Chandigarh City Center Zirakpur Property Investment

So if you are looking at commercial property, here are some tips that might help you.

Location

“Investors need to establish the soundness of the location and its demand/supply dynamics. If they do not engage in sufficient research, they may end up buying into micro markets which have or will have high vacancies,” Nair says. NRIs must ensure that the economy, job market and population growth in the market is healthy.

Type of property

There are different kinds of commercial properties that are available. The popular ones are retail and office spaces. “Till a few years ago, only large units were available in both, making it difficult for a small investor to invest. However, there has been a change and smaller spaces are becoming available,” says Pankaj Kapoor, Founder and Managing Director at Liases Foras Real Estate Rating & Research Pvt Ltd.

“Many developers, especially in cities such as Mumbai, are today offering smaller units of space (as small as 500-1,500 square feet) in Grade A buildings. Investors looking at retail space can now consider a multitude of affordable options in free-standing high street outlets or shops in malls,” 

In fact, if you are looking at buying retail space, it is advisable to look at high street. In a strata sale model, shops in a mall are pre-sold to individual investors. The developers selling a store as a unit and investor can hunt for a tenant.

Out lay and expected returns

Experts suggest that the minimum budget you should have in mind for a commercial investment is Rs 3-4 crore.
Kapoor pegs the rental yield from commercial properties at 12%. Rental yield is nothing but the annual rent divided by the property value. “Often, buyers tend to ignore rental yield and instead focus only on capital appreciation. However, rental yield is a very important parameter as it represents productivity of the price. When you buy a commercial property, make sure that you can get a rental yield of at least 11-12%. An yield of less than that means the property is overvalued,” Kapoor explains.

According to Nair you can expect returns of 10-11% per annum from commercial investment. “Remember, you do not only make a profit on the sale of appreciated commercial property – the rental cash flows of a well-located office or shop space are considerable. Unlike with a residential property, the income that can be generated from commercial property is what determines its value. In other words, the capitalisation rate is actually the measure of the demand for the property. For those who do their homework well, investing in commercial property is a high-adrenaline and high-returns game,” he says.

Due diligence

Like any other property purchase, commercial real estate investing too calls for a fair share of due diligence.

Check the developer credentials, potential for infrastructure development, access to public transport and quality of property management in the project. If you are investing in a retail store, consider the frontage, foot-fall and the dynamics of the adjoining catchment

“If you are an investor looking at an income producing office asset, look at the break-up of cash flows, the vacancy factor, expenses such as maintenance, property tax and building insurance, lease term, lock-in period and expiry dates, long-term capital appreciation potential, and refurbishment, refinancing and repositioning potential,”