Benefits of investing in commercial real estate over residential real estate
Update: 02 Nov 2021 14:24 STI
Pune (Maharashtra) [India], Nov. 2 (ANI / NewsView): Last year, when COVID-19 gripped the nation leading to lockdowns, stock market uncertainty and low debt market returns turned many investors to other investment options, and unsurprisingly the Indian real estate sector attracted $ 5 billion in institutional investment in 2020, or 93% of transactions recorded the previous year.
The truth is, we Indians have always had a soft spot for two investments – gold and real estate. And when it comes to real estate, residential real estate remains a dominant theme because of its sense of home ownership. But late in the day, many investors are finally seeing the potential of commercial properties and the many benefits that come with it.
It is important to realize that while there are thousands of residential properties with great deals, as an investment they do not offer as high returns as commercial properties and carry their risks.
So let’s take a look at some of the reasons why it might make more sense to invest in commercial real estate rather than residential real estate.
Commercial properties generate good rental returns over extended periods of time. Since the residential market has yet to pick up the pace after the pandemic, it will take some time for prices to appreciate. While in commercial real estate, Class A office buildings, due to their high demand, are already generating high returns. The estimated yield for residential properties is around 3-4%; while for commercial properties it is around 8-10%.
Budget 2021 also relaxed debt financing standards for real estate investment trusts (REITs), which could also pave the way for institutional financing in commercial real estate assets and help investors achieve higher returns.
According to Anarock research, working from home will not become the new normal in India. Due to larger family sizes, smaller homes, inconsistent internet speeds, and vulnerable digital platforms, most people prefer to return to the office.
In addition, the emergence of new registered businesses year after year leads to increased demand for commercial properties. According to the Central Registration Center, around 16,000 new businesses have been registered since the lockdown. In addition to start-ups, multinational companies are considering India as a hub for data center offices and looking for large commercial spaces, especially in Tier 1 cities.
Recently, the big international giant – Barclays opened its second largest office, in Pune. Large IT companies and businesses are looking for office space in Pune. Other metropolitan cities are also not lagging behind when it comes to meeting the growing demand for retail space.
Stable cash flow
The lease term for commercial properties ranges from anywhere between 2 years and even up to 10 years. The advantages of having such long rental periods are numerous. First of all, you will always have a stable cash flow through regular rentals. Second, you won’t have to worry about looking for tenants every few months.
Residential properties, on the other hand, suffer from erratic cash flows due to the short duration of leases. In most cases, the lease is only for 11 months.
Easier maintenance and servicing
While residential properties invest a lot of money to offer attractive lifestyle amenities like swimming pools, children’s play areas, etc., commercial properties focus on amenities that can enhance work abilities and create a healthy and positive work environment. Therefore, due to the less number of larger-than-life amenities compared to residential properties, the cost of maintaining commercial properties is lower.
Moreover, unlike residential real estate where the owner is always responsible for the maintenance of the property, in commercial real estate it is the tenant who bears the cost of the maintenance.
Another advantage is the triple net lease. This is a form of rental agreement where the tenant is responsible for all running expenses of the building like maintenance costs, taxes, insurance, etc.
Ultimately, real estate continues to be one of the strongest and most promising investment options, and with the pandemic slowly brought under control, this market is rebounding in most metropolitan cities.
For example, in Pune, which is emerging as the next commercial real estate hub, the increase in IT hires increased by 12% in May 2021. This also indicates that large IT companies and multinationals are focusing on Pune.
To meet the need for world-class commercial space, renowned Pune real estate developers, Avishkar Advani Realty, recently launched their flagship project, The Platinum Towers in Kharadi, Pune. The project not only offers commercial offices for sale in Pune, but was also designed to meet the needs of other commercial enterprises – coworking spaces, call centers, restaurants, supermarkets, stores and multi-brand showrooms.
As the commercial real estate market continues to expand its footprint, The Platinum Towers has become one of the best commercial properties in Pune. With its retail showroom poised to take possession and Reliance Smart Superstore (opening soon) occupying two entire floors, this is a must-see investment opportunity for any entrepreneur and investor considering a business development. ‘buy commercial property in Kharadi, Pune.
For more information about the project, visit: bit.ly/PlatinumTowersPROct21 or call: +91 9607987982.
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