Investments into commercial and residential properties are a matter of speculation for real estate market watchers. They both come with their own pros and cons in terms of investment returns. In the current market scenario, there has been a slow down in investment in both commercial and residential property but with the renewed interest from buyers, improvement in quality and on-time delivery from builders and government support, there is a huge chance of revival in the real estate market in the coming months. So, if you now have the money to invest then where do you think you can get the best return? Commercial or residential?
Commercial properties are higher in cost but a known to yield better rental returns. Residential today is a very personal purchase and generally bought for end use and as a long-term investment. Of course, one can generate income from residential properties by offering them on lease. Some of the residential projects to invest in India are:
- VJ Yashone Maan, Pune
- Godrej 24, Bangalore
- Kalpataru Parkcity, Thane
- Hero Homes, Gurgaon
There are a few factors on which we can compare both to understand which works better in an Indian real estate scenario
Rental Yield
Depending on the location and the Grade of the commercial property, you are likely to get 6-10% rental yield. In comparison residential properties earn only 1.5-3.5%. The quality of the tenants and the location can attract good rentals for longer periods of time. In comparison to the residential properties, the commercial properties in Tier 1 cities are a better investment option. The appreciation of the commercial properties is also better than residential properties.
Growth Potential
A due diligence on price trends, risk and potential appreciation needs to be done before investing into a commercial or a residential property. It is important to understand the growth potential of the rentals and also the overall property value appreciation. For commercial property, the metros are the leading pack for best cities to invest into but for the residential rentals, the suburbs and the Tier 2 cities are emerging as golden opportunities.
Associated Risk
Every investment comes with its associated risk, but the commercial properties are the ones that are safer in the long run. Residential have shorter lease plans and have higher maintenance costs in comparison to commercial properties. Also commercial properties are more liquid in comparison to residential properties. While a commercial property definitely is a higher investment, it has lower risks in terms of lease periods and also sees better appreciation in rental yields.
Eventually the investment will come down to investment size and tenure of the investment for the buyer. If these two are in place then buying a Grade A Commercial property in a Tier 1 or Tier 2 city will yield a better return on rental and gross appreciation.
