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Market Updates

COMMERCIAL REAL ESTATE: THE PERFECT CHOICE FOR INVESTMENT

content_marketing_opi_photo1317705-07-2013Investment in real estate is considered to be the best form of investment for any asset. The returns are highest and it is an asset which cannot be stolen. With this view, Indian market has always been driven to buy property more than invest in deposits, gold or any other form. The Indian mind set of investment in real estate has been inclined more towards residential due to the fact that there is an option of second home for buyers. Although most reports, experts and statistics are against this fact. Developers and experts from the sector express that commercial property as an investment motive is way better than residential.

For any investor, there are two most important things; initial cost of acquisition and return on investment. A good residential property may be lesser in price but is unable to yield higher returns. For instance, an average cost of a good 2 BHK unit in a good project in NCR will be around 30 – 35 lakhs and would fetch a rental of 25 – 30 thousand. Whereas, a 600 sq. ft. commercial property at a good location will cost around 40 – 50 lakhs and will provide a return of around 75 thousand monthly. This goes to show that the returns are higher in commercial properties over residential properties, even if cost is taken proportionally to the return. M. K. Gupta, Chairman, KPDK Buildtech says “In commercial real estate it is more common for investors to pool their capital together and syndicate deals, you will also find that smaller private equity firms and finance companies are more inclined to do joint venture projects and provide the needed capital to complete the deal if the deal makes sense. So as a commercial real estate investor you have the potential to raise capital for a deal from the same traditional sources as residential real estate i.e. Traditional Financing and Hard Money, but in addition to that you can have access to capital through smaller private equity firms, hedge funds, private REITs, investment groups, etc.”.

Today, the trend of development has also started to drift a bit. As more and more buyers are interested in buying commercial property for investment, development in NCR is gaining momentum for commercial projects. Almost every region in NCR today has several commercial projects located in key places and offers various commercial spaces, some with assured returns as well. The concept of assured returns began with commercial real estate which ensures a buyer to buy and start earning. Therefore, a buyer earns before possession and also multiplies through capital appreciation with time. Kushagr Ansal, Director, Ansal Housing says “There are three very prominent things with commercial real estate. One, the commercial real estate is valued differently. The income that a piece of commercial real estate produces is directly related to its usable square footage. This isn’t always the case with residential. Secondly, commercial property helps diversify risk. For example, if you own an apartment building and you lose one of your 10 tenants, you only lose one-tenth of the income for that property, instead of the entire rent as you would if you lost a tenant in a single-family house. Finally, the cash flow is often greater with commercial real estate. The yield is often higher per square foot and on an initial investment basis than it is in residential. If you lease or rent a multi-unit commercial property, you have more tenants to generate income than you do with a single-family dwelling.

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