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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.