Commercial real estate is one of the most popular choices for smart investors in India and stands to grow at about 18 percent yearly from 2024-2030. For those seeking a guide to invest in commercial real estate, the Indian market offers immense potential, with the sector projected to contribute significantly to the real estate market's estimated $1 trillion valuation by 2030. Investing in commercial properties is considered a wise decision due to its potential for high returns, property value appreciation, and regular income generation opportunities.
What is commercial property investment?
Commercial properties are used for business, non-residential purposes, or to earn income by selling or renting them out. Investing in such properties to make money is called commercial investment.
There are various ways in which one can invest in commercial real estate. The subsequent section explains them.
Also read: Types of commercial properties in India
Types of Commercial Property Investments
As a Commercial Real Estate investor, you have various choices. Here's a straightforward division:
Office Spaces: Structures employed by companies for daily operations, including corporate offices and co-working spaces.
Retail Spaces: Shops or selling spaces where products are sold to end-users, like malls or standalone stores.
Industrial/Warehouse Properties: Structures utilized for manufacturing, warehousing, or distribution of goods, such as factories or logistics centers.
Hospitality Properties: Lodging, dining, or entertainment spaces; hotels, resorts, restaurants, etc.
Mixed-Use Buildings: Properties containing different uses in the same building, like shops on the ground floor and apartments above.
Multifamily Properties: Residential buildings built to accommodate multiple tenants, such as apartment complexes.
Special Purpose Properties: Unique spaces that are specifically designed for unique activities, such as hospitals or amusement parks.
Ways to Invest in Commercial Real Estate
Direct investment: Purchasing a commercial property directly, such as an office, shop, or warehouse. Income is obtained from renting the property, and wealth is obtained from the increasing value over time. This option has total control but requires a large sum of money and effort to run.
REITs (Real Estate Investment Trusts):
REITs enables you to invest in big commercial properties without owning them personally. You buy shares in a REIT, which puts the money into owning and managing properties. They list on stock exchanges, and you earn passive income through dividends.
Fractional Ownership:
This allows you to buy a small share of a commercial property. It's cheaper because you are investing just a fraction of the property's value. Many of the platforms make it easier for smaller investors to participate, having many manage these investments themselves.
Private Equity Funds:
These funds pool money from rich investors for the purpose of purchasing and managing commercial properties. Run by experts, they target to achieve profit through value appreciation in the property, rental income, and upgrading of the property.
Real Estate Crowdfunding:
Online platforms collect small investments from many people to fund property purchases or development projects. As you earn returns through rental income, interest, or profit-sharing when the property is sold, you enjoy greater independence.
Also Read: Why invest in commercial property?
Advantages and Disadvantages of Commercial Property Investment
Advantages of Commercial Property Investment
Higher Rental Income:
Commercial properties yield higher rental income, ranging from 8 to 11%, as compared to 1 to 2% from the residential property. This implies that you can acquire up to four times more.
Long-Term Tenancy:
Businesses are often secured for 10 to 20 years with annual increment. This means steady income in the long run.
Tenants with credit:
Since most tenants are professional businesses, it is easier and hassle-free to collect their rents.
Property Value Growth:
Commercial properties tend to appreciate more than residential ones, and options like fractional ownership or REITs make investing more affordable.
Less Impact from Market Fluctuations:
Unlike stocks or bonds, commercial property returns are not affected by financial market ups and downs.
Tangible Investment:
You can see, visit, and assess a property, unlike stocks or mutual funds that exist only on paper.
Cons of Commercial Property Investment
High Cost:
Buying commercial property usually requires a big investment, often ₹25-30 crore. However, fractional ownership now allows starting from ₹30 lakh.
Management Challenges:
Managing corporate tenants and maintaining commercial properties requires expertise, which individual investors may lack.
Complicated Process:
Legal formalities, market research, and limited opportunities make investing in commercial real estate challenging for beginners.
Choosing the Right Property:
Locating the best location and property requires market knowledge and extensive research, which can be challenging for individual investors.
Conclusion
Commercial real estate in India offers lucrative opportunities with high returns and long-term growth, supported by the sector's projected 18% annual growth and the market's aim to reach $1 trillion by 2030. Investors can explore options like direct purchases, REITs, or fractional ownership.
However, expert guidance is crucial for making informed decisions. Real estate agents in Gurgaon will Guide to Invest in Commercial Real Estate & help to identify prime properties and simplify the process, ensuring smarter, more profitable investments.
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