Where would you park your money?
Residential property might not get you the kind of returns that commercial investments promise
Residential and commercial property i nve s t m e n t i s t h e obvious choice for most property investors, but there are essential differences between these two asset classes. When the choice falls between either residential or commercial property investment in India, residential does have certain advantages. In most Indian cities, there is usually more than sufficient demand for housing units, and demand drives up property prices. This is why many Indian property investors prefer residential real estate - they are assured a steady rental income as well as capital appreciation.
However, property investors focused on rental i ncome should be aware that there are many overheads to be borne. The cost of maintenance, insurance and repair of the property must be borne by the landlord. Also, local tenancy laws often prevent landlords from rais- ing rents according to their expectations.
Property investors should also remember that tenants in a residential property usually prefer short leases, which means reduced assurance of steady rental income from a single occupant. Nor can tenants be easily evicted if they fail to pay rent or if a higherpaying tenant comes along. Rental yields in India are actually among the lowest in the world, and rarely exceed 3.5%. This is why most residential property investors focus more on capital appreciation, which can be as high as 15-20% for well-located properties in the primary cities.
Is commercial property a better investment option? It all depends on the investor, and particularly his or her financial clout and risk appetite. Investment in commercial property invariably involves a much higher financial outlay than residential, and one also needs to choose the location far more carefully. While residential property tends to find buyers or tenants in most locations that offer sufficient transport and social infrastructure, commercial real estate investment must be sharply focused on high-demand locations.
However, this is effort and money well spent for serious long-term property investors, since leasing out a commercial property involves less hassles than a residential property. The owner of a commercial property is usually not limited by standard lease parameters, and the terms and conditions presented in the lease documentation are pretty clear and non-ambiguous. In other words, this asset class can make more sense while deciding between residential and commercial property investment.