With inflation moderating slightly in recent weeks, HDFC [Get Quote] chairman, Deepak Parekh, hoped that there would be no further interest rate hikes even though there was a feeling in the market that the peaking interest rates could go up by another 0.5 per cent.

"I hope interest rates have peaked. With inflation moderately coming down, I hope there will be no need for a further interest rate hike," Parekh told reporters in Mumbai on Wednesday.

He also said that food prices were likely to stabilise, and this will lead to further dip in inflation.

While stating that long-term prospects of the commercial real estate market continued to be positive, Parekh came down heavily on the developers and lenders.

"Long-term prospects of the commercial real estate market continues to be positive owing to growing opportunities in sectors like healthcare, hospitality, logistics and education," he said.

However, for the near-term he had a word of caution for lenders and investors. He said more pain is in store for India's real estate sector. Stating that in the last three years India's realty sector was 'sizzling red hot', Parekh said, adjust in prices were long due. 

Some things went wrong - the real estate market grew too fast for its own good, some developers went hopelessly haywire on land deals resulting in prices spiralling uncontrollably and investors began demanding unrealistic returns. When these investors retracted, many developers were left scrambling for resources, prices fell, confidence was shaken and the rest of the story is familiar to all.

So who is bearing the pain?

• Investors, who now have to deal with valuations that have been beaten down to pulp;
• Certain developers who find themselves cash-strapped for having committed to buying land at exorbitant prices with no takers for their projects; 
• And finally, there is pain for those lenders who carelessly doled out funds to developers without understanding the ground realities.

But it's not all doomsday. There was sufficient interest from foreign investors to partake in the country's real estate market through the private equity and foreign direct investment route, Parekh said.

In Q1 FY 09, about 20 per cent of FDI interest was in housing and real estate, he said.

However, the IPO market may take some time to recover, he said.

According to him, if housing was priced correctly, there was an enormous demand. "Given the huge housing shortage it is unlikely that there will be any saturation in the market for a long time to come," he said.

Advising buyers "not to sit on the fence", Parekh said that "if you find the right house, go ahead and buy it."

Interest rates over a 15-year period would inevitably move up and down. "So do not overstretch on a loan and maintain a sufficient buffer," he said.