Commercial property includes any property that can be used for business and income generating purposes such as retail stores, office spaces, food courts, cineplex, parking structures, conference spaces, warehouses, factories, computer data centers and other stores. They differ from property that can be used for residential or agricultural purposes which, while likely to generate income, is primarily developed for personal and not industrial or commercial use.
From an investment perspective, there are several advantages to investing in a commercial property over a residential property in India. They understand:
- Commercial properties are usually developed after much research. The developer takes into account things like the cost of acquiring the land, construction, and other costs to calculate their profit margins. The property is therefore generally located in an easily accessible and well connected location, in the middle of a catchment area with few competing projects.
- It is easier to rent a commercial building for a longer period of time to companies that create stable rental income that is guaranteed for life.
- A large office space can be divided into smaller sections if necessary, ensuring the financial viability of the investment.
- Real estate management in commercial properties can be professionally managed and paid for by tenants, reducing investor stress over commercial property.
- The return on investment for a commercial property is typically between 9% and 21%, while for most residential real estate investments, the returns are 1% to 3%.
Speaking specifically of the real estate sector in the National Capital Region, residential property rates are stuck at 2013-2014 levels. There is a massive inventory with the developers with some reports suggesting that the inventory could take over 4 years to clear.
The commercial real estate sector is doing much better with prices up almost 45% from 2013 levels and a vacancy rate below 5% in many micro-pockets of Gurgaon. The demand for office space from companies, ITeS and retail are the main drivers of this phenomenon.
Residential property should be the property that one buys for personal needs. Different types of residential properties include villas, apartments, luxury condominiums, bungalows or plots of land that are considered to be developed later. Typically, a person only buys residential property once or twice in their lifetime. Therefore, one should take one’s time to research the property and do so with a clear picture of their current and future needs in their mind.
Some residential property requirements are:
- It should be in a residential area. Buying a residential property in a commercial area makes little sense as one would be constantly disturbed by noises of vehicles coming and departing, of factory activity, and other commercial activities. From a security point of view too, a commercial area has a large floating population which is difficult to monitor.
- It should be free from all claims and liens. Buying a property without doing due diligence is asking for trouble. At any point someone may stake a claim or raise objections which may take years to settle later and cost a fortune in legal fees.
- It should be a quality construction. If buying built up property it is essential to check the builders previous projects and have an independent inspection of the property from professionals to assess quake resistance and take ample measures to prevent water seepage from cracks and joints.
- It should be close to amenities. A recent research has found that most of the house buyers are young couples as their parents already have a house of their own. Independent nuclear families who plan to have children in the future and a big thing to plan for in India is the school where the children will go to. In fact people give more weightage to having a good school nearby than to markets, religious places, and even hospitals.
- Other things to look for are the price of the property, law and order condition of the area, water and electricity supply to the property, & distance from work among others.
So we see that the two types of properties cater for different people with their own needs. While commercial property is purchased for the purpose of investing and perhaps renting or selling later, residential property is purchased primarily for oneself.
In either case, it is important to identify the needs or the reason for purchasing the property, to do your due diligence, to partner with the right developer who is honest, has the expertise and understanding. from the local market to provide you with the best possible deal.
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