MUMBAI/Cochin: 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.

Kochi is the ‘happening place’ in Kerala, being the commercial capital and land prices have been increasing not in a steady upward curve but in leaps and bounds. The land value in various part of Kochi is directly linked with the plans for new projects-IT park, Container Terminal, and Airport etc. It is estimated that the future will witness huge investments on infrastructure development for highways, shopping malls and housing projects, which will sent the price of land spiraling.

Genesis: Kochi is a cosmopolitan city modeling itself on the lines of Bangalore and Mumbai. A few decades back, the commercial centre in Kochi or Ernakulam, as it was then called, was restricted to Broadway and M.G.Road. The city started spreading and far-flung areas like Kakkanad have now become part of Kochi city with residential apartments coming up all over the beautiful hillocks in this area. Business establishments have started relocating their showrooms and outlets on the sides of the Trivandrum bye pass road between Edapally and Vytilla. The construction of the Vypeen bridge has opened up new areas for residential and commercial construction as Kochi has become easily accessible from Kochi.

Why invest in real estate? People have now realized that investment in the stock market, with its ups and downs has its own related problems whereas bank deposits and mutual funds are restrictive in returns. Investing in Indian real estate is a guarantee that the returns at the time of disposal will definitely be higher making it is a very safe mode of investment

The Flat culture.Flats have become popular due to the safety and security available for flat dwellers. There is an element of the historical ‘tharavadu’(the joint family system of yesteryears) in the concept of flats with the role of the ‘karnavar’ (seniormost male member who word is the law in the ‘tharavadu’) whose role has been taken over by the Building society in each flat complex. In addition to security, the tenant need not worry about payment of electricity, water or other maintenance bills which are taken care of by the society. All external maintenance is also done by the society. Many of the builders provide utilities like centralized gas, health club, waste chutes and driver’s rooms which are value additions. The paper work involved during the purchase is also minimal and the biggest boon is that one need not worry about the problems of construction-labour, purchase of material, permits and licenses etc.

Independent houses. Independent villas and houses are expensive but if one can afford it can make you feel like a king. There are many builders who carry out construction on contract basis and with totally transparent terms and conditions. This helps avoid the headaches one would have to face while building homes.

Residential areas. Panmpilly Nagar, Kakkanad, Gandhi Nagar, Giri Nagar, Kumaran Asan Nagar, are residential localities which have come up during the past few decades. Palarivattom, Kaloor,and Edapally, are the older residential areas. Kakkanad is fast becoming one of the most favored spots for villas and flats while in Kathrikadavu area, with its two new flyovers, land value has touched new highs. Of late, Nedumassary which is outside city limits is also being developed as a residential area by some developers. It is obvious that land value is going up day by day but good plots are fast becoming scarce. Rates have quadrupled in the space of five years, and in some cases even doubled in one year. The best time is to buy now as tomorrow would be too late.