Rising interest rates and an 'overheated market' are stabilising residential property prices in some key pockets, but a steep correction is unlikely.

According to a cross-section of experts, including bankers, a correction is unlikely for the very reasons that had initiated the housing boom - a growing economy, affordable houses, rise of nuclear and double income families.

They also argue that while increasing interest rates are bound to have some impact, it will not be dramatic.

"The average interest rate today is 10 per cent. But, after factoring in just the tax benefit on the interest, the effective tax rate is around 7 per cent. It is not as expensive as it sounds," said an executive with India's largest private bank.

Affordability is a key issue today. While some say the increase in property prices is owing to the demand-supply mismatch, another banker says it all boils down to affordability.

"Today, it takes just about five annual salaries to buy a house, compared to 22 salaries a decade ago," he said.

However, he pointed out that housing has become more expensive as it used to take 3.5 annual salaries to buy a house in mid-2003 to early-2004, the so called 'golden period' for buying houses.

During that time, property prices were yet to take-off and interest rates averaged at 7.5 per cent for floating loans versus the average 10 per cent for similar loans today.

"People are continuing to buy houses, but more cautiously. If developers were booking 18-20 flats at an average every month, they are now booking 15-20 per cent less," said Poonam Mahtani, national director for residential, Colliers India.

One reason for the continued buying is corporates reducing their instance of leased houses for executives and, instead, giving enhanced housing allowance (included in the cost to company) to employees.

"Instead of just spending that money, people are choosing to create assets by purchasing two or three bedroom houses. Today's end-user is more conscious of the future," said a banker.

"Capital appreciation is not sustainable at today's property rates. Prices in prime locations of Delhi and Mumbai will have to steady to become sustainable," said another real estate consultant.

According to the market buzz, stabilisation of prices is already occurring. "Builders are not able to sell flats in the capital city's prime locations such as Greater Kailash and Defence Colony, as the asking price is too high," said a broker.

Even large companies are having troubles selling their flats at Gurgaon. Take the case of DLF Ltd's latest offering in Gurgaon, the high-end Park Place apartments.

"They were launched late 2006 and since then, the company has been able to sell only 45 per cent of around 1,500 apartments. Investors and speculators buy DLF's and MGF's apartments when the companies offer Rs 500-700 discounts on the first day of the launch. So, while DLF is selling 2,000 square foot apartments Park Place at Rs 6,500 per square foot today, investors had bought them for Rs 6,000 per square foot and are now selling them for around Rs 6,250 per square foot," said another broker.

This implies that investors are gaining at the company's expense.