House prices have fallen by as much as 20 per cent this year in the sub-continent's IT capital on the back of a building boom and fears that the US sub-prime crisis will stall the huge recruitment plans of the city's flagship outsourcing companies.

After the meltdown on Wall Street, the Indian software industry's most important client, similar declines are being reported in technology hubs across the country. Vincent Lottefier, head of the Indian operations of Jones Lang LaSalle, the property consultant, said: "We are definitely seeing pricing pressures and corrections in areas where outsourcers are putting on the brakes."

Freebies commonly thrown in by increasingly desperate developers include complimentary fitted kitchens, extra parking spaces and relief from stamp duty. Some, however, have been more generous. Orange Properties, a Bangalore company, has promised a free Maruti SX4, a four-door family car, with every 1,500 sq ft flat. The saloon costs up to 800,000 rupees (£10,120), representing a discount of 20 per cent on the 4 million rupee apartment.

Similarly munificent sweeteners are being offered elsewhere. Unitech, another developer, will scrap monthly repayments for three years on properties in Noida, an IT hub close to Delhi.

Buyers appear unmoved amid suggestions that a new generation of young property purchasers is becoming savvier. Sudhakar Mallya, of Bangalore, who expects prices to fall at least another 10 per cent, said: "I have seen a lot of empty apartments. There is lots of supply and prices are still sliding. I will wait"

Signs suggest that the demand for residential property is still fading in the IT hotspots. Rents in some areas of Bangalore fell by nearly 10 per cent last year after builders provided a glut of supply in anticipation of a fresh influx of technology workers from across India, according to Cushman & Wakefield, the property consultant.

Jones Lang LaSalle estimates that apartment prices have fallen by 15 per cent this year in Gurgaon, a leading outsourcing centre, and in Chandigarh, an emerging IT hub, prices have slumped by 25 per cent.

The commercial property market has recorded a similar trend. In Whitefield, a Bangalore suburb once regarded as a prime location for IT firms, there was an estimated 1 million sq ft of spare office space in the first three months of this year. Last month an auction of several plots of prime property in the Bandra-Kurla complex in Bombay, a development being touted as the Indian Canary Wharf, failed to find any buyers.

The malaise follows a property boom in which average house prices rose by as much as 50 per cent last year and the sector attracted an estimated $5 billion (£2.5 billion) in foreign direct investment. In contrast to the market frenzy last year, the incentives for buyers to hold tight increased this month after lacklustre financial figures from the four largest Indian IT companies - Tata Consultancy Services, Infosys, Wipro and Satyam - stoked concerns over the health of the sector.

TeamLease Services, India's largest recruitment firm, said that it had experienced a large fall in hiring intentions. Sampath Shetty, a vice-president, said: "Dollar depreciation, the sub-prime fiasco, the US recession and recent falls on the Indian stock exchanges have definitely had an impact on employment growth in the past few months. The IT sector is the worst hit. There is a wait-and-watch approach in India."