Investors prefer Commercial rather than Residential property

March 18, 2008	(Be the first to rate this story!)  Loading ...
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Individuals are no longer eyeing only residential properties as a lucrative investment opportunity. Rather, it is commercial retail space that has now become hot property.

Given that the appreciation potential and rental return in commercial real estate is far higher than in the residential segment, this is not surprising. Moreover, the various options that have sprung up in retail have also played an integral role in generating high awareness levels.

Apart from the high net worth individuals (HNIs) and NRIs may constitute a majority of the buyers in this segment, people across sections investing in malls is also not unheard of. Says Ajay Khanna, MD, DLF Commercial complexes, “It is not necessary that only HNIs constitute a part of this trend. There is tremendous bandwidth in the volume of investment; hence every individual can enter at any point. With returns being at least 100-150% higher than residential, I only see this trend growing further in the times to come.”

So normally how does one narrow in on a space that can yield good returns? Krishnkant, CEO, Era Landmarks, says that usually individual investors, given the budget constraint, look for strategically placed bargain corners so that eventually they can attract good tenant or can even sell or lease to a brand looking for more space.

Rohtas Goel, CMD, Omaxe is of the view that the current trend sees individuals preferring mid and small-sized properties over the bigger ones as these are easier to rent out and always in demand.

Real Estate Developers feel that investing in such commercial retail properties, which started a couple of years ago, has now gained momentum due to a number of reasons. “The advent of malls started off this trend which has now picked up as a few banks have started disbursing loans for these properties. This coupled with a boom in organized retailing, entry of foreign brands and rapid expansion of Indian brands has given it a further impetus,” explains Rohit Malhotra, CEO, Realtech developers.

There are various advantages that accrue to commercial investments vis-à-vis residential, which makes such investments a profitable deal. Shubhranshu Pani, MD, Retail Services of global real estate consultancy Jones Lang Lasalle Meghraj (JLLM) says that investing residual income in retail real estate is considered today as the ideal alternative investment opportunity. Capital appreciation as well as a steady income source via monthly rentals with yields of 12-14% stands in its favor.

“In residential space, investors usually seek to sell of their holdings for capital gains. However, the returns in the residential sector are significantly lower (6%) than those in commercial spaces (12%).”

On the flipside, Pani feels that as capital values are higher in retail spaces, they represent larger investments and a significant component of self-funding of upto 30-40% is required. This stands in contrast to residential properties which need only 5-10%. Despite this the rising boom in the retail sector has ensured excellent growth opportunities for individuals, thus making them turn attention to commercial retail as a viable investment avenue.

News Published Under:   Real Estate Developers, Retail Market in India |

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