Benefits of investing in commercial real estate over residential
While many investors were turned away from equity markets and the debt market due to the COVID-19 lockdowns, Indian real estate attracted USD 5 billion in institutional investments, a 93% increase over the previous year's total.
Gold and real estate have always been popular investments among Indians. Furthermore, when it comes to purchasing a home, the idea of homeownership is still prevalent. As a result, more and more people are realising the value of commercial properties and the advantages they offer.
Even though there are a plethora of enticing offers on residential properties, as an investment they do not offer returns as high as commercial properties and carry their own risks.
If you're looking to invest in commercial property rather than residential real estate, here are some reasons why you might want to do so.
The long-term profitability of commercial properties can be attributed to high rental returns. Until the housing market recovers from the pandemic, it will be some time before prices begin to rise. Grade-A office properties, on the other hand, are already generating high returns in commercial real estate because of their high demand. There is an estimated return of 3-4 percent for residential properties compared to 8-10 percent for commercial properties.
The Budget 2021 has also loosened the debt financing norms for REITs, which could open the door to institutional funding in commercial real estate assets and help investors earn higher returns.
Demand is on the rise.
Work from home will not be the norm in India, according to Anarock research. Most people are returning to work because of larger families, smaller homes, inconsistent internet speeds, and vulnerable digital platforms. There has also been an increase in the demand for commercial properties as new businesses are registered each year. More than 16,000 new businesses have been registered since the government went into lockdown. Large commercial spaces in Tier 1 cities are being sought by multinational companies in addition to start-ups looking to establish data centres in India.
Barclays recently opened its second-largest office in Pune, India. Office space in Pune is in high demand from major IT companies and corporates. The growing demand for commercial space is also evident in other major metropolises, such as New York and Los Angeles.
A steady flow of money
Lease terms for commercial properties can range from two years to ten years. There are numerous advantages to long-term leases. First and foremost, you'll be able to count on a steady flow of income thanks to regular rentals. As a second benefit, you won't have to keep looking for new tenants every few months.
As a result of their short lease terms, residential properties have erratic cash flows. 11-month leases are common in most cases
Simpler upkeep and maintenance
In contrast to residential properties, commercial properties spend a lot of money on amenities that help employees perform better at their jobs and create a healthy and positive work environment. As a result, the cost of maintaining commercial properties is lower than that of residential properties because there are fewer large-scale amenities. Commercial real estate differs from residential real estate in that it is the tenant who is responsible for the property's upkeep, rather than the owner.
The triple-net lease is another advantage. It's a lease agreement where the tenant is responsible for all building costs, including taxes, insurance and maintenance costs, such as those associated with a building's upkeep.
Finally, real estate is one of the strongest and best investment options available, as the pandemic is coming under control in most major metro areas.
A 12 percent increase in IT hiring was recorded in Pune in May 2021, which is fast becoming the next commercial real estate hub in the country. Major IT companies and MNCs are also shifting their focus to Pune. Avishkar Advani Realty, one of the most renowned real estate developers in Pune, recently launched their landmark project, The Platinum Towers in Kharadi, Pune, to keep up with the demand for world-class commercial spaces. Coworking spaces, call centres, restaurants, supermarkets, shops, and multi-brand showrooms are just some of the commercial enterprises that the project is designed to support.
The Platinum Towers has emerged as one of the best commercial properties in Pune as the commercial real estate market grows. There is no better time to invest in Kharadi's commercial real estate market than now, when the Retail Showroom is almost complete and the Reliance Smart Superstore (soon to open) will take up two entire floors.