Commercial assets produce strong rental returns over prolonged periods. According to the market statistics, residential real estate tends to yield a return of about 3–4% whereas commercial real estate tends to yield a return of about 8–10%.
What is commercial property?
Commercial property, also known as Commercial Real Estate (CRE), is an investment property such as buildings and lands that house the business to create income either from the rent, sale, or lease. Simply said, it’s a privately owned, immovable building or piece of land that can only be utilized for business activities and not for residential ones.
It is a type of property that is only utilized for commercial endeavours or as a workspace. Office buildings, shopping centres, warehouses, and other leasing facilities are some of the additional categories in the sector.
Indian commercial real estate is evolving as a popular location for institutional investors because of the high demand for office spaces, low vacancy rates, and rising rental prices for offices & warehouses.
Evaluating the statistics and data, in comparison to residential property investment, commercial properties generate higher rental yields.
Below are a few reasons why investing in commercial real estate may be a wise choice.
Things to keep in mind before investing in a commercial property
People invest in a commercial property primarily for the return profit as compared to residential property where the living standard matters more than the profit. In comparison to residential property investment, commercial properties generate higher rental yields.
Other points that you must keep in mind before choosing to invest in a commercial property are:
- Good Transport System – There should be a good transport system such as a metro, railway station, bus stops, for going to the office, college, market, etc.
- Location- When considering purchasing or seeing a commercial property, the location must be a key factor. One needs to have a thorough understanding of monetary cycles since they can affect how new business advancements are absorbed. Based on the financial cycles, lease rental can vary greatly.
- Civic services– Civic services such as water supply, drainage sewers, electric lines, telephone lines, etc. should be very near to the selected site to obtain their services with no extra cost.
- Quality construction site- Construction-related flaws or failures can cost a lot of money. Reconstruction may be necessary and facility operations could be hampered even by small flaws. The effect is higher costs and delays. In terms of the real estate market, a building’s lifespan is closely related to how much it will sell for on the secondary market or how long an investor may receive rental revenue from it.
- Regular maintenance- The rental prices of a commercial property may be significantly impacted by maintenance problems and routine maintenance of the maintained facility. Before purchasing a property, be sure that it is being maintained properly.
- Long-term investment- It is not considered a good idea to invest in commercial areas with short-term insight as liquidating is difficult. Ideally, one should hold on to it for the long term for the prices to comprehend to get adequate benefits.
- Property documentation and certification- A resale commercial property has many advantages and is preferred over under-construction projects by many people. However, you must make sure the property has clear ownership titles and that all government permissions are in place. Here are all the documents that must be scrutinized by you, while purchasing a commercial property that is up for resale.
- Building plan
- Completion certificate
- Tax payment receipts
- Encumbrance certificate
- Conversion order
How to find the best commercial property:
There are several online means like Olx, 99acres, MagicBricks and NoBroker are a few of the top real estate websites in India which support the sale of commercial properties online. Making the process of buying, renting, and selling easier for people.
The other ways through which you can find the best commercial properties are:
- Research the market– You need to consider market trends prior to making an investment in real estate. Additionally, learn what kinds of properties are in high demand. You should consider the potential for future development in the locations before determining what to buy.
- Consult a financial expert– it might be challenging to estimate the precise cost of purchasing commercial real estate when it is not your area of expertise. As a result, you should speak with a financial advisor and create a budget before purchasing a property. Analyzing tax implications in a real estate transaction can be challenging.
- Choose the right builder- while purchasing a commercial property, make sure that you purchase from a reputed builder. Therefore, research the builder’s history and listen to feedback from others who have already bought the property from them. Additionally, confirm the builder’s industry knowledge.
Pros & Cons of Commercial Property Investment
- Pros of CRE Investment:
- Tenants with high professionalism
- Stable and regular returns
- Leases with flexible terms
- Almost no cost of furnishing
- Maintenance of the property
- Cons of CRE Investment:
- Initially Costly
- Difficult Buying Process
- Impact on the Economy
- Higher Rate of Interest Loans
- The ratio of Loan to Value (LTV)
- No Tax Benefits
- Not Easy to Sell or Find a Tenant
- Maintenance of CREs
While investing in commercial real estate seems to be promising as of now, it involves hefty investment. Therefore, in order to comprehend the market dynamics before investing in a property, always speak with a local real estate agent which can help mitigate the long-term risks involved when you go for investing in commercial properties.