A helpful guide: How to choose commercial investment property?

We bring the key takeaways on how to choose commercial investment property.

 

As an integral part of one’s investment portfolio in real estate, investing in commercial property brings high returns but also pride owing to ownership. However, the caveat here is that not every investment in real estate fetches good returns.

When looking for an answer to the question how to buy commercial property in India, keep in mind capital appreciation.

Given the absorption of commercial space has improved, cases where you are buying commercial property for investment, keep in mind that rental yields are higher than that of residential properties.

Risk-taking capacity and higher returns are necessary to be considered when expecting higher returns on commercial properties.

There are different types of commercial properties ranging from a housing complex to a shop in a neighbourhood or even a joint investment in a big office space.

Each of them needs to be looked at from different angles including tenant profile, amount of investment, returns, options for exit and associated risk when buying commercial property for investment.

While shops can be an entry point with returns of 9-10 per cent per annum or 12-13 per cent depending on a good location when it comes to investing in commercial property, many companies are in an expansion mode such that small enterprises are setting up offices in business hubs.

When considering how to choose commercial investment property, remember that deep pockets will be needed to invest in good office space —2,000-20,000 square feet or more. From this aspect as well, Grade A properties in good locations offer stable investment yields.

For traditional investors looking for buying commercial property for investment, ready commercial office properties may be suitable as it will give steady cash flow through an ongoing rental yield with expectation of future rental yield.

They exit once the project takes off and prices appreciate. “PE funds are more for,” said Zia. HDFC Real Estate Fund, ICICI Venture, ASK Property Investment Advisors, Kotak Realty Fund, Piramal Fund Management, Motilal Oswal Real Estate, and IndiaReit Fund Advisors are some PE funds through which one can invest in domestic and foreign properties.

When choosing investment options, PE funds, which buy stakes in commercial projects by tying up with developers can be considered. But they are mostly for high net worth individuals as one has to invest at least a couple of crores, as per industry experts.

REITs are another option in our how to choose commercial investment property guide. Similar to mutual funds, in REITs, money is pooled in from investors and the corpus is invested, primarily in income-yielding real estate assets that are complete.

The revenue or income generated is then distributed among investors. This is especially useful for those retail investors with small amounts of money and looking for investing in commercial property.

Investing in commercial property can become less cumbersome if you remember a few things including good rentals, good location, long-term horizon for when buying commercial property for investment, providing for maintenance and regular upkeep.

Remember that buying commercial property for investment can be a viable alternative to residential properties. What matters is sufficient market knowledge, financial abilities, and longer holding power when deciding how to buy commercial property in India.

A Quick Guide on How to Lease Office Real Estate | Commercial Real Estate

The commercial real estate is gaining momentum and is witnessing healthy demand, especially in the office space segment.

Guidance on How to Lease Office Real Estate | Commercial Real Estate Property

This is supported by the fact that according to Cushman & Wakefield India’s recent office leasing report, ‘Commercial office market is witnessing a robust streak’. It is buoyed by optimistic prospects and strengthening business confidence given the country is one of the fastest-growing economies in the world.


As compared to figures from the previous year, office leasing registered strong gains of 15 per cent at 33 million square feet across the top eight cities of India, during January-September.

Also, provided the adequate supply in the office segment, rent drives the demand. Gurugram and Noida which comprise NCR region currently have the vacancy at about 29 million square feet which is likely to keep rentals in check. Not to forget the future supply is expected to keep pace with incremental demand, as per the report.


In the recent times, while Noida has turned into an affordable commercial real estate hub, Gurugram would continue to be the largest and most expensive office market in the NCR as per a Colliers Research report. For occupiers seeking sub one-dollar office space, Noida has been an affordable option, states the report.

The average rent that developers quote in Noida is about Rs 57 per square feet per month notes the report titled ‘Delhi, Gurgaon and Noida – The Three Aces: Key Opportunities in the NCR Office Market”.


As compared to rentals quoted by Grade A office buildings in Gurugram, the average rent in Noida as per the report is almost 35 per cent cheaper than Rs 88 per square feet per month.

For cost-conscious backend IT companies looking for affordable rents and excellent connectivity with Delhi, the Noida market has historically been the preference, notes the report.

That is evidenced by the fact that Noida accounted for roughly 29 per cent of the total demand of the overall leasing volume in the NCR over the past five years.


Further, as compared to 2017’s first quarter demand, 2018’s first quarter witnessed double the demand with one million sq ft of absorption. In the upcoming years, the city would also be host to multinationals, as per the extensive report.

For Gurugram, the report mentioned that over the past five years, it has been capturing about 60 per cent of the total regional office demand. This made many companies to shift their corporate offices from swanky localities in South Delhi and Connaught Place to Gurugram for Grade-A office spaces that offer good connectivity to the international airport as well as other business districts, and at affordable rents. This has been a trend after 2008 global financial crisis. The city has become a favourite with the corporate as the corporate expand owing to expansion of city.


The question now is whether continuous and stable demand in the commercial real estate sector can have a positive bearing on demand in the residential real estate.


Though since 2013-14, there was free fall in the residential segment, things have started settling down since the beginning of 2018, as per experts from the industry. They further state that the buyers’ confidence is still very low in the residential segment because of various issues and it will take at least two years to get back that confidence, before any substantial demand is expected.

The price in residential real estate market is not expected to increase for some time now and buyers have the requisite time to do the due diligence to choose a suitable property.

What is Bare Shell and Warm Shell? A Guide to Commercial Real Estate Jargon

Like any other sector, the guide to commercial real estate property also comes with its own set of technicalities and jargon. And as first time property buyers, it can be pretty difficult to swim through the millions of options, if one is not quite acquainted with the commonly used lingo.

It does not mean that property buyers should first gain a thorough knowledge about each aspect of the realty market before hunting for properties; a fundamental idea about what the jargon mean should suffice.

Find out what is a bare shell and what is warm shell – two of the most widely used pairs in respect of guide to commercial real estate property in the sea of realty jargon.


What is bare shell in commercial real estate?

A real estate property that only includes the basics like – plastered walls, flooring, and a functional toilet and pantry, is known as a bare shell. Bare shell properties are much in demand in both residential as well as commercial sectors. While startups and corporate companies prefer to go for bare shell offices, those looking for super luxurious homes also prefer
these bare shell homes.


What is warm shell in commercial real estate?

Warm shells are properties which can be readily used by the buyers and tenants. In other words, a warm shell comes with all the basic necessities that make it a habitable unit, like a toilet, lighting, plumbing and various
other parameters.


People who look for already designed spaces for their office, prefer to go for warm shells. And in case of residential properties, once handed over to the buyer the owner can then develop warm shells into a home as
per their preferences.

Now, after knowing what is warm shell and what is bare shell, let us check out a quick comparison among these two.


Which one is more suitable?

The benefits of warm shell office lie in the fact that these are already made habitable, so the office owner will just need to move in. However in case of bare shells, only the very basic facilities are made available, the rest need to be incorporated by the buyer to make it fully functional. Now, while this feature might not suit some buyers, the others might find it advantageous. Those who wish to design and develop the property according to their own liking will obviously prefer the bare shells.

But if the buyer knows about how to develop a bare shell office, as guide to commercial real estate they must also know that it involves a lot of time and of course expenses, to turn it into a fully furnished unit. And this investment of time and money is something that not many property buyers find suitable.


Bare shell and warm shell properties are eyeing a lot of demand nowadays, with the current trend of startups in the country. But when it comes to bare shell vs warm shell, opinions will vary from one buyer to another. The choice is largely influenced by their individual preferences and requirements. But before that, one needs to be familiar with these commonly-used terms.

Thinking of commercial property investment in India? Check this.

An understanding of certain factors provides a basis for commercial property investment in India. These factors can help make the process of buying commercial property for investment much simpler, easier and hassle-free.


Potential risks makes up a major portion of commercial property investment tips that is:

1.Unique financing requirements,
2.Market factors,
3.Leasing arrangements,
4.Property management options and
5.A good knack of.


A good understanding of such factors can help when deciding how to buy commercial property in India whether office, retail or industrial. Such factors also are applicable to small as well as large commercial property investment in India. They help to identify locations as well as not miss out on opportunities for investment. We bring an easy to reference guide for commercial property investment tips.


Market drivers for commercial property investment in India

Demand is what creates the drive like of residential properties. However, population growth and economic factors also need to be taken into account as a strong economy leads to booming commercial markets. For instance, the demand for transport grows as the demand for materials grow. This helps increase the demand for jobs and the demand for office spaces increase as a result. Starting with demand for warehouse spaces, retail and office demand follow suit.


Rates of interest when buying commercial property for investment

Interest rates determined by RBI to manage inflation have a bearing on demand for commercial property investment in India.


Development of infrastructure

Access to roads and cheap rates of land provides an impetus for transport companies to move their warehousing facilities and acts as a determinant in the quest for how to buy commercial property in India.


Demographics

As migration becomes a constant affair owing to new opportunities, walk-to-work concept has become increasingly popular leading to small office spaces cropping up in the suburbs.


Population

As the population continues to grow, the requirement of services of varied types increases as well which leads to establishments to cater to such demands.


Spending on retail

The requirements for retail and warehousing increase as consumer spending increases demand for products which is an important factor to consider when buying commercial property for investment.


Understanding risks

Awareness of risks is essential. Even in commercial vs residential property investment in India, factors such as size of the commercial property for investment in India, supply or demand, lease terms, changes in infrastructure, finance etc play a major role. While the agent of the property will try all tricks of the trade to lure investors, it is important to consider factors that can make a commercial property investment in India especially leases.

These are leases of periods 3, 5 or 10 years with an option to renew; tenant required to pay all outgoings including corporation fee, water fee etc; tenant makes good physical changes and rental increases linked to commercial property investment in India.


Commercial property investment in India can be lucrative if newly finished warehouses or office spaces add to infrastructure of the place. This is not to underestimate the importance of understanding risks that are associated with commercial property investment in India and forms a major component of our commercial property investment tips.

A Quick Guide on How to Lease Office Real Estate.

How to lease office real estate efficiently is often a question businesses come across!!

So, if you are pondering over a similar question check out this lease commercial real estate property guide to understand the process of renting lease office real estate space from a tenant. The process involves identifying the correct commercial real estate, negotiating as well as signing the lease. The process can be a lengthy one and it is important to understand the process for a seamless leasing experience.


1. Determine the Parameters
The initial step to lease a property starts with evaluating certain parameters like :-
What is your employee pool,
What is the property type,
Where do you want it to be located,
What is your desired property size,
Budget as well as accessibility.

This is important because the realty market holds a wide assortment of properties for business of all types. These parameters help in how to rent your commercial property hassle-free and find commercial spaces that suit your needs.


2. Types of Brokers
Usually, when it comes to how to rent out commercial property, there are 2 types of commercial real estate brokers involved in the process i.e. :-
Leasing agent and
Tenant broker.

The former one represents the landlords and the latter one represents the tenants. Leasing agents work best in the interest of the landlords where as tenant brokers are more or less third-party brokers.


3. Types of Commercial Leases
Depending upon the fees and other associated costs, there are usually 3 kinds of commercial leases. The 3 kinds are:-
Full service lease,
Net lease and
Modified gross lease.

Full service lease is the most common one when it comes to leasing building for commercial purposes with an all-inclusive rent. Whereas in net lease parties get into an agreement where the landlord charges a lower rent on an annual basis. Modified gross lease is a blend of both full service lease and net lease.


4. Identify the Right Property for Your Business
When you go about considering how to lease office real estate and which property suits your needs the best, there are certain pointers to keep in mind to avoid any further inconvenience which are listed as follows:
• Location
• Amenities and services
• History of the landlord
• Anchor tenants

You must thoroughly check on these above-given points, and only when everything looks good, you should proceed with the purchase.


5. Negotiate
Once the property has been finalised for lease, it is the time to negotiate the lease. As you formally enter into an agreement for lease, it must be in proper documentation. Such requests are supplied from your broker to the landlord’s broker.

Understand the common commercial lease terms beforehand or have an in depth talk with your broker to know the minute details about leasing and the documentation involved.

Impact of GST On Commercial Property in India.

The Goods and Services Tax (GST) regime has streamlined the taxing structure for commerce in all the industries. The same applies to the property rental micro-industry as well.
Property rentals are a prominent means of revenue for many in the country. GST has had a deep-seated impact on the property rental business and how. Interesting inferences can be drawn from the influence of GST on residential property and the influence of GST on commercial property in India.


1. Situation before GST on commercial property in India.

 

Prior to the GST coming into action, the landlord’s had to obtain a service tax registration. But, this was only applicable in the scenario that the tax on all his properties exceeded the tune of Rs. 10 lakhs/year. Those who raked in a net income from their rental business that was lesser than this value, did not have to sign up for the same.

Commercial properties of every kind required landlord’s to pay a service tax if they were let-out. Even the residential properties being utilised as commercial properties. However, the same was not applicable on residential properties.


2. Present GST implications of property rental

 

GST covers the taxation of any service that defines the renting out of property commercially. However, GST is only applicable on the following:
• There is GST on commercial rental income in the form of a plain rental, easement, lease, or ‘license to occupy’.
• There is GST on commercial property in India that has been let out on rent; the same is applicable for industrial and residential property in India.


3. Immediate effect of GST on rents

 

The present conditions dictate that residential properties are exempted from GST. However, any kind of immovable property rented out for business shall attract a GST of 18%. However, GST has made the bearings easier for commercial property owners in the rental business. The GST gst on commercial rental income is now applicable only upon earnings of Rs.20 lakhs or more. Thus, anyone that procures an income of Rs. 20 lakhs or more from their commercial rent-outs are supposed
to submit a GST on the same; while those earning below this bracket get a further exemption of upto another 10 lacs of earnings, in comparison to the erstwhile laws.


4. Calculation of GST on commercial property rentals

 

• For all commercial property rentals, the rent is a taxable supply of service and the GST applicable on it is 18%.
• Charitable and religious trusts do not have to pay gst on buying commercial property or managing them, under the following diktats:

I. The rent on the rooms is less than Rs.10000
II. The rental price of the shops and other business spaces is less than Rs.10,000/ month.
III. The rental of a community hall or any open venue that charges less than Rs.10,000/day.

• Those paying gst on commercial property in india can ITC on the totality of their tax dues.


5. Provisions for tax deductions on income tax for the commercial property rentals.

 

The GST is charged on the rental amount collected by the landlord. So, the landlord must account for the GST they shall have to pay when drawing up the rental plan for their property. The tenant must deduct 10% income tax at the source if the rent for the property exceeds Rs.1.80 lakhs. TDS is applicable on residential as well as commercial properties. GST is not applicable on TDS.

5 leasing tips for investment for your commercial property.

If you have a vacant commercial property, you can use it to your own benefit by leasing it out. But while doing so, special care should be taken and must be aware of how to lease commercial property.

There have been a few cases where lessors got cheated by their tenants because the terms were not clear in the agreement and tenant decided to use in his advantage.
To not let the exact thing happening with you, there are some commercial real estate leasing tips enlisted below to help you in similar conditions:


Commercial leasing tip # 1: Be ready with basic details

Before renting out, be specific regarding details like tenure for which you want to lease the property, type of agreement applicable for your need, the category of commercial tenants to whom you wish to lease out. While dealing with your client, you must be pretty clear yourself about all these things.


Commercial leasing tip # 2: Set your draft terms of the lease

Since you are the one owning the property and leasing out, set your draft terms which will act as a backup while discussing and finalising the agreement. This tip is crucial in many ways, because at a later point of the team during execution of the agreement, any difference in the interpretation from both sides may cause some friction. It would be risky to negotiate a half cooked deal with the client, so it’s always better to do your homework before any such important agreement.


Commercial leasing tip # 3: Background research of client

It is the sole responsibility of the owner or lessor to be assured of the background history of the client. You should know beforehand if the client had some tendency to commit any financial fraud with his previous associations.
The owner of commercial property which the lessee had earlier rented can provide you with the feedback of the client, if available. You may need to hire a professional third party to carry out such background checks for the safety of your commercial property.


Commercial leasing tip # 4: Make the property more appealing

Just like any other business, your property available for rent must have a fair share of appealing and presentable attributes to attract the clients. The best way for how to lease commercial property  regarding this is to maintain the cleanliness and beauty of the complex even when it is lying vacant. It is not always easy to convince the client that the place will look good once it is cleaned later, it’s better to show them the property that is already in the cleaned state.


Commercial leasing tip # 5: Choose the tenant with due consideration

It may happen that you may require to immediately put the commercial property on rent due to some personal issues and urgency, but you should know how to lease commercial property to reliable parties only.
The client may be unknown to you, but must be trustworthy, have some genuine purpose of renting in and have the appropriate funds to pay the lease amount. Otherwise, you may have to chase him and add the unnecessary tension associated with renting your property.

A Quick Guide on How to Buy Investment Property in India.

Are you pondering over how to buy investment property in India? Do not worry as this quick investment property guide will help you find out your ideal property for investment.

There are a number of aspects that have to be taken into consideration in deciding whether a property is your ideal pick or not like location, price as well as profit expectations. As a beginner, you must release your fear of failure as it might stop you from investing altogether. As it is finely quoted “In real estate, no beginning is too small, no investment is too large.”

As a beginner you must keep in mind the following before you buy investment property in India:


Gauge the financial aspect before you buy commercial real estate
It is highly important to keep your finances in check. Precisely, determine beforehand what the budget that you can afford to invest. And if you plan to take a loan, determine the interest rates as well.


Where do you want to buy?
Do you want to buy the property in close proximity or want to go for long distance property? If you invest locally, you can keep a check on your property in case of any emergency. However, buying a long-distance property can take up a lot of time.


Appreciating market
What comes after investing in a property is tuck-load for speculations regarding the property market. Investments are made to achieve returns in near future. Therefore, make sure to invest in a property that has a record of good growth and is popular amongst prospective tenants.


Mandatory tour of the property
Just buying a house is not the only thing to be done, inspection is mandatory as well. Investor must thoroughly inspect to get some clarity about the property. Check the appliances, floors, plumbing issues, walls as well as other features that are prone to wear and tear should be checked.


Keep aside a budget for maintenance
Save some amount for the time to time maintenance of the property. Also, the investor must always be prepared for the unexpected, as they can tolerate times of distress more easily. Go for new launches as they do not require renovation, which can save a lot of your money.However, subsequently, there has to be a budget for maintenance of a property.


A positive rental income from the very beginning:
Ensure that the outflow on renovation, loans, services and other miscellaneous expenses do not exceed the rental income.


Type of property:
Buyers have plethora of choices to make while buying a property. So, we highly advise you to make up your mind on what kind of property you desire to invest in before going on property hunting. Investors can also go for personal property, which means that you reside in it first then rent it out. Otherwise go for rental income property and you may rent it out from the very beginning.

These above points will help you in buy investment property in India.