Go for in­vest­ment in com­mer­cial prop­erty

HT Estates - - FRONT PAGE - Niti Sax­ena feed­back@hin­dus­tan­times.com

Please share your view points on­in­vest­ment in Com­mer­cial prop­erty viz a viz in res­i­den­tial prop­erty in In­dia

Buy­ing an of­fice or re­tail space is a huge in­vest­ment, which is why com­mer­cial real es­tate has been tra­di­tion­ally seen as an as­set class that only in­sti­tu­tional in­vestors or heavy­weight HNIs could in­vest in. That, how­ever, is chang­ing. Many re­tail in­vestors are now get­ting into the of­fice real es­tate game.

In­vest­ing in com­mer­cial real es­tate re­quires fore­thought, re­search and plan­ning: • In­vestors need to es­tab­lish the sound­ness of the lo­ca­tion and its de­mand/sup­ply dy­nam­ics. • En­sure that the econ­omy, job mar­ket, fu­ture in­fra­struc­ture devel­op­ment and pop­u­la­tion growth in the mar­ket is healthy

• Check the de­vel­oper cre­den


• Check the ac­cess to pub­lic


• Check the qual­ity of prop­erty

man­age­ment in the project When in­vest­ing in a re­tail store, one should con­sider the frontage, foot-fall and the dy­nam­ics of the ad join­ing catch­ment. En­trepreneurs who wish to buy com­mer­cial real es­tate for self-use should en­sure that the ameni­ties in the project that match their busi­ness needs.If an in­vestor is look­ing at an in­come pro­duc­ing of­fice as­set, he should look at: The break- up of cash flows, The va­cancy fac­tor, Ex­penses such as main­te­nance, prop­erty tax and build­ing in­sur­ance,Lease term, lock-in pe­riod and ex­piry dates,Long term cap­i­tal ap­pre­ci­a­tion po­ten­tial, Re­fur­bish­ment, re­fi­nanc­ing and repo­si­tion­ing po­ten­tial.

In In­dia, the yields in com­mer­cial real es­tate are one of the high­est in the world. While yields from res­i­den­tial proper- ties are be­tween 3-4 per cent, in case of com­mer­cial prop­er­ties it is around 8 per cent, and can even go up to as much as 10 per cent in some ar­eas.

Yields in com­mer­cial real es­tate are al­ways bet­ter than res­i­den­tial real es­tate.If you are look­ing for de­cent rental in­come to sup­port your pas­sive in­come and avail wealth tax ex­emp­tion, then com­mer­cial real es­tate fits the bill. How­ever, cap­i­tal ap­pre­ci­a­tion in the value of real es­tate is still much higher in res­i­den­tial real es­tate ow­ing to pent up de­mand.

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 finely fo­cused on high-de­mand lo­ca­tions.

You do not only make a profit on the sale of ap­pre­ci­ated com­mer­cial prop­erty – the rental cash flows of a well-lo­cated of­fice or shop space are con­sid­er­able. Un­like in res­i­den­tial prop­erty, the in­come that can be gen­er­ated from com­mer­cial prop­erty is what de­ter­mines its value.

In other words, the cap­i­tal­iza­tion rate is ac­tu­ally the mea­sure of the de­mand for the prop­erty. For those who do their home­work well, in­vest­ing in com­mer­cial prop­erty is a high-adren­a­line and high-re­turns game that res­i­den­tial real es­tate in­vest­ment can­not hold a candle to.


Niti Sax­ena, pres­i­dent, sales and mar­ket­ing, Appu Ghar

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