The correction in the market is likely to affect realty prices across the country, especially in residential and land markets of Mumbai and Bangalore, according to industry analysts.

Land prices in these markets are also likely to see a downward correction. This, combined with rising interest rates, could actually push the market to a situation where transactions over the next three to six months will dwindle, say analysts.

According to Arun Goel, CEO of the DHFL real estate venture capital fund, these markets have been due for a correction for quite some time now, and this could very well be the trigger.

"There was a lot of speculation in real estate, given the excessive liquidity in the market over the last two years and this had pushed prices to unreasonable levels in suburban Mumbai and Bangalore.

"Gurgaon and Noida had also seen such surges but they have already seen a downward corrections. The stock market correction could very well result in real estate prices coming down by 15-20 per cent in these markets over the next three to six months. Land deals could see a correction of 20 per cent," he said.

In the past one-year, residential prices in suburban Mumbai and Bangalore had risen sharply, in some cases by as much as 30-40 per cent. In Mumbai, areas such as Bandra, a western suburb, has seen prices touch the Rs 1 crore (Rs 10 million) mark for a residential flat, which was fetching Rs 65-70 lakh (6.5-7 million) in just a year ago.

Said another market analyst, "Although the investors in real estate are a different class from those who invest in equity markets, we could see a situation where the number of transactions in the market go down over three to six months as liquidity in general will be hit hard."

The Reserve Bank of India [Get Quote] has tightened lending norms by raising risk weightage for real estate loans to 150 per cent and hiking provisioning for banks lending to real estate projects.

Added Niranjan Hiranandani of Hiranandani Constructions, "People who were planning to take Rs 35 lakh (Rs 3.5 million) loan on the basis of their stock market earnings will now have to consider a larger loan. Given the rising interest rates, they may therefore put off their investment for a short while or opt for a smaller investment."

Hiranandani also indicated that builders themselves are likely to offer softer prices over the next few months to entice buyers and off-load existing stock.

Chanakya Chakravarti, joint managing director, Cushman & Wakefield India, a real estate consultancy firm, however, said there would not be any impact on the sector in the short term, as fundamentals were strong.

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