Its good time to invest in commercial property
Commercial Property
According to real estate experts, it’s good times to make an investment in the commercial property as companies are expanding their business with an aim to improve their business sentiment. If you are looking for regular cash flow with higher return and rental, so investment in commercial property is better than residential property.
As per experts, now commercial real estate space is witnessing a revival with little high demand at the time when real estate developers are not building commercial space from last four to five years due to global financial crisis and now its expected that soon existing stock will get consumed. And in simple words we can say that it’s the main reason why real estate developers and commercial property owners are receiving higher rental yields and now people are looking it as good investment option. Indian economy is growing with growth rate of 7.3 percent, apart from that inflation has been reined in with the gradual growth in manufacturing sector. However; with all these kinds of growth commercial office spaces are also gaining momentum because companies are looking for expansion due to improved business sentiments. These days big e-commerce such as; Snapdeal, Amazon and Flipkart are looking for commercial spaces to set up their warehouses, followed by IT-enabled services and the information technology sector as well as financial services and insurance (BFSI) segments and banking sector and they all are resulting in high absorption levels in commercial properties and quality office spaces.
It is expected that in near future the industries such as; engineering, pharmaceuticals and manufacturing will provide further impetus to the real estate market. According to Amit Bhatia of Assets and Business Banking in Deutsche Bank India, “Its best time in India to invest in the commercial properties as it is giving low capital values with high rental yields. However; there are many micro markets where price of commercial properties are still low than the residential property and commercial properties are offering double the rental yields”. The more he added that Grade-A properties including offices, retails or other spaces at high street are also are bound to deliver capital appreciation and higher rentals. However; for commercial properties the capital appreciation is low due to many speculative buying in residential property. On the other hand office spaces are more driven by end users whereas; commercial space might not be as easy to sell as residential spaces are and its also easy to find tenants for offices spaces in comparison of residential.
Why it’s best time to invest in commercial property:
From investment point of view the difference between commercial and residential property is that in commercial real estate you will get more rental in comparison of residential property, but when it comes to sale property, so its pretty easy to sale residential property, but its tuff to sale commercial property, as per the statement of Viral Desai, National Director at Knight Frank India. The more he added that in past few years, residential real estate market has seen more appreciation, but now its on peak and about to get over. However; it is expected that in near future office spaces are continues to give better rental yields. In residential property the annual rental yields are about 2 percent, but when it comes to office space annual rental yields are about 8 to 11 percent. Offices spaces are offering good opportunity for investors as tenants are looking for good quality lock-in of leases spaces.
Income from commercial property:
It is suggested to invest in the property which is on the lease already because it will provide you regular cash flow, as per the statement of Desai. In normal cases, people prefer to go for the rental agreements of two to five years, if the space is for office and during that duration the tenants are locked in for that period. So if you are about to invest Rs 5 to 6 crore in an office space, so you can expect to get Rs 50 to 60 lakh as annual rental income. Apart from that you should also check that which kind of company has leased out the property and for what kind of business, for example if banks or some other brands has leased out that property, so you can expect that they will continue for next 15 to 20 years at least because they will avoid to change their address. If you are planning to buy property no multiple owners and large part of property is with real estate developers, so property maintenance will not be big challenge. As per the statement of Sanjay Dutt, Managing Director of Cushman & Wakefield, “The top three cities which have saw good supply and demand in the period of January to September 2015 were Pune, Delhi-NCR and Bengaluru. However; till now they have collectively contributed 77 percent to incremental supply and 65 percent to commercial absorption and on the same time you can expect annual rental yields of 11 to 12 percent for Bengaluru, whereas; in Delhi and Pune you can expect annual rental yields of 7 to 9 percent.
Why should you leverage the opportunity?
We all know that unit size of commercial real estate is larger than the residential and due to that investors need to invest much larger amount in commercial property. And apart from that they will get no tax incentive for investing in commercial real estate, as they are used to get for homes. If you are thinking that price of property is too high and you will be not able to manage it, so you can take loan for the property against rental income.
Checklist before buying commercial property:
- It’s recommended to check the background and experience of real estate developer in commercial property.
- If there are any existing tenants, so better to consult with them and its suggested to check that what kind of companies have leased out the space and the business the tenants are into
- Check the infrastructure, society, location as well as surrounding area.
- If you are taking loan or borrowing money, so never keep your property vacant for long periods.
- If buying resale property, so prefer to buy leased out property.
