Office space witnessing huge bets
If you are looking to purchase commercial space than, this good time to look at commercial spaces which are on top in most markets. After the financial crisis of 2008, prices in markets such as Mumbai plunge 30 percent. Currently the demand is increasing little up and the economy reviving because of which investors can find good deals in the commercial space.
Why the buzz?
A market observer says that after lengthy hush the prices may be decreased out in most markets and buyers are seeing value.
Mr. says Ramesh Nair, COO – Business, Jones Lang LaSalle India, says that the private bankers and rich management company confirms that their clients have started investing in commercial properties after staying away in 2009 and 2010.
While the prices may not improve immediately as the demand will increase in next few years. The sector may also get a leg-up when the proposed Real Estate Investment Trusts (REITs) that own and operate income producing property, become a reality.
It is also mentioned that rental income from commercial properties is much higher than the paltry amounts residential spaces collects. You can except 8 to 10 percent rent on their commercial property investment as compared to 2 to 5 percent on residential purchases
Now you have decided to purchase a commercial property which type of property you select. While investing in commercial real estate you have 3 choices- office spaces, retail outlets and warehouses.
Multiple options
As per data from Jones Lang LaSalle currently the increasing demand of office space may be a safer bet. Demand is expected to rise up with200 million sq ft (msf) of office space likely to be added in the next five years. This is close to 50 percent addition to the estimated 375 msf in use.
Maintenance is also comparatively easier when it comes to office property and the quality of tenants is also well. Unlike earlier where buying multi-tenant building was the only option but now you can buy smaller office spaces within the same complex.
Currently buildings are designed to meet the requirement of a particular sector such as IT. With the entry of new players into the banking space, buying smaller standalone offices that cater to banks can also be a lucrative choice. Other choices in the commercial property space like buying retail property or shops I major location is also attractive long term investment.
Mr. Amit Bhagat, MD and CEO of ASK Property Investment Advisors, says that malls are taking the gloss away from high-street rentals.
It is also hard to search a client and handle the day-to-day operations. Another choice is investment in service apartments. It is yet to achieve value among individual investors.
Take stock of risks too
As investment in the commercial properties can collect good income and also appreciated therefore you need to take risk. In case of investing in commercial real estate, there are broadly two risks.
Mr. Rakesh Nangia, Managing Partner at Nangia and Co, a tax consultant, says that there is tax aspect also when you sell commercial property than you have to have to invest the proceeds only in a residential property to avail of long-term capital gains exemption.
The risk in investment is higher in small markets such as tier-2 cities where demand-supply dynamics may turn volatile. Both these risks are somewhat lessened when you own smaller units. While quality tenants such as banks and multi-national corporations do not opt for spaces that are smaller than 5,000-10,000 sq ft.
On the other side to minimize risk is to real estate private equity funds. These are registered by SEBI under the Alternative Investment Funds Regulation (AIF) and require a minimum commitment of Rs 1 crore. This method of indirectly holding properties through the PE route can enable investors to put in smaller amounts and reduce some risks.
Source: Business Line
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