When Jeet Das decided to sell his 43-sq-m apartment in Andheri, a Bombay suburb, he figured he'd get $34,000 for it, a tidy but not unreasonable profit on a place he'd bought six years earlier for less than $10,000. He was in for a surprise. "When I talked to brokers, they laughed at me," says Das, who is immigrating to Canada with his wife and son. He eventually sold his apartment in May for a mere $22,000. Laments Das: "If I hadn't known how much prices had moved, I wouldn't have felt so bad."

After defying gravity for two years, Bombay's soaring real estate market is falling back to earth. Prices in some areas are down as much as 40% since 1994, the peak of the boom. The opening up of India's economy in 1991 attracted hordes of multinationals, driving some residential and commercial rents to levels higher than Tokyo's. Apartments of about 185 sq m in the city's nicest neighborhoods were fetching $2.4 million. Now they sell for about $1.7 million. Says Deepak Parekh, chairman of the Housing Development Finance Corporation (H.D.F.C.), India's largest mortgage company: "Prices had just become totally unreasonable in Bombay. They had to come down."

That is a minority view in India, where people have long believed that real estate prices move in only one direction: up. Now Indians are finding that what goes up must come down, or just move sideways. The correction is most pronounced in Bombay, but high interest rates and a skittishness among investors in the months before India's April election has put a damper on prices across the country. The southern city of Bangalore, once a favorite of foreign investors, saw real estate values jump threefold between 1992 and 1994. Today there are few takers at those lofty levels. Prices are flat, but most owners are holding out in the hope that the market will bounce back. New Delhi has seen prices stagnate since '94. Still, few experts would call it a crash. "This is just scaremongering," says Christopher Steel, an India director of international property consultants and estate agents Richard Ellis. Steel asks that the slump be put in perspective. "People are comparing this to the spectacular growth of a few years ago, when land simply turned to gold."

Bombay's real estate market is a jungle of contradictions. Expatriate executives can't find suitable housing, while as many as 4,000 apartments in the city's toniest neighborhoods like Malabar Hill and Cuffe Parade lie vacant. That's because India's laws are so stacked in favor of tenants that landlords prefer to leave apartments vacant for fear of losing them if the tenant refuses to move out. About 55% of Bombay's 12 million people live in slums, yet until recently, banks and financial institutions were prohibited from lending money to real estate developers.

Even Bombay's longtime reputation as an expensive real estate market, says Michael Thompson, chief executive of Colliers Jardine India Property Services, is something of "a fallacy." The reason, he says, is that the Tokyo-level prices often quoted are valid only in south Bombay, where multinationals have tended to congregate. Now more companies and individuals are seeking cheaper rents far beyond that district. A new, primarily commercial suburban development for banks, diamond merchants and financial institutions called the Bandra Kurla Complex is rising 15 km from south Bombay. Thompson is advising clients to examine Bandra Kurla, where office space sells for $1,000 to $2,700 a sq m, vs. $10,000 in south Bombay.

To iron out the market's distortions, Bombay's government is starting to allow owners to sell to real estate developers dozens of defunct mills that sit on valuable land. H.D.F.C. experts project that luxury apartments to be built on the mill land will keep prices down in posh areas. In addition, the state government is giving builders licenses to construct upscale residential blocks if they commit to building tenements for slum dwellers as well.

Hurdles remain. In Bombay and other cities many rents are fixed by law at decades-old rates. In the 1970s the local government imposed a ceiling on how much urban acreage a person could have and seized "excess land" from landlords, who sued in response. The issue has been tied up in court ever since. In New Delhi shopkeepers went on strike last year to protest reforms in the tenancy laws.

In addition to heavy-handed regulation and opposition to reform, a less visible factor is propping up the market: the resolve of people like Pawan Alhuwalia, a New Delhi property consultant who wants to sell two apartments when prices bounce back. "Shares are just pieces of paper; property never goes away," says Alhuwalia. It may take more than the downturn in the market to overturn Indians' conviction that property is one of the safest investments of all. --Reported by Meenakshi Ganguly/ New Delhi and Eapen Thomas/Bombay