Investing in Commercial Real Estate has become common and productive as a result of new business models. Due to the large ticket size, CRE (Commercial Real Estate) investment has traditionally been limited to UHNIs and HNIs. CRE properties are typically worth more than Rs. 20-30 crore.
NRI investors are willing to participate in Indian commercial real estate. Depending on the property size and location, the minimum average price to invest in real estate ranges between Rs. 60 and Rs. 70 lakhs. At once, fractional ownership allows investors to buy a portion of commercial property for as little as Rs. 30 lakhs.
What is a Commercial Property?
Commercial Real Estate can be classified into six main types:
- Apartment Buildings
- Warehouses and Parking Lots
- Industrial Buildings
- Retail Buildings
- Office Buildings
According to JLL’s report, office space leasing is expected to reach 30-32 million square feet, which is close to the five-year average.
However, investors should consider their investment objectives, risk tolerance, and profit generation timeline before investing. Investing in commercial real estate, like other assets, has advantages and disadvantages, as well as tax implications.
Commercial real estate investment has a lot of benefits in comparison with other classic types of investments.
Real estate is unaffected by market fluctuations. It is a long-term investment option that provides a consistent rate of return.
Because it is rented to a particular segment of renters, a commercial real estate property in a primary urban industry can provide considerably higher returns. This ensures that the investment is returned and that the income is generated.
- Long-term commitments: Commercial properties are typically leased for 15 to 20 years, with the option of renewal. Commercial properties have an average rental yield of 8-11 percent, whereas residential properties have an average rental yield of 1-2 percent, a four times lower yield. Furthermore, lease agreements include a provision for annual rental value appreciation. As a result, the commercial property owner can expect regular and consistent returns.
- Professional transactions: Commercial real estate tenants are typically businesses with a proven track record. Dealing with corporate tenants is always simple, and you rarely have to chase them down for rent.
- There are no furnishing costs: One of the most enjoyable parts of investing in commercial properties is that there is no need for furnishing. This is because branding is so vital in the commercial sector. When you hand the property to corporate renters, they furnish it to their specifications. Furthermore, corporate clients have guidelines for establishing a proper infrastructure at their property.
- Because it can be seen and touched, real estate is regarded as a more tangible and physical asset. Investors can visit a property to learn more about its dimensions, area, condition, style, and other factors that may affect its earnings. Stocks, bonds, mutual funds, and so on may not appear appealing to such investors because they cannot be seen.
Individuals find it difficult to invest in commercial real estate due to the high cost. The most popular methods to invest in commercial real estate are partial ownership or investment through real estate investment trusts (CRE).
Fractional Ownership: Like-minded investors can pool their funds to purchase an expensive asset, such as commercial real estate. An investor can own a portion of the title based on the funds, and rent returns are divided proportionally to each investor. It lowers the entry barrier into CRE by trying to lower the ticket size. The minimum ticket size remains between Rs. 25 and Rs. 30 lakh.
REITs are similar to Mutual Funds: Fund managers manage a REIT, and investor contributions form part of an investment pool spread across multiple assets. All these assets’ returns are combined and distributed to investors in proportion to their contributions to the REIT fund.
- High ticket size: Commercial properties are valued at Rs. 27 to 30 crore, making a retail investor’s minimum deposit in CRE unreachable. However, you can now begin investing with as little as Rs. 30 lakh with fractional ownership.
- Complex asset management: Because CRE tenants are corporations rather than individuals, smooth end-to-end asset management is required. Retail investors frequently lack professional expertise in managing complex commercial assets.
- Difficult entry: Investing in this type of asset can be difficult for an inexperienced retail investor due to the extensive research and limited market opportunities.
- Property selection: Finding the correct geographical location necessitates research and market knowledge.
FAQs About Investing in Commercial Real Estate
How is Commercial Real Estate Investing Different From Residential Real Estate Investing?
Investing in commercial real estate diversifies your portfolio, exposes you to new risks, and opens up new loan opportunities.
How do I pick the Best Commercial Property to Invest in?
You must consider the location, price, and possible future renovations that will be required.
Is There Anyone I can Seek Advice from when Purchasing my First Commercial Building?
You don’t have to go through this process alone; there are several specialists who can assist you in making an informed decision! Consult with a Financial Advisor or Planner.
The best commercial property investment advice is to DO IT! There could be many reasons why you are hesitant to make such a significant financial commitment. Still, as the abovementioned factors show, commercial property investment in India is a reasonably safe bet. It will do wonders for your portfolio and ensure a steady income for the rest of your life – what more could you want? So go ahead and invest in the best commercial real estate in town and reap the benefits of being a wise investor.