Indian property prices, which had taken off like jet planes, appear to be losing altitude after bad debts owing their origin to real estate brought down the US financial market to its knees.

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Marketmen see prices cooling and projects being held up for want of cheap funds, but don't expect the market to crash.

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Raising funds from American and Western European investors, who accounted for a bulk of overseas money coming to India, will be difficult. "Developers will have to look at new avenues like middle-east and Korea," said Global realty consultant Jones Lang LaSalle Meghraj country head Anuj Puri.

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The first to be hit would be commercial property prices, although a correction in residential segment too is expected. Rates had almost doubled in the three years leading to 2007, when interest rates started hardening.

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"Negative sentiments from events like these (collapse of Lehman Brothers, Merrill Lynch and others) will have a bearing on the banking and financial services' real estate requirement in India," Puri said.

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Failed investment banker Lehman and Merrill Lynch, which was taken over by Bank of America, occupied commercial space in India spanning 2.5 lakh sq ft - which itself is not adequate to bring down prices crashing, but the sentiment is.

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"It is not a big exposure considering 50 million sq ft of office spaces transacted every year in India," Puri said, adding that there would not be much of a direct impact because of the two firms going down under.

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Prices of properties in a good location would not be affected much, said Amit Sarin, Executive Director of Anant Raj Industries, in which Lehman held 1.8 per cent stake.

However, those in less prime areas could feel the pinch, said Sarin, whose company is predominantly into building IT space.

The credit crunch would affect the investment from the private equity players mainly based in the US, experts said.

The current environment is "challenging" for Indian real estate market, Puri said.

Asked about the overall impact on the market, he said there could be some decline in prices due to the negative sentiment.

Globally, banks have written of over $ 500 billion in bad debts, exactly half the total losses forecast by the International Monetary Fund due to loose lending by American banks to people with poor creditworthiness or the infamous 'subprime' lending.

The slowdown is also because of high interest rate regime and the prices, particularly in the housing segment, have softened in the last one year.

Private equity firm Red Fort Capital's Director Kuldip Chawlla said: "Flow of funds from the US will definitely come down, at least in the short term. Funds to both private and public equities of developers are likely to fall."

Real estate developers, who were thinking of raising money through an IPO in the near future, would now hesitate to go to the capital market, he added.

Sarin of Anant Raj said the companies which have strong internal accruals would sail through, but those dependent on debts and private equity would feel the pressure.