Most builders were prompt with interest payments till September 30. But lenders now fear that many would default in the December quarter or may be even earlier. A large builder has already failed to pay interest to a foreign fund, which had purchased the structured securities at the peak of the property boom.

Banks and institutions have lent over Rs 75,000 crore to Indian builders. This does not include around Rs 25,000 crore worth of bonds and debt papers which mutual funds had bought. While the total value of land and properties held as collateral is more than the outstanding loan, it’s still cold comfort. If builders start defaulting in a big way, the lenders will be left holding huge tracts of land amid crashing property prices.

The lenders said that in some cases, loans coming up for repayment in October and November will not be rolled over — a threat they feel could push some builders to sell properties at a lower price and service the loan interest.

Some of the loans are on a rental discounting model, which means the builder pays the loan interest every month out of the rental income from commercial properties. For construction finance, the loan is cleared in equal quarterly installments, where the amount — like individual home loans — consists of interest and part-principal. A trickier situation is where properties are lying half-built or have been nearly completed, but potential tenants like brokers and finance firms have backed out with the downturn in the market.

But lenders know that they can’t push too hard. “We are targeting to meet the borrowers separately to assess their respective cash flow positions. We have to take a case-by-case approach,” said a banker. What’s worrying them is the huge leverage in the real estate sector, with most builders bringing in relatively little money as their own capital to borrow big-time against land banks.

Commercial property deals are down globally by 57% over the past year, with transaction volumes off by as much as 77% in countries such as the US, according to a report from Real Capital Analytics.

Even Asia is not escaping the credit crunch, with the pace of property sales down by 18% in the year to August – with deal flow expected to decline by as much as 68% in the third quarter of 2008 compared to the previous 12 months.

The RCA report has highlighted what private equity real estate deal guys have known for the past month – that transactions are almost impossible to close in the current environment.

Indeed, according to the Global Capital Trends report, all property sectors across the globe are being affected by the credit crunch – with hotel and office experiencing the greatest contraction in sales so far this year with transactions down by 71% and 65% respectively in the year to August. Sales of retail, industrial and apartment were also down globally by 62%, 48% and 49% respectively.

Land and development rights fell the least, seeing a decline of just 19 percent in sales in the 12 months to August. However the sector is expected to fell the full force of the downturn in the third quarter – with transaction volumes estimated to fall by 72% compared to the year before.

The US has been one of the worst affected real estate markets during the credit crunch, with new property offerings outpacing the number of closed deals by two-to-one.

Highly-leveraged sellers such as Macklowe Properties were among the biggest property sellers in the year to August, as the credit squeeze forced them to liquidate assets. Macklowe Properties sold $6.5 billion of property, according to the report, following by Fortress Investment Group on $6.4 billion, Morgan Stanley on $4.8 billion, Aviva London on $3.9 billion and GE Capital on $3.8 billion.

Sales of assets from the Archstone apartment company, taken private by Lehman Brothers and Tishman Speyer for $22 billion in October 2007, accounted for 12% of all apartment sales in the US since June.

One consequence though of tighter credit conditions, the report added, was the proliferation of equity joint ventures. “With significantly more equity needed to get deals done, investors are teaming up or taking on equity partners to complete transactions,” the report said. Around a fifth of all property acquisitions worldwide are made jointly between two or more equity partners, while for deals above $250 million, 42% of all transactions are done through a JV.

A large number of investors are wary of holding the property any longer and are turning it back to developers or pushing property dealers to find buyers fast. Industry experts, however, feel end-users should not rush into buying property at present and wait till the festive season, following which there could be a major price correction.

HDFC executive said, “A rising home loan rate has badly dampened consumer sentiments. July was bad and August will be worse. The latest round of loan rate hike would sink in over the next few weeks and its impact on home buyers could be visible by the end of this month.

He said that home loan inquiries have fallen by 35-40% in Dwarka, one of the biggest colonies of Delhi, which offers a large supply of apartments. Dwarka, which has seen prices move up almost four times in the past five years, is witnessing fewer transactions these days. Besides rising borrowing cost, an anticipation of DDA house allotment too is keeping buyers out of the market, say property dealers. DDA is likely to allot 5,500 one, two and three bed room apartments across Delhi over the next few months.

A shrinking pool of buyers has made investors a little jittery in Delhi, Gurgaon, Noida and Ghaziabad. Many investors, fearing that the markets may worsen in the coming months, want to exit with the gains they have already made. Some of them have turned the property back to the developers. In many cases, investors have an option to sell the properties back to the developer at an agreed rate. In a market, where an investor thinks his property may not fetch more than the agreed price, he sells it back to developer. A Ghaziabad-based developer recently bought back over 25 apartments.

Despite early signs of scare setting in among investors, prices remain stable in Delhi but have corrected by 10-15% in suburbs. Experts feel a deeper correction could be in the waiting. Knight Frank India chairman Pranay Vakeel said, “What we are seeing today is only the tip of the iceberg. We may see a deeper correction in November”. He says end users should wait, as developer intend to hold prices till festive season. Further he said, “Developers are banking on festive season to lift sales. But if it fails, they will have no option but to cut prices to sell”.

India, china are offereing huge opportunities in real estate sector to attract the global market towards themselves as their main lender gone bankrupt, yes i am talking about US here which has been facing economic crisis and US downturn is already spilling over European countries. As a result of this sooner or later this downturn wil also spill over to Asia as well.

The prices are going high and when this down fall hits the Asia, it will spill the Asian economy as well. Its easy to say that the Asia have attractive opportunity but they have a sword as well which is being hanging on their necks for a uncertain time.