Where would you park your money?

Res­i­den­tial prop­erty might not get you the kind of re­turns that com­mer­cial in­vest­ments prom­ise

HT Estates - - HTESTATES - HT Es­tates Cor­re­spon­dent

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.

Newspapers in English

Newspapers from India

© PressReader. All rights reserved.