Those Non-resident Indians or NRIs wanting to invest in India property currently, the task is quite daunting. The rupee is at an all time low and it seems to NRIs that this is the best time to transfer funds to the country for the purpose of investment. However, the growth story of India is looking quite bleak and the possibility of high returns seems to be quite a tough task. Those Non-resident Indians who have larger budgets and appetite for big time real estate investments there are certain options that they may consider.
If you want to invest in India property, why not consider commercial properties instead of residential ones. Currently, many NRIs are investing in commercial properties over residential properties. High Networth Individuals or HNIs are continuously pumping large sums of money into luxury commercial properties for the prospects of high yield. Wealth management companies and private bankers confirm that their esteemed clients have started actively investing in commercial properties after staying away from them during 2009-2011. The investors have decided to put their money into commercial properties as they are looking for assets which can safeguard their portfolios from the volatility of the stock market and inflation. The probability of portfolio diversification, the pride of owning commercial properties and advantages of long leases which are typical of commercial tenants are some of the reasons why investors must turn to investing in real estate properties.
Those thinking of investing in India property of commercial type should go over these pointers as they would help them out.
Location of the Property
The supply and demand dynamics of a particular area along with the soundness of the area must be ascertained by investors. If sufficient research is not conducted then buyers may end up buying property in micro markets that have or shall have high vacancies. Certain areas in cities perform better than others when it comes to commercial properties. NRIs also need to make sure that the job market, population growth and economy of the market is sound before investing their hard earned money in commercial properties.
Currently in India, Mumbai and Bangalore have the best options for investment in commercial properties. These two cities are one of the fastest growing ones in India, the former being the finance capital of the country and the latter being the IT capital.
Kind of Property
Most cities offer different kinds of commercial properties to invest in. The popular commercial properties in which one can invest are office spaces and retail stores. A couple of years ago also, only big units were available for both kinds of properties which made it difficult for small investors to put their money in. However, some changes have been brought into the market and smaller stores and spaces have become available for investment. A lot of developers in cities like Mumbai offer smaller units for office space which measure between 500 sq. ft. and 1500 sq. ft. in Grade A office buildings. Investors who want to buy retail space can buy from multiple options available in shopping malls and high street outlets which are free standing.
As a matter of fact, if you want to buy retail space, you should buy it in a high street instead of a mall which is sold according to strata as it turns out to be a disaster. In strata sold malls, the shops are presold to different investors. Therefore, the developer is restricted to selling stores as investors and investors need to look for tenants. The problem crops up because there is no control of the model over trading and the mix of tenants which leads to an absence of cohesiveness in the mall for attracting customers.
Expected returns and Outlay
The minimum budget that NRIs must have for investing in commercial properties is around Rs 3 crore to Rs 4 crore as it would lead to a rental yield of around 12 percent from the commercial properties. The rental yield is actually the annual rent received on the property divided by the value of the India property. Buyers often ignore the rental yield receivable from a particular property and concentrate solely on the capital appreciation bit of the property. However, rental yields are an important parameter as they represent the price’s productivity. When you think of buying commercial properties, make sure you have a rental yield which is at least 11 to 12 percent. A yield which is lesser than this benchmark level indicates the property has been overvalued.
Most brokers and property dealers reckon that the rental yield from commercial properties in a year would be around 10 to 11 percent. As a buyer you must remember that you are not only going to make a profit on the sale of the commercial property whose value has appreciated but also the cash flows from rent of a well situated shop space or office should be considered. The value of a commercial property is actually determined from the income which is obtainable from it which is unlike a residential property. Therefore, the capitalization rate is essentially the measurement of demand for the India property. Those who research well before investing would know that investments made in commercial properties are high returns and high adrenaline types.
Researching into the India property being purchased
You need to show a lot of diligence before buying commercial properties, as is the case with buying any sort of property. You should check for the area’s potential of infrastructure development, credentials of the developer, access enjoyed by the area to public transport and property management quality of the project. In case you are investing in retail stores, you should think of the frontage, possible foot falls and the adjoining catchment’s dynamics. If you want to invest in an office asset which would produce an income, you should take a look at cash flow break ups, vacancy factors, maintenance expenses, building insurance and property tax, terms for lease and locking in period along with expiry dates, potential for long term capital gains, refinancing, repositioning and refurbishment expenses and potentials.