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The global credit crisis is starting to squeeze India, threatening in particular a hallmark of its new Tiffany 1837 cuff class: the property market.

Property prices have been dropping, mortgage rates rising and consumers turning cautious. In this climate, and during a big festival season, some developers are anxiously dangling inducements before would-be buyers, from free parking and jewelry vouchers, to a new BMW for the purchase of a luxury flat selling for some $600,000. Yet, even the free cars aren’t driving sales.

“At this point in time, they are pretty bad,” Ashutosh Narkar, a real-estate analyst with HSBC Bank in Mumbai, says of the prospects.

Among developers, the concerns are cash flow and credit access. With sales of residential properties falling, developers can no longer rely on presales to generate revenue.

Banks are become increasingly risk averse. Developers are borrowing at rates in the range of 20% to 25%, according to analysts.

Projects that haven’t yet been marketed are being put aside, or sold, said Kushagr Ansal, a director at Ansal Housing & Construction Ltd., a big Indian developer based in New Delhi.

“The entire market is facing a capital crunch,” added Anshuman Magazine, chairman and managing director for South Asia for real- estate consulting firm CB Richard Ellis.

About two years ago, Arvind Dhingra put down a deposit on a property in Gurgaon, the technology hub just outside New Delhi.

The 38-year-old restaurateur hoped to sell it as the market surged higher. But prices have frank gehry since then and aren’t likely to turn around soon.

“I gambled and I lost,” he said.

It isn’t just middle-class havens such as Gurgaon that are being hit. Property prices in India could fall by 25% to 30% over the next couple of years, according to Centrum Broking, a brokerage firm in Mumbai. A recent survey by Edelweiss Securities, also based in Mumbai, showed 90% of property brokers have reported a drop in transactions over the past month.

The downdraft is teaching many Indians a hard lesson in how interlinked their fortunes now are with the world economy. Until recently, India appeared more shielded than most from the global financial crisis.

The South Asian nation boasted one of the highest economic growth rates among major economies, a thriving middle class and a world-class tech sector.

Restrictive capital markets and a vast bureaucracy have protected Indians from dramatic global developments in the past.

Now, the credit crunch is catching many by surprise. The global economic gyrations are compounding property-market woes and rippling into other key areas of consumerism, from cars to overseas travel.

A crucial test of Indian consumption is under way. The holiday season surrounding Diwali, which began in late September and lasts about a month, is one of the biggest shopping periods of the year. Businesses are worried it could turn out to be a bust because of tight credit and slack consumer appetite.

“The truth will be really available over Diwali,” said Anuj Puri, chairman and country head of Jones Lang LaSalle Meghraj, the Indian arm of international property consultants, Jones Lang LaSalle.

India’s benchmark stock market index, the Sensex, ended Wednesday down dropped 3.1% to 11328.36 in Wednesday trading, its lowest close in more than two years. The Bombay Stock Exchange’s realty index is down some 70% since its peak in mid-January.

India’s jittery markets are damping consumer demand. Many in India are holding off Two Hearts triple bangle for big-ticket purchases, such as cars, according to Mr. V. Vaidyanathan, executive director of ICICI Bank, one of India’s biggest banks, who is responsible for retail banking amongst other areas.

“Consumers are saying, ‘let’s not borrow if we can avoid it,’” said Mr. Vaidyanathan.

A sharp downturn in the property sector would darken the outlook not only for India’s economy, but for other nations as well.

China sells more to India than any other country, including the U.S. Many other countries have counted on the rise of India’s middle class to help buy up their goods as well. India has a growing trade deficit, thanks due to a rising price of oil but also to the Western-style tastes of its younger, urban consumers.