Commercial or Residential Apartments in India, which one should you invest in?

If you are planning to invest some of your money in real estate properties, you must be having some financial returns in your mind. Investments made in real estate properties supposedly provide guaranteed appreciation in term of resale value increase. The other return is the rent obtained from the property.

Here, there is always an overlying confusion in the mind of the buyer that whether he should invest in a commercial or in a residential real estate property. The broad principles used in selecting an asset are the location of the property, its construction standards or its quality, the utility value of the property and the age of the property etc. These principles are almost the same in selecting either the commercial or residential properties or both.

Giving the property on rent, a residential property needs to be leased for a period of eleven months or a year, but a commercial property has to be leased for a much longer period of time. The problems with the tenants regarding maintaining the residential property or vacating the property, when the lease is over is much higher than a commercial property. The turnover of the tenant in a residential property is also much higher than a commercial property. These factors must be kept in mind while making a decision to purchase a real estate property.

The Comparative Rental Yields in both the properties- 

Investing in a commercial property for the purpose of leasing it out to the tenants, requires taking into consideration aspects such as, the present environment for leasing, the regional ecosystem, distances from other commercial and industrial setups, the legal issues and the necessary clearance obligations, etc. But a residential property has its value in its livability and its access to all other social infrastructural requirements, such as schools, hospitals, banks, post offices, markets etc, with the quality of neighborhood around and approach facilities to work places.

The investors in residential real estate properties can expect to have a return of 3% to 5% of their investment, per year. Obligatory expenses come to around 1% and that leaves Nett of 2% to 4% of the investment made. The house rent increases by 5% on an average per year.

On the other hand the rentals in commercial real estate properties are between 6% to 10%, per year, of the investment made by the owner. After deduction of the obligatory expenses, the Nett yield remains between 5% to 8%. The yearly increase in rent here is in between 3% to 5%. The residential property yields about 8% to 9% per annul for a period of 10 years where as a commercial property yields between 13% to 15% per annul for a period of 10 years.

The Comparative Risk Factors- 

1. Both these properties attract tax on income, when let out. Home loans provide some tax exemptions in tax assessments.

2. The risk is supposed to be higher in residential property. The tenants change frequently, making the property volatile. It demands higher maintenance costs. Commercial properties are much more stable with long term tenants, with lower maintenance.

3. Liquidity of both the assets is almost the same but the commercial real estate properties are much easy to liquidate than residential properties. The demand of A Grade commercial real estate property is much higher, making it more quantifiable.

So, it is a better option to invest in a commercial property in Delhi, rather than in residential projects in Delhi, to have better returns.


What do you think?


Written by anilkumar

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