House rates may crawl next year, Delhi among the worst to get hit

The increase in bad debts and non-performing assets have made major banks and other financial institutions cautious on lending. This has ultimately led to a slowdown in the property market. The borrowing for both home building and buying will become a task.

According to Reuters poll, house prices will rise at half the rate of consumer price inflation next year because of dwindling credit supply. Reuters' housing market experts said Delhi, the national capital, will be hit hardest.

House prices have risen at almost double-digit rates for over a decade in a country of 1.3 billion people, where for many, owning a home is still a dream. Major cities in India have become some of the most densely populated in the world.

Asia's third-largest economy is also grappling with a liquidity crunch after a large lending firm, Infrastructure Leasing and Financial Services (IL&FS), defaulted on a short-term debt payment in June.

The Reserve Bank of India and the government have since tussled over tight liquidity. The government has blamed the central bank and has asked it to ease lending regulations for banks and financial firms.

"The liquidity crunch is likely to continue in 2019 and push (house) price growth to an all-time low. It will also lead to a scarcity in funds, pushing home loan interest rates higher," said Anuj Puri, chairman of ANAROCK property consultants.