As the workers have been returning to office with great optimism and positive mindset, the sale of Commercial Real Estate (CRE) has seen a strong uptake. Investing in commercial assets has now become much easier, cost-effective and less time-consuming. All thanks to REIT which is one of the safest ways to invest as far as the real estate assets are concerned. Not many people get an opportunity to go big and purchase a commercial property to generate a regular income but REITs let those investors to diversify their portfolio at the minimal risk of loss. Isn’t it amazing?
Even though it is true that investment in Commercial Real Estate generates a consistent cash flow in the form of rentals, people should carefully analyze their financial condition, investing goals, and risk-bearing ability before investing in CRE. It has often seen that property investors usually gets confused about in which real estate asset they should invest – Residential or Commercial. While many experts believe CRE is an ideal investment choice in the realty business, some of them supports investing in residential projects.
Let’s delve deeper to know which asset is a better option.
Commercial vs Residential
If you compare both the assets, commercial real estate outperforms residential one significantly. India is one of the few countries where commercial property is cheaper than a residential apartment in the same locality. Moreover, putting money in a commercial space will give you various benefits such as greater rental yields which are almost 7 to 9, or nearly 4-5 times more than residential property rentals.
Now when you understand that Commercial Real Estate is a good option to invest in, let’s talk about its advantages.
Commercial properties, such as offices, shops, warehouses and others are considered to be one of the most secure investments as they can generate recurring rental revenue. Plus, tenants of commercial spaces generally have long-term lease contracts, offering investors a more reliable and predictable stream of income.
2.Generating passive income
Commercial properties can generate large passive income along with appreciation that can eventually result in a total return of up to 15% per year. This assures a consistent flow of income for the investors. As the commercial spaces are in solid demand at present, investors can get higher rental yields on their asset.
3.Market trends supporting CRE
The Indian Real Estate market has made a strong comeback after the life-disrupting waves of novel coronavirus. Retail, hospitality, and Commercial Real Estate (CRE) all are expanding rapidly, providing much needed infrastructural growth to the country. With the introduction of Real Estate Investment Trusts (REITs), commercial property investment has also witnessed a surge and is likely to boom in future as well. If you take the statistic figures into account, by 2030, India’s real estate sector is predicted to have grown to a market value of US$ 1 trillion, up from US$ 200 billion last year and will contribute 13% of country’s GDP.
4.Introduction of business-friendly policies
With the introduction of policies like Make in India scheme, launch of RERA Act and increasing Foreign Direct Investment (FDI), the commercial real estate has seen a massive turnaround across the country. Seeing the current growth of CRE, more entrepreneurs and corporates have been prompted to expand their businesses.
If you are dealing in realty business, you must know that a real estate asset is generally not purchased in full but instead with a mortgage or, in most cases, through down payments. Ever heard about Lease rental discounting (LRD)? Well, LRD is a term loan given by banks using rental receipts as collateral and is usually available at interest rates of 7-9% per year. It allows the investors to use leverage to buy pre-leased or pre-rented commercial properties. By using LRD, the property investors can borrow up to 65-70% of the property value from the bank and the EMIs for that loan would be less than your monthly rental. This means that a one-rupee investment can directly yield a four-rupee asset to you.
If you are looking to enhance your portfolio as an investor you should definitely consider investing in a commercial space. It will give you a leverage to earn higher returns on the property and can prove to be a great income-generating tool.