Developers are facing a cash crunch as steep restrictions on bank lending and weak equity markets limit their fund raising options and the global credit crisis has dried up private equity funding as well.

“The tightness will continue for a few more months, given the difficulty in raising capital,” Macquarie Research said in a sector note.

Recent moves by the authorities to free up bank funds for lending may not help the real estate industry, it added.

“We do not believe this move solves the problem for real estate players as banks are unlikely to view them as borrowers of choice in the current environment.”

Analysts said high unit prices have made home purchases unaffordable for middle income buyers, as mortgage rates remain near peak levels and seem unlikely to come down soon.

A domestic brokerage has estimated that the rise in mortgage rates has pushed up monthly payments for home buyers by a quarter, compared to levels in 2005.

“People will abstain from buying till the interest rates correct in the long-term, so I think we will see some demand pick up only after interest rates ease,” HDIL’s Wadhawan said.

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