Housing demand is likely to slow down due to higher prices and increased home loan rates in the current year, rating agency Fitch said on Monday.

"The higher prices combined with the increase in interest rates on mortgages in 2011 is likely to slow down growth in the residential segment," Fitch said in a report referring to demand and sales.

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After a huge slump in 2009, real estate sales zoomed on in 2010, driven by pent-up demand for homes, particularly in the affordable housing segment.

The trend was witnessed throughout the country.

"Demand is likely to be tempered by higher prices. Prices have increased in 2010 across the country. In some key cities such as Mumbai, Chennai and Kolkata, the prices are up by more than 40 per cent as compared to January 2008,", it said.

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The withdrawal of teaser interest rates on home loans by lenders may dampen the residential demand in the first half of 2011.

However, the demand for commercial space would continue to be driven by the demand from Information Technology firms, the credit rating agency said.

The commercial real estate segment was likely to witness more than 30 per cent demand spike in 2011 over the immediate past year.

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The risk of over-supply, however, persists with the segment. Apex software exporters' body, Nasscom had earlier said that the net hiring in the IT/ITeS sector would increase from 90,000 in FY'10 to 150,000 in FY'11.

"Margins are likely to stabilise at the current levels in 2011, as the substantial increase in demand for residential units from that in 2010, which would be necessary to improve margins, is unlikely in 2011," Fitch said.

The rating agency's outlook for the Indian real estate sector in 2011 is stable, with a negative bias.

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