Is this the right time to invest in a commercial property?

As real estate prices hit rock bottom, it is the best time for buyers and investors to get impressive capital appreciation on the commercial property value. It also ensures higher rental outcomes in comparison to residential property.

If you’re looking to invest in real estate sector which is facing downtime, commercial property emerges out as a better option as compared to residential property nowadays, from the investment point of view.

Considering the excessive supply in the commercial real estate sector, prices are not so much high in comparison to residential real estate.

For example, a commercial property in Central Mumbai is quoted at Rs 18,000 per sq.ft., whereas the residential property in the same location is quoted at Rs 28,000 per sq. ft. Apart from Hyderabad and Kolkata, major Indian cities have been following the same pattern.

According to a report, Delhi-NCR gets the uppermost attentiveness of under-construction real estate projects in the nation with about 33 per cent of the total value. The similar trend prevails in Mumbai.

Due to a stable Central government and a refreshed sense of confidence among the sector, there is high speculation that there will be an increase in demand for office space. Therefore, it can be said that investment in commercial property is a viable option.
This way, one can get properties at lower rates than residential properties and can also better yield from rental income. Thus, there is chance for both capital appreciation as well as regular income.

Below are a few batons on why it is a wise investment now and what you must consider before investing into a commercial real estate.

Trend of entrepreneurship

Commercial real estate is all set to benefit from the surging number of new business that are being registered every year.These enterprises are not only foreign-based businesses, but also a number of Indian entrepreneurial businesses that have witnessed an impressive growth over the years.

As entrepreneurs are no more dependent only on foreign companies to invest and grow their business, there is a more demand of commercial real estate in most of the Tier-I cities.

This is also clear from statistics by the Reserve Bank of India, which reveals that swelling loans to commercial real estate increasing with every passing year. In last six years, the overall amount of borrowings for commercial real estate projects has almost tripled.

Better assessment of commercial real estate

If you take into consideration the valuations of commercial real estate and residential real estate, the residential space has had its bull run. But commercial property has not had its run since the downfall in the year 2008.

As per a recent report, Average capital values in the office sector in India are still 25 per cent lower than their most recent peaks seen in mid-2008.On the other hand, capital values in the residential sector had surpassed their previous highest by end-2011.

Effect of change in government

A clear mandate to the central government has resulted into improved confidence in corporate and in global investor companies.Proposed changes in the FDI norms in real estate should predict well and promote long -term investments in real estate.
The change in sentiment is fueling capital inflows to India.

With various foreign companies looking to start their business operations in India, they will need large office space, which will increase demand for commercial real estate in the coming years.

Higher yields

In India, the yields in commercial real estate are one of the best in the world. While yields from residential properties are around 3-4 per cent, in case of commercial properties it is near 8 per cent, and can even go up to as much as 10 per cent in some areas. Yields in commercial real estate are always a bit improved than residential real estate.

If you are looking for impressive rental yields to support your passive income and get wealth tax exemption, then commercial real estate is the best option. However, capital appreciation in the value of real estate is still much higher in residential real estate owing to confine the demand.