Indian Real estate Sector is growing up.

The outlook on Indian real estate sector may not be too bright at the moment, but that is not deterring mutual funds from investing in paper issued by property developers.

In addition to the old restructured papers of Gurgaon-based builder Unitech, debt schemes of fund houses like SBI, ICICI and UTI have invested in papers of companies like K Raheja, Emmar MGF Land and Shapoorji Pallonji.

As per mutual fund tracker Value Research, UTI Bond (medium term) fund has invested Rs 14.7 crore in ‘BBB’-rated floating rate bonds of Emmar MGF Land. ICICI Prudential Liquid Fund has invested over Rs 421 crore in secured debentures of K Raheja Corporation. LIC Income Plus and SBI Short Horizon Debt Fund have invested Rs 1.8 crore and Rs 1.6 crore respectively, in the ‘A1’-rated commercial papers of Shapoorji Pallonji.

However, raters tracking debt are comfortable with the debt-equity mix of most real estate companies and are positive on the sector. “The fundamentals of India’s real estate sector are improving, as seen by better liquidity and improved demand in the residential segment,” said Rakesh Valecha, senior director, Fitch Ratings.

Enhanced affordability, lower mortgage rates and better job security have helped revive demand for homes, according to Mr Valecha. “Demand in the commercial segment remains weak, primarily due to over-supply and the scale-back of expansion plans by corporate India. But then, we expect demand for commercial spaces to improve in the second half of 2010,” he added.

According to analysts, in sharp contrast to 2007 and early 2008, real estate companies are not investing money to acquire mass land bank or other fixed assets. Post the turmoil in end-2008, real estate companies have realised the need for a stronger balance sheet. Many over-leveraged real estate firms have used their cash in books to de-leverage themselves.

Equity analysts tracking the sector are currently maintaining a neutral to near-positive outlook on the real estate sector. They expect prices to be stable in the medium term due to good demand. Property prices may only rise 3-5% over the next few months, say analysts.

Such a price trend could sustain the demand for real estate for a longer term. Moderate demand will enable real estate companies to complete existing projects and take up new ones. Pressure on profit margins, however, cannot be ruled out, analysts opine.

Overall, credit metrics are expected to recover in 2010 and 2011, as developers are expected to improve their capital structure, operating margins, and liquidity. According to sources, the restructured loans of Unitech are expected to come up for repayment (or reaching maturity) in about 6-8 months’ time. Unlike in 2008, fund managers and paper valuers are not expecting the company to have too many problems in repaying the debt.

Property prices in India rise by 17% in last one year:Makaan.com

The rise in national index is attributed to the hardening of property prices in the western markets of Mumbai and Pune, which rose by 29.4% and 28.1% respectively. Property investors and real estate industry players can take a sigh of relief; property prices in India have shown a reasonable uptrend in the last 12 months. As per the March 2010 release of Makaan.com Property Index (MPI), the national index stood at 1117 compared with 954 in the corresponding month last year, an increase of over 17%. The rise in national index is attributed to the hardening of property prices in the western markets of Mumbai and Pune, which rose by 29.4% and 28.1% respectively. Delhi rose by 6.8% in the same period. Putting pressure on the index were the property price movements in southern cities of Hyderabad, Bangalore and Chennai that corrected by 3.2%, 2.5% and 1.4% respectively over the last one year.  It is interesting to analyze the trends in property price movements. Prices fell in the first half (Jan-June period) of 2009 when the index dropped from 1000 to 946. This period was marked by complete lack of interest among investors & home buyers in making long term high value purchase decisions. With the Indian economy showing sign of revival and consumers becoming more confident about their future earnings, the property prices started rising in the second half (July-Dec period); with the index reaching 1128 in December 2009. The month of November and December saw two interesting trends. Firstly, developers in Mumbai, Delhi & Bangalore increased the prices of their existing projects. Secondly, new launches happened at prices significantly higher than the prevalent rates. This rise was too fast and too high and led to crowding out of home buyer as they caught off guard with this unexpected jump in rates. This led to lower transaction during the January to March 2010 period. The national price index moved in a narrow range from 1080 to 1117 during this period; beautifully capturing the mood of the market. Commenting on the findings Aditya Verma – VP & Business Head Makaan.com says, “Going forward, the signals from the economy are quite positive - the Budget for FY11 has been received positively, there is overall optimism in all sectors, job visibility is better among the salaried class. Realty sector is seeing the effects of this in the form of new launches across cities. For sustained development, it is critical to maintain property prices at the current level. Attempt to increase prices can lead to fall in demand.”

Property Investments in India: A Risk Analysis

Property investment is one of the most significant investments for all the investors who buy property with an intention to generate monetary returns. Investment in property is usually done by people to generate profit though renting it or for capital growth. Generally, investment in these properties is not done for residential purpose.

Benefits of property investments:

√ In a long term, the prices of the properties are bound to increase.
√ You can give the property on rent.
√ You can obtain tax variations and generate revenues.
√ You can receive tax deductions.

With the enormous benefits, there are a lot of risks associated with investing in these properties in India. Read ahead, to get a view of risks that can turn your property investment dream into a complete nightmare.

You are going to read about the risks associated with investment in property in India:

♦ The major risk associated with property investment is that you may loose your money that you invested. It is also called the capital risk.

♦ If the property in which you invested is in another currency, then the movement of the currency may affect the value of the property.

♦ You may have to sell the property on the same price on which you bought it.

♦ You may not find a tenant easily and you may have to fund the mortgage payment during these days.

♦ If you get a bad tenant then he can turn your head upside down. Damage to property, unpaid rents, anti social behavior, missing items, structural problems are the common problems that can be faced by the investor who has given his property on rent to a bad tenant.

These are the most common risks that an investor can face if he doesn’t invest in the right property or give the property on rent to a wrong tenant. Keep the above mentioned points in mind to invest rightly.