- Date : 13/09/2023
- Read: 3 mins
Investors are often at a crossroads when choosing commercial vs residential property in India. However, this burgeoning economy makes commercial property a better investment option.
In the Indian diaspora, commercial real estate, which includes office, retail, hospitality, and industrial spaces, stands as a better investment option than residential real estate due to rental yields.
A recent survey covering India's top 10 cities shows that commercial properties displayed a rental yield of 6-10%, whereas residential properties yielded 3-6%. Moreover, commercial real estate has extended lease periods and reduced volatility in terms of tenant turnover. However, returns in commercial property are generally realised over an extended timeframe, and initial investment requirements might be higher.
Conversely, residential real estate typically demands a smaller initial investment, and loan processes for it are simpler. Also, it can have shorter waiting times for rental returns compared to commercial properties.
From a returns point of view, investing in commercial property is a better investment option.
Whether commercial or residential, investing in real estate should be done after thorough market research.
The Indian real estate market is projected to grow at 25% CAGR from 2023 to 2028.
Through REITs, investors can invest and gain in the real estate market with a much smaller investment.
Also Read: Is it a good time to buy a house?
The Indian real estate sector
In 2023, the real estate sector in India is valued at approximately Rs. 22 lakh crores, with projections indicating a potential expansion to about Rs. 68 lakh crores. This growth trajectory anticipates a compound annual growth rate (CAGR) of around 25.60% over the forecast period spanning from 2023 to 2028.
The real estate sector has gained advantages from policy initiatives that have led to the enactment of laws such as the Real Estate Regulatory Authority (RERA), the establishment of Real Estate Investment Trusts (REITs), and the implementation of housing schemes like PMAY (Pradhan-Mantri Awas Yojana) and SWAMIH (Special Window for Completion of Construction of Affordable and Mid-Income Housing Projects).
Also Read: Why REITs are a smart investment option
Both commercial and residential real estate have their merits and challenges. The choice depends on investors' objectives and risk profile. For stable rental income and an investor willing to invest more upfront, commercial properties might be attractive. On the other hand, for a lower entry point, potential for personal use, and a more diverse market, residential properties could be suitable.
Since real estate investments cannot be readily liquidated, investors must ensure that obligations do not arise when buying or selling real estate.
Disclaimer: This article is intended for general information purposes only and should not be construed as investment or tax or legal advice. You should separately obtain independent advice when making decisions in these areas.
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