Pros And Cons Of Investing In Commercial Real Estate

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The commercial real estate sector has been the focus of investors lately in the hope of a robust retail boom post-Covid, underscored by the upbeat festive season sales this year. 

Rajasthan-based property developer Trehan Home Developers Private Limited (THD) has recently invested around Rs 35 crore for a shopping mall, called “Janpath,” in the state’s Alwar city. 

According to the realtor, the mall will have different brands but one of the floors is dedicated to promoting Rajasthani products. The concept of a mall near housing complexes is fast catching up in the country’s urban centres. 

Why Retail Investors Can Consider Investing In Shops?

Industry experts said investors could consider investing in commercial properties, like shops, because of their higher returns on investment (ROI). 

“Return on investment from commercial spaces is much higher than residential spaces. Owning a shop also means one can start his own business, maybe not at the time of investment, but later in life,” says Saransh Trehan, managing director of Trehan Group. 

Maintenance cost of a shop is also low compared to residential properties. “Shops are secure and chances of encroachment are negligible, especially if you invest in shops at malls,” added Trehan.

Data given by Advance India Projects Limited (AIPL) shows rental yields from commercial spaces are higher than residential properties. Typically, a residential property could give a return between 1.5 per cent and 2.5 per cent per annum, whereas shops in malls can give up to 6-8 per cent annually. 

“India is marching towards organised retail and mall culture and this trend will continue to expand for time to come; we believe investment in retail property is a good option,” said Saurabh Shankar, head of sales & customer relationship management (CRM) at AIPL, a real estate company.

Additionally, the entry cost is relatively low and depending on your budget you can decide the size and location of the shop.

What To Keep In Mind?

Investors must study all the aspects, such as the property cost, taxation, local zoning laws, bylaws for renting properties, and the shop’s rental earning potential before investing.  Any lapses in any of these aspects could prove costly. 

“Common investors should refrain from investing in commercial properties. They neither have the expertise nor time to handle investments. It looks easy to invest and get regular income, but in actuality, it is not,” says A.K. Narayan, chief executive officer (CEO) and founder of A.K. Narayan Associates, a Securities and Exchange Board of India (Sebi)-registered financial advisor.

 



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