Others joined the party including AIG from the US, Kikken Sekkel of Japan and Cesma International from Singapore. Vancouver-based Royal Indian Raj International is investing $2.9 billion in the prestigious Royal Garden City project in Bangalore.

Retail was highlighted as a key growth area. The growing number of middle class Indians would also want to spend money in new shopping malls. But these would not be ordinary shopping malls, they would be crammed with luxury goods and bigger and better than anywhere else in the world.

Gurgaon, one of the rising Delhi suburbs has an auto mall, Bangalore a furniture mall and DLF is developing what is set to be the biggest mall in the world in Delhi. Cities turned into construction sites. Developers went out of their way to woo property investors. Features like earthquake proofing, closed circuit television and spas became standard.

Now the cranes are largely silent. Developers have delayed projects not just because of rising costs but also because banks have restricted credit. In some areas construction sites appear ghostly calm. On one upmarket development in Gurgaon, which boasts a nine hole golf course and a cigar lounge, less than half the houses in the first phase have sold a year since they were put on the market. The HSBC report also indicated that sales in the luxury sector have fallen by up to 70%.

Even when property prices and interest rates start to fall it could be some time before investor confidence returns. 'It's not like buying a car. House buyers tend to wait for much longer before they think about spending so much money,' said Ashutosh Narkar, an analyst with HSBC.

But those with access to finance ought to be able to pick up bargains as desperate developers reduce prices in order to sell.

The Indian government is anxious to bring down inflation, especially before next year's general election. The price of oil is crucial in this respect. India imports 70% of its oil and heavily subsidizes domestic fuel prices.

According to one senior economist specialising in Asia the reality is that India has had years of fantastic growth at 9% per annum. But India grew too quickly and this level could never be sustained. Turmoil in the US and the global credit crunch has perhaps hastened the start of the slowdown.

'There is a need to have a period of slower growth. Around 7% would be sustainable. This will help in the longer term,' said Robert Prior-Wandesforde of HSBC.

This sentiment is echoed by the Associated Chambers of Commerce and Industry in India (ASSOCHAM) which says that a spurt in property prices and spiralling interest rates was bound to lead to a slowdown. 'Skyrocketing prices have to be addressed. It is necessary to check the flow of speculative money,' said President Sajjan Jindal.

The association believes that in the long term the property market is solid. It estimates that India currently has a shortage of about 19.4 million housing units and that an additional 45 million units will be needed by 2012.

Opus condos (SunCity), HyderabadSome developers are bullish. SunCity does not think the current downturn in the property market will affect its 35 acre project with Opus Developers to build 3,400 apartments in Hyderabad. 'We are not building homes in Mumbai or New Delhi where the level of speculation is high. No doubt there will be some impact but in Hyderabad property speculation is minimal. So we don't envisage taking a hit on profits due to a slowdown,' said Koong Wai Seng, SunCity chief financial officer.

However Deutsche Bank has indicated that developers are simply not acknowledging the significance of the downturn. 'They won't acknowledge a significant downcycle but their financials - slowing growth, falling margins, rising debtors and gearing - indicate otherwise,' a spokesman said.

They might not be acknowledging the state of the market in public but their actions do indicate a degree of panic. Firms like DLF, Omaxe, Parsvnath, HDIL, Unitech, Akruti City and Mantri Realty have either initiated or announced plans for new ventures in different areas. They are diversifying into power, telecoms, entertainment, aluminium, cement and steel. Unitech's recent announcement to tap into the 3G Telecom business is a prime example.

According to Jones Lang LaSalle the winners will be those who move into affordable housing construction. 'Large developers are waking up to the fact that affordable housing projects have the fastest absorption rates. The demand is phenomenal and developers getting into this segment can build for years to come. The buyers get what they want and the developers benefit by the sheer economies of scale,' said Anuj Puri.

Although few analysts back the figures of up to 30% put out by HSBC, they do predict a sharp fall. Indiareit Fund Advisors are estimating that property prices in Mumbai are likely to fall by 10 to 15% over the next six to nine months. Orbit Corporation, a leading real estate firm, said there is a total slowdown and nothing is likely to improve until after the elections. 'In reality for the last six months sales were lacklustre. The demand for property will not go up until the general election next year,' said Managing Director Pujit Agarwal.

International property consultants CB Richard Ellis said increasing lending rates, high inflation and unrealistic property values will mean a fall of 15 to 20%.

Colliers International's latest report on the Indian real estate sector predicts the market will bounce back because of demand. 'The situation has become a dilemna for both investors and end-users as the property market has over-expanded in relation to economic fundamentals,' said Surabhi Arora, senior manager.