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House-hunters and real estate developers are closely watching price trends in the residential property market, which seem to be displaying signs of cooling down after touching record highs in the past two years. The overall quantum of sales has dropped by 20-40% in the past two months in the wake of rising interest rates and additional pressure on household budgets.

Real estate brokers said that in the Mumbai suburban market, developers are cutting prices by Rs 500 to Rs 1,500 per sq ft. The number of homes on sale has risen with over 3 lakh homes staying unsold in the past two months, Maharashtra Chamber of Housing Industry (MCHI) officials said.

"There is a slowdown in the market for the past two months. Now, the interest rates are moving northwards. Potential buyers are sitting on their home purchase decisions, preferring a wait-and-watch policy," said Sandeep Runwal, director, Runwal group.

Consider the facts. Mumbai-based residential developer, Lok Housing, recently sold its Versova and Thane properties to a third party. Royal Palms has started offering its new apartments at discounts ranging from 5% to 20%, besides throwing in freebies like furniture, PCs and LCD TVs under its 'Rain Mein Gain' scheme.

Nahar Builders has formed an exclusive marketing arrangement with HDFC Bank for its new residential projects. Brokers say the developers, though still quoting a high price, are ready to sell homes for "maximum negotiable prices".

"Royal Palms has always had a prudent pricing policy taking the long term view and hence we are not affected much by the current downward trend. Also, we get largely actual users and not investors which benefits us in the long run," Royal Palms Estates joint managing director Dilawar Nensey said.

"In Mumbai, we are yet to see a drop in the prices. But, I have been told that in cities like Jaipur and Indore, the residential property prices have started to cool down. In the Mumbai market, the enquiries are down by around 60% which is not a positive signal," Rajeev Piramal, vice chairman, Peninsula Land said.

HDFC chairman Deepak Parekh recently stated that he expected property prices to cool down and indicated that a correction of 20% was in order. The Reserve Bank of India (RBI) has been warning of an asset price bubble in the Indian property market and has blocked venture funds from investing in the realty sector.

A property analyst with Knight Frank said: "I feel the residential property prices will be lowered by 10% by the end of the current quarter as the interest rates are move up."

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Source: IndiaRealEstateblog