The expanding commercial realty sector is ripe for the undertaking and here are the top reasons why.
There are several drivers of the growth of commercial real estate in India. Rising demand for office spaces, fresh approaches such as co-working spaces, increased regulation and security within the sector to name a few. All of these have had a noticeable effect on the sector and its prospects.
According to IBEF, commercial real estate in India is set to reach 1 billion by the year 2030. It’ll contribute 13% to India’s GDP by 2025. This growth in demand for working spaces and offices has been in large part influenced by the performance of e-Commerce, consulting, Information Technology and IT related services.
Given such wonderful news, you'd expect more people to be diving into commercial real estate investment either through direct ownership or investment trusts. That's not the case though because people think the sector's riskier or hard-work. They think it's only for the big players.
While it requires added effort from you, here are the top 5 reasons why that effort will pay off.
Rental leases in commercial properties are signed for significantly longer periods compared to residential properties like single-family homes. Not to mention, most lease contracts include a clause to increase the rent by a certain percentage year-on-year. This allows investors to gain from the stabilizing effect of rental income in otherwise volatile market conditions as prices of their other securities fluctuate. It also acts as a hedge against inflation through the rental income and capital appreciation.
Being a signatory to a commercial lease is substantively different from renting out a room in your house or any other residential property. You’re not dealing with individuals or families. You’re renting out to businesses most of which are likely to be smaller Limited-Liability firms. This allows you to maintain a much more professional and courteous relationship with the lessee, simultaneously easing the stress of collecting rent and enforcing hikes.
In certain commercial arrangements, especially the ones you'd enter into with relatively larger firms especially concerned about branding such as banks, fast-food chains and cafes, all you'd be providing and paying for is the constructed space of your property and nothing else. The only real expense would be your mortgage. That's because these companies furnish most of the design elements, seating, logos, counters and other internal fittings by themselves to maintain their image. This just means fewer costs for you.
Commercial real estate property is intrinsically more valued in the market than residential single-family properties. As a result, rental yields can range anywhere from 6% to 12% with well-selected properties, if location and markets allow, can reach even up to 15%% rental yields. This is considerably higher than the rental yield on residential properties which rests at 4% to 6%.
There's no end to the reasons why an investment in commercial real estate, while harder on your wallet at the beginning and more hard work, is the right choice for your long-term prospects.Considering the growth that India’s commercial real estate is likely to experience given rising demand, there’s no better time than now to do it.
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