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In India, the real estate market is mostly composed of buyers and sellers, with both commercial and residential real estate considered as great investment options.
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Commercial vs. Residential Properties in India BY Thomas Andrew
Introduction: In India, the real estate market is mostly composed of buyers and sellers, with both commercial and residential real estate considered as great investment options. And both of these have a great impact on the total net worth. However, a vast majority of people only prefer residential properties for investments rather than the commercial. A residential property comprises of apartment buildings, flats, individual houses or multi-family homes, condos and co-ops. And commercial property comprises of all the non-residential buildings like offices, retail shops and other industrial units or factories, etc.
Difference between Residential and Commercial Properties: Residential properties Commercial properties • Short Term Leases: The commercial property leases are usually made for a Short period of time. • GST Impact: This is not applicable for residential properties. • Maintenance Costs: This cost is not paid by the lessee, at least, not as much as for commercial properties. • Location: It is always advisable to invest in a property which is in a good area, offering excellent transportation. • Rental Returns: The rental returns for any residential property is lower when compared to the commercial property. • Long Term Leases:The commercial property leases are usually made for a longer period of time. Commercial leases are usually made for several years. • GST Impact :The Goods and Services Tax (GST) is only applicable for a commercial property, which allows an extra 10% on the property’s purchase price. • Maintenance Costs: The maintenance costs, rates and repairs on a commercial property are paid by the lessee and not the landlord. • Location: The property’s location plays a vital role in the success of any commercial property. It is always advisable to invest in a property which is in a good business area. • Rental Returns: The rental returns for any commercial property is higher when compared to that of a residential property.
Benefits of Investing in Commercial Property: • Longer lease period, starts from 2 or 3 years to 20 years. Very often, they are secured by bank guarantees. • The maintenance of a commercial property tenant is far better, as the look and condition of the property is important for their businesses. • The commercial leases have the protection for the owners in the form of good clauses – maintenance clauses and the management clauses. • The return on capital for investments in a commercial property is around 7% to 10% net of all costs.
Benefits of Investing in Residential Property • The most important aspect of investing in a residential property owes to its smaller deposit. Based on the income and credit history, one can borrow up to 100% of the purchase price. In commercial mortgages, a deposit of at least 30% is required. • Rates on mortgages for a residential property are lower when compared to that of a commercial property. • Commercial property lenders are stricter and any delays in the property dealings can incur GST charges. • Commercial property markets are less predictable than the residential market. • Easy lease agreements in the case of residential property. And the vacancy time of the property is low, whereas in the case of commercial property it takes months or sometimes years to find a new tenant.
For more: http://www.sivagalerija.com/commercial-residential-properties-india/ In India, one can obtain a commercial property which has an existing tenant of several years to go in an existing lease agreement. Such a commercial property can bring in a profit of about 11% to 13% per annum, whereas in the case of residential property investments, the profit is just about 3% to 5%. Usually the residential and commercial real estate cycles works differently. So, if there is an existing investment of a residential property, then it is better to make the next investment in a commercial property, which moves according to a different market cycle. For example, in the case of Mumbai, the residential property prices are in peak whereas the commercial property prices are just about average. Apart from that, the tax benefit one may incur from a residential mortgage is higher, whereas it is non-existent in the commercial aspect.
