New Delhi - With the global credit crisis leading to the worst slowdown in the Indian real estate market in recent times, agents and developers are hoping the festive season surrounding Diwali, the Hindu festival of lights, will drive away the gloom.

Coming at the end of October, Diwali will prove a crucial period for developers as many Indians consider it to be the start of the Hindu business year and an auspicious time to start new ventures, buy property and expensive consumer goods.

Indian cities enjoyed a real estate boom for nearly four years, ending 2007. After being stagnant for the first part of the year, property prices slid about 15 per cent during the last two months in key metro areas like New Delhi or Mumbai and fast-growing cities like Bangalore and Pune.

Apart from prime locations in such cities, price corrections of up to 15 per cent could continue in the residential, office and retail space.

Realty consultants said the property market will be affected for at least a year.

"The global economic meltdown is, beyond doubt, taking its toll on India's real estate sector. We can safely expect the current dynamics to prevail to varying degrees for another 14-18 months," said Anuj Puri, country head of real estate consultancy Jones Lang La Salle Meghraj.

Amid rising mortgage rates, a drop in demand and cautious consumers awaiting a further slump; developers are concerned about credit access drying up and bank liquidity.

The central Reserve Bank of India has also put a restriction on banks' financing of real estate firms to reduce exposure to the sensitive sector.

As foreign funds and investors exit India and the rupee weakens to a six-year low, many realty majors dependent on foreign investment have slowed down their projects.

"This is a tough time for developers. While sales have declined owing to rising home loans, developers are also facing a credit squeeze that is holding up projects," said a senior executive at leading realtor Unitech.

Private equities are hesitant to deploy funds and the fall in stock prices is also make fundraising difficult. The realty index of the benchmark Bombay stock exchange is the hardest hit, having declined over 70 per cent from its peak in January.

Subhash Madhok started building his two-storey house in Delhi's suburb of Ghaziabad more than a year ago, aiming to finance the construction by selling a floor.

"Today the floor is fetching a lot less. I do not know how to pay back the bank," he said.

Meanwhile, developers are bracing to face the challenge around Diwali - the biggest shopping time in the year - as over half their sales are traditionally recorded between October to December.

Hoping to boost sales, they are targeting government employees flush with arrears of their newly hiked salaries and private sector employees who will receive bonuses.

Besides discounts of up to 15 per cent, they are offering incentives of jewelry, gold coins, massage chairs and luxury cars with flats costing 10 million rupees (208,000 dollars) or more.

"We want to launch projects during Diwali because properties launched at this time get a better response. At a time when sales are down, Diwali comes as a major sentiment booster for developers as well as customers," Dimple Bharadwaj, Raheja Developers spokeswoman, told the Business Standard daily.

But sales have yet to pick up despite the discounts and freebies. Some realtors said the incentives would not help improve property sales because home loan rates are high and property prices out of reach for many ordinary buyers.

However, the long-term outlook remains upbeat considering the strong fundamentals of the economy, a dynamic workforce and robust demand.

The demand for real estate in the office, retail, residential and hospitality sectors is expected to cross 1 billion square feet by 2012, according to the latest report by Cushman and Wakefield. The bulk of the demand, about 876 million square feet, will be in the nation's seven major cities.

"New markets and foreign investment-friendly formats are emerging, and increasing transparency catalyzed by the very dynamics that give the market pause now will propel it forward," Puri said.

"I remain confident in the India story," said Rajeev Talwar, group executive director of DLF, the country's largest developer.

"We will take sometime to adapt to the changing global scene but the property market will thrive at a realistic rate, as speculative growth will go down." (dpa)