MUMBAI: Affluent investors are waking up to the idea of buying commercial real estate and renting it out to earn a fixed rate of interest. Stable demand for prime commercial space and high rentals are prompting them to include rental yields in their investment portfolios.
According to wealth managers, rich investors are booking prime business spaces or buying out pre-leased commercial real estate to have a play on rental yields.
Several such deals – valued between 3 crore and 10 crore – are being consummated across important business districts in the four metros and tier-I cities. These investors hope to generate 8-15% annualised returns from their rental yields portfolios, wealth managers said.
“Rental yield, as a concept, is gaining popularity among affluent investors. Many such investors have invested in commercial (office) real estate as they earn decent yields on these investments,” said Anshu Kapoor, head -global wealth management, Edelweiss Financial Services.
“Investors are also considering real estate in sectors like high-end retail spaces and IT SEZ,” he added.
According to real estate managers, investors are buying leased out property or newly-constructed space directly only to let them out at current rates. The advantage of buying leased property is that the quality of tenant will have a bearing on rental yields and asset value.
“So if the tenant is an established bank, rental yields will be relatively lower in the range of 7.50-8.50%. Property leased out to quality tenants also commands higher market value,” Kapoor added.
Also, almost all leased-out properties have an escalation clause which states that rents could go up by 10-15% once in every two-three years. This puts the investor in a sweet spot as he is sure his rental yield will grow in the years to come. And if the investor sees an increase in his asset value, he can sell the space at higher rates and pocket capital gains.