noida just a month ago, has hiked rates by 18 per cent within a month of its launch. Residential values in Gurgaon have risen on average by 30-40 per cent in the last six months.

A similar trend is reflected in Bangalore and Hyderabad. Rental values in Hi-tech City built to house tech-savvy companies in Hyderabad, have zoomed by 17-20 per cent over 15 months.

Says a senior spokesperson of Bangalore-based Puravankara Projects, "Appreciation in price has been almost 70 per cent in residential apartments, and land values have gone up by over 100 per cent in some cases." Residential prices of new projects have been upped as many as three times in the last 12 months, despite which 60 per cent space is already pre-sold.

Interestingly, even as prices rise, properties continue to be sold out or leased out in a jiffy. In Bangalore, over 5.25 million sq ft of space has been built this year of which over 85 per cent already has takers. In Chennai, 2 million sq ft of space was absorbed primarily by IT and IT-ES companies this year though only 1.8 million sq ft of new space was built.

Spurred by growing demand, real estate developers are pushing aggressively by kicking off new projects or buying fresh land wherever available. In Noida, prices of land in auctions conducted by the government have shot through the roof; last month successful real estate developers paid four times more (a whopping Rs 22,000 a sq metre compared to Rs 5,000 in 2002) than the highest bid just two years ago.

Says Kunal Banerji, senior vice president-marketing, Omaxe Group, "At these prices, developers have to get customers who would pay virtually Delhi rates (which in many places are at Rs 5,000 a sq ft) if they want to make money."

Developers are building at a frenetic pace to take advantage of this growing demand. Mumbai-based K Raheja, for instance, is adding 5 million sq ft this year, of which 60-70 per cent will be commercial. That is a 40-50 per cent growth in capacity over last year. Even Chennai is not being left behind in this frenetic commercial activity.

Says A L Jayabhanu, executive director, Arihant Foundations and Housing, "We are in talks to acquire land and build about 400,000 sq ft along the IT corridor." Meanwhile, Bangalore-based RMZ Corp is building its second facility of 500,000 sq ft there.

How different is this boom from the 1996 bubble that burst? Developers say the new boom is driven by end-user sales, and though the speculators are back, their numbers are limited. V Hari Krishna, Jones Lang LaSalle's associate director-corporate finance and investments, capital markets, says, "The existing boom is occupier demand led and more sustainable compared to the mid-nineties when it was monetary in nature.

Adds Knight Frank India chairman Pranay Vakil: "The big difference is that, unlike in 1996, there is no shortage of land availability. The growth of suburbs has ensured that."

But most experts agree that the speculators are back in business in the last six months -- one key reason why prices have been moving up more rapidly than before. Cushman and Wakefield estimate that about 20 per cent of the sales currently are speculative. Vatika's Bhalla says that 20-25 per cent of his sales derives from speculators.

Of course, different markets have different reasons for growth. Says Vinod Rohira, director-sales and marketing of the Mumbai-based K Raheja Corp, "Delhi has a large investor market, whereas elsewhere in the country demand is being fueled by end-users."

He says there is real demand only in the major metros because there is nothing else left to buy there, thereby escalating real estate in alternate city suburbs such as the National Capital Region's Gurgaon and Noida. Rohira adds: "We expect to see 16-18 million sq ft of commercial space being added because of this demand all across the country."

There are also new players entering the market, chief among them the non-resident Indians who're back to buy with a vengeance. Knight Frank estimates that already 10 per cent of all properties with a price tag of over Rs 1 crore (Rs 10 million) are bought or funded by NRIs.

ICICI Venture's Gotety points out that NRIs from the UK, US and the Middle East who had lost faith in the Indian retail market are diverting their investments into Indian real estate once more. Thirty per cent of Omaxe's buyers are NRIs. Just last week, company executives organised road shows to buy their property in Dubai and for the first time, also in Singapore and Hong Kong.

Back home, the easy availability of finance has been key to the boom in the housing sector. There are also income tax incentives offered should you take a housing loan. Home loan disbursements have been growing at a rate of 25 per cent per annum.

Even more fundamental changes have taken place in the last two years in the way real estate projects are being financed, making it easier for developers to build more capacities. Says Verma, "Banks are ready to finance projects at 7-9 per cent interest rate as compared to 12-14 per cent a couple of years ago. Earlier, 90 per cent of a project was financed through equity, today it is down to 50 per cent and we think it will settle at 30 per cent."

If the banks are more forthcoming, it is because the nature of real estate transactions has changed and risks have reduced. The success of a project now depends on the quality of tenants, and that in turn depends on the quality and maintenance of a building. Another change is adopting the increasingly popular built-to-suit module where the entire building is tailored to the need of a company. In markets like Hyderabad and Chennai, over 50 per cent of space is in the built-to-suit category. The advantage? Explains Bhalla, "Your entire project is pre-sold from day one, so you are secure."

The boom has also been spurred by new sources of funds entering the fray. Equity funds, banks and financial institutions are discovering that returns on real estate can be stable and attractive. Banks have been in on it for years, buying out properties with tenants as a source of income, but now equity funds are getting into the fray: ICICI Venture and international funds like Fire Capital are planning to set up specialised real estate funds to finance projects as well as real estate companies.

Will the boom last? Opinions vary, though most say it is here to stay. But Charanjit A S Budhiraja, a Delhi-based broker in Gurgaon, warns that speculative activity is spurring the market. "Prices are being artificially pushed up and at least 50 per cent of sales are speculative. Prices should fall in February, just before the Haryana elections." Most others are less worried. Verma points out that with speculators in the market it is safe to assume that they will hold on to their positions for at least six months to two years.

Developers too continue to remain bullish. Says H S Bedi, managing director of Bangalore-based IDEB Construction Projects, "The boom in commercial space will continue for another year or so, after which prices will stabilise. But the residential boom will stay for another two years." There are others like Gotety who think the price peaks have been reached and the market will now stabilise.

Analysts in India estimate that about Rs 12,000 crore (Rs 120 billion) will be needed in the next three years to feed the IT sector's insatiable hunger for space in the country. That, in turn, will push the need for more residential complexes (1 sq ft of commercial space leads to a demand for over 7 sq ft of residential space). Clearly, the fate of the real estate industry is inexorably linked with that of the IT boom.

Additional reporting: Arti Sharma in Mumbai, Praveen Bose in Bangalore, Sanjay K Pillai in Hyderabad and Bridgite S Leena in Chennai